GATX CORPORATION
500 WEST MONROE STREET
CHICAGO, IL 60661
(312) 621-6200

 

 

March 14, 2008

 

Dear Shareholder:

 

You are invited to attend our 2008 Annual Meeting of Shareholders on Friday, April 25, 2008, at 9:00 a.m., central time, at The Northern Trust Company, 50 South LaSalle Street, Sixth Floor Assembly Room, Chicago, Illinois. Registration will begin at 8:30 a.m. and refreshments will be served.

 

The attached Notice of Annual Meeting and 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 2008. 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.

 

You may contact our Investor Relations Department at (800) 428-8161 to obtain directions to the site of the Annual Meeting.

 

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 25, 2008.

 

The Company’s Proxy Statement for the 2008 Annual Meeting of Shareholders, the Annual Report to Shareholders for the year ended December 31, 2007, and the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2007 are available at http://bnymellon.com.mobular.net/bnymellon/gmt.

GATX CORPORATION
500 WEST MONROE STREET
CHICAGO, IL 60661
(312) 621-6200

 

Notice of Annual Meeting of Shareholders

 

 

March 14, 2008

 

To our Shareholders:

 

The 2008 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 25, 2008, at 9:00 a.m., central time, for the following purposes:

 

1. to elect nine directors to serve until the 2009 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 in 2008; 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 29, 2008 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 14, 2008

Chicago, Illinois

GATX CORPORATION
500 WEST MONROE STREET
CHICAGO, IL 60661
(312) 621-6200

 

March 14, 2008

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 25, 2008 (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 14, 2008.

 

 

 

 

 

PROPOSAL 1 — ELECTION OF DIRECTORS

 

Nine directors are to be elected, each for a term of one year, to serve until the 2009 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 Board may be reduced accordingly.

 

Nominees For Board of Directors

 

 

 

 

Additional Information Concerning Nominees

 

Mr. Denny retired as Vice Chairman, Sears, Roebuck and Co., a merchandising company, in August 1995, having served in that position since February 1992. He also served as a Managing Director of William Blair Capital Partners, LLC, a general partner of private equity funds affiliated with William Blair & Co., from August 1995 until December 2000. Mr. Denny is Chairman of Gilead Sciences, Inc.

 

Mr. Fairbanks is Chairman of the Board of Layalina Productions, Inc., a non-profit corporation that develops and produces Arabic language programming for licensing to television networks in the Middle

East and North Africa. He is also a Counselor at the Center for Strategic & International Studies, a nonprofit public policy research institution providing analysis on and assessment of the public policy impact of U.S. domestic, foreign and economic policy, international finance and national security issues, having previously served as its President and Chief Executive Officer. Mr. Fairbanks was formerly a U.S. Ambassador at Large. Mr. Fairbanks is also a director of SEACOR Holdings Inc.

 

Ms. Fretz was named President and Chief Executive Officer of Sunoco Logistics Partners, L.P., an owner and operator of refined product and crude oil pipelines and terminal facilities, in October 2001. Ms. Fretz previously served as Senior Vice President, Mid-Continent Refining, Marketing & Logistics, of Sunoco, Inc., an energy company, from December 2000 to October 2001 and Senior Vice President, Lubricants and Logistics, from January 1997 to December 2000.

 

Mr. Häberli retired as President, Commercial Operations International, The Gillette Company in 2004, having served in that position since 2001. Mr. Häberli formerly served as President, North American Tissue Operations and Technology, Executive Vice President and Chief Financial Officer, Senior Vice President, Strategy and on the Board of Directors of Fort James Corporation. Mr. Häberli also served as President of Pet International and in various roles with the Phillip Morris Companies, Inc.

 

Mr. Kenney was elected Chairman and Chief Executive Officer of the Company in April 2005, having previously been named President of the Company in October 2004. Mr. Kenney previously served as Senior Vice President, Finance and Chief Financial Officer from April 2002 to October 2004 and Vice President, Finance and Chief Financial Officer from October 1999 to April 2002.

