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Texas Instruments DEF 14A 2015

United States Securities and
Exchange Commission
Washington, D.C. 20549
 
SCHEDULE 14A
 
(Rule 14a-101)
 
INFORMATION REQUIRED IN PROXY STATEMENT
 
SCHEDULE 14A INFORMATION
 
Proxy Statement Pursuant to Section 14(a) of the
Securities Exchange Act of 1934 (Amendment No. )
 
Filed by the Registrant [X]  
Filed by a Party other than the Registrant [   ]   
 
Check the appropriate box:         
[   ]        Preliminary Proxy Statement [   ]  Soliciting Material Under Rule 14a-12
[   ]   Confidential, For Use of the
Commission Only (as permitted
by Rule 14a-6(e)(2))
   
[X]   Definitive Proxy Statement  
[   ]   Definitive Additional Materials  

  Texas Instruments Incorporated  
  (Name of Registrant as Specified In Its Charter)  
 
       
 
(Name of Person(s) Filing Proxy Statement, if Other Than the Registrant)
 

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Check box if any part of the fee is offset as provided by Exchange Act Rule 0-11(a)(2) and identify the filing for which the offsetting fee was paid previously. Identify the previous filing by registration statement number, or the form or schedule and the date of its filing.
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NOTICE OF ANNUAL MEETING OF STOCKHOLDERS

April 16, 2015


Dear Stockholder:

You are cordially invited to attend the 2015 annual meeting of stockholders on Thursday, April 16, 2015, at the cafeteria on our property at 12500 TI Boulevard, Dallas, Texas, at 9:00 a.m. (Central time). At the meeting we will consider and act upon the following matters:

the election of directors for the next year,
advisory approval of the company’s executive compensation,
ratification of the appointment of Ernst & Young LLP as the company’s independent registered public accounting firm for 2015, and
such other matters as may properly come before the meeting.

Stockholders of record at the close of business on February 17, 2015, 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.

Sincerely,
Joseph F. Hubach
Senior Vice President,
Secretary and
General Counsel

Dallas, Texas
March 4, 2015

     TEXAS INSTRUMENTS ● 2015 PROXY STATEMENT 71



TABLE OF CONTENTS

Voting procedures and quorum 72
Election of directors 73
     Nominees for directorship 74
     Director nomination process 75
     Board diversity and nominee qualifications 75
     Communications with the board 77
     Corporate governance 77
     Annual meeting attendance 78
     Director independence 78
Board organization 79
     Board and committee meetings 79
     Committees of the board 79
     Board leadership structure 81
     Risk oversight by the board 82
Director compensation 82
     2014 director compensation 84
Executive compensation 85
     Proposal regarding advisory approval of
          the company’s executive compensation 85
     Compensation Discussion and Analysis 86
     Compensation Committee report 97
     2014 summary compensation table 98
     Grants of plan-based awards in 2014 100
     Outstanding equity awards at fiscal year-end 2014 101
     2014 option exercises and stock vested 103
     2014 pension benefits 104
     2014 non-qualified deferred compensation 106
     Potential payments upon termination or
          change in control 107
Audit Committee report 110
Proposal to ratify appointment of independent
     registered public accounting firm 111
Additional information 112
     Voting securities 112
     Security ownership of certain beneficial owners 112
     Security ownership of directors and management 113
     Related person transactions 114
     Compensation committee interlocks and
          insider participation 115
     Cost of solicitation 115
     Stockholder proposals for 2016 116
     Benefit plan voting 116
     Section 16(a) beneficial ownership reporting
          compliance 116
     Telephone and Internet voting 116
     Stockholders sharing the same address 117
     Electronic delivery of proxy materials and copies
          of our Form 10-K 117
Notice regarding forward-looking statements 117
Directions and other annual meeting information 118
Appendix (Non-GAAP reconciliations) 119


PROXY STATEMENT – MARCH 4, 2015

EXECUTIVE OFFICES
12500 TI BOULEVARD, DALLAS, TEXAS 75243
MAILING ADDRESS: P.O. BOX 660199, DALLAS, TEXAS 75266-0199

Voting procedures and quorum

TI’s board of directors requests your proxy for the annual meeting of stockholders on April 16, 2015. 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, 2015. 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.

A quorum of stockholders is necessary to hold a valid meeting. If at least a majority of the shares of TI common stock issued and outstanding and entitled to vote are present in person or by proxy, a quorum will exist. Abstentions and broker non-votes are counted as present for purposes of establishing a quorum. Broker non-votes occur when a beneficial owner who holds company stock through a broker does not provide the broker with voting instructions as to any matter on which the broker is not permitted to exercise its discretion and vote without specific instruction.

72 TEXAS INSTRUMENTS ● 2015 PROXY STATEMENT     



Scheduled to be considered at the meeting are the election of directors, an advisory vote regarding approval of the company’s executive compensation and ratification of the appointment of our independent registered public accounting firm. 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.

Matter       Required Vote       Impact of Abstentions or Broker Non-Votes
Election of directors Majority of votes present in person or by proxy at the meeting and entitled to be cast in the election with respect to a nominee must be cast for that nominee. Abstentions have the same effect as votes against. Broker non-votes are not counted as votes for or against.
  
Advisory vote to approve named executive officer compensation. Majority of votes present in person or by proxy at the meeting must be cast for the proposal. Abstentions and broker non-votes have the same effect as a vote against.
         
 
Proposal to ratify appointment of independent registered public accounting firm. Majority of votes present in person or by proxy at the meeting must be cast for the proposal. Abstentions have the same effect as votes against. (Brokers are permitted to exercise their discretion and vote without specific instruction on this matter. Accordingly, there are no broker non-votes.)
    
Any other matter that may properly be submitted at the meeting. Majority of votes present in person or by proxy at the meeting must be cast for the proposal. Abstentions and broker non-votes have the same effect as votes against.
         

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 WHITMAN.

If you return a proxy that is not otherwise marked, your shares will be voted FOR each of the nominees.

     TEXAS INSTRUMENTS ● 2015 PROXY STATEMENT 73



Nominees for directorship

All of the nominees for directorship are directors of the company. For a discussion of each nominee’s qualifications to serve as a director of the company, please see pages 75-77. 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.

Directors

 

RALPH W. BABB, JR.
Age 66
Director since 2010
Chair, Audit
Committee

    

RONALD KIRK
Age 60
Director since 2013
Member, Governance and Stockholder Relations Committee

 

RUTH J. SIMMONS
Age 69
Director since 1999
Member, Audit Committee

         

MARK A. BLINN
Age 53
Director since 2013
Member, Audit Committee

PAMELA H. PATSLEY
Age 58
Director since 2004
Member,
Compensation Committee

RICHARD K. TEMPLETON
Age 56
Chairman since 2008 and director since 2003

 

DANIEL A. CARP
Age 66
Director since 1997
Member, Governance and Stockholder Relations Committee

ROBERT E. SANCHEZ
Age 49
Director since 2011
Chair, Compensation Committee

CHRISTINE TODD WHITMAN
Age 68
Director since 2003
Member, Compensation Committee

 

CARRIE S. COX
Age 57
Director since 2004
Member, Governance and Stockholder Relations Committee

WAYNE R. SANDERS
Age 67
Director since 1997
Lead Director; Chair, Governance and Stockholder Relations Committee


74 TEXAS INSTRUMENTS ● 2015 PROXY STATEMENT     



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 board’s 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.

It is a long-standing policy of the board to consider prospective board nominees recommended by stockholders. A stockholder who wishes to recommend a prospective board nominee for the G&SR Committee’s consideration can write to the Secretary of the G&SR Committee, Texas Instruments Incorporated, P.O. Box 655936, MS 8658, Dallas, TX 75265-5936. The G&SR Committee will evaluate the stockholder’s prospective board nominee in the same manner as it evaluates other nominees.

In evaluating prospective nominees, the G&SR Committee looks for the following minimum qualifications, qualities and skills:

Outstanding achievement in the individual’s personal career.
Breadth of experience.
Soundness of judgment.
Ability to make independent, analytical inquiries.
Ability to contribute to a diversity of viewpoints among board members.
Willingness and ability to devote the time required to perform board activities adequately (in this regard, the G&SR Committee will consider the number of other boards on which the individual serves as a director, and in particular the board’s policy that directors should not serve on the boards of more than three other public companies).
Ability to represent the total corporate interests of TI (a director will not be selected to, nor will he or she be expected to, represent the interests of any particular group).

Stockholders, non-employee directors, management and others may submit recommendations to the G&SR Committee.

All nominees for directorship are directors of the company.

The board believes its current size is within the desired range as stated in the board’s corporate governance guidelines.

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.

As it considered director nominees for the 2015 annual meeting, the board kept in mind that the most important issues it considers typically relate to the company’s strategic direction; succession planning for senior executive positions; the company’s financial performance; the challenges of running a large, complex enterprise, including the management of its risks; major acquisitions and divestitures; and significant research and development (R&D) and capital investment decisions. These issues arise in the context of the company’s operations, which primarily involve the manufacture and sale of semiconductors all over the world into industrial, automotive, personal electronics, communications equipment and enterprise systems markets.

As described below, each of our director nominees has achieved an extremely high level of success in his or her career, whether at multi-billion dollar multinational corporate enterprises, major U.S. universities or significant governmental organizations. In these positions, each has been directly involved in the challenges relating to setting the strategic direction and managing the financial performance, personnel and processes of large, complex organizations. Each has had exposure to effective leaders and has developed the ability to judge leadership qualities. Ten of them have experience in serving on the board of directors of at least one other major corporation, and two have served in high political office, all of which provides additional relevant experience on which each nominee can draw.

In concluding that each nominee should serve as a director, the board relied on the specific experiences and attributes listed below and on the direct personal knowledge, born of previous service on the board, that each of the nominees brings insight and the willingness to ask difficult questions to board deliberations.

     TEXAS INSTRUMENTS ● 2015 PROXY STATEMENT 75



Mr. Babb

As chairman and CEO of Comerica Incorporated and Comerica Bank (2002-present) and through a long career in banking, has gained first-hand experience in managing large, complex institutions, as well as insight into financial markets.
As Audit Committee chair at the company (April 19, 2013-present), chief financial officer of Comerica Incorporated and Comerica Bank (1995-2002), controller and later chief financial officer of Mercantile Bancorporation (1978-1995), and auditor and later audit manager at the accounting firm of Peat Marwick Mitchell & Co. (1971-1978), has gained extensive audit knowledge and experience in audit- and financial control-related matters.

Mr. Blinn

As CEO and a director of Flowserve Corporation (2009-present), has gained first-hand experience in managing a large, multinational corporation operating in global industrial markets, with ultimate management responsibility for the organization’s financial performance and significant capital and R&D investments.
As chief financial officer of Flowserve Corporation (2004-2009), chief financial officer of FedEx Kinko’s Office and Print Services Inc. (2003-2004) and vice president and controller of Centex Corporation (2000-2002), has developed a keen appreciation for audit- and financial control-related matters.

Mr. Carp

As chairman and CEO (2000-2005) and president (1997-2001, 2002-2003) of Eastman Kodak Company, has gained first-hand experience in managing a large, multinational corporation focused on worldwide electronics markets, with ultimate management responsibility for the corporation’s financial performance and its significant investments in capital and R&D.
As chairman of the board of directors of Delta Air Lines, Inc. (2007-present), a director of Norfolk Southern Corporation (2006-present) and a director of Liz Claiborne, Inc. (2006-2009), has helped oversee the strategy and operations of major multinational corporations in various industries, including some that are capital-intensive.

Ms. Cox

As chairman (2013-present), CEO and a director (2010-present) of Humacyte, Inc., executive vice president and president of Global Pharmaceuticals at Schering-Plough Corporation (2003-2009) and executive vice president and president of Global Prescription Business at Pharmacia Corporation (1997-2003), has gained first-hand experience in managing large, multinational organizations focused on medical-related markets, with responsibility for those organizations’ financial performance and significant capital and R&D investments. Is also a director of Cardinal Health, Inc. (2009-present) and Celgene Corporation (2009-present).

Mr. Kirk

As U.S. Trade Representative (2009-2013), has gained first-hand experience in managing a complex organization that operates on an international scale and developed insight into issues bearing on global economic activity, international trade policies and strategies and the workings of foreign governments.
As Senior Of Counsel of Gibson, Dunn & Crutcher LLP (2013-present), and as a partner of Vinson & Elkins, LLP (2005-2009), has gained first-hand experience as an advisor to numerous multinational companies.
As a director of Brinker International, Inc. (1997-2009) and Dean Foods Company (1997-2009), has helped oversee the strategy and operations of other large corporations.

Ms. Patsley

As chairman and CEO (2009-present) of MoneyGram International, Inc., senior executive vice president of First Data Corporation (2000-2007) and president and CEO of Paymentech, Inc. (1991-2000), has gained first-hand experience in managing large, multinational organizations, including the application of technology in the financial services sector, with ultimate management responsibility for their financial performance and significant capital investments.
As Audit Committee chair at the company (2006-April 18, 2013), a member of the audit committee at Dr Pepper Snapple Group, Inc., chief financial officer of First USA, Inc. (1987-1994) and an auditor at KPMG Peat Marwick for almost six years before joining First USA, has developed a keen appreciation for audit- and financial control-related matters.
As a director of Dr Pepper Snapple Group, Inc. (2008-present) and a director of Molson Coors Brewing Company (2005-2009), has helped oversee the strategy and operations of other major multinational corporations.

76 TEXAS INSTRUMENTS ● 2015 PROXY STATEMENT     



Mr. Sanchez

As chairman and CEO (2013-present), president (2012-2014) and chief operating officer (2012) of Ryder System, Inc., and as president of its Global Fleet Management Solutions business segment (2010-2012), has gained first-hand experience in managing a large, multinational, transportation-related organization, with responsibility for the organization’s financial performance and significant capital investments.
As executive vice president and chief financial officer (2007-2010) and as senior vice president and chief information officer (2003-2005) of Ryder System, Inc., has developed a keen appreciation for audit- and financial control-related issues and gained first-hand experience with all technology-related functions of a large, multinational corporation focused on transportation and logistics.

Mr. Sanders

As chairman (1992-2003) and CEO (1991-2002) of Kimberly-Clark Corporation, has gained first-hand experience in managing a large, multinational consumer goods corporation, with ultimate management responsibility for its financial performance and its significant capital and R&D investments.
As chairman of Dr Pepper Snapple Group, Inc. (2008-present) and a director of Belo Corporation (2003-2013), has helped oversee the strategy and operations of other large corporations.

Ms. Simmons

As president of Brown University (2001-2012) and president of Smith College (1995-2001), has gained first-hand experience in managing large, complex institutions, and developed deep insight into the development and training of professionals, including engineers, scientists and technologists, on whom the company relies for its next generation of employees.
As a director of Fiat Chrysler Automobiles N.V. (2014-present), Chrysler Group LLC (2012-2014) and Mondelez International, Inc. (2012-present) and as a former director of The Goldman Sachs Group, Inc. (2000-2010), has helped oversee the strategy and operations of other large corporations.

