The Board of Directors (the “Board”) of GATX Corporation (“GATX”, the “Company”, “we”, “us”, or “our”) is soliciting proxies for use at the Annual Meeting of Shareholders to be held on Friday, April 24, 2015 (the “Annual Meeting”). This Proxy Statement and accompanying proxy card are being mailed to shareholders on or about March 13, 2015.

 

This summary highlights information elsewhere in this Proxy Statement and does not contain all of the information you should consider in voting. Please read the entire Proxy Statement carefully before voting your shares.

 

Only holders of our common stock as of the close of business on the record date (February 27, 2015), or their duly appointed proxies, are entitled to attend the Annual Meeting. If you hold your shares through a broker, bank or other nominee, you must bring a copy

of a statement (such as a brokerage statement) from your nominee reflecting your stock ownership as of record date in order to be admitted to the Annual Meeting.

 

If you held shares of GATX common stock as of the record date (February 27, 2015), you are entitled to vote at the Annual Meeting.

 

If your shares are registered in your name with our transfer agent, you may vote in person at the Annual Meeting. If you hold your shares through a broker, bank or other nominee, you will not be able to vote in

person at the Annual Meeting unless you first obtain a legal proxy from your nominee. For further information, please see “How do I vote?” on page 43.

 

We encourage you to review the Questions and Answers about the Annual Meeting beginning on page 43 for answers to common questions about the rules

and procedures surrounding the proxy and annual meeting process.

 

GATX has a long-standing commitment to strong corporate governance, which promotes the long-term

interests of shareholders and strengthens Board and management accountability. Highlights include:

 

Our compensation plans are directly linked to our operating performance and creation of shareholder value:

 

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more than 77% of our Chief Executive Officer’s compensation and more than 70% of our other named executive officers’ compensation is performance-based and not guaranteed

 

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a significant portion of total compensation is tied to long-term equity awards, with 54% of our Chief Executive Officer’s compensation and approximately 43% of our other named executive officers’ compensation taking the form of equity compensation

 

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equity compensation granted to our named executive officers is equally divided between performance shares, which are earned only if we meet our targeted

performance goals over a 3-year performance period, and stock appreciation rights, which have value only if our stock price increases.

In 2014, we continued the trend of strong year-over-year increases in net income, return on equity, investment volume, and earnings per share. As a result of the direct link between our performance and our compensation programs, in 2014 our executives earned above-target annual incentives (113% of target) and vesting in performance shares for the 2012-2014 performance period (137.1% of target).

We encourage you to read the Compensation Discussion & Analysis starting on page 16 for more details regarding our performance and the alignment of our executive compensation with our performance and total shareholder return.

 

Our Board is currently composed of nine directors. All nine directors are standing for election for a term of one year, to serve until the 2016 Annual Meeting of Shareholders or until their successors are elected and qualified. Other than Mr. Wilson, all directors are standing for re-election. Mr. Wilson was appointed to the Board in October, 2014 and is standing for election by the shareholders for the first time at this Annual Meeting. He was first identified as a candidate for the Board of

Directors by a third party search firm, and was appointed to the Board upon the recommendation of the Governance Committee. All of the director nominees named below have consented to serve on the Board, if elected. At the time of the Annual Meeting, if any director nominee is unable or declines to serve, the proxies may be voted for any other person who may be nominated by the Board to fill the vacancy, or the size of the Board may be reduced accordingly.

 

Anne L. Arvia

 

 

Anne L. Arvia has served as President, Nationwide Direct Distribution since August 2012. Previously, she was President of Nationwide Retirement Plans from November 2009 to August 2012, and Chief Executive Officer of Nationwide Bank, a unit of Nationwide Mutual Insurance Company, from 2006 to November 2009. Prior to joining Nationwide, Ms. Arvia served as President and Chief Executive Officer of ShoreBank, a community development and environmental bank, from 2001 to 2006. She joined ShoreBank in 1991 as Assistant Controller and was named Chief Financial Officer in 1998. Ms. Arvia serves as the Chair of the GATX Audit Committee and also serves on the Governance Committee. She is a Certified Public Accountant, qualifies as an Audit Committee Financial Expert, and provides the Audit Committee with the benefit of her experience and knowledge of accounting standards and financial reporting rules and regulations. In addition, Ms. Arvia’s experience in various senior management positions in the financial services sector provides the Board with valuable expertise on investment and financial matters.

Ernst A. Häberli

 

 

Ernst A. 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 as a member of the board of directors of Fort James Corporation. Prior to joining Fort James, Mr. Häberli served as President of Pet International and in various executive roles with the Phillip Morris Companies, Inc. and spent six years with the Boston Consulting Group in Europe and the United States. He served as a director of Smurfit-Stone Container Corp. from July 2010 to May 2011. Currently, Mr. Häberli is a member of the GATX Compensation and Governance Committees. With his consulting background and many years in senior executive positions at leading multinational companies, Mr. Häberli brings to the Board extensive operational, marketing, financial, and management experience. He also provides the Board with valuable insights into international business development, in light of his significant experience in implementing growth and development strategies in numerous emerging markets.

 

Brian A. Kenney

 

 

Brian A. Kenney has served as Chairman, President and Chief Executive Officer of GATX since 2005. Previously, he served as President from 2004 to 2005, Senior Vice President, Finance and Chief Financial Officer from 2002 to 2004, and Vice President, Finance and Chief Financial Officer from 1999 to 2002. As our Chief Executive Officer, Mr. Kenney provides the Board with the unique perspective that comes from managing the Company’s business on a day-to-day basis. His extensive financial background and expertise make Mr. Kenney uniquely well qualified to serve as Chairman of the Board as he is able to provide critical insight into the Company’s leasing business and corporate strategies. Mr. Kenney also serves on the board of directors of USG Corporation, a publicly held manufacturer and supplier of building supply products. He is the Chair of USG’s Finance Committee and also serves on the USG Governance Committee.

