GATX CORPORATION
222 WEST ADAMS STREET
CHICAGO, IL 60606
(312) 621-6200

 

 

March 12, 2010

 

Dear Shareholder:

 

You are invited to attend our 2010 Annual Meeting of Shareholders on Friday, April 23, 2010, at 9:00 a.m., central time, at The Northern Trust Company, 50 South LaSalle Street, Sixth Floor Assembly Room, Chicago, Illinois. You can find directions and a map to the meeting at the end of the attached Notice of Annual Meeting and Proxy Statement (the “Proxy Statement”). Registration will begin at 8:30 a.m. and refreshments will be served.

 

The Proxy Statement describes the business to be conducted at the meeting and contains other information concerning GATX that you should be aware of when you vote your shares. The principal business of the meeting will be to elect directors and to ratify the appointment of our independent registered public accounting firm for 2010. We also plan to report on GATX’s results and current outlook.

 

Whether or not you plan to attend in person, please ensure that your shares are represented at the meeting by promptly voting and submitting your proxy by Internet or by telephone or by signing, dating and returning your proxy card in the enclosed envelope. On behalf of our Board of Directors and management, I would like to thank you for your continued interest in GATX Corporation. We hope you will be able to attend the meeting and look forward to seeing you there.

 

Very truly yours,

 

Chairman of the Board,

President and Chief Executive Officer

 

 

Important Notice Regarding the Availability of Proxy Materials
for the Shareholder Meeting to be Held on April 23, 2010.

 

The Company’s Proxy Statement for the 2010 Annual Meeting of Shareholders, the Annual Report to Shareholders for the year ended December 31, 2009, and the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2009 are available at:
http://bnymellon.mobular.net/bnymellon/gmt.

GATX CORPORATION

222 WEST ADAMS STREET

CHICAGO, IL 60606

(312) 621-6200

 

Notice of Annual Meeting of Shareholders

 

 

 

To our Shareholders:

 

The 2010 Annual Meeting of the Shareholders of GATX Corporation will be held at The Northern Trust Company, 50 South LaSalle Street, Sixth Floor Assembly Room, Chicago, Illinois, on Friday, April 23, 2010, at 9:00 a.m., central time, for the following purposes:

 

1. to elect the nine directors named in the attached proxy statement to serve until the 2011 Annual Meeting of Shareholders or until their successors are duly elected and qualified;

 

2. to ratify the appointment of Ernst & Young LLP as the independent registered public accounting firm for GATX Corporation for 2010; and

 

3. to transact such other business as may properly come before the meeting.

 

Holders of our common stock and both series of our $2.50 Cumulative Convertible Preferred Stock of record at the close of business on February 26, 2010 will be entitled to vote at the meeting.

 

Whether or not you plan to attend the meeting in person, it will be appreciated if you will promptly vote, sign, date and return the enclosed proxy. Alternatively, you may vote by telephone or Internet by following the instructions in the enclosed proxy. You may revoke your proxy and vote in person at the meeting if you desire to do so.

 

By Order of the Board of Directors,

 

Senior Vice President,
General Counsel and Secretary

 

March 12, 2010

Chicago, Illinois

GATX CORPORATION

222 WEST ADAMS STREET

CHICAGO, IL 60606

(312) 621-6200

 

March 12, 2010

PROXY STATEMENT

 

 

The accompanying proxy is solicited on behalf of the Board of Directors of GATX Corporation (the “Company”) for use at the Annual Meeting of Shareholders to be held on Friday, April 23, 2010 (the “Annual Meeting”) in accordance with the foregoing notice. This Proxy Statement and accompanying proxy card are being mailed to shareholders on or about March 12, 2010.

 

 

 

 

PROPOSAL 1 — ELECTION OF DIRECTORS

 

Nine directors are to be elected, each for a term of one year, to serve until the 2011 Annual Meeting of Shareholders or until their successors are elected and qualified. The Board of Directors recommends a vote FOR election of the nominees named below. Unless authority to vote on directors has been withheld, each proxy will be voted for the election of the nominees named below. All of the nominees have consented to serve as directors if elected. If at the time of the Annual Meeting any nominee is unable or declines to serve, the proxies may be voted for any other person who may be nominated by the Board of Directors to fill the vacancy, or the size of the Board may be reduced accordingly.

 

Nominees For Board of Directors

 

Additional Information Concerning Nominees

 

 

Board of Directors

 

The Board of Directors has three standing committees: the Audit Committee, the Compensation Committee and the Governance Committee. Each committee is composed of directors determined by the Board to be independent in accordance with the New York Stock Exchange (“NYSE”) listing standards. Mr. Sylla serves as Lead Director and, in such capacity, serves as an ex-officio member of each committee of the Board. In that regard, Mr. Sylla does not serve as a member of any particular Board Committee, but may attend such committee meetings as he deems appropriate. During 2009, there were nine meetings of the Board of Directors of the Company. In addition, the Board’s non-management directors generally meet in executive sessions without management before or following each meeting of the Board. The executive session is chaired by the Lead Director.

 

Each director attended at least 75% of the meetings of the Board and committees (on which he or she served) held while the director was a member during 2009. The Company has adopted a policy strongly encouraging all members of the Board to attend the Annual Meeting of Shareholders. In 2009, all nine directors then serving on the Board attended the Annual Meeting of Shareholders.