 

Mr. McGrath retired as a Director of McKinsey & Company, a private management consulting firm, in December 2004, having served in that firm for twenty-seven years. He led the firm’s Americas’ Consumer Goods Practice from January 1998 until December 2003. Mr. McGrath has served as a senior advisor with Gleacher Partners LLC, a firm providing strategic advisory services to corporations, in a part-time capacity since January 2005. Mr. McGrath is also a director of Aware, Inc.

 

Mr. Murphy retired as Vice Chairman and Chief Administrative Officer of Sara Lee Corporation, a diversified manufacturer of packaged food and consumer products, in October 1997, having served in that position since July 1993. Mr. Murphy is also a director of Coach, Inc., Northern Funds and Northern Institutional Funds.

 

Mr. Sutherland retired as President and Chief Executive Officer of IPSCO, Inc., a steel producer, in July 2007, having served in that position since January 2002. During his 30-year career with IPSCO, Mr. Sutherland held a number of strategically important roles for the company, including Executive Vice President and Chief Operating Officer from April 2001 to January 2002 and Vice President of Raw Materials and Coil Processing from 1997 to 2001.

 

Mr. Sylla retired on March 31, 2007, as Chairman and Chief Executive Officer of Allstate Life Insurance Company, a principal division of the Allstate Insurance Company, a company offering life insurance, annuities and related retirement and savings products. Mr. Sylla previously served in various strategically important roles at Allstate including President of Allstate Financial Group from 2002 to 2006 and Chief Investment Officer for Allstate Corporation, the holding company for Allstate Insurance Company, from 1995 to 2002. Mr. Sylla is also a director of Northern Funds and Northern Institutional Funds.

 

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. The Board has elected Ms. Fretz as Lead Director, and Ms. Fretz serves as an ex-officio member of each committee of the Board. In that regard, Ms. Fretz does not serve as a member of any particular Board Committee, but may attend such committee meetings as she deems appropriate. During 2007, there were seven regular 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 2007. The Company has adopted a policy strongly encouraging all members of the Board to attend the Annual Meeting of Shareholders. In 2007, all directors attended the Annual Meeting of Shareholders except for Casey J. Sylla.

 

Marla C. Gottschalk resigned from the Board of Directors effective January 31, 2008. The Company expresses its utmost appreciation to Ms. Gottschalk for her dedicated service.

 

The Company’s Corporate Governance Guidelines, Code of 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 and are available in print to any shareholder who so requests.

 

Board Independence

 

The Board of Directors has adopted the independence standard for the directors set forth in Exhibit A to this Proxy Statement. These standards conform to the 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: Messrs. Denny, Fairbanks, Häberli, McGrath, Murphy, Sutherland and Sylla and Ms. Fretz.

 

Committees of the Board

 

Audit Committee

 

The Audit Committee members are Messrs. Murphy (Chair), Häberli, Sutherland and Sylla. 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. Murphy, Häberli and Sylla 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 2007, there were eight meetings of the Audit Committee. In addition to appointing the Company’s independent registered public accounting firm, the Committee’s functions include: (i) assisting the Board of Directors in its oversight of the integrity of the Company’s financial statements; (ii) maintaining the Company’s compliance with legal and regulatory requirements; (iii) reviewing the independent registered public accounting firm’s qualifications and independence; (iv) reviewing and evaluating the performance of the Company’s internal audit function and independent registered public accounting firm; (v) reviewing and approving or disapproving any related person transactions; and (vi) preparing the report that SEC rules require be included in the Company’s annual proxy statement.

 

Compensation Committee

 

The Compensation Committee members are Messrs. Denny (Chair), Fairbanks and McGrath. During 2007, there were five 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 provides relevant market data, current

updates regarding trends in executive and director compensation, and advice on program design, specific compensation decisions for the Chief Executive Officer and 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), Denny, McGrath and Sylla. During 2007, 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.

 

Related Person Transactions

 

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.

