Pitney Bowes DEF 14A 2006
Documents found in this filing:
To the Stockholders:
We will hold our 2006 annual meeting of stockholders at 9:00 a.m. on Monday, May 8, 2006 at our World Headquarters in Stamford, Connecticut.
The Notice of Meeting and Proxy Statement and accompanying proxy card describe in detail the matters to be acted upon at the meeting.
It is important that your shares be represented at the meeting. Whether or not you plan to attend, please sign, date and return your proxy card in the enclosed envelope as soon as possible. Stockholders of record also have the option of granting a proxy by telephone or Internet, as described on the proxy card.
We look forward to seeing you at the meeting.
Michael J. Critelli
Notice of Meeting:
The annual meeting of stockholders of Pitney Bowes Inc. will be held on May 8, 2006, at 9:00 a.m. at the companys World Headquarters, One Elmcroft Road, Stamford, Connecticut. Directions to Pitney Bowes World Headquarters appear on the back cover page of the proxy statement.
The items of business at the annual meeting are:
March 10, 2006 is the record date for the meeting.
This proxy statement and accompanying proxy card are being distributed on or about March 23, 2006.
Amy C. Corn
TABLE OF CONTENTS
The Annual Meeting and Voting
Our board of directors is soliciting proxies to be used at the annual meeting of stockholders to be held on May 8, 2006, or at any adjournment or postponement of the meeting. This proxy statement contains information about the items being voted on at the annual meeting.
Annual Meeting Admission
An admission ticket, which is required for entry into the annual meeting, is attached to your proxy card if you hold shares directly in your name as a stockholder of record. If you plan to attend the annual meeting, please vote your proxy but keep the admission ticket and bring it to the annual meeting.
If your shares are held in the name of a bank, broker or nominee and you plan to attend the meeting, you must present proof of your ownership of Pitney Bowes stock (such as a bank or brokerage account statement) to be admitted to the meeting.
Who is entitled to vote?
Record stockholders of Pitney Bowes common stock and $2.12 convertible preference stock at the close of business on March 10, 2006 (the record date) can vote at the meeting. As of the record date, 226,496,710 shares of Pitney Bowes common stock and 42,457 shares of $2.12 convertible preference stock were issued and outstanding. Each stockholder has one vote for each share of common stock owned as of the record date, and 16.53 votes for each share of $2.12 convertible preference stock owned as of the record date.
How do I vote?
You may choose one of three methods to grant your proxy: (1) You may grant your proxy on-line via the Internet. If you have access to the Internet, we encourage you to grant your proxy at the following Web address: www.computershare.com/expressvote. (2) You may instead grant your proxy by telephone (1-800-652-VOTE) or by completing and mailing the enclosed proxy card. (3) Alternatively, you may attend the meeting and vote in person.
May I change my vote?
You may revoke your proxy at any time before it is voted at the meeting in several ways. You may send in a revised proxy dated later than the first proxy; you may vote in person at the meeting; or you may notify the corporate secretary in writing prior to the meeting that you have revoked your proxy.
What constitutes a quorum?
A majority of the outstanding shares entitled to vote, present in person or represented by proxy, constitutes a quorum. If you grant your proxy by Internet, telephone or proxy card, you will be considered part of the quorum. Abstentions, broker non-votes and votes withheld from director nominees are included in the count to determine a quorum. If a quorum is present, director candidates receiving the highest number of votes will be elected. Proposals 2, 3 and 4 will be approved if a majority of the votes cast by the stockholders are voted in favor.
What is the effect of broker non-votes?
Under New York Stock Exchange rules, if your broker holds your shares in its street name, the broker may vote your shares on proposals 1 and 2 if it does not receive instructions from you. Your broker may not vote for proposal 3 or 4 unless it receives instructions from you.
If your broker does not vote on one or more agenda items, the effect would be as follows:
Election of Directors. In the election of directors, the four persons receiving the highest number of FOR votes will be elected. Broker non-votes have no effect because only a plurality of the votes cast is required to elect a director. However, any nominee for director in an uncontested election who receives a greater number of votes withheld from his or her election than votes for
such election shall tender his or her resignation for consideration by the Governance Committee. The Governance Committee will recommend the action to be taken with respect to such offer of resignation.
Proposals 2, 3 and 4. Broker non-votes would not be votes cast and therefore would not be counted either for or against, and would therefore have no effect.
How do Dividend Reinvestment Plan participants or employees with shares in the 401(k) plan vote by proxy?
If you are a stockholder of record and participate in the companys Dividend Reinvestment Plan, or employee 401(k) plan, you will receive a proxy card with instructions on the three different ways available to you to grant your proxy (through the mail, by telephone, or over the Internet).
Shares held in the companys 401(k) plan are voted by the plan trustee in accordance with voting instructions received from plan participants using the enclosed proxy card. The plan directs the trustee to vote shares for which no instructions are received in the same proportion (for, against, abstain or withheld) indicated by the voting instructions given by participants in the plan.
Who will count the votes?
Computershare Trust Company N.A. (Computershare) will tabulate the votes and act as Inspector of Election.
Multiple Copies of Annual Report to Stockholders
Our 2005 annual report has been mailed to stockholders together with this proxy statement. It will save the company money, and therefore benefit all stockholders, to eliminate distribution of unnecessary duplicate copies of the annual report. To print and distribute one annual report costs the company approximately $7.00.
If you and other stockholders of record with whom you share an address currently receive more than one copy of the annual report, we will discontinue mailing reports for the accounts you select if you mark the designated box on the appropriate proxy card(s), or follow the prompts when you grant your proxy if you are a stockholder of record granting your proxy by telephone or Internet.
At least one account per household must continue to receive the annual report, unless you elect to view future annual reports over the Internet. Mailing of dividends, stockholder investment statements and proxy materials will not be affected by your election to discontinue future duplicate mailings of the annual report. To discontinue or resume the mailing of an annual report to an account, or to consolidate your multiple accounts, call our transfer agent, Computershare, at the special Pitney Bowes toll-free number, 1-800-648-8170 or contact them by mail at P.O. Box 43010, Providence, RI 02940-3010.
If you own shares of common stock through a bank, broker or other nominee and receive more than one Pitney Bowes annual report, please contact that entity to eliminate duplicate mailings.
Electronic Delivery of Annual Report and Proxy Statement
This proxy statement and our 2005 annual report may be viewed online at www.pb.com under the caption Investor Relations. If you are a stockholder of record, you can elect to receive future annual reports and proxy statements electronically by marking the appropriate box on your proxy card or by following the instructions provided if you grant your proxy by Internet or by telephone. If you choose this option, you will receive a proxy card in mid-March listing the website locations and your choice will remain in effect until you notify us by mail that you wish to resume mail delivery of these documents. If you hold your Pitney Bowes stock through a bank, broker or another holder of record, refer to the information provided by that entity for instructions on how to elect this option.
Stockholder Proposals and Other Business for the 2007 Annual Meeting
If a stockholder wants to submit a proposal for inclusion in the companys proxy material for the 2007 annual meeting, which is scheduled to be held on Monday, May 14, 2007, it must be received by the corporate secretary by November 23, 2006. Also, under our By-laws, a stockholder can present other business at an annual meeting, including the nomination of candidates for director, only if written notice of the business or candidates is received by the corporate secretary by February 13, 2007. There are other procedural requirements in the By-laws pertaining to stockholder proposals and director nominations. The By-laws are posted on the companys website at www.pb.com under the caption Our Company-Corporate Governance. Any stockholder may obtain a copy of the By-laws without charge by writing to the Corporate Secretary at Pitney Bowes Inc., One Elmcroft Road, MSC 65-19, Stamford, CT 06926-0700.
Stockholders are encouraged to visit the companys Corporate Governance website at www.pb.com under the caption Our Company-Corporate Governance for information concerning the companys governance practices, including the Governance Principles of the Board of Directors (which are reprinted on pages 7 to 11 of this proxy statement), charters of the committees of the board, and the Directors Code of Business Conduct and Ethics. The companys Business Practices Guidelines, which is the companys Code of Ethics for employees, including the companys chief executive officer and senior financial officers, is also available on the companys Corporate Governance website.
During 2005, the board of directors amended the Governance Principles, implementing a new policy regarding director elections. Under the policy, in an uncontested election, any nominee for director who receives a greater number of votes withheld from his or her election than votes for such election shall tender his or her resignation for consideration by the Governance Committee. The Governance Committee will recommend to the board of directors the action to be taken with respect to such offer of resignation.
Board of Directors
The board of directors has conducted its annual review of the independence of each director under the New York Stock Exchange listing standards and the standards of independence set forth in the Governance Principles, which are set forth below (see page 9 of this proxy statement). Based upon its review, the board has concluded in its business judgment that the following directors are independent: Ms. Alvarado, Mr. Campbell, Ms. Fuchs, Mr. Green, Mr. Keyes, Mr. McFarlane, Mr. Menascé, Mr. Roth, Mr. Shedlarz and Mr. Weissman. In its business judgment, the board has also concluded that director nominee David B. Snow, Jr. is independent.
In February 2006, the board of directors appointed Robert E. Weissman, one of the independent directors, to serve as the boards Presiding Director for a second term of one year.
The Presiding Director serves as the chair of the periodic executive sessions of the board of directors during which neither the sole employee director nor other members of management are present.
The board of directors has established procedures by which stockholders and other interested parties may communicate with the Presiding Director, the independent directors, or the board of directors. Such parties may communicate with the Presiding Director via e-mail at firstname.lastname@example.org, or they may write to one or more directors, care of the Corporate Secretary, Pitney Bowes Inc., One Elmcroft Road, MSC 65-19, Stamford, CT 06926-0700.
The board of directors has instructed the corporate secretary to assist the Presiding Director and the board in reviewing all electronic and written communications, as described above, as follows:
Except as provided above, the corporate secretary will forward written communications to the full board of directors or to any individual director or directors to whom the communication is directed unless the communication is threatening, illegal or similarly inappropriate. Advertisements, solicitations for periodical or other subscriptions, and other similar communications generally will not be forwarded to the directors.
It is the longstanding practice and the policy of the board of directors that the directors attend the annual meeting of stockholders. Nine directors attended the May 2005 annual meeting, while one member was unable to attend.
The Board of Directors of Pitney Bowes Inc. has adopted the Governance Principles set forth below as a framework for the governance of the Company. The Governance Committee reviews these Governance Principles annually and recommends changes to the Board of Directors as appropriate.
1. Role and Responsibilities of the Board of Directors. The Board of Directors is elected by the Companys stockholders to oversee the management and conduct of the Companys businesses by its chief executive officer and other officers and employees, to enhance the long-term value of the Company for the benefit of its stockholders. In fulfilling its obligations, the core responsibilities of the Board of Directors are:
2. Committees. The Board performs many of its responsibilities with the assistance of committees. The Board has seven standing Committees: Audit, Executive Compensation, Governance, Executive, Finance, Corporate Responsibility, and E-commerce and Technology. The Board may also establish and maintain other Committees from time to time as it deems necessary and appropriate. Each standing Committee operates under a written charter that sets forth the purposes and responsibilities of the committee as well as qualifications for Committee membership. Both the Audit and Executive Compensation Committees (each in conjunction with the Governance Committee) and the Governance Committee annually review their respective charters and recommend changes to the Board as appropriate. All standing Committees report regularly to the full Board with respect to their activities.