 

The Company’s Corporate Governance Guidelines, Code of Business Conduct and Ethics and Code of Ethics for Senior Officers and the charters of each of the standing Board committees are available under Corporate Governance in the Investor Relations section on the Company’s website at www.gatx.com.

 

Board Independence

 

The Board of Directors has adopted the GATX Standards for Director Independence set forth in Exhibit A to this Proxy Statement. These standards comply with the independence standards required by the NYSE for listed companies. The Board of Directors has affirmatively determined that each of the following nominees for election to the Board is independent based on the Company’s independence standards, and that each nominee has no other material relationship with the Company relevant to the determination of independence: Anne L. Arvia, Richard Fairbanks, Deborah M. Fretz, Ernst A. Häberli, Mark G. McGrath, James B. Ream, David S. Sutherland and Casey J. Sylla.

 

Committees of the Board

 

Audit Committee

 

The Audit Committee members are Messrs. Häberli (Chair), Ream and Sutherland and Ms. Arvia. The Board of Directors has determined that each current member of the Audit Committee is financially literate and has accounting or related financial management expertise and that Messrs. Häberli and Ream and Ms. Arvia meet the criteria established by the Securities and Exchange Commission (“SEC”) for an “Audit Committee Financial Expert.” The Audit Committee is composed solely of members who are independent in accordance with the NYSE’s rules for independence of audit committee members. During 2009, there

were eight meetings of the Audit Committee. The functions of the Audit Committee include retaining or terminating the Company’s independent registered public accounting firm, reviewing and approving (or disapproving) any related person transactions, and preparing the report that SEC rules require be included in the Company’s annual Proxy Statement. The Committee also assists the Board of Directors in oversight of: (i) the integrity of the Company’s financial statements; (ii) the Company’s compliance with legal and regulatory requirements; (iii) the Company’s guidelines and policies with respect to risk assessment and risk management; (iv) the independent registered public accounting firm’s qualifications and independence; and (v) the performance of the Company’s internal audit function and independent registered public accounting firm.

 

Compensation Committee

 

The Compensation Committee members are Ms. Fretz (Chair) and Messrs. McGrath, Ream and Sutherland. During 2009, there were seven meetings of the Compensation Committee. The Committee’s functions include: (i) assisting the Board of Directors in the discharge of its responsibilities with respect to compensation of the Company’s directors, officers and executives; (ii) general responsibility for ensuring the appropriateness of the Company’s executive compensation and benefit programs, and the criteria for awards to be issued under such programs; and (iii) preparing the report that SEC rules require be included in the Company’s annual Proxy Statement. The Compensation Committee has engaged Frederic W. Cook & Company, Inc., an independent outside consulting firm, to advise the Committee on matters related to executive and director compensation. Frederic W. Cook & Company, Inc. provides relevant market data, current updates regarding trends in executive and director compensation, and advice on program design. In addition, the Committee’s consultant provides specific recommendations for the Chief Executive Officer’s compensation and advice on the recommendations made by the Chief Executive Officer with respect to the compensation of other executives. The Committee’s consultant attends all Committee meetings and meets independently with the Committee as appropriate. The only services that the compensation consultant performs for the Company are related to executive and director compensation and are primarily in support of decision-making by the Committee.

 

Governance Committee

 

The Governance Committee members are Messrs. Fairbanks (Chair) and McGrath and Mesdames Arvia and Fretz. During 2009, there were four meetings of the Governance Committee. The Committee’s functions include: (i) identifying individuals qualified to become Board members and recommending to the Board of Directors a slate of director nominees for election at each annual meeting of the Company’s shareholders; (ii) ensuring that all of the committees of the Board of Directors shall have the benefit of qualified and experienced independent directors; (iii) developing and recommending to the Board of Directors a set of effective corporate governance policies and procedures applicable to the Company; and (iv) reviewing the performance of all members of the Board in their capacities as directors, including attendance and contributions to Board deliberations, and making such recommendations to the Board as may be appropriate.

 

Board Leadership Structure

 

In selecting an individual to serve as Chairman of the Board, the Board selects a director whom it believes is the most qualified and appropriate individual to serve as Chairman, whether the director is an outside director or a member of executive management. Currently, Brian A. Kenney, the Company’s Chief Executive Officer, serves as Chairman. The Board believes that Mr. Kenney is the most appropriate individual to serve as Chairman because of his deep knowledge of the Company’s business and strategy, as well as his demonstrated skill and commitment to performing effectively as Chairman of the Board. Having the Chief Executive Officer serve as Chairman provides the Board with a clear understanding of issues facing the Company, which, in turn, promotes effective Board decision-making, alignment on corporate strategy, and accountability of management.

The Company’s Board is structured to promote independence whether or not its Chairman is a member of executive management. The entire Board, with the exception of Mr. Kenney, consists of independent directors, and the Audit, Compensation and Governance Committees all are composed entirely of independent directors. The independent directors on the Board meet after each Board meeting in executive sessions that are not attended by management directors or management.