 

Process For Identifying and Evaluating Director Nominees

 

The Board is responsible for recommending 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 will also 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. Such recommendations should be submitted to the Governance Committee, c/o Corporate Secretary, 500 West Monroe Street, Chicago, Illinois 60661. The recommendation should be received not more than 120 and not less than 90 days prior to the first anniversary date of the immediately preceding annual meeting and should include the following information: (i) the name of the individual recommended as a director candidate; (ii) all information required to be disclosed in the solicitation of proxies for the election of directors pursuant to Regulation 14A under the Securities Exchange Act of 1934; (iii) the individual’s written consent to being named in the proxy statement as a nominee and serving as a director if elected; (iv) a representation that the person making the nomination is a shareholder of the Company; and (v) a description of any arrangements and understandings between the shareholder and the nominee.

 

In 2007, the Company engaged a professional search firm to identify and assist the Governance Committee in identifying and evaluating potential director nominees. Mr. Sutherland was recommended as a nominee by the professional search firm.

 

The Board of Directors, upon recommendation of the Governance Committee, has determined that all candidates that it proposes 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.

 

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, 500 West Monroe Street, Chicago, Illinois 60661; (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.

 

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 January 1, 2008, 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

 

Based on input from the Committee’s independent consultant, the Company’s human resources staff and the Company’s external legal counsel, the Committee makes all decisions with respect to the compensation of the Chief Executive Officer. The Committee, after reviewing the recommendations of the Chief Executive Officer, makes decisions with respect to the compensation of 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 full Board of Directors.

 

Use of Compensation Survey Data

 

The executive compensation program has been structured to provide pay opportunities believed to be comparable to the middle 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. Information on median pay as reported in compensation surveys published by Hewitt Associates and Towers Perrin for executives in organizations of similar revenue size is regularly reviewed but is considered to be only a reference point. In addition to survey data, pay decisions are influenced by the named executive officer’s tenure, skills and experience as well as the Company’s unique talent requirements at different points in time.

 

Regulatory Considerations

 

The Company’s incentive programs have been designed and administered in a manner generally intended to preserve federal income tax deductions. Under the annual incentive plan, 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 the year, the Committee certifies the level of actual performance on this measure and may lower, but not raise, the annual award based upon underlying metrics communicated to each participant at the beginning of the year. Under the long-term incentive plan, 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 ($430 million per year for the 2007-2009 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 it 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, generally three years.

 

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. The tax and accounting consequences of utilizing various forms of compensation are considered when adopting new or modifying existing programs.

 

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. Except in unusual circumstances, base salaries for named executive officers are reviewed every 18 months rather than every 12 months as for other employees, based on the belief that a longer period between reviews may result in a more accurate assessment of individual contributions at senior management levels.

 

Base salary levels have a ripple effect on many 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 accordance with the 18 month review cycle described above, Mr. Lyons, Ms. Duddy and Ms. Golden received salary increases during 2007 of $65,000, $15,400 and $20,000, respectively. The increases reflect competitive pay levels for each position and solid individual performance by each of these officers. The size of the increase awarded to Mr. Lyons was intended to close the large gap that existed between competitive pay and Mr. Lyons’ salary prior to the increase due to his limited tenure in his current position.

 

For named executive officers, salaries represent between 22% (for the CEO) 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 and (except for the Chief Executive Officer) individual performance goals are achieved. The CICP was approved by shareholders in 2004.

 

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 net income since the annual plan is intended to provide a strong incentive for profitability and cost control. In 2007 and prior years, individual performance was also an incentive component for named executive officers other than the Chief Executive Officer, with individual performance goals established at the beginning of the year based on key functional responsibilities of each named executive officer. At the end of the year, the Chief Executive Officer recommends, for Committee approval, a rating that reflects his view of the extent to which each named executive officer achieved his or her set of individual goals during the year. The relative weighting placed on the financial and individual performance components depends on the named executive officer’s role and is automatically reduced in the event that the threshold financial performance level is not achieved.

The annual plan has been redesigned, and for years beginning in 2008, incentives to all named executive officers will be 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 on the financial component is established based on our 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 2007,

 

 

2007 Performance and Incentive Payments:  In 2007, consolidated net income was $163.5 million after adjustments, representing slightly more than 105% of budgeted net income. Adjustments to GAAP net income were made to exclude income related to favorable changes in tax rates outside the United States and administrative savings realized as a result of a cancelled internal project. Based on the adjusted net income results, incentive payouts on the consolidated net income component were 126% of target incentive awards. Ratings for individual performance for named executive officers ranged from 105% to 115%. After applying the relevant weights to each incentive component, 2007 payments for named executive officers ranged from 120% to 126% of target award opportunities. These awards were made in accordance with the provisions of the plan as established at the beginning of the year and reflect another year of very strong operating performance.

