SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
SCHEDULE 14A
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The Dow Chemical Company
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The Dow Chemical Company
Midland, Michigan 48674
NOTICE OF THE ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD ON THURSDAY, MAY 9, 2013 AT 10:00 A.M. EDT
March 28, 2013
Dear Stockholder of The Dow Chemical Company:
We are pleased to invite you to the Annual Meeting of Stockholders of The Dow Chemical Company (the Meeting) to be held on Thursday, May 9, 2013, at 10:00 a.m. Eastern Daylight Time, at the Midland Center for the Arts, 1801 West St. Andrews, Midland, Michigan. A map is printed on the back page of this Proxy Statement and is also included on your admittance ticket. At the Meeting, stockholders will vote on the following matters either by proxy or in person:
| Election of the ten Directors named in the attached Proxy Statement. |
| Ratification of the appointment of Deloitte & Touche LLP as independent registered public accounting firm for 2013. |
| Advisory Resolution to Approve Executive Compensation. |
| One proposal submitted by a stockholder, if properly presented. |
| Transaction of any other business as may properly come before the Meeting. |
Your vote is important. Whether or not you plan on attending the Meeting, please vote your shares as soon as possible on the Internet, by telephone or by mail. Your Board of Directors has set the close of business on March 18, 2013, as the record date for determining stockholders who are entitled to receive notice of the Meeting and any adjournment, or postponement, and who are entitled to vote. A list of stockholders entitled to vote shall be open to any stockholder for any purpose relevant to the Meeting for ten days before the Meeting, during normal business hours, at the Office of the Corporate Secretary, 2030 Dow Center, Midland, Michigan.
A ticket of admission or proof of stock ownership is necessary to attend the Meeting. A ticket is included with your proxy materials. Stockholders with registered accounts or who are in the Dividend Reinvestment Program or employees savings plans should check the box on the voting form if attending in person. Other stockholders holding stock in nominee name or beneficially through a bank or broker (in street name) need only bring their ticket of admission. Street name holders without tickets will need proof of record date ownership for admission to the Meeting, such as a March 2013 brokerage statement or letter from the bank or broker. Questions may be directed to 877-227-3294 (a toll-free telephone number in the United States and Canada) or 989-636-1792, or faxed to 989-638-1740.
Since seating is limited, the Board has established the rule that only stockholders or one person holding a proxy for any stockholder or account (in addition to those named as Board proxies on the proxy forms) may attend. Proxy holders are asked to present their credentials in the lobby before the Meeting begins. If you are unable to attend the Meeting, please listen to the live audio webcast at the time of the Meeting, or the audio replay after the event, at www.DowGovernance.com.
Thank you for your continued support and your interest in The Dow Chemical Company.
Charles J. Kalil
Executive Vice President,
General Counsel and Corporate Secretary
® Trademark of The Dow Chemical Company
SUMMARY INFORMATION
This summary highlights information contained elsewhere in this Proxy Statement. It does not contain all information that you should consider, and you should read the entire Proxy Statement carefully before voting.
Annual Meeting of Stockholders
Time and Date: |
10:00 am (Eastern Daylight Time) on May 9, 2013 | |
Place: |
Midland Center for the Arts, 1801 West St. Andrews, Midland, Michigan | |
Record Date: |
March 18, 2013 |
Meeting Agenda and Voting Recommendations
Agenda Item | Board Recommendation | Page | ||||
(1) |
Election of 10 Directors | FOR EACH NOMINEE | X | |||
(2) |
Ratify the appointment of Deloitte & Touche LLP as the Companys Independent Registered Public Accounting Firm | FOR | X | |||
(3) |
Advisory Resolution to Approve Executive Compensation | FOR | X | |||
(4) |
Stockholder Proposal on Executive Stock Retention | AGAINST | X |
Board Nominees
Each director nominee is elected annually by a majority of votes cast. The following table provides summary information about each director nominee.
Nominee | Age | Director Since |
Principal Occupation | Committees | ||||
Arnold A. Allemang |
70 | 1996 | Former Senior Advisor, The Dow Chemical Company |
EHS&T | ||||
Ajay Banga |
53 | 2013 | President and Chief Executive Officer, MasterCard |
|||||
Jacqueline K. Barton |
60 | 1993 | Professor of Chemistry & Chair, Division of Chemistry & Chemical Engineering, California Institute of Technology |
EHS&T (Chair) | ||||
James A. Bell |
64 | 2005 | Former Executive Vice President, Corporate President & CFO, The Boeing Company |
Audit (Chair) Governance | ||||
Jeff M. Fettig (Lead Director) |
55 | 2003 | Chief Executive Officer and Chairman, Whirlpool Corporation |
Compensation Governance (Chair) | ||||
Andrew N. Liveris |
58 | 2004 | President, Chief Executive Officer and Chairman, The Dow Chemical Company |
|||||
Paul Polman |
56 | 2010 | Chief Executive Officer, Unilever PLC/NV | EHS&T | ||||
Dennis H. Reilley |
59 | 2007 | Former Non-Executive Chairman, Covidien, Ltd. |
Compensation (Chair) Governance | ||||
James M. Ringler |
67 | 2001 | Chairman, Teradata Corporation | Audit | ||||
Ruth G. Shaw |
64 | 2005 | Former Executive Advisor, Duke Energy Corporation |
Audit |
Financial Highlights
2012 was a challenging year due to the ongoing slow and volatile growth of the global economy. Dow maintained its earnings growth trajectory through the first half of 2012. However, the second half of 2012 saw significant deterioration in the markets we serve, particularly in China. In response, Dow identified and took aggressive action to mitigate the effects of a slow-to-no-growth global environment decisively deploying cost reduction and cash flow improvement levers, and driving aggressive portfolio management to mitigate the impact of downward adjustments to growth forecasts. Despite these efforts, Dow fell short of its profit plan for the year.
These results have driven a below target payout for our 2012 Performance Award Program and all three current outstanding performance shares plans are tracking below target payout levels, reflecting the connection between performance and pay.
Through hard work, focus and discipline, the Company achieved several significant milestones in 2012.
| Launched $2.5 billion of cost reduction and cash flow improvement actions in response to volatile macro-economic conditions |
| Generated nearly $8 billion in cash from operations over the two year period ending December 31, 2012, in line with our stated target |
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3 |
| Increased dividends declared per share by 34% in 2012 vs. 2011 |
| Achieved significant milestones with key, enterprise growth projects U.S. Gulf Coast investments and Sadara Chemical Company investments that will further enhance our industry-leading, low-cost feedstock position |
| Maintained focus on investment grade rating received an upgrade from Moodys |
| K-Dow Arbitration resulted in a $2.16 Billion Partial Award issued in the Companys favor by the International Court of Arbitration of the International Chamber of Commerce (ICC). On March 4, 2012 the Company received the release of the Final Award representing the awarding of additional costs and interest with the two awards totaling $2.48 Billion |
Set forth below is the fiscal 2012 compensation for each named executive officer. See notes accompanying the Summary Compensation Table on page 34 for more information.
Compensation Highlights
Named Executive Officer | Year | Salary ($) | Bonus ($) | Stock Awards ($) |
Option Awards ($) |
Non-Equity Incentive Plan Compensation ($) |
Change in Pension Value and Nonqualified Deferred Compensation Earnings ($) |
All Other Compensation ($) |
Total ($) | |||||||||||||||||||||||||||
Andrew Liveris |
2012 | 1,808,333 | 0 | 8,446,171 | 4,840,080 | 1,368,640 | 6,160,388 | 366,055 | 22,989,668 | |||||||||||||||||||||||||||
William Weideman |
2012 | 836,815 | 0 | 2,408,410 | 1,380,079 | 407,001 | 3,465,782 | 29,469 | 8,527,557 | |||||||||||||||||||||||||||
Charles Kalil |
2012 | 951,618 | 0 | 2,408,410 | 1,380,079 | 459,478 | 2,798,980 | 70,339 | 8,068,904 | |||||||||||||||||||||||||||
Carol Williams |
2012 | 900,110 | 0 | 2,408,410 | 1,380,079 | 454,670 | 3,028,396 | 65,858 | 8,237,524 | |||||||||||||||||||||||||||
James Fitterling |
2012 | 836,636 | 35,518 | 2,408,410 | 1,380,079 | 424,879 | 2,853,921 | 53,243 | 7,992,687 |
For fiscal year 2012, our Compensation and Leadership Development Committee continued its practice of awarding a significant majority of total compensation to the named executive officers in the form of performance-based incentive compensation, with only a minority of the total potential compensation being provided in the form of base salary.
We encourage you to read our Compensation Discussion and Analysis (CD&A) beginning on page 20, which describes our pay for performance philosophy.
Corporate Governance Highlights
Board Independence
| 8 of 10 Directors standing for re-election are Independent |
| Independent Lead Director with clearly identified roles and responsibilities (Jeff Fettig) |
| Retirement Age (72) |
Director Elections
| Annual Board elections |
| Directors are elected by a majority of votes cast |
Stockholder Rights
| Stockholder right to call special meetings |
| No super-majority voting requirements |
Corporate/Sustainability Highlights
| Named for 12th time to Dow Jones Sustainability World Index, with overall score 33 percentage points higher than industry group average. |
| Published Annual Sustainability Report based on Global Reporting Initiative guidelines, receiving A+ designation for completeness and accuracy. |
| Signed strategic partnership with The University of Queensland to establish the Dow Centre for Sustainable Engineering Innovation. |
| Published annual collaboration report and first pilot site outcomes (Freeport) from breakthrough collaboration with The Nature Conservancy. |
| Received 22 American Chemistry Council Responsible Care® Area Awards and 23 Honorable Mentions from 187 nominations worldwide a record-high for Dow. |
| Continued strong progress toward 2015 Sustainability goals: |
| Sustainable Chemistry increased percentage of sales highly advantaged by sustainable chemistry, and aggregate Sustainable Chemistry Index. |
| Breakthroughs to World Challenges from over 30 business-supported candidates, declared Omega-9 Healthy Oils as first Breakthrough. |
| Addressing Climate Change/Energy Efficiency and Conservation added commitment to maintain absolute GHG emission below 2006 levels. |
| Product Safety Leadership 100% of High Priority chemicals and products accounting for more than 80% of annual revenue now covered. |
| Contributing to Community Success continue to re-measure sites against their baselines with positive progress. |
| Local Protection of Human Health and the Environment all goals meeting or exceeding targets. |
2013 ANNUAL MEETING OF STOCKHOLDERS
THE DOW CHEMICAL COMPANY
Notice of the Annual Meeting and Proxy Statement
Notice of the Annual Meeting |
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5 | ||||
7 | ||||
11 | ||||
19 | ||||
Compensation Information |
||||
20 | ||||
34 | ||||
45 | ||||
46 | ||||
Agenda Item 2: Ratification of the Appointment of the Independent Registered Public Accounting Firm | 47 | |||
Agenda Item 3: Advisory Resolution to Approve Executive Compensation | 49 | |||
Agenda Item 4: Stockholder Proposal on Executive Stock Retention | 50 | |||
52 | ||||
53 | ||||
Map to Annual Meeting of Stockholders |
This Proxy Statement is issued in connection with the 2013 Annual Meeting of
Stockholders of The Dow Chemical Company to be held on May 9, 2013.
2013 DOW PROXY STATEMENT
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5 |
IMPORTANT NOTICE REGARDING THE AVAILABILITY OF
PROXY MATERIALS FOR THE STOCKHOLDER MEETING TO BE HELD ON
THURSDAY, MAY 9, 2013 AT 10:00 A.M. EDT
The 2013 Proxy Statement and 2012 Annual Report (with Form 10-K)
are available at https://materials.proxyvote.com/260543
6 | 2013 DOW PROXY STATEMENT
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VOTING PROCEDURES (continued)
2013 DOW PROXY STATEMENT
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CANDIDATES FOR ELECTION AS DIRECTOR
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Arnold A. Allemang, 70. Director since 1996. | |
The Dow Chemical Company Employee of Dow 1965-2008. Manufacturing General Manager, Dow Benelux N.V.* 1992-1993. Regional Vice President, Manufacturing and Administration, Dow Benelux N.V.* 1993. Vice President, Manufacturing Operations, Dow Europe GmbH* 1993-1995. Dow Vice President and Director of Manufacturing and Engineering 1996-1997. Dow Vice President, Operations 1997-2000. Executive Vice President 2000-2004. Senior Advisor 2004-2008. Member of the Advisory Board for RPM Ventures; the Presidents Circle of Sam Houston State University; and the American Chemical Society. |
* | A number of Company entities are referenced in the biographies and are defined as follows. (Some of these entities have had various names over the years. The names and relationships to the Company, unless otherwise indicated, are stated in this footnote as they existed as of February 18, 2013.) Dow Benelux N.V., Dow Chemical Pacific Limited and Dow Europe GmbH all ultimately wholly owned subsidiaries of Dow. Ownership by Dow described above may be either direct or indirect. |
8 | 2013 DOW PROXY STATEMENT
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CANDIDATES FOR ELECTION AS DIRECTOR (continued)
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Ajay Banga, 53. President and Chief Executive Officer, MasterCard Incorporated and MasterCard International. Director since February 2013. | |
MasterCard (a provider of financial services) President and Chief Executive Officer, July 2010 to date; Board Member, April 2010 to date; President and Chief Operating Officer of MasterCard Incorporated and MasterCard International, August 2009-July 2010. Citigroup (a provider of financial services) Chief Executive Officer of Citigroup Asia Pacific region, March 2008-August 2009. Previous positions from 1996 to 2009 included Chairman and Chief Executive Officer of Citigroups International Global Consumer Group, Executive Vice President of Citigroups Global Consumer Group, President of Citigroups Retail Banking North America, business head for CitiFinancial and the U.S. Consumer Assets Division and division executive for the consumer bank in Central/Eastern Europe, Middle East, Africa, and India. PepsiCo (a worldwide food and beverage company) 1994-1996. Nestlé (a worldwide food company) 1981-1994. Chairman of the U.S.-India Business Council. Member of the Executive Committee of the Business Roundtable and chair of its Information and Technology Initiative. Member of the Council on Foreign Relations, the International Advisory Board of the Moscow School of Management (Skolkovo), The Economic Club of New York, The Financial Services Roundtable and the board of the New York City Ballet. Fellow of the Foreign Policy Association and was awarded the Foreign Policy Association Medal in 2012.