 

In addition, under the Company’s Corporate Governance Guidelines, an independent Lead Director is designated each year by the independent directors serving on the Board in order to ensure effective independent oversight of the Board’s governance processes. Currently, Casey J. Sylla serves as Lead Director. The Board has adopted the Terms of Reference for Lead Director, which sets forth the powers and duties of the Lead Director, including the following:

 

 

Board Role in Risk Oversight

 

While Company management is responsible for managing risk, the Board and each of its committees plays a role in overseeing the Company’s risk management practices. The full Board is ultimately responsible for risk oversight, and it discharges this responsibility by, among other things, receiving regular reports from Company management concerning the Company’s business and the material risks facing the Company. Each of the Board’s committees also plays a role in risk oversight:

 

 

 

Through the activities of the Audit, Compensation and Governance Committees, as well as the full Board’s interactions with management concerning the Company’s business and the material risks that may impact the Company, the independent directors on the Board are able to monitor the Company’s risk management process and offer critical insights to Company management.

 

Related Person Transactions

 

Related Person Transactions Approval Policy

 

The Board of Directors has adopted a written policy for the review of related person transactions. The Audit Committee reviews related person transactions in which the Company will be a participant to determine if they are in the best interests of the Company and its shareholders. Financial transactions, arrangements, relationships or any series of similar transactions, arrangements or relationships in which a related person had, or will have, a material interest and that exceed $120,000 are subject to the Audit Committee’s review.

 

Related persons are directors, director nominees, executive officers, holders of 5% or more of our voting stock and their immediate family members. Immediate family members are spouses, parents, stepparents, mothers-in-law, fathers-in-law, siblings, brothers-in-law, sisters-in-law, children, stepchildren, daughters-in-law, sons-in-law and any person, other than a tenant or employee, who shares the household of a director, director nominee, executive officer or holder of 5% or more of our voting stock.

 

In reviewing related person transactions, the Audit Committee considers all material factors concerning the particular transaction to determine whether it meets the standard of being in the best interests of the Company and its shareholders. For example, depending on the facts of the particular transaction, these factors may include the benefits to the Company of the transaction, whether comparable products and services can be obtained from unrelated third parties, and whether the transaction is on “arm’s length” terms.

 

Upon completion of its review, the Audit Committee approves, ratifies or disapproves the related person transaction. In conjunction with any approval or ratification of a transaction, the Audit Committee makes a determination that the transaction does not constitute a conflict of interest pursuant to the Company’s Code of Business Conduct and Ethics.

Shareholder Transaction

 

As of December 31, 2009, BlackRock, Inc. (including its affiliated entities, “BlackRock”) was the beneficial owner of approximately 6.9% of the Company’s outstanding common stock. BlackRock also provides investment management services to the Company’s pension plans in the United States and in the United Kingdom. During the year ended December 31, 2009, the total fees paid by the Company to BlackRock for investment management services were approximately $150,000. The aggregate amount of the Company’s pension assets under management by BlackRock as of December 31, 2009 was approximately $98 million.

 

Director and Officer Indemnification and Insurance Arrangements

 

The Company indemnifies its directors and officers to the fullest extent permitted by the New York Business Corporation Law, as required by the Company’s By-Laws. In addition, the Company has entered into indemnification agreements with each member of the Board of Directors that contractually obligate the Company to provide this indemnification to directors.

 

As authorized by the New York Business Corporation Law and the Company’s By-Laws, the Company also has purchased insurance policies that provide liability protection for the Company’s directors and officers for claims for which they may not be indemnified by the Company. These policies also provide reimbursement to the Company for indemnification payments made by the Company on behalf of its directors and/or officers subject to policy conditions and exclusions.

 

Process For Identifying and Evaluating Director Nominees

 

The Board is responsible for recommending director nominees for election by the shareholders. The Board has delegated the process for screening potential candidates for Board membership to the Governance Committee with input from the Chairman of the Board and Chief Executive Officer. When the Governance Committee determines that it is desirable to add to the Board or fill a vacancy on the Board, the Governance Committee will identify one or more individuals qualified to become members of the Board and recommend them to the Board. In identifying qualified individuals, the Governance Committee will seek suggestions from other Board members and may also retain a search firm for this purpose. The Governance Committee also will consider candidates recommended by shareholders. The Governance Committee will conduct such inquiry into the candidate’s background, qualifications and independence as it believes is necessary or appropriate under the circumstances, and would apply the same standards to candidates suggested by shareholders as it applies to other candidates. Any recommendations by shareholders of director candidates should be submitted to the Governance Committee, c/o Corporate Secretary, GATX Corporation, 222 West Adams Street, Chicago, Illinois 60606. The recommendation must be received not more than 120 and not less than 90 days prior to the first anniversary of the preceding year’s annual meeting and must include all information required by the proxy rules and applicable law. If a submission is in proper form as provided by the Company’s By-Laws, the Governance Committee will apply the same standards to the evaluation of a shareholder nominee as it applies to nominees submitted by others.

 

The Board of Directors, upon recommendation of the Governance Committee, has determined that all candidates for election to the Board of Directors should possess and have demonstrated the following minimum criteria: (i) the highest level of personal and professional ethics, integrity and values; (ii) an inquisitive and objective perspective; (iii) broad experience at the policy-making level in business, finance, accounting, government or education; (iv) expertise and experience that is useful to the Company and complementary to the background and experience of other Board members, so that an optimal balance and diversity of Board members may be achieved and maintained; (v) broad business and social perspective, and mature judgment; (vi) commitment to serve on the Board for an extended period of time to ensure continuity and to develop knowledge about the Company’s business; (vii) demonstrated ability to communicate freely with management and the other directors, as well as the ability and disposition to meaningfully participate in a collegial decision making process; (viii) willingness to devote

the required time and effort to carry out the duties and responsibilities of a Board member; and (ix) independence from any particular constituency, and the ability to represent the best interests of all shareholders and to appraise objectively the performance of management. The Governance Committee and the Board evaluate each candidate in the context of the Board as a whole, with the objective of assembling a group of directors that can effectively address the challenges and risks facing the Company’s business and represent shareholder interests by using its diversity of experience to exercise sound business judgment. In applying the criteria for Board members described above, the Governance Committee and the Board consider diversity to include differences of viewpoint, professional experience, education, skill and other individual qualities and attributes that contribute to an active, effective Board. In this regard, the Board believes that its efforts to achieve diversity on the Board have been effective.

