ADT 2007 Annual Report Download - page 61

Company’s cost of the supplemental insurances for Mr. Breen in connection with his termination, as set
forth by his employment agreement.
Cash Perquisite Allowance Plan
Our cash perquisite allowance plan, implemented in 2003, replaced our prior executive perquisites
programs. Those programs had provided a number of benefits to our executives (including company
cars, club dues and tax preparation services) that were costly and administratively burdensome. The
current plan provides our Senior Officers with a cash payment equal to 10% of their annual base
salary, up to a maximum annual benefit of $70,000. Senior Officers receive their cash perquisite
allowance in four quarterly installments. We do not restrict the types of expenses to which the
allowance can be applied.
Use of Corporate Aircraft
Mr. Breen and the other Senior Officers are permitted to use corporate aircraft or chartered
aircraft for business travel. Mr. Breen is the only executive currently pre-approved to use Company
aircraft for non-business purposes, although other named executive officers may do so in exceptional
circumstances if expressly approved by the Board or Mr. Breen.
Tax Deductibility of Executive Compensation
Section 162(m) of the Internal Revenue Code imposes a limit of $1 million on the amount of
compensation that can be deducted by Tyco with respect to the named executive officers (other than
Mr. Coughlin, our chief financial officer). This limitation does not apply to compensation that qualifies
as ‘‘performance-based’’ under federal tax law. It is our policy to structure compensation arrangements
with our executive officers to qualify as performance-based so that compensation payments are
deductible under federal tax law, unless the benefit of such deductibility is outweighed by the need for
flexibility or the attainment of other corporate objectives, such as the recruitment and retention of key
employees. Non-deductible forms of compensation include payments in connection with the recruitment
and retention of key employees, discretionary bonus payments and grants of RSUs. In addition, stock
options granted to Mr. Breen when he was hired in July 2002 may not qualify for deduction under
Section 162(m). Immediately following the Separation, Mr. Breen held approximately 1.8 million of these
post-Separation options to purchase common stock of each of Tyco, Covidien and Tyco Electronics.
Change in Control and Severance Benefits
We view severance benefits as very useful tools that help the Company retain key executives. We
believe that our severance arrangements are competitive with similar arrangements provided to
executive officers at other large publicly traded U.S. companies. Mr. Breen’s employment agreement
provides for benefits if he is terminated in connection with a change in control or under other specified
circumstances. For our other named executive officers, the Tyco International (US) Inc. Severance Plan
for U.S. Officers and Executives (the ‘‘Severance Plan’’) and the Tyco International (US) Inc.
Change-in-Control Severance Plan for Certain U.S. Officers and Executives (the ‘‘CIC Severance
Plan’’) generally govern the benefits that accrue upon termination. As described below, a ‘‘double
trigger’’ is required under the CIC Severance Plan before benefits become available to the executives
covered by that plan. Because Mr. Breen is the only current named executive officer whose benefits are
governed by his employment agreement, which was originally entered into in 2002 when the Company’s
prospects were uncertain, the value of the payments and the circumstances under which they are made
differ from those applicable to our other named executive officers. The key terms and provisions of our
severance plans are summarized in the following table. In addition, refer to the Potential Payments
Upon Termination and Change in Control Table for the estimated dollar value of the benefits described
below for our current named executive officers.
2008 Proxy Statement 41