Director of MasterCard. Former director of Kraft Foods Group, Inc. (2007-May 2012). | ||
|
Jacqueline K. Barton, 60. Arthur and Marian Hanisch Memorial Professor of Chemistry, Chair, Division of Chemistry and Chemical Engineering, California Institute of Technology. Director since 1993. | |
California Institute of Technology: Professor of Chemistry 1989 to date, Arthur and Marian Hanisch Memorial Professor of Chemistry 1997 to date. Chair, Division of Chemistry and Chemical Engineering, 2009 to date. Assistant Professor of Chemistry and Biochemistry, Hunter College, City University of New York 1980-1982. Columbia University: Assistant Professor 1983-1985, Associate Professor 1985-1986, Professor of Chemistry and Biological Sciences 1986-1989. Recipient of the 2010 National Medal of Science, the highest honor bestowed by the United States government on scientists. Named a MacArthur Foundation Fellow 1991, the American Academy of Arts and Sciences Fellow 1991, the American Philosophical Society Fellow 2000, National Academy of Sciences member 2002 and Institute of Medicine member 2012. Named Outstanding Director 2006 by the Outstanding Director Exchange (ODX).
Former Member of the Gilead Sciences Scientific Advisory Board (1989-2008). | ||
|
James A. Bell, 64. Former Executive Vice President, Corporate President and Chief Financial Officer, The Boeing Company. Director since 2005. | |
The Boeing Company (an aerospace company and manufacturer of commercial jetliners and military aircraft) Executive Vice President, Corporate President and Chief Financial Officer, 2008 to February 2012; Executive Vice President, Finance and Chief Financial Officer 2003-2008; Senior Vice President of Finance and Corporate Controller 2000-2003. Previous positions include Vice President of Contracts and Pricing for Boeing Space and Communications 1996-2000; Director of Business Management of the Space Station Electric Power System at Boeing Rocketdyne unit 1992-1996. Member of the Board of Directors of The Chicago Urban League. Member of the World Business Chicago, the Chicago Economic Club, and the Commercial Club of Chicago.
Director of J.P. Morgan Chase & Co. |
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CANDIDATES FOR ELECTION AS DIRECTOR (continued)
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Jeff M. Fettig, 55. Chairman and Chief Executive Officer of Whirlpool Corporation. Director since 2003. | |
Whirlpool Corporation (a manufacturer of home appliances) Chairman and Chief Executive Officer 2004 to date; President and Chief Operating Officer 1999-2004; Executive Vice President 1994-1999; President, Whirlpool Europe and Asia 1994-1999; Vice President, Group Marketing and Sales, North American Appliance Group 1992-1994; Vice President, Marketing, Philips Whirlpool Appliance Group of Whirlpool Europe B.V. 1990-1992; Vice President, Marketing, KitchenAid Appliance Group 1989-1990; Director, Product Development 1988-1989.
Director of Whirlpool Corporation. | ||
|
Andrew N. Liveris, 58. Dow President, Chief Executive Officer and Chairman. Director since 2004. | |
Employee of Dow since 1976. General manager of Dows Thailand operations 1989-1992. Group business director for Emulsion Polymers and New Ventures 1992-1993. General manager of Dows start-up businesses in Environmental Services 1993-1994. Vice President of Dows start-up businesses in Environmental Services 1994-1995. President of Dow Chemical Pacific Limited* 1995-1998. Vice President of Specialty Chemicals 1998-2000. Business Group President for Performance Chemicals 2000-2003. President and Chief Operating Officer 2003-2004. President and Chief Executive Officer 2004 to date and Chairman 2006 to date.
Chairman of the U.S. Business Council and The International Council of Chemical Associations and Vice Chairman of the Business Roundtable; Past Chairman of the U.S.-China Business Council and American Chemistry Council. Co-Chair of the Presidents Advanced Manufacturing Partnership. Member of the Presidents Export Council, the American Australian Association, the U.S.-India CEO Forum and the Peterson Institute for International Economics. Member of the Board of Trustees of Tufts University.
Director of International Business Machines Corporation. Former director of Citigroup, Inc. (2005 April 2011). | ||
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Paul Polman, 56. Chief Executive Officer of Unilever PLC and Unilever N.V. Director since 2010. | |
Unilever PLC and Unilever N.V. (a provider of nutrition, hygiene and personal care products) Chief Executive Officer January 2009 to date. Nestlé S.A. (a worldwide food company) Executive Vice President of Americas, January 2008-September 2008; Chief Financial Officer 2006-2008. The Procter & Gamble Company (a provider of consumer, pharmaceutical, cleaning, personal care and pet products) Group President Europe 2001-2006. CFO of the Year 2007, Investor Magazine; Carl Lindner Award 2006, University of Cincinnati; WSJ/CNBC European Business Leader of the Year 2003. Member of United Nations high level task force on post 2015 development goals. President of the Kilimanjaro Blindtrust/Chair of Perkins International Advisory Board. Board member of Global Consumer Goods Forum. Member: International Business Council of WEF, Swiss American Chamber of Commerce and vice chair of the World Business Council for Sustainable Development. Member of the B-Team (a global initiative to help transform the future of business). Honorary degrees from Universities of Northumbria, UK in 2000 and University of Cincinnati in 2009.
Director of Unilever PLC and Unilever N.V. Former director of Alcon (2006-2008). |
* | A number of Company entities are referenced in the biographies and are defined as follows. (Some of these entities have had various names over the years. The names and relationships to the Company, unless otherwise indicated, are stated in this footnote as they existed as of February 18, 2013.) Dow Benelux N.V., Dow Chemical Pacific Limited and Dow Europe GmbH all ultimately wholly owned subsidiaries of Dow. Ownership by Dow described above may be either direct or indirect. |
10 | 2013 DOW PROXY STATEMENT
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CANDIDATES FOR ELECTION AS DIRECTOR (continued)
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Dennis H. Reilley, 59. Former Non-Executive Chairman of Covidien, Ltd. Director since 2007. | |
Covidien, Ltd. (a provider of healthcare products) Non-Executive Chairman, April 2007 to November 2008; Board member, April 2007 to date. Praxair, Inc. (a provider of gases and coatings) Chairman 2000-2007; President and Chief Executive Officer 2000-2006. E.I. duPont de Nemours & Co. Executive Vice President and Chief Operating Officer 1999-2000; Executive Vice President 1997-1999; Vice President and general manager, Lycra business 1996-1997; Vice President and general manager, specialty chemicals business 1994-1995; Vice President and general manager, titanium dioxide business 1990-1994. Prior to 1989, held various senior executive positions with Conoco. Former Director of the Conservation Fund. Former Chairman of the American Chemistry Council.
Director of Covidien, Ltd., H.J. Heinz Company and Marathon Oil Company. Former director of Praxair, Inc. (2000-2007). | ||
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James M. Ringler, 67. Chairman of Teradata Corporation. Director since 2001. | |
Teradata Corporation (a provider of database software, data warehousing and analytics) Chairman, October 2007 to date. NCR Corporation (a producer of automated teller machines and point of sale devices) Director and Chairman 2005-2007. Illinois Tool Works, Inc. (following its merger with Premark International, Inc.), Vice Chairman 1999-2004. Premark International, Inc. Chairman 1997-1999; Director 1990-1999; Chief Executive Officer 1996-1999; President and Chief Operating Officer 1992-1996; Executive Vice-President 1990-1992. Tappan Company President and Chief Operating Officer 1982-1986; White Consolidated Industries Major Appliance Group President 1986-1990 (both subsidiaries of Electrolux AB).
Director of Teradata Corporation, Autoliv Inc., Ingredion Incorporated, John Bean Technologies Corporation and FMC Technologies, Inc. Former director of NCR Corporation (2005-2007). | ||
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Ruth G. Shaw, 64. Former Executive Advisor of Duke Energy Corporation. Director since 2005. | |
Duke Energy Corporation (a provider of electricity and natural gas) Executive Advisor, October 2006-May 2008, Group Executive, Public Policy and President, Duke Nuclear, April 2006-October 2006; President and Chief Executive Officer, Duke Power Company 2003-2006; Executive Vice President and Chief Administrative Officer 1997-2003; President of The Duke Energy Foundation 1994-2003; Senior Vice President, Corporate Resources 1994-1997; Vice President, Corporate Communications 1992-1994. President, Central Piedmont Community College, Charlotte, NC 1986-1992. President, El Centro College, Dallas, TX 1984-1986. Chair, Foundation Board of Trustees for the University of North Carolina at Charlotte: Carolina Thread Trail Governing Board. Director, Foundation for the Carolinas.
Director of DTE Energy. Former director of Wachovia Corporation (1990-2008). |
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* | Office of the Corporate Secretary, The Dow Chemical Company, 2030 Dow Center, Midland, MI 48674, 989-636-1792 (telephone), 989-638-1740 (fax). |
12 | 2013 DOW PROXY STATEMENT
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CORPORATE GOVERNANCE (continued)
2013 DOW PROXY STATEMENT
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13 |
CORPORATE GOVERNANCE (continued)
* | Office of the Corporate Secretary, The Dow Chemical Company, 2030 Dow Center, Midland, MI 48674, 989-636-1792 (telephone), 989-638-1740 (fax). |
14 | 2013 DOW PROXY STATEMENT
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CORPORATE GOVERNANCE (continued)
Standing Committee and Function | Chair and Members | Meetings in 2012 | ||
Audit Committee |
J. A. Bell, Chair | 9 | ||
Oversees the quality and integrity of the financial statements of the Company; the qualifications, independence and performance of the independent auditors; and the Companys system of disclosure controls and procedures and system of internal control over financial reporting. Has oversight responsibility for the performance of the Companys internal audit function and compliance with legal and regulatory requirements. A more complete description of the duties of the Committee is contained in the Audit Committee charter available at www.DowGovernance.com. |
J. M. Ringler R. G. Shaw |
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Compensation and Leadership Development Committee |
D. H. Reilley, Chair | 6 | ||
Assists the Board in meeting its responsibilities relating to the compensation of the Companys Chief Executive Officer and other senior executives in a manner consistent with and in support of the business objectives of the Company, competitive practice and applicable standards. A more complete description of the duties of the Committee is contained in the Compensation and Leadership Development Committee charter available at www.DowGovernance.com. |
J. M. Fettig J. B. Hess |
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Environment, Health, Safety and Technology Committee |
J. K. Barton, Chair | 4 | ||
Assists the Board in fulfilling its oversight responsibilities by assessing the effectiveness of environment, health, safety and technology programs and initiatives that support the environment, health, safety, sustainability, innovation and technology policies and programs of the Company, and by advising the Board on matters impacting corporate citizenship and Dows public reputation. A more complete description of the duties of the Committee is contained in the Environment, Health, Safety and Technology Committee charter available at www.DowGovernance.com. |
A. A. Allemang P. Polman |
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Governance Committee |
J. M. Fettig, Chair | 4 | ||
Assists the Board on all matters relating to the selection, qualification, and compensation of members of the Board, as well as any other matters relating to the duties of Board members. Acts as a nominating committee with respect to candidates for Directors and makes recommendations to the Board concerning the size of the Board and structure of committees of the Board. Assists the Board with oversight of governance matters. A more complete description of the duties of the Committee is contained in the Governance Committee charter available at www.DowGovernance.com. |
J. A. Bell D. H. Reilley |
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CORPORATE GOVERNANCE (continued)
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CORPORATE GOVERNANCE (continued)
2013 DOW PROXY STATEMENT
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CORPORATE GOVERNANCE (continued)
* | Office of the Corporate Secretary, The Dow Chemical Company, 2030 Dow Center, Midland, MI 48674, 989-636-1742 (telephone), 989-638-1740 (fax). |
18 | 2013 DOW PROXY STATEMENT
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CORPORATE GOVERNANCE (continued)
2013 DOW PROXY STATEMENT
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CORPORATE GOVERNANCE (continued)
COMPENSATION AND LEADERSHIP DEVELOPMENT COMMITTEE REPORT
The Compensation and Leadership Development Committee (the Committee) of the Board of Directors reviewed and discussed the Compensation Discussion and Analysis (CD&A) with Company management. Based on this review and discussion, the Committee recommended to the Board of Directors that the CD&A be included in the Companys Annual Report on Form 10-K for the year ended December 31, 2012 (2012 Annual Report), as incorporated by reference from this Proxy Statement.
