|Audit and Finance Committee Report|
While management has the primary responsibility for the financial statements and the reporting process, including the system of internal controls, the Audit and Finance Committee reviews the Company’s audited financial statements and financial reporting process on behalf of the Board of Directors. The independent auditors are responsible for performing an independent audit of the Company’s consolidated financial statements in accordance with the standards of the Public Company Accounting Oversight Board (United States) (“PCAOB”) and to issue a report thereon. The Audit and Finance Committee monitors those processes. In this context, the Audit and Finance Committee has met and held discussions with management and the independent auditors regarding the fair and complete presentation of the Company’s results. The Audit and Finance Committee has discussed significant accounting policies applied by the Company in its financial statements, as well as alternative treatments. Management has represented to the Audit and Finance Committee that the Company’s consolidated financial statements were prepared in accordance with United States generally accepted accounting principles (“GAAP”), and the Audit and Finance Committee has reviewed and discussed the consolidated financial statements with management and the independent auditors. The Audit and Finance Committee also discussed with the independent auditors the matters required to be discussed by Auditing Standard No. 1301, as amended (Communication with Audit Committees), as adopted by the PCAOB.
In addition, the Audit and Finance Committee has received and reviewed the written disclosures and the PCAOB-required letter from PwC regarding PwC’s communications with the Audit and Finance Committee concerning independence and discussed with PwC its independence. The Audit and Finance Committee also considered whether the independent auditors’ provision of non-audit services to the Company is compatible with the auditors’ independence. The Audit and Finance Committee has concluded that the independent auditors are independent from the Company and its management.
The Audit and Finance Committee discussed with the Company’s internal and independent auditors the overall scope and plans for their respective audits. The Audit and Finance Committee meets separately with the internal and independent auditors, with and without management present, to discuss the results of their examinations, the evaluations of the Company’s internal controls and the overall quality of the Company’s financial reporting.
In reliance on the reviews and discussions referred to above, the Audit and Finance Committee recommended to the Board of Directors, and the Board has approved, that the audited financial statements be included in the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2021 (“2021 Form 10-K”), for filing with the U.S. Securities and Exchange Commission (“SEC”). The Audit and Finance Committee has selected PwC, subject to shareholder approval, as the Company’s independent auditors for the fiscal year ending December 31, 2022.
AUDIT AND FINANCE COMMITTEE
Lauren B. Peters (Chair)
Kirk S. Hachigian
Steven C. Mizell
Dean I. Schaffer
Martin E. Welch III
|Fees of the Independent Auditors|
The following table shows the fees we paid or accrued for audit and other services provided by PwC for the fiscal years ended December 31, 2021 and 2020:
|Audit Fees (a)||$||3,830,100 ||$||3,968,500 |
|Audit-Related Fees (b)||169,500 ||56,000 |
|Tax Fees (c)||388,500 ||1,679,000 |
|All Other Fees (d)||900 ||2,900 |
|Total||$||4,389,000 ||$||5,706,400 |
(a)Audit Fees for the fiscal years ended December 31, 2021 and 2020 were for professional services rendered for the audits of the Company’s annual consolidated financial statements, including its internal controls over financial reporting, quarterly reviews, statutory audits, and issuance of consents.
(b)Audit-Related Fees for the fiscal years ended December 31, 2021 and 2020 consist of employee benefit plan audits and other attest services that are not related to performing the audit or review of our consolidated financial statements. Audit-Related Fees for the fiscal year ended December 31, 2021 also includes tax due diligence.
(c)The Tax Fees for the fiscal years ended December 31, 2021 and 2020 relate to consulting services.
(d)All Other Fees for the fiscal year ended December 31, 2021 and 2020 includes license fees for financial statement disclosure software. All Other Fees for the fiscal year ended December 31, 2020 also includes license fees for technical accounting software.
The Audit and Finance Committee, pursuant to its charter, pre-approves all auditing and non-audit services and related fees to be performed by the Company’s independent auditors. Furthermore, the Company follows internal procedures that: (i) provide for pre-approval of an annual budget for each type of service; (ii) require Audit and Finance Committee approval of specific services / projects over $50,000, even if included in the approved budget; and (iii) require Audit and Finance Committee approval if the forecast of expenditures exceeds the approved budget on any type of service. The Audit and Finance Committee pre-approved all of the services described above. The Audit and Finance Committee has determined that the provision of all such services is compatible with maintaining the independence of PwC.
|Item 4. Renewal of the Board of Directors’ Existing Authority to Issue Shares|
Under Irish law, shareholders of an Irish public limited company grant authority to the Board of Directors to issue any shares, including shares which are part of the company’s authorized but unissued share capital. Our current authorization is due to expire at the end of the 2022 Annual General Meeting on June 2, 2022. Because our authorization is due to expire, we are presenting this proposal to renew the Board’s authority to issue our authorized shares on the terms set forth below.
We are seeking approval to authorize our Board of Directors to issue up to 33% of our issued ordinary share capital as of April 7, 2022 (the latest practicable date before this Proxy Statement), for a period expiring 18 months from June 2, 2022 (the date on which our existing authority expires) or at the end of the next Annual General Meeting, whichever is earlier, unless previously renewed, varied or revoked.
Granting the Board of Directors this authority is a routine matter for public companies incorporated in Ireland and is consistent with Irish market practice. This authority is fundamental to our business and enables us to issue shares, including in connection with our equity compensation plans (where required) and, if applicable, funding acquisitions and raising capital. We are not asking you to approve an increase in our authorized share capital or to approve a specific issuance of shares. Instead, approval of this proposal will only grant our Board the authority to issue shares that are already authorized under our Articles of Association upon the terms below. In addition, we note that, because we are a New York Stock Exchange (“NYSE”) listed company, our shareholders continue to benefit from the protections afforded to them under the rules and regulations of the NYSE and SEC, including those rules that limit our ability to issue shares in specified circumstances. Furthermore, we note that this authorization is required as a matter of Irish law and is not otherwise required for most other companies listed on the NYSE with whom we compete. Renewal of the Board’s existing authority to issue shares is fully consistent with NYSE rules and listing standards and with U.S. capital markets practice and governance standards. Accordingly, approval of this resolution would merely place us on par with other NYSE-listed companies.
As required under Irish law, the resolution in respect of Item 4 is an ordinary resolution that requires the affirmative vote of a simple majority of the votes cast.
The text of this resolution in respect of this proposal is as follows:
“RESOLVED, that the Directors be and are hereby generally and unconditionally authorized with effect from the end of the 2022 Annual General Meeting on June 2, 2022 to exercise all powers of the Company to allot relevant securities (within the meaning of Section 1021 of the Companies Act 2014) up to an aggregate nominal amount of $289,748 (28,974,828 shares) (being equivalent to approximately 33% of the aggregate nominal value of the issued ordinary share capital of the Company as of April 7, 2022 (the latest practicable date before this Proxy Statement)), and the authority conferred by this resolution shall expire 18 months from June 2, 2022 or at the end of the next Annual General Meeting, whichever is earlier, unless previously renewed, varied or revoked; provided that the Company may make an offer or agreement before the expiry of this authority, which would or might require any such securities to be allotted after this authority has expired, and in that case, the Directors may allot relevant securities in pursuance of any such offer or agreement as if the authority conferred hereby had not expired.”
The Board of Directors recommends a vote FOR the renewal of the Board of Directors’ existing authority to issue shares.
|Item 5.||Renewal of the Board of Directors’ Existing Authority to Issue Shares for Cash Without First Offering Shares to Existing Shareholders|
Under Irish law, unless otherwise authorized, when an Irish public limited company issues shares for cash, it is required first to offer those shares on the same or more favorable terms to existing shareholders of the company on a pro-rata basis (commonly referred to as the statutory pre-emption right). Because our existing authorization will expire at the end of the 2022 Annual General Meeting on June 2, 2022, we are presenting this proposal to renew the Board of Directors’ authority to opt-out of the pre-emption right on the terms set forth below.
We are seeking approval to authorize our Board of Directors to opt out of the statutory pre-emption rights provision in the event of: (1) the issuance of shares for cash in connection with any rights issue; and (2) any other issuance of shares for cash, if the issuance is limited to up to 5% of our issued ordinary share capital as of April 7, 2022 (the latest practicable date before this Proxy Statement), for a period expiring 18 months from June 2, 2022 (the date on which our existing authority expires) or at the end of the next Annual General Meeting, whichever is earlier, unless previously renewed, varied or revoked.
Granting the Board of Directors this authority is a routine matter for public companies incorporated in Ireland and is consistent with Irish customary practice. Similar to the authorization sought for Item 4, this authority is fundamental to our business and enables us to issue shares under our equity compensation plans (where required) and if applicable, will facilitate our ability to fund acquisitions and otherwise raise capital. We are not asking you to approve an increase in our authorized share capital or to approve a specific issuance of shares. Instead, approval of this proposal will only grant the Board of Directors the authority to issue shares in the manner already permitted under our Articles of Association upon the terms below. Without this authorization, in each case where we issue shares for cash, we would first have to offer those shares on the same or more favorable terms to all of our existing shareholders. This requirement could undermine the operation of our compensation plans and cause delays in the completion of acquisitions and capital raising for our business. Furthermore, we note that this authorization is required as a matter of Irish law and is not otherwise required for most other companies listed on the NYSE with whom we compete. Renewal of the Board’s existing authorization to opt out of the statutory pre-emption rights as described above is fully consistent with NYSE rules and listing standards and with U.S. capital markets practice and governance standards. Accordingly, approval of this resolution would merely place us on par with other NYSE-listed companies.
[Item 5 continues on next page]
As required under Irish law, the resolution in respect of this Item 5 is a special resolution that requires the affirmative vote of at least 75% of the votes cast.
The text of the resolution in respect of this proposal is as follows:
“RESOLVED as a special resolution, that, subject to the passing of the resolution in respect of Item 4 as set out above and with effect from the end of the 2022 Annual General Meeting on June 2, 2022, the directors be and are hereby empowered pursuant to Section 1023 of the Companies Act 2014 to allot equity securities (as defined in Section 1023 of that Act) for cash, pursuant to the authority conferred by Item 4 as if sub-section (1) of Section 1022 did not apply to any such allotment, provided that this power shall be limited to:
(a) the allotment of equity securities in connection with a rights issue in favor of the holders of ordinary shares (including rights to subscribe for, or convert into, ordinary shares) where the equity securities respectively attributable to the interests of such holders are proportional (as nearly as may be) to the respective numbers of ordinary shares held by them (but subject to such exclusions or other arrangements as the directors may deem necessary or expedient to deal with fractional entitlements that would otherwise arise, or with legal or practical problems under the laws of, or the requirements of any recognized regulatory body or any stock exchange in, any territory, or otherwise); and
(b) the allotment (other than pursuant to sub-paragraph (a) above) of equity securities up to an aggregate nominal value of $43,901 (4,390,125 shares) (being equivalent to approximately 5% of the aggregate nominal value of the issued ordinary share capital of the Company as of April 7, 2022 (the latest practicable date before this Proxy Statement)),
and the authority conferred by this resolution shall expire 18 months from June 2, 2022 or at the end of the next Annual General Meeting, whichever is earlier, unless previously renewed, varied or revoked; provided that the Company may make an offer or agreement before the expiry of this authority, which would or might require any such securities to be allotted after this authority has expired, and in that case, the directors may allot equity securities in pursuance of any such offer or agreement as if the authority conferred hereby had not expired.”
The Board of Directors recommends a vote FOR the renewal of the Board of Directors’ existing authority to issue shares for cash without first offering shares to existing shareholders.
CORPORATE GOVERNANCE GUIDELINES AND PRACTICES
Our Corporate Governance Guidelines, together with the charters of the three Board committees, provide a framework for the corporate governance of the Company. The following is a summary of our Corporate Governance Guidelines and our corporate governance practices. A copy of our Corporate Governance Guidelines, as well as the charters of each of our Board committees, are available on our website at www.allegion.com under the heading, “About Allegion – Corporate Governance.”
Role of the Board of Directors
The role of the Board is to oversee our management and governance, and monitor senior management’s performance. The Board delegates to the CEO, and through the CEO to other senior management, the authority and responsibility for managing the Company’s business.
The Board of Directors’ core responsibilities include, among other things:
▪Selecting individuals for Board members and evaluating the performance of the Board, its Committees and individual directors;
▪Selecting, monitoring, evaluating and compensating senior management;
▪Selecting the CEO and assuring that management succession planning is adequate;
▪Reviewing and approving significant corporate actions;
▪Reviewing and monitoring implementation of management’s strategic plans and capital allocation strategy;
▪Reviewing and approving the Company’s annual operating plans and budgets;
▪Monitoring corporate performance and evaluating results compared to relevant peers, the Company’s strategic plans and other long-range goals;
▪Reviewing the Company’s financial controls and reporting systems;
▪Reviewing and approving the Company’s financial statements and financial reporting;
▪Overseeing the Company’s ESG initiatives, strategies, goals and performance;
▪Overseeing the Company’s key programs, policies and strategies related to its management of human capital resources, including recruitment, development and retention of personnel, talent management, and diversity, equity and inclusion;
▪Reviewing the Company’s ethical standards and legal compliance programs and procedures;
▪Overseeing the Company’s management of enterprise risk, including information technology, cybersecurity, privacy and disruptive technology; and
▪Monitoring relations with shareholders, customers, employees, the communities in which the Company operates and other stakeholders.
