Performance Share Units

Transcription

1 Performance Share Units

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3 Table of Contents An Overview of Your Performance Share Unit Award...2 at-a-glance...3 How Total Shareholder Return (TSR) Is Calculated...4 How Your Award Is Determined...6 Changes that May Affect Your Award...8 General Tax Considerations Contact UBS for Questions or More Information

4 An Overview of Your Performance Share Unit Award Recognition of Your Leadership As a senior leader at Tyco, you play a unique and tremendously important role. Your vision, leadership and performance have a significant impact on the return our shareholders receive from their investment in Tyco. Your Performance Share Unit award is a recognition of this linkage; you benefit directly when you deliver the results that create value for our shareholders over time. What Are? (PSUs) are units that track the value of Tyco common stock. Your award value can increase in two ways the number of PSUs you actually earn increases if we exceed our performance goal and the value of the PSUs increases if Tyco s stock price increases. As a result, you share in the value that you help create. You are awarded a target number of PSUs on your initial grant date. The actual number of PSUs you receive could be lower or greater than the target amount based on the achievement of performance goals (you can earn from 0% to 200% of your target PSUs). The actual number of PSUs awarded to you is determined at the end of the three-year performance cycle. At that time, you will receive shares of Tyco common stock equal in number to the final number of PSUs awarded to you based on the performance goal level. Your performance goal for the Performance Share Unit award is based on Tyco s Total Shareholder Return, or TSR, as compared to companies in the S&P 500 Industrials Index the same types of companies investors consider when deciding whether or not to invest in Tyco. TSR measures the percentage change in Tyco s stock price using starting and ending 20-day average closing stock prices with an adjustment for reinvestment of dividends paid during that time period. Stock price performance is a key component in Tyco s TSR calculation. Our stock price will increase if we attract new investors who will want to buy Tyco shares if we outperform our competitors for equity capital. PSUs are an important component of our overall incentive compensation strategy along with the Annual Incentive Plan and the Stock Option and Restricted Stock Unit awards. The AIP rewards us for our financial results based on performance goals we set each year, and the Stock Options and Restricted Stock Units reward us for our efforts in creating shareholder value over time. In turn, PSU awards are based on our performance compared to the performance of other companies, which ultimately will determine our long-term success. To fully understand your PSU award, please carefully review the enclosed Terms & Conditions. 2

5 at-a-glance Measure Eligible Employees Timing of Grants Performance Period Vesting Payout Opportunity Your award for this year is based on our three-year annualized TSR performance as compared to the TSR performance of companies in the S&P 500 Industrials Index. Please review the enclosed Terms & Conditions for this year s performance objective. Officers and Band 1 and 2 employees are eligible. To receive a Performance Share Unit award, you must be a regular full-time employee of Tyco as of the grant date. Your Performance Share Unit award will be granted at the start of each new fiscal year, along with the Stock Options and Restricted Stock Unit awards. TSR will be measured for the time period between the grant date and the end of the performance period for Tyco and the companies in the S&P 500 Industrials Index. You vest in your award at the end of the three-year performance cycle based on the achievement of performance goals. You may receive 0% to 200% of your target grant, based on the percent rank of Tyco s TSR as compared to the TSR of the companies in the S&P 500 Industrials Index. The Tyco Compensation and Human Resources Committee set the TSR performance targets for the Performance Share Unit award. The value you realize will reflect the value of Tyco s stock price on the vesting date. 3

6 How Total Shareholder Return (TSR) Is Calculated The calculation used to measure TSR for considers the starting and ending closing stock prices and applies a total return factor to capture the value of reinvested dividends.* Key Inputs Starting Stock Price Tyco s average closing stock price for the 20 trading days immediately prior to the start of the performance period. Ending Stock Price Tyco s average closing stock price for the final 20 trading days in the performance period. Total Return Factor The product of dividend reinvestments for all quarters in the performance period. This approach ensures that the value of reinvested dividends are reflected in the total value used to calculate TSR. TSR Formula TSR = (Ending Price x Total Return Factor) Starting Price TSR is then annualized for the three years in the performance period. The following example illustrates the TSR calculation using hypothetical stock prices and dividend payments. * Standard & Poor s methodology will be used to calculate our TSR at the end of the performance period. The use of the total return factor reflects Standard & Poor s usual methodology for measuring the TSR. 4