Mr. Templeton

As a 34-year veteran of the semiconductor industry, serving the last 19 years at a senior level at the company, including as chairman since 2008, CEO since 2004 and director since 2003, has developed a deep knowledge of all aspects of the company and of the semiconductor industry.

Ms. Whitman

As Administrator of the Environmental Protection Agency (2001-2003) and Governor of the state of New Jersey (1994-2000), has gained first-hand experience managing a large, complex organization and developed keen insight into the workings of government on the federal and state level and how they might impact company operations.
As a director of S.C. Johnson & Son, Inc. (2003-present) and United Technologies Corp. (2003-present), has helped oversee the strategy and operations of other large corporations.

Communications with the board

Stockholders and others who wish to communicate with the board, a board committee or an individual director, 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, committee or individual director as applicable.

Corporate governance

The board has a long-standing commitment to responsible and effective corporate governance. We annually conduct extensive governance reviews and engage in investor outreach specific to governance and executive compensation matters. The board’s corporate governance guidelines (which include the director independence standards), the charters of each of the board’s committees, TI’s 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.

     TEXAS INSTRUMENTS ● 2015 PROXY STATEMENT 77



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 2014, all directors attended TI’s annual meeting of stockholders.

Director independence

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.

A.      In no event will a director be considered independent if:
1.      He or she is a current partner of or is employed by the company’s independent auditors;
2. A family member of the director is (a) a current partner of the company’s independent auditors or (b) currently employed by the company’s independent auditors and personally works on the company’s audit;
3. Within the current or preceding three fiscal years he or she was, and remains at the time of the determination, a partner in or a controlling shareholder, an executive officer or an employee of an organization that in the current year or any of the past three fiscal years (a) made payments to, or received payments from, the company for property or services, (b) extended loans to or received loans from, the company, or (c) received charitable contributions from the company, in an amount or amounts which, in the aggregate in such fiscal year, exceeded the greater of $200,000 or 2 percent of the recipient’s consolidated gross revenues for that year (for purposes of this standard, “payments” excludes payments arising solely from investments in the company’s securities and payments under non-discretionary charitable contribution matching programs); or
4. Within the current or preceding three fiscal years a family member of the director was, and remains at the time of the determination, a partner in or a controlling shareholder or an executive officer of an organization that in the current year or any of the past three fiscal years (a) made payments to, or received payments from, the company for property or services, (b) extended loans to or received loans from the company, or (c) received charitable contributions from the company, in an amount or amounts which, in the aggregate in such fiscal year, exceeded the greater of $200,000 or 2 percent of the recipient’s consolidated gross revenues for that year (for purposes of this standard, “payments” excludes payments arising solely from investments in the company’s securities and payments under non-discretionary charitable contribution matching programs).
  
B. In no event will a director be considered independent if, within the preceding three years:
1. He or she was employed by the company (except in the capacity of interim chairman of the board, chief executive officer or other executive officer, provided the interim employment did not last longer than one year);
2. He or she received more than $120,000 during any twelve-month period in compensation from the company (other than (a) compensation for board or board committee service, (b) compensation received for former service lasting no longer than one year as an interim chairman of the board, chief executive officer or other executive officer and (c) benefits under a tax-qualified retirement plan, or non-discretionary compensation);
3. A family member of the director was employed as an executive officer by the company;
4. A family member of the director received more than $120,000 during any twelve-month period in compensation from the company (excluding compensation as a non-executive officer employee of the company);
5. He or she was (but is no longer) a partner or employee of the company’s independent auditors and worked on the company’s audit within that time;
6. A family member of the director was (but is no longer) a partner or employee of the company’s independent auditors and worked on the company’s audit within that time;
7. He or she was an executive officer of another entity at which any of the company’s current executive officers at any time during the past three years served on that entity’s compensation committee; or
8. A family member of the director was an executive officer of another entity at which any of the company’s current executive officers at any time during the past three years served on that entity’s compensation committee.
  
C. No member of the Audit Committee may accept directly or indirectly any consulting, advisory or other compensatory fee from the company, other than in his or her capacity as a member of the board or any board committee. Compensatory fees do not include the receipt of fixed amounts of compensation under a retirement plan (including deferred compensation) for prior service with the company (provided that such compensation is not contingent in any way on continued service). In addition, no member of the Audit Committee may be an affiliated person of the company except in his or her capacity as a director.

78 TEXAS INSTRUMENTS ● 2015 PROXY STATEMENT     



D.      With respect to service on the Compensation Committee, the board will consider all factors that it deems relevant to determining whether a director has a relationship to the company that is material to that director’s ability to be independent from management in connection with the duties of a Compensation Committee member, including but not limited to:
1.      The source of compensation of the director, including any consulting, advisory or compensatory fee paid by the company to the director; and
2. Whether the director is affiliated with the company, a subsidiary of the company or an affiliate of a subsidiary of the company.
 
E. For any other relationship, the determination of whether it would interfere with the director’s exercise of independent judgment in carrying out his or her responsibilities, and consequently whether the director involved is independent, will be made by directors who satisfy the independence criteria set forth in this section.

For purposes of these independence determinations, “company” and “family member” will have the same meaning as under NASDAQ rules.

Board organization

Board and committee meetings

During 2014, the board held nine meetings. The board has three standing committees described below. The committees of the board collectively held 20 meetings in 2014. Each director attended at least 87 percent of the board and relevant committee meetings combined. Overall attendance at board and committee meetings was approximately 97 percent.

Committees of the board

Audit Committee

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 board’s corporate governance guidelines. Since April 19, 2013, the committee members have been Mr. Babb (Chair), Mr. Blinn and Ms. Simmons. The Audit Committee is generally responsible for:

Appointing, compensating, retaining and overseeing TI’s independent registered public accounting firm.
Reviewing the annual report of TI’s independent registered public accounting firm related to quality control.
Reviewing TI’s annual and quarterly reports to the SEC, including the financial statements and the “Management’s Discussion and Analysis” portion of those reports, and recommending appropriate action to the board.
Reviewing TI’s audit plans.
Reviewing before issuance TI’s news releases regarding annual and interim financial results and discussing with management any related earnings guidance that may be provided to analysts and rating agencies.
Discussing TI’s audited financial statements with management and the independent registered public accounting firm, including a discussion with the firm regarding the matters required to be reviewed under applicable legal or regulatory requirements.
Reviewing relationships between the independent registered public accounting firm and TI.
Reviewing and discussing the adequacy of TI’s internal accounting controls and other factors affecting the integrity of TI’s financial reports with management and with the independent registered public accounting firm.
Creating and periodically reviewing TI’s whistleblower policy.
Reviewing TI’s risk assessment and risk management policies.
Reviewing TI’s compliance and ethics program.
Reviewing a report of compliance of management and operating personnel with TI’s code of business conduct, including TI’s conflict of interest policy.
Reviewing TI’s non-employee-related insurance programs.
Reviewing changes, if any, in major accounting policies of the company.
Reviewing trends in accounting policy changes that are relevant to the company.
Reviewing the company’s policy regarding investments and financial derivative products.

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.

     TEXAS INSTRUMENTS ● 2015 PROXY STATEMENT 79



The Audit Committee met six times in 2014. 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 110 for a report of the committee.

Compensation Committee

All members of the Compensation Committee are independent. From April 19, 2013, to April 17, 2014, the committee members were Ms. Cox (Chair), Ms. Patsley and Mr. Sanchez. Since April 18, 2014, the committee members have been Mr. Sanchez (chair), Ms. Patsley and Ms. Whitman. The committee is responsible for:

Reviewing the performance of the CEO and determining his compensation.
Setting the compensation of the company’s other executive officers.
Overseeing administration of employee benefit plans.
Making recommendations to the board regarding:
Institution and termination of, revisions in and actions under employee benefit plans that (i) increase benefits only for officers of the company or disproportionately increase benefits for officers of the company more than other employees of the company, (ii) require or permit the issuance of the company’s stock or (iii) the board must approve.
Reservation of company stock for use as awards of grants under plans or as contributions or sales to any trustee of any employee benefit plan.
Taking action as appropriate regarding the institution and termination of, revisions in and actions under employee benefit plans that are not required to be approved by the board.
Appointing, setting the compensation of, overseeing and considering the independence of any compensation consultant or other advisor.

The Compensation Committee met seven times in 2014. The Compensation Committee holds regularly scheduled meetings, reports its activities to the board, and consults with the board before setting annual executive compensation. Please see page 97 for a report of the committee.

In performing its functions, the committee is supported by the company’s 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 2014 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 committee’s charter. Additionally, the committee instructed the consultant to assist the company’s 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.

The Compensation Committee considers it important that its compensation consultant’s objectivity not be compromised by other engagements with the company or its management. In support of this belief, the committee has a policy on compensation consultants, a copy of which may be found on www.ti.com/corporategovernance. During 2014, the committee determined that its compensation consultant was independent of the company and had no conflict of interest.

The Compensation Committee considers executive compensation in a multistep process that involves the review of market information, performance data and possible compensation levels over several meetings leading to the annual determinations in January. Before setting executive compensation, the committee reviews the total compensation and benefits of the executive officers and considers the impact that their retirement, or termination under various other scenarios, would have on their compensation and benefits.

The CEO and the senior vice president responsible for Human Resources, who is an executive officer, are regularly invited to attend meetings of the committee. The CEO is excused from the meeting during any deliberations or vote on his compensation. No executive officer determines his or her own compensation or the compensation of any other executive officer. As members of the board, the members of the committee receive information concerning the performance of the company during the year and interact with our management. The CEO gives the committee and the board an assessment of his own performance during the year just ended. He also reviews the performance of the other executive officers with the committee and makes recommendations regarding their compensation. The senior vice president responsible for Human Resources assists in the preparation of and reviews the compensation recommendations made to the committee other than for her compensation.

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The Compensation Committee’s charter provides that it may delegate its power, authority and rights with respect to TI’s long-term incentive plans, employee stock purchase plan and employee benefit plans to (i) one or more committees of the board established or delegated authority for that purpose; or (ii) employees or committees of employees except that no such delegation may be made with respect to compensation of the company’s executive officers.

Pursuant to that authority, the Compensation Committee has delegated to a special committee established by the board the authority to grant a limited number of stock options and restricted stock units under the company’s long-term incentive plans. The sole member of the special committee is Mr. Templeton. The special committee has no authority to grant, amend or terminate any form of compensation for TI’s executive officers. The Compensation Committee reviews the grant activity of the special committee.

Governance and Stockholder Relations Committee

All members of the G&SR Committee are independent. From April 19, 2013 to April 17, 2014, the committee members were Ms. Whitman (Chair), Mr. Carp and Mr. Sanders, with Mr. Kirk joining the committee on September 19, 2013. Since April 18, 2014, the committee members have been Mr. Sanders (chair), Mr. Carp, Ms. Cox and Mr. Kirk. The G&SR Committee is generally responsible for:

Making recommendations to the board regarding:
The development and revision of our corporate governance principles.
  The size, composition and functioning of the board and board committees.
  Candidates to fill board positions.
Nominees to be designated for election as directors.
  Compensation of board members.
Organization and responsibilities of board committees.
  Succession planning by the company.
Issues of potential conflicts of interest involving a board member raised under TI’s conflict of interest policy.
  Election of executive officers of the company.
Topics affecting the relationship between the company and stockholders.
  Public issues likely to affect the company.
Responses to proposals submitted by stockholders.
Reviewing:
Contribution policies of the company and the TI Foundation.
  Revisions to TI’s code of ethics.
Electing officers of the company other than the executive officers.
Overseeing an annual evaluation of the board and the committee.

The G&SR Committee met seven times in 2014. The G&SR Committee holds regularly scheduled meetings and reports its activities to the board. Please see page 75 for a discussion of stockholder nominations and page 77 for a discussion of communications with the board.

Board leadership structure

The board’s 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 Mr. Sanders to serve as lead director. The duties of the lead director are to:

Preside at all meetings of the board at which the chairman is not present, including executive sessions of the independent directors;
Serve as liaison between the chairman and the independent directors;
Approve information sent to the board;
Approve meeting agendas for the board;
Approve meeting schedules to assure that there is sufficient time for discussion of all agenda items; and
If requested by major shareholders, ensure that he or she is available for consultation and direct communication.

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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 board’s leadership structure. The board’s consideration is guided by two questions: would stockholders be better served and would the board be more effective with a different structure. The board’s 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 board’s goal is for each director to have an equal stake in the board’s 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 management’s responsibility to assess and manage the various risks TI faces. It is the board’s 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.

Management generally views the risks TI faces as falling into the following categories: strategic, operational, financial and compliance. The board as a whole has oversight responsibility for the company’s strategic and operational risks (e.g., major initiatives, competitive markets and products, sales and marketing, and research and development). Throughout the year the CEO discusses these risks with the board during strategy reviews that focus on a particular business or function. In addition, at the end of the year, the CEO provides a formal report on the top strategic and operational risks.

TI’s Audit Committee has oversight responsibility for financial risk (such as accounting, finance, internal controls and tax strategy). Oversight responsibility for compliance risk is shared by the board committees. For example, the Audit Committee oversees compliance with the company’s code of conduct and finance- and accounting-related laws and policies, as well as the company’s compliance program itself; the Compensation Committee oversees compliance with the company’s executive compensation plans and related laws and policies; and the G&SR Committee oversees compliance with governance-related laws and policies, including the company’s corporate governance guidelines.

The Audit Committee oversees the company’s approach to risk management as a whole. It reviews the company’s risk management process at least annually by means of a presentation by the CFO.

The board’s leadership structure is consistent with the board and committees’ roles in risk oversight. As discussed above, the board has found that its current structure and practices are effective in fully engaging the independent directors. Allocating various aspects of risk oversight among the committees provides for similar engagement. Having the chairman and CEO review strategic and operational risks with the board ensures that the director most knowledgeable about the company, the industry in which it operates and the competition and other challenges it faces shares those insights with the board, providing for a thorough and efficient process.

Director compensation

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 TI’s 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 in 2014 for the non-employee directors were:

Annual retainer of $80,000 for board and committee service.
Additional annual retainer of $25,000 for service as the lead director.

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Additional annual retainer of $30,000 for service as chair of the Audit Committee; $20,000 for service as chair of the Compensation Committee; and $15,000 for service as chair of the G&SR Committee.
Annual grant of a 10-year option to purchase TI common stock pursuant to the terms of the Texas Instruments 2009 Director Compensation Plan (Director Plan), which was approved by stockholders in April 2009. The grant date value is $100,000, determined using a Black-Scholes option-pricing model (subject to the board’s ability to adjust the grant downward). These non-qualified options become exercisable in four equal annual installments beginning on the first anniversary of the grant and also will become fully exercisable in the event of termination of service following a change in control (as defined in the Director Plan) of TI. If a director’s service terminates due to death, disability or ineligibility to stand for re-election under the company’s by-laws, or after the director has completed eight years of service, then all outstanding options held by the director shall continue to full term. If a director’s service terminates for any other reason, all outstanding options held by the director shall be exercisable for 30 days after the date of termination, but only to the extent such options were exercisable on the date of termination.
Annual grant of restricted stock units pursuant to the Director Plan with a grant date value of $100,000 (subject to the board’s ability to adjust the grant downward). The restricted stock units vest on the fourth anniversary of their date of grant and upon a change in control as defined in the Director Plan. If a director is not a member of the board on the fourth anniversary of the grant, restricted stock units will nonetheless settle (i.e., the shares will issue) on such anniversary date if the director has completed eight years of service prior to termination or the director’s termination was due to death, disability or ineligibility to stand for re-election under the company’s by-laws. The director may defer settlement of the restricted stock units at his or her election. Upon settlement, the director will receive one share of TI common stock for each restricted stock unit. Dividend equivalents are paid on the restricted stock units at the same rate as dividends on TI common stock. The director may defer receipt of dividend equivalents.
$1,000 per day compensation for other activities designated by the chairman.
A one-time grant of 2,000 restricted stock units upon a director’s initial election to the board.