The Governance Committee considers and makes recommendations to the Board regarding Committee size, structure, composition and functioning. Committee members and chairpersons are recommended to the Board by the Governance Committee and appointed by the full Board. The chair of each Committee determines the frequency, length and agenda of the Committees meetings.
3. Qualifications of Directors. Members of the Board of Directors should conduct themselves in accordance with the highest standards of integrity and ethical behavior in the discharge of their duty to safeguard the long-term interests of the stockholders. The Board should be comprised of such number of directors as
the Board considers optimal to promote a productive group deliberation and decision process. As a whole, the Board should include individuals with a diverse range of experience to give the Board depth and breadth in the mix of skills represented for the benefit of the Companys stockholders. While all Directors should possess business acumen and must exercise sound judgment in their oversight of the Companys operations, the Board endeavors to include an array of targeted skills and experience in its overall composition rather than requiring every Director to possess the same skills, perspective, and interests. Criteria that the Board looks for in Board candidates include, among other things, an individuals business experience and skills, judgment, independence, integrity, and ability to commit sufficient time and attention to the activities of the Board, as well as the absence of any potential conflicts with the Companys interests.
The Board, with the assistance of the Governance Committee, is responsible for assembling appropriate expertise within its membership as a whole, including financial literacy and expertise needed for members of the Audit Committee as required by applicable law and New York Stock Exchange listing standards. The Governance Committee is responsible for reviewing and revising, as needed, criteria for the selection of Directors, and from time to time, reviews and updates the Board candidate profile utilized in the context of a Director search, in light of the current needs of the business and the experience and talent then represented on the Board. The Governance Committee reviews the qualifications of Director candidates in light of the criteria approved by the Board and recommends candidates to the Board for election by the stockholders at the Annual Stockholders Meeting.
While the Board does not believe it appropriate to establish an arbitrary limit with respect to the number of public company boards upon which a Director may serve, the Board shall evaluate whether each Director evidences the ability to devote sufficient and significant time for service on the Companys Board. Any Director intending to stand for election to the Board of Directors of an additional public company must provide advance notice to the Governance Committee Chair and the Chief Executive Officer.
4. Voting for Directors. Any nominee for Director in an uncontested election who receives a greater number of votes withheld from his or her election than votes for such election shall tender his or her resignation for consideration by the Governance Committee. The Governance Committee shall recommend to the Board the action to be taken with respect to such offer of resignation.
5. Director Evaluation and Tenure. The Board of Directors conducts a self-assessment of its performance each year using these Governance Principles as a tool against which performance is measured. The self-assessment process is also used as an opportunity to identify process improvements (i) to provide the Board with appropriate and adequate information in a timely fashion and (ii) to promote a high degree of engagement in the Boards discussions and deliberations. In addition to the annual Board of Directors self-assessment, the attendance and contribution of each Board member is thoroughly reviewed every time the member is recommended by the Governance Committee for reelection by the stockholders.
The Board of Directors establishes and oversees processes by which the Committees of the Board evaluate their performance as measured against their responsibilities as set forth in the respective Committee charters. Each of the Committees of the Board conducts an annual performance evaluation and reports the results of the evaluation to the Board.
Directors who retire from their employment or who otherwise significantly change their position at any time while a member of the Board must notify the Governance Committee Chair of such change. The Governance Committee then reviews the continued appropriateness of Board membership under these circumstances, and reports its recommendation to the Board of Directors.
Directors must retire from the Board no later than the Annual Stockholders Meeting following attainment of age seventy.
6. Composition and Independence of the Board and its Committees. The Board is divided into three classes, as nearly equal in number as possible, with staggered terms of three years each, so that the term
of one class expires at each Annual Stockholders Meeting. Accordingly, Directors typically stand for reelection every three years.
A substantial majority of the Directors are independent. In accordance with longstanding Company practice, it is the expectation and strong preference of the Board that all but the employee Director(s) be independent. No more than two Directors should be employees of the Company. All Committees, except the Executive Committee, are comprised solely of independent directors. The Company does not maintain consulting relationships with any of its non-employee Directors or any of their family members for which a fee or other remuneration is paid, outside of the Directors compensation as a Director of Pitney Bowes.
An independent director is a director who meets the New York Stock Exchange definition of independence, as determined by the Board. The Board of Directors determines on an annual basis whether each Director is independent based upon the recommendation of the Governance Committee and all relevant facts and circumstances appropriate for consideration in the judgment of the Board. The Board applies the following standards in assessing independence:
No Director can qualify as independent if he or she has a material relationship with the Company outside of his or her service as a Director of the Company. A Director is not independent if:
The conclusions of the Board regarding the independence of each Director are disclosed in the Companys proxy statement for each Annual Stockholders Meeting.
7. Evaluation of the Chief Executive Officer. The performance of the Chief Executive Officer is reviewed annually by the independent Directors. On an annual basis, at a joint meeting of the Governance Committee and the Executive Compensation Committee, at which the chair of the Governance Committee presides, the performance and achievements of the Chief Executive Officer, as well as areas for development, are reviewed in executive session. At a subsequent executive session of independent Directors, the Governance Committee chair presents a summary of the joint committees discussion regarding the Chief Executive Officers performance, and leads a discussion with the independent Directors. Feedback is then provided directly to the Chief Executive Officer, on behalf of the independent Directors, by the chair of the Governance Committee. The evaluation is used by the Executive Compensation Committee and the other independent Directors when considering and approving the compensation of the Chief Executive Officer.
8. Review of Management and Succession Planning. The Governance Committee assesses the Companys long-term succession plan, as well as its plan for a near-term or temporary replacement of the Chief Executive Officer in case of emergency or where the Chief Executive Officer is disabled or otherwise unable to perform his duties. The Governance Committee meets in executive session on an annual basis with the Chief Executive Officer and the Senior Vice President and Chief Human Resources Officer to identify potential successors to the position of Chief Executive Officer and other senior management positions and, as appropriate, recommends changes in the Companys succession plan to the independent Directors for approval.
Each year the Board of Directors reviews the performance and development of members of senior management and updates its long-term succession plan, as well as its plan for a near-term or temporary replacement of the Chief Executive Officer in case of emergency or where the Chief Executive Officer is disabled or otherwise unable to perform his duties. The independent Directors may discuss with the current Chief Executive Officer his observations and recommendations for a successor, and will conduct a separate discussion in executive session to update the succession plan.
9. Executive Sessions. The independent Directors hold regular meetings in executive session, outside of the presence of any member of Company management. Such sessions are chaired by a Presiding Director, who is an independent Director appointed by the other independent Directors for a term of one year based upon the recommendation of the Governance Committee. The name of the Presiding Director is disclosed in the Companys proxy statement each year, and is available on the Companys website, together with information to permit interested parties to contact him or her. It is the prerogative of each Board Committee to exclude members of management from any meeting or discussion held by such Committee at any time. It is the practice of the Audit, Executive Compensation, and Governance Committees to meet in executive session from time to time. The Audit Committee also meets separately, in periodic private sessions, with each member of management, the General Auditor and the Companys independent auditor.
10. Board Process and Deliberation. The Chairman and Chief Executive Officer establishes the agenda for each Board meeting. Directors are encouraged to suggest the inclusion of items on the agenda. In the annual Board self-evaluation, the Directors will also be asked to give feedback on topics that require more attention from the Board.
Board decisions must be made on the basis of adequate information and after careful and unhurried consideration. Information and data that are important to the Boards understanding of the business are generally distributed in writing to the Board before it meets, unless the sensitivity of the information dictates that it be presented only at the meeting. Complex and very important subjects should be presented over an extended enough period of time to permit discussion at more than one meeting, as the Board sees fit.
11. Director Access to Management. It is the Companys practice to create opportunities for Directors to meet with members of management on a routine basis outside the presence of the Chief Executive Officer.
Members of the Board of Directors are encouraged to contact or to meet privately with members of Company management, as part of their responsibilities as Directors.
12. Director Compensation. The philosophy, or objectives, of the Board of Directors compensation program are to:
The compensation policy of the Company, or the means by which the Board compensation philosophy will be realized, is as follows:
In recognition of the commitment, service and capacity Directors provide to Pitney Bowes, the Company will provide each Director with compensation consisting of:
In establishing the amount of the cash retainer, the equity award and the fees, it is the Companys intention that the total compensation of Directors be competitive with compensation of directors of companies in the Fortune 100 to 300 companies.
The Governance Committee of the Board reviews the director compensation policy periodically and will, if it deems appropriate, consult from time to time with an independent compensation consultant as to the competitiveness of the program.
The Board of Directors maintains Director Stock Ownership Guidelines, which are available on the Companys governance website.
13. Director Orientation and Continuing Education. Directors commencing service on the Companys Board of Directors maximize their individual effectiveness by participating at the earliest possible time in an orientation process. Accordingly, each new Director participates in a Company orientation program designed to familiarize the Director with the Companys businesses, including short and long-term strategy, the nature of its stockholder base, its senior management team, its values, including ethics policies, its internal control environment, systems for detecting, preventing and reporting infractions of policy and law, the structure of and processes employed by the Board of Directors and its committees, and the responsibilities of Directors.
The Board of Directors recognizes the value of continuing education for Directors both within and outside the Company. Accordingly, in addition to Director education programs conducted in the context of or as an adjunct to a Board of Directors meeting (e.g., presentations by subject matter experts, visits to Company facilities, in-depth briefings by business unit heads), the Company makes available to its Directors information regarding externally conducted Director education programs, and reimburses Directors for the reasonable cost of participating in such programs upon review and approval of the Governance Committee.
14. Retention of External Advisors. The Board of Directors may retain at Company expense such external advisors as they deem appropriate in the discharge of their responsibilities. The Audit, Executive Compensation, and Governance Committees have the authority to retain external advisors consistent with the provisions of their respective charters.
During 2005, each director attended at least 75% of the total number of board meetings and meetings held by the board committees on which he or she served. The board of directors met seven times in 2005, and the independent directors met in executive session, without any member of management in attendance, six times. (Two of the seven board meetings were held on consecutive days in November, with one executive session being held at the conclusion of the second meeting.)
Members of the board serve on one or more of the seven committees described below. Mr. Critelli, the sole employee director, serves as the chair of the Executive Committee. The members of all other board committees are independent directors pursuant to New York Stock Exchange independence standards. Each committee of the board operates in accordance with a charter. All board committee charters are posted on the companys Corporate Governance website at www.pb.com under the caption Our Company-Corporate Governance.
* Committee Chair
The Audit Committee, which met five times in 2005, monitors the financial reporting standards and practices of the company and the companys internal financial controls to confirm compliance with the policies and objectives established by the board of directors and oversees the companys law and ethics compliance programs. The committee appoints an independent registered public accounting firm to conduct the annual audits, and discusses with the companys independent registered public accountants the scope of their examinations, with particular attention to areas where either the committee or the independent registered public accountants believe special emphasis should be directed. The committee reviews the annual financial statements and independent registered public accounting firms report, invites the independent registered public accounting firms recommendations on internal controls and on other matters, and reviews the evaluation given and corrective action taken by management. It reviews the independence of the independent registered public accountants and approves their fees. It also reviews the companys internal accounting controls and the scope and results of the companys internal auditing activities, and submits reports and proposals on these matters to the board.