 

Communication with the Board

 

Interested parties, including shareholders, may communicate directly with the Board, one or more directors of the Company, including the Lead Director, or the non-management directors of the Company as a group through the office of the Corporate Secretary as follows: (i) by mail addressed to the Board, the non-management directors as a group or one or more directors, c/o Corporate Secretary, GATX Corporation, 222 West Adams Street, Chicago, Illinois 60606; (ii) electronically by sending an e-mail to contactboard@gatx.com; or (iii) anonymously by telephone by calling (888) 749-1947. Communications (other than those deemed in the reasonable judgment of the Corporate Secretary to be inappropriate, such as matters that are patently frivolous) received by the Company addressed to the Board or one or more directors shall be promptly forwarded to the Lead Director and to the Board member or members to whom it was addressed or, if not so specifically addressed, then, depending on the subject matter of the particular communication, to the chair of the appropriate Board committee or to the non-management directors as a group. Any communication not readily identifiable for a particular director or Board committee shall be forwarded to the Chair of the Governance Committee.

 

COMPENSATION OF EXECUTIVE OFFICERS

 

Compensation Discussion and Analysis

 

This compensation discussion and analysis describes the material elements of GATX’s compensation program for named executive officers. Further detail is provided for each compensation element in the tables and narratives which follow. The Compensation Committee of the Board of Directors (the “Committee”) oversees the design and administration of the Company’s executive compensation program with the assistance of Frederic W. Cook & Company, Inc., an independent consulting firm retained by the Committee (the “independent consultant”).

 

Compensation Philosophy and Objectives

 

The Company’s executive compensation program is structured to provide compensation opportunities that appropriately: (1) reflect the competitive marketplace in which the Company operates, (2) balance executive focus on short- and long-term objectives and (3) align management and shareholder interests. The program has been developed with the following key principles in mind:

 

 

 

Ultimately, the executive compensation program is intended to help communicate and reinforce performance that contributes to business success and shareholder return and to reward executives appropriately when the desired results are achieved.

 

As shown in the following table, the mix of target total direct compensation (“TDC” or current base salary, target annual incentive and target long-term incentive) for named executive officers is consistent with the principles described above. The table illustrates how TDC is allocated between performance and non-performance based components, how performance-based compensation is allocated between annual and long-term components, and how TDC is allocated between cash and equity components.

 

TDC Mix

 

 

 

 

(Note: The figures in the table above are based on salaries and incentive targets in effect as of December 31, 2009, and thus are not intended to match amounts shown in the Summary Compensation Table or the Grant of Plan-Based Awards Table).

 

Roles and Responsibilities

 

The Committee and Management

 

Based on input from the Committee’s independent consultant and the Company’s human resources staff, the Committee makes all decisions with respect to the compensation of the Chief Executive Officer. As part of the Company’s regular compensation review cycles, the Chief Executive Officer typically makes recommendations concerning base salary increases and long-term incentive award grants for the other named executive officers. In addition, from time to time the Chief Executive Officer may recommend a bonus or long-term incentive award to recognize outstanding performance or exceptional contributions by a named executive officer. After reviewing these recommendations, the Committee makes decisions with respect to the compensation of such named executive officers.

 

As discussed in greater detail below, the Compensation Committee periodically reviews current executive compensation practices, trends and developments using third-party surveys. This review covers substantive compensation elements, including base pay and annual and long-term incentive awards. Based on the review, the Chief Executive Officer makes recommendations to the Committee to increase or decrease target levels for annual bonus and long-term incentive awards for the other named executive

officers. The Chief Executive Officer does not participate in, nor is he present during, any discussions of his own compensation. Such discussions occur in executive sessions of the Committee which may include the Committee’s independent consultant. The Committee reviews decisions regarding Chief Executive Officer pay with the other independent directors on the Board.

 

Independent Consultant

 

Since 2003, the Committee has utilized the services of Frederic W. Cook & Company, Inc. as an outside independent compensation consultant to review and advise the Committee on the Company’s executive and director compensation plans, programs and policies. The independent consultant also advises the Committee periodically on current trends and best practices and reviews the Committee agendas and supporting materials with management and the Committee Chair in advance of each Committee meeting. The independent consultant attends all meetings of the Committee, including executive sessions at which management is not present. The independent consultant does not provide any compensation-related or other services for the Company except for those services performed on behalf of the Committee or at the Committee’s request.

