Texas Instruments DEF 14A 2014
Documents found in this filing:
United States Securities and
Washington, D.C. 20549
INFORMATION REQUIRED IN PROXY STATEMENT
SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of the
Securities Exchange Act of 1934 (Amendment No. )
April 17, 2014
You are cordially invited to attend the 2014 annual meeting of stockholders on Thursday, April 17, 2014, at the cafeteria on our property at 12500 TI Boulevard, Dallas, Texas, at 10:00 a.m. (Central time). At the meeting we will consider and act upon the following matters:
Stockholders of record at the close of business on February 18, 2014, are entitled to vote at the annual meeting.
We urge you to vote your shares as promptly as possible by: (1) accessing the Internet website, (2) calling the toll-free number or (3) signing, dating and mailing the enclosed proxy.
VOTING PROCEDURES AND QUORUM
TIs board of directors requests your
proxy for the annual meeting of stockholders on April 17, 2014. If you sign and
return the enclosed proxy, or vote by telephone or on the Internet, you
authorize the persons named in the proxy to represent you and vote your shares
for the purposes mentioned in the notice of annual meeting. This proxy statement
and related proxy are being distributed on or about March 4, 2014. If you come
to the meeting, you can vote in person. If you do not come to the meeting, your
shares can be voted only if you have returned a properly signed proxy or
followed the telephone or Internet voting instructions, which can be found on
the enclosed proxy. If you sign and return your proxy but do not give voting
instructions, the shares represented by that proxy will be voted as recommended
by the board of directors. You can revoke your authorization at any time before
the shares are voted at the meeting.
Scheduled to be considered at the meeting are the election of directors, an advisory vote regarding approval of the companys executive compensation, ratification of the appointment of our independent registered public accounting firm, a proposal to approve the TI Employees 2014 Stock Purchase Plan, and a proposal to reapprove the material terms of the performance goals under the Texas Instruments 2009 Long-Term Incentive Plan. Each of these matters is discussed elsewhere in this proxy statement. On each of these matters you may vote for, against or abstain. The vote required for the election of directors and approval of the other matters is shown in the table below.
ELECTION OF DIRECTORS
Directors are elected at the annual
meeting to hold office until the next annual meeting and until their successors
are elected and qualified. The board of directors has designated the following
persons as nominees: RALPH W. BABB, JR., MARK A. BLINN, DANIEL A. CARP, CARRIE
S. COX, RONALD KIRK, PAMELA H. PATSLEY, ROBERT E. SANCHEZ, WAYNE R. SANDERS,
RUTH J. SIMMONS, RICHARD K. TEMPLETON and CHRISTINE TODD
Nominees for directorship
All of the nominees for directorship are directors of the company. For a discussion of each nominees qualifications to serve as a director of the company, please see pages 59-61. If any nominee becomes unable to serve before the meeting, the persons named as proxies may vote for a substitute or the number of directors will be reduced accordingly.
Director nomination process
The board is responsible for
approving nominees for election as directors. To assist in this task, the board
has designated a standing committee, the Governance and Stockholder Relations
Committee (the G&SR Committee), which is responsible for reviewing and
recommending nominees to the board. The G&SR Committee is comprised solely
of independent directors as defined by the rules of The NASDAQ Stock Market
(NASDAQ) and the boards corporate governance guidelines. Our board of directors
has adopted a written charter for the G&SR Committee. It can be found on our
website at www.ti.com/corporategovernance.
Stockholders, non-employee directors,
management and others may submit recommendations to the G&SR
Board diversity and nominee qualifications
As indicated by the criteria above,
the board prefers a mix of background and experience among its members. The
board does not follow any ratio or formula to determine the appropriate mix.
Rather, it uses its judgment to identify nominees whose backgrounds, attributes
and experiences, taken as a whole, will contribute to the high standards of
board service at the company. The effectiveness of this approach is evidenced by
the directors participation in the insightful and robust yet respectful
deliberation that occurs at board and committee meetings and in shaping the
agendas for those meetings.
Communications with the board
Stockholders and others who wish to communicate with the board as a whole, or to individual directors, may write to them at: P.O. Box 655936, MS 8658, Dallas, TX 75265-5936. All communications sent to this address will be shared with the board or the individual director, if so addressed.