The board of directors has determined that all members of the Audit Committee are audit committee financial experts, as that term is defined by regulation of the Securities and Exchange Commission.
The Corporate Responsibility Committee, which met four times in 2005, monitors the companys policies and programs concerning stockholders, customers, employees, and the communities in which the company operates. The policies and programs that the committee monitors include employee relations, customer relations, procurement, product stewardship, investor relations, postal matters, community affairs, government relations, philanthropy, environmental health and safety, and emergency preparedness and crisis management.
The E-Commerce and Technology Committee, which met five times in 2005, monitors the companys programs for electronic commerce-based product offerings and its technology development and partnering initiatives, and has primary responsibility for
reviewing the companys network security and privacy standards and policies. The committee also reviews these programs in the context of the companys long-term strategic planning in both new and existing businesses and markets.
The Executive Committee, which met once in 2005, can act, to the extent permitted by applicable law and the companys Restated Certificate of Incorporation and its By-laws, on all matters concerning management of the business which may arise between scheduled board of directors meetings, unless otherwise limited by the committees charter.
The Executive Compensation Committee, which met six times in 2005, oversees the companys executive compensation program, including establishing the companys executive compensation policies and undertaking an annual review of all components of compensation to confirm that the companys objectives are appropriately achieved. The committee is also responsible for certain administrative aspects of the companys compensation plans (see Executive Officer Compensation beginning on page 25) and the Pitney Bowes Employee Stock Purchase Plan, as amended and restated, and approves administrative changes in such plans. Any material plan amendments are recommended by the committee for approval by the independent directors of the board. The committee also establishes performance targets, and grants incentives in the forms permitted under the Pitney Bowes Inc. Key Employees Incentive Plan (KEIP), and grants incentives to the key executives (other than the chief executive officer and the chief operating officer) under The Pitney Bowes Stock Plan. Grants under any company compensation plan, including the KEIP and The Pitney Bowes Stock Plan, to the chief executive officer (as described on page 34) or to the chief operating officer are recommended by the Executive Compensation Committee and approved by the independent directors of the board.
The Finance Committee, which met seven times in 2005, reviews the companys financial condition and evaluates significant financial policies, oversees the companys retirement plans, advises management and recommends financial action to the board. The committees duties include monitoring the companys current and projected financial condition, reviewing and approving major investment decisions, and overseeing the financial operations of the companys retirement, savings, and post-retirement benefit plans and retirement funds to confirm that plan liabilities are adequately funded and plan assets are prudently managed. The committee recommends for approval by the board the establishment of new plans and any amendments that materially affect cost, benefit coverages, or liabilities of the plans.
The Governance Committee, which met six times in 2005, recommends nominees for election to the board of directors, determines the duties of and recommends membership in the board committees, reviews executives potential for growth, reviews and recommends to the board of directors the amount and form of compensation to non-employee members of the board, and, with the chief executive officer, is responsible for succession planning and ensuring management continuity. The committee reviews and evaluates the effectiveness of board administration and its governing documents, and reviews and monitors company programs and policies relating to directors.
The Governance Committee generally identifies qualified candidates for nomination for election to the board of directors from a variety of sources, including other board members, management, and stockholders. The Governance Committee also retains a third party search firm to assist the Committee members in identifying and evaluating potential nominees for the board.
Stockholders wishing to recommend a candidate for consideration by the Governance Committee may do so by writing to the Corporate Secretary, Pitney Bowes Inc., One Elmcroft Road, MSC 65-19, Stamford, CT 06926-0700. Recommendations submitted for consideration by the committee in preparation for the 2007 annual meeting of stockholders must be received by January 2, 2007, and must contain the following information: (i) the name and address of the stockholder; (ii) the name and address of the person to be nominated; (iii) a representation that the stockholder is a holder of the companys stock entitled to vote at the meeting; (iv) a statement in support of the stockholders recommendation, including a description of the candidates qualifications; (v) information regarding the candidate as would be required to be included in a proxy statement filed in accordance with the rules of the Securities and Exchange Commission; and (vi) the candidates written, signed consent to serve if elected.
The committee evaluates candidates recommended by stockholders based on the same criteria it uses to evaluate candidates from other sources. The Governance Principles of the Board, reprinted on pages 7 through 11 of this proxy statement, and posted on the companys Corporate Governance web-site at www.pb.com under the caption Our Company Corporate Governance, include a description of director qualifications. Among the qualifications considered by the committee are the candidates integrity and ethics, business acumen, experience and skills, independence, sound judgment, and his or her ability to commit sufficient time and attention to the activities of the board.
If the Governance Committee believes that a potential candidate may be appropriate for recommendation to the board, there is generally a mutual exploration process, during which the committee seeks to learn more about the candidates qualifications, background and interest in serving on the board, and the candidate has the opportunity to learn more about the company, the board, and its governance practices. The final selection of the boards nominees is within the sole discretion of the board of directors.
Alternatively, as referenced on page 5 of this proxy statement, stockholders intending to appear at a stockholders meeting in order to nominate a candidate for election by the stockholders at the meeting (in cases where the board of directors does not intend to nominate the candidate or where the Governance Committee was not requested to consider his or her candidacy) must comply with the procedures in Article II, Section 6 of the companys By-laws. The By-laws are posted on the companys Corporate Governance website.
Directors Fees. During 2005, each director who was not an employee of the company received an annual fee of $45,000 and a meeting fee of $1,500 for each board and committee meeting attended. Committee chairs (except for the Audit Committee chair) receive an additional $1,500 for each committee meeting that they chair, and the Audit Committee chair receives an additional $2,000 for each Audit Committee meeting chaired.
All directors are reimbursed for their out-of-pocket expenses incurred in attending board and committee meetings.
The board of directors maintains directors stock ownership guidelines, requiring, among other things, that each director accumulate and retain a minimum of 7,500 shares of company common stock within five years of becoming a director of Pitney Bowes.
The directors stock ownership guidelines are available on the companys website at www.pb.com under the caption Our Company - Corporate Governance.
Directors Stock Plan. Under the Directors Stock Plan, each director who is not an employee of the company receives an annual award of 1,400 shares of restricted stock. The shares carry full voting and dividend rights but, unless certain conditions are met, may not be transferred or alienated until the later of (i) termination of service as a director, or, if earlier, the date of a change of control, and (ii) the expiration of the six-month period following the grant of such shares. The Directors Stock Plan permits certain dispositions of stock granted under the restricted stock program provided that the director effecting the disposition had accumulated and will retain 7,500 shares of common stock. Permitted dispositions are limited to (i) transfer to a family member or family trust or partnership, and (ii) donations to charity after the expiration of six months from date of grant. The original restrictions would continue to apply to the donee except that a charitable donee would not be bound by the restriction relating to termination of service from the board.
Since the approval of the Directors Stock Plan by stockholders in 1991, the common stock of the company has twice undergone a two-for-one split, in 1992 and 1997, respectively. In addition, the annual grant was increased in 1997 in connection with the discontinuation of the Directors Retirement Plan, as described below. On May 9, 2005, an aggregate of 12,600 restricted shares was awarded, with each of the nine non-employee directors then serving receiving 1,400 shares of restricted common stock. Ms. Fuchs received a grant of restricted stock prorated to reflect the number of months of service as a director for the twelve-month period ending May 8, 2006. Ms. Fuchs was granted 963 shares of restricted stock as of September 1, 2005. Regular quarterly dividends or dividend equivalents are paid with respect to these shares. Ownership of shares granted under the Directors Stock Plan is reflected in the table on page 16 showing security ownership of directors and executive officers.
Directors Deferred Incentive Savings Plan. The company maintains a Directors Deferred Incentive Savings Plan under which directors may defer all or part of the cash portion of their compensation. Deferred amounts will be notionally invested in any combination of several institutional investment funds. Deferral elections made with respect to plan years prior to 2004 also included as an investment choice the ability to invest in options to purchase common stock of the company. The number of options granted was calculated by dividing the cash amount deferred by the individual director by the fair market value of the shares on the date of the option grant, and multiplying that quotient by two.
Stock options selected by directors as an investment vehicle for deferred compensation were granted through the Directors Stock Plan. The Directors Stock Plan permits the exercise of stock options granted after October 11, 1999 during the full remaining term of the option by directors who have terminated service on the board, provided that service on the board is terminated (i) after ten years of service on the board, or (ii) due to directors death or disability, or (iii) due to the director having attained mandatory directors retirement age. The Directors Stock Plan also permits the donation of vested stock
options, regardless of the date of grant, to family members and family trusts or partnerships.
Directors Retirement Plan. The companys Directors Retirement Plan was discontinued, and the benefits previously earned by directors were frozen as of May 12, 1997. Under this plan, there is no benefit paid to a director who served for less than five years as of May 12, 1997. A director who had met the five-year minimum vesting requirement as of May 12, 1997 will receive an annual retirement benefit calculated as 50 percent of the directors retainer in effect as of May 12, 1997, and a director with more than five years of service at retirement will receive an additional 10 percent of such retainer for each year of service over five, to a maximum of 100 percent of such retainer for ten or more years of service. The annual retainer fee in effect as of May 12, 1997, was $30,000. The annual retirement benefit is paid for life.
The chart below reflects total compensation paid to each non-employee director, including the value of the restricted stock grant, for 2005.
The only persons or groups known to the company to be the beneficial owners of more than five percent of any class of the companys voting securities are reflected in the chart below. The following information is based solely upon Schedules 13G filed by the entities shown with the Securities and Exchange Commission as of the date appearing below.
Section 16(a) Beneficial Ownership Reporting Compliance
Directors and persons who are considered officers of the company for purposes of Section 16(a) of the Securities Exchange Act of 1934 and greater than ten percent stockholders (Reporting Persons) are required to file reports with the Securities and Exchange Commission showing their holdings of and transactions in the companys securities. It is generally the practice of the company to file the forms on behalf of its Reporting Persons who are directors or officers. The company believes that all such forms have been timely filed for 2005.
Proposal 1: Election of Directors
The board of directors has eleven members. The board is divided into three classes whose terms of office end in successive years.
Mr. Critelli, Mr. Roth and Mr. Weissman were elected last year to three-year terms expiring in 2008.
Ms. Alvarado, Mr. Green, Mr. McFarlane and Mr. Menascé were elected to terms expiring in 2007. As previously announced by the company, effective September 1, 2005, the Governance Committee (consisting of five non-employee directors, whose names are set forth on page 12) recommended, and the board approved, increasing the number of directors by one, to a total of eleven, and electing Anne Sutherland Fuchs to the board. In compliance with the requirement contained in the companys Restated Certificate of Incorporation and in its By-laws that the classes of directors be as near to equal in number as possible, Ms. Fuchs was elected to the class of directors whose terms expire in 2006.