 

For additional information regarding 2007 annual incentive payments to the named executive officers, including the specific numerical levels of performance required for target, maximum and threshold incentive payouts and a summary of individual performance goals, please see the Narrative Discussion Related to the Summary Compensation Table and Grants of Plan-Based Awards Table.

 

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 Equity Incentive Compensation Plan (the “EICP”), which was approved by shareholders in 2004. 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 (“LTI”) 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.

 

A variety of different award types may be granted under the long-term plan, including stock options, stock appreciation rights (“SARs”), performance shares or units and restricted stock. Restricted stock that has only time-based vesting requirements is granted to named executive officers on a limited basis only. Most long-term incentive awards to named executive officers are performance-based. In 2007, Mr. Lyons and Ms. Golden each received 4,260 shares of restricted stock to recognize their contribution to the

successful divestiture of the Company’s Air business segment. The awards were made on March 8, 2007, and vest on the third anniversary of the grant date.

 

The grant date for regular long-term incentive awards is the day on which the second Committee meeting in each calendar year occurs. Off-cycle grants (if any) to newly hired or promoted employees will be made on the last trading date of the month following the hire or promotion date and Committee approval of the award.

 

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 and balances attention on total shareholder return and on specific financial goals, both of which are essential to the Company’s long-term success.

 

 

SAR grants to named executive officers are made at the same time as they are made to other employees. The Company has no program, plan or practice to time SAR grants to named executive officers or any other employee in coordination with the release of material non-public information.

 

Beginning with the SAR grant made in 2007, SARs vest ratably over 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.

 

2007 LTI Grants:  As noted above, 2007 LTI grants consisted of SARs and performance shares. Grants to all named executive officers were within the middle range of market practices for their respective positions. The percentage of the initial performance share grant that will be earned by each named executive officer is based on performance from 2007 to 2009. 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.

 

Pre-2007 LTI Grants:  LTI grants made prior to 2007 have been described in detail in previous proxy statements. On December 31, 2007, the earned portion of performance shares granted in 2005 vested; the number of performance shares that vested and their value on December 31, 2007 are shown in columns (d) and (e) respectively of the Option Exercises and Stock Vested Table. The earned portion of performance shares granted in 2006 will be determined at the end of calendar year 2008 based on performance during 2006 to 2008 in accordance with the payout schedule established for the performance period.

 

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 CEO and 2.5 times salary for other named executive officers.

 

As of February 1, 2008, Mr. Earl owns stock in excess of the multiple for his position. Other named executive officers own stock equivalent to the following percentages of the multiples for their positions: Mr. Kenney — 74%; Mr. Lyons — 53%; Ms. Duddy — 65%; and Ms. Golden — 20%.

 

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.

 

Change of Control Severance Protection

 

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 comparable 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 2007 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 2004 GATX Equity Incentive Compensation Plan which is applicable to all employees who receive long-term incentive awards.

 

Summary Compensation Table

 

 

 

 

Grants of Plan-Based Awards

 

 

 

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

 

Annual Incentive Awards

 

In 2007, named executive officers were eligible for annual incentive awards based on financial performance goals measured in terms of GATX consolidated net income and, except for the Chief Executive Officer, individual performance goals. Incentive components were weighted as follows:

 

 

For the GATX consolidated net income component, target incentive awards were payable at $155.4 million, or 100% of budgeted net income. Threshold and maximum incentive awards (50% and 200% of target awards, respectively) were payable at 75% and 120% or more of budgeted net income.

 

The percentage of each named executive officer’s target incentive award payable on the individual performance component ranged from 0% to 200% during 2007 based on a rating by the Chief Executive Officer of the extent to which a set of objectives relating to the officer’s primary area of responsibility was achieved. The weight placed on the individual performance component was subject to a 30% reduction if the threshold on the financial component was not achieved.

