NOTICE OF
ANNUAL
MEETING
AND
PROXY
STATEMENT
-----------
ANNUAL MEETING
OF
SHAREHOLDERS
April 23, 1997
----------
AMP
AMP Incorporated
Harrisburg, Pennsylvania
AMP Incorporated
Harrisburg, PA 17105-3608
AMP
Executive Offices
March 14, 1997
Dear Shareholder:
You are invited to attend the AMP Incorporated 1997 Annual Meeting of
Shareholders. This year the Annual Meeting will be held at the AMP Incorporated
Global Executive Leadership Center, 411 South Fortieth Street, Harrisburg,
Pennsylvania, on Wednesday, April 23, 1997, at 10:30 a.m., local time.
If you plan to attend the Annual Meeting, please mark the appropriate box
in the lower right-hand corner of the enclosed proxy so that an admission card
may be sent to you in advance. Only shareholders bearing an admission card will
be permitted admittance to the Annual Meeting, and the number of admission cards
issued will be limited to the seating capacity of the Global Executive
Leadership Center. If your shares are not registered in your own name, please
advise the shareholder of record (e.g., your bank or broker) that you wish to
attend the Annual Meeting and they will request an admission card for you.
Please carefully read the descriptions included in the Proxy Statement
before completing, signing and returning the accompanying proxy in the postage
paid envelope provided for that purpose.
Thank you for your prompt attention to these important matters.
Very truly yours,
/s/ J. E. Marley
JAMES E. MARLEY
Chairman
AMP Incorporated
P.O. Box 3608
Harrisburg, Pennsylvania 17105-3608
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
April 23, 1997
To the Shareholders of
AMP Incorporated:
NOTICE IS HEREBY GIVEN that the Annual Meeting of the Shareholders of AMP
Incorporated will be held at the AMP Incorporated Global Executive Leadership
Center, 411 South Fortieth Street, Harrisburg, Pennsylvania, on Wednesday, April
23, 1997, at 10:30 a.m., local time, for the purpose of considering and acting
upon the following:
1. The election of a Board of Directors, twelve in number, to serve until the
next Annual Meeting of Shareholders and until their respective successors
are elected and qualified.
2. Such other matters that may properly come before the meeting and any
adjournments thereof.
The Board of Directors has fixed the close of business on March 4, 1997 as
the record date for the determination of shareholders entitled to notice of and
to vote at said meeting and any adjournments thereof.
By order of the Board of Directors
/s/ D. F. Henschel
David F. Henschel,
Corporate Secretary
Dated: March 14, 1997.
AMP INCORPORATED
PROXY STATEMENT
----------------
VOTING
This Proxy Statement is furnished in connection with the solicitation of
proxies by the Board of Directors of AMP Incorporated (the "Corporation"). Such
proxies will be voted at the Annual Meeting of Shareholders of the Corporation
to be held on Wednesday, April 23, 1997, and any adjournments or postponements
thereof, at the time and place and for the purposes set forth in the
accompanying Notice of Meeting dated March 14, 1997. The address of the
Corporation's principal executive offices is P.O. Box 3608, Harrisburg,
Pennsylvania 17105-3608. The approximate date on which this Proxy Statement and
the enclosed form of proxy are first sent or given to shareholders is March 14,
1997. Shareholders of record at the close of business on March 4, 1997 are
entitled to notice of and to vote at said meeting and any adjournments or
postponements thereof, each share being entitled to one vote. On March 4, 1997
the Corporation had 219,613,121 outstanding shares of Common Stock, no par value
(excluding shares held in the treasury of the Corporation, all of which are
issued but not outstanding and are not entitled to vote), which constitutes the
only class of voting securities of the Corporation. A majority of the shares
entitled to vote and either present in person or represented by proxy will
constitute a quorum for the transaction of business at the Annual Meeting.
Under Pennsylvania law and the Corporation's Articles of Incorporation and
Bylaws, each nominee for election as a director shall be elected if he or she
receives the affirmative vote of a majority of the votes cast by shareholders
entitled to vote and either present in person or represented by proxy at the
Annual Meeting. Votes may be cast in favor of or withheld from the nominees.
Shareholders are not entitled to cumulative voting in the election of directors.
Abstentions and broker non-votes (i.e., the inability of a broker or other
nominee holding shares for a beneficial owner to vote on behalf of such
beneficial owner on a particular non-routine matter because such broker or
nominee is not permitted, without receiving instructions from the beneficial
owner, to vote such owner's shares on that matter, notwithstanding that the
broker or nominee has discretionary authority on another routine,
non-controversial matter and has voted on such matter on behalf of the
beneficial owner) will be counted in determining whether a quorum has been
reached but will be excluded entirely from the vote and will have no effect
thereon.
Any proxy given pursuant to this solicitation may be revoked in writing by
the person giving it at any time before it is exercised. Under the laws of the
Commonwealth of Pennsylvania, attendance at the Annual Meeting by a shareholder
who has given a proxy does not have the effect of revoking such proxy unless the
shareholder files at any time prior to the voting of the proxy a written notice
of revocation with the Corporate Secretary at the Corporation's principal
executive offices set forth above or at the Annual Meeting, including but not
limited to the timely filing of a duly executed proxy bearing a later date or
the voting of the shares subject to this proxy by written ballot cast at the
Annual Meeting. All shares represented by valid proxies received by the Board of
Directors pursuant to this solicitation in time to be voted and not revoked will
be voted. If the proxy indicates a choice with respect to any matter to be acted
upon, the shares will be voted in accordance with the direction made therein.
Except as set forth above with respect to brokers, if no direction is made, the
shares will be voted as to each proposal in accordance with the recommendations
of your Board of Directors. The proxy of a shareholder who is a participant in
the Corporation's Dividend Reinvestment Plan will also serve as an instruction
to the agent of that plan to vote the shares held for the account of the
participant in the same way as the shares represented by such proxy are voted.
If a shareholder's proxy is not received, the shares held for his or her account
in the Dividend Reinvestment Plan will not be voted.
If a shareholder is a participant in the Corporation's Employee Savings and
Thrift Plan, with a portion of his or her plan account invested in the plan's
AMP Stock Fund on March 4, 1997, the Proxy card received by the shareholder will
cover his or her pro-rata portion of the AMP Stock Fund's shares. The Proxy card
must be returned or the shares will be voted by the plan's Trustee in its sole
and absolute discretion. If a shareholder is a participant in the MERIT Plan of
Benefits of M/A-COM, Inc., with a portion of his or her plan account invested in
the plan's fund containing AMP Common Stock on March 4, 1997, the Proxy card
received by the shareholder will cover his or her pro-rata portion of the AMP
Stock Fund's shares. The Proxy card must be returned or the shares will be voted
by the plan's Trustee in the proportion established by the directions received
by the Trustee from all other participants in this plan. If a shareholder is a
participant in the M/A-COM, Inc. Employee Stock Ownership Plan on March 4, 1997,
the Proxy card received by the shareholder will cover his or her pro-rata
portion of the Trust Fund's shares. The Proxy card must be returned or the
shares will be voted by the plan's Trustees in the proportion established by the
directions received by the Trustees from all other participants in this plan.