James B. Ream

 

 

James B. Ream served as Senior Vice President—Operations of American Airlines from January 2012 to January 2014 and as American’s Senior Vice President, Maintenance and Engineering, from January 2010 to January 2012. Before joining American, Mr. Ream served as Chief Executive Officer of ExpressJet Holdings, Inc., an operator of regional jets in North America, from 2001 to January 2010, and as ExpressJet’s President from 1999 to January 2010. He also was a director of ExpressJet Holdings, Inc. from 2002 to January 2010. Prior to joining ExpressJet, Mr. Ream held various positions of increasing responsibility with Continental Airlines and American Airlines, where his responsibilities included managing the accounting department at Continental and serving as Managing Director, Financial Planning and Analysis, for American. Mr. Ream serves as the Chair of the GATX Compensation Committee and as a member of the Audit Committee. He has financial and accounting expertise and qualifies as an Audit Committee Financial Expert. With his years of experience as a senior executive, Mr. Ream brings to the Board considerable expertise on strategic and management issues, including extensive experience relating to financing, management, maintenance, and operations of large fleets of transportation assets.

Robert J. Ritchie

 

 

Robert J. Ritchie retired as Chief Executive Officer of the Canadian Pacific Railway Company in 2006, having served in that role since 1995. Mr. Ritchie began his career with the Canadian Pacific in 1970 as a research analyst and served in a variety of increasingly responsible executive positions over his 36 years with the company, including as President from 1990 to 1995. Mr. Ritchie is a member of the GATX Audit and Governance Committees. He has financial and accounting expertise and qualifies as an Audit Committee Financial Expert. With his prior experience as a Chief Executive Officer and board member of a large, publicly held railroad company and a long career in the railway industry, Mr. Ritchie brings to the Board critical operational, industry, commercial, railcar portfolio, and management expertise. In addition, he has a wealth of knowledge about the railroad industry, which comprises a significant part of the Company’s railcar leasing customer base. Having served on numerous North American rail associations, including the board of the Association of American Railroads, Mr. Ritchie also provides valuable insights on rail regulatory matters and industry affairs.

David S. Sutherland

 

 

David S. Sutherland retired as President and Chief Executive Officer of IPSCO, Inc., a steel producer, in 2007, having served in that position since 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 2001 to 2002 and Vice President from 1997 to 2001. Mr. Sutherland currently serves as the GATX Lead Director. He contributes valuable insights based on his operational, financial and management experience as the former Chief Executive Officer of a publicly held steel producer. In addition, the Board values Mr. Sutherland’s perspective on market conditions and trends in the steel and manufacturing industries, which are critical sectors for the Company’s business. Mr. Sutherland also serves as non-executive chairman and a director of United States Steel Corporation and as a director of Imperial Oil Ltd.

 

Casey J. Sylla

 

 

Casey J. Sylla retired in 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 key 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 currently serves on the GATX Audit and Compensation Committees. He has financial and accounting expertise and qualifies as an Audit Committee Financial Expert. Mr. Sylla provides substantial management, business, and leadership experience based upon his experience as a senior executive. The Board also benefits from his perspectives on financial and investment matters due to his management experience in an investment and financial business. Mr. Sylla also serves as a trustee of Northern Funds and Northern Institutional Funds.

Stephen R. Wilson

 

 

Stephen R. Wilson retired as Chairman, President and Chief Executive Officer of CF Industries Holdings, Inc. in January, 2014, having served as President and Chief Executive Officer from 2003 to 2014, and as Senior Vice President and Chief Financial Officer from 1991 to 2003. He began his career with Inland Steel Industries, Inc. in 1974 and served in a variety of increasingly responsible positions in both finance and strategic planning. Mr. Wilson currently serves on the GATX Audit Committee and qualifies as an Audit Committee Financial Expert. Mr. Wilson’s experience in his

former role as the Chief Executive Officer of a leading manufacturer and distributor of fertilizer products provides the Board with valuable financial, operational, and business management expertise. He also has significant experience in strategic planning, transformational corporate transactions, and business integration. In addition, the Board values Mr. Wilson’s financial and accounting expertise from his experience serving as a Chief Executive Officer and Chief Financial Officer at a major publicly held corporation. Mr. Wilson also serves on the Board of Directors of Ameren Corporation and is a member of Ameren’s Audit Committee.

Paul G. Yovovich

 

 

Paul G. Yovovich is President of Lake Capital, a private equity firm he co-founded in 1998. In addition, from 1993 through its sale in 1996, Mr. Yovovich served as President of Advance Ross Corporation, a public company engaged in international financial transaction services and pollution control equipment manufacturing, and from 1982 to 1992, he served in various executive positions with Centel Corporation, a publicly held national communications company. Mr. Yovovich currently is the Chair of the GATX Governance Committee and also serves on the Compensation Committee. With over thirty years of experience as a senior executive, principal and corporate director, Mr. Yovovich brings to the Board extensive strategic, operational, financial, and business management experience. As a private equity executive, Mr. Yovovich has substantial experience investing in, and actively overseeing the management of, Lake Capital’s portfolio companies to foster growth and value creation. As a result, he also provides the Board with considerable expertise in transactional, corporate governance, and capital markets matters.

 

Directors are responsible for overseeing the Company’s business consistent with their fiduciary duties to shareholders. This important responsibility requires highly skilled people with various qualities, attributes, and professional experience. The Board has determined that all candidates for election to the Board should possess and have demonstrated the following minimum criteria:

 

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the highest level of personal and professional ethics, integrity, and values

 

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an inquisitive and objective perspective

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broad experience at the policy-making level in business, finance, accounting, government, or education

 

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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

 

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broad business and social perspective and mature judgment

 

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commitment to serve on the Board for an extended period of time to ensure continuity and to develop knowledge about our business

 

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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

 

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willingness to devote the required time and effort to carry out the duties and responsibilities of a Board member

 

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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 director 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 our business and represent shareholder interests by using their 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, skills, and other individual qualities and attributes that contribute to an active, effective Board. In this regard, while the Board does not have a formal policy with regard to the consideration of diversity, the Board believes that its efforts to achieve diversity on the Board have been effective.