The board has determined that annual 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 95.

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 Moody’s Seasoned Aaa Corporate Bonds. For 2014, that rate was 4.56 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.

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2014 director compensation

The following table shows the compensation of all persons who were non-employee members of the board during 2014 for services in all capacities to TI in 2014.

Change in
Pension
Value and
Non-Equity Nonqualified    
Fees Earned or Stock Option Incentive Plan Deferred All Other
      Paid in       Awards       Awards       Compensation       Compensation         Compensation      
Name Cash ($) (1) ($) (2) ($) (3) ($) Earnings (4) ($) (5) Total ($)
R. W. Babb, Jr.     110,000     99,996   99,993             40     310,029
M. A. Blinn 80,000 99,996 99,993 40 280,029
D. A. Carp     80,000     99,996   99,993             779     280,768
C. S. Cox 95,000 $ 99,996 $ 99,993 2,352 $ 9,040 $ 306,381
R. Kirk     $ 80,000     $ 99,996   $ 99,993             $ 40     $ 280,029
P. H. Patsley $ 80,000 $ 99,996 $ 99,993 $ 40 $ 280,029
R. E. Sanchez     $ 93,333     $ 99,996   $ 99,993             $ 10,040     $ 303,362
W. R. Sanders $ 106,667 $ 99,996 $ 99,993 $ 779 $ 307,435
R. J. Simmons     $ 80,000     $ 99,996   $ 99,993     471       $ 40     $ 280,500
C. T. Whitman $ 85,000 $ 99,996 $ 99,993 $ 40 $ 285,029

(1) Includes amounts deferred at the director’s election.
 
(2)     Shown is the aggregate grant date fair value of awards granted in 2014 calculated in accordance with Financial Accounting Standards Board Accounting Standards Codification™ Topic 718, Compensation-Stock Compensation (ASC 718). The discussion of the assumptions used for purposes of calculating the grant date fair value appears in Note 5 to the financial statements contained in Item 8 (“Note 5 to the Financial Statements”) in TI’s annual report on Form 10-K for the year ended December 31, 2014.
 
The table below shows the aggregate number of shares underlying outstanding restricted stock units held by the named individuals as of December 31, 2014.
 
Restricted
Stock Units
Name       (in Shares)
R. W. Babb, Jr. 13,293
M. A. Blinn 4,268
D. A. Carp 29,957
C. S. Cox 23,293
R. Kirk 4,268
P. H. Patsley 13,293
R. E. Sanchez 10,406
W. R. Sanders 20,893
R. J. Simmons 29,293
C. T. Whitman 20,793

Each restricted stock unit represents the right to receive one share of TI common stock. For restricted stock units granted prior to 2007, shares are issued at the time of mandatory retirement from the board (age 70) or upon the earlier of termination of service from the board after completing eight years of service or death or disability. For information regarding share issuances under restricted stock units granted after 2006, please see the discussion on page 83.
 
(3)     Shown is the aggregate grant date fair value of awards granted in 2014 calculated in accordance with ASC 718. The discussion of the assumptions used for purposes of calculating the grant date fair value appears in Note 5 to the Financial Statements in TI’s annual report on Form 10-K for the year ended December 31, 2014.

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The table below shows the aggregate number of shares underlying outstanding stock options held by the named individuals as of December 31, 2014.

Options
Name      (in Shares)
R. W. Babb, Jr. 49,206
M. A. Blinn 12,299
D. A. Carp 92,206
C. S. Cox 92,206
R. Kirk 12,299
P. H. Patsley 92,206
R. E. Sanchez 39,204
W. R. Sanders 64,206
R. J. Simmons 49,206
C. T. Whitman 92,206

The terms of these options are as set forth on page 83 except that for options granted before November 2006, the exercise price is the average of the high and low price of TI common stock on the date of grant, and for options granted before 2010, the grant becomes fully exercisable upon a change in control of TI.
 
(4)      SEC rules require the disclosure of earnings on deferred compensation to the extent that the interest rate exceeds a specified rate (Federal Rate), which is 120 percent of the applicable federal long-term interest rate with compounding. Under the terms of the Director Plan, deferred compensation cash amounts earn interest at a rate based on Moody’s Seasoned Aaa Corporate Bonds. For 2014, this interest rate exceeded the Federal Rate by 0.69 percentage points. Shown is the amount of interest earned on the directors’ deferred compensation accounts that was in excess of the Federal Rate.
 
(5) Consists of (a) the annual cost ($40 per director) of premiums for travel and accident insurance policies, (b) contributions under the TI Foundation matching gift program of $10,000 for Mr. Sanchez and $9,000 for Ms. Cox and (c) for Messrs. Carp and Sanders, third-party administration fees for the Director Award Program. Each director whose service commenced prior to June 20, 2002, is eligible to participate in the Director Award Program, a charitable donation program under which we will contribute a total of $500,000 per eligible director to as many as three educational institutions recommended by the director and approved by us. The contributions are made following the director’s death. Directors receive no financial benefit from the program, and all charitable deductions belong to the company. In accordance with SEC rules, we have included the company’s annual costs under the program in All Other Compensation of the directors who participate. The cost attributable to each of Messrs. Carp and Sanders for their participation in this program was $739.

Executive compensation

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 company’s 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 98-110.

Specifically, we ask the shareholders to approve the following resolution:

RESOLVED, that the compensation paid to the company’s named executive officers, as disclosed in this proxy statement pursuant to the Securities and Exchange Commission’s compensation disclosure rules, including the Compensation Discussion and Analysis, compensation tables and narrative discussion on pages 86-110 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 2014. 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.

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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 2014, as disclosed in this proxy statement.

Compensation Discussion and Analysis

This section describes TI’s compensation program for executive officers. It will provide insight into the following:

The elements of the 2014 compensation program, why we selected them and how they relate to one another; and
How we determined the amount of compensation for 2014.

Currently, TI has 10 executive officers. These executives have the broadest job responsibilities and policy-making authority in the company. We hold them accountable for the company’s 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 2014 (collectively called the “named executive officers”) can be found in the tables beginning on page 98.

Executive summary

TI’s compensation program is structured to pay for performance and deliver rewards that encourage executives to think and act in both the short- and long-term interests of our shareholders. The majority of total compensation for our executives each year comes in the form of variable cash and equity compensation. Variable cash is tied to the short-term performance of the company, and the value of equity is tied to the long-term performance of the company. We believe our compensation program holds our executive officers accountable for the financial and competitive performance of TI.
2014 compensation decisions for the CEO:
Base salary was increased by 3.3 percent over 2013.
The grant date fair value of equity compensation awarded in 2014 was 5 percent higher than in 2013.
The bonus decision was based primarily on the following performance results in 2014:

         2014 Absolute Performance 2014 Relative Performance **
 Revenue Growth: Total TI
 Revenue Growth without legacy wireless products *
  6.9%
11.0%
  Median
Above Median
   Profit from Operations as a % of Revenue (PFO%)   30.3%   Above Median
 Total Shareholder Return (TSR) 25.1% Above Median
 
   Year-on-Year Change in CEO Bonus
(2014 bonus compared to 2013)       
15% change  

* Revenue growth for total TI excluding wireless products that we exited by year-end 2013. See note 3 on page 92.
 
           **     Relative to semiconductor competitors as outlined on page 91. Includes estimates and projections of certain competitors’ financial results. See pages 92-93 for details of the Compensation Committee’s assessment of TI’s performance.

Our executive compensation program is designed to encourage executive officers to pursue strategies that serve the interests of the company and shareholders, and not to promote excessive risk-taking by our executives. It is built on a foundation of sound corporate governance and includes:
Executive officers do not have employment contracts and are not guaranteed salary increases or bonus amounts.
We have never repriced stock options. We do not grant reload options. We grant equity compensation with double-trigger change-in-control terms, which accelerate the vesting of grants only if the grantee has been terminated involuntarily within a limited time after a change in control of the company.

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Bonus and equity compensation awards are subject to clawback under the committee’s policy described on page 95.
We do not provide excessive perquisites. We provide no tax gross-ups for perquisites.
We do not guarantee a return or provide above-market returns on compensation that has been deferred.
Pension benefits are calculated on salary and bonus only; the proceeds earned on equity or other performance awards are not part of the pension calculation.

The committee’s 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 2014 are discussed on pages 89-94. Benefit programs in which the executive officers participate are discussed on pages 95-96. Perquisites are discussed on page 96.

Detailed discussion

Compensation philosophy and elements
The Compensation Committee of TI’s 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

Element       Purpose       Strategy       Terms

Base salary

Basic, least variable form of compensation

Pay below market median in order to weight total compensation to the performance-based elements described below in this chart. Paid twice monthly
 

Profit sharing

Broad-based program designed to emphasize that each employee contributes to the company’s profitability and can share in it

Pay according to a formula that focuses employees on a company goal, and at a level that will affect behavior. Profit sharing is paid in addition to any performance bonus awarded for the year.

For the last ten years, the formula has been based on company-level annual operating profit margin. The formula was set by the TI board. The committee’s practice has been not to adjust amounts earned under the formula.

Payable in a single cash payment shortly after the end of the performance year

As in recent years, the formula for 2014 was:

Below 10% company-level annual operating profit as a percentage of revenue (“Margin”): no profit sharing
At 10% Margin: profit sharing = 2% of base salary
At Margin above 10%: profit sharing increases by 0.5% of base salary for each percentage point of Margin between 10% and 24%, and 1% of base salary for each percentage point of Margin above 24%. The maximum profit sharing is 20% of base salary.

In 2014, TI delivered Margin of 30.3%. As a result, all eligible employees, including executive officers, received profit sharing of 15.3% of base salary.


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Element       Purpose       Strategy       Terms

Performance bonus

To motivate executives and reward them according to the company’s relative and absolute performance and the executive’s individual performance

Determined primarily on the basis of one-year and three-year company performance on certain measures (revenue growth percent, operating margin and total shareholder return1) as compared to competitors and on our strategic progress in key markets and with customers. These factors have been chosen to reflect our near-term financial performance as well as our progress in building long-term shareholder value.

The committee aims to pay total cash compensation (base salary, profit sharing and bonus) appropriately above median if company performance is above that of competitors, and pay total cash compensation appropriately below the median if company performance is below competitors.

The committee does not rely on formulas or performance targets or thresholds. Instead it uses its judgment based on its assessment of the factors described above.

Determined by the committee and paid in a single payment after the performance year
 
Long-term compensation, awarded in equity
   

Stock options
and restricted
stock units

 

Alignment with shareholders; long-term focus; retention, particularly with respect to restricted stock units

 

We grant a combination of nonqualified stock options and restricted stock units, generally targeted at the median level of equity compensation awarded to executives in similar positions at the Comparator Group.

 

The terms and conditions of stock options and restricted stock units are summarized on pages 102-103. The committee’s grant procedures are described on page 95.


Comparator group
The Compensation Committee considers the market level of compensation when setting the salary, bonuses and equity compensation of the executive officers. The committee targets salary below market median in order to weight total compensation to performance-based elements. To estimate the market level of pay, the committee uses information provided by its compensation consultant and TI’s Compensation and Benefits organization about compensation paid to executives in similar positions at a peer group of companies (the “Comparator Group”).

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 TI’s.

Shown in the table below is the Comparator Group used for the compensation decisions for 2014.

Analog Devices, Inc. Intel Corporation
Applied Materials, Inc. Motorola Solutions, Inc.
Broadcom Corporation QUALCOMM Incorporated
Computer Sciences Corporation Seagate Technology
eBay Inc. TE Connectivity Ltd.
EMC Corporation Western Digital Corporation
Emerson Electric Co. Xerox Corporation
____________________

1     Total shareholder return refers to the percentage change in the value of a stockholder’s investment in a company over the relevant time period, as determined by dividends paid and the change in the company’s share price during the period. See page 93.

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The committee set the Comparator Group in July 2013 for the base salary and equity compensation decisions it made in January 2014. For a discussion of the factors considered by the committee in setting the Comparator Group, please see page 72 of the company’s 2014 proxy statement.

In July 2014, the committee conducted its regular review of the Comparator Group in terms of industry, revenue and market capitalization. With the advice of its compensation consultant, the committee determined that the group was still comparable overall to TI. Accordingly, it used the same Comparator Group for the bonus decisions in January 2015 relating to 2014 performance as it used to set salary and equity compensation in January 2014. The table below compares the group to TI in terms of revenue and market capitalization.

       Revenue       Market Cap
Company ($ billion) * ($ billion) *
Intel Corporation     55.0          174.9     
QUALCOMM Corporation 26.5 123.3
Emerson Electric Co. 24.5 42.6
EMC Corporation 24.1 60.4
Xerox Corporation 21.1 15.6  
eBay Inc. 17.5 69.6
Western Digital Corporation 15.3 25.5
TE Connectivity Ltd. 14.1 25.5
Seagate Technology 14.0 21.6
Computer Sciences Corporation 12.9 8.8
Applied Materials, Inc. 9.1   30.2
Broadcom Corporation 8.3 25.4
Motorola Solutions, Inc. 6.6 16.0
Analog Devices, Inc. 2.9 17.3
 
Median 14.7 25.5
Texas Instruments Incorporated 13.0 56.3

* Trailing four-quarter revenue as reported by Thomson Reuters on February 2, 2015. Market capitalization as of December 31, 2014.

Analysis of compensation determinations for 2014

Total compensation
Before finalizing the compensation of the executive officers, the committee reviewed all elements of compensation. The information included total cash compensation (salary, profit sharing and projected bonus), the grant date fair value of equity compensation, the impact that proposed compensation would have on other compensation elements such as pension, and a summary of benefits that the executives would receive under various termination scenarios. The review enabled the committee to see how various compensation elements relate to one another and what impact its decisions would have on the total earnings opportunity of the executives. In assessing the information, the committee did not target a specific level of total compensation or use a formula to allocate compensation among the various elements. Instead, it used its judgment in assessing whether the total was consistent with the objectives of the program. Based on this review, the committee determined that the level of compensation was appropriate.

