UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
SCHEDULE 14A
Proxy Statement Pursuant to Section
14(a) of the
Securities Exchange Act of 1934 (Amendment No. )
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3M Company
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Inge G. Thulin | Michael F. Roman | |
Executive Chairman of the Board | Chief Executive Officer |
Dear Stockholder:
We are pleased to invite you to attend 3M’s Annual Meeting of Stockholders, which will be held on Tuesday, May 14, 2019, at 8:30 a.m., Eastern Daylight Time at the Conrad Indianapolis, 50 West Washington Street, Indianapolis, Indiana 46204. Details regarding admission to the meeting and the business to be conducted are provided in the accompanying Notice of Annual Meeting and Proxy Statement. We will report on Company operations and discuss our future plans. There will also be time for your questions and comments.
We sincerely hope you will be able to join us at the Annual Meeting. For information on how to attend the Annual Meeting, or listen to the live webcast, please read “Annual Meeting Admission” on page 88 of the accompanying Proxy Statement. Your vote is important. Whether or not you plan to attend the Annual Meeting, please vote as soon as possible. You may vote your proxy on the Internet, by telephone, or, if this Proxy Statement was mailed to you, by completing and mailing the enclosed traditional proxy card. Please review the instructions on the proxy card or the electronic proxy material delivery notice regarding each of these voting options.
Thank you for your ongoing support of 3M.
Sincerely,
March 27, 2019
2 | 3M Company |
Time and Date |
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How to Vote Whether or not you plan to attend the meeting, please provide your proxy by either using the Internet or telephone as further explained in this Proxy Statement or filling in, signing, dating, and promptly mailing a proxy card. |
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By Telephone |
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By Internet |
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By Mail |
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Attending the Meeting |
Items of Business
Board Recommendation | |||
1. | Elect the twelve directors identified in the Proxy Statement, each for a term of one year. | “FOR” | |
2. | Ratify the appointment of PricewaterhouseCoopers LLP as 3M’s independent registered public accounting firm for 2019. | “FOR” | |
3. | Approve, on an advisory basis, the compensation of our Named Executive Officers. | “FOR” | |
4. | Stockholder proposal on setting target amounts for CEO compensation, if properly presented at the meeting. | “AGAINST” | |
5. | Transact such other business as may properly come before the Annual Meeting and any adjournment or postponement. |
Record Date
You are entitled to vote if you were a stockholder of record at the close of business on Tuesday, March 19, 2019.
Adjournments and Postponements
Any action on the items of business described above may be considered at the Annual Meeting at the time and on the date specified above or at any time and date to which the Annual Meeting may be properly adjourned or postponed.
Annual Report
Our 2018 Annual Report, which is not part of the proxy soliciting materials, is enclosed if the proxy materials were mailed to you. The Annual Report is accessible on the Internet by visiting www.proxyvote.com, if you have received the Notice of Internet Availability of Proxy Materials, or previously consented to the electronic delivery of proxy materials.
By Order of the Board of Directors,
Gregg M. Larson
Vice President, Deputy General Counsel and Secretary
3M Company
3M Center, St. Paul, Minnesota 55144
Important Notice regarding the availability of proxy materials for the Annual Meeting of Stockholders to be held on May 14, 2019. |
The Notice of Annual Meeting, Proxy Statement, and 2018 Annual Report are available at www.proxyvote.com. Enter the 16-digit control number located in the box next to the arrow on the Notice of Internet Availability of Proxy Materials or proxy card to view these materials.
THIS PROXY STATEMENT AND PROXY CARD, OR THE NOTICE OF INTERNET AVAILABILITY OF PROXY MATERIALS, ARE BEING DISTRIBUTED TO STOCKHOLDERS ON OR ABOUT MARCH 27, 2019.
2019 Proxy Statement | 3 |
4 | 3M Company |
Table of contents
2019 Proxy Statement | 5 |
PROPOSAL |
Elect the Twelve Directors Identified in this Proxy Statement
●Elect the twelve directors identified in this Proxy Statement, each for a term of one year.
●Our nominees are distinguished leaders who bring a mix of skills and qualifications to the Board and can represent the interests of all stockholders. |
"FOR" each nominee to the Board Page 13 |
Age | Director Since |
Other Current Public Boards | 3M Committees | |||||||||||
Director Nominee and Occupation | A | C | F | N&G | ||||||||||
Thomas “Tony” K. Brown Independent Retired Group Vice President, Global Purchasing, Ford Motor Company |
63 | 2013 |
●ConAgra Foods, Inc.
●Tower International, Inc. (non-executive chair) |
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Pamela J. Craig Independent Retired Chief Financial Officer, Accenture plc |
62 | New Nominee |
●Akamai Technologies
●Merck & Co.
●Progressive Corporation |
|||||||||||
David B. Dillon Independent Retired Chairman of the Board and Chief Executive Officer, The Kroger Co. |
67 | 2015 |
●Union Pacific Corporation |
|||||||||||
Michael L. Eskew Independent Lead Director Retired Chairman of the Board and Chief Executive Officer, United Parcel Service, Inc. |
69 | 2003 |
●The Allstate Corporation
●Eli Lilly and Company
●International Business Machines Corporation (presiding director) |
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Herbert L. Henkel Independent Retired Chairman of the Board and Chief Executive Officer, Ingersoll-Rand plc |
70 | 2007 |
●Herc Holdings, Inc. (non-executive chair) |
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Amy E. Hood Independent Executive Vice President and Chief Financial Officer, Microsoft Corporation |
47 | 2017 | ||||||||||||
Muhtar Kent Independent Chairman of the Board and former Chief Executive Officer, The Coca-Cola Company |
66 | 2013 |
●The Coca-Cola Company |
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Edward M. Liddy Independent Retired Chairman of the Board and Chief Executive Officer, The Allstate Corporation |
73 | 2000 |
●Abbott Laboratories
●AbbVie, Inc.
●The Boeing Company |
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Dambisa F. Moyo Independent Founder and CEO, Mildstorm, LLC |
50 | 2018 |
●Barclays PLC
●Chevron Corporation |
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Gregory R. Page Independent Retired Chairman of the Board and Chief Executive Officer, Cargill |
67 | 2016 |
●Deere & Company
●Eaton Corporation plc |
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Michael F. Roman Chief Executive Officer, 3M Company |
59 | 2018 | ||||||||||||
Patricia A. Woertz Independent Retired Chairman of the Board and Chief Executive Officer, Archer-Daniels-Midland Company |
66 | 2016 |
●The Procter & Gamble Company |
Chair | A: Audit | F: Finance | ||
Member | C: Compensation | N&G: Nominating and Governance |
6 | 3M Company |
Proxy highlights Corporate governance highlights
Corporate governance highlights
DIRECTOR TENURE | DIRECTOR AGE | GENDER DIVERSITY | |||||
6.5 |
62.9 |
31% |
BOARD SIZE AND INDEPENDENCE |
INDEPENDENT LEAD DIRECTOR |
MEETING ATTENDANCE | OTHER PUBLIC COMPANY BOARDS | |||||
11/13 |
Directors are |
97% | 1.4 | Average Board Positions | ||||
●Independent Lead Director with robust authority
●Separate Chairman and CEO positions |
●Overall attendance at Board and committee meetings
●There were EIGHT Board meetings in 2018 |
The Corporate Governance Highlights above reflect the Board’s current 13 directors. Among them, Sondra L. Barbour is not seeking re-election and will end her service on the 3M Board on May 14, 2019, when her term expires. Inge G. Thulin, Executive Chairman of the Board, announced his intention not to stand for re-election and to retire from the Company on June 1, 2019.
The Qualifications and Attributes, and Demographic Background information below reflect the twelve Director Nominees for this Annual Meeting.
Qualifications and Attributes | ||||||||||||||||||||||||
Leadership | ||||||||||||||||||||||||
Manufacturing | ||||||||||||||||||||||||
Supply Chain | ||||||||||||||||||||||||
Technology | ||||||||||||||||||||||||
Finance | ||||||||||||||||||||||||
Global | ||||||||||||||||||||||||
Risk Management | ||||||||||||||||||||||||
Marketing | ||||||||||||||||||||||||
Demographic Background | ||||||||||||||||||||||||
Tenure (Years) | 6 | 0 | 4 | 16 | 12 | 2 | 6 | 19 | 1 | 3 | 1 | 3 | ||||||||||||
Age (Years) | 63 | 62 | 67 | 69 | 70 | 47 | 66 | 73 | 50 | 67 | 59 | 66 | ||||||||||||
Gender (Male/Female) | M | F | M | M | M | F | M | M | F | M | M | F | ||||||||||||
Race/Ethnicity | ||||||||||||||||||||||||
African American/Black | ||||||||||||||||||||||||
Caucasian/White |
2019 Proxy Statement | 7 |
Proxy highlights Corporate governance highlights
DIRECTOR NOMINEES – DIVERSITY OF SKILLS AND EXPERIENCE |
The Nominating and Governance Committee identifies, reviews, and recommends nominees to the Board for approval. The Committee seeks individuals with distinguished records of leadership and success and who will make substantial contributions to Board operations and effectively represent the interests of all stockholders. The Committee considers a wide range of factors and experiences, including ensuring an experienced, qualified Board with expertise in the following key areas most relevant to 3M. The numbers indicated in the diagram below represent the number of director nominees who the Committee believes possess each of the skills and experiences.
Leadership Significant leadership experience with understanding of complex global organizations, strategy, risk management, and how to drive change and growth. | |
Manufacturing As a vertically integrated Company, manufacturing experience is important to understanding the operations and capital needs of the Company. | |
Supply Chain Directors with expertise in the management of the upstream and downstream relationships with suppliers and customers provide important perspectives on achieving efficient operations. | |
Technology As a diversified technology, science-based Company, directors with technology backgrounds understand 3M's 46 technology platforms and the importance of investing in new technologies for future growth. | |
Finance Financial metrics measures our performance. All directors must understand finance and financial reporting processes. All, but one, Audit Committee members qualify as audit committee financial experts. | |
Global Global business experience is critical to 3M's international growth with 60 percent of sales from outside the U.S. in 2018. | |
Risk Management Directors with experience in risk management and oversight, including cybersecurity, play an important role in the Board's oversight of risks. | |
Marketing Organic growth is one of 3M's financial metrics and directors with marketing expertise provide important perspectives on developing new markets. | |
Significant Corporate Governance Actions
We recently implemented several changes that demonstrate our ongoing commitment to strong corporate governance practices:
Board Refreshment
We regularly add directors to infuse new ideas and fresh perspectives into the boardroom. In the past five years, six new independent directors have joined our Board. In recruiting directors, we focus on how the experience and skill set of each individual complements those of their fellow directors to create a balanced board with diverse viewpoints and backgrounds, deep expertise, and strong leadership experience. At the Annual Meeting, two nominees will be standing for election to the board for the first time. Dr. Dambisa Moyo, who joined the Board in August 2018, holds a doctorate in economics from the University of Oxford and has expertise in examining the interplay of international business and the global economy. Her background includes advising companies in their investment decisions, capital allocation and risk management. Prior to founding Mildstorm LLC, she worked at Goldman Sachs in various roles, including as an economist, and at the World Bank in Washington, D.C. The combination of her banking and financial services industry experience along with her extensive knowledge of macroeconomics, geopolitics and global markets brings valuable insight to the 3M Board. A new nominee, Pamela J. Craig, is the retired Chief Financial Officer of Accenture plc, a global management consulting, technology services and outsourcing company. She served as Accenture's CFO from 2006 through 2013, following her many other leadership roles at Accenture during her 34 years with the company. Her experience as CFO at a global Fortune 500 company, and her skills in financial, audit, risk management, and governance matters, adds valuable expertise to the 3M Board.
8 | 3M Company |
Proxy highlights Executive compensation
Stockholder Outreach and Engagement
Stockholder engagement is fundamental to our commitment to good governance and essential to maintaining our strong corporate governance practices. We engage regularly with our global investors to gain valuable insights into the governance issues about which they care most. We aim to seek a collaborative and mutually beneficial approach to issues of importance to investors that affect our business, and to ensure that our corporate governance practices remain industry-leading from their perspectives.
During 2018, members of senior management met with a cross-section of stockholders owning approximately 36 percent of our outstanding shares or approximately 55 percent of our institutional stockholders. The meetings included an overview of the Company and a discussion of the Company’s practices on corporate governance, including board refreshment and diversity, director evaluation, directors’ skills matrix, sustainability, succession planning, and board leadership structure. In general, investors viewed the Company’s governance practices favorably, including the Board’s leadership structure, the mix of tenure and overall diversity, and the disclosure regarding the Directors’ skill sets and qualifications. The feedback from these meetings was shared with the Board of Directors and helped inform the Board on corporate governance practices and trends. Although stockholder engagement is primarily a function of management, our lead independent director and executive chairman attended some of these meetings.
PROPOSAL |
Ratification of the Appointment of Independent Registered Public Accounting Firm for 2019
●Ratify the appointment of PricewaterhouseCoopers LLP as 3M’s independent registered public accounting firm for 2019.
●Based on its assessment of the qualifications and performance of PricewaterhouseCoopers LLP (“PwC”), the Audit Committee believes that it is in the best interests of the Company and its stockholders to retain PwC. |
"FOR" Page 42 |
PROPOSAL |
Advisory Approval of Executive Compensation
●Approve, on an advisory basis, the compensation of our Named Executive Officers.
●Our executive compensation program appropriately aligns our executives’ compensation with the performance of the Company and its business units as well as their individual performance. |
"FOR" Page 46 |
2018 Financial Performance and Business Highlights
3M’s 2018 financial performance was achieved through growth and disciplined execution. Given the impact that certain events had on the Company’s 2018 financial performance, our results are shown below both as determined in accordance with GAAP (to the extent applicable) and excluding the following: (1) a charge primarily related to the remeasurement of a transition tax under the Tax Cuts and Jobs Act of 2017 (referred to as the “TCJA”) on previously unremitted earnings of non-U.S. subsidiaries, net of remeasurement of 3M’s deferred tax assets and liabilities considering the TCJA’s newly enacted tax rates and other impacts
2019 Proxy Statement | 9 |
Proxy highlights Executive compensation
(referred to as the “Net TCJA Transition Tax”), (2) an $897 million ($770 million after-tax) charge related to the settlement of the previously disclosed Nature Resource Damages (NRD) lawsuit, including (a) $850 million for a grant to the State of Minnesota for a special “3M Grant for Water Quality and Sustainability Fund,” and (b) certain legal fees and other related obligations, and (3) the gains from the divestiture of substantially all of our Communication Markets Division, net of related actions (referred to as the “Net CMD Divestiture Gains”).
Results Determined in Accordance with GAAP (to the Extent Applicable) |
Results Excluding Impact of U.S. Tax Reform, the Net CMD Divestiture Gains and the Water Quality and Sustainability Grant |
|||||
Earnings Per Share Growth |
+12.1% | +8.6%* |
●Excluding the impact of the Net TCJA Transition Tax, the Net CMD Divestiture Gains and the Water Quality and Sustainability Grant, earnings per share grew from $9.17 in 2017 to $9.96 in 2018.
●Excluding the impact of the Water Quality and Sustainability Grant and the Net CMD Divestiture Gains, full-year underlying operating margin performance was 23.6% in 2018. | |||
Organic Local Currency Sales Growth |
+3.2% | +3.2% |
●Positive organic growth across all Business Groups and geographic areas. | |||
Return on Invested Capital |
22.2%* | 24.6%* |
●Efficiently deploying capital across the business. | |||
Free Cash Flow Conversion |
90.9%* | 92.8%* |
●Continued strong free cash flow generation.
●2018 free cash flow of $4.9 billion. | |||
* | See Appendix A to this Proxy Statement for a reconciliation of earnings per share, operating margin performance, free cash flow and free cash flow conversion to our results for the most directly comparable financial measures as reported under generally accepted accounting principles in the United States, and the calculation of return on invested capital. |
We believe that our ability to deliver consistent results over time is reflected in our total stockholder return, which was in the top half of our executive compensation peer group for the three- and five-year periods ending on December 31, 2018. For additional information, see “Total Stockholder Return” on page 50 of this Proxy Statement.
Other noteworthy accomplishments include the following:
● |
Announced the acquisition of M*Modal to strengthen our Health Information Systems portfolio and complement organic growth; |
● |
Awarded a record total of 4,208 patents from patent offices around the world in 2018, including 688 patents granted to 3M by the United States Patent and Trademark Office, which brings to more than 117,000 the total number of patents awarded to 3M in its corporate history; |
● |
Strengthened our portfolio going forward by completing the divestiture of substantially all of our Communication Markets Division; |
● |
Successfully completed the rollout of the enterprise resource planning (ERP) system in the United States – approximately 70 percent of global revenues are now on the new ERP system; |
● |
Over 100 consecutive years of paying dividends to stockholders and 60 consecutive years of annual increases; |
● |
Returned $8.1 billion to stockholders via dividends and gross share repurchases; and |
● |
Recognized by Ethisphere® as one of the World’s Most™ Ethical Companies® for the sixth consecutive year. |
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Proxy highlights Executive compensation
Elements of Target 2018 Total Direct Compensation
The illustration below and the discussion that follows show how the target Total Direct Compensation of the Named Executive Officers (excluding our Executive Chairman) was apportioned among base salary, annual incentives, performance share awards and stock options for 2018, and how these elements relate to the strategic business goals of the Company.
CEO* | OTHER NEOs (AVERAGE)** | |
Abbreviations: AIP = Annual incentive pay; PSAs = Performance share awards. | |
* | Amounts shown represent the apportionment of Total Direct Compensation for Mr. Roman. |
** | Amounts shown reflect the average apportionment for all Named Executive Officers other than Mr. Roman and Mr. Thulin. Including Mr. Thulin, the average apportionment for the other Named Executive Officers would be as follows: base salary — 13 percent; AIP — 14 percent; stock options — 40 percent; performance shares — 34 percent; and performance-based pay — 85 percent. Note: Numbers do not add to 100 percent due to rounding. |
Compensation Policies and Practices
Our compensation program is designed to provide appropriate performance incentives and avoid compensation practices that do not promote the interests of our stockholders.
✓Maintain a strong alignment between corporate performance and our executive officers’ compensation by having a majority of Total Direct Compensation consist of performance-based compensation.
✓Conduct an annual assessment for the purpose of identifying and mitigating significant economic and reputational risks in the design of our incentive compensation programs.
✓Have a comprehensive clawback policy that covers both cash and equity compensation and includes provisions addressing reputational and financial risk as well as risk management failures.
✓Use an independent compensation consultant retained by, and reporting directly to, the Committee.
✓Limit the number and amount of executive perquisites.
✓Prohibit our executive officers from hedging or pledging 3M common stock.
✓Maintain robust stock ownership guidelines applicable to all of our executive officers.
✓Conduct competitive benchmarking to align executive compensation with the market. | |
✕Have employment, severance, or change in control agreements with any of our executive officers.
✕Provide tax gross-ups on executive perquisites.
✕Have agreements that would provide automatic “single-trigger” accelerated vesting of equity compensation or excise tax gross-up payments to any of our executive officers upon a change in control.
✕Pay dividends or dividend equivalents on unearned equity awards.
✕Reprice stock options without the approval of 3M stockholders, except for “anti-dilution” adjustments (such as adjustments in connection with a stock split, spinoff, etc.) |
2019 Proxy Statement | 11 |
Proxy highlights Executive compensation
Noteworthy Compensation Actions for 2018
During 2018, 3M and the Committee took the noteworthy actions described below as part of the Company’s executive compensation program.
● |
Approved new compensation terms for Michael F. Roman in connection with his appointment as Chief Executive Officer, including an annual base salary of $1,200,000 and target annual incentive compensation of $3,120,000, each of which were prorated for 2018. The Compensation Committee (with ratification by the independent members of the Board) will determine the target value of Mr. Roman’s annual long-term incentive grants each year based on market data and his individual performance. Mr. Roman also received special promotion performance share and stock option awards granted at the time of his appointment as Chief Executive Officer that had an aggregate target grant value of $2,500,000, (as described in more detail on page 62). Consistent with the Company’s compensation philosophy, Mr. Roman does not have an employment agreement, severance agreement or change in control agreement. |
● |
Approved new compensation terms for Inge G. Thulin in connection with his appointment as Executive Chairman, including an annual base salary of $1,000,000 and target annual incentive compensation of $1,500,000 (each prorated for 2018), which represent decreases of approximately 35 percent and 39 percent, respectively. The Compensation Committee (with ratification by the independent members of the Board) will determine the target value of Mr. Thulin’s annual long-term incentive grants each year based on market data and his individual performance. In anticipation of his transition to Executive Chairman in 2018, the aggregate target compensation value for Mr. Thulin’s 2018 long-term incentive compensation awards was reduced by $3,000,000 from the target compensation value established for such awards granted to him in 2017. Mr. Thulin also received a performance share award granted at the time of his appointment as Executive Chairman that had a target grant value of $750,000 (as described in more detailed on page 62). Mr. Thulin’s new compensation terms were approved by the Committee (with ratification by the independent members of the Board) consistent with the recommendation of its independent compensation consultant based on peer and other market data. |
● |
Expanded the scope of our clawback policy to address situations involving significant financial or reputational harm. For additional information concerning our updated policy, please refer to the section entitled “Clawback Policy” on page 66 of this Proxy Statement. |
PROPOSAL |
Stockholder Proposal on Setting Target Amounts for CEO Compensation
●Stockholder proposal on setting target amounts for CEO compensation, if properly presented at the meeting.