The board has a long-standing commitment to responsible and effective corporate governance. The boards corporate governance guidelines (which include the director independence standards), the charters of each of the boards committees, TIs code of business conduct and our code of ethics for our CEO and senior financial officers are available on our website at www.ti.com/corporategovernance. Stockholders may request copies of these documents free of charge by writing to Texas Instruments Incorporated, P.O. Box 660199, MS 8657, Dallas, TX 75266-0199, Attn: Investor Relations.
Annual meeting attendance
It is a policy of the board to encourage directors to attend each annual meeting of stockholders. Such attendance allows for direct interaction between stockholders and board members. In 2013, all directors then in office attended TIs annual meeting of stockholders.
The board has determined that each of our directors is independent except for Mr. Templeton. In connection with this determination, information was reviewed regarding directors business and charitable affiliations, directors immediate family members and their employers, and any transactions or arrangements between the company and such persons or entities. The board has adopted the following standards for determining independence.
For purposes of these independence determinations, company and family member will have the same meaning as under NASDAQ rules.
Board and committee meetings
During 2013, the board held nine meetings. The board has three standing committees described below. The committees of the board collectively held 19 meetings in 2013. Each director attended all of the board and relevant committee meetings combined. Overall attendance at board and committee meetings was 100 percent.
Committees of the board
The Audit Committee is a separately designated standing committee established in accordance with Section 3(a)(58)(A) of the Securities Exchange Act of 1934, as amended. All members of the Audit Committee are independent under NASDAQ rules and the boards corporate governance guidelines. From April 20, 2012, to April 18, 2013, the committee members were Ms. Patsley (Chair), Mr. Babb and Mr. Sanchez. Since April 19, 2013, the committee members have been Mr. Babb (Chair), Mr. Blinn and Ms. Simmons. The Audit Committee is generally responsible for:
The board has determined that all members of the Audit Committee are financially sophisticated, as the board has interpreted such qualifications in its business judgment. In addition, the board has designated Mr. Babb as the audit committee financial expert as defined in the Securities Exchange Act of 1934, as amended.
The Audit Committee met six times in 2013. The Audit Committee holds regularly scheduled meetings and reports its activities to the board. The committee also continued its long-standing practice of meeting directly with our internal audit staff to discuss the audit plan and to allow for direct interaction between Audit Committee members and our internal auditors. Please see page 93 for a report of the committee.
All members of the Compensation Committee are independent. From April 20, 2012, to April 18, 2013, the committee members were Ms. Cox (Chair), Mr. Sanders and Ms. Simmons. Since April 19, 2013, the committee members have been Ms. Cox (Chair), Ms. Patsley and Mr. Sanchez. The committee is responsible for:
The Compensation Committee holds regularly scheduled meetings, reports its activities to the board, and consults with the board before setting annual executive compensation. During 2013, the committee met six times. Please see page 81 for a report of the committee.
performing its functions, the committee is supported by the companys Human
Resources organization. The committee has the authority to retain any advisors
it deems appropriate to carry out its responsibilities. The committee retained
Pearl Meyer & Partners as its compensation consultant for the 2013
compensation cycle. The committee instructed the consultant to advise it
directly on executive compensation philosophy, strategies, pay levels,
decision-making processes and other matters within the scope of the committees
charter. Additionally, the committee instructed the consultant to assist the
companys Human Resources organization in its support of the committee in these
matters with such items as peer-group assessment, analysis of the executive
compensation market, and compensation recommendations.
Governance and Stockholder Relations Committee
All members of the G&SR Committee are independent. From April 20, 2012, to April 18, 2013, the committee members were Ms. Whitman (Chair) and Mr. Carp. Since April 19, 2013, the committee members have been Ms. Whitman (Chair), Mr. Carp and Mr. Sanders, with Mr. Kirk joining the committee on September 19, 2013. The G&SR Committee is generally responsible for:
The G&SR Committee met seven times in 2013. The G&SR Committee holds regularly scheduled meetings and reports its activities to the board. Please see page 59 for a discussion of stockholder nominations and page 61 for a discussion of communications with the board.