The Governance Committee recommended to the board of directors, and the board approved, the nomination of Ms. Fuchs, Mr. Keyes, Mr. Shedlarz and Mr. Snow at this meeting to three-year terms expiring at the 2009 annual meeting. Ms. Fuchs and Mr. Snow, who are standing for election by the stockholders for the first time, were identified by a third party search firm retained by the Governance Committee for that purpose, and were recommended for election and nomination, respectively, by the Governance Committee after an extensive search process. Mr. Campbell, whose term expires at the May 2006 annual meeting, will be retiring from the board as of May 8, 2006, having attained directors retirement age.
Information about each nominee for director and each incumbent director, including the nominees or incumbents age as of March 1, 2006, is set forth on page 18. Unless otherwise indicated, each nominee or incumbent has held his or her present position for at least five years.
Should you choose not to vote for a nominee, you may list on the proxy the name of the nominee for whom you choose not to vote and mark your proxy under Proposal 1 for all other nominees, or grant your proxy by telephone or the Internet as described on the proxy voting instruction card. Should any nominee become unable to accept nomination or election as a director (which is not now anticipated), the persons named in the enclosed proxy will vote for such substitute nominee as may be selected by the board of directors, unless the size of the board is reduced. At the annual meeting, proxies cannot be voted for more than the four director nominees.
A plurality of the votes cast is required for the election of directors. This means that the four nominees for director, as shown in this proxy statement, receiving the highest number of votes will be elected. However, pursuant to the policy adopted by the Board of Directors in 2005, any nominee for director in an uncontested election who receives a greater number of votes withheld from his or her election than votes for such election shall tender his or her resignation for consideration by the Governance Committee. The Governance Committee will recommend to the board of directors the action to be taken with respect to such offer of resignation.
The board of directors recommends that stockholders vote FOR the election of the following nominees:
NOMINEES FOR ELECTION TO TERMS EXPIRING AT THE 2009 ANNUAL MEETING
INCUMBENT DIRECTORS WHOSE TERMS EXPIRES AT THE 2008 ANNUAL MEETING
INCUMBENT DIRECTORS WHOSE TERMS EXPIRE AT THE 2007 ANNUAL MEETING
Report of the Audit Committee
The Audit Committee functions pursuant to a charter that was last amended in July 2005, a copy of which is annexed to this proxy statement. The Audit Committee represents and assists the board of directors in overseeing the financial reporting process and the integrity of the companys financial statements. The committee is responsible for retaining the independent registered public accounting firm and pre-approving the services they will perform, and for reviewing the performance of the independent registered public accounting firm and the companys internal audit function. The board of directors, in its business judgment, has determined that all four members of the committee are independent, as required by applicable listing standards of the New York Stock Exchange.
In the performance of its responsibilities, the committee has reviewed and discussed the audited financial statements with management and the independent registered public accounting firm. The committee has also discussed with the independent registered public accounting firm the matters required to be discussed by Statement on Auditing Standards No. 61, Communication with Audit Committees, as currently in effect. Finally, the committee has received the written disclosures and the letter from the independent registered public accounting firm required by Independence Standards Board Standard No. 1, Independence Discussions with Audit Committees, as currently in effect, and has discussed with the independent registered public accounting firm their independence.
Based upon the review of information received and discussions as described in this report, the committee recommended to the board that the audited financial statements be included in the companys Annual Report on Form 10-K for the year ended December 31, 2005 filed with the Securities and Exchange Commission on March 13, 2006.
The Audit Committee of the board of directors
David L. Shedlarz, Chair
Proposal 2: Ratification of Independent Registered Public Accounting Firm for 2006
The Audit Committee of the board has appointed PricewaterhouseCoopers LLP (PricewaterhouseCoopers) as the independent registered public accounting firm for Pitney Bowes for 2006. Although not required by law, as a matter of corporate governance this matter is being submitted to the stockholders for ratification. If this proposal is not ratified at the annual meeting by the affirmative vote of a majority of the votes cast, the Audit Committee intends to reconsider its appointment of PricewaterhouseCoopers as its independent registered public accounting firm. PricewaterhouseCoopers has no direct or indirect financial interest in Pitney Bowes or any of its subsidiaries. A representative from PricewaterhouseCoopers will attend the annual meeting and will be available to respond to appropriate questions and will have the opportunity to make a statement if he desires to do so.
Principal Accountant Fees and Services
Aggregate fees billed for professional services rendered for the company by PricewaterhouseCoopers as of or for the years ended December 31, 2005 and 2004, were (in millions):
The Audit fees for the years ended December 31, 2005 and 2004 respectively, were for professional services rendered for the audits of the consolidated financial statements of the company, financial statements of selected subsidiaries and internal control over financial reporting, statutory audits, issuance of comfort letters, consents, income tax provision procedures, and assistance with review of documents filed with the Securities and Exchange Commission. The significant increase from 2004 is due to the audit of the stand alone financial statements of the Capital Services division as part of the previously announced exit from the Capital Services business.
The Audit Related fees for the years ended December 31, 2005 and 2004, respectively, were for assurance and related services related to employee benefit plan audits, due diligence related to mergers and acquisitions, and consultations concerning financial accounting and reporting standards.
TheTax fees for the years ended December 31, 2005 and 2004 were for services related to tax compliance, including the preparation and/or review of tax returns and claims for refund, and tax compliance services for expatriate employees.
The Audit Committee has adopted policies and procedures to pre-approve all services to be performed by PricewaterhouseCoopers. Specifically the committees policy is to pre-approve the use of Pricewaterhouse-Coopers for audit services as well as detailed, specific types of services within the following categories of audit-related and non-audit services: merger and acquisition due diligence and audit services; employee benefit plan audits; tax services; and procedures required to meet certain regulatory requirements. The committee will not approve any service prohibited by regulation and does not anticipate approving any service in addition to the categories described above. In each case, the committees policy is to pre-approve a specific annual budget by category for such audit, audit-related and tax services which the company anticipates obtaining from PricewaterhouseCoopers, and has required management to report the actual fees (versus budgeted fees) to the committee on a periodic basis throughout the year. In addition, any new, unbudgeted engagement for audit services or within one of the other pre-approved categories described above must be pre-approved by the committee or its chair.
Approval of the appointment of Pitney Bowes independent registered public accounting firm requires the affirmative vote of a majority of votes cast by the holders of common stock and $2.12 convertible preference stock of the company present or represented by proxy and entitled to vote at the annual meeting.
The board of directors recommends that stockholders vote FOR the ratification of PricewaterhouseCoopers LLP as the companys independent registered public accounting firm for 2006.
Proposal 3: Approval of Amended and Restated Key Employees Incentive Plan
The companys stockholders are being requested to consider and act upon a proposal to amend the Pitney Bowes Inc. Key Employees Incentive Plan, as amended and restated February 12, 2001 (KEIP). The KEIP is a cash incentive plan. Grants under the KEIP generally take the form of performance-based annual compensation incentives (Annual Incentives) and cash incentive units (CIUs).
The KEIP was originally adopted and approved by the board of directors and stockholders in 1973 and has been amended on various occasions since that time, most significantly in 1996 when the board of directors
and stockholders approved amendments to conform certain provisions of the KEIP to the requirements of the performance-based compensation exception to the deduction limitations of Section 162(m) of the Internal Revenue Code of 1986, as amended (the Code). In February 2001, the board amended the KEIP to update the provisions relating to the requirements of performance-based compensation under Section 162(m) of the Code. February 2006 awards to all employees of the company, except for Mr. Critelli, chairman and chief executive officer, and Mr. Martin, president and chief operating officer, were made under the KEIP. In February 2006, the board approved amendments to the KEIP (the 2006 Amendments). Mr. Critelli and Mr. Martins 2006 awards were made under the KEIP, as amended. Although the 2006 Amendments have not been made contingent on receipt of stockholder approval, the board has directed that certain amendments to the KEIP be submitted to the stockholders for approval so that awards granted under the KEIP may qualify as performance-based compensation under Section 162(m) of the Code and to comply with certain requirements of the New York Stock Exchange.
Description of and Reason for the 2006 Amendments
Performance-Based Compensation Requirements. Under Section 162(m) of the Code, no deduction is allowed for annual compensation in excess of $1 million paid by a publicly-traded corporation to its chief executive officer and the four other most highly-compensated officers (Covered Employees). Under this Code provision, however, there is no limitation on the deductibility of performance-based compensation. In general, to qualify as performance-based compensation (i) the compensation must be paid solely on account of the attainment of one or more pre-established objective performance goals; (ii) the performance goals under which compensation is paid must be established by a compensation committee comprised solely of two or more directors who qualify as outside directors for purposes of the exception; (iii) the material terms under which the compensation is to be paid must be disclosed to and subsequently approved by stockholders of the corporation; and (iv) the compensation committee must certify in writing before payment of the compensation that the performance goals and any other material terms were in fact satisfied. Regulations issued under Section 162(m) require that criteria used to establish business performance goals and the maximum payouts under a plan be determined and disclosed to stockholders as part of the plan approval process.
As a result of its review of the KEIP, the board concluded that the limitations established in 1996 did not reflect changes in competitive levels of compensation or changes in the companys compensation design and structure since that time. Following this review, the board approved the 2006 Amendments to adjust the limits and maximum payouts under the KEIP and modify the criteria upon which performance-based objectives may be established. With the 2006 Amendments, the maximum annual payout a Covered Employee could receive under Annual Incentives was increased to $4,000,000 and the maximum payout a participant can receive for a cycle with respect to any CIU award was raised to $8,000,000. The Executive Compensation Committee may apply negative discretion to reduce awards under the KEIP, but may not increase awards above this maximum. Previously, the maximum amount payable to a Covered Employee for any fiscal year of the company for all grants under the KEIP was $5,000,000.
With the 2006 Amendments, Performance Goals under the KEIP are one or more objective performance goals, established by the Executive Compensation Committee at the time a grant is made, relating to the attainment of targets for one or any combination of the following criteria: operating income, income from continuing operations, revenues, return on stockholder equity, total stockholder return, stock price, return on operating assets, earnings per share, achievement of cost control, or free cash flow of the company or the subsidiary, division or department of the company for or within which the participant is primarily employed. Performance Goals also may consist of attainment of specified levels of company performance based upon one or more of the criteria described above relative to prior periods or the performance by other corporations. Performance Goals are set by the committee within the time period prescribed by Section 162(m) of the Code. The 2006 Amendments include all of the previous Performance Goals approved by stockholders and add income from continuing operations and total stockholder return to the permitted criteria upon which targets may be based.
The 2006 Amendments amend the change of control section of the KEIP to provide that grants under the KEIP will be subject to vesting upon a change of control but payments will be made in accordance with the provisions of the Senior Executive Severance Policy. Previously, upon a change of control, grants under the KEIP were vested whether or not the employee was terminated (a single trigger right to payment). By referencing the change of control provisions found in the Senior Executive Severance Policy, the 2006 Amendments provide that, upon a change of control, grants under the KEIP will be paid only upon a termination of employment without cause or a voluntary termination for good reason (a double trigger right to payment). In addition, the 2006 Amendments make appropriate changes to the plan in accordance with the requirements of Section 409A of the Code.
The principal features of the KEIP, as modified by the 2006 Amendments, are described below. A copy of the KEIP, as amended, is included in this proxy statement as Annex I.