●See the Board’s opposition statement. |
“AGAINST” Page 83 |
12 | 3M Company |
|
Elect the Twelve Directors Identified in this Proxy Statement
●Elect the twelve directors identified in this Proxy Statement, each for a term of one year.
●Our nominees are distinguished leaders who bring a mix of skills and qualifications to the Board and can represent the interests of all stockholders. |
At the 2019 Annual Meeting, twelve directors are to be elected to hold office until the 2020 Annual Meeting of Stockholders and until their successors have been elected and qualified. All nominees are presently 3M directors who were elected by stockholders at the 2018 Annual Meeting, except for Dr. Dambisa Moyo, who joined the Board on August 12, 2018, and Pamela J. Craig, a new nominee, who are standing for election for the first time. The Nominating and Governance Committee, with the assistance of an outside search firm, and input from the independent directors and the Chairman of the Board and Chief Executive Officer, identified Ms. Craig and recommended her to the Board. We expect each nominee for election as a director to be able to serve if elected. If any nominee is not able to serve, proxies will be voted in favor of the remainder of those nominated and may be voted for substitute nominees, unless the Board chooses to reduce the number of directors serving on the Board. Each nominee elected as a director will continue in office until his or her successor has been elected and qualified, or until his or her earlier death, resignation, or retirement. Sondra L. Barbour is not seeking re-election and will end her service on the 3M Board on May 14, 2019, when her term expires. Inge G. Thulin, Executive Chairman of the Board of Directors, announced his intention not to stand for re-election and to retire from the Company on June 1, 2019. Mr. Thulin will remain as Executive Chairman of the Board through the Annual Stockholder Meeting on May 14, 2019. We thank both Ms. Barbour and Mr. Thulin for their many contributions to the Board and to the Company.
The Nominating and Governance Committee reviewed the Board Membership Criteria (described on page 20) and the specific experience, qualifications, attributes, and skills of each nominee, including membership(s) on the boards of directors of other public companies. The following pages contain biographical and other information about the nominees. Following each nominee’s biographical information, we have provided information concerning the particular experience, qualifications, attributes, and skills that are deemed most critical to 3M’s long-term success and led the Nominating and Governance Committee and the Board to determine that each nominee should serve as a director. In addition, the majority of our directors serve or have served on boards and board committees (including as committee chairs) of other public companies, which the Board believes provides them with additional board leadership and governance experience, exposure to best practices, and substantial knowledge and skills that further enhance the functioning of our Board.
2019 Proxy Statement | 13 |
Corporate governance at 3M Nominees for director
THOMAS “TONY” K. BROWN Independent |
Director since 2013 |
Age 63 |
Professional Highlights Nominee Qualifications |
Retired Group Vice President, Global Purchasing, Ford Motor Company
Other current directorships
●ConAgra Foods, Inc.,
●Tower International, Inc. (non-executive chair)
3M Board committee(s)
●Audit and Nominating and Governance Committees |
PAMELA J. CRAIG Independent |
Director since NEW |
Age 62 |
Professional Highlights Nominee Qualifications |
Retired Chief Financial Officer, Accenture plc
Other current directorships
●Akamai Technologies, Inc.
●Merck & Co., Inc.
●Progressive (Insurance) Corporation
3M Board committee(s)
●Audit and Finance Committees
Directorships within the past five years
●VMware, Inc.
●Wal-Mart Stores, Inc. |
14 | 3M Company |
Corporate governance at 3M Nominees for director
DAVID B. DILLON Independent |
Director since 2015 |
Age 67 |
Professional Highlights Nominee Qualifications |
Retired Chairman of the Board and Chief Executive Officer, The Kroger Co.
Other current directorships
●Union Pacific Corporation
3M Board committee(s)
●Audit (Chair) and Nominating and Governance Committees
Directorships within the past five years
●The Kroger Co.
●Convergys Corporation
●DirecTV |
MICHAEL L. ESKEW Independent |
Director since 2003 |
Age 69 |
Professional Highlights Nominee Qualifications
|
Retired Chairman of the Board and Chief Executive Officer, United Parcel Service, Inc.
Other current directorships
●The Allstate Corporation
●Eli Lilly and Company
●International Business Machines Corporation (presiding director)
3M Board committee(s)
●Compensation and Nominating and Governance (Chair) Committees
Directorships within the past five years
●United Parcel Service, Inc.
|
2019 Proxy Statement | 15 |
Corporate governance at 3M Nominees for director
HERBERT L. HENKEL Independent |
Director since 2007 |
Age 70 |
Professional Highlights Nominee Qualifications |
Retired Chairman of the Board and Chief Executive Officer, Ingersoll-Rand plc
Other current directorships
●Herc Holdings, Inc. (non-executive chair)
3M Board committee(s)
●Compensation (Chair) and Nominating and Governance Committees
Directorships within the past five years
●The Allstate Corporation
●C. R. Bard, Inc.
●Visteon Corporation |
AMY E. HOOD Independent |
Director since 2017 |
Age 47 |
Professional Highlights Nominee Qualifications |
Executive Vice President and Chief Financial Officer, Microsoft Corporation
Other current directorships
●None
3M Board committee(s)
●Compensation and Finance Committees |
16 | 3M Company |
Corporate governance at 3M Nominees for director
MUHTAR KENT Independent |
Director since 2013 |
Age 66 |
Professional Highlights Nominee Qualifications |
Chairman of the Board and former Chief Executive Officer, The Coca-Cola Company
Other current directorships
●The Coca-Cola Company
3M Board committee(s)
●Compensation and Finance (Chair) Committees |
EDWARD M. LIDDY Independent |
Director since 2000 |
Age 73 |
Professional Highlights Nominee Qualifications |
Retired Chairman of the Board and Chief Executive Officer, The Allstate Corporation
Other current directorships
●Abbott Laboratories
●AbbVie, Inc. ●The Boeing Company
3M Board committee(s)
●Compensation and Nominating and Governance Committees |
2019 Proxy Statement | 17 |
Corporate governance at 3M Nominees for director
DAMBISA F. MOYO Independent |
Director since 2018 |
Age 50 |
Professional Highlights Nominee Qualifications |
Founder and CEO, Mildstorm LLC
Other current directorships
●Barclays PLC
●Chevron Corporation
3M Board committee(s)
●Audit and Finance Committees
Directorships within the past five years
●Barrick Gold Corporation
●SABMiller PLC
●Seagate Technology Public Limited Company |
GREGORY R. PAGE Independent |
Director since 2016 |
Age 67 |
Professional Highlights Nominee Qualifications |
Retired Chairman of the Board and Chief Executive Officer, Cargill
Other current directorships
●Deere & Company
●Eaton Corporation plc
3M Board committee(s)
●Audit and Nominating and Governance Committees
Directorships within the past five years
●Cargill
●Carlson Companies |
18 | 3M Company |
Corporate governance at 3M Nominees for director
MICHAEL F. ROMAN |
Director since 2018 |
Age 59 |
Professional Highlights Mr. Roman is the Chief Executive Officer of 3M Company since July 2018. Mr. Roman previously served as Chief Operating Officer and Executive Vice President of 3M Company from July 1, 2017 to June 30, 2018 with direct responsibilities for 3M’s five business groups and the Company’s international operations. Mr. Roman previously served as Executive Vice President, Industrial Business Group, of 3M Company from June 2014 to July 2017. Mr. Roman served as the Company’s Senior Vice President, Business Development, from May 2013 to June 2014. Prior to that, he was Vice President and General Manager of Industrial Adhesives and Tapes Division from September 2011 to May 2013. Mr. Roman also has lived in and led 3M businesses around the world, including the United States, Europe and Asia. Nominee Qualifications |
Chief Executive Officer, 3M Company
Other current directorships
●None
3M Board committee(s)
●None |
PATRICIA A. WOERTZ Independent |
Director since 2016 |
Age 66 |
Professional Highlights
Ms. Woertz is the Retired Chairman of the Board and Chief Executive Officer, Archer-Daniels-Midland Company (“ADM”), an agricultural processor and food ingredient provider. Ms. Woertz joined ADM as Chief Executive Officer and President in April 2006, and was named Chairman of the Board in February 2007. She served as Chief Executive Officer until December 2014, and Chairman of the Board until December 2015. Before joining ADM, Ms. Woertz held positions of increasing importance at Chevron Corporation and its predecessor companies. Ms. Woertz served on the President’s Export Council from 2010-2015 and chaired the U.S. section of the U.S.-Brazil CEO Forum 2013-2015. Nominee Qualifications |
Retired Chairman of the Board and Chief Executive Officer, Archer-Daniels-Midland Company
Other current directorships
●The Procter & Gamble Company
3M Board committee(s)
●Compensation and Finance Committees
Directorships within the past five years
●Royal Dutch Shell plc |
RECOMMENDATION OF THE BOARD |
The Board of Directors unanimously recommends a vote “FOR” the election of these nominees as directors. Proxies solicited by the Board of Directors will be voted “FOR” these nominees unless a stockholder indicates otherwise in voting the proxy. |
2019 Proxy Statement | 19 |
Corporate governance at 3M Board membership criteria
3M’s Corporate Governance Guidelines contain Board Membership Criteria which include a list of key skills and characteristics deemed critical to serve 3M’s long-term business strategy and expected to be represented on 3M’s Board. The Nominating and Governance Committee periodically reviews with the Board the appropriate skills and characteristics required of Board members given the current Board composition. It is the intent of the Board that the Board, itself, will be a high performance organization creating competitive advantage for the Company. To perform as such, the Board will be composed of individuals who have distinguished records of leadership and success in their arena of activity and who will make substantial contributions to Board operations and effectively represent the interests of all stockholders. The Committee’s and the Board’s assessment of Board candidates includes, but is not limited to, consideration of:
● | Roles in and contributions valuable to the business community; |
● | Personal qualities of leadership, character, judgment, and whether the candidate possesses and maintains throughout service on the Board a reputation in the community at large of integrity, trust, respect, competence, and adherence to the highest ethical standards; |
● | Relevant knowledge and diversity of background and experience in business, manufacturing, technology, finance and accounting, marketing, international business, government, and other areas; and |
● | Whether the candidate is free of conflicts and has the time required for preparation, participation, and attendance at all meetings. |
In addition to these minimum requirements, the Committee will also evaluate whether the nominee’s skills are complementary to the existing Board members’ skills, the Board’s needs for particular expertise in certain areas, and will assess the nominee’s impact on Board dynamics, effectiveness, and diversity of experience and perspectives.
Director Nominees – Diversity of Skills and Experience
The diagram below summarizes the director nominees’ key skills and experiences in the areas that are most relevant to 3M and shows the number of director nominees who possess each of the skills and experiences:
Leadership Significant leadership experience with understanding of complex global organizations, strategy, risk management, and how to drive change and growth. | |
Manufacturing As a vertically integrated Company, manufacturing experience is important to understanding the operations and capital needs of the Company. | |
Supply Chain Directors with expertise in the management of the upstream and downstream relationships with suppliers and customers provide important perspectives on achieving efficient operations. | |
Technology As a diversified technology, science-based Company, directors with technology backgrounds understand 3M's 46 technology platforms and the importance of investing in new technologies for future growth. | |
Finance Financial metrics measures our performance. All directors must understand finance and financial reporting processes. All, but one, Audit Committee members qualify as “audit committee financial experts”. | |
Global Global business experience is critical to 3M's international growth with 60 percent of sales from outside the U.S. in 2018. | |
Risk Management Directors with experience in risk management and oversight, including cybersecurity, play an important role in the Board's oversight of risks. | |
Marketing Organic growth is one of 3M's financial metrics and directors with marketing expertise provide important perspectives on developing new markets. | |
20 | 3M Company |
Corporate governance at 3M Board membership criteria
For 3M, diversity, in its myriad manifestations, is fundamental to innovation, performance, and relevancy. 3M employees reflect that diversity. The Board of Directors regards diversity as an important factor in selecting board nominees to serve on the board. Although the Board has no specific diversity policy, when selecting nominees, it actively considers diversity in recruitment and nomination of directors, such as gender, race, and national origin. The current composition of our Board reflects those efforts and the importance of diversity to the Board.
Identification, Evaluation, and Selection of Nominees
The Committee periodically reviews the appropriate size and composition of the Board and anticipates future vacancies and needs of the Board. In the event the Committee recommends an increase in the size of the Board or a vacancy occurs, the Committee considers qualified nominees from several sources, including current Board members and nominees recommended by stockholders and other persons.
The Committee may from time to time retain a director search firm to help the Committee identify qualified director nominees for consideration by the Committee.
The Committee retained Spencer Stuart in 2018 to help identify future Board candidates.
The Committee evaluates qualified director nominees at regular or special Committee meetings against the Board Membership Criteria described above then in effect and reviews qualified director nominees with the Board. The Committee and the Chairman of the Board interview candidates that meet the Board Membership Criteria and the Committee selects nominees that best suit the Boards current needs and recommends one or more of such individuals for election to the Board.
The Board has adopted a formal set of Director Independence Guidelines with respect to the determination of director independence, which either conform to or are more exacting than the independence requirements of the New York Stock Exchange (NYSE) listing standards, and the full text of which is available on our website at www.3M.com, under Investor Relations Governance. In accordance with these Guidelines, a director or nominee for director must be determined to have no material relationship with the Company other than as a director. The Guidelines specify the criteria by which the independence of our directors will be determined, including strict guidelines for directors and their immediate family members with respect to past employment or affiliation with the Company or its independent registered public accounting firm. The Guidelines also prohibit Audit and Compensation Committee members from having any direct or indirect financial relationship with the Company, and restrict both commercial and not-for-profit relationships of all directors with the Company. Directors may not be given personal loans or extensions of credit by the Company, and all directors are required to deal at arms length with the Company and its subsidiaries, and to disclose any circumstance that might be perceived as a conflict of interest.
In accordance with these Guidelines, the Board undertook its annual review of director independence. During this review, the Board considered transactions and relationships between each director, or any member of his or her immediate family and the Company and its subsidiaries and affiliates in each of the most recent three completed fiscal years. The Board also considered whether there were any transactions or relationships between the Company and a director or any members of a directors immediate family (or any entity of which a director or an immediate family member is an executive officer, general partner, or significant equity holder). The Board considered that in the ordinary course of business, transactions may occur between the Company and its subsidiaries and companies at which some of our directors are or have been officers. In particular, the Board considered the annual amount of sales to 3M for each of the most recent three completed fiscal years by each of the companies where directors serve or have served as an executive officer, as well as purchases by those companies from 3M. The Board determined that the amount of sales and purchases in each fiscal year was below one percent of the annual revenues of each of those companies, the threshold set forth in the Director Independence Guidelines. The Board also considered charitable contributions to not-for-profit organizations with which our directors or immediate family members are affiliated, none of which approached the threshold set forth in our Director Independence Guidelines.
2019 Proxy Statement | 21 |
Corporate governance at 3M Board membership criteria
As a result of this review, the Board affirmatively determined that the following directors and director nominee are independent under these Guidelines: Sondra L. Barbour, Thomas “Tony” K. Brown, Pamela J. Craig (new nominee), David B. Dillon, Michael L. Eskew, Herbert L. Henkel, Amy E. Hood, Muhtar Kent, Edward M. Liddy, Dr. Dambisa F. Moyo, Gregory R. Page, and Patricia A. Woertz. The Board has also determined that members of the Audit Committee and Compensation Committee received no compensation from the Company other than for service as a director. Inge G. Thulin, Executive Chairman of the Board, and Michael F. Roman, Chief Executive Officer, are considered to not be independent because of their employment by the Company.
Nominees Proposed by Stockholders
The Committee has a policy to consider properly submitted stockholder recommendations for candidates for membership on the Board of Directors. Stockholders proposing individuals for consideration by the Committee must include at least the following information about the proposed nominee: the proposed nominee’s name, age, business or residence address, principal occupation or employment, and whether such person has given written consent to being named in the Proxy Statement as a nominee and to serving as a director if elected. Stockholders should send the required information about the proposed nominee to:
|
Corporate Secretary |
In order for an individual proposed by a stockholder to be considered by the Committee for recommendation as a Board nominee for the 2020 Annual Meeting, the Corporate Secretary must receive the proposal by November 28, 2019. Such proposals must be sent via registered, certified, or express mail (or other means that allows the stockholder to determine when the proposal was received by the Company). The Corporate Secretary will send properly submitted stockholder proposed nominations to the Committee Chair for consideration at a future Committee meeting. Individuals proposed by stockholders in accordance with these procedures will receive the same consideration received by individuals identified to the Committee through other means.
Stockholder Nominations - Advance Notice Bylaw
In addition, 3M’s Bylaws permit stockholders to nominate directors at an annual meeting of stockholders or at a special meeting at which directors are to be elected in accordance with the notice of meeting. Stockholders intending to nominate a person for election as a director must comply with the requirements set forth in the Company’s Bylaws. With respect to nominations to be acted upon at our 2020 Annual Meeting, our Bylaws would require, among other things, that the Corporate Secretary receive written notice from the record stockholder no earlier than November 28, 2019, and no later than December 28, 2019. The notice must contain the information required by the Bylaws, a copy of which is available on our website at www.3M.com, under Investor Relations — Governance. Nominations received after December 28, 2019, will not be acted upon at the 2020 Annual Meeting.
Further, pursuant to the proxy access Bylaw adopted by the Board in November 2015, a stockholder, or a group of up to 20 stockholders, continuously owning for three years at least three percent of our outstanding common shares may nominate and include in our proxy materials up to the greater of two directors and 20 percent of the number of directors currently serving, if the stockholder(s) and nominee(s) satisfy the Bylaw requirements. For eligible stockholders to include in our proxy materials nominees for the 2020 Annual Meeting, proxy access nomination notices must be received by the Company no earlier than November 28, 2019, and no later than December 28, 2019. The notice must contain the information required by the Bylaws.
22 | 3M Company |
Corporate governance at 3M Corporate governance overview
Role of the Nominating and Governance Committee
The Nominating and Governance Committee identifies individuals who the Committee believes are qualified to become Board members in accordance with the Board Membership Criteria set forth above, and recommends selected individuals to the Board for nomination to stand for election at the next meeting of stockholders of the Company in which directors will be elected. In the event there is a vacancy on the Board between meetings of stockholders, the Committee seeks to identify individuals who the Committee believes are qualified to become Board members in accordance with the Board Membership Criteria, and may recommend one or more of such individuals for appointment to the Board. The Nominating and Governance Committee also focuses on overall Board-level succession planning at the director level.
The Company believes that good corporate governance practices serve the long-term interests of stockholders, strengthen the Board and management, and further enhance the public trust 3M has earned from more than a century of operating with uncompromising integrity and doing business the right way. The following sections provide an overview of 3M’s corporate governance practices, which are published on the Company’s website, including the Corporate Governance Guidelines, the Board’s leadership structure and the responsibilities of the independent Lead Director, communication with directors, director independence, the director nomination process, the Board’s role in risk oversight, the Codes of Conduct for directors and employees, public policy engagement, and the Company’s commitment to the environment and sustainability.
Corporate Governance Highlights
DIRECTOR TENURE | DIRECTOR AGE | GENDER DIVERSITY | |||||
6.5 |
62.9 |
31% |
BOARD SIZE AND INDEPENDENCE |
INDEPENDENT LEAD DIRECTOR |
MEETING ATTENDANCE | OTHER PUBLIC COMPANY BOARDS | |||||
11/13 |
Directors are |
97% | 1.4 | Average Board Positions | ||||
●Independent Lead Director with robust authority
●Separate Chairman and CEO positions |
●Overall attendance at Board and committee meetings
●There were EIGHT Board meetings in 2018 |
The Corporate Governance Highlights above reflect the Board’s current 13 directors. Among them, Sondra L. Barbour is not seeking re-election and will end her service on the 3M Board on May 14, 2019, when her term expires. Inge G. Thulin, Executive Chairman of the Board, has announced his intention not to stand for re-election and to retire from the Company on June 1, 2019.
Board Independence | |
Substantial majority of our directors – eleven of our thirteen directors are independent of the Company and management – and all are highly qualified. |
●Independent directors regularly meet in executive sessions without management.
●Independent directors have complete access to management and employees.
●Regularly refresh Board; added six new independent directors in past five years; average director tenure is 6.5 years. |
2019 Proxy Statement | 23 |
Corporate governance at 3M Corporate governance overview
Board Committee Independence and Expertise | |
Only independent directors serve on the Board’s committees with independent committee chairs empowered to establish committee agendas. |
●Committee executive sessions –
at each regularly scheduled meeting, members of the Audit Committee, Compensation Committee, Finance Committee, and Nominating and Governance Committee meet in executive session.
●Financial expertise – all
members of the Audit Committee meet the NYSE listing standards for financial expertise, and three of the four members are “audit committee financial experts” under SEC rules. |
Stockholder Rights | |
The Board has taken numerous actions – including those proposed by stockholders – to promote effective corporate governance and accountability to stockholders. |
●Annual election of all
directors.