 

Each year, the Board nominates a slate of director candidates for election at the Annual Meeting of Shareholders. The Board has delegated the process for screening potential director candidates to the Governance Committee with input from the Chairman and Chief Executive Officer and the Lead Director. When the Governance Committee determines that it is desirable to add a director or fill a vacancy on the Board, the Committee will identify one or more individuals qualified to become directors and recommend them to the Board. In identifying qualified individuals, the Committee seeks suggestions from other directors and generally retains a search firm for this purpose. The Committee also will consider any candidates that may be recommended by shareholders. The Committee conducts such inquiry into each candidate’s background, qualifications, and independence as it

believes is necessary or appropriate under the circumstances and regardless of whether the candidate was recommended by shareholders or by others. Any recommendations of director candidates by shareholders should be submitted to the Governance Committee, c/o the 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 shareholder submits a director candidate in accordance with the requirements specified in our By-Laws, the Governance Committee will consider such director candidate using the same standards it applies to evaluate other director candidates.

 

The Audit Committee is directly responsible for the appointment, compensation, retention, and oversight of the independent registered public accounting firm retained to audit our financial statements. The Audit Committee has appointed Ernst & Young LLP to serve as our independent registered public accounting firm for 2015. Ernst & Young also served in this capacity in 2014.

As a good corporate governance practice, we are seeking shareholder ratification of the appointment even though ratification is not legally required. While this vote

cannot be binding, if shareholders do not ratify the appointment of Ernst & Young, the Audit Committee will take the vote into account in making future appointments.

Representatives of Ernst & Young are expected to be present at the Annual Meeting. They will have the opportunity to make a statement if they so desire and will be available to respond to appropriate questions by shareholders.

 

We are seeking your approval, on a non-binding advisory basis, of the compensation of our named executive officers as described in the Compensation Discussion and Analysis section beginning on page 16. In deciding how you vote on this proposal, we encourage you to read the Compensation Discussion and Analysis for a full description of our executive compensation philosophy and programs, the decisions our Compensation Committee has made under these programs, and the factors it considers in making these decisions. As highlighted above, we believe that we have designed compensation programs that pay for performance and align compensation with the long-term interests of our shareholders.

Accordingly, the Board recommends that shareholders vote FOR the following resolution:

“RESOLVED, that the shareholders of GATX Corporation (the “Company”) approve, on an advisory basis, the compensation of the Company’s named executive officers as disclosed in this Proxy Statement pursuant to Item 402 of Regulation S-K, including the Compensation Discussion and Analysis, and the Executive Compensation Tables, together with the narrative discussion related thereto.”

 

The Board of Directors provides oversight, strategic direction, and counsel to management regarding the business, affairs, and long-term interests of GATX and our shareholders. Its responsibilities include the following:

 

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reviewing and approving our major financial objectives, strategic and operating plans, strategic transactions with third parties, and other significant actions

 

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overseeing the conduct of our business

 

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assessing our business risks to evaluate whether any changes to our business, strategy, or risk management practices may be warranted

 

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overseeing our processes for maintaining the integrity of our financial statements and other public disclosures

 

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ensuring compliance with law and ethical standards.

GATX has a long-standing commitment to strong corporate governance and ethical standards. Demonstrating this commitment, the Board has adopted the GATX Corporate Governance Guidelines, Code of

Business Conduct and Ethics, and Code of Ethics for Senior Company Officers, as well as charters of each of the Board’s committees. These documents constitute the foundation of our corporate governance structure and are available on our website (www.gatx.com) in the Investor Relations section under “Corporate Governance”.

The Board and its committees meet throughout the year on an established schedule and hold special meetings from time to time as appropriate. Following each meeting, the Board’s independent directors meet in executive sessions without the Chairman and Chief Executive Officer or other members of management present. The Lead Director serves as Chair of the executive sessions of the Board.

The Board met eight times during 2014.

During 2014, each director attended at least 75% of the meetings of the Board and the committees on which he or she served. We encourage all directors to attend the 2015 Annual Meeting of Shareholders, and in 2014, all directors then serving on the Board attended the annual meeting.

 

The Board has adopted the GATX Director Independence Standard set forth in Exhibit A to this Proxy Statement to evaluate the independence of directors and director nominees and to ensure compliance with the independence standards required by the New York Stock Exchange (“NYSE”) for listed companies. In accordance with this standard, and

considering all relevant facts and circumstances, the Board has made an affirmative determination that none of the following directors has a material relationship with GATX and that all of the following directors are independent: Anne L. Arvia, Ernst A. Häberli, James B. Ream, Robert J. Ritchie, David S. Sutherland, Casey J. Sylla, Stephen R. Wilson, and Paul G. Yovovich.

 

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Brian A. Kenney serves as our Chairman and Chief Executive Officer

 

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David S. Sutherland serves as our Lead Director

 

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8 of our 9 directors are independent under the NYSE listing standards and the GATX Director Independence Standard

 

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All of the members of the Board’s Audit, Compensation, and Governance Committees are independent

The Board believes that having our Chief Executive Officer serve as Chairman of the Board is in the best interest of our shareholders because the Chief Executive Officer’s extensive knowledge of our business and strategy provides the Board with a clear understanding of the issues facing the Company and promotes effective Board decision-making, alignment on corporate strategy, and effective execution of that strategy by management.

In selecting the Chairman of the Board, the Board believes it is important to select the most qualified and appropriate director to serve as Chairman, whether that individual is an outside director or a member of executive management. Currently, Brian A. Kenney, our Chief Executive Officer, serves as Chairman. The Board believes that Mr. Kenney is the most appropriate individual to serve as Chairman because of his extensive knowledge of our 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 GATX, which, in turn, promotes effective Board decision-making, alignment on corporate strategy, and accountability of management.

Our 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 Mr. Kenney or other members of management.