Board leadership structure
The boards current leadership structure combines the positions of chairman and CEO, and includes a lead director who presides at executive sessions and performs the duties listed below. The board believes that this structure, combined with its other practices (such as (a) including on each board agenda an opportunity for the independent directors to comment on and influence the proposed strategic agenda for future meetings and (b) holding an executive session at each board meeting), allows it to maintain the active engagement of independent directors and appropriate oversight of management.
The lead director is elected by the independent directors annually. The independent directors have elected Ms. Cox to serve as lead director. The duties of the lead director are to:
In addition, the lead director has authority to call meetings of the independent directors.
The board, led by its G&SR Committee, regularly reviews the boards leadership structure. The boards consideration is guided by two questions: would stockholders be better served and would the board be more effective with a different structure. The boards views are informed by a review of the practices of other companies and insight into the preferences of top stockholders, as gathered from face-to-face dialogue and review of published guidelines. The board also considers how board roles and interactions would change if its leadership structure changed. The boards goal is for each director to have an equal stake in the boards actions and equal accountability to the corporation and its stockholders.
The board continues to believe that there is no uniform solution for a board leadership structure. Indeed, the company has had varying board leadership models over its history, at times separating the positions of chairman and CEO and at times combining the two, and now utilizing a lead director.
Risk oversight by the board
It is managements responsibility to
assess and manage the various risks TI faces. It is the boards responsibility
to oversee management in this effort. In exercising its oversight, the board has
allocated some areas of focus to its committees and has retained areas of focus
for itself, as more fully described below.
The G&SR Committee has responsibility for reviewing and making recommendations to the board on compensation for non-employee directors, with the board making the final determination. The committee has no authority to delegate its responsibility regarding director compensation. In carrying out this responsibility, it is supported by TIs Human Resources organization. The CEO, the senior vice president responsible for Human Resources and the Secretary review the recommendations made to the committee. The CEO also votes, as a member of the board, on the compensation of non-employee directors.
The compensation arrangements for the non-employee directors are:
The board has determined that grants of equity compensation to non-employee directors will be timed to occur when grants are made to our U.S. employees in connection with the annual compensation review process. Accordingly, such equity grants to non-employee directors are made in January. Please see the discussion regarding the timing of equity compensation grants on page 78.
Directors are not paid a fee for meeting attendance, but we reimburse non-employee directors for their travel, lodging and related expenses incurred in connection with attending board, committee and stockholders meetings and other designated TI events. In addition, non-employee directors may travel on company aircraft to and from these meetings and other designated events. On occasion, directors spouses are invited to attend board events; the spouses expenses incurred in connection with attendance at those events are also reimbursed.
Under the Director Plan, some directors have chosen to defer all or part of their cash compensation until they leave the board (or certain other specified times). These deferred amounts were credited to either a cash account or stock unit account. Cash accounts earn interest from TI at a rate currently based on Moodys Seasoned Aaa Corporate Bonds. For 2013, that rate was 3.42 percent. Stock unit accounts fluctuate in value with the underlying shares of TI common stock, which will be issued after the deferral period. Dividend equivalents are paid on these stock units. Directors may also defer settlement of the restricted stock units they receive.
We have arrangements with certain customers whereby our employees may purchase consumer products containing TI components at discounted pricing. In addition, the TI Foundation has an educational and cultural matching gift program. In both cases, directors are entitled to participate on the same terms and conditions available to employees.
Non-employee directors are not eligible to participate in any TI-sponsored pension plan.
2013 director compensation
The following table shows the compensation of all persons who were non-employee members of the board during 2013 for services in all capacities to TI in 2013.
We are providing the following advisory vote on named executive officer compensation as required by Section 14A of the Securities Exchange Act. The company holds this vote annually.
Proposal regarding advisory approval of the companys executive compensation
The board asks the shareholders to cast an advisory vote on the compensation of our named executive officers. The named executive officers are the chief executive officer, chief financial officer and three other most highly compensated executive officers, as named in the compensation tables on pages 81-93.
Specifically, we ask the shareholders to approve the following resolution:
RESOLVED, that the compensation paid to the companys named executive officers, as disclosed in this proxy statement pursuant to the Securities and Exchange Commissions compensation disclosure rules, including the Compensation Discussion and Analysis, compensation tables and narrative discussion on pages 69-93 of this proxy statement, is hereby approved.