Base salary
The committee set the 2014 rate of base salary for the named executive officers as follows:

      Change from
Officer       2014 Annual Rate 2013 Annual Rate
R. K. Templeton   $ 1,110,000       3.3 %
K. P. March $ 630,000 3.3 %  
B. T. Crutcher $ 775,000  * 14.8 %
S. A. Anderson $ 550,000  * 20.9 %
K. J. Ritchie $ 650,000 4.0 %

* 2014 annual rate for Mr. Crutcher and Mr. Anderson includes salary increase approved in June 2014.

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The committee set the 2014 base-salary rate for each of the named executive officers in January 2014. 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 2014.

In June 2014, the committee increased the salary rate for Mr. Crutcher and Mr. Anderson as they assumed new leadership roles. The salary adjustments were consistent with the policy described in the preceding paragraph.

The salary differences between the named executive officers were driven primarily by the market rate of pay for each officer, and not the application of a formula designed to maintain a differential between the officers.

Equity compensation
In 2014, the committee awarded equity compensation to each of the named executive officers. The grants are shown in the Grants of plan-based awards in 2014 table on page 100. The grant date fair value of the awards is reflected in that table and in the “Stock Awards” and “Option Awards” columns of the 2014 summary compensation table on page 98. The table below is provided to assist the reader in comparing the grant date fair values and number of shares for each of the years shown in the summary compensation table.

Restricted
Grant Date           Stock Options Stock Units
Officer       Year       Fair Value *     (in Shares)       (in Shares)
R. K. Templeton 2014   9,800,034   602,692      111,137     
2013 $ 9,299,374 525,000 175,000
2012 $ 9,074,035 475,000 158,334
 
K. P. March 2014 $ 2,700,039 166,048 30,620
2013 $ 2,656,964 150,000 50,000
2012 $ 2,865,478 150,000 50,000
 
B. T. Crutcher 2014 $ 4,500,008 276,747 51,032
2013 $ 3,985,446 225,000 75,000
2012 $ 3,581,848 187,500 62,500
$ 2,760,000  ** 100,000  **
 
S. A. Anderson 2014 $ 2,700,039 166,048 30,620
$ 2,000,003  *** 41,745  ***
 
K. J. Ritchie 2014 $ 4,000,015 245,997 45,362
2013 $ 3,542,630 200,000 66,667
2012 $ 3,343,079 175,000 58,334

* See notes 2 and 3 to the summary compensation table on page 98 for information on how grant date fair value was calculated.
 
** Retention grant made in June 2012, when Mr. Crutcher assumed new responsibilities.
 
***      Retention grant made in June 2014, when Mr. Anderson assumed new responsibilities.

In January 2014, the committee awarded equity compensation to each of the named executive officers. The committee’s 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 2014) granted by the Comparator Group.

In assessing the market level, the committee considered information presented by TI’s Compensation and Benefits organization (prepared using data provided by the committee’s 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 accounting.

For each officer, the committee set the desired grant value. The committee decided to allocate the value equally between restricted stock units and options for each officer, to give equal emphasis to promoting retention, motivating the executive and aligning his interests with those of shareholders.

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Before approving the grants, the committee reviewed the amount of unvested equity compensation held by the officers to assess its retention value. In making this assessment, the committee used its judgment and did not apply any formula, threshold or maximum. This review did not result in an increase or decrease of the awards.

The exercise price of the options was the closing price of TI stock on January 23, 2014, the second trading day after the company released its annual and fourth quarter financial results for 2013. All grants were made under the Texas Instruments 2009 Long-Term Incentive Plan, which shareholders approved in April 2009.

In addition to the January 2014 awards described above, the committee awarded restricted stock units to Mr. Anderson as he assumed new and broader responsibilities in June 2014. The award was intended to increase the retention value of his outstanding equity compensation. In setting the value, the committee applied its judgment following a review of the current retention value.

All grants have the terms described on pages 102-103. The differences in the equity awards between the named executive officers were primarily the result of differences in the applicable estimated market level of equity compensation for their positions, and not the application of any formula designed to maintain differentials between the officers.

Bonus
In January 2015, the committee set the 2014 bonus compensation for executive officers based on its assessment of 2014 performance. In setting the bonuses, the committee used the following performance measures to assess the company:

The relative one-year and three-year performance of TI as compared with competitor companies, as measured by
  revenue growth,
  operating profit as a percentage of revenue,
  total shareholder return; and
The absolute one-year and three-year performance of TI on the above measures.

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 customers.

One-year relative performance on the three measures and one-year strategic progress were the primary considerations in the committee’s assessment of the company’s 2014 performance. In assessing performance, the committee did not use formulas, thresholds or multiples. Because market conditions can quickly change in our industry, thresholds established at the beginning of a year could prove irrelevant by year-end. The committee believes its approach, which assesses the company’s relative performance in hindsight after year-end, gives it the insight to most effectively and critically judge results and encourages executives to pursue strategies that serve the long-term interests of the company and its shareholders.

In the comparison of relative performance, the committee used the following companies (the “competitor companies”):2

Advanced Micro Devices, Inc. Linear Technology Corporation
Altera Corporation Marvell Technology Group Ltd.
Analog Devices, Inc. Maxim Integrated Products, Inc.
Atmel Corporation Microchip Technology Incorporated
Broadcom Corporation NVIDIA Corporation
Fairchild Semiconductor International, Inc. NXP Semiconductors N.V.
Freescale Semiconductor, Ltd. ON Semiconductor Corporation
Infineon Technologies AG QUALCOMM Incorporated
Intel Corporation STMicroelectronics N.V.
Intersil Corporation Xilinx, Inc.

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. In July 2014, the committee removed LSI Corporation from the list following its acquisition by another company. The committee made no other change to the list of competitor companies in 2014.
____________________

2      To the extent the companies had not released financial results for the year or most recent quarter, the committee based its evaluation on estimates and projections of the companies’ financial results for 2014.

     TEXAS INSTRUMENTS ● 2015 PROXY STATEMENT 91



Assessment of 2014 performance

The committee spent extensive time in December and January assessing TI’s results and strategic progress for 2014. The committee considered both quantitative and qualitative measures and applied judgment in its assessment. The company’s performance improved from the prior year on both an absolute and relative basis (see list of competitor companies above), putting it in a stronger position for the near and long terms. Commensurate with this improvement, the committee set bonuses 15 percent higher than last year for the named executive officers, with two exceptions for promotions. The assessments for each measure are below.

Revenue and margin

Annual performance

TI revenue grew 6.9 percent, consistent with the median growth rate as compared with competitor companies. However, this included a $445 million revenue decline in legacy wireless products, for which the company has had publicly stated exit plans under way for a number of years. Excluding legacy wireless products, TI’s revenue grew 11 percent, which was better than the median comparison with competitors.3
Revenues for the company’s core businesses of Analog and Embedded Processing were up 12.6 percent and 11.8 percent, respectively, resulting in share gains for each. These core businesses have gained share in each of the last five years.

Operating profit margin was 30.3 percent, above the median comparison with competitors.
  

Three-year performance

Compound annual revenue growth for 2012-2014 was -1.7 percent, which was below the median competitor comparison. Excluding the decline in legacy wireless products, compound annual revenue growth was 4.7 percent, which was above the median competitor comparison.

Average operating profit for 2012-2014 was 23 percent, which was above the median competitor comparison.

  

Total shareholder return (TSR)

  

TSR was 25.1 percent, which was better than the median comparison with competitors.

The company again generated strong cash, with free cash flow at 26.9 percent of revenue.4 More than 100 percent of free cash flow was returned to shareholders in 2014 through share repurchases and dividends. Share repurchases of $2.8 billion reduced outstanding shares by 3.3 percent (net of stock issuances during the year). The quarterly dividend rate increased 13.3 percent (the 13th increase in eleven years). Share repurchases and dividend increases are important elements of TI’s capital management strategy.

The balance sheet remained robust, ending the year with cash and short-term investments of $3.5 billion.

The three-year compound annual growth rate for TSR was 25.8 percent, which was above the median competitor comparison.

  

Strategic progress

  

The company’s strategic focus on Analog and Embedded Processing semiconductors continues to provide the foundation for strong results. These core businesses serve highly diverse markets with thousands of applications and have dependable long-term growth opportunities. In 2014, 83 percent of TI’s revenue came from Analog and Embedded Processing semiconductors, up 4 percentage points from the prior year.

TI again improved the diversity of its customer base in 2014 by increasing the percent of revenue from industrial and automotive applications by one point each, and by increasing the percentage of revenue that comes from small- to mid-sized customers. This was the third consecutive year of similar improvement. Diversity provides better stability because success does not depend on a single market or customer.

____________________

3       Revenue excluding legacy wireless products (baseband products, and OMAP™ applications processors and connectivity products sold into smartphone and consumer tablet applications) is a non-GAAP financial measure. For a reconciliation to GAAP, see the Appendix to this proxy statement.
     
4 Free cash flow was calculated by subtracting Capital expenditures from the GAAP-based Cash flows from operating activities. Free cash flow and the ratios based on it are non-GAAP financial measures. For a reconciliation to GAAP, see the Appendix to this proxy statement.

92 TEXAS INSTRUMENTS ● 2015 PROXY STATEMENT     



TI is the only competitor with in-house capability to produce high volumes of Analog semiconductors on 300-millimeter wafers. In 2014, the company initiated plans to increase Analog production on 300-millimeter wafers. Such production provides cost advantages that will further improve margins and cash generation over the long term. TI will leverage existing facilities along with equipment that has been strategically acquired at low price points, enabling the company to grow, yet keep capital spending levels at about 4 percent of revenue.

The committee determined in conclusion that TI’s strategic condition was strengthened by management’s decisions in 2014, noting sustainable advantages in the company’s manufacturing and technology, the breadth and differentiation of its product portfolio, and the diversity of markets and customers it serves.

Performance summary

1-Year         3-Year
Revenue growth: total TI 6.9 %   -1.7 %   CAGR
Revenue growth without legacy wireless products 11.0 % 4.7 % CAGR
Operating margin 30.3 %   23.0 % average
Free cash flow as % of revenue 26.9 % 24.7 % average
% of free cash flow returned to shareholders 118.4 %   115.1 % average
Increase in quarterly dividend rate 13.3 % 100.0 %
Total shareholder return (TSR) 25.1 %   25.8 % CAGR

CAGR (compound annual growth rate) is calculated using the formula (Ending Value/Beginning Value)1/number of years-1.

One-year TSR % = 

(adjusted closing price of the company’s stock at year-end 2014, divided by 2013 year-end adjusted closing price) minus 1. The adjusted closing price is as shown under Historical Prices for the company’s stock on Yahoo Finance and reflects stock splits and reinvestment of dividends.


Three-year TSR CAGR % = 

(adjusted closing price of the company’s stock at year-end 2014, divided by 2011 year-end adjusted closing price) minus 1. Adjusted closing price is as described above.


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 targets.

Mr. March is the chief financial officer. The committee noted the financial management of the company.

In June 2014, Mr. Crutcher became responsible for all of the company’s product lines and sales activities. Previously he was responsible for the company’s analog semiconductor product lines. The committee noted the financial performance and strategic position of the product lines and activities for which he is responsible.

In June 2014, Mr. Anderson became responsible for the company’s analog semiconductor product lines. Previously he was responsible for the company’s High Performance Analog product line. The committee noted the financial performance and strategic position of the product lines for which he is responsible.

Mr. Ritchie is responsible for the company’s semiconductor manufacturing operations. The committee noted the performance of those operations, including their cost-competitiveness and inventory management.

The bonuses awarded for 2014 performance are shown in the table on page 94. The differences in the amounts awarded to the named executive officers were primarily the result of differences in the officers’ level of responsibility and the applicable market level of total cash compensation expected to be paid to similarly situated officers in the Comparator Group. The bonus of each named executive officer was paid under the Executive Officer Performance Plan described on pages 97 and 100.

Results of the compensation decisions
Results of the compensation decisions made by the committee relating to the named executive officers for 2014 are summarized in the following table. This table is provided as a supplement to the summary compensation table on page 98 for investors who may find it

     TEXAS INSTRUMENTS ● 2015 PROXY STATEMENT 93



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

                               

Equity Compensation

       
Salary

(Grant Date

Officer Year (Annual Rate) Profit Sharing Bonus Fair Value) Total
R. K. Templeton 2014 1,110,000   

168,941

   3,450,000        9,800,034       

14,528,975

  2013 $ 1,075,000 $ 92,199 $ 3,000,000 $ 9,299,374 $

13,466,573

2012 $ 1,040,000 $ 48,581 $ 2,700,000 $ 9,074,035 $

12,862,616

        
K. P. March 2014 $ 630,000 $ 95,884 $ 1,110,000 $ 2,700,039 $

4,535,923

2013 $ 610,000 $ 52,317 $

965,000

$ 2,656,964 $

4,284,281

2012 $ 590,000 $ 27,573 $

875,000

$ 2,865,478 $

4,358,051

        
B. T. Crutcher 2014 $ 775,000  * $ 112,860 $ 1,510,000 $ 4,500,008 $

6,897,868

2013 $ 675,000 $ 57,728 $ 1,210,000 $ 3,985,446 $

5,928,174

2012 $ 630,000  ** $ 27,573 $ 1,100,000 $ 6,341,848 $

8,099,421

        
S. A. Anderson 2014 $ 550,000  * $ 77,635 $

925,000

$ 4,700,042 $

6,252,677

        
K. J. Ritchie 2014 $ 650,000 $ 98,872 $ 1,265,000 $ 4,000,015 $

6,013,887

2013 $ 625,000 $ 53,571 $ 1,100,000 $ 3,542,630 $

5,321,201

2012 $ 600,000 $ 27,945 $ 1,000,000 $ 3,343,079 $

4,971,024


*

Annual rate effective July 2014.
 

** 

Annual rate effective June 2012.


For Mr. Templeton, the “Total” was higher for 2014 than for 2013 due about equally to the higher level of his bonus and the higher grant date fair value of his equity compensation. For Mr. March, the “Total” was higher for 2014 primarily due to the higher level of his bonus. For the other officers, the “Total” was higher for 2014 primarily due to the higher grant date fair value of their equity compensation.

The compensation decisions shown above resulted in the following 2014 compensation mix for the named executive officers:

CEO

Other NEOs *

 

* Average data for the named executive officers other than Mr. Templeton.


____________________ 

5      This table shows the annual rate of base salary as set by the committee. In the summary compensation table, the “Salary” column shows the actual salary paid in the year. This table has separate columns for profit sharing and bonus. In the summary compensation table, profit sharing and bonus are aggregated in the column for “Non-Equity Incentive Plan Compensation,” in accordance with SEC requirements. Please see notes 2 and 3 to the summary compensation table for information about how grant date fair value was calculated.

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Equity dilution
The Compensation Committee’s goal is to keep net annual dilution from equity compensation under 2 percent. “Net annual dilution” means the number of shares under equity awards granted by the committee each year to all employees (net of award forfeitures) as a percentage of the shares of the company’s outstanding common stock. Equity awards granted in 2014 resulted in 1.4 percent net annual dilution.