In addition, under our Corporate Governance Guidelines, the independent directors serving on the Board annually designate an independent Lead Director to provide leadership to the non-management members of the

Board and to work with the Chairman and Chief Executive Officer and the other Board members to provide effective and independent oversight of our management and affairs. Currently, David S. Sutherland serves as Lead Director. The Board’s independent directors have adopted the Lead Director Guidelines, which establish the powers and duties of the Lead Director, including the following:

 

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presiding at meetings of the Board if the Chairman and Chief Executive Officer is not present

 

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regularly convening and serving as chair of executive sessions of the independent directors

 

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serving as principal liaison between the Chairman and Chief Executive Officer and the independent directors

 

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advising the Chairman and Chief Executive Officer as to the quality, quantity, and timeliness of the flow of information from the Company’s management that is necessary for the independent directors to effectively and responsibly perform their duties

 

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in consultation with the Chairman and Chief Executive Officer, establishing the meeting schedules and agendas for each Board meeting to ensure that the Board has adequate time for discussion and consideration of matters

 

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interviewing, along with the Chair of the Governance Committee, all Director candidates and making recommendations to the Governance Committee.

 

The Board 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 listing standards of the NYSE.

Mr. Sutherland serves as Lead Director, and while he does not serve as a member of any particular Board committee, he has a standing invitation as Lead Director to attend the meetings of all Board committees. The following table shows the current membership of these committees:

 

The members of the Audit Committee are Ms. Arvia (Chair), Mr. Ream, Mr. Ritchie, Mr. Sylla, and Mr. Wilson. The Board has determined that each member of the Audit Committee has accounting or related financial management expertise and is “financially literate”, as that term is used in the listing standards of the NYSE. In addition, the Board has determined that each member of the Audit Committee is an “audit committee financial expert”, as such term is defined by the rules of the US Securities and Exchange Commission (“SEC”). All members of the Audit Committee satisfy the NYSE’s independence standards applicable to audit committee members.

The functions of the Audit Committee include retaining our independent registered public accounting firm and reviewing any related party transactions. The Committee also assists the Board in oversight of:

 

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the integrity of our financial statements

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our compliance with legal and regulatory requirements

 

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our guidelines and policies with respect to risk assessment and risk management

 

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the independent registered public accounting firm’s qualifications and independence

 

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the performance of our internal audit function and the independent registered public accounting firm.

The Audit Committee maintains free and open communication, and meets separately at each regularly scheduled Committee meeting, with our independent registered public accounting firm, our internal auditors, and management.

The Audit Committee met five times during 2014.

 

The members of the Compensation Committee are Mr. Ream (Chair), Mr. Häberli, Mr. Sylla, and Mr. Yovovich. The functions of the Compensation Committee include:

 

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assisting the Board in the discharge of its responsibilities with respect to compensation of our directors, officers, and executives

 

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general responsibility for ensuring the appropriateness of our executive compensation and benefit programs, and the criteria for awards to be issued under such programs

 

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evaluating the qualifications and independence of the Committee’s independent compensation consultant.

During 2014, the Compensation Committee engaged Pay Governance LLC (“Pay Governance”) to serve as its independent compensation consultant. In addition to

providing advice on various aspects of GATX’s compensation plans, programs and policies, Pay Governance also advises the Compensation Committee periodically on current trends and best practices and reviews the agendas and supporting materials with management and the Committee Chair in advance of each Compensation Committee meeting. A representative of Pay Governance attends all Compensation Committee meetings, including executive sessions at which management is not present, and meets independently with the Compensation Committee as appropriate. In addition, Pay Governance 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 Compensation Committee met five times during 2014.

 

The members of the Governance Committee are Mr. Yovovich (Chair), Mr. Häberli, Mr. Ritchie, and Ms. Arvia. The Committee’s functions include:

 

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identifying individuals qualified to become Board members and recommending to the Board a slate of director nominees for election at each annual meeting of shareholders

 

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ensuring that all of the Board committees have the benefit of qualified and experienced independent directors

 

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annually reviewing a matrix of director skills to ensure a diversity of relevant experience on the Board

 

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developing and overseeing an effective set of corporate governance policies and procedures designed to ensure that GATX adheres to strong corporate governance and ethical standards and complies with all applicable legal and regulatory requirements

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overseeing the evaluation of the Board’s performance and effectiveness, including the directors’ attendance and contributions to Board deliberations, and making such recommendations to the Board as may be appropriate.

The Governance Committee met four times during 2014.

 

While management is responsible for managing risk, the Board and its committees play a role in overseeing our risk management practices. We have robust internal processes and an effective internal control environment that facilitates identification and management of risk and regular communication with the Board. These include an enterprise risk management program, regular internal management disclosure committee meetings, codes of business conduct and ethics, a strong ethics and compliance program, and a comprehensive internal and external audit process.

The Board implements its risk oversight function both as a whole and through delegation to Board committees, which meet regularly and report back to the Board. In particular:

 

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Audit Committee. Under the terms of its charter and the listing standards of the NYSE, the Audit Committee plays a key role in the Board’s risk oversight process. The Audit Committee’s duties include discussing the Company’s risk assessment and risk management guidelines and policies with management, the internal auditors, and the independent registered public accounting firm. The Audit Committee also receives regular reports from management and discusses with management the steps taken to monitor and control risk exposures. In addition, the Audit Committee reviews all of our quarterly financial reports, including any disclosure therein of risk factors affecting us and our business. The Audit Committee provides regular reports to the full Board on its risk oversight activities and any issues identified thereby.