 

Recent Changes to Compensation Policies and Practices

 

In 2009, the Committee conducted a review of the Company’s existing compensation policies and practices in order to ensure they appropriately reflect the Company’s pay-for-performance philosophy notwithstanding uncertainties arising from the current weak economic environment. The Committee, with input from the independent consultant, also reviewed best practices, current trends and recent developments in executive compensation generally and considered their implications for the Company. Based on these reviews, the Committee took the following steps with respect to the Company’s compensation policies and practices:

 

 

 

Use of Compensation Survey Data

 

The executive compensation program has been structured to provide pay opportunities believed to be comparable to the median range of opportunities provided by similarly-sized companies (which are referred to throughout the remainder of this discussion as competitive or market pay levels). Because the Company has relatively few direct peers for which relevant compensation data is available, determining competitive pay levels with precision is not possible. The Company’s human resources staff, with oversight from the Committee’s independent consultant, regularly reviews information on median pay for executives as reported in national compensation surveys published by Hewitt Associates and Towers Perrin for organizations of similar revenue size. This information is considered in pay decisions for named executive officers. Pay decisions are also influenced by the following factors: tenure, skills and experience and the Company’s unique talent requirements.

 

Compensation Elements

 

The elements of the Company’s compensation program for named executive officers include:

 

 

Base Salary

 

Base salary helps the Company attract and retain an appropriate caliber of executive talent and provides executives with a degree of financial certainty since base salary is less subject to Company performance risk than most other pay elements. In establishing salary levels, consideration is typically given to market pay levels, the specific responsibilities and experience of the named executive officer, and his or her individual performance.

 

In 2009, the Compensation Committee replaced an 18-month base salary review cycle for executive officers with a 12-month review cycle. This will allow the Committee to review all of the elements of executive officer compensation at the same time of year and effectively link base salary decisions to the officer’s performance and the Company’s financial results for the year. The base salary review will occur at the Committee’s first meeting in January, and any base salary increases for executive officers will be effective each March 1, coinciding with base salary increases for other GATX salaried employees.

 

Base salary levels affect other elements in the compensation program because annual incentive opportunities, long-term incentive opportunities and retirement benefits are highly correlated with base pay levels. This effect is intentional and helps ensure that total compensation is lower than market levels for less tenured or underperforming employees, and higher than market for very experienced, proven performers.

 

In 2009, the named executive officers did not receive any increases to their base salaries. All executive officers will forgo any base salary increases again in 2010.

For named executive officers, salaries represent between 24% (for the Chief Executive Officer) and 43% of TDC, consistent with the Company’s philosophy that the majority of compensation to named executive officers should be performance based.

 

Annual Incentive Awards

 

Named executive officers are eligible to receive annual incentive awards under the GATX Cash Incentive Compensation Plan (the “CICP”) based on the extent to which pre-established financial performance goals are achieved. The CICP was approved by shareholders in 2004. Under the CICP, the maximum possible incentive award payable to each named executive officer has been established as 0.75% of Total Gross Income Less Total Ownership Costs as each are reported in the Company’s financial statements. At the end of each year, the Committee certifies the level of actual performance on this measure and may reduce, but not increase, the annual award based upon underlying metrics communicated to each participant at the beginning of the year.

 

Annual incentive awards are the primary element in the total compensation program under which named executive officers and all other salaried employees are rewarded for the achievement of annual operating profitability goals. The Committee assesses actual performance results with this in mind and may exclude all or a portion of the impact of events unrelated to operating performance from the computation of results for incentive purposes, and/or modify the performance goals against which actual results are compared. The Committee may also make adjustments for other reasons including unusual or strategic events such as restructurings, acquisitions or divestitures. Thus, the results on which annual incentives are based may differ from results reported in the Company’s financial statements. Such adjustments may increase or decrease the size of incentives otherwise payable.

 

The basis on which financial performance is measured may vary from year to year in accordance with the Company’s objectives. Performance has typically been measured against budgeted financial performance, with budgeted performance generally representing the level for which target award opportunities are paid. Financial performance has most often been expressed in terms of consolidated net income since the annual plan is intended to provide a strong incentive for profitability and cost control. In 2009, incentives to all named executive officers were based solely on the Company’s financial performance.

 

Target incentive opportunities for named executive officers are expressed as a percentage of base salary and reflect typical competitive opportunities. The percentage of target incentive opportunities payable at various levels of financial performance is governed by a schedule approved by the Committee each year after reviewing recommendations made by management. The level of financial performance required for the payment of maximum incentive opportunities is established based on the Committee’s assessment of the level of performance that shareholders would likely consider superior in view of general economic conditions and the economic outlook for the Company and its industry in particular. This process is essentially reversed to establish the threshold performance level, defined as the level of financial performance below which no incentive is payable.

 

For 2009,

 

 

Long-Term Equity-Based Incentive Awards

 

Long-term equity-based incentive opportunities are provided each year to named executive officers and other employees pursuant to the GATX Corporation 2004 Equity Incentive Compensation Plan (the “EICP”). A variety of different award types may be granted under the EICP, including stock options, stock appreciation rights (“SARs”), performance shares or units and restricted stock. Long-term incentive compensation helps the Company attract and retain qualified executives, reward the achievement of the Company’s long-term objectives, encourage ownership of the Company’s stock, and promote a close identity of interests between the Company’s management and its shareholders. Target long-term incentive opportunities are established for named executive officers in accordance with typical competitive opportunities and are expressed as a percentage of the midpoint of the officer’s base salary range.