ITEM 1:
ELECTION OF DIRECTORS
A Board of Directors, twelve in number, is to be elected at the meeting to
serve until the next Annual Meeting of Shareholders and until their respective
successors are elected and qualified. Unless otherwise instructed by the
shareholder, it is the intention of the persons named in the proxy ("Proxy
Committee") to vote such proxy for the election of the persons named in the
following list, each of whom is now a member of the Board of Directors. Mr.
Walter F. Raab, a director since 1975, having reached the mandatory age for
retirement of directors, retired effective January 1, 1997. Joseph M.
Magliochetti was elected a director of the Corporation at the July 24, 1996
meeting of the Board of Directors.
The following information is supplied as to each person nominated for
election as a director.
<TABLE>
<CAPTION>
Nominee, Age and
Year First Principal Occupation and
Elected Director Business Experience
- ---------------- ------------------------
<S> <C>
Retired Chairman of the Board and Chief Executive Officer of
Air Products and Chemicals, Inc., Allentown, Pennsylvania, a
supplier of industrial gases, chemicals, and related
equipment and technology. Mr. Baker has served as a director
of Air Products and Chemicals, Inc. for more than the past
[portrait five years and he is a former chief executive officer of
photograph that company, having served in that capacity for more than
of Dexter five years. He also serves as a director of Eastman
F. Baker] Chemical.
Dexter F. Baker
Age 69
1990<F3><F4>
[portrait President of Harbor Point Associates, Inc., New York, New
photograph York, a private investment and consulting firm. Mr. DeNunzio
of Ralph also serves as a director of Harris Corporation, Federal
D. DeNunzio] Express Corporation, and NIKE, Inc.
Ralph D. DeNunzio
Age 65
1977<F3><F5>
President and Chief Executive Officer of Barbara Franklin
Enterprises, Washington, D.C., a private consulting and
investment firm since 1995. Ms. Franklin is an
internationally recognized businesswoman and public servant,
having served as the U.S. Secretary of Commerce in the Bush
Administration. In addition, she has been a director of the
American Institute of Certified Public Accountants, chaired
AICPA's audit committee, and received the John J. McCloy
[portrait Award from the Public Oversight Board for excellence in
photograph auditing. She also serves as a director of Aetna, Inc.,
of Barbara Cincinnati Milacron Inc., The Dow Chemical Company and
H. Franklin] MedImmune, Inc.
Barbara Hackman Franklin
Age 56
1993<F2><F4>
Chairman of the Board of Hixon Properties Incorporated, San
Antonio, Texas, maintaining real estate holdings and other
[reference investments. Mr. Hixon has served as a director of Hixon
Appendix] Properties Incorporated for more than the past five years.
Joseph M. Hixon III
Age 58
1988<F2><F5>
[portrait Chief Executive Officer and President of the Corporation.
photograph Mr. Hudson has served as an officer of the Corporation for
of William more than the past five years. He also serves as a director
J. Hudson, of Carpenter Technology Corporation and The Goodyear Tire &
Jr.] Rubber Company.
William J. Hudson, Jr.
Age 62
1992<F1><F5>
President and a director of Dana Corporation, Toledo, Ohio, a
manufacturer of automotive components and systems.
[portrait Mr. Magliochetti has served as President of Dana Corporation
photograph since 1995, prior to which he was President of Dana's North
of Joseph M. American operations. He was recently elected a director of
Magliochetti] Dana Corporation.
Joseph M. Magliochetti
Age 54
1996<F2>
[portrait Chairman of the Board of Directors of the Corporation.
photograph Mr. Marley has served as an officer of the Corporation for
of James E. more than the past five years. He also serves as a director
Marley] of Armstrong World Industries, Inc. and Harsco Corporation.
James E. Marley
Age 61
1986<F1><F5>
[portrait Retired Chairman of the Board of Directors and Chief
photograph Executive Officer of the Corporation. Mr. McInnes served as
of Harold an officer of the Corporation for more than five years. He
A. McInnes] also serves as a director of PPG Industries, Inc.
Harold A. McInnes
Age 69
1981<F1><F4>
Chairman of the Board and Chief Executive Officer of
Tektronix, Inc., Wilsonville, Oregon, an electronic
equipment manufacturer. Mr. Meyer has served as Chairman of
the Board and Chief Executive Officer and as a director of
[portrait Tektronix for more than the past five years.
photograph He also serves as a director of Esterline Technologies
of Jerome J. Corporation, Portland General Corporation, and Standard
Meyer] Insurance Company.
Jerome J. Meyer
Age 59
1996<F2>
President of Evergreen Ventures, Ltd., Cleveland, Ohio, a
family-owned investment company, since August 1995. Mr.
Morley is the retired President, Chief Executive Officer and
director of Reliance Electric Company, Cleveland, Ohio, a
[portrait manufacturer of electrical, mechanical power transmission,
photograph and telecommunications equipment and systems, having served
of John C. in that capacity for more than five years. He also serves
Morley] as a director of Cleveland Cliffs, Inc., Ferro Corporation,
John C. Morley and Lamson & Sessions, Inc.
Age 65
1991<F3><F5>
Retired President and Chief Executive Officer of Parker
Hannifin Corporation, Cleveland, Ohio, an international
manufacturer of hydraulic, pneumatic and electromechanical
components. Mr. Schloemer has served as a director of Parker
[portrait Hannifin Corporation for more than the past five years and he
photograph is a former president and chief executive officer of that
of Paul G. company, having served in that capacity for more than five
Schloemer] years. He also serves as a director of Esterline Technologies
Corporation and Rubbermaid Inc.
Paul G. Schloemer
Age 68
1991<F3><F4>
Chairman of the Advisory Council of IBM Japan, Ltd., a
manufacturer of computer systems located in Japan. Mr.
Shiina served as a board member of IBM Japan, Ltd. from 1962
until his retirement as Chief Executive Officer in 1992,
[portrait having served in the capacity as Chief Executive Officer CEO
photograph for more than five years. He also serves as a director of
of Takeo Air Products and Chemicals, Inc. and as a member of the
Shiina] European and the Asian Advisory Boards of Bankers Trust
Takeo Shiina Company.
Age 67
1995<F2>
- ---------
<FN>
<F1> Member of the Executive Committee of the Board.
<F2> Member of the Audit Committee of the Board.
<F3> Member of the Compensation and Management Development
Committee of the Board.
<F4> Member of the Nominating and Governance Committee of the Board.