Process for equity grants
The Compensation Committee makes grant decisions for equity compensation at its January meeting each year. The dates on which these meetings occur are generally set three years in advance. The January meetings of the board and the committee generally occur in the week or two before we announce our financial results for the previous quarter and year.

On occasion, the committee may grant stock options or restricted stock units to executives at times other than January. For example, it has done so in connection with job promotions and for purposes of retention.

We do not back-date stock options or restricted stock units. We do not accelerate or delay the release of information due to plans for making equity grants.

If the committee meeting falls in the same month as the release of the company’s financial results, the committee’s practice is to make grants effective (i) after the results have been released or (ii) on the meeting day if later. In other months, its practice is to make them effective on the day of committee action. The exercise price of stock options is the closing price of TI stock on the effective date of the grant.

Recoupment policy
The committee has a policy concerning recoupment (“clawback”) of executive bonuses and equity compensation. Under the policy, in the event of a material restatement of TI’s financial results due to misconduct, the committee will review the facts and circumstances and take the actions it considers appropriate with respect to the compensation of any executive officer whose fraud or willful misconduct contributed to the need for such restatement. Such action may include (a) seeking reimbursement of any bonus paid to such officer exceeding the amount that, in the judgment of the committee, would have been paid had the financial results been properly reported and (b) seeking to recover profits received by such officer during the twelve months after the restated period under equity compensation awards. All determinations by the committee with respect to this policy are final and binding on all interested parties.

Most recent stockholder advisory vote on executive compensation
In April 2014, our shareholders cast an advisory vote on the company’s executive compensation decisions and policies as disclosed in the proxy statement issued by the company in March 2014. Approximately 97 percent of the shares voted on the matter were cast in support of the compensation decisions and policies as disclosed. The committee considered this result and determined that it was not necessary at this time to make any material changes to the company’s compensation policies and practices in response to the advisory vote.

Benefits

Retirement plans
The executive officers participate in our retirement plans under the same rules that apply to other U.S. employees. We maintain these plans to have a competitive benefits program and for retention.

Like other established U.S. manufacturers, we have had a U.S. qualified defined benefit pension plan for many years. At its origin, the plan was designed to be consistent with those offered by other employers in the diverse markets in which we operated, which at the time included consumer and defense electronics as well as semiconductors and materials products. In order to limit the cost of the plan, we closed the plan to new participants in 1997. We gave U.S. employees as of November 1997 the choice to remain in the plan, or to have their plan benefits frozen (i.e., no benefit increase attributable to years of service or change in eligible earnings) and begin participating in an enhanced defined contribution plan. Mr. Templeton and Mr. Crutcher chose not to remain in the defined benefit plan. As a result, their benefits under that plan were frozen in 1997 and they participate in the enhanced defined contribution plan. Mr. Anderson, who joined the company in 1999, participates in the enhanced defined contribution plan. The other named executive officers have continued their participation in the defined benefit pension plan.

The Internal Revenue Code (IRC) imposes certain limits on the retirement benefits that may be provided under a qualified plan. To maintain the desired level of benefits, we have non-qualified defined benefit pension plans for participants in the qualified pension plan. Under the non-qualified plans, participants receive benefits that would ordinarily be paid under the qualified pension plan but for the limitations under the IRC. For additional information about the defined benefit plans, please see pages 104-106.

     TEXAS INSTRUMENTS ● 2015 PROXY STATEMENT 95



Employees accruing benefits in the qualified pension plan, including the named executive officers other than Mr. Templeton, Mr. Crutcher and Mr. Anderson, also are eligible to participate in a qualified defined contribution plan that provides employer matching contributions. The enhanced defined contribution plan, in which Mr. Templeton, Mr. Crutcher and Mr. Anderson participate, provides for a fixed employer contribution plus an employer matching contribution.

In general, if an employee who participates in the pension plan (including an employee whose benefits are frozen as described above) dies after having met the requirements for normal or early retirement, his or her beneficiary will receive a benefit equal to the lump-sum amount that the participant would have received if he or she had retired before death. Having already reached the age of 55 and at least 20 years of employment, Mr. Templeton, Mr. March and Mr. Ritchie are eligible for early retirement under the pension plans.

Because benefits under the qualified and non-qualified defined benefit pension plans are calculated on the basis of eligible earnings (salary and bonus), an increase in salary or bonus may result in an increase in benefits under the plans. Salary or bonus increases for Mr. Templeton and Mr. Crutcher do not result in greater benefits for them under the company’s defined benefit pension plans because their benefits under those plans were frozen in 1997. Mr. Anderson does not participate in the company’s defined benefit pension plans. The committee considers the potential effect on the executives’ retirement benefits when it sets salary and performance bonus levels.

Deferred compensation
Any U.S. employee whose base salary and management responsibility exceed a certain level may defer the receipt of a portion of his or her salary, bonus and profit sharing. Rules of the U.S. Department of Labor require that this plan be limited to a select group of management or highly compensated employees. The plan allows employees to defer the receipt of their compensation in a tax-efficient manner. Eligible employees include, but are not limited to, the executive officers. We have the plan to be competitive with the benefits packages offered by other companies.

The executive officers’ deferred compensation account balances are unsecured and all amounts remain part of the company’s operating assets. The value of the deferred amounts tracks the performance of investment alternatives selected by the participant. These alternatives are a subset of those offered to participants in the defined contribution plans described above. The company does not guarantee any minimum return on the amounts deferred. In accordance with SEC rules, no earnings on deferred compensation are shown in the summary compensation table on page 98 for 2014 because no “above market” rates were earned on deferred amounts in that year.

Employee stock purchase plan
We have an employee stock purchase plan. Under the plan, which our shareholders approved, all employees in the U.S. and certain other countries may purchase a limited number of shares of the company’s common stock at a 15 percent discount. The plan is designed to offer the broad-based employee population an opportunity to acquire an equity interest in the company and thereby align their interests with those of shareholders. Consistent with our general approach to benefit programs, executive officers are also eligible to participate.

Health-related benefits
Executive officers are eligible under the same plans as all other U.S. employees for medical, dental, vision, disability and life insurance. These benefits are intended to be competitive with benefits offered in the semiconductor industry.

Other benefits
Executive officers receive only a few benefits that are not available to all other U.S. employees. The CEO is eligible for a company-paid physical and financial counseling. In addition, the board of directors has determined that for security reasons, it is in the company’s interest to require the CEO to use company aircraft for personal air travel. Please see pages 99 (footnote 6) and 108 for further details. The company provides no tax gross-ups for perquisites to any of the executive officers.

Compensation following employment termination or change in control
None of the executive officers has an employment contract. Executive officers are eligible for benefits on the same terms as other U.S. employees upon termination of employment or a change in control of the company. The current programs are described under the heading Potential payments upon termination or change in control, beginning on page 107. None of the few additional benefits that the executive officers receive continue after termination of employment, except the amount for financial counseling is provided in the following year in the event of retirement. The committee reviews the potential impact of these programs before finalizing the annual compensation for the named executive officers. The committee did not raise or lower compensation for 2014 based on this review.

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The Texas Instruments 2009 Long-Term Incentive Plan generally establishes double-trigger change-in-control terms for grants made in 2010 and later years. Under those terms, options become fully exercisable and shares are issued under restricted stock unit awards (to the extent permitted by Section 409A of the IRC) if the grantee is involuntarily terminated within 24 months after a change in control of TI. These terms are intended to encourage employees to remain with the company through a transaction while reducing employee uncertainty and distraction in the period leading up to any such event.

Stock ownership guidelines and policy against hedging
Our board of directors has established stock ownership guidelines for executive officers. The guideline for the CEO is four times base salary or 125,000 shares, whichever is less. The guideline for other executive officers is three times base salary or 25,000 shares, whichever is less. Executive officers have five years from their election as executive officers to reach these targets. Directly owned shares and restricted stock units count toward satisfying the guidelines.

Short sales of TI stock by our executive officers are prohibited. It is against TI policy for any employee, including an executive officer, to engage in trading in “puts” (options to sell at a fixed price on or before a certain date), “calls” (similar options to buy), or other options or hedging techniques on TI stock.

Consideration of tax and accounting treatment of compensation
Section 162(m) of the IRC generally denies a deduction to any publicly held corporation for compensation paid in a taxable year to the company’s CEO and three other highest compensated officers excluding the CFO, to the extent that the officer’s compensation (other than qualified performance-based compensation) exceeds $1 million. The Compensation Committee considers the impact of this deductibility limit on the compensation that it intends to award. The committee exercises its discretion to award compensation that does not meet the requirements of Section 162(m) when applying the limits of Section 162(m) would frustrate or be inconsistent with our compensation policies and/or when the value of the foregone deduction would not be material. The committee has exercised this discretion when awarding restricted stock units that vest over time, without performance conditions to vesting. The committee believes it is in the best interest of the company and our shareholders that restricted stock unit awards provide for the retention of our executive officers in all market conditions.

The Texas Instruments Executive Officer Performance Plan is intended to ensure that performance bonuses under the plan are fully tax deductible under Section 162(m). The plan, which shareholders approved in 2002, is further described on page 100. The committee’s general policy is to award bonuses within the plan, although the committee reserves the discretion to pay a bonus outside the plan if it determines that it is in the best interest of the company and our shareholders to do so. The committee set the bonuses of the named executive officers for 2014 performance at the levels described on page 94. The bonuses were awarded within the plan.

When setting equity compensation, the committee considers the cost for financial reporting purposes of equity compensation it intends to grant. Its consideration of the cost of grants made in 2014 is discussed on pages 90-91 above.

Compensation Committee report

The Compensation Committee of the board of directors has furnished the following report:

The committee has reviewed and discussed the Compensation Discussion and Analysis (CD&A) with the company’s management. Based on that review and discussion, the committee has recommended to the board of directors that the CD&A be included in the company’s annual report on Form 10-K for 2014 and the company’s proxy statement for the 2015 annual meeting of stockholders.

Robert E. Sanchez, Chair Pamela H. Patsley Christine Todd Whitman

     TEXAS INSTRUMENTS ● 2015 PROXY STATEMENT 97



2014 summary compensation table

The table below shows the compensation of the company’s CEO, CFO and each of the other three most highly compensated individuals who were executive officers during 2014 (collectively called the “named executive officers”) for services in all capacities to the company in 2014. For a discussion of the amount of a named executive officer’s salary and bonus in proportion to his total compensation, please see the CD&A on pages 86-94.

Change in
Pension Value
and
Non-Equity Nonqualified
Stock Option Incentive Plan Deferred All Other
Name and Principal Salary Bonus Awards Awards

Compensation

Compensation

Compensation

Position Year       ($)       ($) (1)       ($) (2)       ($) (3)       ($) (4)       Earnings ($) (5)       ($) (6)       Total ($)
Richard K. Templeton 2014 1,107,083 4,900,030 4,900,004    3,618,941       199,552        318,084     15,043,694
     Chairman, President 2013 $ 1,072,083 $ 5,740,000 $ 3,559,374 $ 3,092,199 $ 249,203 $ 13,712,859
     & Chief Executive Officer 2012 $ 1,035,841 $ 5,123,688 $ 3,950,347 $ 2,748,581 $ 185,472 $ 272,710 $ 13,316,639
     
Kevin P. March 2014 $ 628,333 $ 1,350,036 $ 1,350,003 $ 1,205,884 $ 1,621,825 $ 20,509 $ 6,176,590
     Senior Vice President 2013 $ 608,333 $ 1,640,000 $ 1,016,964 $ 1,017,317 $ 8,243 $ 4,290,857
     & Chief Financial Officer 2012 $ 587,917 $ 1,618,000 $ 1,247,478 $ 902,573 $ 1,065,717 $ 20,244 $ 5,441,929
     
Brian T. Crutcher 2014 $ 739,583 $ 2,250,001 $ 2,250,007 $ 1,622,860 $ 1,112 $ 110,688 $ 6,974,251
     Executive Vice President 2013 $ 671,250 $ 2,460,000 $ 1,525,446 $ 1,267,728 $ 106,655 $ 6,031,079
      2012 $ 587,917 $ 4,782,500 $ 1,559,348 $ 1,127,573 $ 1,005 $ 95,375 $ 8,153,718
     
Stephen A. Anderson 2014 $ 508,750 $ 3,350,039 $ 1,350,003 $ 1,002,635 $ 74,202 $ 6,285,629
     Senior Vice President
     
Kevin J. Ritchie 2014 $ 647,917 $ 2,000,011 $ 2,000,004 $ 1,363,872 $ 2,146,473 $ 5,200 $ 8,163,477
     Senior Vice President 2013 $ 622,917 $ 2,186,678 $ 1,355,952 $ 1,153,571 $ 7,427 $ 5,326,545
      2012 $ 595,835 $ 1,887,688 $ 1,455,391 $ 1,027,945 $ 1,371,918 $ 19,847 $ 6,358,624

(1)      Performance bonuses for 2014 were paid under the Texas Instruments Executive Officer Performance Plan. In accordance with SEC requirements, these amounts are reported in the Non-Equity Incentive Plan Compensation column.
     
(2) Shown is the aggregate grant date fair value of restricted stock unit (RSU) awards calculated in accordance with ASC 718. The discussion of the assumptions used for purposes of the valuation of the awards granted in 2014 appears in Note 5 to the Financial Statements in TI’s annual report on Form 10-K for the year ended December 31, 2014. For a description of the grant terms, please see page 103. The discussion of the assumptions used for purposes of the valuation of the awards granted in 2013 and 2012 appears in Note 5 in Exhibit 13 to, respectively, TI’s annual report on Form 10-K for the year ended December 31, 2013, and TI’s annual report on Form 10-K for the year ended December 31, 2012.
     
(3) Shown is the aggregate grant date fair value of options calculated in accordance with ASC 718. The discussion of the assumptions used for purposes of the valuation of options granted in 2014 appears in Note 5 to the Financial Statements in TI’s annual report on Form 10-K for the year ended December 31, 2014. For a description of the grant terms, please see page 102. The discussion of the assumptions used for purposes of the valuation of the awards granted in 2013 and 2012 appears in Note 5 in Exhibit 13 to, respectively, TI’s annual report on Form 10-K for the year ended December 31, 2013, and TI’s annual report on Form 10-K for the year ended December 31, 2012.

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(4)      Consists of performance bonus and profit sharing for 2014. Please see page 94 for the amounts of bonus and profit sharing paid to each of the named executive officers for 2014.
     
(5) The company does not pay above-market earnings on deferred compensation. Therefore, no amounts are reported in this column for deferred compensation. The amounts in this column represent the change in the actuarial value of the named executive officers’ benefits under the qualified defined benefit pension plan (TI Employees Pension Plan) and the non-qualified defined benefit pension plans (TI Employees Non-Qualified Pension Plan and TI Employees Non-Qualified Pension Plan II) from December 31, 2013, through December 31, 2014. This “change in the actuarial value” is the difference between the 2013 and 2014 present value of the pension benefit accumulated as of year-end by the named executive officer, assuming that benefit is not paid until age 65. Mr. Templeton’s and Mr. Crutcher’s benefits under the company’s pension plans were frozen as of December 31, 1997. Mr. Anderson does not participate in any of the company’s defined benefit pension plans.
     