We encourage shareholders to review the Compensation Discussion and Analysis section of the proxy statement, which follows. It discusses our executive compensation policies and programs and explains the compensation decisions relating to the named executive officers for 2013. We believe that the policies and programs serve the interests of our shareholders and that the compensation received by the named executive officers is commensurate with the performance and strategic position of the company.
Although the outcome of this vote is not binding on the company or the board, the Compensation Committee of the board will consider it when setting future compensation for the executive officers.
The board of directors recommends a vote FOR the resolution approving the named executive officer compensation for 2013, as disclosed in this proxy statement.
Compensation Discussion and Analysis
This section describes TIs compensation program for executive officers. It will provide insight into the following:
Currently, TI has 14 executive officers. These executives have the broadest job responsibilities and policy-making authority in the company. We hold them accountable for the companys performance and for maintaining a culture of strong ethics. Details of compensation for our CEO, CFO and the three other highest paid individuals who were executive officers in 2013 (collectively called the named executive officers) can be found in the tables beginning on page 81.
The committees strategy for setting cash and non-cash compensation is described in the table that follows immediately below. Its compensation decisions for the named executive officers for 2013 are discussed on pages 71-78. Benefit programs in which the executive officers participate are discussed on pages 79-80. Perquisites are discussed on page 80.
Compensation philosophy and elements
The Compensation Committee of TIs board of directors is responsible for setting the compensation of all TI executive officers. The committee consults with the other independent directors and its compensation consultant, Pearl Meyer & Partners, before setting annual compensation for the executives. The committee chair regularly reports on committee actions at board meetings.
The primary elements of our executive compensation program are as follows:
Near-term compensation, paid in cash
The committee sets the Comparator
Group. In general, the Comparator Group companies (1) are U.S.-based, (2) engage
in the semiconductor business or other electronics or information technology
activities, (3) have executive positions comparable in complexity to those of TI
and (4) use forms of executive compensation comparable to
The committee set the Comparator
Group in July 2012 for the base salary and equity compensation decisions it made
in January 2013. For a discussion of the factors considered by the committee in
setting the Comparator Group, please see page 71 of the companys 2013 proxy
Analysis of compensation
determinations for 2013
Base salary The committee set the 2013 rate of base salary for the named executive officers as follows:
The committee set the 2013
base-salary rate for each of the named executive officers in January 2013. In
keeping with its strategy, the committee set the annual base-salary rates to be
below the estimated median level of salaries expected to be paid to similarly
situated executives of the Comparator Group in 2013.
Equity compensation In 2013, the committee awarded equity compensation to each of the named executive officers. The grants are shown in the grants of plan-based awards in 2013 table on page 83. The grant date fair value of the awards is reflected in that table and in the Stock Awards and Option Awards columns of the summary compensation table on page 81. The table below is provided to assist the reader in comparing the number of shares, grant date fair values and NQ Equivalent levels for each of the years shown in the summary compensation table. NQ Equivalents were calculated by treating each restricted stock unit as 3 NQ Equivalents and each option share as 1 NQ Equivalent. This 3:1 ratio is consistent with the committees past practice.
In January 2013, the committee awarded equity compensation to each of the named executive officers. The committees objective was to award to those officers equity compensation that had a grant date fair value at approximately the median market level, in this case the 40th to 60th percentile of the 3-year average of equity compensation (including an estimate of amounts for 2013) granted by the Comparator Group.
the market level, the committee considered information presented by TIs
Compensation and Benefits organization (prepared using data provided by the
committees compensation consultant) on the estimated value of the awards
expected to be granted by the Comparator Group to similarly situated executives.
The award value was estimated using the same methodology used for financial
Bonus In January 2014, the committee set the 2013 bonus compensation for executive officers based on its assessment of 2013 performance. In setting the bonuses, the committee used the following performance measures to assess the company:
In addition, the committee considered
our strategic progress by reviewing how competitive we are in key markets with
our core products and technologies, as well as the strength of our relationships
with key customers.
This list includes both broad-based and niche suppliers that operate in our key markets or offer technology that competes with our products. The committee considers annually whether the list is still appropriate in terms of revenue, market capitalization and changes in business activities of the companies. The committee made no change to the list of competitor companies in 2013.