Description of the KEIP
General. The KEIP is a cash incentive compensation plan administered by the Executive Compensation Committee, which is comprised of members of the board of directors who are disinterested persons within the meaning of Rule 16b-3 promulgated by the Securities and Exchange Commission under the Securities Exchange Act of 1934 and outside directors within the meaning of Section 162(m) of the Code. Key employees of the company are eligible for grants under the KEIP. Grants to employees at the level of vice president and above are subject to an aggregate limit of an amount equal to the Incentive Fund amount for each calendar year. The Incentive Fund amount is determined by the Executive Compensation Committee for each calendar year prior to the end of the following year, and may not exceed (i) 4 1 / 2 % of the consolidated net income of the company and its consolidated subsidiaries before provision for income taxes, as certified by the companys independent registered public accounting firm, plus (ii) an additional amount equal to any excess of the aggregate amount of the Incentive Funds for the five preceding years over the aggregate amount of awards made for such years. Annual Incentives are annual cash payments of specified percentages of base salary, which are paid based upon the achievement of pre-established corporate, unit and/or individual performance objectives. CIUs represent a right to receive cash, the receipt and amount of which are entirely contingent upon the extent to which specified performance criteria are achieved during the related three-year period. Grants made to participants in the KEIP by the Executive Compensation Committee may be in the form of Annual Incentives, CIUs or any other form of grant permitted under the KEIP, and will be made subject to the achievement of one or more pre-established Performance Goals, in accordance with procedures established by the Executive Compensation Committee.
The KEIP provides flexibility in creating incentive packages for specific individuals as well as various groups of key employees. Persons eligible to participate in the KEIP are those key employees who, in the judgment of the committee, are in a position to contribute to the success of the company. Currently, there are approximately 2,000 employees eligible for awards under the KEIP.
Federal Income Tax Consequences. A participant who is granted a CIU will not realize any income, nor will the company receive any deduction, for Federal income tax purposes, in the year of the grant.
Ordinary income will be realized by the participant at the time that he or she receives payment of an Annual Incentive award, or that cash is distributed to him or her in payment of a CIU award. Pitney Bowes will receive a deduction on its consolidated Federal income tax return for the taxable year in the amount of such ordinary income realized by a KEIP participant subject to the rules under Section 162(m) of the Code.
Termination and Amendments. The KEIP does not have a stated term but may be terminated by the board at any time. The board may amend the KEIP to conform to any change in applicable law or for any other reason.
Other Matters. The committee has discretion to determine the type, terms and conditions and recipients of awards granted under the KEIP. Accordingly, it is not possible to determine the future awards that may be granted to any officer or other employee of Pitney Bowes.
The board has submitted the amendments to the stockholders for approval in order to meet certain requirements of the New York Stock Exchange and Section 162(m) of the Code. Although satisfaction of such requirements is subject to stockholder approval, the amendments to the KEIP will apply only to Mr. Critelli and Mr. Martin for 2006 and were not made contingent upon the receipt of such approval. In the event stockholder approval is not received, the board and the committee intend to review the relevant facts and circumstances and make decisions in light of such vote, the requirements of Section 162(m) of the Code, and the committees policy with respect to Section 162(m) of the Code as described on page 31 of this proxy statement in the section entitled Compensation Philosophy.
The board of directors recommends that stockholders vote FOR approval of the Amended and Restated Key Employees Incentive Plan.
Proposal 4: Approval of the Pitney Bowes Inc. 1998 U.K. S.A.Y.E. Stock Option Plan
Description of the Pitney Bowes Inc. 1998 U.K. S.A.Y.E. Stock Option Plan
Under the Pitney Bowes Inc. 1998 U.K. S.A.Y.E. Stock Option Plan (the SAYE Plan), a committee authorized by Pitney Bowes board of directors may invite eligible employees to apply for options to purchase shares of Pitney Bowes common stock (Shares) for cash, at a price not less than the higher of the par value of a Share and 80 percent of the average of the closing prices (expressed in U.S. Dollars) of a Share on the New York Stock Exchange on the three prior trading days before the invitation date, converted into U.K.
pounds sterling. Offers are targeted to be made on October 1 of each year for a period of 14 days at a per share exercise price equal to 90 percent of the average market value; it is expected that this practice will continue if our stockholders approve the SAYE Plan and if offers are made under it in the future.
The SAYE Plan is administered by the directors of Pitney Bowes Limited (or a committee of those directors) under the direction of the Pitney Bowes board (or a committee of that board).
The persons eligible to apply for options under the SAYE Plan are employees of Pitney Bowes or any subsidiary of Pitney Bowes that is designated a participating company who have been continuously employed since December 31st in the immediately preceding calendar year (or for such longer period not exceeding four years and 335 days as determined by the board or a committee of the board) and who are resident and ordinarily resident in the U.K. The board or committee may determine that any other employee may be eligible to apply for an option. These eligible employees are generally employed in the U.K. Currently, there are approximately 3,000 such eligible employees.
The board of directors of Pitney Bowes or a committee of the board has authority to authorize a committee to issue invitations under the SAYE Plan. Options are granted by the directors of Pitney Bowes Limited or a committee of those directors. Options granted under the SAYE Plan are not transferable.
Any eligible employee who applies for an option under the SAYE Plan must enter into a save as you earn contract approved by the U.K. H M Revenue and Customs (the Savings Contract) with an authorized financial institution. The option holder agrees to make monthly savings by payroll deduction of a fixed amount, currently not less than £10 or more than £250 per month, and chooses either a three-year or a five-year savings period.
Upon expiration of the Savings Contract, the option holder will be entitled to a tax-free bonus in addition to repayment of the savings contributions. This bonus is the equivalent of further monthly contributions (in lieu of interest). The number of additional contributions is fixed by the U.K. Treasury.
Exercise and Lapse of Options
Options are normally only exercisable within six months from the end of the Savings Contract. Options can only be exercised using the proceeds of the Savings Contract, including the tax-free bonus. If an option holder does not wish to exercise, he or she may still benefit from the proceeds of the Savings Contract, including the tax-free bonus.
Options granted under the SAYE Plan also become exercisable upon the following events:
Options generally lapse six months after becoming exercisable (one year in the case of death). They also lapse upon the option holders being adjudicated bankrupt. If an option holder does not retire at age 65, he or she may choose to wait until the end of the Savings Contract before exercising.
The maximum number of Shares that can be acquired on the exercise of an option is the number that can be acquired using the proceeds of the Savings Contract at the time of exercise.
If Pitney Bowes is acquired by another company by tender offer, that other company may agree to allow option holders to exchange options granted under the SAYE Plan for new options for shares in that other company or one of its affiliates, so long as the new options and the new shares meet certain requirements intended to ensure that they are equivalent to the old options. The approval of the U.K. H M Revenue and Customs to such an exchange is required.
Adjustments to Options and Amendments to the SAYE Plan
The SAYE Plan permits the Pitney Bowes board of directors to make appropriate adjustments to the number of Shares subject to options and the exercise price of options, to reflect stock splits, reverse stock splits, and other similar events affecting the Shares. Any such adjustment must be approved by the U.K. H M Revenue and Customs and Pitney Bowes auditors must confirm that in their opinion the adjustment is fair and reasonable.
The SAYE Plan may be amended by the Pitney Bowes board of directors at any time, including in ways that may increase the costs of the SAYE Plan to Pitney Bowes. However, any material revision, as defined by the New York Stock Exchange listing standards, or any increase in the number of Shares available under the plan, except pursuant to an adjustment described in the preceding paragraph, must be approved by the stockholders of Pitney Bowes. No amendment will take effect unless and until approved by the U.K. H M Revenue and Customs. No amendment that adversely affects a participants rights under options already granted may take effect without the consent of the affected participants.
The SAYE Plan is designed to enable U.K. resident option holders to receive favorable tax treatment under the tax laws of the U.K. The following paragraphs provide a brief summary of these tax benefits for the option holder and the employer company respectively.
For the option holder the principal tax consequences of the SAYE Plan are that:
Where an option is exercised by a U.K. employee, the option holders employer company should, subject to satisfaction of the requirements of the U.K. tax legislation, ordinarily be able to claim U.K. corporation tax relief for the difference between the amount paid by the option holder on the exercise of options and the market value of the option Shares on acquisition. This relief is given for the tax period in which the option holder acquires the Shares.
Executive officers and salaried directors of Pitney Bowes and its subsidiaries who satisfy the eligibility conditions are able to apply for options under the SAYE Plan. No person has received, or is expected to receive, five percent or more of the options available under the SAYE Plan. The number of options granted to all employees as a group under the 2005 three year SAYE Plan was 15,444 and the number under the 2005 five year plan was 18,984 as of January 31, 2006. The number of options that will be granted to all employees as a group under the SAYE Plan on or after May 8, 2006 is not determinable, as such grants are within the discretion of the Pitney Bowes board of directors or a committee appointed by it. However, as noted above, under current U.K. H M Revenue and Customs Rules, eligible employees may not invest more than £250 per month under the SAYE Plan.
Termination of the SAYE Plan
No options may be granted under the SAYE Plan after September 2008. The Pitney Bowes board of directors or a duly constituted committee thereof may terminate the SAYE Plan at any time and no further options shall be granted after that date but options granted before that date shall continue to be valid.
The board believes that the approval of the SAYE Plan will allow continued compensation of the employees of Pitney Bowes and its subsidiaries in a manner that provides them with appropriate incentives and aligns their interests with those of Pitney Bowes stockholders generally.
Accordingly, the board recommends that stockholders vote FOR approval of the Pitney Bowes Inc. 1998 U.K. S.A.Y.E. Stock Option Plan.
Executive Officer Compensation
The Executive Compensation Committee (the Committee), which is composed of four independent directors, oversees the companys executive compensation programs and establishes its executive compensation policies. The Committee reports on executive compensation to all of the independent directors of the board and makes recommendations to them regarding those executive compensation matters with respect to which the independent directors have final approval. (See Report of the Executive Compensation Committee beginning on page 30.)
Summary Compensation Table. The following table (Table I) shows all compensation paid or granted, during or with respect to the 2005 fiscal year and the two previous fiscal years, to the chief executive officer and to the four other highest paid executive officers for services rendered to the company and its subsidiaries. (Persons in this group are referred to herein individually as a Named Executive Officer and collectively as the Named Executive Officers and, unless otherwise noted, the titles listed are the titles held as of the end of the 2005 fiscal year.)
(footnotes continued on next page)
SUMMARY COMPENSATION TABLE (CONTINUED)
Shown in Table II below is information regarding options granted in 2005 to the Named Executive Officers.
Shown in Table III below is information regarding the exercise of options in 2005 by the Named Executive Officers and information regarding their total outstanding options as of December 31, 2005.
OPTIONS EXERCISED IN 2005 AND 2005 YEAR-END OPTION VALUES
Shown in Table IV below is detailed information regarding long-term incentives (other than options) granted under the Key Employees Incentive Plan in 2005. Long-term incentives are contingent upon the attainment of one or more specified performance objectives. Specified payments, if any, under the terms of these incentives are paid only to the extent that the stated performance objectives are achieved.