(6) Consists of (i) the amounts in the table below, which result from programs available to all eligible U.S. employees, and (ii) perquisites and personal benefits that meet the disclosure thresholds established by the SEC and are detailed in the paragraph below.

Defined
        Contribution         Unused
401 (k) Retirement Vacation
Name Contribution Plan (a) Time (b)
R. K. Templeton    10,400      223,316   16,125
K. P. March $ 5,200 N/A $ 15,309
B. T. Crutcher $ 10,400 $ 100,288
S. A. Anderson $ 10,400 $ 58,289 $ 5,513
K. J. Ritchie $ 5,200 N/A

(a)      Consists of (i) contributions under the company’s enhanced defined contribution retirement plan of $5,200 and (ii) an additional amount of $218,116 for Mr. Templeton, $95,088 for Mr. Crutcher, and $53,089 for Mr. Anderson accrued by TI to offset IRC limitations on amounts that could be contributed to the enhanced defined contribution retirement plan, which amount is also shown in the non-qualified deferred compensation table on page 106.
     
(b) Represents payments for unused vacation time that could not be carried forward.

The perquisites and personal benefits are as follows: $68,243 for Mr. Templeton, consisting of personal use of company aircraft ($57,095), 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.

     TEXAS INSTRUMENTS ● 2015 PROXY STATEMENT 99



Grants of plan-based awards in 2014

The following table shows the grants of plan-based awards to the named executive officers in 2014.

All Other All Other
Stock Option Exercise
Awards: Awards: or Base
Estimated Possible Payouts       Estimated Future Payouts       Number of       Number of       Price of       Grant Date
under Non-Equity Incentive under Equity Incentive Shares of Securities Option Fair Value
Date of Plan Awards Plan Awards

Stock or

Underlying

Awards of Stock
Grant

Committee

     

Threshold

     

Target

     

Maximum

Threshold

     

Target

     

Maximum

Units Options ($/Sh) and Option
Name Date          Action ($) ($) ($) (#) (#) (#) (#) (2) (#) (3) (4) Awards (5)
R. K. Templeton 1/23/14  (1) 1/16/14 * * *        602,692      44.09   4,900,004
  1/23/14  (1) 1/16/14       111,137   $ 4,900,030
 
K. P. March 1/23/14  (1) 1/16/14 * * * 166,048 $ 44.09 $ 1,350,003
1/23/14  (1) 1/16/14 30,620 $ 1,350,036
 
B. T. Crutcher 1/23/14  (1) 1/16/14 * * * 276,747 $ 44.09 $ 2,250,007
1/23/14  (1) 1/16/14 51,032 $ 2,250,001
 
S. A. Anderson 1/23/14  (1) 1/16/14 * * * 166,048 $ 44.09 $ 1,350,003
1/23/14  (1) 1/16/14 30,620 $ 1,350,036
6/19/14 6/19/14 41,745 $ 2,000,003
 
K. J. Ritchie 1/23/14  (1) 1/16/14 * * * 245,997 $ 44.09 $ 2,000,004
1/23/14  (1) 1/16/14 45,362 $ 2,000,011

*

TI did not use formulas or pre-set thresholds or multiples to determine incentive awards. Under the terms of the Executive Officer Performance Plan, each named executive officer is eligible to receive a cash bonus equal to 0.5 percent of the company’s consolidated income (as defined in the plan). However, the Compensation Committee has the discretion to set bonuses at a lower level if it decides it is appropriate to do so. The committee decided to do so for 2014.

           
(1)      In accordance with the grant policy of the Compensation Committee of the board (described on page 95), the grants became effective on the second trading day after the company released its financial results for the fourth quarter and year 2013. The company released these results on January 21, 2014.
     
(2) The stock awards granted to the named executive officers in 2014 were RSU awards. These awards were made under the company’s 2009 Long-Term Incentive Plan. For information on the terms and conditions of these RSU awards, please see the discussion on page 103.
     
(3) The options were granted under the company’s 2009 Long-Term Incentive Plan. For information on the terms and conditions of these options, please see the discussion on page 102.
     
(4) The exercise price of the options is the closing price of TI common stock on January 23, 2014.
     
(5) Shown is the aggregate grant date fair value computed in accordance with ASC 718 for stock and option awards in 2014. The discussion of the assumptions used for purposes of the valuation appears in Note 5 to the Financial Statements in TI’s annual report on Form 10-K for the year ended December 31, 2014.

None of the options or other equity awards granted to the named executive officers was repriced or modified by the company.

For additional information regarding TI’s equity compensation grant practices, please see pages 88, 90-91, 95, 97 and 102-103.

100 TEXAS INSTRUMENTS ● 2015 PROXY STATEMENT     



Outstanding equity awards at fiscal year-end 2014

The following table shows the outstanding equity awards for each of the named executive officers as of December 31, 2014.

Option Awards Stock Awards
Equity
Incentive Equity
            Equity                     Plan     Incentive
Incentive

Awards:

Plan Awards:

Plan Number of Market or
Awards:

Unearned

Payout Value

Number of Number of Number of Market Value   Shares, of Unearned
Securities Securities Securities Number of of Shares or Units or Shares, Units
Underlying Underlying Underlying Shares or Units of Stock Other or Other
Unexercised

Unexercised

Unexercised

Option

Option Units of Stock

That Have Not

Rights That

Rights That

Options (#) Options (#) Unearned

Exercise

Expiration

That Have Not

Vested Have Not Have Not
Name

Exercisable

Unexercisable

Options (#)

Price ($)

Date Vested (#) ($) (1) Vested (#) Vested ($)
R. K. Templeton            602,692  (2)      44.09   1/23/2024    111,137  (6)      5,942,495  
131,250 393,750  (3) $ 32.80 1/25/2023 175,000  (7) $ 9,357,250
237,500 237,500  (4) $ 32.36 1/26/2022 158,334  (8) $ 8,466,119
  337,500 112,500  (5) $ 34.63 1/27/2021 150,000  (9) $ 8,020,500
540,000 $ 23.05 1/28/2020
664,461 $ 14.95 1/29/2019
270,000 $ 29.79 1/25/2018
270,000 $ 28.32 1/18/2017
350,000 $ 32.55 1/19/2016
 
K. P. March 166,048  (2) $ 44.09 1/23/2024 30,620  (6) $ 1,637,251
37,500 112,500  (3) $ 32.80 1/25/2023 50,000  (7) $ 2,673,500
75,000 75,000  (4) $ 32.36 1/26/2022 50,000  (8) $ 2,673,500
103,125 34,375  (5) $ 34.63 1/27/2021 45,834  (9) $ 2,450,744
107,500 $ 23.05 1/28/2020
 
B. T. Crutcher 276,747  (2) $ 44.09 1/23/2024 51,032  (6) $ 2,728,681
56,250 168,750  (3) $ 32.80 1/25/2023 75,000  (7) $ 4,010,250
65,625 93,750  (4) $ 32.36 1/26/2022 62,500  (8) $ 3,341,875
40,625  (5) $ 34.63 1/27/2021 54,167  (9) $ 2,896,309
100,000  (10) $ 5,347,000
 
S. A. Anderson 166,048  (2) $ 44.09 1/23/2024 30,620  (6) $ 1,637,251
34,375 103,125  (3) $ 32.80 1/25/2023 45,834  (7) $ 2,450,744
68,750 68,750  (4) $ 32.36 1/26/2022 45,834  (8) $ 2,450,744
93,750 31,250  (5) $ 34.63 1/27/2021 41,667  (9) $ 2,227,934
41,745  (11) $ 2,232,105
 
K. J. Ritchie 245,997  (2) $ 44.09 1/23/2024 45,362  (6) $ 2,425,506
150,000  (3) $ 32.80 1/25/2023 66,667  (7) $ 3,564,684
87,500  (4) $ 32.36 1/26/2022 58,334  (8) $ 3,119,119
40,625  (5) $ 34.63 1/27/2021 54,167  (9) $ 2,896,309

(1)      Calculated by multiplying the number of RSUs by the closing price of TI common stock on December 31, 2014 ($53.47).
     
(2) One-quarter of the shares became exercisable on January 23, 2015, and one-third of the remaining shares become exercisable on each of January 23, 2016, January 23, 2017, and January 23, 2018.
     
(3) One-third of the shares became exercisable on January 25, 2015, and one-half of the remaining shares become exercisable on each of January 25, 2016, and January 25, 2017.

     TEXAS INSTRUMENTS ● 2015 PROXY STATEMENT 101



(4)     

One-half of the shares became exercisable on January 26, 2015, and the remaining one-half become exercisable on January 26, 2016.

     

(5)

Became fully exercisable on January 27, 2015.

     

(6)

Vesting date is January 31, 2018.

     

(7)

Vesting date is January 31, 2017.

     

(8)

Vesting date is January 29, 2016.

     

(9)

Vested on January 30, 2015.

     

(10)

Vesting date is July 29, 2016.

     

(11)

Vesting date is July 31, 2018.

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, 2014. The Compensation Committee of the board of directors established these termination provisions to promote employee retention while offering competitive terms.

Employment Employment Termination
Employment Termination (at Least (at Least 6 Months after Grant) Other
Termination Due to 6 Months after Grant) with 20 Years of Credited Employment Circumstances
Death or Permanent When Retirement Service, but Not Retirement Termination for of Employment
Disability         Eligible *         Eligible **         Cause         Termination        
Vesting continues; option remains in effect to end of term   Vesting continues; option remains in effect to end of term   Option remains in effect to the end of the term; vesting does not continue after employment termination   Option cancels   Option remains exercisable for 30 days  

*

Defined for purposes of equity awards made after 2012 as at least age 55 with 10 or more years of TI service or at least age 65. For awards made before 2013, the definition of normal or early retirement eligibility in the relevant pension plan applies (see page 105).

** 

This provision is not applicable to grants made after 2012.


Options may be cancelled if, during the two years after employment termination, the grantee competes with TI or solicits TI employees to work for another company, or if the grantee 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, solicitation of our employees or disclosure of our confidential information.

Options granted after 2009 become fully vested if the grantee is involuntarily terminated from employment with TI (other than for cause) within 24 months after a change in control of TI. “Change in control” is defined as provided in the Texas Instruments 2009 Long-Term Incentive Plan and occurs upon (1) acquisition of more than 50 percent of the voting stock or at least 80 percent of the assets of TI or (2) change of a majority of the board of directors in a 12-month period unless a majority of the directors then in office endorsed the appointment or election of the new directors (“Plan definition”). These terms are intended to reduce employee uncertainty and distraction in the period leading up to a change in control, if such an event were to occur. For options granted before 2010, the stock option terms provide that upon a change in control of TI, the option becomes fully vested to the extent it is then outstanding; and if employment termination (except for cause) has occurred within 30 days before the change in control, the change in control is deemed to have occurred first. “Change in control” is defined in these pre-2010 options as (1) acquisition of 20 percent of TI common stock other than through a transaction approved by the board of directors, or (2) change of a majority of the board of directors in a 24-month period unless a majority of the directors then in office have elected or nominated the new directors (together, the “pre-2010 definition”).

102 TEXAS INSTRUMENTS ● 2015 PROXY STATEMENT     



The “Stock Awards” in the table of outstanding equity awards at fiscal year-end 2014 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, 2014.

Employment Termination Employment Other Circumstances
Employment Termination (at Least 6 Months after Grant) Termination for of Employment
Due to Death or Permanent Disability When Retirement Eligible   Cause Termination
Vesting continues; shares are paid at the scheduled vesting date For grants made after 2012: Grant stays in effect and pays out shares at the scheduled vesting date       Grant cancels; no
shares are issued
Grant cancels; no
shares are issued
               
For grants made before 2013: Grant stays in effect and pays out shares at the scheduled vesting date. Number of shares reduced according to the duration of employment over the vesting period *

*       Calculated by multiplying the number of RSUs by a fraction equal to the number of whole 365-day periods from the grant date to the employment termination date (or first day of any bridge leave of absence leading to retirement), divided by the number of years in the vesting period.

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.

In addition to the “Stock Awards” shown in the outstanding equity awards at fiscal year-end 2014 table on pages 101 and 102, Mr. Templeton holds an award of RSUs that was granted in 1995. The award, for 120,000 shares of TI common stock, vested in 2000. Under the award terms, the shares will be issued to Mr. Templeton in March of the year after his termination of employment for any reason. These terms were designed to provide a tax benefit to the company by postponing the related compensation expense until it was likely to be fully deductible. In accordance with SEC requirements, this award is reflected in the 2014 non-qualified deferred compensation table on page 106.

2014 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 2014 and the value of any RSUs that vested in 2014. 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.

Option Awards       Stock Awards
Number of Number of
      Shares Acquired Value Realized on Shares Acquired        Value Realized
Name on Exercise (#) Exercise ($) on Vesting (#) on Vesting ($)
R. K. Templeton 500,000 13,460,000 180,000 7,684,200
K. P. March 318,750       $ 7,983,971 53,751 $ 2,294,630
B. T. Crutcher 150,000 $ 2,282,377 150,000 $ 6,887,500
S. A. Anderson 70,000 $ 1,354,542 46,668 $ 1,992,257
K. J. Ritchie 606,250 $ 10,747,804 62,501 $ 2,668,168

     TEXAS INSTRUMENTS ● 2015 PROXY STATEMENT 103



2014 pension benefits

The following table shows the present value as of December 31, 2014, 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 officer’s retirement eligibility or any increase in benefits that may result from the named executive officer’s continued employment after December 31, 2014.

Payments
Present During
Number of Value of Last
Years Credited Accumulated Fiscal
Name (1) Plan Name Service (#) Benefit ($) (6) Year ($)
R. K. Templeton (2)     TI Employees Pension Plan                16  (3)                     654,426         
  TI Employees Non-Qualified Pension Plan 16 (3) $ 277,131
TI Employees Non-Qualified Pension Plan II 16 (5) $ 205,199
 
K. P. March TI Employees Pension Plan 29 (3) $ 885,211
TI Employees Non-Qualified Pension Plan 19 (4) $ 169,888
TI Employees Non-Qualified Pension Plan II 29 (5) $ 4,754,776
 
B. T. Crutcher (2) TI Employees Pension Plan 0.9 (3) $ 4,221
 
K. J. Ritchie TI Employees Pension Plan 35 (3) $ 1,322,463
TI Employees Non-Qualified Pension Plan 25 (4) $ 501,132
TI Employees Non-Qualified Pension Plan II 35 (5) $  6,174,526

(1) Mr. Anderson does not participate in any of the company’s defined benefit pension plans because he joined TI after these plans were closed to new participants.
     
(2) In 1997, TI’s U.S. employees were given the choice between continuing to participate in the defined benefit pension plans or participating in a new enhanced defined contribution retirement plan. Messrs. Templeton and Crutcher chose to participate in the defined contribution plan. Accordingly, their accrued pension benefits under the qualified and non-qualified plans were frozen (i.e., they will experience no increase attributable to years of service or change in eligible earnings) as of December 31, 1997. Contributions to the defined contribution plan for Mr. Templeton’s and Mr. Crutcher’s benefits are included in the 2014 summary compensation table.
 