Board Leadership Structure
The Board of Directors believes that establishing the right leadership structure is one of its primary responsibilities and key to ensuring appropriate oversight of management and creating a strategic-asset Board. The right leadership structure will vary depending upon the needs of the Company and the Board’s assessment of the CEO. In evaluating its leadership structure, the Board considers a number of factors, including the CEO’s experience and leadership, the Board and Committee processes and procedures, investor feedback and best practices. The Board is committed to regularly evaluating its leadership structure. Accordingly, the Board has no fixed policy with respect to combining or separating the roles of Chair of the Board and CEO.
Based upon Mr. Petratis’s extensive understanding and grasp of our business and operations, competitive pressures, his focus on our strategic goals, his demonstrated leadership and management skills, and the current Board dynamics, the Board of Directors believes it is appropriate to combine the positions of Chairman of the Board and CEO of the Company at this time. It is the Board’s view that our corporate governance principles, the quality, stature and substantive business knowledge of the members of the Board, as well as the Board’s culture of open
communication with the CEO and senior management are conducive to Board effectiveness with a combined Chairman and CEO position. The Board reserves the right to separate the roles of Chair and CEO as the Board deems appropriate and in the best interests of the Company.
The Board recognizes the need to appoint a strong, independent Lead Director when the positions of Chair and CEO are combined. The Board believes establishing a Lead Director with clearly defined roles and responsibilities adequately addresses the need for independent leadership and an organizational structure for the independent directors. The Chairman and CEO is responsible for working with the Lead Director so that together they achieve the Board governance objectives outlined by the Board.
Mr. Hachigian has served as the Lead Director since April 2022. He previously served in this role from 2013 through April 2021.
The Board of Directors appoints a Lead Director for a three-year term (or until his/her earlier death, resignation, retirement, removal from such position or until his/her successor is appointed by the Board) from among the Board’s independent directors. The Lead Director coordinates the activities of all of the Board’s independent directors. The Lead Director is the principal confidant to the CEO and ensures that the Board has an open, trustful relationship with the Company’s senior management team while also ensuring that the Board has independent leadership separate from the Company’s management. The Lead Director is not superior to other directors or Committee Chairs, but rather, is a focal point and facilitator - and the CEO is encouraged to develop rapport and good communication with all the directors. In addition to the duties of all directors, as set forth in the Company’s Corporate Governance Guidelines, the specific responsibilities of the Lead Director are as follows:
|Responsibilities of the Lead Director|
▪Call and chair the meetings of the independent directors when the Chairman is not present;
▪Ensure the full participation and engagement of all Board members in deliberations;
▪Lead the Board in all deliberations involving the CEO’s employment, including hiring, contract negotiations, performance evaluations and dismissal;
▪Counsel the Chairman on issues of interest/concern to directors and encourage all directors to engage the Chairman with their interests and concerns;
▪Work with the Chairman to develop an appropriate schedule of Board meetings and approve such schedule, to ensure that the directors have sufficient time for discussion of all agenda items;
▪Work with the Chairman to develop the Board and Committee agendas and approve the final agendas;
▪Keep abreast of key Company activities and advise the Chairman as to the quality, quantity and timeliness of the flow of information from Company management that is necessary for the directors to effectively and responsibly perform their duties; although Company management is responsible for the preparation of materials for the Board, the Lead Director will approve information provided to the Board and may specifically request the inclusion of certain material;
▪Engage consultants who report directly to the Board and assist in recommending consultants that work directly for Board Committees;
▪Work in conjunction with the Corporate Governance Committee in compliance with Corporate Governance Committee processes to interview all Board candidates and make recommendations to the Board;
▪Assist the Board and Company officers in assuring compliance with and implementation of the Company’s Corporate Governance Guidelines, and work in conjunction with the Corporate Governance Committee to recommend revisions to the Corporate Governance Guidelines;
▪Call, coordinate and develop the agenda for and chair executive sessions of the Board’s independent directors, and act as principal liaison between the independent directors and the CEO;
▪Work in conjunction with the Corporate Governance Committee to identify for appointment the members of the various Board Committees, as well as selection of the Committee Chairs;
▪Be available for consultation and direct communication with major shareholders in coordination with the CEO;
▪Make a commitment to serve in the role of Lead Director for a minimum of three years; and
▪Help set the tone for the highest standards of ethics and integrity.
Further, the CEO and Chairman is responsible for working with the Lead Director so that together they can achieve the Board governance objectives outlined by the Board. This includes:
▪Meeting with the Lead Director following each Board meeting to discuss any open matters from the meeting and to receive feedback from the Lead Director regarding issues arising at the executive session(s) of the independent directors;
▪Having regular, open and candid conversations with the Lead Director to discuss important issues and seek guidance where appropriate;
▪Using the Lead Director as a sounding board and mentor;
▪Keeping the Lead Director, and as appropriate the full Board, informed about key developments and concerns; and
▪Consulting with the Lead Director on the preparation of Board meeting agendas and content, meeting schedules and the background material provided to the Board.
Board Risk Oversight
The Board of Directors has oversight responsibility of the processes established to identify, mitigate, report and monitor material risks applicable to us. The Board reviews our general risk management strategy and significant risks we face and ensures that appropriate risk mitigation strategies are implemented by management. Specifically, the Board considers strategic risks and succession planning and receives reports from each committee as to risks delegated within their areas of responsibility. The Board has delegated to its various committees the oversight of risk management practices for categories of risk relevant to their functions as follows:
▪The Audit and Finance Committee oversees risks associated with our systems of disclosure controls and internal controls over financial reporting, our compliance with legal and regulatory requirements and risks associated with foreign exchange, insurance, credit and debt. The Audit and Finance Committee also reviews reports from management on results of internal control reviews of information technology, cybersecurity and privacy controls and procedures.
▪The Compensation and Human Capital Committee considers risks related to the attraction and retention of talent, including diversity, equity and inclusion, succession and development plans, and risks related to compensation policies, incentive plans and programs.
▪The Corporate Governance and Nominating Committee oversees risks associated with our governance policies and practices as well as ESG matters.
With regard to the ongoing global COVID-19 pandemic, from the onset, the Board received regular updates from the CEO and management regarding the impacts of the pandemic on our business and operations, as well as employee health and safety, and actions taken by the Company to address and minimize such impacts. For details on actions we took and continue to take amidst the COVID-19 pandemic, see “Ongoing COVID-19 Pandemic Response Highlights” on page x of this Proxy Statement.
The Chief Financial Officer (“CFO”) is our Chief Risk Officer and, in that role, the Chief Risk Officer, in consultation with our Chief Compliance Officer, as appropriate, periodically reports on enterprise risk management, risk management policies and practices to the relevant Board Committee and/or to the full Board so that any decisions can be made as to any required changes in our risk management and mitigation strategies or in the Board’s oversight of these.
Cybersecurity is a critical part of our risk management which the Board oversees. To more effectively address cybersecurity threats, we leverage a multi-layer approach, with our Chief Information Security Officer (“CISO”) leading a team that is responsible for forming our enterprise-wide information security strategy, training, policy, standards, architecture and processes to protect the Company against cybersecurity risks. Our cybersecurity programs align to ISO 27001 as a principle and when third party audit firms conduct audits on portions of our cybersecurity program or processes, they apply ISO 27001. At this time, Interflex, one of our leading brands, has ISO 27001 certification. Further, we have a comprehensive employee security awareness program in place and a security training program for technical personnel. Various trainings through these programs are provided regularly throughout the year. The CISO provides periodic briefings to the Board during the year regarding threat intelligence, cyber risk areas, cybersecurity technologies and best practices, and major cybersecurity incidents (if any).
The Board also oversees privacy matters including the global privacy program. Allegion’s Chief Privacy Officer (“CPO”) is responsible for and leads the Global Privacy Program, and provides at least an annual update to
the Board. The Global Privacy Program is a comprehensive program that addresses privacy regulations and laws applicable to our businesses globally including the General Data Protection Regulation (“GDPR”) and the California Consumer Privacy Act (“CCPA”). We have various privacy policies, statements, and notices, as well as accompanying procedures that govern how we collect, store, protect, and use customer, employee, and business partner data. We also train our employees on our privacy policies, statements, notices, and procedures.
As part of its oversight of our executive compensation program, the Compensation and Human Capital Committee considers the impact of the executive compensation program and the incentives created by the compensation awards on our risk profile. In addition, the Compensation and Human Capital Committee reviews potential risks associated with the Company’s compensation policies, incentive plans and programs, and whether such policies, plans and programs incentivize unnecessary and excessive risk taking. The Compensation and Human Capital Committee also engages our independent compensation consultant, Willis Towers Watson (“WTW”), to complete an assessment of risks. In 2021, the Compensation and Human Capital Committee and WTW concluded that our compensation policies and procedures are not reasonably likely to have a material adverse effect on the Company.
Finally, the Compensation and Human Capital Committee assists the Board in its oversight of the Company’s key programs, policies and strategies related to its management of human capital resources, including recruitment, development and retention of personnel, talent management, and diversity, equity and inclusion. In addition, the Compensation and Human Capital Committee also oversees the succession and development plans for executive officers, and reviews potential risks as part of such oversight.
We believe that providing for continuity of leadership at both the Board and at the senior management level is critical to our success and we place a high priority on robust talent development. The Board regularly reviews long-term succession plans for the CEO and senior management. With the assistance of the CEO and our Human Resources executive, the Board, at least annually, formally reviews the performance of the members of senior management and succession plans for those members, including reviewing the qualifications, experience, development plans and progress of internal CEO and senior management candidates. Further, we provide multiple opportunities for the directors to engage with key talent and employees at various levels, such as exposure through presentations to the Board and dinner events in small group settings. During 2021, as the pandemic continued, we scheduled individual, virtual coffee-break sessions with directors and key talent to continue efforts to provide for exposure and interaction between our directors and employees. In addition, an emergency CEO succession plan is reviewed and implemented by the Board each year to address unanticipated events and emergency situations.
The Corporate Governance Committee, led by the Lead Director, regularly evaluates the composition of the Board and succession plans. The Corporate Governance Committee considers the needs of the Board and the Company in light of the overall composition of the Board with a view of achieving a balance of diverse skills, experience and attributes that would enhance the quality of the Board’s deliberations and decisions, and contribute to the Board’s overall effectiveness and oversight of management, recognizing that our businesses and operations are diverse and global in nature. In addition, an evaluation of the Board, its effectiveness and its needs is part of the Board’s annual self-evaluation process.
Director Compensation and Stock Ownership
It is the policy of the Board of Directors that directors’ fees and annual restricted stock unit (“RSU”) awards be the sole compensation received by any non-employee director. The director stock ownership policy requires our non-employee directors to own ordinary shares equal to three times their annual cash retainer. Non-employee directors must hold any shares acquired until the stock ownership requirement is met and must thereafter maintain the ownership requirement until retirement. The value is determined at the time the awards are vested, or, if any shares are purchased individually, at the time the shares are acquired, and does not get recalculated if shares change in value.
Board Size and Composition
The Board of Directors has the authority to set the size of the Board which is currently set at nine directors and will be reduced to eight directors effective as of the date of the 2022 AGM, in light of Mr. Szews’ retirement at the end of his term. The Board consists of a substantial majority of independent directors, with eight independent, non-employee directors and one executive director. The Board may increase or decrease the size of the Board as it deems appropriate to function effectively as a body, subject to the Company’s Articles of Association. In addition,
our Corporate Governance Guidelines require that all members of the committees of the Board must be independent directors. The Board has the following three standing committees: Audit and Finance Committee; Compensation and Human Capital Committee; and Corporate Governance and Nominating Committee. The Board has determined that each member of these committees is “independent” as defined in the NYSE listing standards and our Corporate Governance Guidelines.
In 2021, each independent, non-employee director nominee served on the Board committees as noted under “Committees of the Board” on page 20 of this Proxy Statement. Ms. Peters was appointed to the Board and all three committees in July 2021, and further, as Chair of the Audit and Finance Committee, effective March 1, 2022. Chairs of the committees are expected to rotate periodically.
Service on Other Public Boards
The Board believes that service on the boards of other public companies provides valuable governance and leadership experience that ultimately benefits the Company. The Board also recognizes that public board service requires significant time commitment and attention. Therefore, under our Corporate Governance Guidelines: (i) non-executive directors may not serve on the board of more than four other public companies without the prior approval of the Board; (ii) non-executive directors who serve as an executive officer of a public company may not serve on the board of more than one other publicly held company without the prior approval of the Board; and (iii) no member of the Audit and Finance Committee may serve on more than two other public company audit committees.
Independent, non-employee directors who are being considered to serve on other public company boards are reviewed by the Corporate Governance Committee to determine whether the new board service is compatible with continued service on the Company’s Board. During such review, in addition to the above requirements, the Corporate Governance Committee will take into account any recent trends and expectations of institutional investors and other shareholders, as appropriate, when making its recommendation to the Board.
Further, pursuant to our Corporate Governance Guidelines, the CEO may not serve on the board of more than two other public companies. The CEO and other members of senior management must seek Corporate Governance Committee approval before accepting board memberships with for-profit entities.
Each of our directors demonstrates their strong engagement, has adequate time to devote to Board matters, and has high attendance. During 2021, all directors attended 100% of Board meetings and 100% of all Committee meetings on which he or she served during 2021. No director attended less than 75% of all meetings.
The Corporate Governance Committee assists the Board in evaluating its performance and the performance of the Board Committees. Each Committee also conducts an annual self-evaluation. The effectiveness of individual directors is considered each year when the directors stand for re-nomination.
