PITNEY BOWES INC /DE/ — Remuneration Information 2012

Apr 30, 2012

DEFA14A 1 c69511_defa14a.htm

UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, DC 20549

SCHEDULE 14A

Proxy Statement Pursuant to Section 14(a) of the Securities Exchange Act of 1934

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April 30, 2012

Re: Pitney Bowes Inc. (“Company”) 2012 Annual Meeting of Stockholders – May 14, 2012 Proposal 3 – Advisory Vote to Approve Executive Compensation (“Say on Pay Proposal”)

Dear Shareholder:

We are writing to ask you to support the board of directors’ recommendation and vote FOR Say on Pay Proposal included in Proposal 3 in the Company’s Proxy Statement (the “Proxy”) filed on March 23, 2012. We believe our shareholders recognized the alignment of our compensation program with our business strategy by their 83.9% approval of last year’s Say on Pay proposal. The design of the compensation program has not changed in any material way since the positive vote in 2011.

Institutional Shareholders Services (“ISS”) and Glass Lewis have recommended a vote against the Say on Pay Proposal citing various pay-for-performance concerns.

The board of directors strongly disagrees with ISS and Glass Lewis for the following reasons:

| 1. | The Company’s
compensation program reinforces our strong pay for performance philosophy and
rigorous goal setting process. |
| --- | --- |
| 2. | The board of
directors believes that the Company’s CEO compensation is appropriate given
the business circumstances faced by the Company. |
| 3. | The Company’s
selected peer group (“Company Peer Group”) accurately reflects the breadth
and uniqueness of the Company’s business. |
| 4. | The Company has
managed controllable business challenges responsibly as it repositions itself
for the future. |

Below is a more detailed discussion of each of these points:

1. The Company’s compensation program reinforces our strong pay for performance philosophy and rigorous goal setting process.

| • | The Executive
Compensation Committee (“ECC”) of the board engages each year in a thorough
review and discussion of the annual and long-term financial and strategic
goals that are most meaningful to the Company’s future success and sees that
each approved goal is challenging yet realistic. |
| --- | --- |
| • | The targets for
our financial goals are generally set at or close to the midpoint of our
initial guidance to investors and are not changed at any point during the
year. |
| • | The rigor of the
goals is demonstrated by the fact that both short and long-term payouts on
average have been below target over the last three and five year periods
which aligns to the shareholder value and business results produced over that
period. |
| • | The Income from
Continuing Operations (“IFCO”) measurement, which ISS raised as a concern, is
used solely as an initial threshold to determine award funding. The actual
payout |

| | amount of any
award is based on achievement of the predetermined financial and strategic
goals that align with our market guidance. |
| --- | --- |
| • | Except for base
salary, pension and de minimis other benefits, each element
of Named Executive Officer compensation, including 87% of the 2011 CEO total
direct compensation, is at risk and directly aligned to the performance of
the Company. |
| • | Regarding the
portions of executive pay that are not performance-based, pension is
determined using a broad-based formula applicable to all eligible employees
and changes to pension value are not determined by the ECC. The applicable
pension plans will be frozen on December 31, 2014 with no further accruals. |
| • | ISS assigns an
overall “low concern” in its compensation Governance Risk Indicator (“GRId”)
for the Company which is a more favorable conclusion than last year’s “medium
concern.” |

1. The board of directors believes that the Company’s CEO compensation is appropriate given the business circumstances faced by the Company.

| • | From 2010 to 2011,
CEO compensation increased by less than 1%, or $49,872, excluding change in
pension value. The change in pension value represents nearly all of the
year-over-year pay change, and, as discussed above, is determined using a
formula applicable to all eligible employees. | |
| --- | --- | --- |
| | • | Using ISS’
valuation of stock options, CEO total compensation reported by ISS actually
decreases by 3% if the change in pension value is excluded. |
| • | CEO base pay has
increased less than 4% since 2008, the CEO’s first full year in that
position. The current CEO’s base pay remains below that of the former CEO’s
during his last full year in that position. The current CEO’s total
compensation in 2011 is substantially the same as the prior CEO’s was in
2006. | |
| • | The Company’s CEO
total direct compensation is at the median of the Company Peer Group and
slightly below the median of the Towers Watson Compensation Report (see peer
group discussion below). | |
| | • | Although individual
elements of the CEO total direct compensation, including base, incentive
target, and long-term awards, may vary, none are significantly above or below
the median of the Company Peer Group or the Towers Watson Compensation
Report. |
| • | ISS values the
equity compensation at the date of grant, and does not consider the
“realized” value of the award. For example, $0 of appreciation has been
realized by the CEO from stock options granted over the last five years and
the current value of RSU awards is significantly lower than the grant date
value. Importantly, equity awards account for approximately 30% of the CEO
total direct compensation opportunity. We believe this information (i.e.,
“realized” value) is critical in assessing a company’s pay-for-performance
linkage. | |
| • | The use by ISS of
a five year average dividend yield to revalue annual stock option grants
results in an inflated ISS stock option value, particularly given the high
dividend yield on the Company’s stock. As a result, CEO total pay reflected
by ISS is overstated by more than $1 million. | |