(3) For each of the named executive officers, credited service began on the date the officer became eligible to participate in the plan. For Mr. Crutcher, eligibility to participate began on the first day of the month following completion of one year of employment. For each of the other named executive officers, eligibility to participate began on the earlier of 18 months of employment, or January 1 following the completion of one year of employment. Accordingly, each of the named executive officers has been employed by TI for longer than the years of credited service shown above.
 
(4) Credited service began on the date the named executive officer became eligible to participate in the TI Employees Pension Plan as described in note 3 above and ceased at December 31, 2004.
 
(5) Credited service began on the date the named executive officer became eligible to participate in the TI Employees Pension Plan as described in note 3 above.
 
(6) The assumptions and valuation methods used to calculate the present value of the accumulated pension benefits shown are the same as those used by TI for financial reporting purposes and are described in Note 11 to the financial statements contained in Item 8 in TI’s annual report on Form 10-K for the year ended December 31, 2014, except that a named executive officer’s retirement is assumed (in accordance with SEC rules) for purposes of this table to occur at age 65 and no assumption for termination prior to that date is used. The amount of the lump-sum benefit earned as of December 31, 2014, is determined using either (i) the Pension Benefit Guaranty Corporation (PBGC) interest assumption of 1.50 percent or (ii) the Pension Protection Act of 2006 (PPA) corporate bond yield interest assumption of 4.23 percent for the TI Employees Pension Plan and 4.26 percent for the TI Employees Non- Qualified Pension Plans, whichever rate produces the higher lump sum amount. A discount rate assumption of 4.23 percent for the TI Employees Pension Plan and 4.26 percent for the non-qualified pension plans was used to determine the present value of each lump sum.

104 TEXAS INSTRUMENTS ● 2015 PROXY STATEMENT     



TI Employees Pension Plan

The TI Employees Pension Plan is a qualified defined benefit pension plan. Please see page 95 for a discussion of the origin and purpose of the plan. Employees who joined the U.S. payroll after November 30, 1997, are not eligible to participate in this plan.

A plan participant is eligible for normal retirement under the terms of the plan if he is at least 65 years of age with one year of credited service. A participant is eligible for early retirement if he is at least 55 years of age with 20 years of employment or 60 years of age with five years of employment. As of December 31, 2014, Mr. Templeton, Mr. March and Mr. Ritchie were eligible for early or normal retirement.

A 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 IRC.

The pension formula for the qualified plan is intended to provide a participant with an annual retirement benefit equal to 1.5 percent multiplied by the product of (i) years of credited service and (ii) the average of the five highest consecutive years of his base salary plus bonus up to a limit imposed by the IRS, less a percentage (based on his year of birth, when he elects to retire and his years of service with TI) of the amount of compensation on which his Social Security benefit is based.

If an individual takes early retirement and chooses to begin receiving his annual retirement benefit at that time, such benefit is reduced by an early retirement factor. As a result, the annual benefit is lower than the one he would have received at age 65.

If the participant’s employment terminates due to disability, the participant may choose to receive his accrued benefit at any time prior to age 65. Alternatively, the participant may choose to defer receipt of the accrued benefit until reaching age 65 and then take a disability benefit. The disability benefit paid at age 65 is based on salary and bonus, years of credited service the participant would have accrued to age 65 had he not become disabled and disabled status.

The benefit payable in the event of death is based on salary and bonus, years of credited service and age at the time of death, and may be in the form of a lump sum or annuity at the election of the beneficiary. The earliest date of payment is the first day of the second calendar month following the month of death.

Leaves of absence, including a bridge to retirement, are credited to years of service under the qualified pension plan. Please see the discussion of leaves of absence on page 108.

TI employees non-qualified pension plans

TI has two non-qualified pension plans: the TI Employees Non-Qualified Pension Plan (Plan I), which governs amounts earned before 2005; and the TI Employees Non-Qualified Pension Plan II (Plan II), which governs amounts earned after 2004. Each is a non-qualified defined benefit pension plan. Please see pages 95-96 for a discussion of the purpose of the plans. As with the qualified defined benefit pension plan, employees who joined the U.S. payroll after November 30, 1997, are not eligible to participate in Plan I or Plan II. Eligibility for normal and early retirement under these plans is the same as under the qualified plan (please see above). Benefits are paid in a lump sum.

A participant’s benefits under Plan I and Plan II are calculated using the same formula as described above for the TI Employees Pension Plan. However, the IRS limit on the amount of compensation on which a qualified pension benefit may be calculated does not apply. Additionally, the IRS limit on the amount of qualified benefit the participant may receive does not apply to these plans. Once this non-qualified benefit amount has been determined using the formula described above, the individual’s qualified benefit is subtracted from it. The resulting difference is multiplied by an age-based factor to obtain the amount of the lump-sum benefit payable to an individual under the non-qualified plans.

Amounts under Plan I will be distributed when payment of the participant’s benefit under the qualified pension plan commences. Amounts under Plan II will be distributed subject to the requirements of Section 409A of the IRC. Because the named executive officers are among the 50 most highly compensated officers of the company, Section 409A of the IRC requires that they not receive any lump sum distribution payment under Plan II before the first day of the seventh month following termination of employment.

     TEXAS INSTRUMENTS ● 2015 PROXY STATEMENT 105



If a participant terminates due to disability, amounts under Plan I will be distributed when payment of the participant’s benefit under the qualified plan commences. For amounts under Plan II, distribution is governed by Section 409A of the IRC, and the disability benefit is reduced to reflect the payment of the benefit prior to age 65.

In the event of death, payment under both plans is based on salary and bonus, years of credited service and age at the time of death and will be in the form of a lump sum. The earliest date of payment is the first day of the second calendar month following the month of death.

Balances in the plans are unsecured obligations of the company. For amounts under Plan I, in the event of a change in control, the present value of the individual’s benefit would be paid not later than the month following the month in which the change in control occurred. For such amounts, the pre-2010 definition of a change in control (please see page 102) applies. For all amounts accrued under this plan, if a sale of substantially all of the assets of the company occurred, the present value of the individual’s benefit would be distributed in a lump sum as soon as reasonably practicable following the sale of assets. For amounts under Plan II, no distribution of benefits is triggered by a change in control.

Leaves of absence, including a bridge to retirement, are credited to years of service under the non-qualified pension plans. For a discussion of leaves of absence, please see page 108.

TI Employees Survivor Benefit Plan

TI’s qualified and non-qualified pension plans provide that upon the death of a retirement-eligible employee, the employee’s beneficiary receives a payment equal to half of the benefit to which the employee would have been entitled under the pension plans had he retired instead of died. We have a survivor benefit plan that pays the beneficiary a lump sum that, when added to the reduced amounts the beneficiary receives under the pension plans, equals the benefit the employee would have been entitled to receive had he retired instead of died. Because Messers. Templeton, March and Ritchie were eligible for early retirement in 2014, their beneficiaries would be eligible for benefits under the survivor benefit plan if they were to die.

2014 non-qualified deferred compensation

The following table shows contributions to the named executive officer’s deferred compensation account in 2014 and the aggregate amount of his deferred compensation as of December 31, 2014.

Registrant
Executive Contributions Aggregate Aggregate
Contributions in Last FY Aggregate Earnings in Withdrawals/ Balance at Last
Name in Last FY ($) (1) ($) (2) Last FY ($) Distributions ($) FYE ($) (5)
R. K. Templeton              153,169              218,116               1,333,056  (3)        $   245,169  (4)        7,221,662  (6)
K. P. March
B. T. Crutcher $ 79,954 $ 95,088 $ 43,939 $ 820,284
S. A. Anderson $ 31,846 $ 53,089 $ 24,458 $   20,097 $ 435,908
K. J. Ritchie

(1) Amounts shown consist of portions of 2014 salary and portions of their bonus for 2013 performance, which was paid in 2014.
     
(2) Company matching contributions pursuant to the defined contribution plan. These amounts are included in the All Other Compensation column of the 2014 summary compensation table on page 98.
 
(3) Consists of: (a) $148,800 in dividend equivalents paid under the 120,000-share 1995 RSU award discussed on page 103, settlement of which has been deferred until after termination of employment; (b) a $1,147,200 increase in the value of the RSU award (calculated by subtracting the value of the award at year-end 2013 from the value of the award at year-end 2014 (in both cases, the number of RSUs is multiplied by the closing price of TI common stock on the last trading date of the year)); and (c) a $37,056 gain in Mr. Templeton’s deferred compensation account in 2014. Dividend equivalents are paid at the same rate as dividends on TI common stock.
 
(4) Consists of dividend equivalents paid on the RSU award discussed in note 3 and a scheduled distribution of a portion of Mr. Templeton’s deferred compensation balance.
 
(5) Includes amounts reported in the summary compensation table in the current or prior-year proxy statements as follows: Mr. Templeton, $805,262; Mr. Crutcher, $820,284; and Mr. Anderson $10,096. The remainder of the amount for Mr. Anderson was the deferral of his bonus for 2013, for which year he was not a named executive officer.
 
(6) Of this amount, $6,416,400 is attributable to Mr. Templeton’s 1995 RSU award, calculated as described in note 3. The remainder is the balance of his deferred compensation account.

106 TEXAS INSTRUMENTS ● 2015 PROXY STATEMENT     



Please see page 96 for a discussion of the purpose of the plan. An employee’s 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.

Participants in the deferred compensation plan may choose to defer up to (i) 25 percent of their base salary, (ii) 90 percent of their performance bonus, and (iii) 90 percent of profit sharing. Elections to defer compensation must be made in the calendar year prior to the year in which the compensation will be earned.

During 2014, participants could choose to have their deferred compensation mirror the performance of one or more of the following mutual funds, each of which is managed by a third party (these alternatives, which may be changed at any time, are a subset of those offered to participants in the defined contribution plans): Northern Trust Short Term Investment Fund, Northern Trust Aggregate Bond Index Fund-Lending, Northern Trust Russell 1000 Value Index Fund-Lending, Northern Trust Russell 1000 Growth Index Fund-Lending, Northern Trust Russell 2000 Index Fund-Lending, Northern Trust MidCap 400 Index Fund-Lending, Fidelity Puritan Fund, BlackRock Equity Index Fund F, BlackRock (EAFE) (Europe, Australia, Far East) Equity Index Fund F, BlackRock Lifepath Index 2020 Fund F, BlackRock Lifepath Index 2030 Fund F, BlackRock Lifepath Index 2040 Fund F, BlackRock Lifepath Index 2050 Fund F and BlackRock Lifepath Index Retirement Fund F. From among the available investment alternatives, participants may change their instructions relating to their deferred compensation daily. Earnings on a participant’s balance are determined solely by the performance of the investments that the participant has chosen for his plan balance. The company does not guarantee any minimum return on investments. A third party administers the company’s deferred compensation program.

A 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 participant’s balance is paid pursuant to his distribution election and is subject to applicable IRC limitations.

Amounts contributed by the company, and amounts earned and deferred by the participant for which there is a valid distribution election on file, will be distributed in accordance with the participant’s election. Annually participants may elect separate distribution dates for deferred compensation attributable to a participant’s (i) bonus and profit sharing and (ii) salary. Participants may elect that these distributions be in the form of a lump sum or annual installments to be paid out over a period of five or ten consecutive years. Amounts for which no valid distribution election is on file will be distributed three years from the date of deferral.

In the event of the participant’s death, payment will be in the form of a lump sum and the earliest date of payment is the first day of the second calendar month following the month of death.

Like the balances under the non-qualified defined benefit pension plans, deferred compensation balances are unsecured obligations of the company. For amounts earned and deferred prior to 2010, a change in control does not trigger a distribution under the plan. For amounts earned and deferred after 2009, distribution occurs, to the extent permitted by Section 409A of the IRC, if the participant is involuntarily terminated within 24 months after a change in control. Change in control is the Plan definition.

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.

Termination

The following programs may result in payments to a named executive officer whose employment terminates. Most of these programs have been discussed above. For a discussion of the impact of these programs on the compensation decisions for 2014, please see page 96.

Bonus
Our policies concerning bonus and the timing of payments are described on page 88. 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 Committee’s discretion. If awarded, bonuses are paid by the company.

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Qualified and non-qualified defined benefit pension plans
The purposes of these plans are described on pages 95-96. The formula for determining benefits, the forms of benefit and the timing of payments are described on pages 105-106. 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 106. The formula for determining the amount of benefit, the form of benefit and the timing of payments are described on page 106. Amounts distributed are paid by the TI Employees Health Benefit Trust.

Deferred compensation plan
The purpose of this plan is described on page 96. 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 107. 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 102-103. 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 officer’s 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 pension plans described above. Stock options will continue to become exercisable and RSUs will remain in effect, but for grants made before 2014, the number of RSUs will be reduced as described in note * on page 103.

Change in control

Our only program, plan or arrangement providing benefits triggered by a change in control is the TI Employees Non-Qualified Pension Plan. A change in control at December 31, 2014, would have accelerated payment of the balance under that plan. Please see page 106 for a discussion of the purpose of change in control provisions of that plan as well as the circumstances and the timing of payment.

Upon a change in control there is no acceleration of vesting of stock options and RSUs granted after 2009. Only upon an involuntary termination (not for cause) within 24 months after a change in control of TI will the vesting of such stock options and RSUs accelerate. Please see pages 97 and 102-103 for further information concerning change in control provisions relating to stock options and RSUs.

For a discussion of the impact of these programs on the compensation decisions for 2014, please see page 96.

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The table below shows the potential payments upon termination or change in control for each of the named executive officers.

