ADT 2007 Annual Report Download - page 46

Officer, all of our officers that are considered ‘‘Section 16’’ officers for purposes of reporting beneficial
ownership under the Securities and Exchange Act of 1934, and certain other key executives
(collectively, the ‘‘Senior Officers’’). Our Compensation Committee reviews, analyzes and approves the
design of our executive compensation programs, and in so doing relies on a compensation consultant
(who is independent of senior management) for advice, information and an objective point of view.
During 2007, Tyco underwent a major change in its corporate structure. On June 29, 2007, the
Company successfully completed the spin-off of its electronics and healthcare businesses (now called
Tyco Electronics and Covidien, respectively) and completed a one-for-four reverse stock split
(collectively, the ‘‘Separation’’). Following the Separation, a significant number of our executive officers
assumed new positions with Tyco Electronics and Covidien, or otherwise ceased providing services to
the Company in any capacity. In addition, due to the number of complex transactions and
arrangements that were required to complete the Separation, our senior corporate management team
assumed significant additional responsibilities. Those transactions included the spin-offs of two large
companies (which together accounted for approximately 55% of Tyco’s historical revenues), numerous
new financing arrangements, amendments to existing financing arrangements, agreements governing
relationships among Tyco and the spun-off companies, tax sharing arrangements, and internal
reorganizations. Recognizing the complexity of the Separation and the commitment necessary to
complete it, the Compensation Committee and the Board took a number of extraordinary actions
during 2007 related to compensation. These actions and the reasons for taking them are discussed in
more detail in the sections that follow, but generally included:
• the bifurcation of the annual incentive plan into two performance periods—one pre- and one
post-Separation;
• the awarding of retention payments to certain members of senior management (including certain
of our named executive officers) who played key roles in effecting the Separation;
• the conversion of outstanding pre-Separation Tyco stock options, restricted stock, RSUs and
DSUs into post-Separation awards of Tyco equity and/or equity of Covidien and Tyco
Electronics;
• the conversion of performance shares that were originally granted in November 2005 into
time-based RSUs that vest in September 2008; and
• the acceleration of the 2008 annual equity award grant date from November 2007 to July 2007.
Executive Compensation Philosophy
In designing its executive compensation program, Tyco has been guided by the following principles:
• provide for performance-based reward opportunities that support our business objectives and
align payouts with the attainment of those objectives;
• reward superior long-term performance by linking a significant portion of each executive’s total
pay opportunity to sustained shareholder returns;
• attract, retain and motivate key executives by providing appropriate levels of fixed and variable
compensation, short-term and long-term incentives, and cash and stock-based pay;
• allow those most accountable for our long-term performance to acquire and hold a significant
amount of Tyco equity; and
• recognize and support outstanding individual performance and behavior, as well as behavior that
supports our core values—Integrity, Excellence, Teamwork and Accountability.
26 2008 Proxy Statement