<F5> Member of the Finance Committee of the Board.
</TABLE>
SECURITY OWNERSHIP OF DIRECTORS
The Corporation's Corporate Governance guidelines encourage each member of
the Board of Directors to hold the Corporation's Common Stock in an amount
having a market value of at least two times the annual retainer fee. The
following table identifies the total Common Stock ownership for each Nominee for
director as of March 4, 1997.
<TABLE>
<CAPTION>
Amount of Beneficial Amount of Phantom Total Beneficial
Ownership Ownership and Phantom Ownership
Name of Owner (shares) <F1><F2> (shares) <F3> (shares)
- -------------- --------------------- ------------------- ---------------------
<S> <C> <C> <C>
Dexter F. Baker 6,000 <F5> 3,814 9,814
Ralph D. DeNunzio 6,000 <F6> 3,097 9,097
Barbara H. Franklin 3,074 <F7> 1,541 4,615
Joseph M. Hixon III 1,654,135 <F8> 6,753 1,660,888
William J. Hudson, Jr 218,480 <F15><F16> 23,644<F4> 242,124
Joseph M. Magliochetti 0 <F9> 1,001 1,001
James E. Marley 174,839 <F10><F15><F16> 24,630<F4> 199,469
Harold A. McInnes 49,371 0 49,371
Jerome J. Meyer 3,300 <F11> 1,606 4,960
John C. Morley 5,400 <F12> 5,112 10,512
Paul G. Schloemer 6,000 <F13> 0 6,000
Takeo Shiina 4,118 <F14> 1,838 5,956
- ------------
<FN>
<F1> Each Director owns less than 1% of the Corporation's outstanding Common
Stock.
<F2> Unless otherwise indicated, each Nominee for director possesses sole voting
and dispositive power (beneficial ownership) with respect to the shares set
forth opposite his or her name. Numbers shown in this column include
options the director has the right to acquire as beneficial owner within 60
days after March 4, 1997.
<F3> Numbers shown in this column include phantom shares: (i) credited to
outside directors under the Outside Directors Deferred Stock Accumulation
Plan, as described on pages 8-9 of this Proxy Statement; and (ii) credited
to outside and non-employee directors for compensation deferred at the
election of the director, as described on page 13 of this Proxy Statement.
<F4> Designated executive officers of the Corporation may defer up to a specific
percentage of their base salary and all officers are entitled to defer
receipt of all or a portion of their annual cash bonus. Deferred
compensation may be allocated to a phantom AMP Common Stock account under
the Corporation's Deferred Compensation Plan, as described in footnote 9 to
the Summary Compensation Table on page 9 of this Proxy Statement. Such
phantom shares are reported in this number. This number also includes
phantom shares of Common Stock credited to the designated executive officer
in an amount equal to the dividend earned on Performance Restricted Shares,
as described in footnote 2 to the Summary Compensation Table on page 12 and
footnote 3 to the Security Ownership of Executive Officers Table on page 19
of this Proxy Statement.
<F5> Mr. Baker holds 2,000 of these shares of the Corporation's Common Stock in
a charitable foundation in which he shares voting and dispositive powers.
In addition to the options included in the number shown, he holds 2,000
options granted under the Corporation's Stock Option Plan for Outside
Directors that are not exercisable until on or after July 1, 1997.
<F6> Mr. DeNunzio also holds 2,000 options granted under the Corporation's Stock
Option Plan for Outside Directors that are not exercisable until on or
after July 1, 1997.
<F7> Ms. Franklin also holds 2,000 options granted under the Corporation's Stock
Option Plan for Outside Directors that are not exercisable until on or
after July 1, 1997.
<F8> Mr. Hixon holds 15,791 and 122,192 of these shares in two limited
partnerships and shares voting and dispositive powers. In addition, Mr.
Hixon has a 2% residual beneficial interest but no voting or dispositive
powers in a trust that holds 7,392 shares of Common Stock of the
Corporation. He also holds 2,000 options granted under the Corporation's
Stock Option Plan for Outside Directors that are not exercisable until on
or after July 1, 1997.
<F9> Mr. Magliochetti holds 2,000 options granted under the Corporation's Stock
Option Plan for Outside Directors that are not exercisable until on or
after July 24, 1997.
<F10>In addition, 206 shares of Common Stock of the Corporation are owned by a
member of the immediate family of the Nominee; Mr. Marley disclaims
beneficial ownership of this stock. Additionally, 487 shares of Common
Stock of the Corporation are owned by a member of the immediate family of
Mr. Marley in a custodial account over which the Nominee has voting and
dispositive powers; Mr. Marley disclaims beneficial ownership of this
stock.
<F11>Mr. Meyer also holds 2,000 options granted under the Corporation's Stock
Option Plan for Outside Directors that are not exerciseable until on or
after July 1, 1997.
<F12>Mr. Morley also holds 2,000 options granted under the Corporation's Stock
Option Plan for Outside Directors that are not exercisable until on or
after July 1, 1997.
<F13>Mr. Schloemer holds 1,400 of these shares of Common Stock of the
Corporation in a family trust of which he is co-trustee with his wife and
shares voting and dispositive powers. In addition, he holds 2,000 options
granted under the Corporation's Stock Option Plan for Outside Directors
that are not exercisable until on or after July 1, 1997.
<F14>Mr. Shiina also holds 2,000 options granted under the Corporation's Stock
Option Plan for Outside Directors that are not exercisable until on or
after July 1, 1997.
<F15>A portion of the shares reported for Messrs. Hudson and Marley are
Performance Restricted Shares granted under the Corporation's 1993 Long-
Term Equity Incentive Plan. Further, a portion of the shares reported for
Messrs. Hudson and Marley are held in the Corporation's Employee Savings
and Thrift Plan.
<F16>Under the Corporation's former Bonus Plan (Stock Plus Cash), at December
31, 1996 Messrs. Hudson and Marley also had 28,134, and 5,333 Stock Bonus
Units, respectively. Some of the Stock Bonus Units held by Mr. Hudson will
convert within 60 days after March 4, 1997 and are reported in this number.
Under the current 1993 Long-Term Equity Incentive Plan, Mr. Hudson has
358,400 Stock Options and Mr. Marley has 272,500 Stock Options, some of
which are exercisable within 60 days after March 4, 1997 and are reported
in this number.
</TABLE>
Although the Board of Directors does not contemplate that any of the
Nominees for director will be unable to serve, in the event a vacancy in the
original slate of nominees is occasioned by death or other unexpected
occurrence, (a) shares of stock represented by the proxies shall be voted for
the election of such other nominee as may be designated by the Board of
Directors, or (b) prior to the meeting, the Board of Directors will amend the
Corporation's Bylaws in order to eliminate that office of director for which
such nominee is unable to accept election, or (c) in the event that neither (a)
nor (b) occurs, the Proxy Committee shall nominate other persons in their
discretion and vote the proxies for the election of such persons as directors.