In 2005 a committee of the board of directors, consisting solely of independent directors, granted CIUs as long-term incentives. CIUs represent a right to receive cash, the receipt and amount of which are contingent upon the extent to which specified performance objectives are attained during the related three-year period.
The company has not entered into employment agreements with its Named Executive Officers based in the United States and, therefore, such officers are at will employees of the company. All employees based in the U.K. have written employment contracts.
Under the terms of Mr. Keddys service agreement, the company may terminate his employment with 12 months prior notice or, in lieu of such prior notice, payment of his salary for a 12-month period. If Mr. Keddy is paid salary in lieu of notice, he will also be eligible to earn an annual incentive (prorated to date of termination and subject to board discretion). If the subsidiary that employs Mr. Keddy is wound up for purposes of a reconstruction or amalgamation, or transfers all or a substantial part of its business to another company, and Mr. Keddy is offered employment by the new company on terms comparable to those of the service agreement, Mr. Keddy will have no claim with respect to the termination of his employment under the service agreement. See the discussion under the section entitled Severance and Change of Control Arrangements below for information on severance payable to Mr. Keddy in the event of a Change of Control, as defined below, under the Senior Executive Severance Policy.
Under the service agreement, Mr. Keddy is entitled to receive certain personal benefits including financial counseling services up to a three-year cumulative maximum in the amount of $35,000 (grossed up for tax purposes) and reimbursement for all costs associated with the lease and use of an automobile, including normal servicing, insurance and fuel costs. Mr. Keddy may use the company automobile to a reasonable extent for private purposes. In lieu of receiving a company car, Mr. Keddy may choose to be paid an annual car allowance plus fuel costs. Although Mr. Keddy is eligible to receive annual and long-term incentive awards, such awards are subject to board discretion. The service agreement also sets forth Mr. Keddys agreement to certain covenants that protect the interests of the company in the event of a termination of Mr. Keddys employment, including a 12-month covenant not to compete and a 12-month covenant not to solicit customers or employees.
Severance and Change of Control Arrangements
Set forth below is a summary of certain severance and Change of Control arrangements maintained by the company. Under the companys Change of Control arrangements, a Change of Control is defined as the acquisition of 20 percent or more of the companys common stock or 20 percent or more of the combined voting power of the companys voting securities by an individual, entity or group; the replacement of a majority of the board other than by approval of the incumbent board; the consummation of a reorganization, merger, or consolidation; or the approval by stockholders of the liquidation or dissolution of the company.
The Pitney Bowes Severance Pay Plan, as amended and restated January 1, 1999 (the Severance Plan), provides for the payment of severance to full-time employees based in the United States whose employment is terminated under certain business circumstances (other than a Change of Control). Upon termination of employment, severance will consist of a minimum of one weeks pay for each full year of service (a fraction thereof for a partial year of service), with a minimum of two weeks pay. However, the company reserves the right to use a different severance benefit formula as business conditions may warrant. In addition, no severance benefits will be paid if a covered employee is terminated for cause. Each of the Named Executive Officers other than Mr. Keddy (whose severance is governed by his service agreement and the Senior Executive Severance Policy) is eligible for severance payments under the Severance Plan.
The Senior Executive Severance Policy, originally adopted by the board of directors in December 1995, and amended and restated as of January 1, 2000 (the Severance Policy), provides for the payment of separation benefits to certain senior executive employees, including the Named Executive Officers, whose employment with the company is terminated within two years after a Change of Control. The Severance Policy provides that a covered employee whose employment is terminated, whose position, authority, duties, responsibilities, pay or benefits are diminished, or who is relocated within two years after a Change of Control, will be entitled to: a) severance pay in an amount equal to a multiple of the sum of the employees annual base salary and highest Annual Incentive received in any of the three years preceding termination, and b) the continuation of certain retirement, health, welfare and other benefits for a period of time following termination of employment. (The policy provides for a multiple of three for certain senior executive employees covered by the Severance Policy, including the Named Executive Officers. The Severance Policy provides for a multiple of two for all other executives covered by the Severance Policy.) The executive also has the right, exercisable during the 30-day period following the first anniversary of a Change of Control, to terminate his or her employment for any reason and still receive the severance payments and benefits.
If any of these benefits, either alone or together with any other payments or benefits provided to covered senior executive employees, including a Named Executive Officer, would constitute an excess parachute payment subject to the 20 percent excise tax
under certain provisions of the Internal Revenue Code, each of the Severance Plan and the Severance Policy provides that an additional payment would be made to each affected covered employee so that such excise tax is reimbursed to the employee on a net after-tax basis.
The Pitney Bowes Stock Plan (the Stock Plan) provides that, in the event of a Change of Control, outstanding options will become immediately and fully exercisable without regard to any vesting schedule. The Stock Plan also provides that, in the event of a Change of Control, all restrictions applicable to outstanding shares of restricted stock and other stock-based awards will terminate and be fully satisfied (other than transfer restrictions, if any, required for exempt treatment under Section 16 of the Securities Exchange Act of 1934 or any other applicable law); provided that, for awards conditioned on financial performance goals, the Committee will determine the amount payable under such awards based on the actual and anticipated levels of performance prior to the Change of Control applying a discount factor in the amount of the prime rate in effect as of the date of the Change of Control.
The terms of the KEIP provide in the event of a Change of Control that the executives will have a vested right to receive annual incentive compensation with respect to the year completed prior to the Change of Control (if not paid prior to the Change of Control) as well as the year in which such Change of Control occurs (in prorated amounts to be determined as specified in the plan on the basis of relevant past performance of the individual executive, his or her division, and the company). With respect to CIUs outstanding on the date of a Change of Control, the Executive Compensation Committee will determine the value of all units maturing upon the end of any stated performance period that had been awarded and not yet paid to executives who had received notice of such award. Certain amendments to the KEIP have been approved by the Pitney Bowes board of directors and submitted to the stockholders for approval at the upcoming annual meeting, which amendments provide that grants under the KEIP will be subject to vesting upon a Change of Control but payments will be made only upon a termination of employment without cause or a voluntary termination for good reason. (A description of the double trigger right to payment under the KEIPs 2006 plan amendments is provided on page 21 of this proxy statement in the section entitled Proposal 3: Approval of Amended and Restated Key Employees Incentive Plan.)
Such Annual Incentive compensation and CIU payments will be made as expeditiously as possible after a Change of Control, discounted to present value at the prime rate then in effect. Payments made to executives who reside outside the United States will be made in such currencies and such exchange rates that are consistent with the patterns and practices under the KEIP.
U.S. Pension Plan
Each of Messrs. Critelli, Martin and Nolop and Ms. Mayes participate in the U.S. Pension Plan. Effective September 1,1997, the company revised the U.S. Pension Plan such that the benefit payable under the plan is no longer a function solely of years of service and final average earnings. Under the revised formula, employees receive annual credits of a percentage of their earnings. The annual percentage ranges from 2% to 10%, plus an additional 2% to 6% of such earnings in excess of the social security wage base, and increases as the sum of age and years of service increases. Earnings for purposes of the plan, means the average of the five highest consecutive annual pay amounts (base salary plus annual incentive) during a participants service with the company. An employee will be 100% vested in his U.S. Pension Plan account after five years of service.
In connection with the adoption of the revisions to the U.S. Pension Plan, all participants who qualified under a prescribed formula, including certain of the Named Executive Officers, are eligible for certain grandfather and transition provisions that are intended to avoid undue impairment of any participants pension as a result of the new formula. Certain long-service participants may be entitled to receive their benefit computed under the old formula, if such amount is greater than that computed under the new formula.
Under the qualified U.S. Pension Plan, employees receive retirement benefits each year based on compensation up to a maximum of $210,000 for 2005. The Named Executive Officers who participate in the U.S. Pension Plan are also eligible to accrue supplemental pension benefits, which vest after five years of service. Pension amounts for compensation above $210,000 are accrued under the nonqualified Supplemental Pension Plan based on the same formula used under the qualified plan for other employees. The aggregate benefits payable to an executive officer under both the qualified U.S. Pension Plan and the nonqualified Supplemental Pension Plan are subject to the following general limit: years of credited service multiplied by 16.5% of five-year average pay. Neither the Executive Compensation Committee nor the board has granted any special credits to any of the Named Executive Officers under the Supplemental Pension Plan, and all payout obligations are based solely upon the actual periods of service to the company of the respective Named Executive Officers. The annual pension benefit to which each of the Named Executive Officers participating in the U.S. pension plans would be entitled had he or she retired on December 31, 2005 (disregarding any limitation on vesting), expressed as a life annuity
beginning at age 65 is as follows: $913,811 for Mr. Critelli; $243,082 for Mr. Martin; $40,267 for Mr. Nolop; and $14,715 for Ms. Mayes. Other than Ms. Mayes, who joined the company in 2003, all of the Named Executive Officers are fully vested in their pension benefit.
U.K. Pension Plan
Mr. Keddy participates in a pension plan maintained for U.K. employees. Under the plan formula, employees accrue 1/80th of their Pensionable Pay, for purposes of the U.K. plan, for each year of service. Pensionable Pay for purposes of the plan, is the average of the highest three consecutive years of pay (base pay plus bonus) out of the last ten consecutive years of employment.
The annual pension benefit to which Mr. Keddy would be entitled had he retired on December 31, 2005, expressed as a life annuity beginning at age 65 is $149,338. Mr. Keddy is fully vested in his pension benefit.
Executive Stock Ownership Policy
The executive stock ownership policy was most recently amended as of October 25, 2005. Under the revised policy, executives who are reporting officers under Section 16 of the Securities Exchange Act of 1934 (the Covered Executives) are expected to accumulate shares of company stock toward target ownership levels that are based on a multiple of salary and a retention ratio for shares acquired upon exercise or vesting of stock awards. Ownership status for the Covered Executives will be reported to the Executive Compensation Committee on an annual basis. Under the companys Corporate Policy on Insider Trading, Covered Executives are prohibited from engaging in short-term, speculative (in and out) trading in Pitney Bowes securities, as well as hedging and other derivative transactions, including short sales, put or call options, swaps and collars, with respect to Pitney Bowes securities (other than transactions in employee stock options).
The multiple of salary component is as follows:
The number of shares targeted for retention by a Covered Executive is equal to annual base salary times the multiple of salary requirement divided by the average closing price of Pitney Bowes common stock over the five days preceding the measurement date.
The retention ratio is 75% of net profit shares. The Covered Executives are expected to hold 75% of the shares remaining after payment of the option price and taxes owed upon exercise and/or hold 75% of newly vested shares of restricted stock after the payment of applicable taxes until the multiple of salary requirement is met. Under the policy, restricted stock, as well as shares underlying unexercised stock options, will not be counted as shares owned by an executive prior to vesting of the restricted stock or exercise of the stock options. After the multiple of salary requirement is met, a Covered Executive may sell shares acquired previously in the market as well as shares acquired through the exercise of stock options or the vesting of restricted stock awards.