The Corporate Governance Committee annually reviews the evaluation process, including the evaluation format and appropriate topics. The Lead Director leads the evaluation process in each year other than the year immediately preceding appointment of the Lead Director. In that year, the Chair leads the evaluation process. One-on-one interviews with individual directors are conducted to ensure thoughtful, candid feedback. In 2021, Mr. Szews, as Lead Director at the time, led the interview and evaluation process.
The Board of Directors and its Committees may, under their respective charters, retain their own advisors to assist in carrying out their responsibilities.
Our independent, non-employee directors meet privately in regularly scheduled executive sessions, without management present, to consider such matters as the independent, non-employee directors deem appropriate. These executive sessions are required to be held no less than four times each year, but are regularly held at each Board meeting.
Board Refreshment and Diversity
We believe that Board membership should reflect diversity in its broadest sense. We also seek to combine the skills and experience of our long-standing Board members with fresh perspectives, insights, skills and experiences of new members.
In selecting and assessing potential Board candidates, the Board, with the support of the Corporate Governance Committee, takes into consideration a broad range of factors such as skills, expertise, breadth of experience, understanding of business and financial issues, ability to exercise sound judgment, leadership, achievements and experience in matters affecting business and industry, board experience and viewpoints, including a candidate’s gender, race, ethnicity, geography and other factors that would complement the existing Board and contribute to enhancing the quality of the Board’s deliberations and decisions, recognizing that our businesses and operations are diverse and global in nature.
In the last two years, two highly qualified directors were added to the Board and one director will be retiring at the 2022 AGM. Our Board currently has four directors who are women or racially/ethnically diverse. Our Board has a good balance of new and experienced directors, with the tenure of director nominees averaging 5.3 years.
Director Nomination Process
The Corporate Governance Committee reviews the composition of the full Board to identify the qualifications and areas of expertise needed to further enhance the diversity and composition of the Board, makes recommendations to the Board concerning the appropriate size and needs of the Board and, on its own or with the assistance of management, a search firm or others, identifies candidates with those qualifications.
As explained above, we believe that Board membership should reflect diversity in its broadest sense. The Board is also committed to actively seeking highly qualified women and individuals from minority groups to include in the pool from which new candidates are selected. In selecting and assessing potential Board candidates, the Board and Corporate Governance Committee takes into consideration a broad range of factors and the entirety of each candidate’s credentials and believes that, at a minimum, each nominee should satisfy the following criteria: highest character and integrity, independent mindset, personal and professional ethics, business judgment, experience and understanding of strategy and policy setting, financial literacy, ability and willingness to devote sufficient time to Board matters, and no conflict of interest that would interfere with performance as a director. Each director nominee except for Ms. Peters (who was appointed in July 2021) was elected by the Company’s shareholders at the 2021 AGM.
Shareholders may recommend candidates for consideration for Board membership by sending the recommendation to the Corporate Governance Committee, in care of the Corporate Secretary. Candidates recommended by shareholders are evaluated in the same manner as director candidates identified by any other means.
Director Onboarding and Education
All directors are expected to invest the time and energy required to quickly gain an in-depth understanding of our business and operations so that they can enhance their contributions and strategic value to the Board. We have an onboarding program for new directors and periodically review and update the orientation materials and program to ensure that new directors gain a good understanding of the Company, our business and operations, and our values in an effective, meaningful manner. Further, we provide continuing education opportunities for all directors, including membership with the National Association of Corporate Directors (“NACD”). In addition, the independent, non-employee directors are given full access to management and other employees as a means of providing additional information.
Director Retirement and Term Limits
In accordance with the Company’s Corporate Governance Guidelines, each non-employee director must retire at the AGM immediately following the completion of 10 years of service as a director of the Board. No waivers of this 10-year term limit have been granted.
Application of Non-U.S. Corporate Governance Codes
Our Corporate Governance Guidelines and general approach to corporate governance, as reflected in our Memorandum and Articles of Association and our internal policies and procedures, are guided by U.S. practice and applicable federal securities laws and regulations and NYSE requirements. Although we are an Irish public limited company, we are not listed on the Irish Stock Exchange and therefore are not subject to the listing rules of the Irish Stock Exchange or any of its governance standards or guidelines.
The Board has determined that all of our current directors, except Mr. Petratis, who is our Chairman, President and CEO, are independent under NYSE’s listing standards and the standards set forth in in our Corporate Governance Guidelines (see Exhibit I - Guidelines for Determining Independence of Directors to our Corporate Governance Guidelines). To assist the Board in making these determinations, each director is required to complete a questionnaire on an annual basis. In determining the independence of directors, the Board also evaluated transactions between the Company and entities with which directors were affiliated, all of which, if any, occurred in the ordinary course of business, were below certain value thresholds, and were provided on the same terms and conditions available to other customers. Further, none of the independent, non-employee directors has a direct or indirect material relationship with the Company.
A copy of our Corporate Governance Guidelines, including Exhibit I noted above, is available on our website, www.allegion.com, under the heading “About Allegion - Corporate Governance.”
COMMUNICATION WITH DIRECTORS
Shareholders and other interested parties wishing to communicate with: the Board of Directors; the independent, non-employee directors; or any individual director (including our Lead Director and Compensation and Human Capital Committee Chair) may do so either by sending a communication to the Board and/or a particular Board member, in care of the Corporate Secretary, or by e-mail at firstname.lastname@example.org. Depending upon the nature of the communication and to whom it is directed, the Corporate Secretary will: (a) forward the communication to the appropriate director or directors; (b) forward the communication to the relevant department within the Company; or (c) attempt to handle the matter directly (for example, a communication dealing with a share ownership matter).
We have adopted a worldwide Code of Conduct, which applies to all our officers, employees and directors. The Code of Conduct meets the requirements of a “code of ethics” as defined by Item 406 of Regulation S-K, as well as the requirements of a “code of business conduct and ethics” under the NYSE listing standards. The Code of Conduct covers topics including, but not limited to, avoiding conflicts of interest, maintaining confidentiality of information, working with suppliers, preventing bribery and corruption, avoiding insider trading, and compliance with laws and regulations.
A copy of our Code of Conduct is available on our website located at www.allegion.com under the heading “About Allegion - Corporate Governance.” Amendments to, or waivers of the provisions of, the Code of Conduct, if any, made with respect to any of our directors and executive officers will be posted on our website.
|REVIEW OF RELATED PERSON TRANSACTIONS|
A “Related Person Transaction” is any transaction, arrangement or relationship (or series of similar transactions, arrangements or relationships) that would be required to be disclosed pursuant to Item 404(a) of Regulation S-K under the Securities Act of 1933, as amended (the “Securities Act”), in which the Company, or any of its subsidiaries or affiliates was, is, or will be a participant, the amount involved exceeds $120,000 and in which any Related Person had, has, or will have a direct or indirect material interest, other than an employment relationship or transaction involving an executive officer and any related compensation. A “transaction” includes, but is not limited to, any financial transaction, arrangement or relationship (including any indebtedness or guarantee of indebtedness) or any series of similar transactions, arrangement or relationships.
A “Related Person” means:
1.any person who is, or was at any time since the beginning of the Company’s last fiscal year, an executive officer, director, or director nominee of the Company;
2.any person who, at the time of the occurrence or existence of the transaction at issue, is the beneficial owner of more than 5% of any class of the Company’s voting securities (a “5% Shareholder”); or
3.any person who is, or was, at any time since the beginning of the Company’s last fiscal year, an Immediate Family Member of any individual covered by 1. or 2. above
An “Immediate Family Member” of any person means any child, stepchild, parent, stepparent, spouse, sibling, mother-in-law, father-in-law, son-in-law, daughter-in-law, brother-in-law or sister-in-law of such person, or any other person (other than a tenant or an employee) sharing the household of such person.
Pursuant to the Company’s written Related Person Transaction policy, all Related Person Transactions are prohibited unless approved or ratified by the disinterested members of the Corporate Governance Committee in accordance with the policy.
Upon disclosure of a Related Person Transaction to management at any time by a director (including director nominee) or executive officer, management shall prepare a summary of such Related Person Transaction for approval or ratification at the next scheduled meeting of the Corporate Governance Committee. In connection with the review and approval or ratification of a Related Person Transaction, management must disclose to the Corporate Governance Committee:
▪the material terms of the Related Person Transaction, including the approximate dollar value of the amount involved in the transaction, the Related Person’s relationship to the Company and interest in the transaction;
▪the identity of the other parties to the transaction;
▪the material facts of the transaction;
▪the benefits to the Company and to the Related Person;
▪whether the value and the terms of the transaction are substantially similar as compared to those of similar transactions previously entered into by the Company with non-Related Persons, if any;
▪the impact on a director’s independence (for both service on the Board or any of its committees) in the event the Related Person is a director or director nominee and, if applicable, the availability of other sources of comparable products or services;
▪whether the Related Person Transaction will be required to be disclosed in the Company’s applicable filings under the Securities Act or Exchange Act, and related rules; and
▪any other matters that management or the Corporate Governance Committee, as applicable, deem appropriate.
In approving or ratifying a transaction, the Corporate Governance Committee shall consider all of the relevant facts and circumstances and shall approve only those transactions that are in, or not inconsistent with, the best interests of the Company.
In addition, the Company’s Code of Conduct, which sets forth standards applicable to all employees, officers and directors of the Company, requires that all employees, officers and directors must disclose all potential conflicts of interest and promptly take actions to eliminate a conflict when the Company so requests. Any waiver of
the Code of Conduct for any executive officer or director requires the approval of the Company’s Board of Directors. Any such waiver will, to the extent required by law or NYSE, be disclosed on the Company’s website at www.allegion.com or on a current report on Form 8-K. No such waivers were requested or granted in 2021.
During 2021, there were no Related Person Transactions involving the directors or our executive officers. We have not made payments to our independent, non-employee directors other than the fees to which they are entitled as directors (described under the heading “Compensation of Directors” on page 31 of this Proxy Statement) and the reimbursement of expenses related to their services as directors. As an employee director, Mr. Petratis does not receive any compensation for his services as director and Chairman of the Board. Further, we have made no loans to any director or officer nor have we purchased any shares of the Company from any director or officer.
A copy of our Related Person Transaction Policy is available on our website located at www.allegion.com under the heading “About Allegion - Corporate Governance.”
ANTI-HEDGING/ANTI-PLEDGING POLICY AND OTHER RESTRICTIONS
We prohibit our directors and executive officers from: (i) purchasing any financial instruments designed to hedge or offset any decrease in the market value of our securities; and (ii) engaging in any form of short-term speculative trading in our securities. Directors and executive officers are also prohibited from holding our securities in a margin account or pledging our securities as collateral for a loan unless pre-approved by the Corporate Governance Committee. There are no directors or executive officers who hold any Company securities that are pledged. Pursuant to the Company’s Insider Trading Policy, the Company also prohibits all employees who are covered under this policy from engaging in such activities.
The Board of Directors oversees the management of the Company’s business and affairs. The Board has appointed three committees to help carry out its duties: the Audit and Finance Committee; the Compensation and Human Capital Committee; and the Corporate Governance and Nominating Committee. The Board has adopted a charter for each of these committees, copies of which are available on our website, www.allegion.com, under the heading “About Allegion - Corporate Governance.”
All three Committees and Committee Chairs are independent. The following table sets forth the current membership for each Board Committee:
|Audit and Finance||Compensation and Human Capital|
Corporate Governance and Nominating
|Kirk S. Hachigian|
|Steven C. Mizell|
|Nicole Parent Haughey|
|Lauren B. Peters|
|Dean I. Schaffer|
Charles L. Szews*
|Martin E. Welch III|
* Mr. Szews will serve on these committees until his retirement at the 2022 AGM.
|Audit and Finance Committee|
The Audit and Finance Committee has oversight over the following:
▪Integrity of the Company’s financial statements, including its accounting policies and financial reporting and disclosure practices;
▪Adequacy of the system of internal controls within the Company to support the financial and business environment;
▪Management of the Company’s financial resources and major financial strategies and transactions;
▪Company’s processes to assure its compliance with all applicable laws, regulations and corporate policy;
▪Qualification and independence of the Company’s independent auditors; and
▪Performance of the Company’s internal audit function and independent auditors.
▪Review and discuss with management the annual audited and quarterly financial statements, as well as disclosures under our “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” with management and the independent auditors.
▪Discuss with the independent auditors the matters required to be discussed by the applicable auditing standards adopted by the PCAOB and approved by the SEC.
▪Review and discuss with management and the independent auditors the earnings release, financial information and earnings guidance provided to analysts and rating agencies.
▪Consider and approve the Company’s annual financing plan, including its projected capital structure and funding requirements.
▪Consider and recommend to the Board the dividends to be paid on our ordinary shares.
▪Consider and recommend to the Board share repurchases.
▪Consider and recommend to the Board issuances of equity and/or debt securities, or authorizations for other financing transactions, including bank credit facilities.
▪Consider and approve, if appropriate, major changes to the Company’s auditing and accounting principles and practices.
▪Review significant accounting and reporting issues, including recent professional and regulatory pronouncements.
▪Retain or replace the Company’s independent auditors and approve all engagement fees and terms.
▪Review, at least annually, the qualifications and performance of the independent auditors, including the lead audit partner, and approve their fees.
▪Review and discuss with the independent auditors all relationships that would be thought to bear on the objectivity and independence of the independent auditors.
▪Review and approve all auditing services to be performed by the independent auditors.
▪Approve in advance non-audit services and related fees to be performed by the independent auditors.
▪Set hiring policies for employees or former employees of the independent auditing firm.