●Majority voting for directors in
uncontested elections. Incumbent director not receiving majority votes tenders resignation, subject to the Board recommendation for action.
●Proxy access – a stockholder,
or a group of up to 20 stockholders, continuously owning for three years at least three percent of our outstanding common shares may nominate and include in our proxy materials up to the greater of two directors and 20 percent of the number of directors
currently serving, if the stockholder(s) and nominee(s) satisfy the Bylaw requirements.
●Established policies and criteria
for director nominations, including candidates recommended by stockholders.
●No supermajority voting provisions
in Bylaws or Certificate of Incorporation.
●Stockholders holding 25 percent of
the outstanding shares have the right to call a special meeting.
●No stockholders’ rights plan
(also known as a “poison pill”).
●Established protocol for
stockholders and other interested parties to communicate with the independent Lead Director, the chairs of the Audit, Compensation, Finance, and Nominating and Governance Committees of the Board, any of the other independent directors or all of the
independent directors as a group or the full Board. |
Stockholder Outreach and Engagement | |
We maintain a vigorous stockholder engagement program. |
●Stockholder engagement is
fundamental to our commitment to good governance and essential to maintaining our strong corporate governance practices. We engage regularly with our global investors to gain valuable insights into the governance issues about which they care most. We aim
to seek a collaborative and mutually beneficial approach to issues of importance to investors that affect our business, and to ensure that our corporate governance practices remain industry-leading from their perspectives.
●During 2018, members of senior
management met with a cross-section of stockholders owning approximately 36 percent of our outstanding shares or approximately 55 percent of our institutional stockholders. The meetings included an overview of the Company and a discussion of the
Company’s practices on corporate governance, including board refreshment and diversity, director evaluation, directors’ skills matrix, sustainability, succession planning, and board leadership structure. In general, investors viewed the
Company’s governance practices favorably, including the Board’s leadership structure, the mix of tenure and overall diversity, and the disclosure regarding the Directors’ skill sets and qualifications. The feedback from these meetings
was shared with the Board of Directors and helped inform the Board on corporate governance practices and trends.
●Both our independent Lead Director
and Executive Chairman met with major stockholders during 2018. |
24 | 3M Company |
Corporate governance at 3M Corporate governance overview
Risk Oversight | |
The Board oversees the Company’s risk profile and management’s processes for assessing and managing risk, both as a whole Board and through its committees. |
●At least annually, the Board reviews
enterprise risks facing the Company and certain of its businesses. Other important categories of risk are assigned to designated Board committees (which are comprised solely of independent directors) that report back to the full Board. The Board has
delegated to the Audit Committee through its charter the primary responsibility for the oversight of risks facing the Company including cybersecurity. The Audit Committee’s charter provides that the Audit Committee shall “discuss policies and
procedures with respect to risk assessment and risk management, the Company’s major risk exposures and the steps management has taken to monitor and mitigate such exposures.” |
Board Approved Long-Term Strategic Plans and Capital Allocation Strategies | |
Each year management presents to the Board, and the Board discusses and approves, detailed long-term strategic plans for the Company. |
●Each year management presents to the
Board, and the Board discusses and approves, detailed long-term strategic plans for the Company. In addition to the overall strategic plan for the Company and the business groups, the discussions in 2018 also focused on breakout sessions with the
directors on strategic corporate-wide themes of portfolio management, innovation, commercial transformation, manufacturing and supply chain transformation, and people and culture.
●The Board also approves the
long-term capital structure of the Company to ensure that there is sufficient capital to invest for future growth.
●The Company is committed to
investing in organic growth, most notably through capital expenditures and research and development. The Company has invested over $16.3 billion in capital expenditures and research and development to support and fund organic growth over the past five
years. 3M has opened six customer technical centers around the world, and a new, state-of-the-art research and development laboratory in the United States.
●The capital allocation plans have
flexibility to respond quickly to strategic acquisition opportunities that can strengthen the Company’s portfolio. Over the past five years, 3M has invested approximately $5.0 billion in strategic acquisitions to build upon and strengthen its
business portfolio for continued future growth.
●The Company has a long history of
returning cash to stockholders, having paid approximately $13.45 billion in dividends over the past five years.
●Finally, share repurchases represent
the last component of 3M’s capital allocation plans. Over the past five years, 3M has returned approximately $21.6 billion to stockholders via share repurchases. |
Director Orientation and Continuing Education | |
Our orientation programs familiarize new directors with the company and their role, and our continuing education programs assist directors in maintaining skills and knowledge necessary to perform their duties. |
●Director orientation – our
orientation programs familiarize new directors with 3M’s businesses, strategic plans, and policies, and for their role on their assigned committees.
●Continuing education programs assist
directors in maintaining skills and knowledge necessary for the performance of their duties. These programs may be part of regular Board and Committee meetings or provided by academic or other qualified third parties. |
2019 Proxy Statement | 25 |
Corporate governance at 3M Corporate governance overview
Board, Committee, and Director Evaluations | |
The Nominating and Governance Committee conducts an annual evaluation of the performance of the Board, each of its committees, and individual directors. |
●The results of the annual
evaluations of the board and its committees are shared with the Board and help identify areas in which the Board and its committees could improve performance.
●Before the November Board meeting,
the Chairman/CEO, Lead Director, and chair of the Nominating and Governance Committee meet to discuss the performance and contributions of each director.
●As part of the nomination process,
the Nominating and Governance Committee considers the performance and contributions of each director and evaluates each of the directors to ensure our directors continue to possess the necessary skills and experience to effectively oversee the Company.
On occasion, the Nominating and Governance Committee has not renominated a director based on this individual director evaluation process. |
Compliance | |
For the sixth year in a row, 3M has been recognized by Ethisphere® as one of the World’s Most™ Ethical Companies.® |
●Code of Business Conduct and Ethics
for directors.
●Code of Conduct for all employees,
including our Chief Executive Officer, Chief Financial Officer, and Chief Accounting Officer.
●Chief Compliance Officer, who has
direct reporting obligations to the Audit Committee, provides regular updates to the Audit Committee on compliance with the Company’s Code of Conduct, and at least annually, on the implementation and effectiveness of the Company’s compliance
and ethics program.
●Disclosure committee as part of the
Company’s disclosure controls and procedures for financial reporting.
●Disclosure of public policy
engagement on our Investor Relations website, under Governance — Governance Documents — “Political Activities and Issue Advocacy,” including disclosure of political contributions and membership in key trade associations where
membership dues allocated for lobbying purposes exceed $25,000. |
Environmental Stewardship and Sustainability | |
Long-standing commitment to environmental stewardship and sustainability. |
●2025 Sustainability Goals for raw
materials, water, and energy and climate, including increasing wind and solar renewable energy to 25 percent of total electricity use by 2025.
●Our Sustainability Report and 2025
Sustainability Goals are available on our website at www.3M.com, under About 3M — Sustainability.
●In December 2018, 3M announced that
starting in 2019 every new product will be required to have a Sustainability Value Commitment that builds on 3M’s history of creating products that emphasize reuse, recycling, and reduced resource use for 3M’s operations and for our
customers.
●As of March 1, 2019, 3M’s
global headquarters in St. Paul – which is home to our largest employee base – will be powered by 100% renewable energy. We are also committing to move our entire global operations to 100% renewable energy, with an interim target of 50% by
2025. As part of this initiative 3M will be joining RE100, an influential group of companies committed to 100% renewable energy. |
Executive Compensation | |
Annual advisory approval of executive compensation with approximately 93 percent of the votes cast in favor of the Company’s executive compensation program in 2018. |
●Strong pay-for-performance
philosophy.
●Incentive compensation subject to
clawback policy that includes provisions addressing reputational and financial risk as well as risk management failures.
●Robust stock ownership guidelines
for executive officers and stock retention policy for directors.
●Prohibition of hedging or pledging
3M stock by directors and executive officers.
●No employment, severance, or change
in control agreements with any senior executives, including the CEO.
●Long-term incentive compensation
linked to financial objectives of earnings per share growth, relative organic volume growth, return on invested capital, and free cash flow conversion. |
26 | 3M Company |
Corporate governance at 3M Corporate governance overview
Corporate Governance Guidelines
The Board has adopted Corporate Governance Guidelines which provide a framework for the effective governance of the Company. The guidelines address matters such as the respective roles and responsibilities of the Board and management, the Board’s leadership structure, the responsibilities of the independent Lead Director, director independence, the Board Membership Criteria, Board committees, and Board and management evaluation. The Board’s Nominating and Governance Committee is responsible for overseeing and reviewing the Guidelines at least annually and recommending any proposed changes to the Board for approval. The Corporate Governance Guidelines, the Certificate of Incorporation and Bylaws, the charters of the Board committees, the Director Independence Guidelines, and the Codes of Conduct provide the framework for the governance of the Company and are available on our website at www.3M.com, under Investor Relations — Governance.
Board’s Role in the Company’s Long-Term Strategy
Each year management presents to the Board, and the Board discusses and approves, detailed long-term strategic plans for the Company. In addition to the overall strategic plan for the Company and the business groups, the discussions also focused on breakout sessions with the directors on strategic corporate-wide themes of portfolio management, innovation, commercial transformation, manufacturing and supply chain transformation, and people and culture.
Our Company’s long-term strategy is outlined in the 3M Value Model.
3M VALUE MODEL |
The 3M Value Model is what differentiates our company in the marketplace. It’s how we create extraordinary value for customers, and premium returns for shareholders. The model is built around four elements: our vision, our strengths, our priorities, and our values.
2019 Proxy Statement | 27 |
Corporate governance at 3M Corporate governance overview
Our Vision
Our vision drives everything we do: 3M Technology Advancing Every Company, 3M Products Enhancing Every Home, 3M Innovation Improving Every Life. It is aspirational and authentic to 3M, and is an important part of the purpose that drives us as an enterprise.
Our Strengths
Our strengths help us continually innovate to create differentiated value for customers at above-market growth rates. They also enable us to take advantages of the changes in customers, technology and commercial channels.
In our Customer Inspired Innovation approach, we combine close engagement with customers, deep domain expertise in markets and the science behind our technology platforms to develop unique insights into the critical needs of our customers.
We then leverage our fundamental strengths. In technology, we leverage our deep intellectual property and broad range of technology platforms. In manufacturing, we leverage our unique capabilities in process engineering. Our global capabilities enable us to take that technology and manufacturing strength and deliver through our go-to-market models to serve customers around the world. And finally, our brand adds value in each of our businesses.
We do this while maintaining a focus on our customers – the end users of our solutions. Most of our sales are specified or designed into customer applications. While the channel to our end user may change over time, our global commerce strategy is to connect directly with end users while leveraging the go-to-market model that will deliver where, when and how the end user wants.
Our Priorities
We have four priorities that are positioning us for long-term growth and value creation: Portfolio, Transformation, Innovation, and People & Culture. The first three are levers that have been proven to create extraordinary value over time. They form the foundation of our priorities moving forward. They depend on our efforts to advance people and culture. Our focus on advancing people and culture supports the entire value model.
Our Values
Our values bind us together as one 3M – across business groups and geographies. They include our leadership behaviors – how we want our leaders to act to drive performance, develop others, and continue to win in the marketplace. Then our Code of Conduct; great companies are built on trust from customers, shareholders, employees, communities. We’ve earned that trust and our reputation for integrity over many decades. No one at 3M is free to compromise it. We also have four values that will be a priority moving forward. We are working to make 3M the most inclusive enterprise we can be. This will help us become even more diverse and enable us to become an even more creative and innovative company. We have long been a leader in sustainability and we will continue to advance this across the company. Finally, we will do even more to encourage and challenge every 3M employee to be their best.
Board’s Role in Risk Oversight
The Board oversees the Company’s risk profile and management’s processes for assessing and managing risk, both as a whole Board and through its committees. At least annually, the Board reviews enterprise risks facing the Company and certain of its businesses. Other important categories of risk are assigned to designated Board committees (which are comprised solely of independent directors) that report back to the full Board. The Board has delegated to the Audit Committee through its charter the primary responsibility for the oversight of risks facing the Company including cybersecurity. The Audit Committee’s charter provides that the Audit Committee shall “discuss policies and procedures with respect to risk assessment and risk management, the Company’s major risk exposures and the steps management has taken to monitor and mitigate such exposures.”
28 | 3M Company |
Corporate governance at 3M Corporate governance overview
The Vice President and General Auditor, Corporate Auditing (the “Auditor”), whose appointment and performance is reviewed and evaluated by the Audit Committee and who has direct reporting obligations to the Committee, is responsible for leading the formal risk assessment and management process within the Company. The Auditor, through consultation with the Company’s senior management, periodically assesses the major risks facing the Company and works with those executives responsible for managing each specific risk. The Auditor periodically reviews with the Audit Committee the major risks facing the Company and the steps management has taken to monitor and mitigate those risks. The Auditor’s risk management report, which is provided in advance of the meeting, is reviewed with the entire Board by either the chair of the Audit Committee or the Auditor. The executive responsible for managing a particular risk may also report to the full Board on how the risk is being managed and mitigated.
The Board has delegated to other committees the oversight of risks within their areas of responsibility and expertise. For example, the Compensation Committee oversees risks associated with the Company’s compensation practices, including by performing an annual review of the Company’s risk assessment of its compensation policies and practices for its employees. The Finance Committee oversees risks associated with the Company’s capital structure, credit ratings and cost of capital, long-term benefit obligations, and use of or investment in financial products, such as derivatives to manage risk related to foreign currencies, commodities, and interest rates. The Nominating and Governance Committee oversees risks associated with the Company’s overall governance and its succession planning process to ensure that the Company has a slate of future, qualified candidates for key management positions.
The Board believes that its oversight of risks, primarily through delegation to the Audit Committee, but also through delegation to other committees to oversee specific risks within their areas of responsibility and expertise, and the sharing of information with the full Board, is appropriate for a diversified technology and manufacturing company like 3M. The chair of each committee that oversees risk provides a summary of the matters discussed with the committee to the full Board following each committee meeting. The minutes of each committee meeting are also provided to all Board members. The Board also believes its oversight of risk is enhanced by its current leadership structure (further discussed below) because the Executive Chairman, who served as our CEO and was ultimately responsible for the Company’s management of risk, also chairs regular Board meetings. Given his in-depth knowledge and understanding of the Company, the Executive Chairman is best able to bring key business issues and risks to the Board’s attention.
Management Succession Planning
The Board plans the succession to the position of Chairman, CEO and other senior management positions. To assist the Board, the Chairman, CEO and Senior Vice President of Human Resources annually assess senior managers and their succession potential for the position of Chairman/CEO and other senior management positions. As a result of a thorough and thoughtful succession planning process, on March 5, 2018, the Board appointed Michael F. Roman CEO, effective July 1, 2018, succeeding Inge G. Thulin.
The Board of Directors has adopted the following process for stockholders and other interested parties to send communications to members of the Board. Stockholders and other interested parties may communicate with the Lead Director, the chairs of the Audit, Compensation, Finance, and Nominating and Governance Committees of the Board, or with any of our other independent directors, or all of them as a group, by sending a letter to the following address: Corporate Secretary, 3M Company, 3M Center, Building 220-13E-26A, St. Paul, MN 55144-1000. The Corporate Secretary reviews communications to the independent directors and forwards those communications to the independent directors as discussed below. Communications involving substantive accounting or auditing matters will be immediately forwarded to the Chair of the Audit Committee and the Company’s Chief Compliance Officer consistent with time frames established by the Audit Committee for the receipt of communications dealing with these matters. Communications that pertain to non-financial matters will be forwarded promptly. Items that are unrelated to the duties and responsibilities of the Board will not be forwarded, such as: business solicitation or advertisements; product-related inquiries; junk mail or mass mailings; resumes or other job-related inquiries; and spam.
2019 Proxy Statement | 29 |
Corporate governance at 3M Compliance
More than a century of operating with uncompromising integrity has earned 3M trust from our customers, credibility with our communities, and dedication from our employees. All of our employees, including our Chief Executive Officer, Chief Financial Officer, and Chief Accounting Officer, are required to abide by 3M’s Code of Conduct to ensure that our business is conducted in a consistently legal and ethical manner. These policies form the foundation of a comprehensive process that includes compliance with corporate policies and procedures and a Company-wide focus on uncompromising integrity in every aspect of our operations. Our Code of Conduct covers many topics, including antitrust and competition law, conflicts of interest, financial reporting, protection of confidential information, and compliance with all laws and regulations applicable to the conduct of our business.
Employees are required to report any conduct that they believe in good faith to be an actual or apparent violation of the Code of Conduct. The Audit Committee has adopted procedures to receive, retain, and treat complaints received regarding accounting, internal accounting controls, or auditing matters, and to allow for the confidential and anonymous submission by employees or others of concerns regarding questionable accounting or auditing matters. Information on how to submit any such communications can be found on 3M’s Investor Relations website, under Governance — Governance Documents — Employee Business Conduct Policies — “Report a concern or ask a question.” Our Chief Compliance Officer, who has direct reporting obligations to the Audit Committee, periodically reports to the Audit Committee on compliance with the Company’s Code of Conduct, including the effectiveness of the Company’s compliance program.
The Board also has adopted a Code of Business Conduct and Ethics for Directors of the Company. This Code incorporates long-standing principles of conduct the Company and the Board follow to ensure the Company’s business and the activities of the Board are conducted with integrity and adherence to the highest ethical standards, and in compliance with the law. The Company’s Code of Conduct for employees and the Code of Business Conduct and Ethics for Directors are available on our website at www.3M.com under Investor Relations — Governance — Governance Documents.
The Company believes that transparency with respect to the consideration, processes, and oversight of our engagement with lawmakers is important to our stockholders, and continuously makes efforts to give our stockholders useful information about our public policy engagement. Since 2007, the Company has voluntarily published a detailed explanation of the Company’s political activities which is available on our website at www.3M.com under Investor Relations — Governance — Governance Documents — “Political Activities and Issue Advocacy.” There, the Company sets out in detail its positions on important public policy issues, the factors we consider when making political contributions, and the processes we use for legal, financial, executive, and Board oversight of our political activities and contributions. We also provide links to the reports the 3M Political Action Committee files monthly with the Federal Election Commission and the Company’s quarterly Lobbying Disclosure reports, as well as a detailed list of our contributions to state candidates and political parties, and contributions to “527” political organizations. The Company also discloses on its website the trade associations the Company joined where $25,000 or more of the dues are allocated for lobbying purposes by the trade association. The Company believes that these disclosures on our website, which exceed the disclosures required by law, offer transparency respecting the Company’s public policy engagement and political activities.
Commitment to the Environment and Sustainability
At 3M, we are working hard to advance every company, enhance every home, and improve every life. We apply our expertise, and technology to solve problems collaboratively, and with a focus on long term, sustainable solutions that demonstrate our commitment and societal purpose. Sustainability is fundamental to our business — from sustainability-inspired innovation to product stewardship to sustainability in our operations. As we seek to improve every life, we see partnerships to help our customers and communities achieve their sustainability goals as key to that ambition.
30 | 3M Company |
Corporate governance at 3M Compliance
For more than 40 years, 3M has been a leader among global corporations in sustainability actions and measures, beginning with the creation of its groundbreaking Pollution Prevention Pays (3P) Program in 1975. As a global corporation, we believe that we have a significant responsibility to society globally, and responsibility to the local communities in which we live and work. Our corporate vision states: “3M technology advancing every company... 3M products enhancing every home... and 3M innovation improving every life.” It is that vision — carried out in collaboration with our customers, communities, and partners — that guides our sustainability strategies and goals and aspirations. Our sustainability efforts improve 3M operations and the operations of our customers. Our product solutions help customers manage their environmental footprint - from paint systems that reduce the need for cleaning solvents to window films that ease energy consumption. Our life cycle management process enables teams to select more sustainable components and encourage more sustainable processes. In addition, our philanthropic and social sustainability programs support the workforce of the future – both in Science, Technology, Engineering and Math (STEM), as well as the skilled trades. For example, our skills-based volunteering programs for employees encourage sustainability thinking inside the company while supporting the environmental and social needs in our local communities. Our 2025 sustainability goals provide us with a holistic approach to driving sustainability in our own operations, in our communities, and for the needs of our customers.
In January 2013, our CEO elevated the company’s focus on sustainability, with emphasis in two areas: (1) developing and commercializing products which help our customers solve their sustainability challenges; and, (2) driving sustainability within 3M operations and supply chain. Sustainability is now embedded across the company with dedicated teams in R&D, Supply Chain, business groups, and regions across the globe. Our Science, Technology, and Sustainability Executive Committee provides leadership, oversight, and strategy to encourage and ensure sustainability opportunities are recognized and strong policies and procedures are in place. Our Chief Technology Officer and our Chief Sustainability Officer report annually to the Board’s Nominating and Governance Committee on our sustainability efforts. In addition, our Corporate EHS and Business Conduct Committee ensures our sustainability principles are embedded throughout the company. In December 2018, 3M announced that starting in 2019 every new product will be required to have a Sustainability Value Commitment that builds on 3M’s history of creating products that emphasize reuse, recycling, and reduced resource use for 3M’s operations and for our customers. As of March 1, 2019, 3M's global headquarters in St. Paul – which is home to our largest employee base – will be powered by 100% renewable energy. We are also committing to move our entire global operations to 100% renewable energy, with an interim target of 50% by 2025. As part of this initiative 3M will be joining RE100, an influential group of companies committed to 100% renewable energy.