Report of the Executive Compensation Committee
The Executive Compensation Committee (the Committee) of the board of directors is responsible for the companys executive compensation policies and programs. The Committee consists entirely of independent directors who are not officers or employees of the company. The Committee recommends policies, programs and specific actions regarding the compensation of the chief executive officer and the chief operating officer to all of the independent directors for final approval, and approves the same for direct reports to the CEO (the Key Executives). For executives other than Key Executives, the Committee establishes the compensation policies and programs, and approves equity grants, in accordance with the delegation of authority from the board. The Committees charter, which was last amended in February 2006, is available on the Companys website at www.pb.com under the Our Company Corporate Governance heading and is annexed to this proxy statement.
Our key compensation goals are to hire, motivate, reward and retain executives who create long-term stockholder value. In support of those goals, we seek to establish a compensation program based on the following five main objectives:
We strive to set a target compensation opportunity at the competitive median of compensation paid to similarly situated executives at comparator companies. Actual compensation may be above or below the median based on actual performance, with better performers able to achieve upper quartile compensation. This approach is intended to confirm that a significant portion of executive compensation is based on results and on the companys performance.
Since Pitney Bowes does not operate in an industry with a large group of industry peers, the Committee has historically compared the companys compensation programs to programs from a broad sample principally comprised of Fortune 500 companies with comparable median revenues, market capitalization, net income and number of employees. In 2004, the Committee added an additional reference point for assessing the competitiveness of the companys executive compensation program and the compensation levels of the Named Executive Officers. The Committee established a peer group of sixteen publicly traded companies with comparable revenue, market capitalization, total assets, net income and number of employees. This group consists of industrial, technology and service companies and excludes companies in the financial services, transportation, hotel, energy, natural resources and aviation industries. The company uses this peer group compensation data to compete for talent and utilizes a different peer group for Total Stockholder Return for comparison of stockholder investment. As part of its review, the Committee also considered Towers Perrin compensation survey data for a broader view of compensation at companies with comparable profiles for revenue, market capitalization, total assets, net income and number of employees.
We benchmark the executive compensation program and pay levels using the peer group and survey compensation data and competitive information provided by our independent consultant and additional survey data and competitive information provided by management. This information provides reference points for our evaluation of compensation decisions, but is not the sole basis for determining appropriate compensation design, compensation targets, or individual pay levels. At any point in time compensation targets and individual pay levels may be above or below the median for a variety of reasons. For example, target levels may be affected by the value of the total rewards package, program design and strategic considerations, affordability, changing competitive conditions, or program transition considerations. Our consideration of individual pay levels typically includes factors such as experience in the position, performance, demonstrated leadership, potential to enhance long-term stockholder value, recruiting and retention needs, internal equity, current salary, salary history, prior incentive awards, and previous retention and succession planning awards.
Under Section 162(m) of the Code publicly traded corporations generally are not permitted to deduct compensation in excess of $1 million paid to certain top executives unless the compensation qualifies for an exception as performance-based compensation. We intend to comply with the requirements for full deductibility wherever possible. We will weigh the benefits of compliance with Section 162(m) against the potential burdens of such compliance, and reserve the right to pay compensation that may not be fully deductible if it is determined that it is in the companys best interest to do so.
Stock ownership and equity-related compensation arrangements are considered key elements to focus executives on increasing stockholder value. Therefore, we aim to develop and maintain stock programs that encourage each employee to act like a business owner. A substantial portion of an executives long-term incentive compensation is awarded in the form of equity-based compensation, which along with the CIUs serve as the primary vehicles for aligning the interests of executives with long-term stockholders. Further, as an adjunct to the executive compensation program, we believe the company should maintain a stock ownership policy that encourages executives to own substantial amounts of company stock. During 2005 the Committee reviewed the stock ownership policy and adopted certain changes, which are reflected in the executive stock ownership policy summary on page 30.
Evaluation of Executive Performance in 2005
The Committee does not rely solely on predetermined formulas or a limited set of criteria when it evaluates the performance of the CEO and the companys Key Executives. In 2005, the Committee considered the financial, operational and strategic merits of the achievement by management of short-term and long-term objectives, including:
The Committees decisions regarding an executives performance reflected consideration of, among other things, demonstrated leadership and potential to enhance long-term stockholder value; the nature, scope and impact on the company of the executives responsibilities; and his or her effectiveness in leading initiatives to drive the companys strategic imperatives. In determining performance goals and evaluating performance results of management and the company for purposes of incentive compensation, the Committee used its judgment and discretion to ensure that managements rewards for business performance are commensurate with their contributions to that performance while still holding management accountable for the overall results of the business. The objectives of the Committee are to reward the creation of stockholder value; to balance properly rewarding executives with the interest of stockholders; and to incent management to make good decisions for the long-term success of the enterprise.
In addition, the Committee has reviewed all components of each of the Named Executive Officers compensation, including salary, bonus, equity and long-term incentive compensation, accumulated unrealized stock option and restricted stock gains, the cost to the company of all perquisites and other personal benefits, the earnings and accumulated payout obligations under the companys non-qualified deferred compensation program, and the actual projected payout obligations under certain severance and change of control scenarios. Tally sheets setting forth the above information were prepared for the Committees review and consideration at the meetings convened during the first quarter of 2006. The aggregate amounts and mix of all components, including accumulated unrealized option and restricted stock gains, were taken into consideration by the Committee at those meetings. Based on this review, the Committee finds the total compensation of the CEO and each of the other Named Executive Officers to be appropriate. Actions taken by the Committee with respect to the compensation of the Named Executive Officers are discussed further below, and have been reported by the Company on a Current Report on Form 8-K filed with the Securities Exchange Commission on February 16, 2006.
The companys normal annual executive compensation program is comprised of four key components: Salary, Annual Incentive, Stock Options, and CIUs. These components collectively represent the normal total direct compensation opportunity for executives (excluding benefits). Restricted stock is not granted annually to senior executives but may be granted from time to time.
In 2005, the mix of normal compensation components for the CEO and Key Executives varies by level. At target, the compensation mix ranges from CEO19% base pay/21% annual incentive/60% long-term incentives, to Senior Vice Presidents41% base pay/18% annual incentive/41% long-term incentives.
Base Salary. In general, the company aligns base pay for executives (including Key Executives) with reference to the competitive market median data for base pay. There is typically a range of pay around the median data that is considered to be competitive. As discussed above, among the factors considered in determining the actual base for each member of this group are the potential impact the individual may make on the company now and in the future, internal equity, level of experience, individual performance compared with annually established financial, strategic, unit or individual objectives, and competitive market salary rates for similar positions. For the Named Executive Officers, increases in base salary are generally established in accordance with the guidelines established for management employees.
Annual Incentive Compensation. In general, the company aligns annual incentives at target with reference to competitive market median data. All executives (including Key Executives) are eligible for annual incentives for achieving challenging financial and strategic objectives that are established at the beginning of each year. For the Named Executive Officers, payments are subject to the company first achieving a threshold Income From Continuing Operations objective, consistent with the requirements for deductibility under Section 162(m) of the Code.
The Committee reviews the annual objectives for alignment with company strategy, financial plans, historical performance, and public statements about company financial and strategic objectives. The financial metrics used by the Committee for the initial determination of the annual incentive pool include revenue growth, earnings before interest and taxes, earnings per share, and adjusted free cash flow. In 2006, the financial objectives will be weighted 100% for the initial determination of the annual incentive pool. The Committee
may modify this pool upwards or downwards by 25% based on its assessment of other factors, such as quality of earnings, total stockholder return, progress on strategic objectives, employee engagement, development of the executive talent and leadership pool, and progress on diversity goals.
The annual incentive targets are expressed as a percentage of base salary. The target level annual incentive ranges from 120% for the CEO to 35% for other executives. The maximum annual incentive award for exceptional performance under the program guidelines is generally two times the target award. Individual payouts are tied to the achievement of predetermined financial and strategic enterprise, business unit and individual performance objectives.
The company currently utilizes two principal types of long-term incentives: CIUs and stock options. The Committee generally targets delivery of long-term incentives using a 50/50 mix of options and CIUs for the companys executive officers. Periodically the Committee may also utilize shares of restricted stock for specific strategic purposes. In general, the Committee aligns long-term incentives with reference to the competitive market median data. The Committee uses these performance-driven components to link executive compensation to longer term internal company performance and to external market performance of the companys stock price. Actual compensation may be above or below the median based or actual performance, with better performers able to achieve upper quartile compensation. Among the factors considered in determining option and CIU award levels for each member of this group are potential impact the individual may make on the company now and in the future, level of experience, individual performance compared with annually established financial, strategic, unit and individual objectives, internal equity, and the competitive market data for similar positions.
Cash Incentive Units. CIUs are granted annually to Key Executives and other executives. The unit value of a CIU is based on the achievement of pre-established financial objectives over a three-year performance period. For the Named Executive Officers, payments are subject to the company first achieving a threshold Income From Continuing Operations (IFCO) objective, consistent with the requirements for deductibility under Section 162(m) of the Code.
As noted in Table IV on page 27, the value of each unit will vary depending on the extent to which pre-established earnings per share and adjusted free cash flow goals are achieved. Earnings per share and adjusted free cash flow are each weighted at 50% in calculating CIU values. The Committee added a Total Stockholder Return (TSR) modifier in the calculation of the CIU value beginning with the 2005-2007 CIU cycle. The unit value based on financial performance will be modified by up to 25%, upwards or downwards, based on Pitney Bowes three-year TSR performance compared to the three-year TSR performance of the S&P 500. The objective of the TSR modifier is to balance the measurement of performance using the internal financial objectives with the measurement of the stockholder value created by meeting these objectives.
For the 2006-2008 CIU cycle, the unit value at target is $1.00. The unit value based on internal financial performance ranges from $0.20 at threshold performance to $1.80 for maximum performance. The unit value based on financial performance will then be modified by up to 25%, upwards or downwards, based on the TSR modifier discussed in the preceding paragraph. The unit value as modified thus ranges from $0.15 at threshold performance to $2.25 at maximum performance.
At its February 2006 meeting, the Committee also determined the CIU payout for the 2003-2005 cycle. The payout was $1.56 per unit, which represents a performance level that is above target.
Stock Options. Stock options are granted at an exercise price equal to the market price of the stock on the date of grant. Options typically have a ten-year exercise period and typically become exercisable ratably over the first four years following the date of grant. Prior to the February 2005 grants, the Committee generally utilized three-year ratable vesting. In determining the number of options in the mix of long-term incentives discussed above, the company currently utilizes the Black-Scholes valuation methodology. Options require stock price appreciation in order for the grantees to realize any benefit, thereby aligning executive and stockholder interests.
Restricted Stock. No awards of restricted stock were made to the Named Executive Officers during 2005. Restricted stock was granted to three of the Named Executive Officers during 2004, and to three of the Named Executive Officers in 2003, as part of the companys management development, succession, and retention planning process. All grants in 2004 were subject to forfeiture if a threshold IFCO level was not achieved in 2004. The 2004 IFCO objective was achieved. The Committee may award restricted stock in the future with different restrictions, performance conditions, and terms as warranted by changing competitive conditions, retention and succession planning needs. In 2006, the company will issue restricted stock units in lieu of stock options to certain employees below the executive level (i.e., employees at the director level and below).