 

Since 2006, the value of the primary total long-term incentive award to each named executive officer has been split approximately equally between stock-settled SARs and performance shares. This combination of grant types was chosen because it focuses attention on total shareholder return and on specific financial goals, both of which are essential to the Company’s long-term success.

 

 

Under the EICP, the Committee determines the maximum number of performance shares that may be earned if a specified level of Total Gross Income Less Total Ownership Costs ($450 million per year for the 2009-2011 performance period) is attained. The Committee determines whether or not this goal has been met at the end of the performance period. If the goal has not been met, the entire performance share award is cancelled. If the goal has been met, the Committee may reduce, but not increase, the number of performance shares otherwise payable based on the achievement of long-term performance objectives communicated to participants at the beginning of the relevant performance period, which is generally a three-year period.

 

The Committee may make adjustments to the goals or to the computation of actual performance against those goals. Fewer adjustments are expected to be made with respect to factors affecting long-term incentives than annual incentives, but adjustments are occasionally necessary to reflect circumstances or events impossible to anticipate at the time the goals are set such as acquisitions or divestitures or changes in accounting or tax regulations; such adjustments may serve to increase or decrease the number of performance shares that would otherwise be earned. Accumulated

dividend equivalents are paid on the number of performance shares earned at the end of the performance period.

 

2009 Long-Term Incentive Grants:  For 2009, long-term incentive grants to the Chief Executive Officer and the other named executive officers consisted of SARs and performance shares, weighted equally. However, as noted above, due to uncertain economic conditions in early 2009, the Committee reduced long-term incentive grant values by 25% to avoid (1) windfall awards at such an unusually low stock price and (2) high dilution and run rates against the EICP pool of GATX shares.

 

As in past years, the actual number of performance shares awarded was determined by dividing the performance share award value by the average closing prices of GATX stock on the four Fridays immediately preceding the Committee meeting at which the grant was awarded. The same calculation is used to determine the number of SARs awarded but the average closing price is then adjusted by a Black-Scholes value. Due to a decline in the Company’s stock price in early 2009, in addition to the 25% award reduction approved by the Committee noted above, the grant date fair values for both the performance share and SAR awards reported in the Summary Compensation and the Grants of Plan Based Awards Tables represent a reduction of approximately 44% of target award values versus 2008 levels.

 

The percentage of the initial performance share grant that will be earned by each named executive officer is based on performance from 2009 to 2011. Performance goals for this period were established on two equally weighted measures: consolidated average return on equity and consolidated cumulative investment volume. These measures reflect the Company’s objectives for sustained profitability and growth. Because the Company invests in long-lived assets, the quality of investment decisions is an important component in the Company’s long-term success. All investments are made pursuant to the Company’s investment policy. The numerical goals established on both performance measures, the definition of the measures, and the percentage of the initial grant of performance shares that is payable at the threshold, target and maximum levels of actual performance are shown in the Equity-Based Long-Term Incentives section of the Narrative Discussion Related to the Summary Compensation Table and the Grants of Plan-Based Awards Table.

 

2007 — 2009 Performance Share Payouts:  In 2009, the 2007 to 2009 performance share period concluded. Each target award was based 50 percent on a 3-year consolidated return on equity goal and 50 percent on a 3-year cumulative consolidated investment volume goal. The 3-year average consolidated return on equity for the period was 14.2% versus a goal of 15.0%, and 3-year cumulative consolidated investment volume was $1,935 million versus a goal of $2,274 million. Based on the results, performance share payouts were 74.0% of target incentive awards. These awards were made in accordance with the provisions of the plan as established at the beginning of the period. For details regarding the 2007 to 2009 performance share payments to the named executive officers, please see the Option Exercises and Shares Vested Table.

 

Grant Policies:  The grant date for regular long-term incentive awards in 2009 was the date of the Committee’s March 4, 2009 meeting. However, in 2010 and going forward, any future long-term awards will be granted at the Committee’s first meeting of each calendar year. Off-cycle grants (if any) to newly hired or promoted employees will continue to be made on the last trading date of the month following the hire or promotion date and Committee approval of the award. SAR grants to named executive officers are made at the same time as they are made to other employees. SARs vest ratably over a three-year period and expire after seven years. Restricted stock that has only time-based vesting requirements is granted to named executive officers on a limited basis only. The Company has no program, plan or practice to time SAR grants to named executive officers or any other employees in coordination with the release of material non-public information.

 

Retirement, Health and Welfare Benefits

 

The Company sponsors a standard array of retirement, health and welfare benefits. Retirement programs include both a 401(k) and defined benefit pension program as well as a supplemental plan

intended solely to restore pension benefits limited by law to the level specified by formula in the qualified pension plan applicable to all salaried employees. The pension and 401(k) programs are intended to supplement employees’ personal retirement savings and social security benefits. Health and welfare benefits include medical, dental, vision, life and disability insurance. These programs provide protection against catastrophic loss and encourage health maintenance.

 

Named executive officers participate in the same programs and on the same basis as other salaried employees. No retirement, savings, medical, disability or other insurance program or arrangement exists which provides benefits to named executive officers in excess of those provided generally, with the amount of benefits under certain of those programs corresponding to the employee’s years of service and compensation level.

 

Perquisites

 

Consistent with the Company’s desire to minimize status-oriented compensation elements, the only perquisites provided to named executive officers are automobile and financial counseling allowances. For 2010, automobile allowances have been suspended.