Assessment of 2013 performance
The committee spent extensive time in December and January assessing TIs results and strategic progress for 2013. The committee considered both quantitative and qualitative data, and it applied judgment in its assessment. Overall, the committee determined that TIs performance was better than the prior year. Absolute performance in the companys core businesses was stronger versus a year ago, and relative performance for total TI was, again, better on most measures (see list of competitor companies above). The committee also noted the increasing strength of TIs strategic position. Commensurate with this performance, the committee set bonuses for executive officers about 10 percent higher than the prior year. Below are details of the committees performance assessment.
Revenue and margin
Total shareholder return (TSR)
CAGR (compound annual growth rate) is calculated using the formula (Ending Value/Beginning Value)1/number of years-1.
Before setting the bonuses for the
named executive officers, the committee considered the officers individual
performance. The performance of the CEO was judged according to the performance
of the company. For the other officers, the committee considered the factors
described below in assessing individual performance. In making this assessment,
the committee did not apply any formula or performance
Results of the compensation decisions Results of the compensation decisions made by the committee relating to the named executive officers for 2013 are summarized in the following table. This table is provided as a supplement to the summary compensation table on page 81 for investors who may find it useful to see the data presented in this form. Although the committee does not target a specific level of total compensation, it considers information similar to that in the table to ensure that the sum of these elements is, in its judgment, in a reasonable range. The principal differences between this table and the summary compensation table are explained in footnote 5 below.5
For Messrs. Templeton and Ritchie, the Total was higher for 2013 than for 2012 primarily due to the combination of higher bonus levels and the higher grant date fair value of their equity compensation. For Mr. March, the Total was essentially unchanged for 2013 as compared to 2012. For the other officers, the Total was lower for 2013 due to the lower grant date fair value of their equity compensation.
The compensation decisions shown above resulted in the following 2013 compensation mix for the named executive officers:
Process for equity
Most recent stockholder advisory
vote on executive compensation
Employee stock purchase
Compensation following employment
termination or change in control
Stock ownership guidelines and
policy against hedging
Consideration of tax and
accounting treatment of compensation
Compensation Committee report
The Compensation Committee of the
board of directors has furnished the following report:
2013 summary compensation table
The table below shows the compensation of the companys CEO, CFO and each of the other three most highly compensated individuals who were executive officers during 2013 (collectively called the named executive officers) for services in all capacities to the company in 2013. For a discussion of the amount of a named executive officers salary and bonus in proportion to his total compensation, please see the CD&A on pages 69-78.
The perquisites and personal benefits are as follows: $99,278 for Mr. Templeton, consisting of personal use of company aircraft ($88,261), financial counseling and an executive physical; and $10,219 for Mr. Crutcher, consisting of financial counseling and an executive physical. Financial counseling and an executive physical were made available to the other named executive officers, but the amounts attributable to those officers were below the disclosure thresholds. The amount shown for personal use of aircraft is the incremental cost, which we valued using a method that takes into account: landing, parking and flight planning services expenses; crew travel expenses; supplies and catering expenses; aircraft fuel and oil expenses per hour of flight; communications costs; a portion of ongoing maintenance; and any customs, foreign permit and similar fees. Because company aircraft are primarily used for business travel, this methodology excludes the fixed costs, which do not change based on usage, such as pilots salaries and the lease or purchase cost of the company-owned aircraft.
Grants of plan-based awards in 2013
The following table shows the grants of plan-based awards to the named executive officers in 2013.
Outstanding equity awards at fiscal year-end 2013
The following table shows the outstanding equity awards for each of the named executive officers as of December 31, 2013.
The Option Awards shown in the table above are non-qualified stock options, each of which represents the right to purchase shares of TI common stock at the stated exercise price. For grants before 2007, the exercise price is the average of the high and low price of TI common stock on the grant date. For grants after 2006, the exercise price is the closing price of TI common stock on the grant date. The term of each option is ten years unless the option is terminated earlier pursuant to provisions summarized in the chart below and in the paragraph following the chart. Options vest (become exercisable) in increments of 25 percent per year beginning on the first anniversary of the date of the grant. The chart below shows the termination provisions relating to stock options outstanding as of December 31, 2013. The Compensation Committee of the board of directors established these termination provisions to promote employee retention while offering competitive terms. As noted below, certain terms have been changed for grants made after 2012. Those changes apply to all U.S. and most non-U.S. grants made in that time period. The committee adopted the changes in January 2013 to align with current market practices and simplify the terms.