THE BOARD OF DIRECTORS
COMPENSATION
A director who is not an employee of the Corporation is paid $26,000 per
year for services as a director and also $1,000 for each day in attendance at a
meeting of the Board. Additionally, a director is paid $1,000 for attendance at
each meeting of any committee of the Board on which he or she serves. The
chairperson of any such committee is paid an annual retainer of $2,500. An
outside or non-employee director may also be paid $1,000 per day for special
services or assignments requested by either the Chairman or the Chief Executive
Officer and President of the Corporation. A director who is also an employee of
the Corporation does not receive any director or committee fees. During 1996 the
Board of Directors held seven meetings.
In 1996 total compensation earned by the directors was as follows:
<TABLE>
<CAPTION>
Total Director
Director Compensation
------------------- --------------
<S> <C>
Dexter F. Baker........... $ 41,500 <F1>
Ralph D. DeNunzio......... 42,500
Barbara H. Franklin....... 41,954
Joseph M. Hixon III....... 40,000 <F1>
William J. Hudson, Jr..... 0 <F2>
Joseph M. Magliochetti.... 14,833 <F1>
James E. Marley........... 0 <F2>
Harold A. McInnes......... 135,000 <F3>
Jerome J. Meyer........... 34,833 <F1>
John C. Morley............ 41,250 <F1>
Walter F. Raab............ 36,000
Paul G. Schloemer......... 37,000
Takeo Shiina.............. 36,000 <F1>
- ------------
<FN>
<F1> This compensation includes amounts with respect to which the Director
elected to defer receipt under the terms of the Corporation's deferred
compensation plan for outside and non-employee directors, described below.
<F2> Messrs. Hudson and Marley were employees as well as directors of the
Corporation, therefore did not receive any separate director or committee
fees.
<F3> This compensation includes consulting fees paid to Mr. McInnes, a former
Chairman of the Board and Chief Executive Officer of the Corporation, under
a consulting agreement with the Corporation. Under the agreement Mr.
McInnes is paid a monthly fee of $8,333 for services other than in his
capacity as a director. The consulting agreement will expire on December
31, 1997.
</TABLE>
Outside and non-employee directors are permitted to defer receipt of all or
a portion of the annual retainer and the meeting fees. The period of the
deferral is within the discretion of each director, provided however that
payment must be made or commenced no later than the earliest of the death of the
director, a change in control and termination of the director's services, or the
year following the year in which he or she reaches the age of 72. Deferred
compensation may be allocated to either or both of the following investment
options: i) an interest-bearing account with interest credited monthly based on
120% of the Long Term Applicable Federal Rate as published by the Internal
Revenue Service and adjusted quarterly; and ii) a phantom AMP Common Stock
account in which phantom dividends are reinvested in further phantom stock
units. Allocations or changes in allocations can be made annually and apply
prospectively to compensation earned in future years. Payments of deferred
director compensation can be made in a lump sum or in up to ten annual
installments.
The Stock Option Plan for Outside Directors provides that the outside
directors shall receive a grant of 2,000 stock options in the Corporation's
Common Stock when they are first elected to the Board and in each July
thereafter. Up to a maximum of 10 awards may be made to any one director and up
to 300,000 shares may be awarded to all outside directors in the aggregate
during the 10-year term of the plan. These options vest after 1 year and remain
exercisable for 9 years.
BENEFIT PLANS
The Corporation provides benefits to the directors, the amount of which
varies dependent upon whether the director is presently or was ever employed by
the Corporation. The Corporation provides Director and Officer Liability and
Indemnification insurance coverage for all directors. Directors who are not
presently and have never been employed by the Corporation (an "outside
director"), are provided with life insurance coverage. Travel accident insurance
coverage is provided to directors who are not currently employed by the
Corporation.
All directors are eligible to participate in the Corporation's Employee
Gift Matching Program. Under this program, the Corporation will match qualifying
charitable contributions made by directors to accredited public and private
schools, colleges, universities and graduate schools in the United States. The
maximum aggregate of a director's gifts to all institutions during a calendar
year that will be matched is $5,000.
RETIREMENT
Currently there are two plans that provide retirement-oriented deferred
compensation for outside directors (as defined above), conditioned upon 5 years
of service as a member of the Board. Outside directors elected to the Board on
or after January 1, 1996 generally receive "retirement" compensation under the
Outside Director Deferred Stock Accumulation Plan ("Accumulation Plan"). Outside
directors who joined the Board prior to January 1, 1996 were provided a one-time
election to continue participation in the retirement plan in place prior to
adoption of the Accumulation Plan or convert to the Accumulation Plan.
Under the Accumulation Plan, each outside director will receive 300 shares
of phantom AMP Common Stock when first elected to the Board, and on the first
day of each of the nine subsequent calendar years of Board service. The phantom
share awards are credited to a deferred phantom stock account and have no voting
rights. On each dividend payment date, phantom dividends corresponding to the
number of accumulated phantom shares are credited to the phantom stock account
and deemed to be invested in additional phantom shares.
An outside director's deferred phantom stock account vests upon the earlier
of the date the director has at least 5 years of service on the Board, the date
of the director's death while serving on the Board, or the date of the
director's 72nd birthday. If the director terminates Board service with less
than 5 years of service (other than on account of death or attainment of age
72), the account is forfeited. The vested balance in the deferred phantom stock
account is paid to the outside director in cash upon termination of Board
service.
Under the retirement plan in effect prior to adoption of the Accumulation
Plan, an outside director who has either reached the normal retirement date (the
end of the calendar year in which the director reaches age 72) or retired early
due to disability, and who has served a minimum of five years on the Board, is
eligible for an annual retirement benefit. The annual retirement benefit is
equal to a percentage of the outside director's annual base retainer at the time
of retirement, with the actual percentage being based on the outside director's
years of service.
In the event of a "change of control", the annual retirement benefit to
which an outside director would be entitled based on his or her years of service
at the date service to the Board ceases for any reason shall be fully vested and
payable immediately, without regard to the outside director's then attained age.