 

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Compensation Committee. The Compensation Committee receives regular reports from its independent compensation consultant and management, as appropriate, concerning our compensation plans, policies, and practices. The Compensation Committee also sets performance goals under our annual bonus and long-term incentive plans. In setting the performance targets and overseeing our compensation plans, policies, and practices, the Compensation Committee considers

the risks that may be created and whether any such risks are reasonably likely to have a material adverse impact on GATX. The Compensation Committee provides regular reports to the full Board on our compensation plans, policies, and practices and the Committee’s oversight of compensation-related risks. Each year, our human resources staff, with input from the Compensation Committee and the independent compensation consultant, conducts an assessment of the potential risks that may be created by our compensation plans, policies, and practices. This risk assessment conducted for the compensation plans, policies, and practices maintained by GATX in 2014 found that they did not create risks that would be reasonably likely to have a material adverse effect on the Company. In making this determination, we considered the overall mix of compensation for employees, as well as the various risk control and mitigation features of our compensation plans, including appropriate performance measures and targets, incentive plan payout maximums, our compensation clawback policy, and mandatory stock retention requirements for our executive officers.

 

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Governance Committee. Under its charter, the Governance Committee is responsible for, among other things, maintaining a set of effective corporate governance guidelines and procedures designed to assure compliance with all applicable legal and regulatory requirements and governance standards. The Committee also reviews the skills and experience of the directors on a regular basis to ensure the diversity of relevant experience necessary for an effective Board. The Governance Committee provides regular reports to the Board on its activities.

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

 

In addition to prohibiting our directors, officers, and employees from trading in GATX stock while in possession of material non-public information, our Insider Trading Policy also prohibits certain transactions in GATX stock that may create the potential for the interests of a director, officer, or employee to diverge from the interests of GATX and its shareholders. In particular, our

policy prohibits directors, officers, and employees from engaging in hedging transactions, short sales, and transactions in publicly traded options involving GATX stock. The policy also prohibits directors, officers, and employees from holding GATX stock in a margin account or pledging GATX stock as collateral for a loan.

 

We recognize that transactions with related parties present a heightened risk of real or perceived conflicts of interest and, therefore, may raise questions as to whether those transactions are consistent with the best interests of GATX and its shareholders. Accordingly, we have a formal, written policy, which requires that all related party transactions are subject to review and approval by the Audit Committee. A “related party transaction” means any transaction (or series of transactions) valued at over $120,000 in which GATX is a participant and in which any “related party” has or will have a direct or indirect material interest. Our policy defines a “related party” to include all of our directors and executive officers, holders of more than 5% of our voting stock, and the immediate family members of those persons.

Under our policy, the Audit Committee will approve a related party transaction only if it determines that the

transaction is in, or not inconsistent with, the best interests of GATX and its shareholders, including, for example, situations where:

 

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the transaction may enable us to obtain products or services of a nature, quantity or quality, or on other terms, that are not readily available from alternative sources

 

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the transaction is on “arm’s length” terms comparable to the terms on which we provide products or services to unrelated third parties or to our employees generally.

Upon completion of its review, the Audit Committee will approve or disapprove the related party transaction. In approving any related party transaction, the Audit Committee also will make a determination that the transaction does not constitute a conflict of interest under our Code of Business Conduct and Ethics.

 

As of December 31, 2014, BlackRock, Inc. (including its affiliated entities) was the beneficial owner of approximately 6.0% of our outstanding common stock. BlackRock also provides investment management services to our pension plans in the United States and in the United Kingdom. During the year ended

December 31, 2014, the total amount of the fees paid by GATX to BlackRock for investment management services was approximately $264,636. The aggregate amount of our pension assets under management by BlackRock as of December 31, 2014 was approximately $215.9 million.

 

As required by our By-Laws, we indemnify our directors and officers to the fullest extent permitted by the New York Business Corporation Law. In addition, we have entered into indemnification agreements with each member of the Board that contractually obligate us to provide this indemnification to our directors.

Pursuant to the New York Business Corporation Law and our By-Laws, we also maintain insurance policies

that provide liability protection to our directors and officers for claims for which they may not be indemnified by the Company. These insurance policies also provide reimbursement to GATX for indemnification payments we make on behalf of our directors and officers, subject to the conditions and exclusions specified in the policies.

 

GATX shareholders and other interested parties may, at any time, communicate directly with the Board, any of our directors (including the Lead Director), or our non-management directors as a group through the office of our Corporate Secretary as follows:

 

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by mail addressed to the Board, any director, or the non-management directors as a group, c/o the Corporate Secretary, GATX Corporation, 222 West Adams Street, Chicago, Illinois 60606

 

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electronically by sending an e-mail to contactboard@gatx.com

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anonymously by telephone by calling (888) 749-1947.

Our Corporate Secretary will review communications received by any of these methods and forward the communication promptly to the Board, the directors, the Lead Director, or the non-management directors as a group, as appropriate, depending on the subject matter and facts and circumstances described in the communication.

Communications that are not related to the duties and responsibilities of the Board, are patently frivolous, or are otherwise considered to be improper for submission to the intended recipient(s), will not be forwarded.

 

This Compensation Discussion and Analysis (“CD&A”) describes our compensation philosophy and programs, the compensation decisions the Compensation Committee made under those programs, and the factors considered in making those decisions. This CD&A focuses on the compensation of our named executive officers or “NEOs” for 2014, who were:

 

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Brian A. Kenney – Chairman of the Board, President and Chief Executive Officer

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Robert C. Lyons – Executive Vice President and Chief Financial Officer

 

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James F. Earl – Executive Vice President and President, Rail International

 

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Thomas A. Ellman – Executive Vice President and President, Rail North America

 

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Deborah A. Golden – Executive Vice President, General Counsel and Corporate Secretary

 

GATX once again delivered record performance in 2014.¹ Highlights of our performance include:

 

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Net income increased by 24.4% to $205.0 million, a $40.2 million increase over 2013

 

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Our earnings per diluted share increased by 28% over 2013 to $4.48

 

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Our total investment volume for the year was up 19.9% over 2013, increasing to $1,030.5 million from $859.6 million

 

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Return on equity, excluding tax adjustments and other items, also improved to 15.1% from 12.5%.

Our record performance was due primarily to realizing historically high lease rates for extended terms in the North American tank car market, maintaining high railcar fleet utilization in North America and Europe, and generating strong asset remarketing income.