As part of our sustainability efforts, we are a signatory to the United Nations Global Compact on Human Rights — a policy initiative for businesses to demonstrate their commitment to ten principles in the areas of human rights, labor, environment, and anti-corruption. We also align our goals and programs to the United Nations Sustainable Development Goals. We report annually on these efforts in our Sustainability Report. To learn more, please visit www.3M.com/Sustainability.
Related Person Transaction Policy and Procedures
The Board of Directors has adopted a written Related Person Transaction Policy and Procedures which is administered by the Nominating and Governance Committee. This Policy applies to any transaction or series of transactions in which the Company or a subsidiary is a participant, the amount involved exceeds $120,000, and a Related Person (as that term is defined in the Policy) has a direct or indirect material interest and which is required to be disclosed under Item 404(a) of Regulation S-K. Transactions that fall within this definition are referred to the Committee for approval, ratification, or other action. Based on its consideration of all of the relevant facts and circumstances, the Committee decides whether or not to approve a transaction and approves only those transactions that are in the best interests of the Company. In the course of its review and approval or ratification of a transaction, the Committee considers:
● | The nature of the Related Person’s interest in the transaction; |
● | The material terms of the transaction, including whether the transaction is on terms no less favorable than terms generally available to an unaffiliated third party under the same or similar circumstances; |
● | The significance of the transaction to the Related Person; |
● | The significance of the transaction to the Company; |
● | Whether the transaction would impair the judgment of a director or executive officer to act in the best interest of the Company; and |
● | Any other matters the Committee deems appropriate. |
2019 Proxy Statement | 31 |
Corporate governance at 3M Board structure and processes
Any Committee member who is a Related Person with respect to a transaction under review may not participate in the deliberations or vote respecting such approval or ratification, except that such a director may be counted in determining the presence of a quorum at a meeting at which the Committee considers the transaction. There were no Related Person Transactions that were referred to the Committee in 2018.
Policy on Adoption of a Rights Plan
In 2002 and 2003, a 3M stockholder submitted a stockholder proposal to 3M regarding the approval process for adopting a stockholders’ rights plan (also known as a “poison pill”). 3M does not have a rights plan and is not currently considering adopting one. The Board continues to believe, however, that there may be circumstances under which adoption of a rights plan would give the Board the negotiating power and leverage necessary to obtain the best result for 3M stockholders in the context of a takeover effort.
Following consideration of the favorable vote the stockholder proposal received and in light of this belief, the Board adopted and has reaffirmed a statement of policy on this topic. The Board’s policy is that it will only adopt a rights plan if either: (1) stockholders have approved adoption of the rights plan; or (2) the Board (including a majority of the independent members of the Board), in its exercise of its fiduciary responsibilities, makes a determination that, under the circumstances existing at the time, it is in the best interests of 3M’s stockholders to adopt a rights plan without the delay in adoption resulting from seeking stockholder approval.
The Board has directed the Nominating and Governance Committee to review this policy statement on an annual basis and to report to the Board on any recommendations it may have concerning the policy. The terms of the policy, as in effect, are included in 3M’s published Corporate Governance Guidelines and its Proxy Statement.
On March 5, 2018, the Board announced that Michael F. Roman would succeed Inge G. Thulin as Chief Executive Officer effective July 1, 2018. To help ensure a smooth transition, the Board asked Mr. Thulin to continue to serve as Executive Chairman of the Board, also effective on July 1, 2018. According to the Board’s Corporate Governance Guidelines, the Board has the authority to decide whether the positions of Chairman and CEO should be held by the same person and determine the best arrangement for the Company and its shareholders considering all relevant and changing circumstances. On February 6, 2019, the Board announced that CEO Michael Roman will be nominated to serve as Chairman of the Board following the Company’s Annual Meeting of Stockholders on May 14, 2019. Inge Thulin, 3M’s current Executive Chairman, announced his intention not to stand for re-election and to retire from the Company on June 1, 2019.
Following the Company’s Annual Meeting of Stockholders, the Board’s leadership structure will consist of:
● | A combined Chairman of the Board and CEO; |
● | A strong, independent, and highly experienced Lead Director with well-defined responsibilities that support the Board’s oversight responsibilities; |
● | A robust committee structure consisting entirely of independent directors with oversight of various types of risks; and |
● | An engaged and independent Board. |
The Board of Directors believes that this leadership structure provides independent board leadership and engagement while deriving the benefits of having our CEO also serve as Chairman of the Board. As the individual with primary responsibility for managing the Company’s day-to-day operations and with in-depth knowledge and understanding of the Company, the CEO is best positioned to chair regular Board meetings as the directors discuss key business and strategic issues. Coupled with an independent Lead Director, this combined structure provides independent oversight while avoiding unnecessary confusion regarding the Board’s oversight responsibilities and the day-to-day management of business operations.
The Board believes that adopting a rigid policy on whether to separate or combine the positions of Chairman of the Board and CEO would inhibit the Board’s ability to provide for a leadership structure that would best serve stockholders. As a result, the Board has rejected adopting a policy permanently separating or combining the positions of Chairman and CEO in its Corporate Governance Guidelines, which are reviewed at least annually and available on our website at www.3M.com, under Investor Relations — Governance. Instead, the Board adopted an approach that allows it, in representing the stockholders’ best interests, to decide who should serve as Chairman or CEO, or both, under present or anticipated future circumstances.
32 | 3M Company |
Corporate governance at 3M Board structure and processes
The Board believes that combining the roles of CEO and Chairman contributes to an efficient and effective Board. The Board believes that to drive change and continuous improvement within the Company, tempered by respect for 3M’s traditions and values, the CEO must have maximum authority. The CEO is primarily responsible for effectively leading significant change, improving operational efficiency, driving growth, managing the Company’s day-to-day business, managing the various risks facing the Company, and reinforcing the expectation for all employees of continuing to build on 3M’s century-old tradition of uncompromising integrity and doing business the right way.
The Board believes that the Company’s corporate governance measures ensure that strong, independent directors continue to effectively oversee the Company’s management and key issues related to executive compensation, CEO evaluation and succession planning, strategy, risk, and integrity. The Corporate Governance Guidelines provide, in part, that:
● | Independent directors comprise a substantial majority of the Board; |
● | Directors are elected annually by a majority vote in uncontested director elections; |
● | Only independent directors serve on the Audit, Compensation, Finance, and Nominating and Governance Committees; |
● | The committee chairs establish their respective agendas; |
● | The Board and committees may retain their own advisors; |
● | The independent directors have complete access to management and employees; |
● | The independent directors meet in executive session without the CEO or other employees during each regular Board meeting; and |
● | The Board and each committee regularly conduct a self-evaluation to determine whether it and its committees function effectively. |
The Board has also designated one of its members to serve as Lead Director, with responsibilities (described in the next section) that are similar to those typically performed by an independent chairman.
The Board has designated one of its members to serve as a Lead Director, with responsibilities that are similar to those typically performed by an independent chairman (“Lead Director”). Michael L. Eskew was appointed Lead Director by the independent directors effective November 12, 2012, succeeding Dr. Vance Coffman who had served as Lead Director since 2006. Michael Eskew is a highly experienced director, currently serving on the boards of The Allstate Corporation, Eli Lilly and Company, and International Business Machines Corporation, and is the former Chairman and CEO of United Parcel Service, Inc. His responsibilities include, but are not limited to, the following:
● | Presides at all meetings of the Board at which the Chairman is not present, including executive sessions of the independent directors; |
● | Acts as a key liaison between the Chairman/CEO and the independent directors; |
● | Approves the meeting agendas for the Board, and approves the meeting schedules to assure that there is sufficient time for discussion of all agenda items; |
● | Has the authority to approve the materials to be delivered to the directors in advance of each Board meeting and provides feedback regarding the quality, quantity, and timeliness of those materials (this duty not only gives the Lead Director approval authority with respect to materials to be delivered to the directors in advance of each Board meeting but also provides a feedback mechanism so that the materials may be improved for future meetings); |
● | Has the authority to call meetings of the independent directors; |
● | Communicates Board member feedback to the Chairman/CEO (except that the chair of the Compensation Committee leads the discussion of the Chairman/CEO’s performance and communicates the Board’s evaluation of that performance to the Chairman/CEO); |
● | If requested by major stockholders, ensures that he is available, when appropriate, for consultation and direct communication; and |
● | Performs such other duties as requested by the independent directors. |
As an agenda item for every regularly scheduled Board and committee meeting, independent directors regularly meet in executive session, without the Chairman/CEO or other members of management present, to consider such matters as they deem appropriate. The Lead Director presides over the Board’s executive sessions.
2019 Proxy Statement | 33 |
Corporate governance at 3M Board committees
Board, Committees, and Director Evaluations
The Board conducts an annual self-evaluation to determine whether it and its committees are functioning effectively and consider opportunities for continual enhancement. The Nominating and Governance Committee solicits and receives comments from all directors and shares those comments with the Board. Based on the comments and further discussion and reflection, the Board makes an assessment reviewing areas in which the Board believes improvements could be made to increase the effectiveness of the Board and its committees as well as identifying existing practices which have contributed to high effectiveness and accordingly should be continued. Self-evaluation items requiring follow-up and/or the development and execution of implementation and action plans are monitored on a going-forward basis by the full Board, as well as by individual committees and the chairs thereof, as applicable. While this formal self-evaluation is conducted on an annual basis, directors share perspectives, feedback, and suggestions year-round. The Board and each committee conducted an evaluation of its performance in 2018.
Before the November Board meeting, the Chairman/CEO, Lead Director, and chair of the Nominating and Governance Committee meet to discuss the performance and contributions of each director. As part of the nomination process, the Nominating and Governance Committee considers the performance and contributions of each director and evaluates each of the directors to ensure our directors continue to possess the necessary skills and experience to effectively oversee the Company. On occasion, the Nominating and Governance Committee has not renominated a director based on this individual director evaluation process.
Board and Committee Information
The Board currently has thirteen directors and the following four committees: Audit, Compensation, Finance, and Nominating and Governance. The membership and the function of each committee are described below.
During 2018, the Board of Directors held five regularly scheduled meetings and three telephonic meetings. Overall attendance at Board and committee meetings was 97 percent. During 2018, all of our directors attended at least 75 percent of all Board and Committee meetings on which they served.
The Company has a long-standing policy that directors are expected to attend the Annual Meeting of Stockholders unless extenuating circumstances prevent them from attending. All directors who were members of the Board as of May 2018 attended last year's Annual Meeting of Stockholders, except one director was unable to attend due to illness. Dr. Vance Coffman was also not present at the meeting as he was no longer eligible to stand for re-election to the Board, having reached the mandatory retirement age under the Board's Corporate Governance Guidelines.
Name of Non-employee Director | Audit | Compensation | Finance | Nominating and Governance | ||||
Sondra L. Barbour | ||||||||
Thomas “Tony” K. Brown | ||||||||
Vance D. Coffman (retired from the Board, effective May 8, 2018) |
||||||||
David B. Dillon | ||||||||
Michael L. Eskew | ||||||||
Herbert L. Henkel | ||||||||
Amy E. Hood | ||||||||
Muhtar Kent | ||||||||
Edward M. Liddy | ||||||||
Dambisa F. Moyo | ||||||||
Gregory R. Page | ||||||||
Patricia A. Woertz | ||||||||
= Committee Member; = Chair |
34 | 3M Company |
Corporate governance at 3M Board committees
2019 Proxy Statement | 35 |
Corporate governance at 3M Board committees
36 | 3M Company |
Corporate governance at 3M Board committees
2019 Proxy Statement | 37 |
Corporate governance at 3M Board committees
38 | 3M Company |
Corporate governance at 3M Director compensation and stock ownership guidelines
Director compensation and stock ownership guidelines
Director Compensation Philosophy and Elements
The Nominating and Governance Committee periodically receives reports on the status of Board compensation in relation to other large U.S. companies and is responsible for recommending to the Board changes in compensation for non-employee directors. In developing its recommendations, the Committee is guided by the following goals:
● | Compensation should fairly pay directors for work required in a company of 3M’s size and scope; |
● | A significant portion of the total compensation should be paid in common stock to align directors’ interests with the long-term interests of stockholders; and |
● | The structure of the compensation should be simple and transparent. |
The Nominating and Governance Committee works with an independent compensation consultant to support its objectives of maintaining a reasonable and appropriate program. For 2018, Frederic W. Cook & Co., Inc. (“FW Cook”) provided the Committee with expert advice on the compensation of non-employee directors, in addition to analyzing market data on director compensation at the same peer group of 17 companies approved by the Compensation Committee for evaluating Named Executive Officer compensation. Neither the Company nor the Nominating and Governance Committee has any arrangement with any other compensation consultant who has a role in determining or recommending the amount or form of director compensation.
Our director program is comprised of a mix of cash and equity that is intended to approximate the peer-group median mix. Our directors’ overall target total direct compensation is consistent with 3M’s size and market-capitalization value relative to its peers. In addition, our hold-until-termination requirement on the annual stock retainer is rigorous relative to the holding requirement of our peers. For more information on the peer group, please see the section entitled “Executive Peer Group” beginning on page 56 of this Proxy Statement. Non-employee directors’ compensation includes the following compensation elements:
Annual Compensation — In May 2018, the Nominating and Governance Committee considered a board compensation study prepared by FW Cook. After reviewing that study, the Committee recommended and the Board approved an increase of $10,000 in the annual compensation for non-employee directors from $295,000 to $305,000, effective January 1, 2018. The annual cash retainer was increased $5,000 (from $130,000 to $135,000). The annual stock retainer was also increased $5,000 (from $165,000 to $170,000). Approximately 44 percent of the annual compensation (or $135,000) is payable in cash in four quarterly installments and approximately 56 percent of the annual compensation (or $170,000) is payable in common stock after the Annual Meeting. In addition, the chair of the Audit Committee receives an additional annual fee of $25,000 and the chairs of the Compensation, Finance and Nominating and Governance Committees each receive an additional annual fee of $20,000. The additional annual fee for the Lead Director also was increased from $30,000 to $35,000, effective January 1, 2018. There are no meeting fees. In lieu of the cash fees, a director may elect to receive common stock of the Company. Non-employee directors may also voluntarily defer all or part of their annual cash fees or stock awards until they cease to be members of the Board.
Deferred Stock — For directors who elect to receive all or a portion of their annual stock retainer or annual cash retainer in deferred stock, the Company credits their accounts with a number of 3M common stock equivalents (“Deferred Stock Units”) equal to the number of actual shares (including fractional shares) of 3M common stock that could have been purchased with such deferred amounts on the first day of the calendar quarter, using the closing sales price of 3M common stock on the NYSE for the last business day immediately preceding such date. In addition, on each payment date for dividends on 3M common stock, the Company credits the directors’ accounts with an additional number of Deferred Stock Units having a value equal to the aggregate dividends that otherwise would have been paid on the shares underlying the Deferred Stock Units credited to their accounts on the relevant dividend record date, using the closing sales price of 3M common stock on the NYSE for the sixth business day preceding the dividend record date. The Deferred Stock Units are fully vested upon grant but do not have voting rights. Appropriate adjustments to the number of Deferred Stock Units credited to each director’s account will be made for stock splits, stock dividends, mergers, consolidations, payments of dividends other than in cash, and similar circumstances affecting 3M common stock. The shares of 3M common stock underlying the Deferred Stock Units will be distributed in a single lump sum during the month of January in the first year after the director leaves the Board, unless the non-employee director elects an alternative distribution schedule prior to the beginning of the year in which the fees are earned. Non-employee directors may elect to receive distribution of the shares of 3M common stock underlying his or her Deferred Stock Units for a year in either a lump sum
2019 Proxy Statement | 39 |
Corporate governance at 3M Director compensation and stock ownership guidelines
payment on the first business day of any of the first through tenth years following the year in which the non-employee director leaves the Board or in a number of annual installments (not to exceed ten) beginning on the first business day of the year following the year in which he or she leaves the Board.
The Board amended and restated the 3M Compensation Plan for Nonemployee Directors, effective January 1, 2019, in order to implement certain changes in the day-to-day administration of the plan and improve conformity to certain market practices. Under the terms of the plan, as amended and restated, all deferred amounts and dividends will be converted to Deferred Stock Units using the closing sales price for a share of 3M common stock on the NYSE for the last trading day immediately preceding the date such amounts otherwise would have been paid if not deferred. The number of distribution alternatives available to non-employee directors also was reduced. For plan years beginning on or after January 1, 2019, non-employee directors may now elect to receive distribution of the shares of 3M common stock underlying their Deferred Stock Units only in a single lump sum during the month of January in the first or second year following the year in which they leave the Board or in a series of three, five, or ten annual installments beginning on the first business day of January in the first year following their termination of Board service.
All Other Compensation — The column below showing “All Other Compensation” includes the incremental cost of complimentary products and matching gifts. The non-employee directors are eligible to participate in the Company’s matching gift program on the same terms as 3M employees. Under this program, the 3M Foundation will match up to a total of $5,000 a year in contributions by the director to eligible institutions of higher education.
2018 Director Compensation Table
The total 2018 compensation of our non-employee directors is shown in the following table:
Non-Employee Directors |
Fees Earned or |
Stock Awards ($)(2) |
All Other Compensation ($)(3) |
Total
($) | ||||
Sondra L. Barbour | 135,000 | 170,000 | 337 | 305,337 | ||||
Thomas “Tony” K. Brown | 135,000 | 170,000 | — | 305,000 | ||||
Vance D. Coffman (retired from the Board, effective May 8, 2018)** | 47,843 | 59,616 | — | 107,459 | ||||
David B. Dillon* | 160,000 | 170,000 | 571 | 330,571 | ||||
Michael L. Eskew* | 190,000 | 170,000 | 270 | 360,270 | ||||
Herbert L. Henkel | 135,000 | 170,000 | 621 | 305,621 | ||||
Amy E. Hood | 135,000 | 170,000 | 763 | 305,763 | ||||
Muhtar Kent* | 155,000 | 170,000 | 711 | 325,711 | ||||
Edward M. Liddy* | 155,000 | 170,000 | — | 325,000 | ||||
Dambisa F. Moyo (appointed to the Board, effective August 12, 2018)** | 52,092 | 66,134 | 436 | 118,662 | ||||
Gregory R. Page | 135,000 | 170,000 | 440 | 305,440 | ||||
Patricia A. Woertz | 135,000 | 170,000 | 394 | 305,394 |
* |
Committee Chair (during 2018) |
** |
Director compensation prorated according to effective date of appointment or retirement. |
(1) |
This column represents the amount of all fees earned or paid in cash for services as a director. |
(2) |
This column represents the grant date fair value of the stock awards made in 2018, computed in accordance with Financial Accounting Standards Board Accounting Standards Codification Topic 718, Compensation — Stock Compensation. The Company does not grant stock options to non-employee directors. Since all stock awards vest on the grant date, there are no unvested stock awards outstanding at year end. |
(3) |
This column includes the incremental cost of complimentary products and matching gifts. Non-employee directors are eligible to participate in the Company’s matching gift program on the same terms as 3M employees. Under this program, the 3M Foundation will match up to a total of $5,000 a year in contributions by the director to eligible institutions of higher education. |
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Corporate governance at 3M Director compensation and stock ownership guidelines
Reasonableness of Non-Employee Director Compensation
As described above, our philosophy on director compensation is to pay directors fairly for work required in a company of our size and complexity, make a significant portion of the total compensation equity based to align directors’ interests with those of our stockholders and structure compensation in a simple and transparent manner. We believe that the application of this philosophy has resulted in a non-employee director compensation program that reflects best-in-class design with the following provisions:
● | Retainer-only cash compensation with no fees for attending meetings that are an expected part of board service. |
● | Additional retainers for special roles having greater responsibilities, such as Lead Director and committee chairs, to recognize the incremental additional time and effort required. |
● | Equity delivered in the form of full-value shares, where annual grants are based on a competitive fixed-value formula and immediate vesting helps avoid director entrenchment. |
● | A requirement to retain the stock retainer portion of annual compensation issued on or after October 1, 2007, until termination from Board service, which includes net after-tax shares attributable to current payments and pre-tax shares attributable to deferrals. |
● | Flexible voluntary deferral provisions and no material benefits or perquisites. |
● | Our 2016 Long-Term Incentive Plan, approved by shareholders at the 2016 Annual Meeting, includes a $600,000 annual compensation limit on all forms of compensation for non-employee directors. |
The Board requires that each director retain the stock retainer portion (currently valued at $170,000) of the annual compensation issued on or after October 1, 2007, until the director leaves the Board. Information regarding accumulated stock and deferred stock units is set forth in the section entitled “Security Ownership of Management” beginning on page 85 of this Proxy Statement.