The charter of the Committee can be found at www.DowGovernance.com.
D. H. Reilley, Chair
J. M. Fettig
J. B. Hess
20 | 2013 DOW PROXY STATEMENT
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COMPENSATION DISCUSSION AND ANALYSIS
EXECUTIVE COMPENSATION DISCLOSURE
SECTION ONE OVERVIEW AND EXECUTIVE SUMMARY
2012 Company Results
2012 was a challenging year due to the ongoing slow and volatile growth of the global economy. Dow maintained its earnings growth trajectory through the first half of 2012. However, the second half of 2012 saw significant deterioration in the markets we serve, particularly in China. In response, Dow identified and took aggressive action to mitigate the effects of a slow-to-no-growth global environment decisively deploying cost reduction and cash flow improvement levers, and driving aggressive portfolio management to mitigate the impact of downward adjustments to growth forecasts.
Despite these efforts, Dow fell short of its profit plan for the year.
| Sales of $56.8 billion, down 5 percent year over year on a reported basis. |
| Net Income was $842 million, or $2,249 million excluding certain items.* |
* | For additional information on this financial performance measure, please see the Performance Award section of the discussion of 2012 Compensation Actions on page 26. |
These results have driven a below target payout for our 2012 Performance Award Program and all three current outstanding performance shares plans are tracking below target payout levels reflecting the connection between performance and pay.
Through hard work, focus and discipline, the Company achieved several significant milestones in 2012.
| Implemented $2.5 billion of cost reduction and cash flow improvement actions in response to volatile macro-economic conditions |
| Generated nearly $8 billion in cash from operations during the two year period ended December 31, 2012, in line with our stated target |
| Increased dividends declared per share by 34% in 2012 vs. 2011 |
| Achieved significant milestones with key, enterprise growth projects U.S. Gulf Coast investments and Sadara investments that will further enhance our industry-leading, low-cost feedstock position |
| Maintained focus on investment grade rating received an upgrade from Moodys |
| Finalized the K-Dow arbitration which resulted in a $2.16 billion partial award issued in the Companys favor by the International Chamber of Commerce. On March 4, 2013, the Company received the release of the final award representing the awarding of additional costs and interest with the two awards totaling $2.48 billion. |
| Named for 12th time to Dow Jones Sustainability World Index |
| Received National Safety Councils Green Cross Medal |
Executive Summary of Dows Compensation Programs
The following provides an overview of our compensation philosophy and programs as detailed in later sections.
| The compensation programs at Dow are designed primarily to support the realization of Dows vision of being the most profitable and respected science-driven chemical company in the world, while promoting the long-term interests of our stockholders and other stakeholders. |
| Our compensation programs are designed to attract, motivate, reward and retain the most talented executives who can drive business performance. |
| Dow believes in pay-for-performance, which we implement through an annual incentive award that includes objective performance criteria and through equity awards where the value realized is tied to our stock price performance, including shares that vest only if certain performance hurdles are satisfied. These performance components represent at least 80% of the direct compensation of the Named Executive Officers (NEOs). |
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| The following elements comprise the total direct compensation awarded to our NEOs: base salary, performance-based annual cash incentive award (Performance Award), and equity based Long Term Incentive (LTI) awards consisting of Performance Shares, Stock Options and Deferred Stock. |
| We emphasize stock ownership. LTI awards are delivered as equity-based awards to senior executives. Dow executives are required to maintain, until retirement, between four and six times their annual base salary in Dow stock. This encourages managing from an owners perspective and better aligns their financial interests with those of Dow stockholders. |
| We target all elements of our compensation programs to provide a competitive compensation opportunity at the median range of our peer group (the Survey Group) of companies whose compensation is surveyed by the Compensation and Leadership Development Committee (the Committee). Actual payouts under these programs can be above or below the median based on Company and personal performance. |
| Our executives participate in the same group benefit programs, including pension and retirement plans, on substantially the same terms as other salaried employees. |
| Our executives are provided limited perquisites which are granted to facilitate strong, focused performance on their jobs. |
| The Committee exercises discretion in determining compensation actions when necessary due to extraordinary changes in the economy, unusual events or overall Company performance. |
Best Practices in Executive Compensation
In an era of increased attention to corporate governance and the link between pay and performance, the Company continues to focus on the following key governance practices for executive compensation. For more information on other governance practices, refer to Section Four Executive Compensation Governance.
| Use of an independent compensation consultant who is engaged directly by the Committee to advise on executive compensation matters. |
| Maintain a strong link between financial and operational goals, stockholder value creation and executive compensation by having relative Total Stockholder Return (TSR), Net Income, Return on Capital (ROC) and cost control in our incentive programs. In 2012, the Committee added Cash Flow to the annual Performance Award program (starting with the 2013 program) which will measure our ability to translate earnings to cash which allows the Company to invest for the future as well as return value to the shareholders. |
| Ensure our LTI mix includes significant weighting (75% of the LTI grant) toward performance equity vehicles (Stock Options and Performance Shares). |
| Balance risk through compensation programs that are designed to discourage excessive risk taking by executive officers. These design features include a robust clawback policy, strong stock ownership guidelines, and multiple bottom line measures in our incentive programs. |
| Prohibit our executives from engaging in speculative transactions in Company securities and from pledging Company securities, or holding Company securities in margin accounts. |
| Prohibit new or amended Change-in-Control (CIC) agreements. For existing CIC agreements, severance payments are equal to two times the executives annual base salary and target Performance Award (2.99 times for the CEO) and double triggers are in place in order for an executive to receive benefits. |
| Consider input of stockholders received through our active stockholder engagement initiatives and the advisory say-on-pay results. In making executive compensation determinations, the Committee considered the results of the non-binding, advisory proposal on our executive compensation set forth in our 2012 Proxy Statement. Our stockholders approved our executive compensation program with 83% support. After considering our say-on-pay voting results, stockholder input, compensation consultant advice and other factors addressed in the following discussion, the Committee determined not to make any changes to our executive compensation programs as a result of the vote. The Committee will continue to consider the results from this years and future advisory stockholder votes regarding our executive compensation program. |
22 | 2013 DOW PROXY STATEMENT
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Objectives of Dows Executive Compensation Program
There are four primary objectives of Dows executive compensation program. The following table describes each objective and how it is achieved.
Compensation Program Objective |
How Objective is Achieved | |
Support the achievement of Dows vision and strategy |
Incentive program metrics are tied to both annual and long-term strategic objectives of the Company. The compensation programs provide an incentive for executives to meet and exceed Company goals. | |
Motivate and reward executives when they deliver desired business results and stockholder value |
Compensation awards are based upon performance against Company financial and operational goals and business division goals as well as personal performance. The financial goals are relative TSR, ROC, net income, cost control and free cash flow (starting with the 2013 Performance Award Program). Relative TSR versus a peer group drives half of the payout value in our Performance Share program. | |
Attract and retain the most talented executives to succeed in todays competitive marketplace |
Compensation elements and pay opportunities are targeted at the median of the Survey Group that we compete with for talent. Executives are held accountable for results and rewarded above target levels when Company and personal goals are exceeded. When goals are not met, compensation awards will be below target levels. | |
Create an ownership alignment with stockholders |
LTI awards are equity-based. Stock ownership requirements in place for top executives, and all NEOs exceed their ownership requirements. Prohibit speculative transactions, pledging or margining Company securities. Approximately 65-70% of NEO pay is equity-based where the value is directly linked to share price appreciation and TSR. |
2013 DOW PROXY STATEMENT
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Elements of Dows Executive Compensation Program
The elements of the Companys executive compensation program are presented below in summary format and more fully explained in the sections that follow.
Program | Description & Purpose of Element | |||
Base Salary
|
Annual Base Salary is designed to provide a competitive fixed rate of pay recognizing different levels of responsibility and performance within the Company. | |||
Performance Award
|
The Performance Award is an annual cash incentive program to reward employees for achieving critical financial and operational Company goals.
| |||
Stock Options
|
Stock Options are granted to provide incentive for long-term creation of stockholder value. Stock Options represent 40% of the annual LTI grant value.
| |||
Performance Shares | Performance Shares are granted to motivate employees and to reward the achievement of specified financial goals and superior TSR performance over a three-year period. Performance Shares represent 35% of the annual LTI grant value.
| |||
Deferred Stock | Deferred Stock is granted in order to help the Company retain its NEOs and other key employees. Deferred Stock represents 25% of the annual LTI grant value.
| |||
Health, Welfare and Retirement Programs | Executives participate in the same benefit programs that are offered to other salaried employees. Dow benefits are designed to provide market competitive benefits to protect employees and their covered dependents health and welfare and provide retirement benefits.
| |||
Perquisites | Limited perquisites are provided to executives to facilitate strong performance on the job and enhance their personal security and productivity. |
The mix of the three key compensation elements for the CEO and other NEOs are shown below. The charts outline the size, in percentage terms, of each element of targeted direct compensation. The gray sections of the charts reflect the incentive or at-risk performance-based components of compensation (e.g., 89% of the CEOs compensation is at risk).
24 | 2013 DOW PROXY STATEMENT
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Elements of Compensation: Base Salary
Base salary is a fixed portion of compensation based on an individuals skills, responsibilities, experience and sustained performance. Base salaries for executives are benchmarked against similar jobs at other companies and are targeted at the median (50th percentile) of the Survey Group after adjusting for Dows revenue size. Actual salaries reflect an individuals responsibilities and more subjective factors, such as the Committees (and the CEOs in the case of other NEOs) assessment of the individual NEOs performance.
Changes in base salary for the NEOs, as well as for all Dow salaried employees, depend on compensation versus the external market for similar jobs, the individuals current salary compared to the market, changes in job responsibilities and the employees contributions to Dows performance as determined by the Committee.
Elements of Compensation: Performance Award
The Performance Award is an annual cash incentive program. Dow uses this component of compensation to reward employees for achieving critical annual Company goals. Meeting or exceeding our annual business and financial goals is important to executing our long-term business strategy and delivering long-term value to stockholders. No Performance Award is payable to NEOs or any officer of the Company unless pre-established minimum Net Income goals are achieved. The 1994 Executive Performance Plan establishes a minimum performance goal of $700 million of net income in order for NEOs to be eligible to receive a payout of the Company component of the Performance Award. This requirement is part of Dows strategy for complying with Internal Revenue Code Section 162(m).
Actual award payouts are determined each February following completion of the plan year by measuring the performance against each award component (earned base award). Actual awards for employees including NEOs can be adjusted up or down by 25% from the earned base award based on individual performance and contributions as determined by the Committee.
Elements of Compensation: Long-Term Incentive Awards
Each year the Company grants equity-based LTI awards to leaders and other key employees who demonstrate high performance. Dow chooses this component of compensation to motivate and reward employees for long-term stockholder value creation and the attainment of Company performance goals, retain top talent and create an ownership alignment with stockholders. As with Dows approach for all elements of compensation, LTI awards are targeted at the median of the Survey Group for comparable positions.
LTI Vehicle |
Weighting | Vesting Terms & Other Conditions | ||
Stock Options | 40% | The exercise price equals the closing price on the date of grant. Options vest in three equal annual installments and expire after 10 years. | ||
Performance Shares | 35% | Performance Shares can be earned at between 0 and 250% of the target award opportunity after a three-year performance period based on an equal weighting of two goals:
Dows TSR versus a peer group Dows ROC relative to pre-established goals
Accumulated dividend equivalents are paid only on earned shares after the three-year performance period has ended. | ||
Deferred Stock | 25% | Deferred stock grants vest after three years. During the vesting period, holders of outstanding deferred stock grants receive quarterly payments equal to the dividend paid on equivalent shares of Dow Common Stock. |
Elements of Compensation: Benefits
The Company provides a comprehensive set of benefits to eligible employees. These include medical, dental, life, disability, accident, retiree medical and life, pension and savings plans. The NEOs are eligible to participate in the same plans as most other salaried employees. In addition, because highly compensated employees are subject to U.S. tax limitations on contributions to some retirement plans, the Company has created non-qualified retirement programs intended to provide these employees with the same benefits they would have received under the qualified plans without the tax limits. The NEOs are eligible to participate in the same non-qualified retirement plans as all other highly compensated salaried employees.