Non- Non-
Qualified Qualified Qualified
Defined Defined Defined
Benefit Benefit Benefit
Pension Pension Pension Deferred Stock
   Plan    Plan    Plan II    Compensation    RSUs    Options    Total
R. K. Templeton (10)
       Disability 948,016 (1) 609,677 (2) 235,673 (2) 38,202,764  (3) 97,538,189 (4) 137,534,319
       Death $ 453,426 (5) $ 189,952 (5) $ 140,399 (5)    805,262  (6)   $ 38,202,764  (3) $ 97,538,189 (4) $ 138,092,137  (11)
       Involuntary termination
              for cause $ 894,339 (7) $ 374,379 (7) $ 277,204 (7) $ 6,416,400  (8) $ 7,962,322
       Resignation; Involuntary
              termination
              (not for cause) $ 894,339 (7) $ 374,379 (7) $ 277,204 (7) $ 31,964,580  (12) $ 97,538,189 (4) $  131,048,691
       Retirement $ 894,339 (7) $ 374,379 (7) $ 277,204 (7) $ 31,964,580  (12) $ 97,538,189 (4) $ 131,048,691
       Change in control $ 374,379 (7) $ 6,416,400  (8) $ 6,790,779
 
K. P. March (10)
       Disability $ 1,643,934 (1) $ 349,792 (2) $ 6,826,893 (2) $ 9,434,995  (3) $ 13,685,180  (4) $ 31,940,794
       Death $ 628,772 (5) $ 115,729 (5) $ 3,288,071 (5) $ 9,434,995  (3) $ 13,685,180 (4) $ 30,836,743 (11)
       Involuntary termination
              for cause $ 1,203,189 (7) $ 224,695 (7) $ 6,288,683 (7) $ 7,716,567
       Resignation; Involuntary
              termination
              (not for cause) $ 1,203,189 (7) $ 224,695 (7) $ 6,288,683 (7) $ 7,485,586  (12) $  13,685,180 (4) $ 28,887,333
       Retirement $ 1,203,189 (7) $ 224,695 (7) $ 6,288,683 (7) $ 7,485,586  (12) $ 13,685,180 (4) $ 28,887,333
       Change in control $ 224,695 (7) $ 224,695
 
B. T. Crutcher
       Disability $ 10,783 (1) $ 18,324,116  (3) $ 11,376,418 (4) $ 29,711,317
       Death $ 1,881 (5) $ 820,284  (6) $ 18,324,116  (3) $ 11,376,418 (4) $ 30,522,699
       Involuntary termination
              for cause $ 3,728 (7) $ 3,728
       Resignation; Involuntary
              termination
              (not for cause) $ 3,728 (7) $ 2,548,031 (9) $ 2,551,759
       Change in control
 
S. A. Anderson
       Disability $ 10,998,779  (3) $ 9,657,280 (4) $ 20,656,059
       Death $  435,908  (6) $ 10,998,779  (3) $ 9,657,280 (4) $ 21,091,967
       Involuntary termination
              for cause
       Resignation; Involuntary
              termination
              (not for cause) $ 3,928,094 (9) $ 3,928,094
       Change in control
 
K. J. Ritchie (10)
       Disability $ 2,065,069 (1) $ 926,549 (2) $ 8,387,202 (2) $  12,005,619  (3) $ 8,020,452 (4) $ 31,404,891
       Death $ 873,590 (5) $ 324,982 (5) $ 4,008,109 (5) $ 12,005,619  (3) $ 8,020,452 (4) $ 30,261,478 (11)
       Involuntary termination
              for cause $ 1,717,320 (7) $ 639,440 (7) $ 7,878,647 (7) $ 10,235,407
       Resignation; Involuntary
              termination
              (not for cause) $ 1,717,320 (7) $ 639,440  (7) $ 7,878,647 (7) $ 9,722,022  (12) $ 8,020,452 (4) $ 27,977,881
       Retirement $  1,717,320  (7) $  639,440 (7) $  7,878,647  (7) $ 9,722,022  (12) $ 8,020,452 (4) $ 27,977,881
       Change in control $ 639,440 (7) $ 639,440

(1)       The amount shown is the lump-sum benefit payable at age 65 to the named executive officer in the event of termination as of December 31, 2014, due to disability, assuming the named executive officer does not request payment of his disability benefit until age 65. The assumptions used in calculating these amounts are the same as the age-65 lump-sum assumptions used for financial reporting purposes for the company’s audited financial statements for 2014 and are described in note 6 to the 2014 pension benefits table on page 104.

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(2) The amount shown is the lump-sum benefit payable at age 65, in the case of the Non-Qualified Defined Benefit Pension Plan, or separation from service in the case of Plan II. The assumptions used are the same as those described in note 1 above.
     
(3) Calculated by multiplying the number of outstanding RSUs by the closing price of TI common stock as of December 31, 2014 ($53.47). In the event of termination due to disability or death, all outstanding awards will continue to vest according to their terms. Please see the outstanding equity awards at fiscal year-end 2014 table on page 101 for the number of unvested RSUs as of December 31, 2014, and page 103 for a discussion of an additional outstanding RSU award held by Mr. Templeton.
 
(4) Calculated as the difference between the grant price of all outstanding in-the-money options and the closing price of TI common stock as of December 31, 2014 ($53.47), multiplied by the number of shares under such options as of December 31, 2014.
 
(5) Value of the benefit payable in a lump sum to the executive officer’s beneficiary calculated as required by the terms of the plan assuming the earliest possible payment date. The plan provides that in the event of death, the beneficiary receives 50 percent of the participant’s accrued benefit, reduced by the age-applicable joint and 50 percent survivor factor.
 
(6) Balance as of December 31, 2014, under the non-qualified deferred compensation plan.
 
(7) Lump-sum value of the accrued benefit as of December 31, 2014, calculated as required by the terms of the plans assuming the earliest possible payment date.
 
(8) Calculated by multiplying 120,000 vested RSUs by the closing price of TI common stock as of December 31, 2014 ($53.47). See page 103 for further information about this award.
 
(9) Calculated as the difference between the grant price of all exercisable in-the-money options and the closing price of TI common stock as of December 31, 2014 ($53.47), multiplied by the number of shares under such options as of December 31, 2014.
 
(10) Messrs. Templeton, March and Ritchie were eligible to retire as of December 31, 2014.
 
(11) Due to retirement eligibility, the total includes the value of the benefit payable in a lump sum under the Survivor Benefit Plan to the officer’s beneficiary in the following amounts: Mr. Templeton $762,145, Mr. March $3,683,996 and Mr. Ritchie $5,028,726. The amount of the benefit is calculated as required by the terms of the plan assuming the earliest possible payment date.
 
(12) Due to retirement eligibility, calculated by multiplying the number of outstanding RSUs held at such termination by the closing price of TI common stock as of December 31, 2014 ($53.47). RSU awards stay in effect and pay out shares according to the vesting schedule, although for grants made before 2014, the number of shares is reduced according to the duration of employment over the vesting period. See page 103 for additional details.

Audit Committee report

The Audit Committee of the board of directors has furnished the following report:

As noted in the committee’s charter, TI management is responsible for preparing the company’s financial statements. The company’s independent registered public accounting firm is responsible for auditing the financial statements. The activities of the committee are in no way designed to supersede or alter those traditional responsibilities. The committee’s role does not provide any special assurances with regard to TI’s financial statements, nor does it involve a professional evaluation of the quality of the audits performed by the independent registered public accounting firm.

The committee has reviewed and discussed with management and the independent accounting firm, as appropriate, (1) the audited financial statements and (2) management’s report on internal control over financial reporting and the independent accounting firm’s related opinions.

The committee has discussed with the independent registered public accounting firm, Ernst & Young, the required communications specified by auditing standards together with guidelines established by the SEC and the Sarbanes-Oxley Act.

The committee has received the written disclosures and the letter from the independent registered public accounting firm required by the applicable requirements of the Public Company Accounting Oversight Board, regarding the independent registered public accounting firm’s communications with the Audit Committee concerning independence, and has discussed with Ernst & Young the firm’s independence.

Based on the review and discussions referred to above, the committee recommended to the board of directors that the audited financial statements be included in the company’s annual report on Form 10-K for 2014 for filing with the SEC.

Ralph W. Babb, Jr., Chair Mark A. Blinn Ruth J. Simmons

110 TEXAS INSTRUMENTS ● 2015 PROXY STATEMENT     



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 TI’s independent registered public accounting firm. The Audit Committee has appointed Ernst & Young LLP to be TI’s independent registered public accounting firm for 2015.

TI has engaged Ernst & Young or a predecessor firm to serve as the company’s independent registered public accounting firm for over 60 years. In order to assure continuing auditor independence, the Audit Committee periodically considers whether the annual audit of TI’s financial statements should be conducted by another firm.

The lead audit partner on the TI engagement serves no more than five consecutive years in that role, in accordance with SEC rules. The Audit Committee Chair and management have direct input into the selection of the lead audit partner.

The members of the Audit Committee and the board believe that the continued retention of Ernst & Young to serve as the company’s independent registered public accounting firm is in the best interest of the company and its investors. Consequently, the board asks the stockholders to ratify the appointment of Ernst & Young. If the stockholders do not ratify the appointment, the Audit Committee will consider whether it should appoint another independent registered public accounting firm.

Representatives of Ernst & Young are expected to be present, and to be available to respond to appropriate questions, at the annual meeting. They have the opportunity to make a statement if they desire to do so; they have indicated that, as of this date, they do not.

The fees for services provided by Ernst & Young to the company are described below:

Audit fees. Ernst & Young’s Audit Fees were $9,134,000 in 2014 and $8,662,000 in 2013. 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, statutory audits required internationally and accounting consultations.

Audit-related fees. Ernst & Young’s fees for Audit-related services were $797,000 in 2014 and $685,000 in 2013. The services provided in exchange for these fees included 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 & Young’s online research tool.

Tax fees. Ernst & Young’s 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 $1,802,000 in 2014 and $1,836,000 in 2013.

All other fees. Ernst & Young’s fees for all other professional services rendered were $32,000 in 2014 and $95,000 in 2013 for the TI Foundation audit, training and assistance with insurance claims.

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 firm’s independence.

Annually the independent registered public accounting firm and the director of internal audits present to the Audit Committee services expected to be performed by the firm over the next 12 months. The Audit Committee reviews and, as it deems appropriate, pre-approves those services. The services and estimated fees are presented to the Audit Committee for consideration in the following categories: Audit, Audit-related, Tax and All other (each as defined in Schedule 14A of the Securities Exchange Act). For each service listed in those categories, the committee receives detailed documentation indicating the specific services to be provided. The term of any pre-approval is 12 months from the date of pre-approval, unless the Audit Committee specifically provides for a different period. The Audit Committee reviews on at least a quarterly basis the services provided to date by the firm and the fees incurred for those services. The Audit Committee may revise the list of pre-approved services and related fees from time to time, based on subsequent determinations.

In order to respond to time-sensitive requests for services that may arise between regularly scheduled meetings of the Audit Committee, the committee has delegated pre-approval authority to its Chair (the Audit Committee does not delegate to management its responsibilities to pre-approve services). The Chair reports pre-approval decisions to the Audit Committee and seeks ratification of such decisions at the Audit Committee’s next scheduled meeting.

The Audit Committee or its Chair pre-approved all services provided by Ernst & Young during 2014.

The board of directors recommends a vote FOR ratification of the appointment of Ernst & Young LLP as the company’s independent registered public accounting firm for 2015.

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Additional information

Voting securities

As of February 17, 2015, 1,047,142,301 shares of TI common stock were outstanding. This is the only class of capital stock entitled to vote at the meeting. Each holder of common stock has one vote for each share held. As stated in the notice of annual meeting, holders of record of the common stock at the close of business on February 17, 2015, may vote at the meeting or any adjournment of the meeting.

Security ownership of certain beneficial owners

The following table shows the only persons who have reported beneficial ownership of more than 5 percent of the common stock of the company. Persons generally “beneficially own” shares if they have the right to either vote those shares or dispose of them. More than one person may be considered to beneficially own the same shares.

Shares Owned at Percent
Name and Address       December 31, 2014 of Class
Capital Research Global Investors (1)      
333 South Hope Street
Los Angeles, CA 90071      106,552,592  (2)      10.1 %
 
Capital World Investors (1)
333 South Hope Street
Los Angeles, CA 90071 69,752,362 (3) 6.6 %
 
The Vanguard Group
100 Vanguard Blvd.
Malvern, PA 19355 67,900,408 (4) 6.42 %
 
PRIMECAP Management Company
225 South Lake Ave., #400
Pasadena, CA 91101 57,436,034 (5) 5.44 %
 
BlackRock, Inc.
55 East 52nd Street
New York, NY 10022 57,462,724 (6) 5.4 %

(1) A division of Capital Research and Management Company (CRMC).
     
(2) TI understands that Capital Research Global Investors is deemed to be the beneficial owner of these shares as a result of CRMC acting as an investment advisor to various investment companies. Capital Research Global Investors has sole dispositive power and sole voting power for these shares.
 
(3) TI understands that Capital World Investors is deemed to be the beneficial owner of these shares as a result of CRMC acting as an investment advisor to various investment companies. Capital World Investors has sole voting power and sole dispositive power for these shares.
 
(4) TI understands that The Vanguard Group has sole voting power for 1,841,355, sole dispositive power for 66,154,118 and shared dispositive power for 1,746,290 of these shares.
 
(5) TI understands that PRIMECAP Management Company has sole voting power for 7,709,048 and sole dispositive power for all of these shares.
 
(6) TI understands that BlackRock, Inc. has sole voting power for 46,667,433 and sole dispositive power for all of these shares.

112 TEXAS INSTRUMENTS ● 2015 PROXY STATEMENT     



Security ownership of directors and management

The following table shows the beneficial ownership of TI common stock by directors, the named executive officers and all executive officers and directors as a group. Each director and named executive officer has sole voting power (except for shares obtainable within 60 days, shares subject to RSUs and shares credited to deferred compensation accounts as detailed in the footnotes to the table) and sole investment power with respect to the shares owned. The table excludes shares held by a family member if a director or executive officer has disclaimed beneficial ownership. No director or executive officer has pledged shares of TI common stock.

Shares Owned at Percent
Name December 31, 2014 of Class
Directors (1)      
R. W. Babb, Jr. 58,003 *
M. A. Blinn 11,076 *
D. A. Carp 139,990 *
C. S. Cox 100,162 *
R. Kirk 7,342 *
P. H. Patsley 133,870 *
R. E. Sanchez 31,969 *
W. R. Sanders 77,995 *
R. J. Simmons 78,198 *
R. K. Templeton 4,464,438 *
C. T. Whitman 110,277 *
 
Management (2)
K. P. March 828,106 *
B. T. Crutcher 677,625 *
S. A. Anderson 544,087 *
K. J. Ritchie 420,910 *
 
All executive officers and directors as a group (3) 10,384,904 *

*     less than 1 percent

(1)     Included in the shares owned shown above are:

Shares
      Shares Credited
Shares Credited to RSUs to Deferred
Obtainable 401(k) (in Shares) Compensation
Directors within 60 Days       Account (a) Accounts (b)
R. W. Babb, Jr. 29,567       13,293       14,143
M. A. Blinn 3,074 4,268      3,734     
D. A. Carp 72,567 29,957 37,466
C. S. Cox 72,567 23,293 1,163
R. Kirk 3,074 4,268
P. H. Patsley 72,567 13,293   38,010
R. E. Sanchez 19,565 10,406 1,998
W. R. Sanders 44,567 20,893 1,535
R. J. Simmons 29,567 29,293 19,338
R. K. Templeton      3,313,999           12,800           714,471     
C. T. Whitman 72,567 20,793 8,417

(a) The non-employee directors’ RSUs granted before 2007 are settled in TI common stock generally upon the director’s termination of service provided he or she has served at least eight years or has reached the company’s retirement age for directors. RSUs granted after 2006 are settled in TI common stock generally upon the fourth anniversary of the grant date.
           
(b) The shares in deferred compensation accounts are issued following the director’s termination of service.

     TEXAS INSTRUMENTS ● 2015 PROXY STATEMENT 113



(2)      Included in the shares owned shown above are:

Shares
Shares Credited to
Obtainable 401 (k) RSUs
Executive Officer       within 60 Days       Account       (in Shares)
K. P. March 474,127 2,063 176,454
B. T. Crutcher 334,926 342,699
S. A. Anderson   338,387         205,700
K. J. Ritchie 195,989 224,530

(3)