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1. The Company Peer Group accurately reflects the breadth and uniqueness of the Company’s business.

| • | The ECC and its
independent compensation consultant annually review information from two
independent sources in calibrating executive compensation and assessing its
reasonableness: the Towers Watson Compensation Report and the Company Peer
Group. | |
| --- | --- | --- |
| • | Although the
Company has few direct business peers, as disclosed in our recent Proxy, the
ECC and its independent compensation consultant designed and periodically
reassess the Company Peer Group to attract and retain the talent and skill
required to lead a business of complexity and size similar to us. The Company
Peer Group consists of services, industrial and technology companies. The ECC
considered factors such as revenue, net income, market capitalization, number
of employees and complexity of the business to ensure a reasonable balance in
terms of company size and adequate number of peers. | |
| • | ISS relies on an
inappropriately constituted peer group predicated on the Company’s Global
Industry Classification Standards (“GICS”) code. In the Company’s case, the
GICS code produces a group of companies that does not reflect the complexity
of the Company. | |
| | • | Only one of ISS’
peer group companies is actually within the Company Peer Group. |
| | • | A majority of the
ISS peer group are in businesses unrelated to the Company including three
manufacturers of industrial supplies, a solid waste collection company, a
secure transportation company, a uniform supply company and three furniture
and other office supply companies. |
| | • | As of the ISS
report date, we believe that 2011 CEO compensation data has been included for
only seven of the 14 ISS peer group companies (50%), resulting in current
year comparisons to outdated compensation and performance information for a
significant portion of the ISS peer group. |
| • | The Equilar peer
group modeling tool confirms that the Company Peer Group better represents
our business than the peer group compiled by ISS. The peer group developed
using the tool matched nine of our 16 peer companies, whereas only one
company in the ISS peer group matched the Equilar selected peer group. Equilar
is an independent provider of executive compensation data. | |
| • | In last year’s ISS
review, the Company Peer Group category received a rating of “low concern.”
There were no changes in the Company Peer Group in 2011. | |
| • | Removal of the
change in pension value and the ISS inflated option value would reduce ISS’
calculation of the Company’s CEO total pay by approximately $2.4 million,
moving it significantly closer to the median of ISS’ selected peer group. | |

1. The Company has managed controllable business challenges responsibly as it repositions itself for the future.

• While our primary long-term objective is to create total shareholder value, ISS’ single-minded focus on stock price overly diminishes the challenges faced by the Company in the

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| current business
environment and undervalues the strategic value brought by the CEO and his
leadership team to reposition the Company for future gains. While ISS
acknowledges, “that management has a difficult task of repositioning the
Company for future growth,” it gives no weight to this challenge in its
conclusion. To achieve this “difficult task,” we need to attract, retain and
engage the necessary leadership which in turn requires reasonable
compensation programs. — In this environment,
2011 achievements included among other things the successful execution of our
Strategic Transformation program and development in the digital space. | |
| --- | --- |
| • | In light of
declining mail volumes the Company has moved aggressively to control its
costs, streamline its business operations and create a more flexible cost
structure. We achieved benefits from our Strategic Transformation program
that we expect to yield approximately $300 million net annual savings. |
| • | Management
developed and invested in products, software, services and solutions such as
Volly TM and Connect+ TM that it believes will position
the Company to grow its business more effectively in the physical and digital
environment. |

Conclusion

In considering your vote, please review the Compensation Discussion and Analysis beginning on page 24 of the Company’s Proxy and consider the supplemental information provided in this additional filing. The Company’s board of directors has designed and implemented an executive compensation program that is performance-based and delivers reasonable compensation to incentivize management to deliver strong business results in an extremely challenging business environment. We believe our shareholders recognized the alignment of our compensation program by their 83.9% approval of last year’s Say on Pay proposal. The design of the program has not changed in any material way since last year when ISS recommended a FOR vote on Say on Pay. The board of directors believes that the compensation paid under our program is appropriate given the business circumstances faced by the Company. We believe ISS and Glass Lewis’ voting recommendations are incorrect based on the reasons set forth above. Therefore, we request your support in voting FOR the advisory Say on Pay Proposal as recommended by management.

The board of directors recommends that you vote FOR the advisory proposal to approve executive officer compensation.

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