A "change of control" as that term is used in this Proxy Statement, unless
otherwise indicated, would generally be deemed to have occurred if (a) any
person or group directly or indirectly acquires beneficial ownership of 30% or
more of the Corporation's issued and outstanding shares of Common Stock, or (b)
there occurs a change in the Board such that the directors constituting the
Board at a given point in time (the "Incumbent Board") and any subsequently
elected directors (other than directors whose initial assumption of office is in
connection with an election contest) who were approved by a vote of at least
two-thirds of the directors still in office who either were directors on the
Incumbent Board or whose assumption of office was previously so approved, no
longer constitute a majority of the Board, or (c) a merger or consolidation of
the Corporation or the issuance of voting securities of the Corporation in
connection therewith, other than i) a merger or consolidation resulting in the
voting securities of the Corporation continuing to represent at least 50% of the
combined voting power of the voting securities of the surviving entity, or ii) a
merger or consolidation effected to implement a recapitalization of the
Corporation in which no person or group directly or indirectly acquires
beneficial ownership of 30% or more of the Corporation's issued and outstanding
shares of Common Stock, or (d) the shareholders of the Corporation approve a
plan of complete liquidation or dissolution of the Corporation or there is
consummated an agreement for the sale or disposition of all or substantially all
of the assets of the Corporation, other than such a sale or disposition to an
entity of which at least 70% of the combined voting power of the voting
securities are held by shareholders in substantially the same proportions as
their ownership of the Corporation immediately prior to such sale.
COMMITTEES AND MEETINGS
The Board of Directors has five standing committees: the Audit Committee,
the Compensation and Management Development Committee, the Nominating and
Governance Committee, the Finance Committee and the Executive Committee.
The Audit Committee of the Board of Directors consults with the
Corporation's management regarding selection of the independent public
accountant; concurs in the appointment or dismissal of the Director, Internal
Audit; holds periodic meetings with the Corporation's internal and independent
auditors and financial officers as appropriate to monitor control of the
Corporation's financial resources and audit functions; reviews the arrangements
and related fees for and the scope of the independent auditor's examination;
considers the audit findings and management response; reviews the independent
public accountant's non-audit fees; reviews significant accounting issues,
regulatory changes and accounting or reporting developments and the impact of
such on the Corporation's financial statements; reviews the status of special
investigations; reviews the financial statements; oversees the quarterly
reporting process; discusses with the Corporation's management, the Director,
Internal Audit and in-house legal counsel significant issues relating to
litigation or compliance with environmental or governmental regulations; reviews
the Corporation's electronic data processing procedures and controls; and
reviews the Corporate Code of Conduct and Conflict of Interest policies and
receives reports of disclosures of any deviations from these policies. During
1996 the Audit Committee held five meetings.
The Compensation and Management Development Committee of the Board of
Directors makes recommendations to the Board regarding successors to and the
salaries of the Chairman and the Chief Executive Officer and President; conducts
annual performance reviews of the Chairman and the Chief Executive Officer and
President; reviews the salary budget for the executive officers as a group and
salary recommendations made by the Chief Executive Officer and President for the
named executive officers; makes recommendations to the Board regarding changes
to the Corporation's incentive compensation plans, executive-only benefit plans
and tax-qualified pension and thrift plans; and reviews participation in,
establishes certain targets for and acts on awards under the Corporation's
incentive compensation plans for management and key employees. During 1996 the
Compensation and Management Development Committee held four meetings.
The Nominating and Governance Committee of the Board of Directors
establishes the criteria for selecting candidates for nomination to the Board;
actively seeks candidates who meet those criteria, are highly qualified and have
diverse backgrounds, including qualified female and minority candidates; makes
recommendations to the Board of nominees to fill vacancies on, or as additions
to, the Board; makes recommendations to the Board on changes in the size,
composition and structure of the Board; makes recommendations to the Board on
compensation and benefit programs for the Board; as appropriate, reviews the
performance of the directors and reports its findings to the Chairman and, in
its discretion, to the Board itself; and considers matters relating to corporate
governance and makes decisions concerning those matters that should be
recommended for action by the Board in executive session. The Nominating and
Governance Committee will consider nominees for election to the Board that are
recommended by shareholders provided that a complete description of the
nominees' qualifications, experience and background, together with a statement
signed by each nominee in which he or she consents to act as such, accompany the
recommendations. Such recommendations should be submitted in writing to the
attention of the Chairman of the Corporation, and should not include
self-nominations. During 1996 the Nominating and Governance Committee held two
meetings.
The newly established Finance Committee of the Board of Directors reviews
and considers key financial objectives and measures in the AMP Global Strategic
Plan, the periodic determination of the Corporation's cost of capital, and cash
generation, cash balance and balance sheet objectives. The Committee also
reviews strategic transactions valued in excess of $10 million; receives
periodic reports on the portfolio of equity/venture capital investments; reviews
and assesses the performance and results of acquisitions and the related finance
and accounting practices; reviews management's recommendations regarding public
stock issues and public and private debt issues; advises management and the
Board on the Corporation's share repurchase strategies; periodically reviews the
Corporation's dividend policy, dividend recommendations, stock split proposals
and investor relations plans; reviews periodically the Corporation's risk
management policies and practices (not including internal operating controls and
financial reporting procedures relating to risk management policies and
practices); reviews periodic reports from the Corporation's Pension Committee
concerning the investment status, investment policy guidelines and accounting
treatment of the Corporation's benefit plans involving funds held in trust or
otherwise managed and invested on behalf of the participants in the benefit
plans; reviews and approves the investment policy guidelines for the AMP
Foundation's assets; and reviews the annual charitable giving by the AMP
Foundation and the Corporation, and the policy guidelines governing such
charitable giving. During 1996 the Finance Committee held one meeting.
The Executive Committee of the Board of Directors has been delegated the
authority to act on behalf of the Board with respect to any matter within the
ordinary course of the business of the Corporation. The Committee typically acts
on proposed capital expenditures and financial transactions that require
immediate Board action at times that are not near to the regularly scheduled
Board meetings. Certain matters, including those that under the Pennsylvania
Business Corporation Law cannot be delegated by the Board, are specifically
excluded from the authority of the Executive Committee. All actions taken by the
Committee are reported at the next meeting of the Board for concurrence by the
full Board. During 1996 the Executive Committee held one meeting and took action
on two transactions either in a meeting of the Committee or by written consent
in lieu of a meeting.