7 Sample TSR Calculation (All values are illustrative) Period Dividend per Share Month-end Stock Price Shares Credited for Reinvestment of Dividend Quarterly Return Factor (a) (b) (c = a / b) (d = 1 + c) Q1/2009 $0.20 $ Q2/2009 $0.20 $ Q3/2009 $0.20 $ Q4/2009 $0.20 $ Q1/2010 $0.20 $ Q2/2010 $0.20 $ Q3/2010 $0.20 $ Q4/2010 $0.20 $ Q1/2011 $0.20 $ Q2/2011 $0.20 $ Q3/2011 $0.20 $ Q4/2011 $0.20 $ Total Return Factor (S&P Standard Methodology) Ending Price per Share (20-day average close) TSR Ending Value per Share Starting Price per Share (20-day average close) TSR (3-year annualized) x $49.75 $52.49 $ % Total Return Factor is the product of the Quarterly Return Factors. The Total Return Factor calculation recognizes the value of (1) dividends credited on a single share during the performance period and (2) the value of new dividends credited on previously credited dividends. 5

8 How Your Award Is Determined You Can Earn up to 200% of Your Target Award You can earn from 0% up to 200% of your target shares depending on Tyco s TSR performance against the TSR performance of the companies in the S&P 500 Industrials Index. Reaching Our Target Performance As illustrated in the TSR Performance Targets table, PSUs offer you significant upside potential if we exceed the 50 th percentile target. Even if we fall short of this target, you will earn a portion of your shares as long as we reach the 35 th percentile performance threshold. No shares will be earned below this threshold. In the event that Tyco s TSR is a negative percent at the end of the period, the maximum number of shares you can earn is capped at 125% of target. TSR Performance Targets Tyco TSR Percentile Rank as Compared to the S&P 500 Industrials % of Target Award Earned* At or Above 75 th Percentile (Maximum) 200% 50 th Percentile (Target) 100% 35 th Percentile (Threshold) 40% Below 35 th Percentile 0% * Your actual award will reflect Tyco s TSR percent rank using the above schedule. You must be employed by Tyco as of the vesting date to be eligible to receive 100% of your actual award, except under certain circumstances as described in the Changes that May Affect Your Award section on page 8. The individual maximum award is capped at 200% or $15 million, whichever is less. The Value of Your Award The total value of the PSUs you earn is determined in part by the Tyco common stock price at the end of the performance cycle. Simply put, the total value is equal to the number of PSUs awarded to you (based on the performance measure) multiplied by the Tyco share price. Three Key Factors Determine Your Award Value Your award value is determined by your target shares, Tyco s TSR percent rank vs. the S&P 500 Industrial companies and Tyco s share price at the end of the cycle. 6

9 Driving Tyco s TSR Performance Your commitment and contribution to Tyco s key performance indicators Revenue Growth, Margin and Capital Productivity can positively affect our TSR and the value of your PSU award. Revenue Growth measures growth of the revenue we generate, at a constant currency over a given period, excluding acquisitions, dispositions and divestitures. We can impact Revenue Growth by improving market share, introducing new products, entering new markets and effective pricing. Operating Income measures our ability to generate profits from revenue by how efficiently we manage our business and the associated costs of doing business. Our operating income improves when we reduce costs, improve procurement and sourcing practices, increase efficiencies within our businesses, and achieve operational excellence. Capital Productivity measures how effectively we use the money invested in operations. A key component to this measurement is capital turnover the dollars in sales we generate as compared to the dollars invested in our businesses. We will increase our capital productivity if we can increase sales without new investment or by lowering the costs of making new sales. For our manufacturing businesses, this can include working capital days or inventory turnover. For our services businesses, this can include the cost of adding new customers and customer turnover. Annual Report As a stockholder, you are entitled to receive a copy of Tyco s Annual Report. You can access an online copy in the Investor Relations section of While performance throughout the cycle is important, the value of your award is based on results measured at the end of the cycle. An Example of What You Can Earn Here is an example of how value might vary based on different combinations of performance results and Tyco s share price: TSR Performance Level Share Price x Shares Earned = Grant Value Target Shares at Start of 3-Year Cycle = 1,000 Below Threshold Shares Earned = 0 At Threshold Shares Earned = 400 At Target Shares Earned = 1,000 At Maximum Shares Earned = 2,000 $30 x 0 = $0 $35 x 0 = $0 $40 x 0 = $0 $45 x 0 = $0 $30 x 400 = $12,000 $35 x 400 = $14,000 $40 x 400 = $16,000 $45 x 400 = $18,000 $30 x 1,000 = $30,000 $35 x 1,000 = $35,000 $40 x 1,000 = $40,000 $45 x 1,000 = $45,000 $30 x 2,000 = $60,000 $35 x 2,000 = $70,000 $40 x 2,000 = $80,000 $45 x 2,000 = $90,000 7