▪Discuss with management and the independent auditors the Company’s policies regarding risk assessment and risk management, and consider and approve the Company’s risk management activities.
▪Consider and approve the Company’s policy for investment of excess cash.
▪Obtain and review periodic reports of the investment performance of the Company’s pensions and savings benefit plans.
▪Obtain and review periodic reports, at least annually, from management assessing the effectiveness of our internal controls and procedures for financial reporting, including results of internal control reviews of information technology, cybersecurity and privacy controls and procedures.
▪Obtain and review periodic reports, at least annually, from management assessing the effectiveness of our internal controls and procedures for financial reporting, and obtain from the independent auditors an attestation and report on the assessment made by management.
▪Review the Company’s disclosure controls and procedures and management’s assessment of them.
▪Review and assess the adequacy of the Audit and Finance Committee Charter and the Audit Services Charter annually.
▪Review with the Chief Compliance Officer: (i) ethics and compliance metrics approved by the Audit and Finance Committee; (ii) the annual report on the Company’s overall ethics and compliance program; and (iii) the Company’s periodic ethics and compliance risk assessment.
▪Establish procedures for the receipt, retention and treatment of complaints received by the Company regarding accounting, internal accounting controls or auditing matters, and confidential, anonymous submission by employees of concerns regarding questionable accounting or auditing matters.
▪Review with the General Counsel any legal matters, including litigation and regulatory matters, which could have a significant impact on the Company’s financial statements.
▪Review periodically (at least annually) with the senior tax executive all tax matters affecting the Company’s financial performance.
▪Review periodically (at least annually) the objectives, activities, organizational structure, budget, staffing and qualifications of the internal audit function.
▪Review the appointment and replacement of the senior internal audit executive and establish and maintain a direct reporting relationship with such executive.
▪Establish and maintain a direct reporting relationship with the Chief Compliance Officer.
▪Prepare and issue the report of the Audit and Finance Committee required by the rules of the SEC to be included in the Company’s Proxy Statement.
▪Report to the Board regularly including with respect to all significant issues discussed and make recommendations to be acted upon by the Board.
▪Conduct an annual evaluation of the performance of the Audit and Finance Committee.
▪Perform any other activities consistent with the Audit and Finance Committee Charter, the Company’s Articles of Association and governing law, as the Audit and Finance Committee or the Board deems necessary or appropriate.
The Board has determined that each member of the Audit and Finance Committee is “independent” for purposes of the applicable rules and regulations of the SEC, as defined in the NYSE listing standards and our Corporate Governance Guidelines. The Board has also determined that Ms. Peters and Mr. Welch meet the qualifications of an “audit committee financial expert” under the applicable SEC rules and regulations and that the other members of the Audit and Finance Committee are either financially literate or have accounting/financial management expertise in accordance with NYSE listing standards.
Audit Committee Financial Expert
The Board has determined that Ms. Peters and Mr. Welch meet the qualifications of an “audit committee financial expert” under the applicable SEC rules and regulations.
|Compensation and Human Capital Committee|
In 2021, the Board updated the name of the Compensation Committee to “Compensation and Human Capital Committee” to better reflect the increasing importance of human capital management and clarify the Board’s oversight of such matters.
▪Establish the Company’s executive compensation philosophy, strategies, policies and programs to enable the Company to attract, retain, deploy and motivate executives necessary to meet current and future needs of the enterprise, and to ensure the Company’s compensation policies and programs are aligned with shareholder interests (including total shareholder return) and company performance as compared to relevant peer group companies.
▪Review and approve the compensation, including salary, annual incentives, long-term incentives, equity-based awards and all other executive benefits for the CEO.
▪Has sole authority to determine the CEO’s corporate goals and objectives relevant to his or her compensation and evaluate his or her performance against those goals and objectives.
▪Review and approve compensation, including salaries, annual incentives, long-term incentives, equity-based awards and all other executive benefits for all elected officers other than the CEO.
▪Review and approve executive compensation and benefit programs including the Company’s executive incentive compensation plans, equity-based plans and executive pension and welfare plans.
▪Review broad-based employee benefit programs and recommend to the Board proposals for adoption, significant amendment or termination of such plans.
▪Review the potential risks associated with the Company’s compensation policies, incentive plans and programs, and whether such policies, plans and programs incentivize unnecessary and excessive risk taking. Review any material, non-recurring discretionary bonus pool programs for broad employee groups.
▪Exercise all powers and discretion vested in the Board under the Company's equity compensation plans, including the authority to grant awards.
▪Assist the Board in its oversight of the Company’s key programs, policies and strategies related to its management of human capital resources, including recruitment, development and retention of personnel, talent management, and diversity, equity and inclusion.
▪Oversee the succession and development plans (including succession plans for emergencies) for executive officers. For clarity, succession and development planning (including for emergencies) for the CEO will be overseen by the Board unless all independent directors are also members of the Compensation and Human Capital Committee.
▪Approve the content of CIC plans or arrangements for employees.
▪Report to the Board all significant issues discussed and make recommendations to be acted upon by the Board, as appropriate.
▪Issue a report to the shareholders as required by the rules of the SEC for inclusion in the Company’s proxy statement.
▪Conduct an annual evaluation of the Compensation and Human Capital Committee’s performance.
▪Review and assess the adequacy of the committee’s charter, at least annually, and recommend proposed changes to the Board.
▪Perform any other activities consistent with the Compensation and Human Capital Committee Charter, the Company’s Articles of Association and governing law, as the Compensation and Human Capital Committee or the Board deems necessary or appropriate.
The Board has determined that each member of the Compensation and Human Capital Committee is “independent” as defined in the NYSE listing standards and our Corporate Governance Guidelines. In addition, the Board has determined that each member of the Compensation and Human Capital Committee qualifies as a “Non-Employee Director” within the meaning of Rule 16b-3 of the Securities Exchange Act of 1934.
For a discussion concerning the processes and procedures for determining executive compensation and the role of executive officers and compensation consultants in determining or recommending the amount or form of compensation, see “Compensation Discussion and Analysis” on page 33 of this Proxy Statement.
|Corporate Governance and Nominating Committee|
▪Consider and review, at least annually, the Company’s corporate governance guidelines and make recommendations to the Board for changes which the Corporate Governance Committee deems appropriate.
▪Consider and recommend the size, functions and needs of the Board in order to ensure that the Board has the requisite leadership, skills and expertise and that its membership consists of individuals with sufficiently diverse and independent backgrounds.
▪Review and recommend candidates to fill new positions or vacancies on the Board consistent with the criteria set forth in the Company’s corporate governance guidelines and such other criteria which the Corporate Governance Committee deems appropriate. The Corporate Governance Committee shall conduct all necessary and appropriate inquiries into the backgrounds and qualifications of possible candidates. In that connection, the Corporate Governance Committee shall have the sole authority to retain and to terminate any search firm to be used to assist it in identifying candidates to serve as directors of the Company, including the sole authority to approve the fees payable to such search firm and any other terms of retention.
▪Review Board candidates and other proposals recommended by shareholders.
▪Propose director nominees for election or re-election for recommendation by the Board to the shareholders.
▪Consider questions of independence and possible conflicts of interest of members of the Board, as well as executive officers.
▪Review and recommend Chairs and members of the Board committees, giving consideration to the requirements of the Committee Charters, the Company’s Corporate Governance Guidelines and such other factors which the Corporate Governance Committee deems appropriate.
▪Review and make recommendations on the conduct of Board, Committee and shareholder meetings.
▪Review and recommend non-employee director compensation.
▪Recommend director retirement policies.
▪Nominate individuals for election by the Board as corporate officers.
▪Review and approve outside board memberships of the CEO and other members of senior management with for-profit entities.
▪Assist the Board in its oversight of our ESG initiatives, strategies, goals and performance. .
▪Oversee the evaluation of the performance of the Board, Board committees and management.
▪Conduct an annual evaluation of the performance of the Corporate Governance Committee.
▪Review and assess the adequacy of the committee’s charter, at least annually, and recommend proposed changes to the Board
▪Report to the Board all significant issues discussed and make recommendations to be acted upon by the Board.
▪Perform any other activities consistent with this Charter, the Company’s Articles of Association and governing law, as the Corporate Governance Committee or the Board deems necessary or appropriate.
The Board has determined that each member of the Corporate Governance Committee is “independent” as defined in the NYSE listing standards and our Corporate Governance Guidelines.
Board, Committee and Annual Meeting Attendance
The Board of Directors and its Committees held the following number of meetings during the fiscal year ended December 31, 2021:
|Audit and Finance Committee||11|
|Compensation and Human Capital Committee||5|
|Corporate Governance and Nominating Committee||4|
Each of the incumbent directors attended 100% of the Board meetings and 100% of the Committee meetings on which he or she served during 2021. No director attended less than 75% of all meetings. Note: Ms. Peters was appointed to the Board on July 13, 2021 and hence, Board and Committee meetings held prior to her appointment date are not included for purposes of her attendance calculations.
Pursuant to our Corporate Governance Guidelines, non-employee directors meet in executive session as necessary, but at least four times a year, to consider such matters as they deem appropriate without management being present. In 2021, the independent, non-employee directors met regularly in executive session of the Board, holding such a session at each of the five Board meetings.
We expect all directors to attend the AGM, but from time to time, other commitments may prevent all directors from attending the meeting. All of the directors (except for Ms. Peters who joined the Board in July 2021) attended the 2021 AGM.
ENVIRONMENTAL, SOCIAL AND GOVERNANCE (“ESG”) HIGHLIGHTS
The ESG Council which is comprised of leaders and subject matter experts across multiple functions provides regular updates to the Board’s Corporate Governance Committee which assists the Board in its oversight of ESG initiatives, strategies, goals and performance. The purpose of the ESG Council is to support the Company’s ongoing commitment to ESG matters, including health and safety, corporate responsibility, and sustainability by:
▪Developing our strategy related to ESG matters, including identifying, evaluating and monitoring ESG matters at the Company that could affect the Company’s business activities, performance and reputation;
▪Improving the Company’s understanding of ESG matters;
▪Overseeing integration of strategically significant ESG policies into the business operations and strategy; and
▪Assisting in shaping communications with employees, investors, and other stakeholders of the Company with respect to ESG matters.
Our ESG initiatives align with prominent standards and frameworks to meet the needs of our business and stakeholders. In 2021, we established our materiality matrix of ESG priorities based on a survey conducted with key internal and external stakeholders, including our investors, suppliers, customers and community partners. This matrix and our ESG initiatives generally align with the SASB framework for the Electrical & Electronic Equipment industry classification, which in turn, has been referenced by the TCFD as an appropriate framework by which to fulfill TCFD recommendations. As part of our continuous improvement process, we will continue to evaluate framework recommendations as they apply to our business.
Our cross-functional ESG Council meets regularly throughout the year to review and evaluate the effectiveness and scope of our ESG initiatives and goals, including assessing progress against our goals. The ESG Council also engages with third party ESG consultants for additional input and expertise.
Additional information about our ESG materiality matrix, efforts, policies, goals and key achievements are available on our website at www.allegion.com under the heading, “ESG.” The ESG section of our website, which was newly added in 2021, will be updated periodically to reflect our latest ESG initiatives and progress.
ENVIRONMENTAL, HEALTH, SAFETY AND SUSTAINABILITY
We are committed to conducting business in a safe, environmentally responsible and sustainable manner, in compliance with all applicable EHS laws and regulations - and in a manner that helps promote and protect the health and safety of our environment. This commitment is congruent with our Company values which include: “Be safe, be healthy,” “Do the right thing,” and “Be empowered and accountable.” We regularly monitor our facilities and processes to comply with environmental standards and regulations. We seek to operate our business with principles that support our proactive commitment, including:
▪Integrate sound EHS and sustainability strategies in our business functions, including objectives and measurements;
▪Evaluate our compliance status periodically and annual review of objectives and targets;
▪Train and educate our employees to help them understand their roles in supporting the EHS and sustainability issues associated with their jobs and work areas;
▪Make continuous improvements in EHS and sustainability management systems and performance, including reduction in the usage of natural resources, waste minimization, prevention of pollution and prevention of workplace accidents, injuries and risks;
▪Design, operate and maintain our facilities in a manner that minimizes negative EHS and sustainability impacts;
▪Use materials responsibly, including, where feasible, recycling and reusing materials; and
▪Act in a way that shows sensitivity to community concerns about EHS and sustainability issues.
We take the management of climate-related risks and sustainability seriously and have set goals to strive for reductions in greenhouse gas (“GHG”) emissions intensity, water usage, and total waste to landfill, both year-over-year and as compared to our baseline year (2020). We also aim to achieve carbon neutral emissions globally by 2050, and we support the United Nations Sustainable Development Goal to take urgent action on climate change.
We have a dedicated environmental program that is designed to reduce the utilization and generation of hazardous materials during the manufacturing process as well as to remediate identified environmental concerns. With regard to remediation, we are currently engaged in site investigations and remediation activities to address environmental cleanup from past operations at current and former production facilities. We also regularly evaluate our remediation programs and consider alternative remediation methods that are in addition to, or in replacement of, those we currently utilize based upon enhanced technology and regulatory changes.
Further, our EHS efforts and performance are recognized publicly. In 2021, we received the renowned Robert W. Campbell Award from the National Safety Council which recognizes commendable leadership and excellence in integrating EHS management into the company’s business operating systems.
Our EHS and Sustainability Policy Statement and details of our EHS and sustainability efforts, goals and key achievements, including year-over-year results regarding GHG emissions intensity, water usage, waste-to-landfill, and total recordable incident rate are available on our website at www.allegion.com/ESG, with additional details listed under the “Environmental” page.