The Company’s stock trading policies prohibit directors and the Company’s executive officers from (i) purchasing any financial instrument that is designed to hedge or offset any decrease in the market value of the Company’s common stock, including prepaid variable forward contracts, equity swaps, collars and exchange funds; (ii) engaging in short sales related to the Company’s common stock; (iii) placing standing orders; (iv) maintaining margin accounts; and (v) pledging 3M securities as collateral for a loan. All transactions in 3M securities by directors and executive officers must be pre-cleared with the Deputy General Counsel.
2019 Proxy Statement | 41 |
The Audit Committee is directly responsible for the appointment, compensation (including approval of all fees), retention, and oversight of the Company’s independent registered public accounting firm (“Independent Accounting Firm”) retained to perform the audit of our financial statements and our internal control over financial reporting.
The Audit Committee has appointed PricewaterhouseCoopers LLP (“PwC”) to serve as 3M’s Independent Accounting Firm for 2019. PwC has been 3M’s Independent Accounting Firm since 1998. Prior to that, 3M’s Independent Accounting Firm was Coopers & Lybrand from 1975 until its merger with Price Waterhouse in 1998. In accordance with SEC rules and PwC policy, audit partners are subject to rotation requirements to limit the number of consecutive years an individual partner may provide service to our Company. For lead and concurring audit partners, the maximum number of consecutive years of service in that capacity is five years. The process for selection of the Company’s lead audit partner pursuant to this rotation policy involves a meeting between the Chair of the Audit Committee and the candidate for the role, as well as discussion by the full Committee and with management.
The Audit Committee annually reviews PwC’s independence and performance in connection with the Audit Committee’s determination of whether to retain PwC or engage another firm as our Independent Accounting Firm. In the course of these reviews, the Audit Committee considers, among other things:
● | PwC’s historical and recent performance on the 3M audit, including input from those 3M employees with substantial contact with PwC throughout the year about PwC’s quality of service provided, and the independence, objectivity, and professional skepticism demonstrated throughout the engagement by PwC and its audit team; |
● | an analysis of PwC’s known legal risks and significant proceedings; |
● | external data relating to audit quality and performance, including recent Public Company Accounting Oversight Board (“PCAOB”) reports on PwC and its peer firms; |
● | PwC’s independence; |
● | the appropriateness of PwC’s fees, on both an absolute basis and as compared to its peer firms; |
● | PwC’s tenure as our independent auditor and its familiarity with our global operations and businesses, accounting policies and practices and internal control over financial reporting; and |
● | PwC’s capability and expertise in handling the breadth and complexity of our global operations, including the Company’s phased implementation of an enterprise resource planning system on a worldwide basis over the next several years. |
Based on this evaluation, the Audit Committee believes that PwC is independent and that it is in the best interests of the Company and our stockholders to retain PwC to serve as our Independent Accounting Firm for 2019.
We are asking our stockholders to ratify the selection of PwC as our Independent Accounting Firm for 2019. Although ratification is not required by our Bylaws or otherwise, the Board is submitting the selection of PwC to our stockholders for ratification as a matter of good corporate governance. If the selection of PwC is not ratified, the Audit Committee will consider whether it is appropriate to select another Independent Accounting Firm. Even if the selection is ratified, the Audit Committee may in its discretion select a different Independent Accounting Firm at any time during the year if it determines that such a change would be in the best interests of the Company and our stockholders.
42 | 3M Company |
Audit committee matters Proposal 2
PwC representatives are expected to attend the Annual Meeting where they will be available to respond to appropriate questions and, if they desire, to make a statement.
RECOMMENDATION OF THE AUDIT COMMITTEE |
The Audit Committee of the Board of Directors unanimously recommends a vote “FOR” the ratification of the appointment of PricewaterhouseCoopers LLP as the Company’s independent registered public accounting firm for 2019. Proxies solicited by the Board of Directors will be voted “FOR” ratification unless a stockholder indicates otherwise in voting the proxy. |
The Audit Committee oversees the Company’s financial reporting process on behalf of the Board of Directors. The management of the Company is responsible for (i) the preparation of complete and accurate annual and quarterly consolidated financial statements (“financial statements”) in accordance with generally accepted accounting principles in the United States, (ii) maintaining appropriate accounting and financial reporting principles and policies and internal controls designed to assure compliance with accounting standards and laws and regulations, and (iii) an assessment of the effectiveness of internal control over financial reporting. The Independent Accounting Firm is responsible for planning and conducting in accordance with the standards of the Public Company Accounting Oversight Board (“PCAOB”) an audit of the Company’s annual consolidated financial statements and a review of the Company’s quarterly financial statements and expressing opinions on the Company’s financial statements and internal control over financial reporting based on the integrated audits.
In this context, the Audit Committee has met and held discussions with management and the Independent Accounting Firm regarding the fair and complete presentation of the Company’s results and the assessment of the Company’s internal control over financial reporting. The Audit Committee has discussed significant accounting policies applied by the Company in its financial statements,as well as alternative treatments. Management has represented to the Audit Committee that the Company’s consolidated financial statements were prepared in accordance with accounting principles generally accepted in the United States, and the Audit Committee has reviewed and discussed the consolidated audited financial statements with management and the Independent Accounting Firm. The Audit Committee has discussed with the Independent Accounting Firm matters required to be discussed pursuant to the PCAOB’s Auditing Standards on Communications with Audit Committees, as currently in effect.
In addition, the Audit Committee has reviewed and discussed with the Independent Accounting Firm the auditor’s independence from the Company and its management. As part of that review, the Audit Committee has received the written disclosures and the letters required by applicable requirements of the PCAOB regarding the Independent Accounting Firm’s communications with the Audit Committee concerning independence, and the Audit Committee has discussed the Independent Accounting Firm’s independence from the Company.
The Audit Committee also has considered whether the Independent Accounting Firm’s provision of non-audit services to the Company is compatible with the auditor’s independence. The Audit Committee has concluded that the Independent Accounting Firm is independent from the Company and its management.
The Audit Committee has discussed with the Company’s Internal Audit Department and Independent Accounting Firm the overall scope of and plans for their respective audits. The Audit Committee meets with the Internal Auditor, Chief Compliance Officer, the General Counsel, and representatives of the Independent Accounting Firm in regular and executive sessions, to discuss the results of their examinations, the evaluations of the Company’s internal controls, and the overall quality of the Company’s financial reporting and compliance programs.
In reliance on the reviews and discussions referred to above, the Audit Committee has recommended to the Board of Directors, and the Board has approved, that the audited financial statements be included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2018, for filing with the SEC.
Submitted by the Audit Committee
David B. Dillon, Chair
Sondra L. Barbour
Thomas “Tony” K. Brown
Dambisa F. Moyo
Gregory R. Page
2019 Proxy Statement | 43 |
Audit committee matters Proposal 2
Audit Committee Policy on Pre-Approval of Audit and Permissible Non-Audit Services of the Independent Accounting Firm
The Audit Committee is responsible for appointing and overseeing the work of the Independent Accounting Firm. The Audit Committee has established a policy requiring its pre-approval of all audit and permissible non-audit services provided by the Independent Accounting Firm.
The policy identifies the guiding principles that must be considered by the Audit Committee in approving services to ensure that the Independent Accounting Firm’s independence is not impaired; describes the Audit, Audit-Related, Tax and All Other services that may be provided and the non-audit services that may not be performed; and sets forth the pre-approval requirements for all permitted services. The policy provides for the general pre-approval of specific types of Audit, Audit-Related and Tax services and a limited fee estimate range for such services on an annual basis as set forth in the engagement letter with the Independent Accounting Firm. The policy requires specific pre-approval of all other permitted services. The Independent Accounting Firm is required to report periodically to the Audit Committee regarding the extent of services provided in accordance with their pre-approval and the fees for the services performed to date.
The Audit Committee’s policy delegates to its Chair the authority to address requests for pre-approval of services in certain limited circumstances between Audit Committee meetings. The chair, in his discretion, must either seek immediate approval by e-mail from the other Audit Committee members, or report any pre-approval decisions to the Audit Committee for its approval at its next scheduled meeting.
The Audit Committee may not delegate to management the Audit Committee’s responsibility to pre-approve permitted services of the Independent Accounting Firm.
All Audit, Audit-Related, Tax and All Other services described below were approved by the Audit Committee before services were rendered.
Fees of the Independent Accounting Firm
The following table represents fees billed for professional services rendered by PricewaterhouseCoopers LLP (“PwC”) for the audit of the Company’s consolidated financial statements for the years ended December 31, 2017 and 2018, and fees billed for other services rendered by PwC during those periods.
AUDIT AND NON-AUDIT FEES ($ IN MILLIONS) |
2017 | 2018 | ||||||
Audit Fees: | $ | 17.4 | $18.6 | ||||
Audit-Related Fees: | 1.2 | 1.3 | |||||
Tax Fees: | 0.9 | 0.7 | |||||
All Other Fees: | 0.1 | 0.2 | |||||
Total | $ | 19.7 | $20.8 | ||||
In the above table, in accordance with SEC rules, “Audit” fees consisted of audit work and review services, as well as work generally only the independent registered public accounting firm can reasonably be expected to provide, such as statutory audits, comfort letters, consents, and review of documents filed with the Securities and Exchange Commission. “Audit-related” fees consisted principally of procedures related to the adoption of new accounting standards in future years, internal control and system audit procedures for periods prior to the rollout of the ERP system, agreed-upon procedures, employee benefit plan audits, and other attestation services. “Tax” fees consisted principally of tax compliance services in foreign jurisdictions, assistance with transfer pricing documentation, assistance with excise tax filings, and advice on foreign and domestic tax related matters. “All Other” fees consisted of information security vendor assessments, licenses for accounting software, and other permissible services that do not fall into the three categories listed above.
44 | 3M Company |
Audit committee matters Proposal 2
Audit Committee Restrictions on Hiring Employees of the Independent Accounting Firm
The Audit Committee has adopted restrictions on the hiring by the Company of any PwC partner, director, manager, staff, reviewing actuary, reviewing tax professional, and any other persons having responsibility for providing audit assurance on any aspect of PwCs certification of the Companys financial statements. Audit assurance includes all work that results in the expression of an opinion on financial statements, including audits of statutory accounts.
2019 Proxy Statement | 45 |
Section 14A of the Securities Exchange Act provides our stockholders with the opportunity to approve, on an advisory basis, the compensation of our named executive officers as described in this Proxy Statement. This is the eighth year that the Company is asking stockholders to vote on this type of proposal, known as a “say-on-pay” proposal.
We believe that our executive compensation program is consistent with our core compensation principles and is structured to assure that those principles are implemented. At the Annual Meeting of Stockholders held on May 8, 2018, approximately 93 percent of the votes cast on this issue voted to approve the compensation of the Company’s named executive officers as disclosed in last year’s Proxy Statement. Although the vote was non-binding, the Compensation Committee believes this level of approval percentage indicates that our stockholders strongly support our core compensation principles and our executive compensation program, and we believe our stockholders as a whole should support them as well.
Thus, the Company is submitting to stockholders the following resolution for their consideration and approval:
“RESOLVED, that the stockholders approve, on an advisory basis, the compensation of the Company’s Named Executive Officers as disclosed in this Proxy Statement pursuant to the compensation disclosure rules of the Securities and Exchange Commission (including in the Compensation Discussion and Analysis, the accompanying compensation tables and related narrative).”
We encourage you to read the entire Compensation Discussion and Analysis portion of this Proxy Statement to learn more about our executive compensation program and the impact that our financial performance has on the annual and long-term incentive compensation earned by our leadership team.
While the Board of Directors and the Compensation Committee intend to carefully consider the results of the voting on this proposal when making future decisions regarding executive compensation, the vote is not binding on the Company or the Board and is advisory in nature. The Company currently holds advisory votes on the compensation of named executive officers annually. Accordingly, the next such advisory vote is expected to occur at the 2020 Annual Meeting.
RECOMMENDATION OF THE BOARD |
The Board of Directors unanimously recommends a vote “FOR” this proposal for the reasons discussed above. Proxies solicited by the Board of Directors will be voted “FOR” this proposal unless a stockholder indicates otherwise in voting the proxy. |
46 | 3M Company |
Executive compensation Compensation discussion and analysis
Compensation discussion and analysis
This Compensation Discussion and Analysis describes 3M’s executive compensation program, explains how 3M’s Compensation Committee oversees and implements this program, and reviews the 2018 compensation for the executive officers identified below. Throughout this Compensation Discussion and Analysis and elsewhere in this Proxy Statement, we refer to this group of individuals as the “Named Executive Officers.”
Name | Title | |
Michael F. Roman | Chief Executive Officer | |
Inge G. Thulin | Executive Chairman of the Board | |
Nicholas C. Gangestad | Senior Vice President and Chief Financial Officer | |
Hak Cheol Shin | Former Vice Chair and Executive Vice President | |
Julie L. Bushman | Executive Vice President, International Operations | |
Frank R. Little | Former Executive Vice President, Safety and Graphics Business Group | |
James L. Bauman | Executive Vice President, Industrial Business Group |
The table above reflects the title of each Named Executive Officer as of March 1, 2019. As part of the Board’s ongoing leadership succession planning process, two of the Named Executive Officers held multiple positions during the course of the year.
● | Mr. Roman was appointed Chief Executive Officer, effective July 1, 2018. Prior to that, Mr. Roman served as the Company’s Executive Vice President and Chief Operating Officer from 2017 to 2018, Executive Vice President, Industrial Business Group, from 2014 to 2017, and Senior Vice President, Business Development, from 2013 to 2014. As announced on February 6, 2019, the Board will nominate Mr. Roman, who also is a member of the Board, to serve as Chairman of the Board effective May 14, 2019, following his election for a one-year term as a director by stockholders at the 2019 Annual Stockholder Meeting. Unless otherwise noted, all references to our “Chief Executive Officer” or “CEO” in this Compensation Discussion and Analysis refer to Mr. Roman. |
● | Mr. Thulin was appointed Executive Chairman of the Board, effective July 1, 2018. In this role, Mr. Thulin continues to chair 3M’s Board of Directors and works closely with Mr. Roman on long-term strategic initiatives for the Company. Mr. Thulin served as 3M’s Chairman of the Board, President and Chief Executive Officer from 2012 to his appointment as Executive Chairman in 2018. Mr. Thulin has announced his intention not to stand for re-election as a director and to retire from employment with the Company on June 1, 2019. |
As previously announced, Mr. Shin and Mr. Little left employment with the Company, effective January 1, 2019, and July 1, 2018, respectively.
To enable quicker navigation of the information provided, this Compensation Discussion and Analysis is organized into four distinct sections:
Section I: Executive Summary | 47 | |
Section II: How We Determine Compensation | 52 | |
Section III: How We Paid our Named Executive Officers in 2018 | 59 | |
Section IV: Ways in Which We Address Risk and Governance | 65 |
For the meaning of certain capitalized terms used throughout this Compensation Discussion and Analysis, see “Meaning of Certain Terms” on page 58 of this Proxy Statement.
Selected 2018 Financial Performance and Business Highlights
3M’s 2018 financial performance was achieved through growth and disciplined execution. Given the impact that the Net TCJA Transition Tax, the Water Quality and Sustainability Grant, and the Net CMD Divestiture Gains, had on the Company’s 2018 financial performance, our results are shown below both as determined in accordance with GAAP (to the extent applicable) and excluding these three impacts.
2019 Proxy Statement | 47 |
Executive compensation Compensation discussion and analysis
Results Determined |
Results Excluding |
|||||
Earnings Per Share Growth |
+12.1% |
+8.6%* |
●Excluding the impact of the Net TCJA Transition Tax, the Net CMD Divestiture Gains and the Water Quality and Sustainability Grant, earnings per share grew from $9.17 in 2017 to $9.96 in 2018.
●Excluding the impact of the Water Quality and Sustainability Grant and the Net CMD Divestiture Gains, full-year underlying operating margin performance was 23.6% in 2018. | |||
Organic Local Currency Sales Growth |
+3.2% |
+3.2% |
●Positive organic growth across all Business Groups and geographic areas. | |||
Return on Invested Capital |
22.2%* |
24.6%* |
●Efficiently deploying capital across the business. | |||
Free Cash Flow Conversion |
90.9%* |
92.8%* |
●Continued strong free cash flow generation.
●2018 free cash flow of $4.9 billion. | |||
|
* |
See Appendix A to this Proxy Statement for a reconciliation of earnings per share, operating margin performance, free cash flow and free cash flow conversion to our results for the most directly comparable financial measures as reported under generally accepted accounting principles in the United States, and the calculation of return on invested capital. |
We believe that our ability to deliver consistent results over time is reflected in our total stockholder return, which was in the top half of our executive compensation peer group for the three- and five-year periods ending on December 31, 2018. For additional information, see “Total Stockholder Return” on page 50 of this Proxy Statement.
Other noteworthy accomplishments include the following:
● |
Announced the acquisition of M*Modal to strengthen our Health Information Systems portfolio and complement organic growth; |
● |
Awarded a record total of 4,208 patents from patent offices around the world in 2018, including 688 patents granted to 3M by the United States Patent and Trademark Office, which brings to more than 117,000 the total number of patents awarded to 3M in its corporate history; |
● |
Strengthened our portfolio going forward by completing the divestiture of substantially all of our Communication Markets Division; |
● |
Successfully completed the rollout of the enterprise resource planning (ERP) system in the United States – approximately 70 percent of global revenues are now on the new ERP system; |
● |
Over 100 consecutive years of paying dividends to stockholders and 60 consecutive years of annual increases; |
● |
Returned $8.1 billion to stockholders via dividends and gross share repurchases; and |
● |
Recognized by Ethisphere® as one of the World’s Most™ Ethical Companies® for the sixth consecutive year. |
Factors Creating Alignment Between Pay and Performance
3M’s executive compensation program is designed to maintain a strong alignment between corporate performance and executive compensation by tying incentive compensation to the achievement of performance metrics that we believe increase the Company’s long-term value. For 2018, highlights of the program include:
● |
A large portion of each executive’s target Total Direct Compensation (cash plus long-term incentives) is performance-based, varying from 89 percent for Chief Executive Officer Michael Roman to a range of 82-91 percent for the other Named Executive Officers; and |
● |
The incentive compensation opportunities provided to the Named Executive Officers utilize multiple performance-based metrics focused primarily on revenue and earnings performance, increase in 3M’s common stock price, efficient use of capital, and free cash flow conversion. |
48 | 3M Company |
Executive compensation Compensation discussion and analysis
Impact of Company Performance on Incentive Compensation and Real Pay Delivery
One objective of our incentive compensation program is to align our Named Executive Officers’ real pay delivery with performance. The Company’s performance directly impacted incentive compensation pay outcomes for our Named Executive Officers as follows:
2018 Annual Incentive Compensation
For the Named Executive Officers paid on the basis of the Company’s overall performance, the 2018 annual incentive compensation payout (before any adjustment for individual performance) was 95 percent of the target amount. The payouts reflect our performance against the goals established for 2018 (as shown below) and were calculated excluding the impact of the Net TCJA Transition Tax and a related $600 million pension contribution made in 2017, the Net CMD Divestiture Gains and the Water Quality and Sustainability Grant.
● | Local currency sales achieved 98 percent of plan; |
● | 3M economic profit achieved 96 percent of plan; and |
● | 3M’s 2018 economic profit represented 103 percent of its 2017 results. |
Performance Share Awards (Long-Term Incentive Compensation)
Based on the results described below, the number of shares (excluding dividend equivalents) delivered pursuant to the performance share awards issued to the Named Executive Officers for the 2016-2018 performance period equaled 105 percent of the target number of shares awarded. After considering the appreciation in the price of 3M’s common stock over the three-year performance period and the additional shares delivered pursuant to the dividend equivalent rights granted as part of the awards, the value of the total number of 3M shares delivered to the Named Executive Officers in settlement of these awards (determined using the closing price of a share of 3M common stock on the NYSE for December 31, 2018) equaled 134 percent of the value of the target number of performance shares subject to such awards (determined using the closing price of a share of 3M common stock on the NYSE for March 1, 2016, the initial grant date of 2016 performance share awards).
EARNINGS PER SHARE GROWTH (20% WEIGHTING) |
RELATIVE ORGANIC VOLUME GROWTH (40% WEIGHTING) |
RETURN ON INVESTED CAPITAL (20% WEIGHTING) |
FREE CASH FLOW CONVERSION (20% WEIGHTING) | |||
●2018 performance excludes the impact of the 3M Grant for Water Quality and Sustainability Fund and the Net CMD Divestiture Gains
●2017 and 2018 performance exclude the impact of the Net TCJA Transition Tax
●2017 performance exceeded the maximum level established for these awards |
●2018 performance achieved the minimum threshold attainment
●2017 performance achieved the maximum level established for these awards
●No shares were earned based on 2016 performance for this metric |
●2017 and 2018 performance achieved the maximum level established for these awards
●Numbers shown exclude the impact of acquisitions in the year of the transaction
●2017 and 2018 performance exclude the impact of the Net TCJA Transition Tax
●2018 performance excludes the impact of the 3M Grant for Water Quality and Sustainability Fund and the Net CMD Divestiture Gains |
●No shares were earned based on 2018 performance for this metric
●2017 and 2018 performance exclude the impact of the Net TCJA Transition Tax
●2018 performance excludes the impact of the 3M Grant for Water Quality and Sustainability Fund and the Net CMD Divestiture Gains |
2019 Proxy Statement | 49 |
Executive compensation Compensation discussion and analysis
Stock and Long-Term Incentive Compensation
The performance of 3M’s stock has a material impact on the amount of compensation actually realized by our Named Executive Officers. Our stock ownership guidelines require covered executives, including the Named Executive Officers, to own amounts of Company stock having a value exceeding a specified multiple of their base salary. If the market price of 3M’s stock declines, so does the value of the stock they own.