Compensation of the Chief Executive Officer
CEO compensation is based on the same compensation objectives and policies applicable to all executives, and includes base salary, annual incentives, cash incentive units, and stock options. Mr. Critellis annual base salary was increased by 2.8% for 2005. Restricted stock is not granted annually to the CEO but may be granted from time to time under special circumstances.
Prior to conducting its annual compensation review of the CEO, the Committee met in executive session jointly with the Governance Committee in July 2005 to evaluate Mr. Critellis leadership capabilities. The Joint Committees evaluation was discussed with the full board in executive session at its November 2005 meeting. Among other factors the Committee considered in 2005 were Mr. Critellis leadership in driving the companys short and long-term operational and financial performance, its strong governance practices, its strong external stakeholder relations, its talent and leadership development, and its strategy development and implementation.
The Committee met separately in executive session in January 2006 to formulate recommendations for the board regarding the CEOs compensation and evaluation of performance for the fiscal year ended December 31, 2005. The Committee then provided recommendations for compensation actions to the independent directors for their consideration and approval.
In evaluating Mr. Critellis performance for 2005, the Committee considered good progress in achieving the strategic objectives, and significantly improved and positive operating and strategic results achieved during 2005. The Committee believes that Mr. Critellis leadership skills contributed substantially to the results and that he continues to make significant contributions to the overall success of the company. It also recognized his strong influence and leadership in the mailstream industry and his success in driving postal transformation. It also considered that while the companys total stockholder return in 2005 was behind the proxy peer group, the Dow Jones Industrial Average and the Standard & Poors 500 Index, the company was ahead on all indices over a five-year period and the actions taken in 2005 significantly strengthened the companys ability to enhance future stockholder value realization.
The Committee recommended and the independent directors approved the following actions with regard to Mr. Critellis compensation. Mr. Critellis annual incentive payout for 2005 performance was $1,872,100, which represents an above target level of performance. The CIU payout for the 2003-2005 cycle approved for Mr. Critelli totaled $1,560,000 ($1.56 per unit), which represents an above target level of performance.
Consistent with the companys compensation policy, Mr. Critelli was granted stock options in February 2005 to purchase 200,000 shares of company common stock, and he was awarded 1,500,000 CIUs for the 2005-2007 cycle.
Deductibility of Compensation Under Internal Revenue Code Section 162(m)
The company generally intends to comply with the requirements for full deductibility under Section 162(m). Thus, the design and administration of annual incentives, CIUs, and stock option awards for the Named Executive Officers is generally conformed to Section 162(m). The company does, however, weigh the benefits of compliance with Section 162(m) against the potential burdens of such compliance, and reserves the right to pay compensation that may not be fully deductible if it determines that it is in the companys best interest to do so.
By the Executive Compensation Committee of the board of directors
James H. Keyes, Chair
Stock Performance Graph
The following graph compares the most recent five-year performance of Pitney Bowes common stock with the Standard & Poors (S&P) 500 Composite Index, and a peer group index at December 31, 2005, over the same five-year period.
The Peer Group is composed of the following companies: Automatic Data Processing, Inc. (ADP), Diebold, Incorporated, R.R. Donnelley & Sons Company, DST Systems, Inc., FedEx Corporation, Hewlett-Packard Company, IKON Office Solutions, Inc., Lexmark International, Inc., Pitney Bowes Inc., United Parcel Service, Inc. (UPS), and Xerox Corporation.
Total return for both the Peer Group and the S&P 500 Composite Index is based on market capitalization, weighted for each year.
All information shown below is based upon data provided to the company by three separate independent organizations, all of which have been licensed by Standard & Poors Corporation to use its official total return calculation.
The graph shows that on a total return basis, assuming reinvestment of all dividends, $100 invested in the companys common stock on December 31, 2000 would have grown to $152 by December 31, 2005. By comparison, $100 invested in the S&P 500 Composite Index would have been worth $103 by December 31, 2005. An investment of $100 in the Peer Group in 2000 would have been worth $125 on December 31, 2005.
Solicitation of Proxies
In addition to the use of the mail, proxies may be solicited by the directors, officers, and employees of the company without additional compensation by personal interview, by telephone, or by electronic transmission. Arrangements may also be made with brokerage firms and other custodians, nominees, and fiduciaries for the forwarding of solicitation material to the beneficial owners of Pitney Bowes common stock and $2.12 convertible preference stock held of record, and the company will reimburse such brokers, custodians, nominees, and fiduciaries for reasonable out-of-pocket expenses incurred. The company has retained Georgeson Shareholder Communications Inc. to aid in the solicitation of proxies.
The anticipated fee of such firm is $7,500 plus out-of-pocket costs and expenses. The cost of solicitation will be borne entirely by Pitney Bowes.
Management knows of no other matters which may be presented for consideration at the meeting. However, if any other matters properly come before the meeting, it is the intention of the individuals named in the enclosed proxy to vote in accordance with their judgment.
By order of the board of directors.
Amy C. Corn
14. DURATION AND TERMINATION
No Options may be granted under the Scheme more than ten years after the date of the adoption of the Plan by the Company. The Directors may terminate the Plan at any time and no further Options shall be granted after that date, but Options granted before that date will continue to be valid and exercisable in accordance with these Rules.
ANNEX III - AUDIT COMMITTEE CHARTER
Purpose of Committee
The purpose of the Audit Committee (the Committee) of the Board of Directors (the Board) of Pitney Bowes Inc. (the Company) is to assist the Board in the oversight of (a) the integrity of the financial statements of the Company, (b) the Companys compliance with legal and regulatory requirements, (c) the independence and qualification of the Companys external auditors, (d) the performance of the Companys internal audit function and external auditors, and (e) the preparation of the report the Committee is required by Securities and Exchange Commission (SEC) rules to be included in the Companys annual proxy statement.
Committee Structure and Operations
The Committee shall be composed of a minimum of three directors, with all members of the Committee to be independent, according to independence standards established by the Board, consistent with applicable statutes, regulations, and listing standards of The New York Stock Exchange (NYSE). The Board shall appoint members of the Committee annually, including a Director to serve as Committee Chair, after consideration of nominations by the Governance Committee. In selecting members of the Committee, the Board shall take into account compliance with applicable statutes, rules, regulations and the listing standards of the NYSE, including requirements of independence. The Board shall determine that each member of the Committee is financially literate in accordance with NYSE listing standards. At least one member of the Committee shall, in the judgment of the Board be an audit committee financial expert in accordance with the rules and regulations of the SEC, and at least one member (who may also be the financial expert) shall, in the judgment of the Board, have accounting or related financial management expertise in accordance with NYSE listing standards.
The Committee shall meet at least four times per year, with additional meetings to occur as deemed necessary or desirable by the Committee or the Committee Chair. A majority of the members of the Committee shall constitute a quorum for the Committee to act in the discharge of its duties.
Committee Duties and Responsibilities
The following are the duties and responsibilities of the Committee:
The Committee shall produce the following reports and provide them to the Board:
Resources and Authority of the Committee
The Committee shall be provided with adequate resources and funding, as determined by the Committee, to satisfy its responsibilities.
The Committee shall have the authority to appoint and retain such outside counsel and other advisors as the Committee in its sole discretion deems appropriate. The Committee shall have the sole authority to approve the terms of any such retention and the fees to be paid.
The Committee shall have direct access to the External Auditors, the General Auditor, and the General Counsel, each of whom shall also have direct access to members of the Audit Committee.
ANNEX IV EXECUTIVE COMPENSATION COMMITTEE CHARTER
Purpose of Committee
The purpose of the Executive Compensation Committee (the Committee) of the Board of Directors (the Board) of Pitney Bowes Inc. (the Company) is to have direct responsibility for the compensation of the CEO, COO and other members of the Companys senior management (as determined by the Committee), and for producing an annual report on executive compensation for inclusion in the Companys proxy statement, in accordance with the rules and regulations of the Securities and Exchange Commission (SEC), and to review and approve allocations of shares in the Companys employee stock plans in connection with the granting of stock options and other stock awards.
Committee Structure and Operations
The Committee shall be composed of a minimum of three Directors, with all members of the Committee to be independent, according to independence standards established by the Board, consistent with applicable statutes, regulations, and listing standards of the New York Stock Exchange. The Board shall appoint members of the Committee annually, including a Director to serve as Committee Chair, after consideration of nominations by the Governance Committee.
The Committee shall meet at least four times per year, with additional meetings to occur as deemed necessary or desirable by the Committee or the Committee Chair. A majority of the members of the Committee shall constitute a quorum for the Committee to act in the discharge of its duties.
Committee Duties and Responsibilities
The following are the duties and responsibilities of the Committee:
The Committee shall produce the following reports and provide them to the Board:
Resources and Authority of the Committee
The Committee shall have the resources and authority appropriate to discharge its duties and responsibilities, including the authority to select, retain, terminate and approve the fees and other retention terms of special counsel or other experts or consultants, as it deems appropriate, without seeking approval of the Board or management. With respect to compensation consultants retained to assist in the evaluation of CEO, COO, or other senior executive compensation, this authority shall be vested solely in the Committee.
Northbound on I-95
Southbound on I-95
From the Merritt Parkway
This proxy when properly executed will be voted in the manner directed herein. If no direction is made, this proxy will be voted FOR the election of directors and FOR Items 2 4.
This proxy revokes all prior dated proxies. The signer hereby acknowledges receipt of Pitney Bowes proxy statement dated March 23, 2006.
Telephone and Internet Voting Instructions
Your telephone or Internet proxy authorizes the named proxies in the same manner as if you marked, signed, dated and returned the proxy card.
If you choose to grant a proxy with respect to your shares via telephone or Internet, there is no need for you to mail back your proxy card.
PROXY SOLICITED ON BEHALF OF PITNEY BOWES BOARD OF DIRECTORS
The undersigned, if a participant in the Pitney Bowes 401(k) Plan (the Plan), directs T. Rowe Price Trust Company, Trustee, to vote all Pitney Bowes common stock allocated to his or her account, as indicated on the reverse side, at the annual meeting of stockholders to be held in Stamford, Connecticut, on May 8, 2006, including any continuation of the meeting caused by any adjournment, or any postponement of the meeting, upon such business as may properly come before the meeting, including items as specified on the reverse side.
All shares of $2.12 convertible preference stock and common stock registered in your name, held for your benefit in the dividend reinvestment plan and/or held for your benefit in the Plan are shown on this card. The shares represented hereby will be voted in accordance with the directions given by the stockholder. If a properly signed proxy is returned without choices marked, and if not otherwise directed, the shares represented by this proxy registered in your name and/or held for your benefit in the dividend reinvestment plan will be voted FOR Items 14. If a properly signed direction card regarding Plan shares is returned without choices marked, and if not otherwise directed, the shares represented by the voting direction card will be voted, with respect to Items 14, in the same proportion indicated by the voting instructions given by participants in the Plan.
In their discretion, the Proxies and/or the Trustee, as the case may be, are authorized to vote such other business as may properly come before the meeting, including any continuation of the meeting caused by any adjournment, or any postponement of the meeting.
Please mark, date and sign, and return promptly this proxy in the enclosed envelope, which requires no postage if mailed in the U.S., or grant your proxy via telephone or Internet as described above.
YOUR VOTE IS IMPORTANT. THANK YOU FOR VOTING.