As a leading global provider of security products and solutions that keep people safe, secure and productive, we offer an extensive and versatile portfolio of mechanical and electronic security products. While we are many layers removed from the mining of conflict minerals and do not directly purchase raw ore or unrefined conflict materials, we seek to responsibly source materials. We also expect our suppliers to source conflict minerals responsibly and to provide sufficient data, including supporting due diligence records.
Our Conflict Minerals policy and approach are posted on our website at www.allegion.com/ESG under the “Environmental” page and our Conflict Minerals Report is filed annually with the SEC as part of Form SD.
Throughout the ongoing global COVID-19 pandemic, we stayed committed to doing what’s right for our employees, customers and the communities where we operate, as well as our business health and essential critical infrastructure. We remain focused on the health and safety of our employees and business health, both in the short and longer term. For more details on our continued approach as the COVID-19 pandemic continues, see “Ongoing COVID-19 Pandemic Response Highlights” on page x of this Proxy Statement.
We are committed to being a good corporate citizen globally as well as creating a positive employee environment. Our Code of Conduct details our core values, reinforces our commitment to lawful and ethical conduct and applies to all our employees, officers and directors. Our Code of Conduct also guides our business relationships with our customers, suppliers and each other.
We are also honored to support our global communities, not just with our vision to provide seamless access and a safer world but also through the passion and service of our people. Consistent with our value to “Serve Others, Not Yourself,” we encourage and empower our employees to identify local needs and make a difference where they live and work.
Each year, our employees around the world are proud to directly support organizations and initiatives through donations, engagement and thousands of hours, collectively, of volunteerism in the communities where we live and thrive. Our community impact projects span safe and secure housing, hunger relief, domestic violence shelters, support for educators, schools and children facing health and social challenges, STEM and mentoring programs and many more needs identified by our local operations. In addition, many employees serve in volunteer board and committee leadership positions, strengthening their local non-profits. For more information on how we impact our communities, see “Civic Involvement” section on page 29 of this Proxy Statement.
We also encourage our employees to embrace a culture that emphasizes safe and healthy lifestyles, both at home and at work. From healthy snacks and a focus on heart health to on-site fitness and employee-led initiatives, health is a focus at Allegion.
For more information on our social efforts and community impact, including human capital management, see below and our website at www.allegion.com/ESG, with additional details listed under the “Social” and “Governance” pages.
The Company’s human capital strategy is based on our values and is foundational to achieving our business strategy. To ensure we attract and retain top talent, we strive for a diverse and inclusive culture that rewards performance, provides growth and development opportunities and supports employees and their families through competitive compensation, benefits and numerous volunteer and charitable giving opportunities.
As of December 31, 2021, we had approximately 11,000 employees around the world, the vast majority working full time. Our employee base is supplemented by contingent labor where demand fluctuates or we experience short-term needs for specialized skills.
To help promote transparency, our EEO-1 report containing 2020 demographic data is posted on our website at www.allegion.com/ESG, with more details included under the “Social” page. We will post our EEO-1 report containing 2021 demographic data following our submission of the report to the U.S. Equal Employment Opportunity Commission when it is due in 2022.
Compensation and Benefits
Compensation and benefit programs are tailored to be competitive in the geographies where we work, including the total package (which varies by country/region) that includes hourly and salaried compensation, performance incentive and equity plans, retirement, insurance and government social welfare programs, disability and family leave, education benefits to pursue degrees and certifications and additional offerings to support financial stability and personal planning. Health and wellness programs are provided globally and contribute to a productive, sustainable workforce by empowering our employees to take personal responsibility for their health, safety and well-being. In addition, we maintain tobacco-free facilities and pursue strategies to incentivize healthy behaviors and
outcome-driven rewards. Pay for performance strategies consider not only accomplishments, but how individuals achieve results. The Allegion Leadership Behaviors – be a pioneer, break boundaries, coach, champion change, be courageous and inspire – are used to identify key talent and to train and develop aspiring leaders. They also work in concert with our performance management system to reinforce our values and code of conduct in assessing how people lead and deliver top performance.
Our employer brand strength creates a differentiated employee experience that attracts and retains the right talent for Allegion, both now and in the future. Talent attraction efforts are focused on our unique employee value proposition and highlight a culture that reflects our core values and business objectives. These efforts begin well before people walk in our doors and begin to work for us. Around the world, our sites partner with schools and support teachers, providing mentoring, grants, scholarships, internships, co-op programs, classroom technology and on-site activities and full-time rotational programs after graduation. Our sites sponsor science, technology, engineering and math ("STEM") programs and robotics and engineering competitions. In the U.S., we also host an annual Manufacturing Day event at several of our production and assembly facilities. These programs expose students to careers in manufacturing and technology and provide educators with programming to encourage academic excellence and social development while building a pipeline of talent for Allegion.
Talent attraction efforts go beyond emerging talent strategies to span core capabilities that enable the business to run, grow and transform. Key capabilities have been identified for our long-term corporate business strategy: talent, customer focus, innovation, partnering, pace and agility and collaboration. We use a variety of recruitment tactics to ensure a strong base of labor for manufacturing operations and to build the base of talent with these capabilities. Throughout the process, there is a focus on driving a technology-enabled seamless experience for internal and external candidates and hiring managers throughout the recruitment cycle. These talent attraction efforts are complemented with a total reward framework, internal learning and development paths and career growth opportunities to secure Allegion as an employer of choice, where people want to come work, stay and thrive.
Talent Development and Succession Planning
Talent development and succession planning at all levels of the organization are instrumental in ensuring we have the key capabilities to deliver the value proposition expected by our customers and employees. Inclusive succession planning is supported through the Allegion Leadership Behaviors, individual career mapping, assessment of performance and talent pipeline planning up to and including the CEO. On a quarterly basis, the executive team reviews talent development, focusing on developing a diverse succession bench, as part of their quarterly business review and a key component of the Allegion Operating System, our system of annual operation to support governance, reporting processes and management of the business. These cross-functional reviews highlight individuals who are ready for new opportunities, individuals who are on a special assignment or project and individuals early in their career that demonstrate emerging leadership skills.
Learning and Development
Opportunities for on-going learning and development are delivered to employees through structured coursework, on-site and expert-led training and experiential, applied development. The Allegion Academy is offered globally, supporting multiple languages and providing more than 17,000 self-guided online courses, as well as community channels on targeted skills and inclusion and diversity. We offer programs to provide successive levels of development, including re-skilling and upskilling existing employees, as well as strengths-based leadership curriculum. Enterprise excellence initiatives and sprint teams expand skills in lean manufacturing and quality principles and lead to redesigning workflow to boost productivity and reduce waste. Employee-led resource and affinity groups provide enrichment opportunities for women’s leadership, early-career professionals, creativity and innovation, health and fitness, community volunteering and philanthropy.
Engagement, Equity, Inclusion and Diversity
A commitment to engagement, inclusion and diversity is core to the Allegion Operating System. Engagement surveys provide team leaders with insights on potential areas of focus and help them prioritize and take action on their teams’ foundational, inclusion, growth and development needs. Strengths-based leadership is an element of our commitment to inclusion: the more employees understand their own strengths, the better equipped they are to add value and appreciate the contributions of diverse members of their teams.
Inclusion and diversity are topics for learning communities, employee roundtables and ongoing, regular analysis and dialogue among our people leaders, executive leadership and our Board of Directors. We believe in fundamental standards that support our employees, including a commitment to building and maintaining diverse and inclusive workplaces, safe and healthy practices and competitive wages and benefits. We embrace all differences and similarities among colleagues and within the relationships we foster with customers, suppliers and the communities where we live and work. Whatever background, experience, race, color, national origin, religion, age, gender, gender identity, disability status, sexual orientation, protected veteran status or any other characteristic protected by law, we make sure that potential and current employees have every opportunity for application and the opportunity to give their best at work because it’s the right thing to do.
The combined efforts of Allegion’s Inclusion and Diversity Steering Committee, our Executive Leadership Team ("ELT") and, as of June 2021, a new employee-led Inclusion Council, are driving expectations and accountability while creating role models and change champions. Our engagement, equity, inclusion and diversity strategy has three core pillars:
▪Learn & listen deeply: Learn to recognize biases and mitigate them. Seek to first understand the other person's perspective rather than respond or act;
▪Unite widely: Create a workplace where all employees feel welcomed, respected and valued, enabling customers to more easily connect with our brands through our people; and
▪Take action: Identify the unique things that impact our organization, our communities and our industry.
During 2021, we focused on four action priorities: establish the Inclusion Council; charter and expand employee resource groups; review business policies, processes and practices; and launch the Supplier Diversity Program. In 2021, Allegion was named the winner of the Jackson Lewis Diversity, Equity and Inclusion Champion Award, on the merits of our company’s proactive and intentional global efforts throughout 2021.
We are dedicated to fulfilling equal opportunity commitments in all decisions regarding all employment actions and at all levels of employment. In partnership with our Human Resources organization, our Equal Employment Opportunity Officer ensures that the applicable policy and procedures are appropriately established, implemented and disseminated, including those prohibiting discrimination, harassment, bullying and/or retaliation.
To learn more about Engagement, Equity, Inclusion and Diversity at Allegion, including our EEO-1 report for 2020 demographic data, please see our website at www.allegion.com/ESG, with more details listed under the “Social” page.
Civic involvement is part of the value proposition we offer employees and supports inclusion, diversity, growth and development. The Company and its employees provide multi-faceted support for our communities, guided by three philanthropic pillars: safety and security; wellness; and addressing the unique needs of the communities where we work, live and thrive. Corporate sponsorships and voluntary employee payroll deductions support a wide range of non-profits, including those that address housing and school security and safety; children and youth programs; education and scholarships for people of color and those who are economically disadvantaged and support for Historically Black Colleges and Universities; community safety nets for basic needs (e.g., food, shelter, transportation) for underserved people and to break the cycle of poverty; wellness, mental health, health research, emergency relief and blood supply initiatives; and programs to advance equality, justice and address systemic bias. In addition to corporate sponsorships, site leaders and employees are encouraged to organize local volunteer and fundraising activities, provide grants to local organizations and serve on boards and committees.
Respect for Human Rights
Our respect for human rights is expressed in standards for our employees, our business partners, our customers and our communities. We have adopted and continue to uphold our Global Human Rights Policy, with standards that align with basic working conditions and human rights concepts advanced by international organizations such as the International Labor Organization and the United Nations. This policy also represents our own minimum standards for working conditions and human rights in our business and supply chains. In addition, we conduct risk assessments and continue to have conversations with the suppliers and companies we work with about the importance of human rights.
Employee Health and Safety
Employee health and safety are top priorities, and we consistently rank as the safest among leading competitors on core measures such as the total recordable incident rate. ‘Be safe, be healthy’ is a core organizational value in our proactive safety culture and has guided our response to the COVID-19 pandemic throughout 2020 and 2021. We have adopted numerous health and safety measures in accordance with best-practice safe hygiene guidelines issued by recognized health experts like the CDC, the ECDC and the WHO, as well as any applicable government mandates. We continue to adapt to changing health conditions at a local level and support a wide range of health and safety measures, including reduced density, remote and hybrid work options for appropriate roles, cleaning and hygiene protocols, visitor management and mask-wearing. We also encourage preventative measures, including COVID-19 and influenza vaccines and booster shots.
The CEO and senior executives have responsibility for risk management, employee accountability and safety hazard recognition and take a personal responsibility toward executing on safety initiatives. We monitor leading and lagging indicators related to health and safety as part of our ongoing management of the Allegion Operating System and regularly update the Corporate Governance Committee of the Board of Directors on key accomplishments and employee health and safety topics. In recognition of our efforts over the past several years to integrate sound EHS management with our business operations, in 2021, we received the renowned Robert W. Campbell Award from the National Safety Council.
Our corporate governance highlights are available on page 12 of this Proxy Statement under the section, “Corporate Governance.”
COMPENSATION OF DIRECTORS
Our director compensation program is designed to compensate our independent, non-employee directors fairly for work required for a company of our size and scope and align their interests with the long-term interests of our shareholders. The program reflects our desire to attract, retain and use the expertise of highly qualified people serving on our Board. The Corporate Governance Committee periodically reviews the compensation level of our independent, non-employee directors in consultation with the Committee’s independent compensation consultant and makes recommendations to the Board. Employee directors do not receive any additional compensation for serving as a director.
Our current director compensation program for independent, non-employee directors consists of the below elements and was last updated effective as of the end of the 2020 AGM.
|Compensation Element||Compensation Value|
|Annual Cash Retainer||$||150,000 |
|Audit and Finance Committee Chair Cash Retainer||$||15,000 |
|Compensation and Human Capital Committee Chair Cash Retainer||$||12,000 |
|Corporate Governance and Nominating Committee Chair Cash Retainer |
(unless also the Lead Director)
|Lead Director Cash Retainer |
(plus $5,000 if also the Corporate Governance and Nominating Committee Chair)
|Additional Meetings or Unscheduled Planning Session Fees *||$||1,500 (per meeting or session)|
|Annual Grant of RSUs (vests after one year as long as the Director remains on the Board)||$||115,000 |
* The Board has five regularly scheduled meetings each year. Per the Company’s Corporate Governance Guidelines, the Audit and Finance Committee meets at least five times a year, the Compensation and Human Capital Committee meets at least four times a year, and the Corporate Governance and Nominating Committee meets at least three times a year.