Options may be cancelled if the
grantee competes with TI during the two years after employment termination or
discloses TI trade secrets. In addition, for options received while the grantee
was an executive officer, the company may reclaim (or claw back) profits
earned under grants if the officer engages in such conduct. These provisions are
intended to strengthen retention and provide a reasonable remedy to TI in case
of competition or disclosure of our confidential information.
The Stock Awards in the table of outstanding equity awards at fiscal year-end 2013 are RSU awards. Each RSU represents the right to receive one share of TI common stock on a stated date (the vesting date) unless the award is terminated earlier under terms summarized below. In general, the vesting date is approximately four years after the grant date. Each RSU includes the right to receive dividend equivalents, which are paid annually in cash at a rate equal to the amount paid to stockholders in dividends. The table below shows the termination provisions of RSUs outstanding as of December 31, 2013.
These termination provisions are
intended to promote retention. All RSU awards contain cancellation and clawback
provisions like those described above for stock options. The terms provide that,
to the extent permitted by Section 409A of the IRC, the award vests upon
involuntary termination of TI employment within 24 months after a change in
control. Change in control is the Plan definition. These cancellation, clawback
and change-in-control terms are intended to conform RSU terms with those of
stock options (to the extent permitted by the IRC) and to achieve the objectives
described above in the discussion of stock options.
2013 option exercises and stock vested
The following table lists the number of shares acquired and the value realized as a result of option exercises by the named executive officers in 2013 and the value of any RSUs that vested in 2013. For option exercises, the value realized is calculated by multiplying the number of shares acquired by the difference between the exercise price and the market price of TI common stock on the exercise date. For RSUs, the value realized is calculated by multiplying the number of RSUs that vested by the market price of TI common stock on the vesting date.
2013 pension benefits
The following table shows the present value as of December 31, 2013, of the benefit of the named executive officers under our qualified defined benefit pension plan (TI Employees Pension Plan) and non-qualified defined benefit pension plans (TI Employees Non-Qualified Pension Plan (which governs amounts earned before 2005) and TI Employees Non-Qualified Pension Plan II (which governs amounts earned after 2004)). In accordance with SEC requirements, the amounts shown in the table do not reflect any named executive officers retirement eligibility or any increase in benefits that may result from the named executive officers continued employment after December 31, 2013.
TI Employees Pension
participant may request payment of his accrued benefit at termination or any
time thereafter. Participants may choose a lump sum payment or one of six forms
of annuity. In order of largest to smallest periodic payment, the forms of
annuity are: (i) single life annuity, (ii) 5-year certain and life annuity,
(iii) 10-year certain and life annuity, (iv) qualified joint and 50 percent
survivor annuity, (v) qualified joint and 75 percent survivor annuity, and (vi)
qualified joint and 100 percent survivor annuity. If the participant does not
request payment, he will begin to receive his benefit in April of the year after
he reaches the age of 70½ in the form of annuity required under the
TI Employees Non-Qualified Pension
TI Employees Survivor Benefit
2013 non-qualified deferred compensation
The following table shows contributions to the named executive officers deferred compensation account in 2013 and the aggregate amount of his deferred compensation as of December 31, 2013.
Please see page 79 for a discussion
of the purpose of the plan. An employees deferred compensation account contains
eligible compensation the employee has elected to defer and contributions by the
company that are in excess of the IRS limits on (i) contributions the company
may make to the enhanced defined contribution plan and (ii) matching
contributions the company may make related to compensation the executive officer
deferred into his deferred compensation account.
participant may request distribution from the plan in the case of an
unforeseeable emergency. To obtain an unforeseeable emergency withdrawal, a
participant must meet the requirements of Section 409A of the IRC. Otherwise, a
participants balance is paid pursuant to his distribution election and is
subject to applicable IRC limitations.
Potential payments upon termination or change in control
None of the named executive officers has an employment contract with the company. They are eligible for benefits on generally the same terms as other U.S. employees upon termination of employment or change in control of the company. TI does not reimburse executive officers for any income or excise taxes that are payable by the executive as a result of payments relating to termination or change in control.