 

We strive to be recognized as the finest railcar leasing company in the world by our customers, our shareholders, our employees, and the communities where we operate. As the global leader in full-service railcar leasing, we provide a diverse fleet of railcars and high-quality services to our customers in a variety of industries. Our business is cyclical in nature and we have successfully executed on our strategic plans throughout these cycles.

Our record 2014 performance was a continuation of years of growth in our net income, earnings per share, and return on equity since the economic downturn in 2009. The charts on the next page show our financial performance through the most recent business cycle (2008-2014) and the close nexus between our performance and our Chief Executive Officer’s total compensation for the same period.

 

The chart below illustrates the returns we delivered to our shareholders from 2008 to 2014. Over this same time frame, our Chief Executive Officer’s compensation has remained relatively flat with year-to-year volatility in line with our annual financial performance as highlighted above. Since 2008, a year with a similar business climate

to 2014, total direct compensation for our CEO has increased by 8.7%, a compound annual growth rate of approximately 1.4%, while Total Shareholder Return increased 125%, a compound annual growth rate of approximately 14.5%.

 

Our compensation programs are designed to reward our executives for contributing to achievement of our annual and long-term objectives. We set robust goals in order to align such rewards with creation of long-term value for our shareholders. The following graphs show our compensation

plan goals for 2014, and our actual achievement against such goals, for each of net income, return on equity, and investment volume. All three of these measures are metrics that we use for paying out our annual and long-term performance incentives.

 

Return on Equity Performance³

 

 

Investment Volume Performance

 

 

 

At our 2014 Annual Meeting of Shareholders, approximately 98% of shareholder votes were cast in favor of an advisory resolution approving the compensation of our named executive officers as disclosed in the 2014 proxy statement (the “say on pay” vote). The Compensation Committee believes that the overwhelming shareholder vote in favor of

the say on pay resolution was an affirmation of shareholders’ support of our approach to executive compensation, and, therefore, our Compensation Committee did not make any specific changes to its executive compensation plans or programs as a result of the vote.

 

Our executive compensation program is structured to provide compensation opportunities that:

 

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reflect the competitive marketplace in which we operate

 

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appropriately balance executive focus between annual and long-term objectives

 

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align the interests of management with those of our shareholders

 

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attract, motivate, and retain key executives who are critical to our long-term success.

Within this framework, our compensation program has been developed with the following key principles in mind:

 

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A significant portion of compensation should be performance-based. Through annual and long-term incentive awards, our executives are encouraged to focus attention on a combination of critical strategic

and financial goals. The weight placed on each of these goals may vary from time to time depending on our strategies and operating environment.

 

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On a relative basis, long-term incentive opportunities should be emphasized more heavily than short-term incentive opportunities. We invest predominantly in long-lived assets and the outcomes of key decisions are often not realized for several years. Creating long-term economic value should outweigh focus on short-term results.

 

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A meaningful equity stake helps ensure that executive and shareholder interests are aligned. We accomplish this by granting our executives equity incentives in GATX stock and through our mandatory stock ownership and stock retention policies, which are intended to ensure that executives acquire and retain a meaningful equity stake in GATX.

 

We believe that our compensation program is consistent with the foregoing principles.

We have three elements of total direct compensation: base salary, annual incentive, and long-term equity compensation. We also provide various retirement and benefit programs, which generally are available to all employees. More than 77% of total direct compensation

for our Chief Executive Officer for 2014 was performance-based and not guaranteed. The following graph provides a snapshot of the elements of our compensation program for our CEO and describes why each element is provided. Additional information about each of the elements is described in more detail below.

 

Base salary constitutes approximately 23% of total targeted compensation for the CEO (approximately 34% for our other NEOs), which is consistent with our philosophy that a majority of executive compensation should be performance-based.

In establishing salary levels, we typically consider market pay levels, the specific responsibilities and experience of the NEOs, and his or her individual performance. Base salaries may be adjusted during the Compensation Committee’s annual review for:

 

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annual merit increases

 

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changes in role, such as promotions or added responsibilities

 

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market adjustments.

Based upon the Compensation Committee’s annual review of compensation, Mr. Kenney and Mr. Earl each earned a 3% base salary merit increase for 2014, which was consistent with the annual merit increases granted to other salaried employees. Mr. Lyons and Ms. Golden received 14% and 7% base salary increases for 2014, respectively, reflecting a 3% annual merit increase and additional increases recognizing their experience and excellent performance in their roles. Mr. Ellman received a base salary increase of 6% for 2014 reflecting both a 3% merit increase and an additional increase for his strong performance following his recent appointment as Executive Vice President and President, Rail North America.

While the Company’s annual merit increases will again reflect an average increase of 3% for 2015, Mr. Kenney’s base salary will remain unchanged from its 2014 level.

 

Target incentive opportunities for NEOs are expressed as a percentage of base salary and are intended to be competitive with the market. Please see The Determination of Market Competitive Pay on page 25 for a description of how we determine competitive pay levels. For 2014, our NEOs’ target incentive opportunities

remained unchanged from 2013 levels. Mr. Kenney’s target incentive opportunity for 2014 was 100% of his base salary. The target annual incentive opportunities for our other NEOs for 2014 were 70% of base salary for Messrs. Lyons and Earl, and 60% of base salary for Ms. Golden and Mr. Ellman.

 

Our NEOs earn their annual incentive awards under our Cash Incentive Compensation Plan (the “CICP”) based on achievement of pre-established financial performance goals. The CICP is designed to arrive at a maximum possible incentive award, which then may be reduced by the Compensation Committee based on such other metrics as it may determine appropriate. This design is intended to meet the requirements for tax deductibility of our annual incentive, while providing the Compensation Committee the flexibility to adjust performance metrics as necessary to meet our strategic business needs.

Under the CICP a maximum bonus of 0.75% of “Total Gross Income Less Total Ownership Costs” (as such term is defined in the CICP) is earned. However, as previously mentioned, the Compensation Committee does not expect to pay the full amount. Rather, it has historically measured performance against targeted net income and determined bonuses based on achievement

against a net income goal. The Compensation Committee has chosen net income as the goal as it provides executives with a strong incentive to increase our profitability.