Share Ownership Requirement
To align the interests of the directors with the shareholders, the Board of Directors adopted a share ownership policy applicable to our independent, non-employee directors. Our independent, non-employee directors are required to own ordinary shares with a value equal to three times the annual cash retainer, calculated at the time the RSU awards are vested or, if any shares are acquired individually, at the time the shares are acquired. The value does not get recalculated if shares change in value.
Director Product Program
In order for our independent, non-employee directors to develop a deeper understanding of our products and services, we maintain a product program that permits directors to receive, upon request, up to $2,000 of our products and services for their personal (including immediate family) use in any fiscal year. This $2,000 allowance covers the value of the applicable products (based on the costs to the Company) and any costs associated with the installation of the product. In the event the total costs of the product and related installation exceeds $2,000, the independent, non-employee director shall reimburse the Company for the excess amount.
2021 Director Compensation
The compensation paid or credited to our independent, non-employee directors for the year ended December 31, 2021, is summarized in the table below. As an employee director, Mr. Petratis received no additional compensation for his service as director. His compensation for serving as our CEO is discussed in the CD&A and Executive Compensation section of this Proxy Statement.
|K. S. Hachigian||158,310 ||152,530||3,878||314,718 |
|S. C. Mizell||158,011 ||152,530||3,311||313,852 |
|N. Parent Haughey||150,000 ||152,530||3,799||306,329 |
|L. B. Peters (c)||70,109 ||—||155||70,264 |
|D. I. Schaffer||153,989 ||152,530||4,288||310,807 |
|C. L. Szews ||166,690 ||152,530||3,311||322,531 |
|D. Vardhan||150,000 ||—||1,861||151,861 |
|M. E. Welch||165,000 ||152,530||3,897||321,427 |
(a)The amount represents the aggregate grant date fair value of the annual grant of RSUs to our independent, non-employee directors, computed in accordance with Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) Topic 718. As of December 31, 2021, each independent, non-employee director held 835 RSUs in relation to the RSU grant awarded in 2021.
(b)Amounts in this column include: (i) dividend equivalent payments of $1,450.68 each on the vested stock (RSU) awards for Mr. Hachigian, Mr. Mizell, Ms. Parent Haughey, Mr. Schaffer, Mr. Szews and Mr. Welch; and (ii) Irish tax preparation fees of $1,705.50 each for Mr. Hachigian, Mr. Mizell, Ms. Parent Haughey, Mr. Schaffer, Mr. Szews, Mr. Vardhan and Mr. Welch. The aggregate amount of perquisites and other personal benefits received by each independent, non-employee director in 2021 was less than $10,000.
(c)Ms. Peters was appointed to the Board on July 13, 2021.
COMPENSATION DISCUSSION AND ANALYSIS
This Compensation Discussion and Analysis (“CD&A”) provides a detailed description of our executive compensation philosophy and programs and the compensation decisions made by the Compensation and Human Capital Committee under those programs. This CD&A focuses on the compensation of our named executive officers (“NEOs”) for 2021, which were:
D. D. Petratis
Chairman, President and Chief Executive Officer
P. S. Shannon*
Senior Vice President and Chief Financial Officer
J. N. Braun
Senior Vice President and General Counsel
T. P. Eckersley
Senior Vice President - Allegion International
Former Senior Vice President - Allegion Americas
* Mr. Shannon retired from his position as Chief Financial Officer on March 1, 2022 and will retire from the Company by September 2, 2022. Michael J. Wagnes succeeded Mr. Shannon as Senior Vice President and CFO on March 1, 2022.
** Mr. Orbegoso left the Company on December 31, 2021.
This CD&A is divided into the following sections:
▪Compensation Philosophy and Design Principles
▪How We Make Compensation Decisions
▪2021 Compensation Structure Decisions
▪2021 Incentive Program Designs and Compensation Values for 2021 Performance
▪Other Compensation and Tax Matters
In this section, we highlight 2021 performance and decisions made by our Compensation and Human Capital Committee to support our strategic objectives and to effectively align the interests of our NEOs with shareholders and other stakeholders.
2021 Allegion Performance
During 2021, our business was affected by the COVID-19 pandemic’s effect on the global supply chain. End-market demand was strong; however, we had difficulty converting that demand into revenue due to the supply chain challenges, particularly during the second half of the year. The increase in demand occurred during a time when suppliers were experiencing labor, raw material and electronic component shortages and resulted in extended product lead times and record backlogs in 2021. We made progress with mitigating actions, including product redesigns and alternative sourcing; and expect these actions will continue to alleviate the pressures we have experienced.
Despite macroeconomic challenges, we have delivered strong results against our 2021 AIP targets and achieved absolute TSR of 54.78% for the three-year period ending December 31, 2021. Our employees are more engaged than ever, helping to deliver those results. We pursued a disciplined and focused capital allocation strategy and continue to make investments in innovation engines that progress our vision of seamless access and a safer world. Further, we also made significant strides in identifying ESG factors that were important to our business and stakeholders and aligning ESG commitments and initiatives consistent with such priorities.
We achieved the following financial performance related to our executive incentive programs:
|$2,863m of Annual Adjusted Revenue||$450m Available Cash Flow|
|Achieved 105% of target||Achieved 108% of target|
|$622m Adjusted EBITDA||$5.16 Adjusted EPS|
41st Percentile TSR
|Achieved 100% of target||Achieved 90% of target for the 2019-2021 Performance Period||TSR of 54.78% for the 2019-2021 Performance Period|
These results led to a 110.67% of target financial performance score under the AIP (subject to region- and individual-specific performance) and a 74% of target payout of the PSUs for the 2019-2021 performance period. The Compensation and Human Capital Committee believes that these outcomes align with our pay-for-performance philosophy - annual incentives were above the target goals set at the beginning of the year and long-term incentive goals were below the targets established at the beginning of the three-year period.
The Compensation and Human Capital Committee recognizes that unanticipated events may positively or negatively impact the level of achievement met against goals throughout the performance period. Thus, for purposes of evaluating our incentive plans, there are pre-determined categories as approved by the Compensation and Human Capital Committee for which formulaic adjustments are permitted, including, but not limited to, the financial performance of any business or asset acquired during the performance period, costs associated with acquisitions or divestitures, unusual or non-recurring gains or losses, changes in applicable accounting principles, impairment charges in accordance with GAAP, and business restructurings, or material interruption, including facility closures, severance, professional fees, or work stoppage. As a result of these permissible adjustments, amounts shown above differ compared to our recent Form 10-K and other filings. The Compensation and Human Capital Committee determinations with respect to earned payouts for our AIP and PSU programs are detailed under “2021 Incentive Program Designs and Compensation Values for 2021 Performance” beginning on page 41.
Overview of 2021 NEO Target Compensation
The target compensation for our NEOs in 2021 was:
Annual Incentive Target Value
Long-term Incentive Target Value
Total Target Compensation
|D. D. Petratis||1,000,000 ||1,250,000 ||4,600,000 ||6,850,000 |
|P. S. Shannon||584,800 ||438,600 ||1,550,000 ||2,573,400 |
|J. N. Braun||445,400 ||267,240 ||725,000 ||1,437,640 |
|T. P. Eckersley||500,000 ||350,000 ||600,000 ||1,450,000 |
|L. Orbegoso||575,000 ||431,250 ||1,000,000 ||2,006,250 |
Overall Pay Mix
As illustrated in the charts below, a significant percentage of each NEO’s total direct target compensation was both performance-based and at-risk over the short- and long-term, in accordance with our pay-for-performance compensation philosophy.
Consideration of 2021 Advisory Vote on Executive Compensation
The Compensation and Human Capital Committee regularly reviews the philosophy, objectives and elements of our executive compensation programs in relation to our short- and long-term business objectives. In undertaking this review, the Compensation and Human Capital Committee considers the views of shareholders as reflected in their annual advisory vote on our executive compensation proposal. At our 2021 AGM, shareholders approved our executive compensation proposal by approximately 85%. We will continue to engage with shareholders, as we value their input and want to ensure that our executive compensation programs reflect their perspectives. Based on the Compensation and Human Capital Committee’s review and the support our executive compensation programs received from shareholders, the Compensation and Human Capital Committee maintained the core elements of our executive compensation programs in 2021.
|COMPENSATION PHILOSOPHY AND DESIGN PRINCIPLES|
Compensation Philosophy and Executive Compensation Program Objectives
Our executive compensation program is designed to create a pay-for-performance culture by aligning the compensation program to the achievement of our strategic business objectives and with shareholder interests. Our strategic objectives are built on five growth pillars: (i) expand in core markets; (ii) be the partner of choice; (iii) deliver new value in access; (iv) capital allocation; and (v) enterprise excellence. We strive to provide our NEOs with a compensation package that is aligned with the market median, with the expectation that above-target performance will result in above-median pay, and below-target performance will result in below-median pay.
The primary objectives of our executive compensation program and the guiding principles for setting and awarding executive compensation are:
|Create and reinforce our pay-for-performance culture|
The compensation program is designed to pay for performance. Exceptional performance results in increased compensation; missing performance goals results in reduced or no incentive pay.
|Align the interests of management with our shareholders and other stakeholders|
To better align the interests of management with the interests of shareholders and other stakeholders, a significant portion of executive compensation is equity based, and stock ownership guidelines are utilized to incentivize a focus on long-term, sustainable growth.
|Attract, retain and motivate executive talent by providing competitive levels of salary and targeted total pay|
Compensation is intended to be competitive with those organizations with which we compete for top talent.
|Provide incentive compensation that promotes desired behavior without encouraging unnecessary and excessive risk|
Incentive compensation programs are designed to drive business strategy and encourage both the desired results and the right behaviors. We strive to drive business strategy and strike a balance between short-term and long-term performance, while incorporating risk-mitigating design features to discourage excessive risk-taking.
|Integrate with our performance management process of goal setting and formal evaluation|
Target level goals are generally aligned with the strategy and the Annual Operating Plan (“AOP”) and are considered stretch, yet achievable, as appropriately established for each year.
Maintaining Best Practices Regarding Executive Compensation
Our Compensation and Human Capital Committee believes that our executive compensation program is thoughtfully designed to compensate our NEOs effectively and consistent with the objectives and design principles outlined above. We have adopted the following compensation practices, which are intended to promote strong governance and alignment with shareholder (and other stakeholder) interests:
|Compensation and Human Capital Committee Practices|
|Independence of Committee members||Committee members satisfy the NYSE independence standards and are “non-employee directors” under SEC rules.|
|Independence of compensation consultant||The Compensation and Human Capital Committee retains and annually reviews the independence of its compensation consultant.|
|Annual risk assessment|
The Compensation and Human Capital Committee annually reviews the Company’s compensation programs to ensure that these programs do not encourage excessive risk taking that could negatively impact the Company.
|Mitigate undue risk||We mitigate undue risk in our compensation program by instituting governance policies such as capping potential payments under our incentive plans, instituting clawback provisions, utilizing multiple performance metrics, including absolute and relative metrics, striking a balance between short- and long-term incentives and adopting stock ownership requirements.|
|Performance-based compensation||We grant a high percentage of performance-based compensation. We believe this is essential to creating a pay-for-performance culture.|
|Target pay at the median level||We generally target total direct compensation opportunities at the competitive market median and allow performance (both operational and shareholder return) to determine actual or realized pay. Actual pay may be above or below the target median based on performance.|
|Stock ownership guidelines||The Compensation and Human Capital Committee has adopted stock ownership guidelines: (i) equal to six times base salary for the CEO; (ii) equal to three times base salary for the CFO; (iii) equal to two times base salary for the CEO’s direct reports who are executive officers at Senior Vice President level; and (iv) equal to one times base salary for the CEO’s direct reports who are executive officers at Vice President level. The executive officer must achieve compliance with the guidelines by the fifth anniversary of the officer’s appointment. All of our NEOs are in compliance with these guidelines.|
|Clawback policy||We have the right to recoup all or part of annual cash incentives or PSUs if there is a restatement of our financial statements for any such year which results from fraud or intentional misconduct committed by an award holder.|
|Anti-hedging and |
|We prohibit our directors and executive officers from: (i) purchasing any financial instruments designed to hedge or offset any decrease in the market value of our securities; and (ii) engaging in any form of short-term speculative trading in our securities. Directors and executive officers are also prohibited from holding our securities in a margin account or pledging our securities as collateral for a loan unless pre-approved by the Corporate Governance Committee. None of our directors or executive officers hold Company securities that are pledged. |
|“Double Triggers” in change in control agreements||The NEOs and other executive officers do not receive change in control benefits unless their employment is terminated without cause (or by the executive for good reason) within a specified period following a change in control.|
|No tax gross ups on change in control benefits||The NEOs and other executive officers are not entitled to tax gross ups in the event that their change in control benefits are subject to the “golden parachute” excise tax under the U.S. Internal Revenue Code of 1986 (the “Code”).|
|HOW WE MAKE COMPENSATION DECISIONS|
Decision Making Process
The Compensation and Human Capital Committee reviews and discusses the performance of the CEO and makes determinations regarding his compensation. For other NEOs, the CEO considers individual performance and makes individual compensation recommendations to the Compensation and Human Capital Committee. The Compensation and Human Capital Committee reviews and discusses these compensation recommendations and modifies and approves them, as appropriate. In making compensation decisions, the Compensation and Human Capital Committee uses several resources and tools, including the advice of its independent compensation consultant, reviews of competitive market information and peer group data, company and individual performance, and accumulated and potential equity holdings.