 

Change of Control Severance Agreements

 

Each named executive officer has entered into an Agreement of Employment Following a Change of Control which provides certain benefits should employment be terminated following a change of control (“COC”). This protection is provided for competitive reasons and to ensure the stability, continuity and impartiality of our executives in a COC situation. The level of protection provided is intended to be similar to that provided by similarly-sized organizations.

 

The Agreements are “double-trigger” agreements, meaning that benefits are payable only if a COC occurs and the executive’s employment is terminated or constructively terminated as a result. Key terms under the Agreements applicable in 2009 are summarized in the Narrative Discussion Regarding Potential Payments Upon Termination or COC. Treatment of all long-term incentive awards in the event of a COC is governed not by the Agreements but rather by the EICP and related grant agreements, which are applicable to all employees who receive long-term incentive awards. In 2009, all EICP grant agreements were modified prospectively to require both a COC event and an executive’s actual or constructive termination before vesting will be accelerated for any outstanding long-term incentive awards.

 

Stock Retention Requirements

 

To underscore the importance of stock ownership, the Company has established stock retention requirements for named executive officers and other members of senior management. The requirements specify that 50% of the after-tax profit realized from Company equity awards be retained in shares of Company stock until the employee owns stock equal in value to a multiple of salary based on his or her position. The multiple is 5.0 times salary for the Chief Executive Officer and 2.5 times salary for other named executive officers.

 

As of February 1, 2010, the named executive officers had achieved the following percentages of their respective stock retention requirements: Mr. Kenney — 45%; Mr. Earl — 81%; Mr. Lyons — 67%; Ms. Golden — 35%; and Mr. Porzenheim — 133%.

 

Recoupment Policy

 

In 2009, the Board of Directors adopted a recoupment policy, which provides that in the event of a material restatement of the Company’s financial results, the Board, or a Committee designated by the Board, will review the facts and circumstances that led to the requirement for the restatement and will take such actions as it deems necessary or appropriate. The Board will consider whether any executive officer received excess compensation due to the fact that the original financial statements were incorrectly presented. The Board also will consider the accountability of any executive officer whose acts or omissions

were responsible in whole or in part for the events that led to the restatement and whether such acts or omissions constituted misconduct.

 

The actions the Board may elect to take against a particular executive officer, depending on all the facts and circumstances as determined during their review, could include (i) the recoupment of all or part of any bonus or other compensation paid to the executive officer that was based upon the achievement of financial results that were subsequently restated, (ii) disciplinary actions, up to and including termination and/or (iii) the pursuit of other available remedies, including, but not limited to, canceling stock-based awards.

 

For purposes of the recoupment policy, the term “executive officers” means executive officers according to the Securities Exchange Act of 1934, as amended.

 

Regulatory Considerations

 

The Company’s incentive compensation programs have been designed and administered in a manner generally intended to preserve federal income tax deductions. All of the Company’s incentive and equity compensation programs, severance plans and change of control agreements are administered in compliance with federal tax rules affecting nonqualified deferred compensation. In addition, the Company considers the tax and accounting consequences of utilizing various forms of compensation when adopting new compensation programs or modifying existing programs.

Summary Compensation Table

 

 

 

 

Grants of Plan-Based Awards

 

 

 

 

Narrative Discussion Related to the Summary Compensation Table and
Grants of Plan-Based Awards Table

Annual Incentive Awards

 

In 2009, named executive officers were eligible for annual incentive awards based solely on financial performance goals measured in terms of GATX consolidated net income. The target incentive awards were payable at $151.6 million, or 100% of budgeted consolidated net income. Threshold and maximum incentive awards (25% and 170% of target awards) were payable at 97% and 115% or more, respectively, of budgeted consolidated net income.

 

Based on individual targets and on actual consolidated net income as described in the Compensation Discussion and Analysis, no incentive payouts were made in 2009 under the Corporate Officer Incentive Plan as shown in column (g) of the Summary Compensation Table. GATX consolidated net income achievement of 54% of budget fell below the threshold for any payout.

 

Equity-Based Long-Term Incentives

 

In 2009, equity-based long-term incentive awards consisted of stock-settled stock appreciation rights (SARs) and performance shares.

 

SARs have a seven year term and vest in three equal annual installments beginning on the first anniversary of the grant date. The grant price is based on the average of the high and low prices of GATX common stock on the date of grant. Dividend equivalents accrue on SAR grants and are paid upon vesting and each quarter thereafter until the SARs are exercised or expire. The SARs granted to the named executive officers on March 4, 2009, will vest in three equal annual installments on March 4 of 2010, 2011 and 2012.

The number of SARs awarded in 2009 and their grant date fair value are shown in columns (j) and (k), respectively, in the Grants of Plan-Based Awards Table. The grant date fair values of SAR awards granted in 2009, 2008 and 2007 shown in column (f) of the Summary Compensation Table.