At the beginning of each year, the Compensation Committee, after reviewing recommendations from management, approves a schedule establishing the incentive opportunities payable at various levels of financial performance. The level of financial performance required for the payment of maximum incentive opportunities is established based on the Compensation 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 GATX and its industry in particular. This process is essentially reversed to establish the threshold or minimum performance level, defined as the level of financial performance below which no incentive is payable.

 

2014 Annual Incentive Plan Payouts. Net income for 2014, excluding a favorable non-operating adjustment of $15.7 million related to a change in the accounting estimate of depreciable lives for railcars, was

$189.3 million, which was 109.0% of the target level of performance. Based on the bonus table shown above, this level of performance resulted in incentive payouts of 113.5% of the target award level to the NEOs.

 

We set target long-term incentive opportunities for our NEOs to be competitive with the market. We divide the value of the regular, annual long-term incentive awards to each NEO equally between stock-settled stock appreciation rights (“SARs”) and performance shares. We chose this combination of grant types because it focuses executive attention on total shareholder return and on specific financial goals, both of which are essential to our long-term success.

The grant date for regular long-term incentive awards is the date of the Compensation Committee’s first meeting

of each calendar year. We grant SARs to NEOs at the same time we grant them to other employees. SARs vest ratably over a three-year period and expire after seven years. We have no program, plan or practice to time SAR grants to NEOs or any other employees in coordination with the release of material non-public information. We generally make off-cycle grants (if any) to newly hired employees on the last trading date of the month following the hire date and Compensation Committee approval of the award.

 

SARs. SARs are granted to align the interests of our NEOs and other employees with our shareholders. SARs are granted at a price equal to fair market value (the average of the high and low trading prices of our common stock on the date of grant) as approved by the Compensation Committee. Because total shareholder return is comprised of stock price appreciation and dividends, dividend equivalents are attached to SARs. We believe that rewarding both components of shareholder return better aligns management and shareholder interests. Dividend equivalents accrue until vesting and are paid in cash thereafter until the SAR is exercised or expires. Because the value of dividend equivalents is fully factored into the determination of grant size, recipients receive no additional compensation; the number of SARs granted are correspondingly smaller than they would be if dividend equivalents were not attached because the value of each SAR is higher.

Performance Shares. Performance shares are designed to focus attention on, and to reward the achievement of,

our long-term financial and strategic objectives. The Compensation Committee establishes the goals for which the performance shares may be earned at the beginning of a three-year performance period rather than annually. At the end of the performance period, a percentage ranging from 0% to 200% of the number of shares initially awarded will be earned based on the extent to which the three-year goals are achieved. The value of each earned performance share equals the price of one share of our common stock at the end of the performance period, with payment of earned performance shares made in the form of GATX common stock.

 

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Performance Metrics Design. Performance shares are earned based on achievement of a specified level of “Total Gross Income Less Total Ownership Costs” (as such term is defined in the GATX 2004 Equity Incentive Compensation Plan and the GATX 2012 Incentive Award Plan) at the end of the performance period. If the goal is not met, the entire performance share award is cancelled. If the goal is met, the

 

Compensation Committee may reduce, but not increase, the number of performance shares otherwise payable based on the achievement of other long-term performance objectives established at the beginning of the performance period. This design is similar to our annual incentive plan as it is intended to meet tax deductibility requirements while also providing the Compensation Committee the flexibility to adjust performance metrics as necessary to meet our strategic business needs.

 

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Dividends Paid only on Performance Shares Earned. Accumulated dividend equivalents are paid on the number of performance shares, only if earned, at the end of the performance period.

 

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Cash Election Feature. Beginning with the 2014-2016 performance share awards, participants have the opportunity to elect to receive their performance share payout in the form of cash, if the participant meets one of two conditions: (1) the

participant has exceeded 150% of his or her stock ownership goal or (2) the participant has met his or her stock ownership goal and is within five years of retirement under the Company’s pension plan. This election must be made no later than the November 30 immediately prior to the end of the performance period. The cash value will be determined based on the number of shares earned multiplied by the fair market value of GATX stock on the day the award is earned. This optional cash election feature was implemented to address the accumulation of high concentrations of GATX stock beyond the required stock ownership requirements and limited opportunities to diversify due to restrictions related to the trading of GATX stock, such as insider trading blackouts. As such, the Compensation Committee believes that there should be an appropriate balance between our compensation programs and philosophy and the participants’ needs for moderate and transparent diversification as they approach retirement.

 

Formula for Determining Award Numbers. In 2014, we determined the actual number of performance shares awarded by dividing the performance share award value by the average closing prices of GATX stock on the four Fridays immediately preceding the Compensation Committee meeting at which the grant was awarded. The number of SARs awarded is determined using the same average closing price and the Black-Scholes value.

2014-2016 Performance Share Measures and Goals. In addition to the Total Gross Income Less Total Ownership Costs threshold goal specified in the GATX 2012 Incentive Award Plan, the number of performance shares that will be earned in 2016 will also be subject to two equally weighted measures:

 

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three-year average return on equity

 

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three-year cumulative investment volume.

These measures reflect our objectives for sustained profitability and growth. Please see 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 beginning on page 29 for a discussion of the numerical goals established for both performance measures, the definition of the measures, and the percentage of the initial grant of performance shares payable at the threshold, target, and maximum levels of actual performance. For the 2014-2016 performance period, the NEOs can earn 100% of the shares awarded provided the Company achieves a 13% average return on equity and $2.05 billion in cumulative investment volume over the three-year performance period.

These two performance measures work together to establish an appropriate balance between achieving a meaningful return for our shareholders while holding to a disciplined investment strategy. The cumulative investment volume target is determined by market conditions and the level of asset prices. The Board strives to incentivize management to invest relatively more aggressively when asset prices are low and less aggressively when asset prices are high.