10 Changes that May Affect Your Award Changes in your employment status may impact the amount of your Performance Share Unit award and are described below. Please refer to the enclosed Terms & Conditions for more detail. If your employment ends or changes due to Retirement or Normal Retirement less than 12 months after the grant date (see retirement descriptions on page 9) Retirement 12 months or more after the grant date Normal Retirement 12 months or more after the grant date Resignation or involuntary termination before the end of the performance cycle Involuntary termination (not for cause) due to a divestiture or outsourcing Termination for cause Death or total and permanent disability Qualifying termination following a Change in Control** Change in Control with no termination*** Here s what happens to Performance Share Units Unearned awards are forfeited. Awards are earned on a pro-rata basis* and paid at the end of the performance cycle based on the attainment of performance goals. Awards are earned and paid at the end of the performance cycle based on the attainment of performance goals. Unearned awards are forfeited. Awards are earned on a pro-rata basis* and paid at the end of the performance cycle based on the attainment of performance goals. Unearned awards are forfeited. Awards are earned on a pro-rata basis* and paid at the end of the performance cycle based on the attainment of performance goals. In the event of death, Performance Share Unit awards are issued to your estate or designated beneficiary. Unearned awards are fully vested at target and paid as soon as possible following termination. Award will continue to vest at target and the performance goals will no longer be applicable. * Whenever pro-ration of awards applies, it is based on the number of full months you have completed under the applicable performance period. ** Qualifying termination includes termination of employment, death or permanent disability. Retirement and Normal Retirement vesting rules are not applicable following a Change in Control. *** Retirement and normal retirement vesting rules are not applicable following a change in control. 8

11 Retirement As defined in the 2004 Stock and Incentive Plan, your age and years of service determine your retirement classification: Retirement. Your final employment date is on or after your 55 th birthday and the sum of your age plus your full years of service with Tyco equals at least 60. Normal Retirement. Your final employment date is on or after your 60 th birthday and the sum of your age plus your full years of service at Tyco equals at least 70. Please Note: Due to Age Discrimination Regulations, retirement provisions may not apply to all employees. Please refer to the enclosed Terms & Conditions to determine if the retirement provisions apply to you. If you have questions about other changes in your employment status, please call UBS Financial Services (UBS) at or internationally. The UBS call center is available from 3 a.m. to 11 p.m. ET, Monday through Friday. 9

12 General Tax Considerations U.S. based executives. Your Performance Share Unit award is taxable when Tyco s Board of Directors authorizes payment of your award and delivers your PSU related shares to you. The fair market value of the shares eventually awarded to you is taxable as ordinary compensation income on the payment date and is subject to applicable withholding taxes at that time. You may satisfy your withholding obligation by remitting cash to UBS or by directing the sale of sufficient shares to cover your withholding obligation, subject to applicable legal requirements. Your holding period for capital gains purposes begins on the date following the payment date. Non-U.S. based executives. The tax treatment of PSU-related shares varies by country and you will receive country-specific tax information. Please consult a local financial or tax advisor for information specific to your situation. 10

13 Contact UBS for Questions or More Information UBS Financial Services Inc. (UBS) is the administrator of Tyco s LTI Program and maintains all records related to your awards. UBS has a team of customer service representatives dedicated to Tyco along with online capabilities to help you manage your account. If you decide to sell your shares, commission fees and other transaction fees will apply. Questions Regarding Your Equity Award Please Contact UBS Directly Visit UBS at Call UBS Monday through Friday, from 3 a.m. to 11 p.m. ET. U.S. employees call toll-free: STK-TYCO ( ) Non-U.S. employees: Regular Mail UBS Financial Services Inc. Corporate Employee Financial Services P.O. Box 787 Weehawken, NJ USA Registered and Overnight Mail UBS Financial Services Inc. Corporate Employee Financial Services 300 Lighting Way, 1 st Floor Secaucus, NJ USA Change of Address All address changes must be processed through your local payroll department. 11

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15 Important Information This brochure provides a brief description of the Performance Share Unit award component under the Tyco Long-Term Incentive Program. The information contained in this brochure is for informational purposes only and should not be considered a substitute for the plan document or individual grant documents. If there is any discrepancy between the information contained in this brochure and the plan document, final interpretation of the plan will be governed by the plan document. All plan provisions are subject to local-country laws and statutory requirements. If you have any questions regarding your award, please contact your local Human Resources professional or Equity Plan Administration. The plan is discretionary in nature and may be amended or terminated by Tyco (by action of our Board of Directors) at any time. All decisions with respect to any performance share award will be at the sole discretion of Tyco. Your participation in the plan shall not create a right to further employment with your employer and shall not interfere with the ability of your employer to terminate your employment relationship at any time, with or without cause. Performance Share Unit awards are not part of normal or expected compensation or salary for any purposes including, but not limited to, calculating any severance, redundancy, future incentive awards, long-service awards, pension or retirement benefits, or similar payments.

16 Tyco International, 9 Roszel Road, Princeton, NJ October 2009