2013 DOW PROXY STATEMENT
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Elements of Compensation: Perquisites
The Company provides the NEOs and other selected executives limited perquisites in order to enhance their security and productivity. The Committee regularly reviews the perquisites provided to the NEOs as part of their overall review of executive compensation. In 2012, the Committee eliminated the company car perquisite for all executives except the CEO. The Committee determined that the other current perquisites are within an appropriate range of competitive compensation practices. Details about the NEOs perquisites, including the aggregate incremental cost to the Company, are shown in the Summary Compensation Table under the All Other Compensation column and the accompanying narrative. The Company provides the NEOs and other selected executives the following limited perquisites:
| Financial and Tax Planning Support |
| Executive Physical Examination |
| Company Car (eliminated in 2012 for all NEOs other than the CEO) |
| Executive Excess Umbrella Liability Insurance |
| Home Security Alarm System |
In addition, the CEO is required by the Board of Directors for security and immediate availability reasons to use corporate aircraft for personal travel.
SECTION TWO 2012 NEOs ACHIEVEMENTS AND COMPENSATION ACTIONS
The following contributions and achievements were taken into consideration by the Committee in making the 2012 compensation decisions.
Andrew Liveris: Mr. Liveris serves as President, Chief Executive Officer and Chairman. Mr. Liveris compensation for 2012 reflects his leadership in identifying the economic volatility early in 2012 and taking decisive action to mitigate the conditions. Despite the ever-changing global business conditions and challenges that resulted in slow global demand, Dow moved quickly to deploy $2.5 billion of cost reductions and cash flow improvements as well as aggressively manage the Companys portfolio and prioritize growth investments. Under Mr. Liveris leadership, Dow delivered $4 billion of cash flow from operating activities during the year, reduced $613 million of gross debt, and maintained our commitment to rewarding shareholders by increasing dividends declared per share in 2012 by 34%. The Committee also considered Mr. Liveris efforts in implementing key initiatives throughout the Company to champion Dows commitment to sustainability through his visible and continuous support of Dows 2015 Sustainability Goals and his drive to advance Dows reputation and brand.
William Weideman: Mr. Weideman serves as Executive Vice President and Chief Financial Officer. He is responsible for overseeing the financial management and integrity of the internal controls for the Company and he leads Dows Finance function. Mr. Weidemans compensation for 2012 reflects his contributions in driving productivity improvements to mitigate external headwinds. This includes managing our $2.6 billion in Capital Expenditures, and taking strategic actions toward cost control, restructuring and cash flow improvement. Finally, the Committee considered the fact that under Mr. Weidemans leadership Dow improved its investment grade rating receiving an upgrade from Moodys in 2012, which allowed us to successfully issue $2.5 billion of new debt with 10- and 30-year tenor at historical low coupons averaging 3.7%.
Charles Kalil: Mr. Kalil serves as Executive Vice President, General Counsel and Corporate Secretary. Mr. Kalils compensation for 2012 reflects his oversight and contributions as counsel to the Company as well as his leadership of the Companys litigation and corporate transactions. Under Mr. Kalils leadership, the K-Dow arbitration resulted in a $2.16 billion partial award issued in the Companys favor by the International Chamber of Commerce. On March 4, 2013, the Company received the release of the final award representing the awarding of additional costs and interest with the two awards totaling $2.4 Billion.
Carol Williams: Ms. Williams serves as Executive Vice President, Manufacturing & Engineering, Supply Chain and Environmental, Health and Safety (EH&S) Operations. The Committee considered Ms. Williams leadership of the significant and strategic restructuring in Manufacturing and Engineering which included shutting down nearly 30 Dow manufacturing plants primarily in Europe and the United States. Ms. Williams worked with the Business leadership to reduce or eliminate capital spending for projects that are no longer a priority in the current slow growth environment. Ms. Williams led efforts that resulted in significant reduction in fixed costs and raw materials savings as well as further improvements in reliability as well as working capital and capacity increases.
26 | 2013 DOW PROXY STATEMENT
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James Fitterling: Mr. Fitterling serves as Executive Vice President and President of Dow Feedstocks, Performance Plastics, Asia and Latin America. Under Mr. Fitterlings leadership, the Hydrocarbons business and Performance Plastics segment achieved their financial goals for the year. In 2012, Mr. Fitterling enabled a number of key strategic projects for the Company. Mr. Fitterling has oversight for the Companys U.S. Gulf Coast investment strategy, where we achieved the first major milestone with the successful restart of the St. Charles, Louisiana ethylene cracker. The Committee also considered Mr. Fitterlings significant contributions to the Corporate Strategy Development.
2012 Compensation Actions
The Committee approved the following compensation and awards for the CEO after considering Dows Survey Group market data and the 2012 accomplishments of the Company and the CEO. After considering input from the CEO, the Committee approved the following pay actions for the four other NEOs in 2012. Amounts shown below may differ from those shown in the Summary Compensation Table due to salary adjustments that occurred during the year and the application of financial accounting standards grant pricing for the Long Term Incentives. The values below reflect the compensation decisions made by the Committee.
2012 COMPENSATION ACTIONS
Name | Base Salary ($) | Performance Award ($) |
Deferred Stock Awards ($) |
Performance Share Awards ($) |
Option Awards ($) |
Total Compensation ($) |
||||||||||||||||||
Andrew Liveris |
1,820,000 | 1,368,640 | 3,025,320 | 4,235,040 | 4,840,080 | 15,289,080 | ||||||||||||||||||
William Weideman |
861,378 | 407,001 | 862,580 | 1,207,680 | 1,380,079 | 4,718,718 | ||||||||||||||||||
Charles Kalil |
972,441 | 459,478 | 862,580 | 1,207,680 | 1,380,079 | 4,882,258 | ||||||||||||||||||
Carol Williams |
921,317 | 454,670 | 862,580 | 1,207,680 | 1,380,079 | 4,826,326 | ||||||||||||||||||
James Fitterling |
860,950 | 424,879 | 862,580 | 1,207,680 | 1,380,079 | 4,736,168 |
| Base Salary: All NEOs were given salary adjustments in 2012 to adjust their relative position to the median range of base salaries for comparable positions with Dows Survey Group. There were no material differences between the Survey Group median range of base salary values and the actual base salary for any of the NEOs. This information differs from the values presented in the Summary Compensation Table which reflects base pay received on a fiscal year basis. |
| Performance Award: The 2012 Performance Award Program focused participants on critical financial and operational goals. At the beginning of 2012, the Committee and Board approved the financial and operational goals for the Company and each Business Division. The Committee also reviewed and approved the target award opportunity for each NEO which is expressed as a percentage of base pay. Individual award opportunities vary by job level and are targeted at the median level for comparable positions within the Survey Group. There were no material differences between Dows Survey Group median range of annual bonus targets and the target Performance Award for any of the NEOs. |
The 2012 Performance Award corporate target goals and 2012 results are shown below. The 2012 Performance Award results are calculated using Net Income (excluding certain items). This measure of Net Income is used by the Company in presentations to investors and excludes the impact of charges related to the Companys restructuring activities, loss on early extinguishment of debt, goodwill impairment charges, Dow Corning joint venture restructuring and asset abandonment charges, charges for Sadara related development and other costs, a gain on the sale of a contract manufacturing business, and charges related to restructuring implementation costs, as presented in the reconciliation available on the Internet at www.dow.com/investor/earnings. |
Measure Used (Weighting) |
Rationale for Measure | Threshold Goal |
Target Goal | Maximum Goal |
2012 Performance | |||||
Net Income (75%) | Reflects operating strength, efficiency and profitability | $2,150 million | $3,100 million | $4,050 million | $2,249 million | |||||
Cost Management (25%) | Reflects discipline in meeting corporate cost budgets | $500 million above plan |
Meet Corporate Cost Target |
$500 million below plan |
Below Plan by $439 million |
The 2012 Performance Award resulted in an earned base award equal to 47% of the target award opportunity for corporate employees. As allowed by the plan, an individual performance factor may also be applied for each NEO to reflect their personal contributions for the year as determined by the Committee. Shown below is additional detail on the individual 2012 Performance Award Calculation for each NEO.
2013 DOW PROXY STATEMENT
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2012 PERFORMANCE AWARD DETAILED CALCULATION
Name |
Year End Base Salary (a) |
PA (b) |
PA Target Amount (c) |
Company / Business Funding Level (d) |
Individual (e) |
Total PA Payment Percent (f) |
Total PA Payout |
|||||||||||||||||||||
Formulas | (a*b) | (d*e) | (c*f) | |||||||||||||||||||||||||
Andrew Liveris |
1,820,000 | 160 | % | 2,912,000 | 47 | % | 100 | % | 47 | % | 1,368,640 | |||||||||||||||||
William Weideman |
861,378 | 105 | % | 904,447 | 47 | % | 95 | % | 45 | % | 407,001 | |||||||||||||||||
Charles Kalil |
972,441 | 105 | % | 1,021,063 | 47 | % | 95 | % | 45 | % | 459,478 | |||||||||||||||||
Carol Williams |
921,317 | 105 | % | 967,383 | 47 | % | 100 | % | 47 | % | 454,670 | |||||||||||||||||
James Fitterling |
860,950 | 105 | % | 903,997 | 47 | % | 100 | % | 47 | % | 424,879 |
| Long-Term Incentive Programs: In February 2012, the Committee approved the LTI grant for each NEO as shown in the 2012 Compensation Actions Table above based upon Dows Survey Group median range of LTI values and reflective of the mix of equity vehicles described in the Elements of Dows Executive Compensation Program. There were no material differences between the Survey Group median range of LTI target values and the target LTI award values for any of the NEOs. The Committee also approved the results of the 2009-2011 Performance Share Program and the 2012-2014 Performance Share Program design. |
2009-2011 Performance Share Program Results
The 2009-2011 Performance Share Program focused participants on ROC as a critical financial goal and reflected the legacy program that utilized one financial performance measure. With the exception of the 2009-2011 program (that delivered in 2012), the remaining outstanding three-year Performance Share programs utilize two measures ROC and TSR as described in detail below. The metric goals and payout result for the 2009-2011 program was as follows:
Measure Used | Rationale for Measure | Threshold Goal |
Target Goal |
Maximum Goal |
Result | |||||
ROC |
Reflects operating strength, effectiveness in utilizing capital and profitability | 7.5% | 9.5% | 15.0% | 12.1% | |||||
Total Payout |
175% |
2012-2014 Performance Share Program Design
In February 2012, the Committee approved the 2012-2014 Performance Share Plan. As noted above, Performance Share vesting is based on TSR and ROC performance over a three calendar year period. The following table illustrates the measures used, weighting and goals for the 2012-2014 Performance Share program:
Measure Used/ Weighting |
Rationale for Measure | Threshold Goal |
Target Goal |
Maximum Goal | ||||
ROC (50%) |
Reflects operating strength, effectiveness in utilizing capital and profitability | 8.5% | 11.0% | 15.5% | ||||
Relative TSR (50%) |
Reflects Dows TSR versus a peer group of companies TSR | 26th Pctl. | 51st Pctl. | 100th Pctl. |
ROC measures how effectively a company has utilized the money invested in its operations and is calculated as Net Operating Profit after Tax (excluding certain items) divided by total average capital. Net Operating Profit after Tax (excluding certain items) is a net income measure the Company uses in presentations to investors that excludes preferred stock dividends, non-controlling interests, and interest expense, exclusive of the certain items identified on page 26, and as presented in the reconciliations available on the Internet at www.dow.com/investor/earnings. For the Performance Share Award program ending in 2011, the ROC result also reflects certain adjustments related to the Rohm and Haas acquisition. To achieve a target payout on the ROC portion, Dows ROC must equal or exceed pre-established ROC goals for the same period. Dows ROC target is 10% across the industry cycle and as a result the target for Performance Share Awards ranges from 8.5% to 12.0% on current outstanding grants.
28 | 2013 DOW PROXY STATEMENT
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The relative TSR peer group is comprised of companies selected from the S&P 500 Chemical Index and several companies from Dows Survey Group that are technology-based and manufacturing-based global companies. The table below shows the 17 company TSR peer group.