Similarly, stock options and other long-term incentive awards held by our Named Executive Officers increase or decrease in value along with increases and decreases in the value of 3M’s common stock. The stock options and other long-term incentive compensation granted to our Named Executive Officers in years prior to 2018 decreased in value during 2018 as the closing price for a share of the Company’s common stock on the NYSE decreased from $235.37 on December 29, 2017, to $190.54 on December 31, 2018.
Total Stockholder Return
The graphs below illustrate 3M’s stock performance relative to the stock performance of the S&P 500 and the peer companies included in the Company’s executive peer group, as described under “Competitive Pay” beginning on page 55 of this Proxy Statement.
ANNUALIZED TOTAL STOCKHOLDER RETURN PERFORMANCE |
5-year period | 3-year period | 1-year period |
TSR = Share Price Appreciation + Dividend Yield (annualized)
Note: 5-Year Return = Five years ending 12/31/18; 3-Year Return = Three years ending 12/31/18; 1-Year Return = One year ending 12/31/18 Source: Bloomberg.
2018 Say on Pay
In 2018, approximately 93 percent of the votes cast on our say-on-pay proposal approved the compensation of our Named Executive Officers as disclosed in last year’s Proxy Statement. Although the vote was non-binding, the Committee believes this level of approval indicates that stockholders strongly support our executive compensation programs and policies. The Committee will consider the results of this year’s say-on-pay proposal, as well as feedback from our stockholders, when making future executive compensation decisions.
For information concerning our investor outreach efforts, please refer to the section entitled “Stockholder Outreach and Engagement” on page 9 of this Proxy Statement.
50 | 3M Company |
Executive compensation Compensation discussion and analysis
Noteworthy Compensation Program Actions for 2018During 2018, 3M and the Committee took the noteworthy actions described below as part of the Company’s executive compensation program.
● | Approved new compensation terms for Michael F. Roman in connection with his appointment as Chief Executive Officer, including an annual base salary of $1,200,000 and target annual incentive compensation of $3,120,000, each of which were prorated for 2018. The Compensation Committee (with ratification by the independent members of the Board) will determine the target value of Mr. Roman’s annual long-term incentive grants each year based on market data and his individual performance. Mr. Roman also received special promotion performance share and stock option awards granted at the time of his appointment as Chief Executive Officer that had an aggregate target grant value of $2,500,000, as described in more detail on page 62). Consistent with the Company’s compensation philosophy, Mr. Roman does not have an employment agreement, severance agreement or change in control agreement. |
● | Approved new compensation terms for Inge G. Thulin in connection with his appointment as Executive Chairman, including an annual base salary of $1,000,000 and target annual incentive compensation of $1,500,000 (each prorated for 2018), which represent decreases of approximately 35 percent and 39 percent, respectively. The Compensation Committee (with ratification by the independent members of the Board) will determine the target value of Mr. Thulin’s annual long-term incentive grants each year based on market data and his individual performance. In anticipation of his transition to Executive Chairman in 2018, the aggregate target compensation value for Mr. Thulin’s 2018 long-term incentive compensation awards was reduced by $3,000,000 from the target compensation value established for such awards granted to him in 2017. Mr. Thulin also received a performance share award granted at the time of his appointment as Executive Chairman that had a target grant value of $750,000 (as described in more detailed on page 62). Mr. Thulin’s new compensation terms were approved by the Committee (with ratification by the independent members of the Board) consistent with the recommendation of its independent compensation consultant based on peer and other market data. |
● | Expanded the scope of our clawback policy to address situations involving significant financial or reputational harm. For additional information concerning our updated policy, please refer to the section entitled “Clawback Policy” on page 66 of this Proxy Statement. |
Compensation Policies and Practices
Our compensation program is designed to provide appropriate performance incentives and avoid compensation practices that do not promote the interests of our stockholders.
✓ | Maintain a strong alignment between corporate performance and our executive officers’ compensation by having a majority of Total Direct Compensation consist of performance-based compensation. | |
✓ | Conduct an annual assessment for the purpose of identifying and mitigating significant economic and reputational risks in the design of our incentive compensation programs. | |
✓ | Have a comprehensive clawback policy that covers both cash and equity compensation and includes provisions addressing reputational and financial risk as well as risk management failures. | |
✓ | Use an independent compensation consultant retained by, and reporting directly to, the Committee. | |
✓ | Limit the number and amount of executive perquisites. | |
✓ | Prohibit our executive officers from hedging or pledging 3M common stock. | |
✓ | Maintain robust stock ownership guidelines applicable to all of our executive officers. | |
✓ | Conduct competitive benchmarking to align executive compensation with the market. |
✕ | Have employment, severance, or change in control agreements with any of our executive officers. | |
✕ | Provide tax gross-ups on executive perquisites. | |
✕ | Have agreements that would provide automatic “single-trigger” accelerated vesting of equity compensation or excise tax gross-up payments to any of our executive officers upon a change in control. | |
✕ | Pay dividends or dividend equivalents on unearned equity awards. | |
✕ | Reprice stock options without the approval of 3M stockholders, except for “anti-dilution” adjustments (such as adjustments in connection with a stock split, spinoff, etc.) |
2019 Proxy Statement | 51 |
Executive compensation Compensation discussion and analysis
Section II: How We Determine Executive Compensation
Principles
The Company maintains global compensation principles that are intended to ensure that its compensation practices are fair and reasonable as applied to both executive and non-executive employees. These principles align with the Company’s vision and strategies, balance both individual and enterprise-wide performance and seek to provide competitive wages and benefits with consistent positioning in the median range of the most-relevant markets to employees based on roles, responsibilities, skills and performance. 3M also believes that the compensation of its executives should be closely tied to the performance of the Company, so that their interests are aligned with the interests of long-term 3M stockholders. Consistent with this philosophy, the following core principles provide a framework for the Company’s executive compensation program:
● | Total Direct Compensation should be competitive to attract the best talent to 3M, motivate executives to perform at their highest levels, reward individual contributions that improve the Company’s ability to deliver outstanding performance, and retain those executives with the leadership abilities and skills necessary for building long-term stockholder value; |
● | The portion of Total Direct Compensation that is performance-based and is, therefore, at risk should increase with the level of an individual’s responsibility; |
● | The program should balance incentives for delivering outstanding long-term, sustainable performance against the potential to encourage inappropriate risk-taking; |
● | The metrics and targets for earning performance-based incentives should be consistent with, and aligned to, increasing stockholder value over the long term; and |
● | A significant portion of each executive’s personal net worth should be tied to the value of 3M common stock as further motivation to build long-term stockholder value and mitigate the risk of inappropriate risk-taking. |
To monitor and support the effectiveness of this program, the Committee periodically reviews the compensation principles used for setting annual total cash compensation for the Company’s global workforce and approves the methodology for determining annual long-term incentive target grant values for employees eligible to receive such awards. The Company also periodically compares its pay components to those of other premier companies and adjusts them as necessary to stay competitive and attract, retain and motivate a highly qualified, diverse workforce at all levels throughout the organization, not just for its executives.
Roles and Responsibilities
The Company believes that a collaborative process best ensures that compensation decisions reflect the principles of our executive compensation program. Set forth below is a summary of the roles and responsibilities of the key participants that were involved in making decisions relating to the compensation that our Named Executive Officers earned in 2018.
RESPONSIBLE PARTY |
PRIMARY ROLES AND RESPONSIBILITIES RELATING TO COMPENSATION DECISIONS |
Compensation Committee (Composed solely of independent, non-employee directors and reports to the Board) |
●Reviews the design of, and risks associated with, the Company’s compensation policies and practices;
●Approves the compensation of our Chief Executive Officer and Executive Chairman (including performance metrics and goals for performance-based long-term and short-term incentive compensation), subject to ratification by the independent members of the Board of Directors;
●Approves annual performance goals and objectives for our Chief Executive Officer and Executive Chairman;
●Acting through the Committee’s Chairman, conducts an annual evaluation of our Chief Executive Officer’s and Executive Chairman’s performance and reviews such evaluation with the independent members of the Board of Directors;
●Approves the compensation of our other Named Executive Officers (including performance metrics and goals for performance-based long-term and short-term incentive compensation); and
●Approves all changes to the composition of the executive peer group. |
Independent Non-employee Members of the Board of Directors |
●Considers the Committee’s annual evaluation of our Chief Executive Officer’s and Executive Chairman’s performance; and
●Considers the Committee’s recommendations regarding the compensation of our Chief Executive Officer and Executive Chairman and, if deemed appropriate, approves such compensation. |
52 | 3M Company |
Executive compensation Compensation discussion and analysis
RESPONSIBLE PARTY | PRIMARY ROLES AND RESPONSIBILITIES RELATING TO COMPENSATION DECISIONS |
Independent Consultant to the Compensation Committee* (Frederic W. Cook & Co., Inc.) |
●Provides the Committee with advice regarding the design of all elements of the Company’s executive compensation program;
●Reviews and provides an assessment of the material economic and reputational risks associated with the Company’s incentive compensation programs;
●Reviews and provides an independent assessment of materials provided to the Committee by management of the Company;
●Provides advice and recommendations to the Committee regarding the composition of the compensation peer groups;
●Provides expert knowledge of regulatory developments, marketplace trends and best practices relating to executive compensation and competitive pay levels;
●Makes recommendations regarding the compensation of the Named Executive Officers (including our Chief Executive Officer and Executive Chairman); and
●Regularly attends and actively participates in meetings of the Committee, including executive sessions. |
Chief Executive Officer (Assisted by our Senior Vice President, Human Resources and other Company employees) |
●Approves annual performance goals and objectives for the Named Executive Officers (other than himself and our Executive Chairman);
●Conducts an annual performance evaluation for each of the Named Executive Officers (other than himself and our Executive Chairman) and presents the results to the Committee; and
●Makes recommendations to the Committee with respect to the compensation of the Named Executive Officers (other than himself and our Executive Chairman) based on the final assessment of their performance. |
* | During 2018, the Committee was assisted by its independent compensation consultant, George B. Paulin of Frederic W. Cook & Co., Inc. (“FW Cook”). Other than the support that it provided to the Committee, FW Cook provided no other services to the Company or 3M management, with the exception of independent advisory support to the Nominating and Governance Committee on the compensation of 3M’s non-employee directors so that valuation methodologies and peer groups are consistent with those used for executives and other employees. During the year, the Committee considered an evaluation of the independence of Mr. Paulin and his firm based on the relevant regulations of the Securities and Exchange Commission and the NYSE listing standards. The Committee concluded that the services performed by Mr. Paulin and his firm did not raise any noteworthy conflicts of interest. |
Elements of Target 2018 Total Direct Compensation
The illustration below and the discussion that follows show how the target Total Direct Compensation of the Named Executive Officers (excluding our Executive Chairman) was apportioned among base salary, annual incentives, performance share awards and stock options for 2018, and how these elements relate to the strategic business goals of the Company.
CEO* | OTHER NEOs (AVERAGE)** | |
|
Abbreviations: AIP = Annual incentive pay; PSAs = Performance share awards.
* |
Amounts shown represent the apportionment of Total Direct Compensation for Mr. Roman. |
** |
Amounts shown reflect the average apportionment for all Named Executive Officers other than Mr. Roman and Mr. Thulin. Including Mr. Thulin, the average apportionment for the other Named Executive Officers would be as follows: base salary — 13 percent; AIP — 14 percent; stock options — 40 percent; performance shares — 34 percent; and performance-based pay — 85 percent. Note: Numbers do not add to 100 percent due to rounding. |
2019 Proxy Statement | 53 |
Executive compensation Compensation discussion and analysis
BASE SALARY |
Percentage of Target 2018 Total Direct Compensation: | ||
CEO – 11% |
| |
Other NEOs – 15% |
|
3M pays each of its executives a base salary in cash on a monthly basis. The amount of this base salary is reviewed at least annually and does not vary with the performance of the Company. Base salaries are designed to compensate the executives for their normal day-to-day responsibilities, and it is the only component of their compensation that is considered to be fixed rather than variable in nature.
ANNUAL INCENTIVE |
Percentage of Target 2018 Total Direct Compensation: | Performance Metrics and Weighting: | |
CEO – 15% Other NEOs – 13% |
●50% Local Currency Sales (of 3M or a business unit, as applicable) vs. Plan
●20% Economic Profit (of 3M or a business unit, as applicable) vs. Plan
●30% Economic Profit of 3M vs. Prior Year
|
3M provides its executives with annual incentive compensation through plans that are intended to align a significant portion of their Total Cash Compensation with the financial performance of the Company and its business units. Each executive is assigned a target amount of annual incentive compensation as part of his or her target Total Cash Compensation, but the amount of annual incentive compensation actually paid depends on the performance of 3M and its relevant business units as well as each executive’s individual performance.
3M’s AIP offers eligible employees an opportunity to earn short-term incentive compensation based on three performance metrics, which were weighted for 2018 as indicated above. All 2018 performance targets for our Corporate AIP plan were set at or above 2017 results.
The actual amount paid to an eligible employee for a particular year may range from 0 percent to 200 percent of the employee’s target amount for that year, depending on the performance of the Company and its business units compared to the performance goals approved by the Compensation Committee. The amount of annual incentive compensation paid to an eligible employee also may be increased (up to 30 percent), reduced or eliminated entirely based on the employee’s individual performance during that year. Individual performance takes into account both quantitative (financial results, for example) and qualitative (market and economic circumstances, for example) factors. In no event, however, may the total amount paid to an eligible employee exceed 200 percent of the employee’s target amount for the year.
In determining the amount of annual incentive compensation paid to a Named Executive Officer, the Named Executive Officer’s individual performance is considered based upon the annual performance evaluation that Mr. Roman, assisted by 3M’s Senior Vice President, Human Resources, and other Company employees, completed for each Named Executive Officer (other than himself and Mr. Thulin) and the annual performance evaluation that the Compensation Committee (acting through its Chairman) completed for each of Mr. Roman and Mr. Thulin. These performance evaluations are done according to 3M’s overall performance assessment and management processes, which involve setting annual financial and non-financial goals and objectives for each individual and then assessing the individual’s overall performance against these goals and objectives at the end of the year. While the annual incentive compensation earned by eligible 3M employees generally is determined under the AIP, the annual incentive compensation earned during 2018 by the senior executives whose compensation is decided by the Committee (including all of the Named Executive Officers) was determined under the Executive Plan approved by 3M’s stockholders at the 2007 Annual Meeting. A total of 19 senior executives participated in this Executive Plan during 2018. The Company utilizes the Executive Plan to provide performance-based compensation that is intended to be exempt from the $1 million annual deduction limit of state tax laws that are similar to Section 162(m) of the Internal Revenue Code, as in effect prior to the Tax Cuts and Jobs Act of 2017.
Assuming the Company meets the Adjusted Net Income goal, the Executive Plan provides the Committee with discretion to determine the amount of annual incentive compensation paid to 3M’s Named Executive Officers and its other senior executives. The Executive Plan establishes a maximum amount of annual incentive compensation that may be earned by each covered executive for a year (a percentage of the Company’s Adjusted Net Income for such year) and then the Committee utilizes this discretion to pay each covered executive less than this maximum amount based on such factors as it deems relevant. Since the Executive Plan was first adopted in 2007, the Committee has rarely used this discretion to pay a covered executive (other than our Chief Executive Officer) anything other than the same amount such executive would have received had he or she been participating in the broad-based AIP (including the individual performance multiplier).
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Executive compensation Compensation discussion and analysis
LONG-TERM INCENTIVES |
Percentage of Target 2018 Total Direct Compensation: | Performance Metrics and Weighting: | |
CEO – 37% Stock Options |
●20% Earnings per Share Growth | |
37% Performance Shares |
●40% Relative Organic Volume Growth | |
Other NEOs – 36% Stock Options |
●20% Return on Invested Capital | |
36% Performance Shares |
●20% Free Cash Flow Conversion |
3M provides long-term incentive compensation to its executives through an incentive plan approved by the Company’s stockholders. This is a typical omnibus-type plan that authorizes the Committee to grant stock options, restricted stock, restricted stock units, stock appreciation rights, performance shares, and other stock awards to employees of the Company and its subsidiaries. The Company provides its executives with this long-term incentive compensation based on 3M common stock in order to effectively motivate such executives to build long-term stockholder value.
In determining the performance-adjusted target grant value of the stock options and performance shares provided to our Named Executive Officers, the Compensation Committee considers the individual performance of our Named Executive Officers using the performance evaluations described under “Annual Incentive” above.
Our Named Executive Officers also may receive special equity awards on an ad hoc basis as new hires or for recognition and retention, promotions, or other purposes.
Benefits and Perquisites
The Company’s Named Executive Officers participate in the same health care, disability, life insurance, pension, and 401(k) benefit plans available to most of the Company’s U.S. employees. They also are eligible to receive certain additional benefits and perquisites that are provided for the convenience (financial planning assistance and meals when attending to 3M business, for example), financial security (nonqualified deferred compensation plans and premiums for additional life insurance coverage, for example), personal security (home security equipment/monitoring, for example) or personal health (on-site exercise facilities and physical exams, for example) of the executives. Our Named Executive Officers and other employees also may receive Company tickets for sporting or other events. The Company believes that the benefits and perquisites offered generally are similar to those of our peers and assist in attracting and retaining executives. In some cases, there is no incremental cost to the Company associated with providing these additional benefits and perquisites (physical exams and certain tickets to events, for example) or the executives pay all or a substantial portion of the incremental costs incurred by the Company (on-site exercise facilities, for example).
3M generally provides these additional benefits and perquisites to a group of approximately 90 of our most senior U.S. employees on a consistent basis, although enhanced personal security equipment and monitoring is provided only to our Chief Executive Officer and the type of additional life insurance coverage provided varies based on the date the executive was first appointed to an executive position. Individuals first appointed to an executive position on or before August 31, 2003, receive additional life insurance coverage that is provided through a universal life insurance policy. Individuals first appointed on or after September 1, 2003, including our Chief Executive Officer, receive group term life insurance coverage.
The Company also operates aircraft that are used by our senior officers and other employees to conduct company business. For personal security reasons, the Board of Directors requires our Chief Executive Officer to use the Company’s aircraft for all air travel, both business and personal. Our Chief Executive Officer’s spouse and other guests also may accompany him on flights.
The incremental cost to the Company of providing these additional benefits to the Named Executive Officers is reflected in the All Other Compensation Table. No tax gross-ups are provided on any of these additional benefits and perquisites. Except as described above, the entire program applied to approximately 90 members of our U.S. senior management during 2018, including all of the Named Executive Officers.
Competitive Pay
We compete for executive talent in a global market. In order to ensure that we are providing Total Direct Compensation that is competitive, the Committee annually conducts a rigorous benchmarking process with the help of its independent compensation consultant, FW Cook. During this process, the Committee generally considers available pay data for two peer groups: an executive peer group and a survey peer group.
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Executive compensation Compensation discussion and analysis
Executive Peer Group
For 2018, the executive peer group consisted of the companies identified below (which remained the same as in the previous year), as recommended by the Committee’s independent compensation consultant and approved by the Committee. The companies in this executive peer group were selected because (1) their performance was monitored regularly by the same market analysts who monitor the performance of 3M (investment peers), and/or (2) they met criteria based on similarity of their business and pay models, market capitalization (based on an eight-quarter rolling average), and annual revenues and compete with 3M for talent or capital.
(Dollars in millions) | ||||||
Latest Four Quarters Revenues |
Trailing Eight-Quarter Average Market Capitalization |
|||||
General Electric Company | $121,615 | Johnson & Johnson | $353,823 | |||
DowDuPont Inc. | $85,977 | The Procter & Gamble Company | $220,986 | |||
Johnson & Johnson | $81,581 | General Electric Company | $145,807 | |||
The Procter & Gamble Company | $66,912 | DowDuPont Inc. | $135,613 | |||
United Technologies Corporation | $66,501 | 3M Company | $123,887 | |||
Caterpillar Inc. | $54,722 | Medtronic plc | $117,005 | |||
Honeywell International, Inc. | $41,802 | Honeywell International, Inc. | $109,366 | |||
Deere & Company | $38,388 | United Technologies Corporation | $100,653 | |||
3M Company | $32,765 | Caterpillar Inc. | $80,576 | |||
Johnson Controls International plc | $31,559 | Danaher Corporation | $69,876 | |||
Medtronic plc | $30,555 | Illinois Tool Works Inc. | $49,285 | |||
Eaton Corporation plc | $21,609 | Deere & Company | $46,794 | |||
Danaher Corporation | $19,893 | Emerson Electric Co. | $42,188 | |||
Kimberly-Clark Corporation | $18,486 | Kimberly-Clark Corporation | $40,550 | |||
Emerson Electric Co. | $17,739 | Johnson Controls International plc | $34,075 | |||
Illinois Tool Works Inc. | $14,768 | Eaton Corporation plc | $33,621 | |||
TE Connectivity Ltd. | $13,999 | TE Connectivity Ltd. | $30,214 | |||
Corning Incorporated | $11,290 | Corning Incorporated | $26,124 | |||
75th Percentile | $66,501 | 75th Percentile | $117,005 | |||
Mean | $43,376 | Mean | $96,268 | |||
Median | $31,559 | Median | $69,876 | |||
25th Percentile | $18,486 | 25th Percentile | $40,550 | |||
3M Percentile Rank | 51% | 3M Percentile Rank | 77% |
All data shown was obtained from Standard & Poor’s Capital IQ. Revenues are stated in millions for the latest four quarters disclosed as of February 28, 2019. Market Capitalizations are stated in millions as of February 28, 2019. Market capitalization for DowDuPont represents a seven-quarter average due to lack of market financial data over the complete eight-quarter period.