 

Key individual goals included the following:

 

• For Mr. Earl:  Achieve targeted investment volume meeting targeted returns in a disciplined manner; ensure access to railcar supply through 2010 at an attractive and advantaged cost;

 

• For Mr. Lyons:  Complete GATX/GFC merger at minimal disruption and expense; restructure staff organization in wake of Air sale;

 

• For Ms. Duddy:  Redesign the annual incentive and performance management programs for salaried employees; ensure compliance with new regulatory requirements related to executive compensation disclosure and Internal Revenue Code Section 409A; and

 

• For Ms. Golden:  Streamline the Company’s corporate structure to achieve operational efficiencies; provide legal services in an efficient and effective manner through expansion of internal staff and implementation of an external counsel strategy.

 

The ratings assigned by the Chief Executive Officer for performance against the individual goals for 2007 were 115% for Mr. Earl, 110% for Ms. Duddy, and 105% for Mr. Lyons and Ms. Golden. Based on these individual performance ratings, on the actual net income as described in the Compensation Discussion and Analysis and on the component weightings shown above, incentive payouts for performance in 2007 were made under the CICP in early 2008 and are shown in column (g) of the Summary Compensation Table. As a percentage of target incentive awards (shown in column (d) of the Grants of Plan-Based Awards Table), actual incentive payouts for named executive officers were: Mr. Kenney (125.9%), Mr. Earl (124.3%), Mr. Lyons (119.6%), Ms. Duddy (121.1%) and Ms. Golden (119.6%).

 

Equity-Based Long-Term Incentives

 

In 2007, 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 number of SARs awarded in 2007 and their grant date fair value are shown in columns (j) and (m), respectively, in the Grants of Plan-Based Awards Table. The portion of the 2007 SAR grant expensed during 2007 is shown in column (f) of the Summary Compensation Table; that column also includes portions of SAR or option grants made in previous years but expensed during 2007.

 

Performance shares are earned based on the extent to which pre-established goals on two independent and equally weighted performance measures are achieved over a three-year performance period ending on December 31, 2009. The measures are Average Return on Equity (defined as the sum of 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 (defined as the sum of consolidated cumulative GAAP basis portfolio investments and capital additions as externally reported 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. Target performance levels (at which 100% of the initial grant is earned) were set at Average Return on Equity of 15% and Cumulative Investment Volume of $2.1 billion. Threshold performance levels (below which no portion of the initial grant is earned), were set at Average Return on Equity of 12% and Cumulative Investment Volume of $1.65 billion. At the threshold, 25% of the initial grant is earned. Maximum performance levels (at or above which 200% of the initial grant is earned) were set at Average Return on Equity of 17.5% and Cumulative Investment Volume of $2.7 billion. 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 number of performance shares granted in 2007 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. The value of the portion of the 2007 performance grant expensed during 2007 is shown in column (e) of the Summary Compensation Table; that column also includes the value of portions of performance share grants made in previous years but expensed during 2007.

As noted in the Compensation Discussion and Analysis, Mr. Lyons and Ms. Golden received restricted stock awards of 4,260 shares each on March 8, 2007.

 

Outstanding Equity Awards at Fiscal Year-End

 

 

 

 

Option Exercises and Stock Vested

 

 

 

 

Pension Benefits

 

 

 

 

The present value of accumulated benefits is based on: the amount payable at normal retirement age (age 65) on December 31, 2007, using Statement of Financial Accounting Standards No. 87, Employers’ Accounting for Pensions (“FAS 87”) disclosure assumptions (6.40% interest rate, RP-2000 Combined Healthy Mortality Table) discounted to December 31, 2007 using the FAS 87 interest rate of 6.40%.

 

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 (including Ms. Golden who met the eligibility requirement of one year service in early 2007), 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 2007 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, 2007, and (b) the value of a share of the Company’s common stock on that day was $36.68. 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 2004 GATX Equity Incentive Compensation Plan. The table excludes the following payments and benefits that are not enhanced by the termination of employment following a COC:

 

 

 

 

DIRECTOR COMPENSATION