Use of Comparator Groups for Pay and Performance
The Compensation and Human Capital Committee primarily uses two comparator groups as part of its executive compensation process. The “Compensation Benchmarking Peer Group” is used to assess the competitiveness of our NEOs’ compensation, and the “Performance Peer Group” is used to evaluate our relative TSR performance. As described below, the two comparator groups vary because executive compensation levels and practices are influenced by business complexity and company size.
|Compensation Benchmarking Peer Group|
The Compensation and Human Capital Committee considers relevant market pay practices, among other factors, when setting executive compensation to enhance our ability to recruit and retain high performing talent. In assessing market competitiveness, the compensation of our NEOs is reviewed against executive compensation at a set of companies with which we compete for executive talent, including the Benchmarking Peer Group. The Compensation Benchmarking Peer Group consists of companies that generally:
▪Are similar to us in terms of certain factors, including one or more of the following: size (i.e., revenue, market capitalization and growth characteristics), industry, lifecycle stage, and global presence; and
▪Have NEOs whose scope of responsibilities are comparable in terms of breadth and complexity.
Our Compensation and Human Capital Committee reviews the Compensation Benchmarking Peer Group on an annual basis and determines, with input from its independent compensation consultant, whether any changes are appropriate. This annual review ensures that the peer group companies remain appropriate from a business and talent perspective. No revisions were recommended to the Compensation Benchmarking Peer Group for 2021.
In 2021, the Compensation Benchmarking Peer Group was comprised of the following 20 companies:
|Acuity Brands||Diebold||Masco Corp||Roper Technologies|
|A.O. Smith||FLIR Systems*||Masonite International||Simpson Manufacturing|
|Belden||Fortune Brands Home & Security||National Instruments Corp||Steelcase|
|Brady||Hubbell||Owens Corning||Trimble Inc|
|Carlisle Companies||Lennox International||Rockwell Automation||Zebra Technologies Corp|
* FLIR Systems was acquired by Teledyne Technologies in May 2021 and was removed from the peer group at that time.
Relative to these companies, we approximate the 31st percentile on revenue and 56th percentile on market capitalization as of December 31, 2021.
Our Compensation and Human Capital Committee utilizes a performance peer group consisting of the companies in the S&P 400 Capital Goods Index (the “Performance Peer Group”). We believe the Performance Peer Group provides an appropriate measure of our relative TSR performance because it contains companies in similar industries and that operate in similar geographical markets to Allegion.
Role of the Compensation and Human Capital Committee and Independent Adviser
Our Compensation and Human Capital Committee has the authority to obtain advice and assistance from advisors and to determine their fees and terms of engagement. In 2021, the Compensation and Human Capital Committee engaged WTW as its independent compensation consultant. WTW provided advice to the Compensation and Human Capital Committee on our compensation program for executive officers and incentive programs for eligible employees.
In 2021, WTW provided approximately $440,000 in services to the Compensation and Human Capital Committee and the Corporate Governance Committee. WTW also provides certain benefits-related services to the Company, including retirement consulting, actuarial and outsourced pension administration. For these services, WTW received approximately $3.4 million. The Compensation and Human Capital Committee was aware of the other services provided by WTW at the time of engagement but did not review and approve the provision of these services because they are of the type directly procured by management in the ordinary course of business.
Each year, the Compensation and Human Capital Committee evaluates the independence and quality of the services provided by its independent compensation consultant. In reviewing WTW’s engagement for 2021, the Compensation and Human Capital Committee considered the factors set forth in the applicable SEC rules and determined that WTW was independent and that there were no conflicts of interest with respect to WTW’s work for the committee.
Primary Compensation Elements
We have three primary elements of total direct compensation - base salary, annual incentive, and long-term equity. The majority of our NEOs’ compensation is performance based and not guaranteed.
The following table summarizes the key elements of our executive compensation program and describes why each element is provided:
|Who Receives||All NEOs |
|When Granted / Received||Reviewed annually||Annually for prior year performance||First quarter annually|
|Form of Delivery||Cash||Equity|
|Type of Performance||Short-term emphasis||Long-term emphasis|
|Performance /Service period||Ongoing||1 year||3 years|
|How Payout is Determined||Compensation and Human Capital Committee assessment||Formulaic; Compensation and Human Capital Committee approves||Formulaic; Compensation and Human Capital Committee approves||Stock price on exercise/vest date|
|Most Recent Performance Measure||n/a||Mix of financial and individual goals||EPS & relative TSR||Stock price appreciation|
|2021 COMPENSATION STRUCTURE DECISIONS|
Our Compensation and Human Capital Committee annually reviews the base salaries and the annual cash and long-term equity incentive award target opportunities of our NEOs to determine whether these programs competitively reward our NEOs for their services based on a comparison to executives in the Compensation Benchmarking Peer Group and a review of other competitive market information.
It is our Compensation and Human Capital Committee’s philosophy that NEOs will not receive automatic annual merit increases to their base salaries. The Compensation and Human Capital Committee annually considers each NEO’s experience, proficiency, performance and potential to impact future business results, the NEO’s achievements relative to core competencies and key corporate values as well as the competitiveness in the market, in making future base salary decisions.
Based on this philosophy, the Compensation and Human Capital Committee did not recommend or approve any base salary increases for our NEOs in 2021 as compared to the prior year, given the challenging business environment due to the COVID-19 pandemic.
Annual and Long-Term Incentive Target Opportunities
Each year, the Compensation and Human Capital Committee reviews the short- and long-term target incentive opportunities to ensure alignment with our compensation philosophy. There were no increases in short-term incentive target opportunities for 2021. The following table shows the increases in the 2021 long-term target incentive opportunities for certain of the NEOs. The Compensation and Human Capital Committee increased 2021 long-term target opportunities for Messrs. Shannon and Braun to better align with our compensation philosophy and maintain market competitiveness. With respect to our CEO, the Compensation and Human Capital Committee recommended and the independent members of the Board approved, a long-term incentive increase to align with our compensation philosophy, maintain market competitiveness, align strong pay for performance and encourage sustained long-term value creation.
2020 Target AIP
(% of Base Salary)
2021 Target AIP
(% of Base Salary)
|Target AIP |
|2020 Target |
|2021 Target |
|Target LTI |
|D. D. Petratis||125 ||125 ||— ||4,300,000 ||4,600,000 ||300,000 |
|P. S. Shannon||75 ||75 ||— ||1,300,000 ||1,550,000 ||250,000 |
|J. N. Braun||60 ||60 ||— ||625,000 ||725,000 ||100,000 |
|T. P. Eckersley||70 ||70 ||— ||600,000 ||600,000 ||— |
|L. Orbegoso||— ||75 ||— ||— ||1,000,000 ||— |
|2021 INCENTIVE PROGRAM DESIGNS AND COMPENSATION VALUES FOR 2021 PERFORMANCE|
Annual Incentive Program
|Annual Incentive Plan Design|
For 2021, our NEOs, including the CEO, participated in our AIP. The AIP is designed to reward executives for profitable revenue growth, the delivery of strong cash flow and individual contributions, consistent with our strategic objectives. Individual AIP payouts are calculated as the product of (i) base salary, (ii) target percentage of base salary, (iii) the financial performance score and (iv) the individual performance score. In no case will an AIP award exceed 200% of the NEO’s opportunity.
|Base Salary||X||Target Percentage||X||Financial Performance Score||X||Individual Performance Score||=||AIP Award|
The financial performance score is based on achievement of financial metrics established annually by the Compensation and Human Capital Committee during the first quarter of the fiscal year. The financial metrics are broadly aligned with key elements of our AOP. Development of our AOP is a robust process that involves input from all of our regions and is reviewed and approved by the Board of Directors.
The financial metrics are aligned with the executive’s line of sight and scope of impact. Executives serving in a corporate role are measured based on the corporate financial metrics. Regional business leaders (i.e., SVP - Americas and SVP - International) are measured based on a combination of corporate (45%) and regional (55%) financial metrics. We believe this combination focuses regional business leaders on achieving the pre-established objectives for their business unit as well as aligning their interests with corporate goals to help create sustainable shareholder value.
The financial performance score is calculated as follows for 2021:
Operating Income (“OI”)
|+||Available Cash Flow|
Operating Cash Flow
|(1/3 Weight)||(1/3 Weight)||(1/3 Weight)|
Our 2021 AIP metrics and goals along with adjusted performance for our NEOs are reflected below:
|Pre-established Financial Targets (in millions)||Payout as a % of Target|
|Adjusted Actual Performance||2,863||622||450|
|Weighted Financial Achievement||45.22%||25.01%||40.44%||110.67%|
|Pre-established Financial Targets (in millions)||Payout as a % of Target|
|Adjusted Actual Performance||2,072||525||551|
|Weighted Financial Achievement||41.15%||24.72%||32.71%||98.58%|
|Pre-established Financial Targets (in millions)||Payout as a % of Target|
|Adjusted Actual Performance||791||88||102|
|Weighted Financial Achievement||44.02%||66.67%||59.84%||170.53%|
The Compensation and Human Capital Committee reviews our financial performance following the end of the fiscal year and determines the financial performance score. The Compensation and Human Capital Committee has adopted pre-established categories of potential formulaic adjustments for items causing significant differences from the assumptions contained in the AOP, including, but not limited to, the financial performance of any business or asset acquired during the performance period, costs associated with acquisitions or divestitures, unusual or non-recurring gains or losses, changes in applicable accounting principles, impairment charges in accordance with GAAP, and business restructurings or material interruption (including facility closures, severance, professional fees or work stoppage). These potential adjustments to reported financial results are intended to better reflect executives’ line of sight and ability to affect performance results, align award payments with decisions that support the AOP, avoid artificial inflation or deflation of awards due to unusual or non-recurring items in the applicable period and emphasize long-term and sustainable growth. Notwithstanding the foregoing the Compensation and Human Capital Committee retains the authority and discretion to make downward adjustments to the calculated AIP award payouts.
Individual objectives are established annually and include strategic initiatives with both financial and non-financial metrics. Participants are evaluated based upon their achievements relative to pre-established non-financial metrics including core competencies and key corporate values. At the end of each year, the CEO evaluates performance against the pre-established individual objectives for officers other than himself and submits a recommendation to the Compensation and Human Capital Committee. The Compensation and Human Capital Committee evaluates the CEO’s performance against his pre-established individual objectives. Based on the Compensation and Human Capital Committee’s evaluation of the CEO and the CEO’s recommendations, the Compensation and Human Capital Committee determines and approves the individual performance score for each officer.
|Results of Individual Performance Evaluations|
In determining the individual performance score for each NEO’s AIP award, the Compensation and Human Capital Committee considers pre-established individual performance objectives, and then evaluated actual performance relative to these objectives to determine an overall performance score. No specific weighting of individual objectives was used, although particular emphasis is given to meeting key financial goals such as business profitability, growth and efficient capital allocation.
With regard to Employee Engagement, Safety & Health and ESG-related goals and accomplishments, these are reviewed as part of individual objectives that are set for the year and are reflected in the NEO’s individual performance evaluation, as appropriate. Allegion’s ESG strategy and framework of goals can be found on the Company’s website at www.allegion.com/ESG. In 2022, we will be reviewing key ESG metrics and conduct benchmarking for potential inclusion in our AIP for 2023, reinforcing our commitment to our culture of engagement, safety and inclusion.
The significant accomplishments of each NEO during the year are highlighted below, except for Mr. Orbegoso who left the Company effective December 31, 2021:
|D. D. Petratis|
▪Delivered solid financial results and met objectives despite pressure of the pandemic, supply chain disruption and electronic component shortages
▪Created Allegion International to drive speed and efficiency, simplify our operating segments and optimize our non-U.S. operations - resulting in record results in year 1
▪Supported ESG Council which established targeted ESG goals and objectives
▪2021 Campbell award winner for sustained emphasis on culture of safety and excellence
▪Led digitization transformation that has driven productivity and connectivity throughout the business
▪Increased employee engagement as measured by the Gallup Engagement Census
|P. S. Shannon|
▪Led the execution of the AOP, combating inflation and supply chain headwinds, while executing price realization targets and investment strategies
▪Communicated key strategic messages to analyst community coupled with thought leadership amidst challenging market conditions
▪Executed tax strategies to effectively manage global tax rate fluctuations
▪Focused the Financial leadership team around Diversity & Inclusion topics
▪Increased employee engagement as measured by the Gallup Engagement Census
|J. N. Braun|
▪Led ESG Program development - including Steering Committee, materiality matrix, enhanced strategy and refreshed company website
▪Executive sponsor for Allegion’s Inclusion Council supporting strategic objectives and Employee Resource Groups
▪Continued improvement of the Company’s Governance program, supporting Board development, processes and Shareholder engagement
▪Provided critical legal and governance counsel relative to M&A transactions
|T. P. Eckersley|
▪Delivered or exceeded all aspects of the Allegion International AOP
▪Assumed senior leadership responsibility for Allegion International - executing strategic portfolio decisions and establishing operating model
▪Led Allegion International growth in seamless access with development of the Internet of Things Platform (“IoTP”) roadmap and platforming assets
▪Led Diversity & Inclusion discussions combined with leadership development for the management team around ESG goals
▪Increased employee engagement as measured by the Gallup Engagement Census
Our Compensation and Human Capital Committee approved the following AIP awards for our NEOs:
Target AIP Amount
Financial Performance Score
AIP Earned from Financial Performance
Individual Performance Score
2021 AIP Award
|D. D. Petratis||1,250,000 ||110.67 ||%||1,383,375 ||106 ||%||1,466,378 |
|P. S. Shannon||438,600 ||110.67 ||%||485,399 ||109 ||%||529,084 |
|J. N. Braun||267,240 ||110.67 ||%||295,755 ||106 ||%||313,500 |
|T. P. Eckersley||350,000 ||143.59 ||%||502,565 ||114 ||%||572,924 |
|388,125 ||100.00 ||%||388,125 ||100 ||%||388,125 |
(1)Mr. Orbegoso’s 2021 AIP payout was prorated based on time worked in 2021, in accordance with his separation agreement.