Air Products and Chemicals, Inc. | BASF | |
CF Industries Holdings, Inc. | Eastman Chemical Company | |
Ecolab Inc. | E.I. du Pont de Nemours & Company | |
FMC Corporation | International Flavors & Fragrances Inc. | |
Monsanto Company | PPG Industries, Inc. | |
Praxair, Inc. | Sigma-Aldrich Corporation | |
3M Company | The Procter & Gamble Company | |
Honeywell International Inc. | United Technologies Corporation | |
Johnson Controls, Inc. |
TSR is defined as stock price appreciation plus dividends paid. For Dow and each company in the peer group, a beginning price using a 30 trading day averaging period at the beginning of the performance period and an ending price using a 30 trading day averaging period at the end of the performance period are calculated and used to create a percentile ranking. The TSR portion of the Performance Share Award will pay out at 100% if Dows TSR is at the 51st percentile of the peer group. No payout will occur if Dows TSR is at or below the 25th percentile. A maximum payout of 250% will occur if Dows TSR is at the 100th percentile.
Instead of receiving the Performance Share Award in the form of Dow common stock, the NEOs and other executives subject to stock ownership requirements may elect to receive a cash payment equal to the value of the stock award on the date of delivery. Participants may only make this cash election if they meet or exceed the executive stock ownership guidelines for their job level.
SECTION THREE HOW EXECUTIVE PAY IS ESTABLISHED
Responsibilities of the Committee
The Committee, which is comprised entirely of independent Directors, is responsible for overseeing the Companys executive compensation policies and programs with the goal of maintaining compensation that is competitive within the markets in which Dow competes for talent and reflective of the long-term investment interests of Company stockholders. The Committee reviews and approves the compensation design, compensation levels and benefits programs for the NEOs and other senior leaders. The Committee also monitors Company processes on executive succession and work environment/culture. You can learn more about the Committees purpose, responsibilities, structure and other details by reading the Committees charter which can be found in the Corporate Governance section of the Companys website at www.DowGovernance.com.
2013 DOW PROXY STATEMENT
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Committee Resources in Setting Pay
The Committee has several resources, analytical tools and performance measures they consider in determining compensation levels.
Committee Resource |
Description | |
Committee Consultant | The Committee has retained a compensation consultant from Mercer. The consultant, Michael Halloran, reports directly to the Committee. He advises the Committee on trends and issues in executive compensation and the group of companies in the Survey Group. He consults on the competitiveness of the compensation structure and levels of Dows executive officers and provides advice and recommendations related to proposed compensation and the design of our compensation programs.
The Committee has the sole authority to retain and oversee the work of Mr. Halloran. Mr. Halloran does not provide services to Company management unless approved by the Chairman of the Committee. In 2012, no such approvals were given. Mercer has multiple safeguards and procedures in place to ensure the independence of the consultants in their executive compensation consulting practice, and the Committee has determined that the compensation consultants work has not raised any conflict of interest. These safeguards include a rigidly enforced code of conduct, a policy against investing in client organizations and separation between consulting and administrative business units from a leadership, performance measurement, and compensation perspective. In 2012, Mercer and its affiliates provided approximately $2.2 million in unrelated human resources consulting services to Dow. The decision to engage Mercer to provide these other services was made by management and was reported to the Committee. In addition to the approximately $2.2 million in aggregate fees for human resources consulting services, Mercers aggregate fees for executive and director compensation consulting services in 2012 were approximately $212,000. | |
Dows Executive Compensation Department | Dows Executive Compensation Department provides additional analysis and counsel as requested by the Committee related to: gathering the compensation data of the Survey Group benchmarking compensation components (base salary, Performance Award, LTI awards) against the Survey Group assisting the CEO and Human Resources Executive Vice President in making preliminary recommendations of base salary structure, design and target award levels for the Performance Award and design and award levels for LTI awards providing scenario planning/tally sheet information
The Executive Compensation Department has retained the compensation consultant services of Towers Watson. Towers Watson provides the following assistance to the Executive Compensation Department: Survey Group compensation information for executives and non-employee Directors benchmarking of key compensation practices and trends in executive compensation |
Peer Group and Survey Pay Data
Dow benchmarks its executive compensation programs against a Survey Group of 20 companies. Market pay data for the Survey Group is gathered through compensation surveys conducted by Towers Watson. Dow targets the median of the Survey Group for all compensation elements in order to attract, motivate, develop and retain top level executive talent.
The Survey Group is periodically evaluated and updated to ensure the companies in the group remain relevant. The Survey Group was evaluated in 2012 and was modified to eliminate Tyco International and Kraft Foods since both companies split into two companies and the resulting company size and profile no longer met the peer group criteria.
The Committee used a filtering approach to identify appropriate replacements. The Committee evaluated companies within our industry and in adjacent industries, companies with profiles similar to Dows based upon business complexity, innovation and/or technology, industries and markets served, as well as companies with similar revenue size, market capitalization, geographic footprint, and those companies we compete with for talent.
30 | 2013 DOW PROXY STATEMENT
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Based upon an assessment of those criteria (with no particular weighting), Lockheed Martin and Coca Cola were selected as replacements. The 20 companies are listed below.
SURVEY PEER GROUP
Company | Fiscal Year 2012 Revenues |
Market Cap as of 12/31/2012 |
||||||
3M Company |
$ | 29,904 | $ | 64,246 | ||||
Alcoa Inc. |
$ | 23,700 | $ | 9,263 | ||||
Archer Daniels Midland Company |
$ | 89,038 | $ | 18,038 | ||||
The Boeing Company |
$ | 81,698 | $ | 56,827 | ||||
Caterpillar Inc. |
$ | 65,875 | $ | 58,598 | ||||
The Coca-Cola Company* |
$ | 46,542 | $ | 162,587 | ||||
E. I. du Pont de Nemours and Company |
$ | 34,812 | $ | 41,941 | ||||
Eli Lilly and Company |
$ | 22,603 | $ | 54,636 | ||||
Emerson Electric Co. |
$ | 24,412 | $ | 38,321 | ||||
General Electric Company |
$ | 147,359 | $ | 220,107 | ||||
Honeywell International Inc. |
$ | 37,665 | $ | 49,721 | ||||
Johnson & Johnson |
$ | 67,224 | $ | 194,265 | ||||
Johnson Controls Inc. |
$ | 41,955 | $ | 20,976 | ||||
Lockheed Martin Corporation |
$ | 47,182 | $ | 29,679 | ||||
Monsanto Company |
$ | 13,504 | $ | 50,634 | ||||
Pepsico, Inc.* |
$ | 66,504 | $ | 105,851 | ||||
Pfizer Inc. |
$ | 58,986 | $ | 184,648 | ||||
PPG Industries Inc. |
$ | 15,200 | $ | 20,756 | ||||
Procter & Gamble Co. |
$ | 83,680 | $ | 185,627 | ||||
United Technologies Corp. |
$ | 57,708 | $ | 75,166 | ||||
Observations |
20 | 20 | ||||||
75th Percentile |
$ | 66,684 | $ | 120,035 | ||||
Average |
$ | 52,778 | $ | 82,094 | ||||
Median |
$ | 46,862 | $ | 55,732 | ||||
25th Percentile |
$ | 28,531 | $ | 36,160 | ||||
The Dow Chemical Company |
$ | 56,786 | $ | 38,770 |
Data reported in $ millions
* | Reflects trailing 12-month revenues as of September 30, 2012. |
Factors and Steps in Setting Pay
Compensation for the NEOs and other executive officers is evaluated and set annually by the Committee after considering the following factors:
| Median range of compensation for similar jobs and job levels in the market, taking into account revenue relative to the Survey Group |
| Company performance against financial measures including net income, earnings per share, EBITDA (earnings i.e. Net Income, before interest, income taxes, depreciation, and amortization), ROC, TSR, cash flow, and cost management discipline |
| Company performance relative to goals approved by the Committee |
| Each executives experience, knowledge, skills and personal contributions |
| Business climate, economic conditions and other factors |
The CEO makes recommendations to the Committee regarding compensation for senior executives after reviewing the Companys overall performance, each executives personal contributions and relevant compensation market data from Dows Survey Group for similar jobs and job levels. The CEO uses discretion when making pay recommendations to the Committee. The Committee is responsible for approving NEO compensation and has broad discretion when setting compensation types and amounts.
2013 DOW PROXY STATEMENT
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With respect to the CEO, the Committee annually reviews and approves the corporate goals and objectives relevant to the CEOs compensation, evaluates the CEOs performance against those objectives and makes recommendations to the Board of Directors regarding the CEOs compensation level based on that evaluation. The Committee considers compensation market data from Dows Survey Group and uses broad discretion when setting compensation types and amounts for the CEO. The Board of Directors is responsible for approving the CEOs compensation types and amounts.
As part of the review, Company management and the Committee may also review summary total compensation scenarios for the NEOs. All aspects of compensation are modeled under various scenarios, such as stock price sensitivity and business performance. The scenario sheets present the estimated dollar value of compensation components provided to the NEOs during the most recent fiscal year. They are used as a reference point to assist the Committees overall understanding of NEO compensation.
SECTION FOUR EXECUTIVE COMPENSATION GOVERNANCE
In addition to adhering to the processes described in the preceding sections, the Committee has adopted several policies related to Executive Compensation as detailed below.
Stock Ownership Guidelines
Dow has had stock ownership guidelines in place for its NEOs and other senior executives since 1998. The Committee regularly reviews the guidelines relative to market practice and the current value of Dow stock.
Specific stock ownership requirements vary by job level and are determined by applying a multiple between four and six to the base salary midpoint. The guideline values are converted to a fixed share amount for each job level and remain at that level until the Committee determines that an adjustment is appropriate. After a review of current stock ownership guidelines and relevant market data, the Committee adjusted the specific stock ownership requirements upward based on more current salary data in 2012.
The CEO is required to own stock with a value of six times base salary and the other NEOs are required to own stock with a value of four times base salary. The executives are given five years to achieve the initial ownership guideline for their job level following promotion to that level and must maintain these levels until retirement. For purposes of these guidelines, stock ownership includes Dow Common Stock beneficially owned (including stock owned by immediate family members), Deferred Stock not yet delivered, Performance Shares vested but not yet delivered, and stock held beneficially through the Companys savings plans.
All NEOs currently hold shares significantly in excess of the guidelines providing further evidence of Dows philosophy of encouraging the holding of shares in excess of stock ownership guidelines until retirement.
The following table shows the stock ownership guideline for each NEO and their holdings as of December 31, 2012.
EXECUTIVE STOCK OWNERSHIP GUIDELINES & HOLDINGS FOR 2012
NEO & Guidelines | Personal Holdings | |||||||||||||||||||||||
Name | Guideline # Shares |
Multiple of Base Salary |
2012 Personal Holdings |
Shares Held In Excess of Guideline |
Percent in Excess of Guideline |
Shares Held as a Multiple of Base Salary |
||||||||||||||||||
Andrew Liveris |
250,000 | 6x | 855,488 | 605,488 | 242 | % | 15x | |||||||||||||||||
William Weideman |
80,000 | 4x | 190,233 | 110,233 | 138 | % | 7x | |||||||||||||||||
Charles Kalil |
80,000 | 4x | 225,147 | 145,147 | 181 | % | 7x | |||||||||||||||||
Carol Williams |
80,000 | 4x | 179,394 | 99,394 | 124 | % | 6x | |||||||||||||||||
James Fitterling |
80,000 | 4x | 151,378 | 71,378 | 89 | % | 6x |
LTI Grant Practices & Holding Requirements
LTI awards are granted under The Dow Chemical Company 2012 Stock Incentive Plan, Dows omnibus stockholder approved plan for equity awards to employees and directors. LTI grants are approved by the Committee and administered by Dows Executive Compensation Department.
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The annual grant date for all employees is traditionally the Friday following the Committees February meeting held on the second Wednesday of February each year. The Company does not grant discounted options, backdate options or re-price outstanding options. Dow calculates the aggregate grant date fair value of awards in the year of grant in accordance with the same standard it applies for financial accounting purposes.
Executives must continue to meet their stock ownership guidelines until retirement and since LTI awards do not have provisions for accelerated vesting at retirement, NEOs continue to hold a significant portion of their compensation value in Dow stock for at least three years after retirement.
Change-in-Control and Severance Arrangements
While legacy agreements remain in existence, the Committee prohibits new or amended change-in-control agreements. The Committee adopted a change-in-control arrangement for senior executives, including Messrs. Liveris and Kalil, in 2007. The change-in-control arrangement provides, among other things, a severance payment equal to two times the executives base salary and target Performance Award (2.99 times for the CEO) and tax gross-up protection in the event severance benefits exceed statutory thresholds and become subject to an excise tax.
Under the change-in-control agreements, an executive must be involuntarily terminated within two years of a change-in-control in order to receive benefits. The Company believes this double-trigger practice is in the best interest of stockholders as it does not pay any benefits to an executive unless he or she is negatively impacted by a change-in-control event that is in the best interest of Dow stockholders.
No new agreements have been executed since 2007.
