We have reviewed the follow-up letter from Mr. Winters about our 2014 Equity Plan. He continues to overstate the dilutive impact of the plan. Actual dilution related to existing equity plans over the last three years has been less than 1% per year and is expected to be in this range going forward. Our plan, clearly presented in the proxy, is closely in line with past equity plans and within industry norms.
The Board fully stands behind the Company’s compensation program and believes this plan incorporates performance metrics that link the interests of employees to those of Company shareowners.
The following are additional facts about our proposed 2014 Equity Plan:
Actual Dilution is Minimal. Now Mr. Winters claims that shareowners will be diluted by 16.6%. This figure is taken out of context and ignores the impact of our robust share repurchase program and our pay-for-performance policy.
- The Company uses proceeds received when an employee exercises options to repurchase shares, above and beyond our stated stock repurchase targets. In 2013, we repurchased $4.8 billion of stock, of which $1.3 billion was related to employee stock options exercises.
- In addition, the potential dilution calculations in the proxy assume that all outstanding awards will be earned and issued. Any awards that are not earned or are cancelled or forfeited will decrease the dilutive effect. For example, the potential dilution calculation includes the PSUs for the 2012-2014 performance period which are not expected to pay out. Actual dilution occurs only when equity awards actually vest or stock options are exercised. Since stock options are granted with 10 year terms, option exercises are expected to be spread over a long time period future mitigating the dilutive impact.
No Changes to Pay Practices. The 2014 Equity Plan is closely in line with past plans approved by the Board and the shareowners. The new plan does not change equity granting practices.
Equity Compensation is Performance-Based. If the Company does not perform, no compensation is realized. A recent example of this is the 2011-2013 PSUs which were all forfeited because the Company did not meet economic profit targets.Eligibility for the Plan is Not Limited to Senior Management. The 2014 Equity Plan is not solely for senior management. There are approximately 6,400 participants in the plan globally.
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