 

Performance shares are earned based on the extent to which pre-established goals on two independent performance measures, each of which is weighted at 50%, are achieved over a three-year performance period ending on December 31, 2011. The measures are Average Return on Equity or ROE (defined as the sum of consolidated net income divided by average equity excluding changes in accumulated other comprehensive income from equity for each year in the performance period divided by three) and Cumulative Investment Volume or CIV (defined as the sum of consolidated cumulative GAAP basis portfolio investments and capital additions as reported on the Company’s audited balance sheet for each year in the performance period). The number of performance shares earned at the end of the performance period ranges from 0% to 200% of the initial target grant. For the ROE component, the 2009 target grant is earned if average ROE is 12.0%. The threshold and maximum number of performance shares (25% and 200% of the target grant) are earned if ROE averages 10.0% and 15.0% or more, respectively. For the CIV component, the 2009 target grant is earned if CIV is $2.25 billion. The threshold and maximum numbers are earned if CIV is $1.00 billion and $3.75 billion or more, respectively. Dividend equivalents accrue throughout the performance period and are paid on the number of performance shares earned at the end of the performance period.

 

The grant date fair values of performance shares granted in 2009, 2008 and 2007 are shown in column (e) of the Summary Compensation Table. In 2007, for Mr. Lyons and Ms. Golden, column (e) includes the grant date fair value of their performance shares, which was $173,818 and $124,422, respectively. For each of Mr. Lyons and Ms. Golden, column (e) for 2007 also includes $198,516, which was the grant date fair value of restricted stock awards granted to these executives to recognize their contributions to the successful divesture of the Company’s Air business segment in 2006. The number of performance shares granted in 2009 that may be earned at target, threshold and maximum levels is shown in columns (g), (f) and (h), respectively of the Grants of Plan-Based Awards Table.

Outstanding Equity Awards at Fiscal Year-End

 

 

 

 

Option Exercises and Stock Vested

 

 

 

 

Pension Benefits

 

 

 

 

The present value of accumulated benefit is calculated as the amount payable at fully unreduced retirement age (age 65) using December 31, 2009, ASC Topic No. 715, Compensation — Retirement Benefits, disclosure assumptions (5.70% interest rate, RP-2000 Combined Healthy Mortality Table projected to 2010 by scale AA). Lump sums are valued at age 65 using the IRS three-segment lump sum rates and are then discounted back from age 65 to December 31, 2009 at 5.70%.

 

Narrative Discussion Related to Pension Benefits Table

 

Named executive officers participate in the Company’s Non-Contributory Pension Plan for Salaried Employees (the “Pension Plan”) covering salaried employees of the Company and its domestic subsidiaries. Vesting requires five years of service. Subject to certain limitations imposed by law, pensions are based on years of service and average monthly compensation during: (i) the five consecutive calendar

years of highest compensation during the last 15 calendar years preceding retirement or the date on which employment terminates or (ii) the 60 consecutive calendar months preceding retirement or the date on which employment terminates, whichever is greater. Benefits under the Pension Plan are not subject to any deduction for Social Security or other offset amounts.

 

Annual benefits in excess of certain limits imposed by the Employee Retirement Income Security Act of 1974 or the Internal Revenue Code on payments from the Pension Plan will be paid by the Company under its Supplemental Retirement Plan. The Supplemental Retirement Plan is designed to restore those benefits that would otherwise be limited by statutory regulations. Payments are made as a single lump sum amount representing the actuarially equivalent present value of the benefit payable at age 65. Payments made pursuant to the Supplemental Retirement Plan are funded from the general assets of the Company.

 

A summary of the key provisions of the Pension Plan is provided below:

 

 

Compensation is defined as regular earnings during the calendar year, including overtime payments and covered bonuses, but excluding deferred and contingent compensation. For named executive officers, compensation includes salary and annual incentive awards paid under the CICP. Social Security Covered Compensation is the 35-year average of Social Security taxable wage bases in effect up to and including the year in which an individual attains Social Security Normal Retirement Age calculated in accordance with Revenue Ruling 89-70.

 

For unmarried participants, the normal form of payment is a life annuity. For married participants, the normal form of payment is a 50% joint and survivor annuity. Optional forms of payment include a single lump sum of the accrued pension’s actuarially equivalent present value, or a joint and survivor co-pensioner annuity. All forms of payment have the same actuarially equivalent value as the life annuity.

 

The present value of accumulated pension benefits for each named executive officer is shown in column (d) of the Pension Benefits Table.

Narrative Discussion Regarding Potential Payments Upon Termination or Change of Control

 

Except for the Agreements of Employment Following a Change of Control (“COC Agreements”) described in the Compensation Discussion and Analysis, the Company has not entered into employment agreements with any of the named executive officers. They participate in the same plans and are subject to the same treatment as all other salaried employees in the event of termination due to voluntary resignation, discharge for cause, involuntary separation, death and disability, and retirement. This discussion therefore focuses solely on termination in the event of a change of control of the Company. The key provisions of the COC Agreements are described below, followed by a table that shows the amounts that the Company would pay or the benefits it would provide to each named executive officer in a change of control situation.

 

Key Provisions of COC Agreements:  Each named executive officer has entered into a COC Agreement that provides certain benefits should employment be terminated or constructively terminated following a change of control (“COC”). Key terms under the agreements applicable in 2009 include the following:

 

 

 

Amounts Payable Under the COC Agreements:  The table below reflects certain assumptions made in accordance with the SEC’s rules, namely that (a) the COC and termination of employment occurred on December 31, 2009, and (b) the value of a share of the Company’s common stock on that day was $28.75. It includes the lump sum payments associated with the benefits described above, as well as the value of all equity awards for which vesting is accelerated as provided under the EICP. The table excludes the following payments and benefits that are not enhanced by the termination of employment following a COC:

 

 

 

 

 

 

DIRECTOR COMPENSATION