Executive Compensation Recovery (Clawback) Policy
The Company has adopted an Executive Compensation Recovery Policy for executive officers that is set forth in the Companys Corporate Governance Guidelines. Under this policy, the Company may recover incentive income that was based on achievement of quantitative performance targets if an executive officer engaged in grossly negligent conduct or intentional misconduct resulting in a financial restatement or in any increase in his or her incentive income. Incentive income includes income related to the annual Performance Award and LTI awards. The Company may also recover any awards made to an executive during the prior three years should the executive engage in activity that competes with, or is otherwise harmful to the Company or its affiliated companies.
Tax Deductibility of Executive Compensation
Section 162(m) of the U.S. Internal Revenue Code generally limits the tax deductibility of compensation paid by a public company to its CEO and certain other highly compensated executive officers to $1 million in the year the compensation becomes taxable to the executive. There is an exception to the limit on deductibility for performance based compensation meeting certain requirements. Although the Company does consider the impact of this rule when making compensation decisions, Dow policy does not require all executive compensation to be tax-deductible. In the interest of flexibility and overall benefit for the Companys stockholders, the Committee will continue to facilitate the awarding of responsible but adequate executive compensation while taking advantage of Section 162(m) whenever feasible. Amounts paid under the compensation program, including base salary, Performance Awards and grants of Deferred Stock (Restricted Stock and Restricted Stock Units) may not qualify as performance based compensation excluded from the limitation on deductibility.
Trading and Pledging Restrictions
As set forth in the Companys Corporate Governance Guidelines, it is against Company policy for executive officers to engage in speculative transactions in Company securities. Specifically, it is against Company policy for executive officers to trade in puts or calls in Company securities or sell Company securities short. In addition, it is against Company policy for executive officers to pledge Company securities, or hold Company securities in margin accounts.
Compensation Program Risk Analysis
In 2012, the Committee reviewed the Companys compensation policies and practices and determined that our incentive compensation programs do not create risks that are reasonably likely to have a material adverse effect on our Company. To
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conduct this review, the Company completed an inventory of its incentive compensation plans and policies. The evaluation covered a wide range of practices and policies including: the balanced mix between pay elements, the balanced mix between short and long term programs, caps on incentive payouts, governance controls in place to establish, review and approve goals, use of multiple performance measures, discretion on individual awards, use of stock ownership guidelines, use and provisions in severance/change-in-control policies, use of a compensation recovery policy and Committee oversight of compensation programs. Several of our incentive plans and programs have features that mitigate risk, including the use of multiple measures in our annual and long-term incentive plans, use of reported performance measures, the Committees discretion in incentive payment levels, a balanced mix of long-term incentive vehicles, significant stock ownership guidelines and our Executive Compensation Recovery Policy.
Advisory Vote on Executive Compensation
The Company provided stockholders a say-on-pay advisory vote on its executive compensation in May 2012 under recently adopted Section 14A of the Securities Exchange Act of 1934, as amended. At the Companys 2012 Annual Meeting of Stockholders, approximately 83% of the votes cast for approval of the say-on-pay advisory vote. The Committee carefully evaluated the results of the 2012 annual advisory say-on-pay vote at their subsequent meetings. The Committee also considered numerous other factors in evaluating the Companys executive compensation program as discussed in this CD&A. While each of these factors informed the Committees decisions regarding the NEOs compensation, the Committee did not implement changes to the Companys executive compensation program as a result of the stockholder advisory vote. The Board of Directors has adopted a policy providing for an annual say-on-pay advisory vote. Although non-binding, the Board and the Committee will review and carefully consider the voting results when evaluating our executive compensation program.
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COMPENSATION TABLES AND NARRATIVES
Summary Compensation Table
The following table summarizes the compensation of our CEO, CFO, and our three other most highly compensated executive officers for the fiscal year ended December 31, 2012.
SUMMARY COMPENSATION TABLE FOR 2012
Name and Principal Position | Year | Salary ($) | Bonus ($) (a) |
Stock Awards ($) (b) |
Option Awards ($) (b) (c) |
Non-Equity Incentive Plan Compensation ($) (d) |
Change in Pension Value and Nonqualified Deferred Compensation Earnings ($) (e) |
All Other Compensation ($) (f) |
Total ($) | |||||||||||||||||||||||||||
Andrew Liveris, CEO & Chairman |
2012 | 1,808,333 | 0 | 8,446,171 | 4,840,080 | 1,368,640 | 6,160,388 | 366,055 | 22,989,668 | |||||||||||||||||||||||||||
2011 | 1,741,667 | 0 | 7,659,470 | 4,400,095 | 1,498,114 | 3,711,285 | 263,994 | 19,274,624 | ||||||||||||||||||||||||||||
2010 | 1,691,667 | 0 | 5,683,729 | 5,060,006 | 5,000,000 | 3,644,180 | 297,145 | 21,376,727 | ||||||||||||||||||||||||||||
William Weideman, Exec. VP & CFO |
2012 | 836,815 | 0 | 2,408,410 | 1,380,079 | 407,001 | 3,465,782 | 29,469 | 8,527,557 | |||||||||||||||||||||||||||
2011 | 755,000 | 80,000 | 2,402,766 | 1,380,058 | 477,519 | 2,231,656 | 29,088 | 7,356,087 | ||||||||||||||||||||||||||||
2010 | 575,474 | 0 | 1,191,649 | 1,060,969 | 1,215,522 | 1,351,143 | 14,894 | 5,409,651 | ||||||||||||||||||||||||||||
Charles Kalil, Exec. VP |
2012 | 951,618 | 0 | 2,408,410 | 1,380,079 | 459,478 | 2,798,980 | 70,339 | 8,068,904 | |||||||||||||||||||||||||||
2011 | 913,606 | 92,000 | 2,298,114 | 1,320,092 | 558,624 | 1,937,812 | 59,125 | 7,179,372 | ||||||||||||||||||||||||||||
2010 | 877,116 | 0 | 2,015,197 | 1,791,818 | 1,791,139 | 2,240,220 | 46,697 | 8,762,187 | ||||||||||||||||||||||||||||
Carol Williams, Exec. VP |
2012 | 900,110 | 0 | 2,408,410 | 1,380,079 | 454,670 | 3,028,396 | 65,858 | 8,237,524 | |||||||||||||||||||||||||||
James Fitterling, Exec. VP |
2012 | 836,636 | 35,518 | 2,408,410 | 1,380,079 | 424,879 | 2,853,921 | 53,243 | 7,992,687 |
(a) | Bonus amount for Mr. Fitterling in 2012 was a special one-time recognition award for extraordinary effort and contribution toward corporate strategy activities. |
(b) | Amounts represent the aggregate grant date fair value of awards in the year of grant in accordance with the same standard applied for financial accounting purposes. A maximum payout on the Performance Share programs would result in additional value of: Liveris $5,166,749; Weideman $1,473,370; Kalil $1,473,370; Williams $1,473,370; Fitterling $1,473,370. |
(c) | Dows valuation for financial accounting purposes uses the widely accepted lattice-binomial model. The option value calculated for the NEOs grants was $9.38 for the grant date of February 10, 2012. The exercise price of $34.00 is the closing Dow stock price on the date of grant. |
(d) | Individual results for Non-Equity Incentive Plan Compensation are detailed in the Performance Award section of the 2012 Compensation Actions and reflect income paid in 2013 under our annual Performance Award (PA) program for performance achieved in 2012. |
(e) | Reflects the aggregate change in the actuarial present value of accumulated pension benefits at age 65 using the actuarial assumptions included in the Companys audited financial statements. Negative changes in pension value are included as zero in the Summary Compensation Table. An analysis of the Change in Pension Value for 2012 is shown below. The amounts recorded in this column vary with a number of factors, including the discount rate applied to determine the value of future payment streams. As a result of a reduction in prevailing interest rates in the credit markets since late 2008, the discount rate used pursuant to pension accounting rules to calculate the present value of future payments decreased from 5.05% for fiscal year 2011 to 4.10% in fiscal year 2012. This drives substantial increases in the amount shown in the Summary Compensation Table and is detailed in the table below. The increase in pension value resulting from the change in discount rates does not result in any increase in the benefits payable to participants under the plan. |
Name | Change in Discount Interest Rate ($) |
Change in Deferral Period, Benefits, and Other ($) |
Total Change ($) |
|||||||||
Andrew Liveris |
3,962,050 | 2,179,984 | 6,142,034 | |||||||||
William Weideman |
1,316,496 | 2,146,946 | 3,463,442 | |||||||||
Charles Kalil |
1,534,001 | 1,250,813 | 2,784,814 | |||||||||
Carol Williams |
1,447,897 | 1,575,698 | 3,023,595 | |||||||||
James Fitterling |
1,363,258 | 1,485,794 | 2,849,052 |
Also includes 2012 above-market non-qualified deferred compensation earnings: Liveris $18,354; Weideman $2,340; Kalil $14,166; Williams $4,801; Fitterling $4,869
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(f) | All Other Compensation includes the cost of Company provided automobile (which was discontinued in 2012 for the NEOs other than the CEO), personal use of corporate aircraft by the CEO as required by Company policy for security and immediate availability purposes, Company contributions to employee savings plans, reimbursements of costs paid for financial and tax planning support, home security, executive health examinations and personal excess liability insurance premiums. The incremental cost to the Company of personal use of Company aircraft is calculated based on the variable operating costs to the Company including fuel, landing, catering, handling, aircraft maintenance and pilot travel costs. Fixed costs, which do not change based upon usage, such as pilot salaries or depreciation of the aircraft or maintenance costs not related to personal travel, are excluded. NEOs also are provided a tax reimbursement for taxes incurred when a spouse travels for business purposes as it is sometimes necessary for spouses to accompany NEOs to business functions. These taxes are incurred because of the Internal Revenue Services rules governing business travel by spouses and the Company reimburses the associated taxes. No NEO is provided a tax reimbursement for personal use of aircraft. |
The following other compensation items exceeded $10,000 in value:
Liveris: Personal use of Company aircraft ($157,917), Company contributions to savings plans ($73,464), financial and tax planning ($98,012), tax reimbursements ($33,080)
Weideman: Company contributions to savings plans ($13,587)
Kalil: Automobile ($10,947), Company contributions to savings plans ($40,341)
Williams: Company contributions to savings plans ($34,799), financial and tax planning ($18,359)
Fitterling: Company contributions to savings plans ($34,479), home security system ($11,250)
Grants of Plan-Based Awards
The following table provides additional information about plan-based compensation disclosed in the Summary Compensation Table. This table includes both equity and non-equity awards.
GRANTS OF PLAN-BASED AWARDS FOR 2012
Name | Grant |
Date of Action by the Compensation Committee |
Estimated Future Payouts Under Non-Equity Incentive Plan Awards |
Estimated Future Payouts Under Equity Incentive Plan Awards (a) |
All Other Stock Awards: Number of Shares of Stock or Units (#) (b) |
All Other Option Awards: Number of Securities Underlying Options (#) (c) |
Exercise or Base Price of Option Awards ($/Sh) |
Grant Date Fair Value of Stock and Option Awards ($) (d) |
||||||||||||||||||||||||||||||||||||||||
Threshold ($) |
Target ($) |
Maximum ($) |
Threshold (#) |
Target (#) |
Maximum (#) |
|||||||||||||||||||||||||||||||||||||||||||
Andrew Liveris |
2/8/2012 | 2/8/2012 | 0 | 2,912,000 | 7,280,000 | |||||||||||||||||||||||||||||||||||||||||||
2/10/2012 | 2/8/2012 | 0 | 124,560 | 311,400 | 5,420,851 | |||||||||||||||||||||||||||||||||||||||||||
2/10/2012 | 2/8/2012 | 88,980 | 3,025,320 | |||||||||||||||||||||||||||||||||||||||||||||
2/10/2012 | 2/8/2012 | 516,000 | 34.00 | 4,840,080 | ||||||||||||||||||||||||||||||||||||||||||||
William Weideman |
2/8/2012 | 2/8/2012 | 0 | 904,447 | 2,261,117 | |||||||||||||||||||||||||||||||||||||||||||
2/10/2012 | 2/8/2012 | 0 | 35,520 | 88,800 | 1,545,830 | |||||||||||||||||||||||||||||||||||||||||||
2/10/2012 | 2/8/2012 | 25,370 | 862,580 | |||||||||||||||||||||||||||||||||||||||||||||
2/10/2012 | 2/8/2012 | 147,130 | 34.00 | 1,380,079 | ||||||||||||||||||||||||||||||||||||||||||||
Charles Kalil |
2/8/2012 | 2/8/2012 | 0 | 1,021,063 | 2,552,658 | |||||||||||||||||||||||||||||||||||||||||||
2/10/2012 | 2/8/2012 | 0 | 35,520 | 88,800 | 1,545,830 | |||||||||||||||||||||||||||||||||||||||||||
2/10/2012 | 2/8/2012 | 25,370 | 862,580 | |||||||||||||||||||||||||||||||||||||||||||||
2/10/2012 | 2/8/2012 | 147,130 | 34.00 | 1,380,079 | ||||||||||||||||||||||||||||||||||||||||||||
Carol Williams |
2/8/2012 | 2/8/2012 | 0 | 967,383 | 2,418,458 | |||||||||||||||||||||||||||||||||||||||||||
2/10/2012 | 2/8/2012 | 0 | 35,520 | 88,800 | 1,545,830 | |||||||||||||||||||||||||||||||||||||||||||
2/10/2012 | 2/8/2012 | 25,370 | 862,580 | |||||||||||||||||||||||||||||||||||||||||||||
2/10/2012 | 2/8/2012 | 147,130 | 34.00 | 1,380,079 | ||||||||||||||||||||||||||||||||||||||||||||
James Fitterling |
2/8/2012 | 2/8/2012 | 0 | 903,997 | 2,259,993 | |||||||||||||||||||||||||||||||||||||||||||
2/10/2012 | 2/8/2012 | 0 | 35,520 | 88,800 | 1,545,830 | |||||||||||||||||||||||||||||||||||||||||||
2/10/2012 | 2/8/2012 | 25,370 | 862,580 | |||||||||||||||||||||||||||||||||||||||||||||
2/10/2012 | 2/8/2012 | 147,130 | 34.00 | 1,380,079 |
(a) | Performance Share awards as described in the Elements of Dows Executive Compensation Program section of the Compensation Discussion and Analysis. |
(b) | Deferred Stock awards as described in the Elements of Dows Executive Compensation Program section of the Compensation Discussion and Analysis. |
(c) | Stock Option awards as described in the Elements of Dows Executive Compensation Program section of the Compensation Discussion and Analysis. |
(d) | Amounts represent the aggregate grant date fair value of awards in the year of grant in accordance with the same standard applied for financial accounting purposes consistent with the values shown in the Summary Compensation Table. |
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Outstanding Equity Awards
The following table lists outstanding equity grants for each NEO as of December 31, 2012. The table includes outstanding equity grants from past years as well as the current year.