The Committee, with assistance from its independent compensation consultant, periodically reviews the composition of the executive peer group to determine whether any changes are appropriate. Following its review in 2018, the Committee determined that no changes were needed at that time.
The Company receives pay data and information on the executive compensation practices at the companies in 3M’s executive peer group from Aon and FW Cook.
Survey Peer Group
For 2018, there were approximately 200 comparator companies in the survey peer group. Although the number and identity of the companies varies from year to year and from survey to survey, each of the companies included in the survey peer group had annual revenue exceeding $10 billion. All of the companies in the survey peer group also participate in one or more executive compensation surveys obtained from three consulting firms (Aon, FW Cook, and Willis Towers Watson). Pay data for the survey peer group is statistically regressed to recognize the different sizes of the comparator companies (based on annual revenues) as compared to the size of 3M. The Committee does not review the identity of the companies in the survey peer group.
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Executive compensation Compensation discussion and analysis
How the Committee Establishes Target Compensation Levels Using Competitive Pay Data
The Committee considers the pay data from the Peer Groups as a reference point when establishing the target Total Cash Compensation and the initial target value of long-term incentive compensation to be provided to our executives in any given year before consideration of individual performance. For each Named Executive Officer, the Committee generally tries to set such amounts between 80 and 120 percent of the median for the corresponding items of compensation provided to similarly situated executives in the executive peer group. In situations where the Committee believes that there is insufficient market data for one or more positions, the Committee starts with the median amount for a similar position and adjusts that amount up or down (generally not more than 15 percent) to arrive at a number that it uses as the median for that position. The final target amounts established by the Committee for each executive may vary based on individual circumstances. When setting the target amounts for any individual executive, the Committee may consider the breadth and complexity of the executives duties and responsibilities, the scores assigned to the executive for his or her leadership behaviors (e.g., customer focus, strategic mindset, operational leadership), the financial and operational performance of the business activities for which the executive is responsible, experience and time in their current position, internal pay equity, individual performance, and such other factors as the Committee determines to be appropriate. The pay data for the survey peer group is used by the Committee to assess the reasonableness of the benchmarking results for each executive position benchmarked, helping to ensure that the Companys compensation objectives are being met.
The Committee also uses information on the executive compensation practices at companies in the executive peer group when considering design changes to the Companys executive compensation program. Overall, the Company believes that use of this information from the Peer Groups enables the Committee to create better alignment between executive pay and performance and to help ensure that 3M can attract and retain high-performing executive leaders.
Tally Sheets
The Committee periodically reviews a report comparing the amounts of compensation actually received by the Companys Named Executive Officers to the amounts reported in its annual proxy statement and summarizing the compensation that would be owed to such individuals in the event of the termination of their employment under various circumstances. Reviewing this report helps the Committee better understand the Companys potential obligations to the Named Executive Officers following the termination of their employment. It also helps the Committee better assess the risk of any of the Named Executive Officers leaving the Company prematurely because the Company is not providing sufficient retention incentives.
Tax Considerations
Section 162(m) of the Internal Revenue Code of 1986, as amended (Section 162(m)), disallows a tax deduction to public companies for compensation paid in excess of $1 million to covered employees (generally, a companys chief executive officer and its three other highest paid executive officers other than its chief financial officer). Prior to enactment of the TCJA, there was an exception to this $1 million limitation for performance-based compensation if certain requirements set forth in Section 162(m) and the applicable regulations were met. The Committee has historically designed its compensation programs based on its belief that a substantial portion of the compensation payable to NEOs should be based on the achievement of performance-based targets or otherwise be designed with the intent that such compensation qualifies as deductible performance-based compensation under Section 162(m). As a result, annual incentive compensation and certain equity-based compensation arrangements granted to our covered employees in prior years were intended to qualify as performance-based compensation under Section 162(m).
Effective for taxable years beginning after December 31, 2017, the TCJA amended Section 162(m) to eliminate the exception for performance-based compensation and expand the definition of covered employee to include a companys chief financial officer and certain individuals who were covered employees in years other than the then-current taxable year. Interpretations of and changes in applicable tax laws and regulations as well as other factors beyond the control of the Committee can affect deductibility of compensation, and there can be no assurance that compensation paid to our executive officers who are considered covered employees for purposes of Section 162(m) will be deductible.
The Committee will continue to consider tax implications (including the potential lack of deductibility under Section 162(m)) when making compensation decisions but reserves the right to make compensation decisions based on other factors if the Committee believes it is in the best interests of the Company and its stockholders to do so. The Committee also reserves the right to make changes or amendments to existing compensation programs, including changes or amendments that are intended to modify or eliminate aspects of such arrangements that were intended to take advantage of the former exception to Section 162(m) for performance-based compensation but that the Committee no longer believes are in the best interests of the Company and its stockholders.
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Executive compensation Compensation discussion and analysis
Meaning of Certain Terms
Except as otherwise noted, capitalized terms used in this Compensation Discussion and Analysis have the meaning specified below.
Adjusted Net Income | means the net income of 3M as reported in its Consolidated Statement of Income, as adjusted to exclude special items. | |
AIP | means the broad-based Annual Incentive Plan by which the Company provides annual incentive compensation to approximately 35,000 eligible employees. | |
Committee | means the Compensation Committee of the Board of Directors of 3M Company. | |
Economic Profit | means the adjusted net income of 3M (net income including non-controlling interest plus after-tax interest expense, as reported in its Consolidated Statement of Income) or a business unit operating income, plus interest income and minus income taxes, adjusted to exclude special items and the impact of acquisitions or divestitures in the year each acquisition or divestiture is completed (unless such acquisition or divestiture is included in the operating plan for the business unit), less a charge (10 percent in 2018) for the capital used to generate such operating income. The Economic Profit metric measured versus 3M’s prior year results is calculated using total Company average invested capital (equity plus debt, as reported in its Consolidated Balance Sheet), while the Economic Profit metric measured versus plan is calculated using only accounts receivable and inventories of such business unit as capital. | |
Earnings per Share (EPS) Growth |
means the percentage increase or decrease in 3M’s diluted earnings per share attributable to 3M common stockholders (as reported in its Consolidated Statement of Income) for a year as compared to the previous year, in each case, as adjusted to exclude special items. | |
Executive Plan | means the Executive Annual Incentive Plan by which the Company provides annual incentive compensation to the Named Executive Officers as well as certain other executives. | |
Free Cash Flow Conversion | means the sum of 3M’s operating cash flows minus capital expenditures, divided by net income, as adjusted to exclude special items. | |
GAAP | means generally accepted accounting principles in the United States. | |
Local Currency Sales | means the net sales of 3M (as reported in its Consolidated Statement of Income) or a business unit, in local currency, adjusted to exclude the impact of acquisitions or divestitures in the year each acquisition or divestiture is completed (unless such acquisition or divestiture is included in the operating plan for the business unit). | |
Organic Local Currency Sales Growth |
means the percentage amount by which 3M’s net sales (as reported in its Consolidated Statement of Income) for a year increase or decrease as compared to the previous year, in each case, adjusted to exclude the sales attributable to acquisitions or divestitures for the 12 months following the date each acquisition or divestiture is completed and to exclude currency effects. | |
Peer Groups | means both 3M’s executive peer group and the survey peer group, each as described in the “Competitive Pay” section of this Compensation Discussion and Analysis. | |
Relative Organic Volume Growth |
means the amount by which the percentage increase or decrease in 3M’s net sales (as reported in its Consolidated Statement of Income) for a year as compared to the previous year exceeds the percentage increase or decrease in Worldwide real sales growth over the same period, as reflected in the Worldwide Industrial Production Index published by Global Insight. For this purpose, 3M’s net sales are adjusted to exclude price and currency effects and, during the 12-month period following the date of each acquisition or divestiture, the sales attributable to such acquired or divested business or products. | |
Return On Invested Capital | means the operating income of 3M (as reported in its Consolidated Statement of Income), plus interest income and minus income taxes, adjusted to exclude special items and the impact of acquisitions in the year each acquisition is completed, divided by the average invested capital (equity plus debt, as reported in its Consolidated Balance Sheet). | |
Total Cash Compensation | means the total of an individual’s base salary and annual incentive compensation. | |
Total Direct Compensation | means the total of an individual’s Total Cash Compensation plus the compensation value of their annual long-term incentive compensation awards (which is based on their grant date fair value as measured under accounting standards). |
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Executive compensation Compensation discussion and analysis
Section III: How We Paid Our Named Executive Officers in 2018
2018 Base Salary and Target Total Cash Compensation
The Committee considers changes in the base salaries and target Total Cash Compensation of the Named Executive Officers at least annually. As part of its normal process to progress senior executives to a level of compensation that is commensurate with their responsibilities, the Committee also periodically considers adjustments to the base salaries and target Total Cash Compensation of senior executives whose rate of pay is set below the market median. All adjustments are made only after considering the most recent compensation data available to the Committee for executives with similar responsibilities at companies in the Peer Groups, each individual’s place in the salary range for his or her position, and the individual’s job performance.
In February 2018, the Committee approved the increases in the base salaries and target Total Cash Compensation shown below for the Named Executive Officers following completion of their annual performance evaluations. No changes were made to Mr. Roman’s or Mr. Thulin’s base salary or target Total Cash Compensation at that time.
Name | Previous Base Salary ($) |
New Base Salary Effective 4/1/18 ($) |
% Increase |
Previous Target Total Cash Compensation ($) |
New Target Total Cash Compensation Effective 4/1/18 ($) |
% Increase | ||||||
Nicholas C. Gangestad | 799,495 | 841,495 | 5% | 1,598,990 | 1,682,989 | 5% | ||||||
Hak Cheol Shin | 875,000 | 892,500 | 2% | 1,750,000 | 1,785,000 | 2% | ||||||
Julie L. Bushman | 769,672 | 800,502 | 4% | 1,424,000 | 1,481,040 | 4% | ||||||
Frank R. Little | 697,409 | 739,952 | 6% | 1,290,304 | 1,369,015 | 6% | ||||||
James L. Bauman | 731,188 | 760,477 | 4% | 1,352,800 | 1,406,988 | 4% |
As a result of these increases, the target Total Cash Compensation of these Named Executive Officers ranged from 97 percent to 108 percent of the median value of the corresponding compensation provided to executives with similar responsibilities at companies in the executive peer group.
In May 2018, the Committee approved the adjustments in base salary and target Total Cash Compensation shown below in connection with Mr. Roman’s appointment to Chief Executive Officer and Mr. Thulin’s appointment to Executive Chairman. The adjustments were intended to better align the target Total Cash Compensation of each executive with the breadth of the responsibilities that accompany their new roles.
Name | Previous Base Salary ($) |
New Base Salary Effective 7/1/18 ($) |
% Increase |
Previous Target Total Cash Compensation ($) |
New Target Total Cash Compensation Effective 7/1/18 ($) |
% Increase | ||||||
Michael F. Roman | 900,000 | 1,199,952 | 33% | 2,000,000 | 3,120,000 | 56% | ||||||
Inge G. Thulin | 1,538,400 | 1,000,000 | -35% | 4,000,000 | 2,500,000 | -38% |
As a result of these adjustments, Mr. Roman’s target Total Cash Compensation was approximately 83 percent of the median value of the corresponding compensation provided to executives with similar responsibilities at companies in the executive peer group. Mr. Thulin’s adjustment to target Total Cash Compensation reflects a decrease of 38 percent from his final compensation as Chief Executive Officer, which the Committee’s independent compensation consultant recommended to align with median market practice.
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Executive compensation Compensation discussion and analysis
2018 Annual Incentive
During 2018, the Committee provided the Named Executive Officers with the opportunity to earn short-term incentive compensation under the Executive Plan. Each Named Executive Officer’s target annual incentive for the year was equal to the difference between his or her target Total Cash Compensation and annual base salary. Each of the Named Executive Officers was assigned to an appropriate business unit (the entire Company, in some cases) established under the AIP for the purpose of measuring business performance during 2018 and converting that performance into a payout determined in accordance with the terms of the AIP. While none of the Named Executive Officers are covered by the AIP, the Committee rarely uses its discretion under the Executive Plan to pay the covered executives (other than our Chief Executive Officer) anything other than the same amount such executive would have received had he or she been participating in the AIP (including the individual performance multiplier).
The amounts payable under the AIP for 2018 were based on the following performance results for the Company and, as applicable, the respective business units to which the Named Executive Officers were assigned for all or part of the year:
Local Currency Sales (50%) |
Economic Profit (20%) |
Total 3M Economic Profit vs. Prior Year (30%) |
Weighted Average Payout % Based On Payout Curve | |||||||||||||||||
(Dollar Amounts in Millions) Business Unit |
Plan | Actual | Actual vs. Plan |
Plan | Actual | Actual vs. Plan |
Prior Year |
Actual | Actual vs. Prior Year |
|||||||||||
Total Company | 33,514 | 32,869 | 98% | 5,590 | 5,348 | 96% | 3,648 | 3,752 | 103% | 95% | ||||||||||
International Operations | 20,374 | 20,009 | 98% | 3,539 | 3,507 | 99% | 3,648 | 3,752 | 103% | 96% | ||||||||||
Safety and Graphics Business Group | 6,889 | 6,830 | 99% | 1,264 | 1,217 | 96% | 3,648 | 3,752 | 103% | 97% | ||||||||||
Industrial Business Group | 12,428 | 12,232 | 98% | 2,053 | 1,876 | 91% | 3,648 | 3,752 | 103% | 92% |
Since the Company satisfied the Executive Plan’s performance objective by earning Adjusted Net Income of $6.0 billion for 2018, the plan authorized the Committee to approve payments of annual incentive compensation to each Named Executive Officer equal to a maximum of one-quarter of one percent of such Adjusted Net Income ($15 million), subject to the Committee’s negative discretion to pay each covered executive any amount less than this maximum based on such factors as it deems relevant, including the goals set forth under the AIP. At its meeting in February 2019 and consistent with its past practice, the Committee approved (and with respect to Mr. Roman and Mr. Thulin, the independent members of the Board of Directors ratified) a payment to each executive equal to the amount such executive would have received had he been participating in the broad-based AIP (including the individual performance multiplier).
Name | Target 2018 Annual Incentive* ($) |
Actual 2018 Annual Incentive ($) |
Payout as a % of Target | |||
Michael F. Roman | 1,510,024 | 1,431,503 | 95% | |||
Inge G. Thulin | 1,980,800 | 1,877,798 | 95% | |||
Nicholas C. Gangestad | 830,995 | 787,783 | 95% | |||
Hak Cheol Shin | 888,125 | 841,943 | 95% | |||
Julie L. Bushman | 673,985 | 649,048 | 96% | |||
Frank R. Little | 305,489 | 294,804 | 97% | |||
James L. Bauman | 640,286 | 590,984 | 92% |
* | These amounts are prorated to reflect the increases in Total Cash Compensation described above that resulted in corresponding increases in each individual’s target annual incentive compensation. |
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Executive compensation Compensation discussion and analysis
Long-Term Incentives — 2018 Annual Grants
After considering the most recent long-term incentive compensation data available from companies in the Peer Groups and after taking into account its evaluation of their individual performance during 2017 and Mr. Thulin’s anticipated transition to Executive Chairman during the second half of 2018, the Committee approved (and in the case of Mr. Thulin, the independent members of the Board of Directors ratified) the following performance-adjusted target compensation values for the Named Executive Officers’ 2018 long-term incentive compensation awards. For ease of comparison, the table below also shows the performance-adjusted target compensation values of the Named Executive Officers’ 2017 long-term incentive compensation awards.
Name | Performance- Adjusted Target Grant Value of 2017 Annual Awards ($) |
Performance- Adjusted Target Grant Value of 2018 Annual Awards ($) | ||||||
Michael F. Roman | 2,455,580 | 4,720,000 | ||||||
Inge G. Thulin | 12,000,000 | 9,000,000 | ||||||
Nicholas C. Gangestad | 3,677,700 | 4,673,500 | ||||||
Hak Cheol Shin | 2,393,150 | 3,954,500 | ||||||
Julie L. Bushman | 1,847,830 | 2,913,400 | ||||||
Frank R. Little | 2,913,400 | 3,496,080 | ||||||
James L. Bauman | 2,268,290 | 2,836,403 |
Consistent with market practices at companies in the Peer Groups, during 2018, the Committee chose to deliver one-half of the performance-adjusted target grant value of the annual long-term incentive compensation awards provided to 3M’s Named Executive Officers (other than Mr. Thulin) in the form of stock options and the remaining one-half in the form of performance shares. Mr. Thulin’s awards were delivered approximately 67 percent in the form of stock options and 33 percent in the form of performance shares in light of the anticipated changes in his duties and responsibilities.
2018 Stock Options
Stock options granted to the Named Executive Officers in 2018 as part of their long-term incentive compensation have the following features:
● | an exercise price equal to the closing price of a share of 3M common stock on the NYSE for the date of grant; |
● | a ratable three-year vesting schedule; and |
● | a maximum term of 10 years. |
2018 Performance Share Awards
Performance shares awarded in 2018 will result in the issuance of actual shares of 3M common stock to 3M’s Named Executive Officers if the Company achieves certain financial goals over the years 2018, 2019, and 2020. The number of shares of 3M common stock that will be issued for each 2018 performance share is linked to the Company’s performance as measured by the criteria of Earnings per Share Growth (20 percent weighting), Relative Organic Volume Growth (40 percent weighting), Return on Invested Capital (20 percent weighting), and Free Cash Flow Conversion (20 percent weighting). These performance criteria were selected because they are aligned with 3M’s operating plan and the financial objectives communicated to stockholders and the Committee believes that they are important drivers of long-term stockholder value. Attainment of these four independent performance criteria is measured separately for each calendar year during the three-year measurement period, with each year weighted as follows: 2018 — 50 percent; 2019 — 30 percent; and 2020 — 20 percent. However, the formulas by which the Company’s performance is measured do not change over the three-year performance period.
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Executive compensation Compensation discussion and analysis
The actual number of shares of 3M common stock that will be delivered at the end of the three-year performance period ending on December 31, 2020, may be anywhere from 0 percent to 200 percent of the target number of performance shares awarded, depending on the performance of the Company during the performance period. However, an executive may forfeit all or a portion of such shares if he or she does not remain employed by the Company throughout the three-year performance period.
For awards tied to the achievement of performance goals over the years 2018, 2019, and 2020, the Committee approved the following formulas for determining the number of shares of 3M common stock to be delivered for each performance share awarded, with the total number of shares actually delivered being the sum of the number of shares earned as a result of the Company’s achievement of each of the four financial goals. In the event that the Company’s performance as measured by any of these performance criteria falls between any of the percentages listed below, the number of shares of 3M common stock earned will be determined by linear interpolation.
EPS Growth |
% of |
Relative Organic Volume Growth |
% of Performance Shares |
Return on Invested Capital |
% of Performance Shares |
FCF Conversion |
% of Performance Shares |
Total % of Performance Shares | ||||||||||||||||||
below 4.0% | 0% | below -1.0% | 0% | below 18.0% | 0% | below 95.0% | 0% | 0% | ||||||||||||||||||
4.0% | 4% | -1.0% | 8% | 18.0% | 4% | 95.0% | 4% | 20% | ||||||||||||||||||
8.0% | 20% | 0.5% | 40% | 20.0% | 20% | 100.0% | 20% | 100% | ||||||||||||||||||
12.0% or | 40% | 2.0% or | 80% | 23.0% or | 40% | 105.0% or | 40% | 200% | ||||||||||||||||||
higher | higher | higher | higher |
The above formulas are not a prediction of how 3M will perform during the years 2018 through 2020 or any other period in the future. The sole purpose of these formulas, which were approved by the Committee in February 2018, is to establish a method for determining the number of shares of 3M common stock to be delivered for the performance share awards described above. 3M is not providing any guidance, nor updating any prior guidance, of its future performance with the disclosure of these formulas, and you are cautioned not to rely on these formulas as a prediction of 3M’s future performance.