 

As shown on the charts on page 18, the three-year average return on equity for the period was 11.8% versus a goal of 10.0% (return on equity improved steadily over the three-year performance period — 10.2% in 2012, 12.0% in 2013, and 13.1% in 2014), and the cumulative investment volume for the period was $2.5 billion, which exceeded the goal of

$2.3 billion. Based on these results, performance share payouts were 137.1% of target. For details regarding the 2012-2014 performance share payments to the NEOs, please see the Option Exercises and Stock Vested Table on page 31.

 

We sponsor a standard array of retirement, health, and welfare benefits. Our retirement programs include 401(k) and defined benefit pension programs, 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. NEOs 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 our NEOs in excess of those provided to other salaried employees generally.

No perquisites were paid to NEOs in 2014.

 

Change in Control Agreements. We have entered into agreements with our NEOs which provide 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 COC agreements are “double-trigger” agreements, meaning that benefits are payable only if a COC occurs and an executive’s employment is terminated, or constructively terminated. The key terms of these agreements are summarized in the Executive Compensation Tables section of this Proxy Statement under Potential Payments upon Termination or Change of Control on page 32. Since 2009, we have not entered into any new COC agreements that provide excise tax gross-up benefits, and we do not intend to offer this feature in the future. We do, however, have older agreements entered into in 2009 or earlier that have excise tax gross-up benefits. In the event that we amend

such agreements for any reason in the future, we will eliminate such excise tax gross-ups.

Double-Trigger Equity Vesting. The vesting of equity awards upon a COC is determined under the GATX 2004 Equity Incentive Compensation Plan or the GATX 2012 Incentive Award Plan, as applicable, and related grant agreements. These terms apply to all employees who receive long-term incentive awards. In addition, all grant agreements require both a COC event and an executive’s actual or constructive termination before vesting is accelerated.

 

The Compensation Committee regularly reviews with the independent compensation consultant:

 

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the competitiveness of our compensation program

 

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the competitiveness of each NEO’s compensation

 

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recent developments and current trends in executive compensation practices.

Our human resources staff and the Chief Executive Officer also provide input to the Compensation Committee regarding base salary increases, target level annual incentives, long-term incentive awards, and the

goals applicable to earning such compensation. After reviewing these recommendations, the Compensation Committee determines and approves the compensation of each NEO, as well as the performance goals. Our Chief Executive Officer, however, does not participate in, nor is he present during, any discussions of his own compensation. Such discussions occur during the Compensation Committee’s executive sessions. The Compensation Committee also reviews its pay decisions regarding our Chief Executive Officer with the other independent directors on the Board.

 

We have structured our compensation programs to provide total direct compensation opportunities comparable to the median range of opportunities provided by companies of similar revenue size to GATX (which we refer to as “competitive” or “market” pay levels throughout this Proxy Statement). Because we have no direct peers in the railcar leasing business for which relevant compensation data is available, gathering information on competitive pay levels with precision for our particular industry is not possible. Instead, the Compensation Committee, with assistance from our human resources staff and the independent compensation consultant, regularly reviews information on pay for executives as reported in national compensation surveys published by Aon Hewitt and Towers Watson for organizations of similar revenue as ours.

These surveys include general, non-company specific compensation information, on an aggregate basis, for approximately 220 public companies with annual revenues between $1-3 billion. We use these surveys to better understand current compensation practices at other companies of similar revenue size and as a data point to assist us in meeting our goal of having the various elements of compensation be market-competitive.

While these surveys are a starting point for our compensation review process, actual compensation decisions with respect to specific individuals are influenced by a variety of factors in addition to the surveys, including experience, tenure, skills, unique responsibilities, individual performance, and our specific talent requirements.

 

To underscore the importance of stock ownership, we have established mandatory stock ownership and stock retention policies for our NEOs and other members of senior management. These policies require that each executive must retain shares of GATX stock having a value equal to 50% of the after-tax profits realized from GATX equity awards until the executive owns GATX shares 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 NEOs.

As of January 31, 2015, all of our NEOs had exceeded their respective stock ownership requirements, having achieved the following approximate percentages of their respective requirements: Mr. Kenney (252%), Mr. Lyons (271%), Mr. Earl (400%), Mr. Ellman (144%), and Ms. Golden (215%).

 

We have a policy which provides for the recovery of all or part of any bonus or other compensation paid to an executive officer that was based upon the achievement of financial results that were subsequently restated. In the event of a material restatement of our financial results, the Board, or a committee designated by the Board, will review the facts and circumstances that led to the restatement and will take such action as it deems necessary or appropriate. The Board will consider whether any executive officer received excess compensation because the original financial statements

were incorrectly presented. In addition, the Board 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.

Under such policy, the Board may also, depending upon the facts and circumstances, take disciplinary action, up to and including termination of employment, or decide to pursue other available remedies, including, but not limited to, canceling stock-based awards.

 

Our incentive compensation programs have been designed and administered in a manner generally intended to preserve federal income tax deductions. However, the Compensation Committee considers the

tax and accounting consequences of utilizing various forms of compensation and retains the discretion to pay compensation that is not tax deductible or could have adverse accounting consequences for GATX.

 

The independent compensation consultant, Pay Governance, has been retained by, and reports directly to, the Compensation Committee and does not have any other consulting engagements with management or GATX. The Compensation Committee has assessed the independence of Pay Governance and its employees working on GATX matters pursuant to applicable SEC rules and NYSE listing standards and determined that no conflict of interest or independence concerns exist.

With respect to Chief Executive Officer compensation, Pay Governance provides an independent recommendation to

the Compensation Committee in the form of a range of possible outcomes, for the Committee’s consideration. In developing its recommendation, Pay Governance relies on its understanding of GATX’s business and compensation programs and Pay Governance’s independent research and analysis. Pay Governance does not meet with our Chief Executive Officer with respect to his compensation. In addition to advising on Chief Executive Officer Compensation, Pay Governance reviews the Chief Executive Officer’s recommendations on compensation of his direct reports.