<TABLE>
<CAPTION>
EXECUTIVE COMPENSATION
SUMMARY COMPENSATION TABLE
Annual Compensation Long-Term Compensation
------------------------- ------------------------------------
Awards
------------------------------------
Other Annual Restricted Securities Underlying All Other
Name and principal Salary Bonus Compensation Stock Awards Options/SARs Compensation
position Year ($) ($) ($) (#) (#) ($)
- ----------------------- --------- ---------- --------- -------------- ------------ ------------------- -------------
(a) (b) (c)<F9> (d)<F9> (e)<F1> (f)<F2> (g)<F3> (h)
- ----------------------- --------- ---------- --------- -------------- ------------ ------------------- -------------
<S> <C> <C> <C> <C> <C> <C> <C>
William J. Hudson, Jr. 1996 810,000 0 32,548 46,900 75,600 110,640<F4>
Chief Executive Officer 1995 700,000 437,000 17,947 25,000 60,000 173,380
and President, and a 1994 600,000 422,400 12,831 - 114,000 73,400
Director
James E. Marley 1996 648,000 0 26,018 37,500 60,500 85,952<F5>
Chairman 1995 560,000 291,000 40,707 20,000 45,000 83,840
1994 500,000 311,000 53,746 - 83,000 52,350
Robert Ripp 1996 375,000 46,875 24,157 15,800 25,500 67,000<F6>
Vice President and Chief 1995 325,008 137,933 13,560 9,100 16,700 61,001
Financial Officer 1994 123,128<F10> 150,000 8,042 24,000 40,000 0
Dennis Horowitz 1996 385,000 0 110,506 12,700 20,400 53,240<F7>
Vice President 1995 350,000 142,982 95,380 9,100 16,700 52,400
1994 107,468<F11> 247,060 85,763 24,000 50,000 0
John E. Gurski 1996 350,004 46,200 225,067 14,700 23,800 40,000<F8>
Vice President 1995 285,000 124,315 172,587 7,400 13,600 55,357
1994 235,000 119,780 295,916 - 22,800 20,800
- --------------------
<FN>
<F1> Unless otherwise indicated, no executive officer named in the Summary
Compensation Table received personal benefits or perquisites in excess of
the lesser of $50,000 or 10% of his total compensation reported in columns
(c) and (d). Reported in this column is annual compensation related to: (i)
the Cash Bonus paid under the Corporation's former Bonus Plan (Stock Plus
Cash) to cover Federal income taxes as described in footnote (1) to the
"Aggregated Option/SAR Exercises in 1996 and FY-End Option/SAR Values"
table, pages 15-16, and fractional shares of the Bonus Plan Stock Bonus;
(ii) reimbursement of relocation expenses and payments of estimated income
taxes relating to reimbursement of relocation expenses to Messrs. Ripp and
Horowitz in 1994, 1995 and 1996 and Mr. Gurski in 1994 and 1996; (iii)
overseas allowances for Mr. Gurski in 1994 through 1996; and (iv) certain
payments of estimated taxes relating to Mr. Gurski's assignment overseas in
1994 through 1996, including payments made in 1996 with regard to previous
years' tax obligations and reimbursements or refunds received by the
Corporation for tax payments made in previous years.
<F2> During 1996, 159,450 shares of restricted stock were granted by the
Corporation, resulting in a total of 301,546 shares of restricted stock
held at December 31, 1996. These shares had an aggregate value of
$11,571,827 based upon a $38.375 per share closing price of the
Corporation's Common Stock as reported on the New York Stock Exchange
Composite Tape on December 31, 1996, and dividends are paid on 60,146 of
these shares to the same extent as any other shares of the Corporation's
Common Stock. The number of shares of restricted stock includes Performance
Restricted Shares awarded under the Corporation's 1993 Long-Term Equity
Incentive Plan, which vest in 3 years based on achievement of minimum
average annual return on equity and average annual earnings growth
objectives for the Corporation. Dividends earned on Performance Restricted
Shares, of which 241,400 were held at December 31, 1996, are credited to
the executive officer's account and are deemed to be invested in phantom
shares of Common Stock. These phantom shares vest only when, and to the
extent the associated Performance Restricted Shares vest. The restricted
stock awards to Messrs. Ripp and Horowitz in 1994 were made in connection
with commencing employment and vest upon the lapse of a period of continued
employment.
<F3> Includes awards made pursuant to the Corporation's 1993 Long-Term Equity
Incentive Plan as well as options awarded to Messrs. Ripp and Horowitz in
connection with commencing employment in 1994. The Long-Term Equity
Incentive Plan is described in footnote (1) to the "Option/SAR Grants in
1996" table on page 14 of this Proxy Statement.
<F4> Includes $3,600 as the company-matching contribution under the Employee
Savings and Thrift Plan; $15,840 as the company-matching contribution under
the Deferred Compensation Plan; and $91,200 as the total premium paid by
the Corporation in 1996 under a split-dollar insurance plan, including both
the portion of the premium that is attributable to term life insurance
coverage for Mr. Hudson and the full dollar value of the remainder of the
premium. The split-dollar insurance plan provides life insurance coverage
for Mr. Hudson equal to twice his base salary (in lieu of the coverage
available under the Corporation's group-term life insurance plan), and a
substantial portion of the value of the advances made to pay the premium as
shown in this table will be repaid to the Corporation from policy proceeds.
<F5> Includes $3,600 as the company-matching contribution under the Employee
Savings and Thrift Plan; $11,952 as the company-matching contribution under
the Deferred Compensation Plan; $4,800 as total director fees paid to Mr.
Marley in 1996 by two wholly-owned subsidiaries of the Corporation; and
$65,600 as the total premium paid by the Corporation in 1996 under a
split-dollar insurance plan, including both the portion of the premium that
is attributable to term life insurance coverage for Mr. Marley and the full
dollar value of the remainder of the premium. The split-dollar insurance
plan provides life insurance coverage for Mr. Marley equal to twice his
base salary (in lieu of the coverage available under the Corporation's
group-term life insurance plan), and a substantial portion of the value of
the advances made to pay the premium as shown in this table will be repaid
to the Corporation from policy proceeds.
<F6> Includes $3,600 as the company-matching contribution under the Employee
Savings and Thrift Plan; $5,400 as the company-matching contribution under
the Deferred Compensation Plan; $4,800 as total director fees paid to Mr.
Ripp in 1996 by two wholly-owned subsidiaries of the Corporation; and
$53,200 as the total premium paid by the Corporation in 1996 under a
split-dollar insurance plan, including both the portion of the premium that
is attributable to term life insurance coverage for Mr. Ripp and the full
dollar value of the remainder of the premium. The split-dollar insurance
plan provides life insurance coverage for Mr. Ripp equal to at least twice
his base salary (in lieu of the coverage available under the Corporation's
group-term life insurance plan), and a substantial portion of the value of
the advances made to pay the premium as shown in this table will be repaid
to the Corporation from policy proceeds.
<F7> Includes $3,600 as the company-matching contribution under the Employee
Savings and Thrift Plan; $5,640 as the company-matching contribution under
the Deferred Compensation Plan; and $44,000 as the total premium paid by
the Corporation in 1996 under a split-dollar insurance plan, including both
the portion of the premium that is attributable to term life insurance
coverage for Mr. Horowitz and the full dollar value of the remainder of the
premium. The split- dollar insurance plan provides life insurance coverage
for Mr. Horowitz equal to at least twice his base salary (in lieu of the
coverage available under the Corporation's group-term life insurance plan),
and a substantial portion of the value of the advances made to pay the
premium as shown in this table will be repaid to the Corporation from
policy proceeds.