OUTSTANDING EQUITY AWARDS AT FISCAL YEAR-END
Name | Option Awards | Stock Awards | ||||||||||||||||||||||||||||||||||
Grant Date | Number of Securities Underlying Unexercised Options (#) Exercisable (a) |
Number
of Securities Underlying Unexercised Options (#) Unexercisable (a) |
Option Exercise Price ($) |
Option Date |
Number of Shares or Units of Stock That Have Not Vested (#) (b) |
Market Value of Stock That Have Not ($) (b) (c) |
Equity (d) |
Equity (c) (d) |
||||||||||||||||||||||||||||
Andrew Liveris |
02/13/2004 | 90,000 | | 43.49 | 02/13/2014 | n/a | n/a | n/a | n/a | |||||||||||||||||||||||||||
02/18/2005 | 180,000 | | 53.53 | 02/18/2015 | n/a | n/a | n/a | n/a | ||||||||||||||||||||||||||||
03/01/2006 | 400,000 | | 43.68 | 03/01/2016 | n/a | n/a | n/a | n/a | ||||||||||||||||||||||||||||
02/16/2007 | 460,000 | | 43.59 | 02/16/2017 | n/a | n/a | n/a | n/a | ||||||||||||||||||||||||||||
02/15/2008 | 619,370 | | 38.62 | 02/18/2018 | n/a | n/a | n/a | n/a | ||||||||||||||||||||||||||||
02/13/2009 | 909,100 | | 9.53 | 02/13/2019 | n/a | n/a | n/a | n/a | ||||||||||||||||||||||||||||
02/12/2010 | 367,865 | 183,935 | 27.79 | 02/12/2020 | 91,100 | 2,945,263 | 91,100 | 2,945,263 | ||||||||||||||||||||||||||||
02/11/2011 | 137,459 | 274,921 | 38.38 | 02/11/2021 | 71,660 | 2,316,768 | 100,320 | 3,243,346 | ||||||||||||||||||||||||||||
02/10/2012 | | 516,000 | 34.00 | 02/10/2022 | 88,980 | 2,876,723 | 124,560 | 4,027,025 | ||||||||||||||||||||||||||||
William Weideman |
02/14/2003 | 12,250 | | 27.40 | 02/14/2013 | n/a | n/a | n/a | n/a | |||||||||||||||||||||||||||
02/13/2004 | 11,670 | | 43.49 | 02/13/2014 | n/a | n/a | n/a | n/a | ||||||||||||||||||||||||||||
02/18/2005 | 13,340 | | 53.53 | 02/18/2015 | n/a | n/a | n/a | n/a | ||||||||||||||||||||||||||||
03/01/2006 | 16,190 | | 43.68 | 03/01/2016 | n/a | n/a | n/a | n/a | ||||||||||||||||||||||||||||
02/16/2007 | 36,400 | | 43.59 | 02/16/2017 | n/a | n/a | n/a | n/a | ||||||||||||||||||||||||||||
02/15/2008 | 41,250 | | 38.62 | 02/18/2018 | n/a | n/a | n/a | n/a | ||||||||||||||||||||||||||||
02/13/2009 | 57,035 | | 9.53 | 02/13/2019 | n/a | n/a | n/a | n/a | ||||||||||||||||||||||||||||
02/12/2010 | 77,132 | 38,568 | 27.79 | 02/12/2020 | 19,100 | 617,503 | 19,100 | 617,503 | ||||||||||||||||||||||||||||
02/11/2011 | 43,113 | 86,227 | 38.38 | 02/11/2021 | 22,480 | 726,778 | 31,470 | 1,017,425 | ||||||||||||||||||||||||||||
02/10/2012 | | 147,130 | 34.00 | 02/10/2022 | 25,370 | 820,212 | 35,520 | 1,148,362 | ||||||||||||||||||||||||||||
Charles Kalil |
03/01/2000 | n/a | n/a | n/a | n/a | 108 | 3,492 | n/a | n/a | |||||||||||||||||||||||||||
02/23/2001 | n/a | n/a | n/a | n/a | 55 | 1,778 | n/a | n/a | ||||||||||||||||||||||||||||
02/13/2004 | 8,000 | | 43.49 | 02/13/2014 | n/a | n/a | n/a | n/a | ||||||||||||||||||||||||||||
02/18/2005 | 17,500 | | 53.53 | 02/18/2015 | n/a | n/a | n/a | n/a | ||||||||||||||||||||||||||||
03/01/2006 | 48,550 | | 43.68 | 03/01/2016 | n/a | n/a | n/a | n/a | ||||||||||||||||||||||||||||
02/16/2007 | 70,000 | | 43.59 | 02/16/2017 | n/a | n/a | n/a | n/a | ||||||||||||||||||||||||||||
02/15/2008 | 165,710 | | 38.62 | 02/18/2018 | n/a | n/a | n/a | n/a | ||||||||||||||||||||||||||||
02/13/2009 | 102,978 | | 9.53 | 02/13/2019 | n/a | n/a | n/a | n/a | ||||||||||||||||||||||||||||
02/12/2010 | 130,266 | 65,134 | 27.79 | 02/12/2020 | 32,300 | 1,044,259 | 32,300 | 1,044,259 | ||||||||||||||||||||||||||||
02/11/2011 | 41,239 | 82,481 | 38.38 | 02/11/2021 | 21,500 | 695,095 | 30,100 | 973,133 | ||||||||||||||||||||||||||||
02/10/2012 | | 147,130 | 34.00 | 02/10/2022 | 25,370 | 820,212 | 35,520 | 1,148,362 | ||||||||||||||||||||||||||||
Carol Williams |
02/13/2004 | 15,000 | | 43.49 | 02/13/2014 | n/a | n/a | n/a | n/a | |||||||||||||||||||||||||||
02/18/2005 | 16,670 | | 53.53 | 02/18/2015 | n/a | n/a | n/a | n/a | ||||||||||||||||||||||||||||
03/01/2006 | 21,040 | | 43.68 | 03/01/2016 | n/a | n/a | n/a | n/a | ||||||||||||||||||||||||||||
02/16/2007 | 33,480 | | 43.59 | 02/16/2017 | n/a | n/a | n/a | n/a | ||||||||||||||||||||||||||||
02/15/2008 | 65,890 | | 38.62 | 02/18/2018 | n/a | n/a | n/a | n/a | ||||||||||||||||||||||||||||
02/12/2010 | 67,866 | 33,934 | 27.79 | 02/12/2020 | 16,800 | 543,144 | 16,800 | 543,144 | ||||||||||||||||||||||||||||
02/11/2011 | 35,569 | 71,141 | 38.38 | 02/11/2021 | 18,540 | 599,398 | 25,960 | 839,287 | ||||||||||||||||||||||||||||
02/10/2012 | | 147,130 | 34.00 | 02/10/2022 | 25,370 | 820,212 | 35,520 | 1,148,362 | ||||||||||||||||||||||||||||
James Fitterling |
02/13/2004 | 11,170 | | 43.49 | 02/13/2014 | n/a | n/a | n/a | n/a | |||||||||||||||||||||||||||
02/18/2005 | 13,000 | | 53.53 | 02/18/2015 | n/a | n/a | n/a | n/a | ||||||||||||||||||||||||||||
03/01/2006 | 18,610 | | 43.68 | 03/01/2016 | n/a | n/a | n/a | n/a | ||||||||||||||||||||||||||||
02/16/2007 | 39,050 | | 43.59 | 02/16/2017 | n/a | n/a | n/a | n/a | ||||||||||||||||||||||||||||
02/15/2008 | 70,960 | | 38.62 | 02/18/2018 | n/a | n/a | n/a | n/a | ||||||||||||||||||||||||||||
02/13/2009 | 76,720 | | 9.53 | 02/13/2019 | n/a | n/a | n/a | n/a | ||||||||||||||||||||||||||||
02/12/2010 | 77,132 | 38,568 | 27.79 | 02/12/2020 | 19,100 | 617,503 | 19,100 | 617,503 | ||||||||||||||||||||||||||||
02/11/2011 | 39,363 | 78,727 | 38.38 | 02/11/2021 | 20,520 | 663,412 | 28,730 | 928,841 | ||||||||||||||||||||||||||||
02/10/2012 | | 147,130 | 34.00 | 02/10/2022 | 25,370 | 820,212 | 35,520 | 1,148,362 |
(a) | Stock Option award grants vest in three equal installments on the first, second and third anniversaries of the grant date shown in the table. |
(b) | Deferred Shares vest and are delivered three years after the grant date. |
(c) | Market values based on the 12/31/12 closing stock price of $32.33 per share. |
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37 |
(d) | Performance Shares granted 2/12/2010, 2/11/2011 and 2/10/2012 will vest and be delivered in April of the year following the end of the performance period. Shares granted in February 2010-2012 are shown at the target level of performance. The actual number of shares to be delivered will be determined at the end of the performance period. |
(e) | In addition to the equity grants described above, Messrs. Liveris, Weideman and Kalil received dividend unit grants on 3/9/1988 of 846 shares, 846 shares and 1,125 shares, respectively, which generate a quarterly payment equal to the dividend paid on equivalent shares of Dow Common Stock. These grants will expire on 3/9/2013. |
Option Exercises and Stock Vested
The following table summarizes the value received from stock option exercises and stock grants vested during 2012.
OPTION EXERCISES AND STOCK VESTED FOR 2012
Option Awards | Stock Awards | |||||||||||||||
Name | Number of Shares Acquired on Exercise (#) |
Value Realized ($) |
Number of Shares (a) |
Value Realized on Vesting ($) | ||||||||||||
Andrew Liveris |
100,800 | 385,833 | 441,755 | 15,363,961 | ||||||||||||
William Weideman |
7,500 | 28,313 | 28,503 | 990,732 | ||||||||||||
Charles Kalil |
118,676 | 2,170,652 | 138,845 | 4,837,347 | ||||||||||||
Carol Williams |
33,608 | 814,658 | 46,640 | 1,623,871 | ||||||||||||
James Fitterling |
19,200 | 57,043 | 37,240 | 1,295,225 |
(a) | Reflects delivery of shares from the 2009-2011 Performance Share program, the 2007 Deferred Stock grants with 5-year vesting and the 2009 Deferred Stock grants with 3-year vesting. All were previously reported in the Summary Compensation Tables in the year they were granted. |
Pension Benefits
The following table lists the pension program participation and actuarial present value of each NEOs defined benefit pension as of December 31, 2012.