Long-Term Incentives — Other Grants
In connection with the changes in Mr. Roman’s and Mr. Thulin’s roles and responsibilities and after consulting with its independent compensation consultant and considering each executive’s existing compensation packages and other factors, the Committee approved (and the independent members of the Board of Directors ratified) a performance share award for each of Mr. Roman and Mr. Thulin with a target grant value of $1,250,000 and $750,000, respectively, and a stock option grant for Mr. Roman with a target grant value of $1,250,000, in each case, effective as of July 1, 2018. The terms and conditions of the grants were the same as those of the 2018 annual grants described in the section entitled “Long-Term Incentives — 2018 Annual Grants” beginning on page 61 of this Proxy Statement.
Long-Term Incentives — All Outstanding Performance Share Awards
The Company’s annual award cycle and three-year performance periods result in an overlap of awards. For example, the performance goals for 2018 performance share awards relate to the years 2018, 2019, and 2020. Similarly, the performance goals for 2017 performance share awards relate to the years 2017, 2018, and 2019, and so on, as shown below. Performance against the goals established for each award are measured separately for each calendar year during the measurement period, with each year weighted as shown below in parenthesis. The Committee believes this structure reduces motivation to maximize performance in any one period by providing the highest-level rewards only by building sustainable long-term results.
Award | 2016 | 2017 | 2018 | 2019 | 2020 | |||||||
2016 PSA | Year 1 (50%) | Year 2 (30%) | Year 3 (20%) | |||||||||
2017 PSA | Year 1 (50%) | Year 2 (30%) | Year 3 (20%) | |||||||||
2018 PSA | Year 1 (50%) | Year 2 (30%) | Year 3 (20%) | |||||||||
62 | 3M Company |
Executive compensation Compensation discussion and analysis
Status of Outstanding Performance Share Awards
The Committee periodically reviews the Company’s performance against the goals established for each performance share award throughout the duration of its applicable measurement period. The table below summarizes the status of the different performance share awards held by the Named Executive Officers as of December 31, 2018.
Award and Measurement Period |
Performance Measures and Weighting |
Performance Levels | % of Shares Accrued per Performance Share at Specified Performance Levels |
Actual Performance Level Achieved*, ** |
Shares Accrued per Performance Share Based on Actual Performance*** | |||||||||||||
Threshold | Target | Maximum | Threshold | Target | Maximum | |||||||||||||
2018 PSA | Earnings per | 4.0% | 8.0% | 12.0% | 4% | 20% | 40% | 8.6% (2018) | 0.115 (2018) | |||||||||
Share Growth | ||||||||||||||||||
2018-2020 | Relative Organic | -1.0% | 0.5% | 2.0% | 8% | 40% | 80% | -1.0% (2018) | 0.040 (2018) | |||||||||
Measurement | Volume Growth | |||||||||||||||||
Period | Return on | 18.0% | 20.0% | 23.0% | 4% | 20% | 40% | 24.6% (2018) | 0.200 (2018) | |||||||||
Invested Capital | ||||||||||||||||||
Free Cash Flow | 95.0% | 100.0% | 105.0% | 4% | 20% | 40% | 92.8% (2018) | 0.000 (2018) | ||||||||||
Conversion | ||||||||||||||||||
2018 PSA Total (as of December 31, 2018) | 0.355 shares | |||||||||||||||||
2017 PSA | Earnings per | 4.0% | 8.0% | 12.0% | 4% | 20% | 40% | 8.6% (2018) | 0.069 (2018) | |||||||||
Share Growth | 12.4% (2017) | 0.200 (2017) | ||||||||||||||||
2017-2019 | Relative Organic | -1.0% | 0.5% | 2.0% | 8% | 40% | 80% | -1.0% (2018) | 0.024 (2018) | |||||||||
Measurement | Volume Growth | 2.0% (2017) | 0.400 (2017) | |||||||||||||||
Period | Return on | 18.0% | 20.0% | 23.0% | 4% | 20% | 40% | 24.6% (2018) | 0.120 (2018) | |||||||||
Invested Capital | 25.2% (2017) | 0.200 (2017) | ||||||||||||||||
Free Cash Flow | 95.0% | 100.0% | 105.0% | 4% | 20% | 40% | 92.8% (2018) | 0.000 (2018) | ||||||||||
Conversion | 97.3% (2017) | 0.057 (2017) | ||||||||||||||||
2017 PSA Total (as of December 31, 2018) | 1.070 shares | |||||||||||||||||
2016 PSA | Earnings per | 7.0% | 9.0% | 12.0% | 4% | 20% | 40% | 8.6% (2018) | 0.033 (2018) | |||||||||
Share Growth | 12.4% (2017) | 0.120 (2017) | ||||||||||||||||
7.7% (2016) | 0.048 (2016) | |||||||||||||||||
2016-2018 | Relative Organic | -1.0% | 0.5% | 2.0% | 8% | 40% | 80% | -1.0% (2018) | 0.016 (2018) | |||||||||
Measurement | Volume Growth | 2.0% (2017) | 0.240 (2017) | |||||||||||||||
Period | -2.1% (2016) | 0.000 (2016) | ||||||||||||||||
Return on | 18.0% | 20.0% | 23.0% | 4% | 20% | 40% | 24.6% (2018) | 0.080 (2018) | ||||||||||
Invested Capital | 25.2% (2017) | 0.120 (2017) | ||||||||||||||||
22.6% (2016) | 0.187 (2016) | |||||||||||||||||
Free Cash Flow | 95.0% | 100.0% | 105.0% | 4% | 20% | 40% | 92.8% (2018) | 0.000 (2018) | ||||||||||
Conversion | 97.3% (2017) | 0.034 (2017) | ||||||||||||||||
103.8% (2016) | 0.176 (2016) | |||||||||||||||||
2016 PSA Total (as of December 31, 2018) | 1.054 shares |
* | The reported level of performance achieved for Relative Organic Volume Growth has been determined, in part, using Worldwide IPI for each relevant period, as reported by Global Insights on January 15, 2019. The final performance level achieved may vary based on changes in reported Worldwide IPI for the relevant period. |
** | For purposes of calculating Earnings per Share Growth with respect to the 2018 fiscal year, earnings per share for the Company’s 2017 fiscal year was deemed to equal $9.17, which represents the earnings per diluted share for the Company’s 2017 fiscal year, as determined in accordance with GAAP (to the extent applicable) and excluding the impact of the Net TCJA Transition Tax. |
*** | The number of shares of 3M common stock accrued with respect to each performance share subject to a performance share award is determined based on the Company’s performance against the specified goals established for each performance measure taking into account the weighting for the applicable performance year. In the event that the Company’s performance for any given performance measure falls between any two performance levels, the number of shares of 3M common stock accrued is determined by linear interpolation. |
2019 Proxy Statement | 63 |
Executive compensation Compensation discussion and analysis
Performance Share Accruals Based on 2018 Performance
The table below shows the number of shares of 3M common stock that were accrued (excluding dividend equivalents) for the outstanding performance share awards held by each Named Executive Officer based on the Company’s performance during 2018.
Name | Performance Share Award |
Target Number of Performance Shares |
Shares Accrued Per Target Performance Share Based on 2018 Performance |
Total Shares Accrued Based on 2018 Performance* |
Market Value of Shares Accrued Based on 2018 Performance** ($) | |||||||||||
Michael F. Roman | 2018 PSA | 16,596 | 0.355 | 5,892 | 1,122,582 | |||||||||||
2017 PSA | 6,467 | 0.213 | 1,377 | 262,450 | ||||||||||||
2016 PSA | 6,778 | 0.129 | 879 | 167,425 | ||||||||||||
Total | 1,552,457 | |||||||||||||||
Inge G. Thulin | 2018 PSA | 16,804 | 0.355 | 5,965 | 1,136,651 | |||||||||||
2017 PSA | 31,603 | 0.213 | 6,731 | 1,282,487 | ||||||||||||
2016 PSA | 34,464 | 0.129 | 4,467 | 851,078 | ||||||||||||
Total | 3,270,216 | |||||||||||||||
Nicholas C. Gangestad | 2018 PSA | 10,101 | 0.355 | 3,586 | 683,181 | |||||||||||
2017 PSA | 9,686 | 0.213 | 2,063 | 392,998 | ||||||||||||
2016 PSA | 9,788 | 0.129 | 1,269 | 241,754 | ||||||||||||
Total | 1,317,933 | |||||||||||||||
Hak Cheol Shin | 2018 PSA | 8,547 | 0.355 | 3,034 | 578,066 | |||||||||||
2017 PSA | 6,303 | 0.213 | 1,342 | 255,686 | ||||||||||||
2016 PSA | 6,601 | 0.129 | 856 | 163,104 | ||||||||||||
Total | 996,856 | |||||||||||||||
Julie L. Bushman | 2018 PSA | 6,297 | 0.355 | 2,235 | 425,872 | |||||||||||
2017 PSA | 4,867 | 0.213 | 1,037 | 197,514 | ||||||||||||
2016 PSA | 5,790 | 0.129 | 750 | 142,978 | ||||||||||||
Total | 766,364 | |||||||||||||||
Frank R. Little*** | 2018 PSA | 3,779 | 0.355 | 1,341 | 255,550 | |||||||||||
2017 PSA | 7,673 | 0.213 | 1,634 | 311,287 | ||||||||||||
2016 PSA | 6,424 | 0.129 | 833 | 158,659 | ||||||||||||
Total | 725,496 | |||||||||||||||
James L. Bauman | 2018 PSA | 6,131 | 0.355 | 2,176 | 414,644 | |||||||||||
2017 PSA | 5,974 | 0.213 | 1,272 | 242,428 | ||||||||||||
2016 PSA | 6,071 | 0.129 | 787 | 150,016 | ||||||||||||
Total | 807,088 |
* | The amounts in this column reflect the number of shares accrued (excluding dividend equivalents) based on, among other things, Worldwide IPI for the 2018 calendar year, as reported by Global Insights on January 15, 2019, and a deemed earnings per share for 2017 equal to $9.17, which represents the earnings per diluted share for the Company’s 2017 fiscal year, as determined in accordance with GAAP and excluding the impact of the Net TCJA Transition Tax. The final number of shares accrued may vary in the event of changes in Worldwide IPI reported by Global Insights or, in the case of 2017 performance share awards, the use of a different earnings per share number for the Company’s 2017 fiscal year. Due to rounding, the numbers shown in this column may not equal the result obtained by multiplying the Performance Shares Awarded by the Shares Accrued Per Performance Share Based on 2018 Performance. |
** | Represents the closing price of a share of 3M common stock on the NYSE for December 31, 2018 ($190.54), multiplied by the actual number of shares accrued (before rounding and excluding dividend equivalents) based on the Company’s 2018 performance. |
*** | In accordance with the terms of the award, the target number of performance shares subject to Mr. Little’s 2018 performance share award were reduced based on his July 1, 2018, retirement. Prior to this reduction, the target number of performance shares subject to Mr. Little’s 2018 performance share award was 7,557. |
Although shares of 3M common stock are accrued annually for each outstanding performance share award, an executive may forfeit all or a portion of the shares otherwise issuable pursuant to his or her award if he or she does not remain employed by the Company throughout the entire three-year performance period.
64 | 3M Company |
Executive compensation Compensation discussion and analysis
For additional information concerning the manner in which the compensation of the Named Executive Officers is determined and the role of the Compensation Committee and its advisors, see Section II of this Compensation Discussion and Analysis beginning on page 52.
Section IV: Ways in Which We Address Risk and Governance
Stock Ownership Guidelines
The Company maintains robust stock ownership guidelines that apply to all Section 16 officers of the Company and are designed to increase an executive’s equity stake in 3M and more closely align his or her financial interests with those of 3M’s stockholders. The table below shows the stock ownership guideline for each Named Executive Officer (other than Mr. Little and Mr. Shin) and their compliance status as of December 31, 2018. As former employees, Mr. Little and Mr. Shin are no longer subject to the Company’s stock ownership guidelines.
Name | Multiple of Measurement Date Base Salary Required |
Compliance Status as of December 31, 2018* |
Percentage of Named Executive Officers in compliance with the Company’s stock ownership guidelines as of December 31, 2018: 100% | |||
Michael F. Roman** | 6x | In compliance | ||||
Inge G. Thulin | 6x | In compliance | ||||
Nicholas C. Gangestad | 3x | In compliance | ||||
Julie L. Bushman | 3x | In compliance | ||||
James L. Bauman | 3x | In compliance |
* | In accordance with the terms of the stock ownership guidelines, the number of shares required to be beneficially owned by each Named Executive Officer (other than Mr. Roman) in order to maintain compliance was most recently recalculated as of December 31, 2016, using the closing price of a share of 3M common stock on the NYSE for December 30, 2016. Although each such Named Executive Officer has until December 31, 2019, to acquire beneficial ownership of any additional shares required as a result of the recalculation, each individual beneficially owned a sufficient number of shares on December 31, 2018, to comply with the new ownership levels required. |
** | As a result of his appointment to the position of Chief Executive Officer, Mr. Roman’s required level of ownership increased, effective July 1, 2018, from a multiple of three times his annual base salary to a multiple of six times his annual base salary. Although Mr. Roman has until June 30, 2023, to acquire beneficial ownership of any additional shares required as a result of the recalculation, he beneficially owned a sufficient number of shares on December 31, 2018, to comply with the new ownership level required. |
The stock ownership guidelines provide that the number of shares required to be beneficially owned by each covered executive will be calculated using such executive’s annual base salary at the time of his or her initial appointment to a Section 16 position and again at the time of a position change from one multiple level to another multiple level, and the fair market value of 3M common stock at that time. The guidelines also provide that the number of shares required to be beneficially owned by each executive will be recalculated every three years using his or her annual base salary and the fair market value of 3M common stock at the recalculation date. Pursuant to the terms of the guidelines, the next periodic recalculation date is scheduled to occur on December 31, 2019.
Each covered executive is expected to attain beneficial ownership of the number of shares of 3M stock determined by the guidelines within five years of his or her initial appointment to a position covered by the guidelines or a position change from one multiple level to another multiple level. The guidelines also provide that each covered executive whose required level of ownership increases as a result of a periodic recalculation will have three years from the recalculation date (or the balance of the five-year period since the date of their initial appointment or latest position change, if longer) to acquire beneficial ownership of any additional shares required as a result of the recalculation. However, if a covered executive is not making adequate progress to meet the required level of ownership within the applicable time period, the guidelines provide that he or she will be required to hold and not sell a sufficient number of the after-tax 3M shares received upon the next payout of performance shares to be on track to satisfy the required ownership level.
For purposes of these guidelines, shares owned directly by a covered executive or by members of the covered executive’s immediate family, shares owned indirectly through a covered executive’s account in the Company’s 401(k) plan or another deferred compensation plan, outstanding shares of restricted stock owned by a covered executive, and shares represented by outstanding restricted stock units granted to a covered executive are all considered to be beneficially owned by the covered executive and are counted in determining attainment of the required beneficial ownership level.
2019 Proxy Statement | 65 |
Executive compensation Compensation discussion and analysis
For more information concerning the 3M stock ownership of the Named Executive Officers, see the section entitled Security Ownership of Management beginning on page 85 of this Proxy Statement.
Prohibition of Hedging and Pledging
The Companys stock trading policies prohibit the Companys executive officers from (1) purchasing any financial instrument that is designed to hedge or offset any decrease in the market value of the Companys common stock, including prepaid variable forward contracts, equity swaps, collars, and exchange funds; (2) engaging in short sales related to the Companys common stock; (3) placing standing orders; (4) maintaining margin accounts; and (5) pledging 3M securities as collateral for a loan. All transactions in 3M securities by directors and executive officers must be pre-cleared with the Companys Deputy General Counsel.
Clawback Policy
In 2018, the Board of Directors updated the Companys clawback policy to address situations involving significant financial or reputational harm. Pursuant to the terms of the revised policy, the Board of Directors is authorized to require reimbursement of certain cash and equity compensation provided to an executive if (1) 3M is required to make a material restatement of its financial statements, whether or not the result of misconduct by the executive of any other individual, (2) the executive commits an act of misconduct that has or might reasonably be expected to cause significant financial or reputational harm to the Company or (3) the executive fails to identify, escalate, monitor or manage, in a timely manner and as reasonably expected, risks material to the Company, which have or might reasonably be expected to cause significant financial or reputational harm to the Company. The policy also authorizes the Company to require reimbursement of any profits the executive realizes on the sale of Company securities during the 12-month period following the issuance by the Company of a financial report that, due to the misconduct of the executive, is materially noncompliant with Federal securities laws. This policy applies to all senior executives of the Company, including all of the Named Executive Officers.
The Board of Directors continues to monitor regulatory developments relating to recoupment of incentive-based compensation and intends to further amend this policy, if necessary, to comply with any final regulations issued for the purpose of implementing the requirements of the Dodd-Frank Act.
Assessment of Risk Related to Compensation Programs
Following completion of a recent compensation risk assessment, the Company concluded that none of its compensation policies and practices is reasonably likely to have a material adverse effect on the Company. In connection with this assessment, the Company completed an inventory of its executive and non-executive compensation programs globally, with particular emphasis on incentive compensation plans or programs. The scope of the fiscal 2018 risk assessment generally was consistent with that of past years, except that we continued to respond to external market events by giving heightened attention to plan design, and whether the design, oversight, and controls in place have potential to create not only financial risk, but reputational risk as well. Based on this assessment, the Company evaluated the primary components of its compensation plans and practices to identify whether those components, either alone or in combination, properly balanced compensation opportunities and risk.
The Company believes that our overall cash versus equity pay mix, balance of shorter-term versus longer-term performance focus, balance of revenue versus profit focused performance measures, stock ownership guidelines, and clawback policy all work together to provide our employees and executives with incentives to deliver outstanding performance to build long-term stockholder value, while taking only necessary and prudent risks. In this regard, the Companys strong ethics and its corporate compliance systems, which are overseen by the Audit Committee, further mitigate against excessive or inappropriate risk taking. In addition, our employee sales plans are designed under global guidelines, where oversight of plan terms, administration, and operation is stronger and governance roles are segregated.
The Compensation Committee, with assistance from its independent compensation consultant, George B. Paulin of FW Cook, reviewed a risk assessment that Mr. Paulin conducted for the Committee on the Companys executive compensation policies and practices. Based on its consideration of these assessments, the Committee concurred with the Companys determination that none of its compensation policies and practices is reasonably likely to have a material adverse effect on the Company.
66 | 3M Company |
Executive compensation Compensation committee report
In accordance with the Securities and Exchange Commission’s disclosure requirements for executive compensation, the Compensation Committee of the Board of Directors of 3M Company (the “Committee”) has reviewed and discussed with 3M Management the Compensation Discussion and Analysis. Based on this review and these discussions with 3M Management, the Committee recommended to the Board of Directors that the Compensation Discussion and Analysis be included in the 2019 Proxy Statement of 3M Company and 3M Company’s Annual Report on Form 10-K for the year ended December 31, 2018.
Submitted by the Compensation Committee
Herbert L. Henkel, Chair
Michael L. Eskew
Amy E. Hood
Muhtar Kent
Edward M. Liddy
Patricia A. Woertz
Compensation committee interlocks and insider participation
The members of the Compensation Committee are named in the section titled “Compensation Committee” on page 36 of this Proxy Statement. No members of the Compensation Committee were officers or employees of 3M or any of its subsidiaries during the year, were formerly 3M officers, or had any relationship otherwise requiring disclosure.
2019 Proxy Statement | 67 |
Executive compensation Executive compensation tables
2018 Summary Compensation Table
The following table shows the compensation earned or received during 2018, 2017, and 2016 by each of 3M’s Named Executive Officers (as determined pursuant to the Securities and Exchange Commission’s disclosure requirements for executive compensation in Item 402 of Regulation S-K).
Name and Principal Position |
Year | Salary ($) |
Stock Awards ($)(1) |
Option Awards ($)(2) |
Non-Equity Incentive Plan Compensation ($)(3) |
Change in Pension Value and Nonqualified Deferred Compensation Earnings ($)(4) |
All Other Compensation ($)(5) |
Total ($) | ||||||||||||||
Michael F. Roman Chief Executive Officer |
2018 | 1,049,976 | 3,610,286 | 3,610,217 | 1,431,503 | 3,020,986 | 141,771 | 12,864,739 | ||||||||||||||
2017 | 839,575 | 1,227,825 | 1,228,374 | 1,090,797 | 2,347,859 | 70,788 | 6,805,218 | |||||||||||||||
2016 | 747,022 | 1,081,701 | 1,082,225 | 602,433 | 1,444,650 | 59,463 | 5,017,494 | |||||||||||||||
Inge G. Thulin Executive Chairman of the Board |
2018 | 1,269,200 | 3,750,032 | 6,000,564 | 1,877,798 | — | 632,492 | 13,530,086 | ||||||||||||||
2017 | 1,526,595 | 6,000,146 | 6,002,785 | 4,121,830 | 2,175,108 | 708,729 | 20,535,193 | |||||||||||||||
2016 | 1,483,929 | 5,500,110 | 5,502,854 | 2,303,678 | 1,319,993 | 559,515 | 16,670,079 | |||||||||||||||
Nicholas C. Gangestad Senior Vice President and Chief Financial Officer |
2018 | 830,995 | 2,336,765 | 2,336,984 | 787,783 | 1,384,479 |