<F8> Includes $3,600 as the company-matching contribution under the Employee
Savings and Thrift Plan; $4,800 as the company-matching contribution under
the Deferred Compensation Plan; and $31,600 as the total premium paid by
the Corporation in 1996 under a split-dollar insurance plan, including both
the portion of the premium that is attributable to term life insurance
coverage for Mr. Gurski and the full dollar value of the remainder of the
premium. The split-dollar insurance plan provides life insurance coverage
for Mr. Gurski equal to at least twice his base salary (in lieu of the
coverage available under the Corporation's group-term life insurance plan),
and a substantial portion of the value of the advances made to pay the
premium as shown in this table will be repaid to the Corporation from
policy proceeds.
<F9> Under the Deferred Compensation Plan, designated executive officers are
permitted to defer receipt of up to a specified percentage of their annual
base salary and all officers of the Corporation are entitled to defer
receipt of all or a portion of their annual cash bonus. The period of
deferral is within the discretion of the executive, but is generally until
the year following termination of employment. During the period of
deferral, the deferred compensation may be allocated or reallocated by the
executive between and among the following investment options: i) an
interest-bearing account with interest credited monthly based on 120% of
the Mid-Term Applicable Federal Rate as published by the Internal Revenue
Service, adjusted monthly and ii) a phantom AMP Common Stock Account in
which the phantom dividends are reinvested in the phantom stock units.
Payments of the deferred compensation can be made at the executive's
election in either a lump sum or up to ten annual installments. Amounts of
salary or bonus attributable to 1995 and 1996, the receipt of which has
been deferred under this plan, are nevertheless included in columns (c) and
(d), as appropriate, of the Summary Compensation Table.
<F10>Mr. Ripp's employment with the Corporation commenced on August 1, 1994.
<F11>Mr. Horowitz's employment with the Corporation commenced on September 12,
1994.
</TABLE>
Option/SAR Grants in 1996
<TABLE>
<CAPTION>
Potential Realizable Value at
Assumed Annual Rates of
Stock Price Appreciation for
Individual Grants Option Term<F3>
------------------------------------------------------------------------- -----------------------------
Number of
Securities % of Total
Underlying Options/SARs Exercise Market
Options/SARs Granted to or Base Price at
Granted<F1> Employees in Price Expiration Grant 0% 5% 10%
Name Date (#) 1996 ($/share) Date<F2> ($/share) ($) ($) ($)
- ----------------------- --------- ------------ ------------ ---------- ----------- ---------- ----- ---------- ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
William J. Hudson, Jr. .. 7/23/96 75,600 4.16 36.625 7/23/06 36.625 0 1,741,315 4,412,834
Chief Executive
Officer and President,
and a Director
James E. Marley.......... 7/23/96 60,500 3.33 36.625 7/23/06 36.625 0 1,393,513 3,531,434
Chairman
Robert Ripp.............. 7/23/96 25,500 1.40 36.625 7/23/06 36.625 0 587,348 1,488,456
Vice President and
Chief Financial Officer
Dennis Horowitz.......... 7/23/96 20,400 1.12 36.625 7/23/06 36.625 0 469,879 1,190,765
Vice President
John E. Gurski........... 7/23/96 23,800 1.31 36.625 7/23/06 36.625 0 548,192 1,389,225
Vice President
- ---------------
<FN>
<F1> The Corporation's 1993 Long-Term Equity Incentive Plan ("1993 Plan") became
effective on July 1, 1993 and is a long-term incentive compensation program
that is based on stock price appreciation in the form of stock options
(either incentive or non-qualified stock options) and infrequently, in the
discretion of the Corporation, in the form of freestanding SARs payable in
the Corporation's Common Stock or from time to time, in the Corporation's
sole discretion, in cash. The 1993 Plan also provides for the award of
performance-based restricted stock ("Performance Restricted Shares"). The
1993 Plan is administered by the Compensation and Management Development
Committee of the Corporation's Board of Directors ("Committee"). Under the
1993 Plan, each employee designated by the Committee to participate is
credited with stock options having an option price per share of Common
Stock that is not less than 100% of the closing price of the Common Stock
on the New York Stock Exchange Composite Tape on the award date, and/or
stock bonus units (SARs) having a designated value per unit of not less
than 95% of the average closing price of the Common Stock on the New York
Stock Exchange Composite Tape for the 10 trading days immediately prior to
the award date. No SAR awards were made under the 1993 Plan in 1996. Awards
of restricted stock and stock options that were made to the named executive
officers in 1996 are shown in columns (f) and (g), respectively, of the
Summary Compensation Table, on page 11 of this Proxy Statement.
With respect to stock options, all options granted in 1996 to the named
executive officers will vest 3 years from the date of award and will expire
7 years after such vesting. They have an exercise price equal to 100% of
the closing price of the Common Stock on the New York Stock Exchange on the
award date.
When SAR awards are made, bonus computations with respect to the stock
bonus units are made on the 4th through 6th anniversaries of the award date
for one-third of each participant's bonus units and are based on the
increase in the market price of the Common Stock over the designated value,
as established on the award date. The bonus typically paid in stock ("Stock
Bonus") is the number of shares of Common Stock having an aggregate market
value on the computation date equivalent to the one-third of the
participant's bonus units multiplied by the increase in market price
described above. A cash bonus ("Supplemental Cash Bonus") is also paid
under the 1993 Plan in conjunction with Stock Bonuses. The Supplemental
Cash Bonus is paid at the same time that payment of the Stock Bonus is made
and is a percentage of the value of the Stock Bonus that is designated at
the time of award and is no greater than that calculated to provide a
payout sufficient to pay the anticipated United States Federal income tax
at a maximum rate for the highest taxable bracket with respect to the
aggregate of the Stock Bonus and the Supplemental Cash Bonus. Supplemental
Cash Bonus awards are not included in this table when stock bonus unit
(SAR) awards are made in the reported year and disclosed in this table.
<F2> The expiration date for stock options under the 1993 Plan is the date
determined by the Committee at the time of the award of such options. When
SARs are granted in the reported year and disclosed in this table, the 6th
anniversary date is designated as the "expiration date" because
computations of the Stock Bonus are made on the 4th through 6th
anniversaries of the award date for one-third of each participant's bonus
units granted in the award.
<F3> In 1996 the named executive officers received awards under the 1993 Plan
entirely in either stock options or Performance Restricted Shares awards,
and therefore assumed values contained in this table relate only to the
options. These values are based on assumed appreciation rates set by the
Securities and Exchange Commission and are not intended to forecast
possible future appreciation, if any, of the Corporation's stock price. The
values are based on the difference between the exercise price and the
exercise price as increased by the assumed annual appreciation rate over
the 10-year term of the options, compounded annually, with said difference
multiplied by the number of options granted as shown in the table.