PENSION BENEFITS AS OF DECEMBER 31, 2012
Name | Plan Name |
Number of Years Service (#) |
Present Value of Accumulated Benefit ($) (a) |
|||||||
Andrew Liveris |
Dow Employees Pension Plan | 17.1 | 1,353,280 | |||||||
Dow Executives Supplemental Retirement Plan (b) | 37.0 | 26,772,038 | ||||||||
William Weideman |
Dow Employees Pension Plan | 36.6 | 1,399,032 | |||||||
Dow Executives Supplemental Retirement Plan | 36.6 | 7,902,740 | ||||||||
Charles Kalil |
Dow Employees Pension Plan | 32.9 | 1,549,372 | |||||||
Dow Executives Supplemental Retirement Plan | 32.9 | 11,365,734 | ||||||||
Carol Williams |
Dow Employees Pension Plan | 32.6 | 1,325,074 | |||||||
Dow Executives Supplemental Retirement Plan | 32.6 | 7,196,293 | ||||||||
James Fitterling |
Dow Employees Pension Plan | 29.0 | 1,057,969 | |||||||
Dow Executives Supplemental Retirement Plan | 29.0 | 5,858,766 |
(a) | Unless otherwise noted, all present values reflect accrued age 65 benefits. The form of payment, discount rate (4.10%) and mortality (UP94G) are based on assumptions used to determine pension plan obligations as reflected in the consolidated financial statements in the Companys Annual Report on Form 10-K for the year ended December 31, 2012. |
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(b) | Mr. Liveris was asked by the Company to permanently transfer to the United States from Australia in 1995, began participation in the Dow Employees Pension Plan (DEPP) and Executives Supplemental Retirement Plan (ESRP), and ceased contributions to the Australian Superannuation Fund (Australian Fund). Mr. Liveris retirement benefit will equal the amount payable under the DEPP formula based on 37 years of actual service with Dow (17 years as a U.S. employee of Dow plus 20 years as an Australian employee of Dow). The ESRP benefit will be reduced by the value of his Australian Fund at the time of retirement. The value of Mr. Liveris Company contributions in the Australian Fund at 12/31/12 was 698,998 AUD. |
The following table lists the U.S. pension annuity value for each participating NEO and the corresponding replacement value as a percent of total target cash compensation as of December 31, 2012. The replacement value percentages for the NEOs are comparable to most other salaried employees with similar age and years of service.
PENSION REPLACEMENT VALUE AS OF DECEMBER 31, 2012
Name |
Pension Annuity (a) |
Replacement Value (%) (b) |
||||||
Andrew Liveris |
2,274,024 | 48 | % | |||||
William Weideman |
754,740 | 43 | % | |||||
Charles Kalil |
920,532 | 46 | % | |||||
Carol Williams |
615,672 | 33 | % | |||||
James Fitterling |
409,032 | 23 | % |
(a) | Annual pension benefit if NEO retired on December 31, 2012, stated as a single-life annuity with no survivor options. |
(b) | Annual pension benefit as a percentage of annual Base Salary + Target Performance Award. |
Pension Benefits Additional Information
The Dow Employees Pension Plan
For employees hired prior to January 1, 2008:
The Company provides the Dow Employees Pension Plan (DEPP) for its U.S. employees and for employees of some of its wholly owned U.S. subsidiaries. Upon retirement, NEOs receive an annual pension under the DEPP formula subject to statutory limitations. The benefit is paid in the form of a monthly annuity and is calculated based on the sum of the employees yearly basic and supplemental accruals up to a maximum of 425% for basic accruals and 120% for supplemental accruals.
| Basic accruals equal the employees highest consecutive three-year average compensation (HC3A) multiplied by a percentage ranging from 4% to 18% based on the age of the employee in the years earned. |
| Supplemental accruals are for compensation in excess of a rolling 36-month average of the Social Security wage base. Supplemental accruals range from 1% to 4%, based on the age of the employee in the years earned. |
The sum of the basic and supplemental accruals is divided by a conversion factor to calculate an immediate monthly benefit. If the employee terminates employment before age 65 and defers payment of the benefit, the account balance calculated under this formula will be credited with interest. All NEOs participate in DEPP.
For employees hired on or after January 1, 2008:
The Personal Pension Account (PPA) grows annually based on Pay Credits and Interest Credits. At the end of each year, 5% of an employees base pay and actual variable pay is credited to the account (Pay Credit). Additionally, the Personal Pension Account is credited with an annual Interest Credit equal to the Interest Credit Rate multiplied by the Personal Pension Account balance as of December 31 of the previous year. The Interest Credit Rate is determined annually by the Company, and is based on the closing rate on the six-month U.S. Treasury bill on the last business day of September immediately preceding the Plan Year plus 1.5%.
When a vested employee leaves the Company, the PPA can be taken as an immediate annuity, as a deferred annuity or as a lump sum. Vesting is three years.
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The Executives Supplemental Retirement Plan:
Because the U.S. Internal Revenue Code limits the benefits otherwise provided by DEPP, the Board of Directors adopted the Executives Supplemental Retirement Plan (ESRP) to provide employees who participate in DEPP with non-qualified benefits calculated under the same formulas described above. Some parts of the supplemental benefit may be taken in the form of a lump sum depending upon date of hire and plan participation. All NEOs participate in the ESRP.
In addition, Mr. Kalil elected to have his ESRP benefit secured by enrolling in the Key Employee Insurance Program (KEIP) in 1997. KEIP is a life insurance program that secured benefits otherwise available under ESRP, which was offered to certain employees as an alternative to the ESRP. Dow has not offered KEIP to employees since 1999 and has no plans to reinstate this program for new participants.
Dow Employees Savings Plan 401(k):
The Company provides all U.S. salaried employees the opportunity to participate in a 401(k) plan (The Dow Chemical Company Employees Savings Plan). In 2012, for salaried employees who contributed 2% of annual salary, Dow provided a matching contribution of 100% of the employees contribution. For salaried employees who contributed up to an additional 4%, Dow provided a 50% match. All NEOs participate in the 401(k) plan on the same terms as other eligible employees.
Non-Qualified Deferred Compensation
The following table provides information on compensation the NEOs have elected to defer as described in the narrative that follows.
NON-QUALIFIED DEFERRED COMPENSATION FOR 2012
Name | Executive Contributions in Last Fiscal Year ($) (a) |
Company Contributions in Last Fiscal Year ($) (b) |
Aggregate Earnings in Last Fiscal Year ($) (c) |
Aggregate Withdrawals / Distributions ($) |
Aggregate Balance at Last Fiscal Year-End ($) (d) |
|||||||||||||||
Andrew Liveris |
90,417 | 59,867 | 194,427 | | 2,087,094 | |||||||||||||||
William Weideman |
| | 6,438 | | 141,930 | |||||||||||||||
Charles Kalil |
47,581 | 26,744 | 54,523 | | 1,028,108 | |||||||||||||||
Carol Williams |
84,918 | 21,202 | 63,387 | | 755,655 | |||||||||||||||
James Fitterling |
288,173 | 20,882 | 275,876 | | 2,465,762 |
(a) | Executive contributions are also reported as salary for 2012 in the Summary Compensation Table. |
(b) | Company contributions are also reported as All Other Compensation for 2012 in the Summary Compensation Table. |
(c) | A portion of the amounts in the aggregate earnings in last fiscal year column is also reported as Change in Pension Value and Nonqualified Deferred Compensation Earnings in the Summary Compensation Table (as disclosed in footnote (d) to the Summary Compensation Table) |
(d) | Includes Company and executive contributions with respect to Mr. Liveris of $87,083 for 2011 and $139,968 for 2010 previously reported in the Summary Compensation Table and Company and executive contributions with respect to Mr. Kalil of $45,680 for 2011 and $43,856 for 2010 previously reported in the Summary Compensation Table. |
Because the U.S. Internal Revenue Code limits contributions to The Dow Chemical Company Employees Savings Plan, the Board of Directors adopted the Elective Deferral Plan in order to further assist employees in saving for retirement. This plan allows participants to voluntarily defer the receipt of base salary (maximum deferral of 75%) and Performance Award (maximum deferral of 100%).
Each participant enrolled in the plan receives a matching contribution using the same formula authorized for salaried participants under the 401(k) plan for employer matching contributions. The current formula provides for a matching contribution on the first 6% of base pay deferred. For purposes of calculating the match under the Elective Deferral Plan, the Company will assume each participant is contributing the maximum allowable amount to the 401(k) plan and receiving a match thereon. The assumed match from the 401(k) plan will be offset from the matching contribution calculated under the Elective Deferral Plan. The NEOs balances consist primarily of voluntary deferrals (and related earnings), not contributions made by the Company.
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Investment choices include a fund with an interest rate equal to the sum of the 60-month rolling average of ten-year U.S. Treasury Note yield plus the current five-year Dow Chemical credit spread, a phantom Dow stock fund tracking the market value of Dow Common Stock with market dividends paid and reinvested, as well as funds tracking the performance of several mutual funds.
The Elective Deferral Plan allows for distributions to commence on January 31 after separation or after a specific future year that can be later or earlier than the separation date. Distributions may be paid either in a lump sum or in equal monthly, quarterly or annual installments up to 15 years based on the employees initial election as to the time and form of payment. If installments were elected, the unpaid balance will continue to accumulate gains and losses based on the employees investment selections.
Potential Payments Upon Termination or Change-in-Control
All of the NEOs are currently retirement eligible and entitled to benefits similar to most other salaried employees upon separation from the Company. They are also entitled to additional benefits in the case of an involuntary termination without cause or a change-in-control event. The summary below shows the impact of various types of separation events on the different compensation elements the NEOs receive.
Retirement, Death, or Disability:
| Base Salary: Paid through date of separation on the normal schedule. |
| Performance Award: Prorated for the portion of the year worked and paid on the normal schedule. |
| Benefits: All NEOs are eligible for retiree medical and life insurance coverage similar to most other salaried U.S. employees. |
| Retirement Plans: Participants have access, in accordance with elections and plan features, to the following retirement plan benefits: |
| Elective Deferral Plan benefits as shown in the Non-Qualified Deferred Compensation Table and accompanying narrative. |
| Pension benefits as shown in the Pension Benefits Table and described in the accompanying narrative. Participants in DEPP and ESRP are paid a monthly annuity and/or lump sum. Participants in PPA may elect either an annuity or lump sum payout. Participants in KEIP have additional lump-sum features available. |
| Employee Savings Plan (defined contribution 401(k) plan). |
| Outstanding LTI Awards: |
| Stock Options: Current year grants are prorated for the portion of year worked. Other grants are retained in full. Vesting period remains unchanged; expiration periods are shortened to the earlier of the existing expiration date or five years. |
| Deferred Stock: Current year grants are prorated for the portion of year worked. Other grants are retained in full. Vesting and delivery dates remain unchanged. |
| Performance Shares: Current year grants are prorated for the portion of year worked. Other grants are retained in full. Vesting periods and delivery dates remain unchanged. |
Involuntary Termination With Cause:
Because all NEOs are currently retirement eligible, they will receive the same benefits under an Involuntary Termination with Cause as under retirement, as described above, with the exception of incentive income (including LTI), which may be recovered by the Company as described in the Executive Compensation Recovery Policy.
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Involuntary Termination Without Cause:
In addition to the benefits received due to retirement, as described above, NEOs will receive the following benefits if involuntarily terminated without cause.
| A lump-sum severance payment of two weeks per year of service (up to a maximum of 18 months) under the U.S. Severance Plan, plus six months base salary under the Executive Severance Supplement. The U.S. Severance Plan covers most salaried employees in the United States. |
| Outplacement counseling and financial/tax planning with a value of $30,000. |
| Eighteen months of health and welfare benefits at employee rates. |
Change-in-Control:
In addition to benefits received due to retirement, as described above, the non-qualified portion of the pension benefit is payable as a lump sum if any of the NEOs are involuntarily separated within two years of a change-in-control event (double-trigger).
Separately, Messrs. Liveris and Kalil will also receive the following benefits if separated within two years of a change-in-control event as referenced in the Compensation Discussion and Analysis. An executive must be involuntarily terminated within two years of a change-in-control in order to receive benefits (double-trigger).
| A severance payment equal to two times the executives annual base salary and target Performance Award (2.99 times for the CEO). |
| An additional two years of credited service and age for purposes of calculating retirement benefits (three years for the CEO). |
| A financial, tax and outplacement allowance of $50,000. |
| Eighteen months of health and welfare benefits at employee rates. |
| Tax gross-up protection in the event severance exceeds statutory thresholds and becomes subject to an excise tax. |
| LTI awards in the form of Performance Shares and Deferred Stock will vest and be delivered as soon as possible after the change-in-control event. Stock Options will vest immediately. |
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The following table summarizes the value of the incremental benefits to be received due to an Involuntary Termination without cause or a change-in-control event as of December 31, 2012.
INVOLUNTARY TERMINATION OR CHANGE-IN-CONTROL VALUES
Name | Type of Benefit | Involuntary Termination Without Cause ($) |
Change-in-Control ($) (a) | |||||||
Andrew Liveris | Severance | 3,500,000 | 14,148,680 | |||||||
Increase in Present Value of Pension | n/a | 6,426,765 | ||||||||
Health & Welfare Benefits | 5,886 | 5,886 | ||||||||