Bonus. Our policies concerning bonus and the timing of payments are described on page 71. Whether a bonus would be awarded under other circumstances and in what amount would depend on the facts and circumstances of termination and is subject to the Compensation Committees discretion. If awarded, bonuses are paid by the company.
Qualified and non-qualified defined benefit pension plans. The purposes of these plans are described on page 79. The formula for determining benefits, the forms of benefit and the timing of payments are described on page 88. The amounts disbursed under the qualified and non-qualified plans are paid, respectively, by the TI Employees Pension Trust and the company.
Survivor benefit plan. The purpose of this plan is described on page 89. The formula for determining the amount of benefit, the form of benefit and the timing of payments are described on page 89. Amounts distributed are paid by the TI Employees Health Benefit Trust.
Deferred compensation plan. The purpose of this plan is described on page 79. The amounts payable under this program depend solely on the performance of investments that the participant has chosen for his plan balance. The timing of payments is discussed on page 90. Amounts distributed are paid by the company.
Equity compensation. Depending on the circumstances of termination, grantees whose employment terminates may retain the right to exercise previously granted stock options and receive shares under outstanding RSU awards. Please see pages 85-86. RSU awards include a right to receive dividend equivalents. The dividend equivalents are paid annually by the company in a single cash payment after the last dividend payment of the year.
Perquisites. Financial counseling is available to executive officers in the year after retirement. Otherwise, no perquisites continue after termination of employment.
In the case of a resignation pursuant to a separation arrangement, an executive officer (like other employees above a certain job grade level) will typically be offered a 12-month paid leave of absence before termination, in exchange for a non-compete and non-solicitation commitment and a release of claims against the company. The leave period will be credited to years of service under the pension plans described above. During the leave, the executive officers stock options will continue to become exercisable and his RSUs will continue to vest. Amounts paid to an individual during a paid leave of absence are not counted when calculating benefits under the qualified and non-qualified pension plans.
In the case of a separation arrangement in which the paid leave of absence expires when the executive officer will be at least 50 years old and have at least 15 years of employment with the company, the separation arrangement will typically include an unpaid leave of absence, to commence at the end of the paid leave and end when the executive officer has reached the earlier of age 55 with at least 20 years of employment or age 60 (bridge to retirement). The bridge to retirement will be credited to years of service under the qualified and non-qualified defined benefit plans described above. Stock options will continue to become exercisable and RSUs will remain in effect, but for grants made before 2013, the number of RSUs will be reduced as described in note * on page 86.
The table below shows the potential payments upon termination or change in control for each of the named executive officers.
AUDIT COMMITTEE REPORT
The Audit Committee of the board of
directors has furnished the following report:
PROPOSAL TO RATIFY APPOINTMENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
The Audit Committee of the board has
the authority and responsibility for the appointment, compensation, retention
and oversight of the work of TIs independent registered public accounting firm.
The Audit Committee has appointed Ernst & Young LLP to be TIs independent
registered public accounting firm for 2014.
Audit fees. Ernst & Youngs Audit Fees were $8,662,000 in 2013 and $8,384,000 in 2012. The services provided in exchange for these fees were our annual audit, including the audit of internal control over financial reporting, reports on Form 10-Q, assistance with public debt offerings, and statutory audits required internationally.
Audit-related fees. In addition to the Audit Fees, the company paid Ernst & Young $685,000 in 2013 and $761,000 in 2012. The services provided in exchange for these fees included acquisition due diligence and related procedures, employee benefit plan audits, certification procedures relating to compliance with local-government or other regulatory standards for various non-U.S. subsidiaries, and access to Ernst & Youngs online research tool.
Tax fees. Ernst & Youngs fees for professional services rendered for tax compliance (preparation and review of income tax returns and other tax-related filings) and tax advice on U.S. and foreign tax matters were $1,836,000 in 2013 and $4,380,000 in 2012.
All other fees. Ernst & Youngs fees for all other professional services rendered were $95,000 in 2013 and $635,000 in 2012 for assistance with insurance claims, the TI Foundation audit and training.
Pre-approval policy. The Audit
Committee is required to pre-approve the audit and non-audit services to be
performed by the independent registered public accounting firm in order to
assure that the provision of such services does not impair the firms