Long-term Incentive Program
|Long-Term Incentive Program Design|
Our long-term incentive program (“LTI”) for NEOs is comprised 50% of PSUs, 25% of stock options, and 25% of RSUs. We grant executives a mix of equity awards in order to provide an effective balance between risk and retention. This design aligns the executives’ interests and long-term strategies with the interests of shareholders. LTI targets are expressed in dollar amounts which are converted to a number of shares based on the fair value of the award on the grant date.
Performance Stock Units: PSUs are earned based equally on our absolute EPS growth (from continuing operations) and relative TSR as compared to the Performance Peer Group companies over a three-year performance period as shown below. PSUs will vest at the end of the three-year performance period and the NEO will earn a number of shares based upon achievement of the performance metrics during the performance period. If TSR is not positive over the performance period, payout cannot exceed the target level for the TSR portion of the award. Such TSR review will occur after the conclusion of the final year of the performance period. Upon vesting, PSUs convert into our ordinary shares on a one-for-one basis.
|EPS Performance*||% of Target PSUs Earned **|
|Below Threshold||No award earned|
TSR Performance Relative to
S&P 400 Capital Goods Index
|% of Target PSUs Earned **|
< 25th Percentile
|No award earned|
>= 75th Percentile
* EPS is calculated in accordance with GAAP, subject to formulaic adjustment by the Compensation and Human Capital Committee based on pre-approved categories.
** Results are interpolated between percentiles achieved. The Compensation and Human Capital Committee retains the authority and discretion to make downward adjustments to the calculated PSU award payouts regardless of actual performance.
Dividend equivalents are accrued on outstanding PSU awards at the same time and at the same rate as dividends paid to shareholders. Dividend equivalents are not earned until the PSUs vest and are payable in cash at
the time of vesting. The actual dividend equivalents paid are determined by the actual number of PSUs earned at the end of the performance period.
Stock Options/RSUs: Stock options and RSUs are considered by the Compensation and Human Capital Committee to be “at risk” and aligned with shareholder interests. Stock options are considered “at-risk” because there is no value unless the stock price appreciates during the term of the option period. RSUs are considered at-risk because the ultimate value will fluctuate based on stock price performance. RSUs provide strong retentive value, while still providing alignment with shareholder value creation. Both stock options and RSUs vest ratably in three equal annual increments over a three-year period beginning on the first anniversary of the grant date. Stock options expire on the tenth anniversary of the grant date. Dividend equivalents are accrued on outstanding RSU awards at the same time and at the same rate as dividends are paid to shareholders. Dividend equivalents on RSUs are only payable if the underlying RSU award vests. At the time of vesting, one ordinary share is issued for each RSU and any accrued dividend equivalents are paid in cash. No dividends are payable on stock options.
|Equity Awards Granted in 2021|
The Compensation and Human Capital Committee approved the annual grants shown in the following table in the first quarter of 2021.
|D. D. Petratis||2,399,389 ||21,075 ||1,150,015 ||46,019 ||1,149,955 ||10,537 |
|P. S. Shannon||808,563 ||7,102 ||387,520 ||15,507 ||387,538 ||3,551 |
|J. N. Braun||378,210 ||3,322 ||181,252 ||7,253 ||181,273 ||1,661 |
T. P. Eckersley (1)
|312,974 ||2,749 ||150,015 ||6,003 ||149,951 ||1,374 |
L. Orbegoso (2)(3)
|521,661 ||4,582 ||250,025 ||10,005 ||250,028 ||2,291 |
(1)With respect to Mr. Eckersley, in addition to the annual grant shown above, on March 10, 2021, the Committee granted a special PSU award with a grant date value of $750,035 and a special RSU award with a grant date value of $750,035. The special PSU award will vest after the 2021-2023 performance period based on the achievement of certain milestones and continued employment through February 2024, and the special RSU award will vest ratably over three years subject to continued employment. The award was granted to retain Mr. Eckersley and ensure development and execution of the Allegion International strategy.
(2)Mr. Orbegoso forfeited all the awards shown above in accordance with the terms of the award agreements because he left the Company on December 31, 2021.
(3)In addition to the annual grant shown above, Mr. Orbegoso received a special sign-on RSU award with a grant date value of $1,499,951. Under the terms of the special sign-on RSU award agreement, this award vested upon Mr. Orbegoso’s termination of employment on December 31, 2021.
PSUs Earned for 2019 - 2021 Performance Period
The PSUs earned for the 2019-2021 performance period were based on the (i) EPS performance against pre-established goals and (ii) TSR performance relative to the Peer Performance Group companies. For this performance period, our EPS performance resulted in a payout of 67% and our TSR performance resulted in a payout of 81%, resulting in an overall payout of 74%, consistent with our pay-for-performance philosophy.
|Performance Metric||Threshold||Target||Maximum||Actual||% Payout Earned|
>= 75th percentile
41st percentile (55% TSR)
* EPS was adjusted according to the preestablished adjustments noted above and addressed: 1) restructuring charges and acquisition and integration expenses; 2) debt financing costs; and 3) gains on sales of assets. In addition, the Compensation and Human Capital Committee made an adjustment to exclude the fair value remeasurement gain of an Allegion Ventures investment. The Committee concluded this situation should be treated similar to asset sales. As a result, the payout was lowered by 5%.
As a result of the foregoing performance, our NEOs earned the following awards for the 2019-2021 performance period:
Target PSUs Awarded
|D. D. Petratis||22,139 ||16,384 |
|P. S. Shannon||6,245 ||4,623 |
|J. N. Braun||3,265 ||2,417 |
|T. P. Eckersley||3,406 ||2,522 |
|L. Orbegoso||— ||— |
The Compensation and Human Capital Committee annually reviews the total direct compensation for each NEO. Based on recommendations from our CEO and in accordance with our compensation philosophy, the Compensation and Human Capital Committee approved 2022 compensation for all NEOs (except for Mr. Orbegoso who left the company on December 31, 2021), as shown in the table below:
2022 Base Salary
2022 Target Annual Incentive
(as a % of Base Salary)
|2022 Target |
|D. D. Petratis||1,058,000 ||130 ||5,075,000 |
|P. S. Shannon||584,800 ||75 ||1,000,000 |
|J. N. Braun||469,900 ||60 ||825,000 |
|T. P. Eckersley||530,000 ||70 ||825,000 |
|OTHER COMPENSATION AND TAX MATTERS|
Retirement Programs and Other Benefits
We maintain qualified and nonqualified defined benefit pension plans intended to provide fixed benefits upon retirement based on the individual’s age and number of years of service. Refer to the Pension Benefits table on page 58 of this Proxy Statement for additional details on these programs.
A qualified defined contribution 401(k) plan called the Employee Savings Plan (“ESP”) is available for the U.S. salaried and hourly non-union workforce. The ESP provides a dollar-for-dollar match on the first 6% of the employee’s eligible contributions to the ESP. The ESP has a number of investment options and is an important component of the retirement program. Employees who were actively employed prior to July 1, 2012 were given a one-time choice between continuing to participate in the defined benefit plan until December 31, 2022 or moving to an enhanced version of the ESP effective January 1, 2013 under which they would receive an employer core contribution of 2% of eligible pay in addition to the matching contribution and no longer accrue benefits under the defined benefit plan after December 31, 2012. Employees hired on or after July 1, 2012 were automatically covered under the enhanced version of the ESP and do not participate in the defined benefit plan. Employees hired after December 1, 2013 are not eligible for the 2% employer core contribution. Effective as of December 31, 2022, accruals in the qualified defined benefit plan will cease for all employees, except to the extent of any collective bargaining agreements.
Additionally, we offer a U.S. nonqualified, defined contribution plan called the Supplemental Employee Savings Plan (the “Supplemental ESP”). The Supplemental ESP is an unfunded plan that makes up matching and core contributions that cannot be made to the ESP due to Internal Revenue Service (“IRS”) or plan limitations. The Supplemental ESP is deemed invested in funds selected by participants and includes the same funds available in the ESP except for a self-directed brokerage account, which is not available in the Supplemental ESP.
Through 2018, our nonqualified Executive Deferred Compensation Plan (“EDCP”) allowed eligible employees to defer receipt of a part of their annual salary, AIP award and PSU award. Cash deferrals were invested in select mutual fund investments and PSU award deferrals were required to be invested in our ordinary shares. Please refer to the Nonqualified Deferred Compensation table on page 59 of this Proxy Statement for additional details on the deferred compensation plans. As of January 1, 2019, this plan was frozen to new participants and deferrals.
We also provide certain other benefits believed to be consistent with prevailing market practice and to be competitive with peer company practices. For employees assigned to work outside their home countries, we may provide an expatriate allowance and tax equalization benefits to mitigate the impact of living in another jurisdiction. For these benefits, we may also provide tax assistance on the income imputed to the executives. These other benefits and their incremental costs to the Company are reported in “All Other Compensation” shown in the Summary Compensation Table on page 51 of this Proxy Statement.
We have not adopted a formal severance policy that is specific for executives. In connection with recruiting certain officers, we may enter into arrangements that provide for severance payments upon certain termination events, other than in the event of a CIC (which is described in “Change-In-Control Provisions” below). In the event of an involuntary termination other than for cause, Mr. Petratis is eligible to receive severance equal to two times, and Mr. Shannon is eligible to receive one times base salary plus a prorated target annual incentive award for the year of termination that is paid at the conclusion of the full performance year, respectively, in accordance with the terms of the plan. Mr. Orbegoso was eligible for and received one times base salary and a prorated annual incentive award and other benefits as detailed in the Post-Employment Benefits table.
Change in Control Provisions
We have a change in control plan (“CIC Plan”) that covers our NEOs in order to focus them on the best interests of our shareholders and to assure continuity of management in circumstances that reduce or eliminate job security and might otherwise lead to accelerated departures. This CIC Plan provides cash severance benefits in the event that a CIC occurs and an officer is terminated within two years of that CIC for reasons other than cause. Cash severance benefits in the event of a qualifying termination will be based on an individually defined Severance Multiple ranging from 1.5 for officers up to 3.0 for the CEO. Individual cash severance benefits will include: (i) base salary in effect at termination times the Severance Multiple; (ii) current cash target incentive award times the Severance Multiple; and (iii) a target incentive award in the year of termination pro-rated for the portion of the performance cycle completed through the date of termination. Cash severance benefits under the CIC Plan will be reduced by severance-related benefits provided through any other Allegion severance program. Certain NEOs will also immediately vest in their Elected Officer Supplemental Program (“EOSP”) and Key Management Supplemental Pension Plan (“KMP”) benefits following a CIC, as applicable. For purposes of calculating Mr. Shannon’s EOSP benefits, two years would be added to his age and service if his employment is terminated within two years after a CIC. In addition, participants in the CIC Plan will, in the event of a qualifying termination, receive continued health benefits for a term of years equal to the Severance Multiple and outplacement benefits of up to $25,000.
The CIC Plan does not provide for payment of, or reimbursement for, any tax payments or other tax gross ups related to the severance benefits. However, the CIC Plan does provide for cash severance benefits to be adjusted such that participants will receive the better after tax benefit treatment (“Best of Net” approach) between (i) cash severance payments paid in full, with the executive responsible for all taxes incurred, or (ii) cash severance payments reduced to avoid triggering excise taxes.
Under the Incentive Stock Plan of 2013 (the “2013 Stock Plan”), outstanding unvested stock options and RSUs will not immediately vest and become exercisable or payable, as applicable, following a CIC if an alternate award is provided by the acquiring company. Such awards will immediately vest and become exercisable or payable, as applicable, if an alternate award is not provided. PSUs will be deemed to have earned a pro-rata award based on the target award opportunity and total number of months worked in the applicable performance period.
Senior Executive Performance Plan
The Senior Executive Performance Plan (“SEPP”) is a shareholder approved plan that funds the annual cash incentive awards that may be granted to each of the NEOs under the AIP. Under the SEPP, the maximum amount of cash incentive that can be paid to the CEO is 1.5% of Consolidated OI from Continuing Operations, as defined in the SEPP, and the maximum amount of cash incentive that can be paid to any other covered executive is 0.6% of Consolidated OI from Continuing Operations. Our Compensation and Human Capital Committee generally exercises its discretion to pay less than the maximum amount to the NEOs, after considering the factors described in the AIP.
Tax and Accounting Considerations
The Company is subject to Section 162(m) of the Code, as amended, which limits deductibility of compensation in excess of $1 million paid to covered employees, including our NEOs. In determining compensation program designs, our Compensation and Human Capital Committee considers tax and accounting implications (e.g., Section 162(m) and 409A of the Code), and the Company adheres to these tax and accounting regulations as they are amended over time. While tax and accounting regulations are considered, the forms of compensation utilized are determined primarily by their effectiveness in creating maximum alignment between key strategic objectives and the interests of shareholders and other stakeholders.
Timing of Awards
We intend to regularly grant annual equity grants following our earnings release for the fourth quarter and full year results. The equity grant date is never selected or changed to increase the value of equity awards for executives.