ADT 2009 Annual Report Download - page 65

interests of the named executive officers with the interests of shareholders by linking a significant
portion of the officer’s total pay opportunity to share price. It provides long-term accountability for
named executive officers, and it offers the incentive of performance-based opportunities for capital
accumulation in lieu of a pension plan for most of the Company’s executive management.
Fiscal 2009 Annual Equity Award
During fiscal 2008, the Compensation Committee modified the structure of the LTI compensation
program for fiscal 2009 to better align it with the returns our investors realize from their Tyco common
shares. As a result, time-based RSUs were eliminated from the annual equity program for Senior
Officers. Instead, our named executive officers and other key leaders received one-half of the
grant-date value in stock options that vest ratably over four years, and one-half of the value in
performance share units, thereby linking 100% of the long-term award directly with shareholder value
creation. The ultimate value of the performance share units depends on Tyco’s total shareholder return
compared to the total shareholder returns of companies in the S&P Industrials Index over a three-year
period. The new structure better aligns the largest component of our executive compensation with
investor returns and reflects our commitment to pay for long-term performance.
In addition, after reviewing the relevant benchmark data provided by both management and the
independent compensation consultant, the Compensation Committee reduced the fiscal 2009 LTI
awards to reflect market trends and better position executive compensation levels to those appropriate
to the Company’s business and size following the Separation.
Fiscal 2010 Annual Equity Award
The Compensation Committee continued the LTI structure put in place for fiscal 2009 and granted
the same mix of stock options and performance share units. The Compensation Committee also
continued its plan to manage executive compensation levels by further reducing the fiscal 2010 LTI
awards. Since fiscal 2008, the Compensation Committee has reduced LTI award levels for named
executive officers by an average of approximately 25% on an annualized basis, based on grant date fair
value and adjusting for the special equity grant for Mr. Coughlin, described below.
At the time of the fiscal 2010 equity award, the Compensation Committee and a special
Committee of the Board approved a special equity grant, and modified certain existing equity awards
previously granted to Mr. Coughlin, in recognition of Mr. Coughlin’s contributions to the Company and
to provide appropriate rewards for continued employment. Mr. Coughlin is not expected to receive
additional awards in connection with the Company’s annual equity incentive program for fiscal 2011.
The 2010 equity grant for Mr. Coughlin was evenly split between performance share units and
stock options. The performance share units and the stock options will vest in accordance with their
normal terms (for stock options, in equal installments over four years and for performance share units,
100% at the end of the three-year performance period), provided, that if Mr. Coughlin remains
employed with the Company on October 7, 2011, both the performance share units and the stock
options will fully vest if Mr. Coughlin terminates employment before the normal vesting date. In
addition, if Mr. Coughlin remains employed with the Company on October 7, 2011, the stock options
will remain exercisable throughout the entire ten-year period commencing on their grant date, rather
than the three-year window that normally follows retirement. In connection with the grant,
Mr. Coughlin received 317,400 stock options (representing a grant date value of $3.0 million) with an
exercise price of $33.75, equal to the Company’s closing stock price on the New York Stock Exchange
on October 1, 2009. Mr. Coughlin also received a grant of 88,800 performance share units
(representing a grant date value of $3.0 million).
The Compensation Committee also modified the terms of certain prior stock options granted to
Mr. Coughlin. These prior grants, which total 435,728 stock options, were made as part of the fiscal
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