</TABLE>
Aggregated Option/SAR Exercises<F1> In 1996 and FY-End Option/SAR
Values
<TABLE>
<CAPTION>
Number of Securities Underlying Value of Unexercised
Unexercised Options/SARs on In-The-Money Options/SARs
Shares Acquired Value December 31, 1996 (#) on December 31, 1996 ($)
on Exercise Realized ------------------------------ -----------------------------------
Name (#) ($)<F2> Exercisable/Unexercisable<F3> Exercisable/Unexercisable<F3><F4>
- ------------------------- ---------------- ----------- ------------------------------ -----------------------------------
<S> <C> <C> <C> <C>
William J. Hudson, Jr. ........ 4,683 91,867 108,800 / 277,734 884,000 / 721,541
Chief Executive Officer
and President, and a
Director
James E. Marley................ 1,536 52,032 84,000 / 193,833 682,500 / 404,906
Chairman
Robert Ripp.................... 0 0 0 / 82,200 0 / 152,125
Vice President and Chief
Financial Officer
Dennis Horowitz................ 0 0 0 / 87,100 0 / 170,075
Vice President
John E. Gurski................. 956 42,032 22,000 / 62,400 178,750 / 132,900
Vice President
- -----------------------
<FN>
<F1> Exercises shown in this table relate to stock bonus units (SARs) granted
under the Corporation's Bonus Plan (Stock Plus Cash) ("Bonus Plan"), which
preceded the 1993 Plan, and to stock options awarded under the 1993 Plan.
Computations of Stock Bonuses under the 1993 Plan will not commence until
the 4th anniversary of the award date, thus, no computations (in other
words, "exercises") were made in 1996.
With respect to the stock bonus units granted under the Bonus Plan, the
Bonus Plan was a long-term incentive compensation program that was based on
stock price appreciation in the form of freestanding SARs payable in the
Corporation's Common Stock or occasionally, in the discretion of the
Corporation, in cash. Under the Bonus Plan, each employee designated by the
Board of Directors to participate was credited with bonus units having a
designated value per unit of not less than 95% of the closing price of the
Common Stock on the New York Stock Exchange on the award date.
Bonus computations are made on the 4th through 6th anniversaries of the
award date for one-third of each participant's bonus units and are based on
the greater of the increase in the market price of the Common Stock (a)
over the designated value, as established on the award date, or (b) over an
adjusted designated value. The adjusted designated value is 95% of an
amount determined by discounting the market price of the Common Stock on
the computation date by a percentage (not to exceed 7.5% per year) equal to
one-half of the Corporation's compound average annual growth rate in
earnings per share during the period between the award date and the
computation date. The bonus typically paid in stock ("Bonus Plan Stock
Bonus") is the number of shares of the Common Stock having an aggregate
market value on the computation date equivalent to the amount computed as
described above.
A cash bonus ("Cash Bonus") is also paid under the Bonus Plan. For awards
under the Bonus Plan that were made between January 27, 1988 and June 30,
1993, the Cash Bonus is an amount sufficient to pay the anticipated United
States Federal income tax with respect to both the Bonus Plan Stock Bonus
and the Cash Bonus as determined at the time of the distribution of the
bonuses, not to exceed an amount that is 50% of the value of the Bonus Plan
Stock Bonus. The amounts of the Cash Bonus paid in 1996 based on
distributions made in that year are included in column (e), "Other Annual
Compensation", of the Summary Compensation Table on page 11 of this Proxy
Statement.
In view of the foregoing, "exercises" for purposes of this table are deemed
to be the Bonus Plan Stock Bonus computations that are made on the 4th
through 6th anniversaries of the award date for one-third of each
participant's bonus units granted in an award under the Corporation's Bonus
Plan, together with stock options under the 1993 Plan that were exercised
during 1996. The stock options awarded under the 1993 Plan are described in
footnote (1) of the table entitled "Options/SAR Grants in 1996" on page 14
of this Proxy Statement.
<F2> "Value Realized" includes the amount of appreciation realized upon exercise
of stock options under the 1993 Plan, together with the Bonus Plan Stock
Bonus paid under the Bonus Plan based on stock price appreciation. The
figures reported in this column do not include the Cash Bonus as described
in footnote (1) above.
<F3> The stock bonus units (SARs) awarded under the Bonus Plan and the stock
bonus units (SARs) awarded under the 1993 Plan are not exercised by the
participants, but are paid based on bonus computations made on the 4th
through 6th anniversaries of the award date for one-third of each
participant's bonus units.
<F4> These values relate only to stock options granted under the 1993 Plan, the
Bonus Plan Stock Bonus described in footnote (1) above and the Stock
Options and Stock Bonus awarded under the 1993 Plan as described in
footnote (1) of the table entitled "Option/SAR Grants in 1996" on page 14
of this Proxy Statement. A Cash Bonus under the Bonus Plan and a
Supplemental Cash Bonus under the 1993 Plan is also paid as previously
described, but is not included in the values disclosed in this column. With
respect to Bonus Plan Stock Bonuses, these values also have been calculated
based on the designated values for the respective awards and without regard
to adjusted designated values, as those terms are defined under the Bonus
Plan and described in footnote (1) above.
</TABLE>
RETIREMENT BENEFITS
The Corporation maintains a pension plan ("Pension Plan") for its employees
that is designed and administered to qualify under Section 401(a) of the
Internal Revenue Code of 1986, as amended ("Code"). The Pension Plan has been
noncontributory since January 1, 1991. Prior to January 1, 1994 the Pension Plan
was a career average defined benefit plan under which, for each year of covered
service with the Corporation, an employee accrued a benefit equal to 1.67% of
his or her current base earnings. The Pension Plan also included an alternative
formula that updated pension benefits for prior service based on most-recent
3-year average base earnings rates. An employee received the greater of the
benefit the employee had otherwise earned under the Pension Plan or the benefit
calculated under the alternative formula based on most-recent average base
earnings and years of credited service.
Effective as of January 1, 1994 the Corporation amended the Pension Plan to
provide benefits based on final average base earnings and total years of
credited service at retirement. The final average base earnings is determined
based on the average of the year-end annual earnings rates for the 3-consecutive
year period that represents the employee's highest 3-year average during such
employee's last 10 years of service. The benefit is calculated by adding (1)
1.0% of such final average base earnings, up to the then-current Social Security
covered compensation level ($29,304 in 1997), multiplied by the employee's
credited years of past service (not to exceed 35 years), (2) 1.5% of such final
average base earnings in excess of the Social Security covered compensation
level, multiplied by the employee's credited years of past service (not to
exceed 35 years), and (3) 1.2% of such final average base earnings, multiplied
by the number of the employee's credited years of past service in excess of 35
years. Credited years of past service are counted back to age 21 and one year of
service for participants who joined the Pension Plan when first eligible,
otherwise back to the date of actual enrollment in the Pension Plan. Employees
who were age 60 or older as of January 1, 1994 will receive the higher of the
benefit under the prior career average defined benefit approach or the benefit
under the new final average base earnings method.
Earnings used to calculate benefits under the Pension Plan are restricted
to (a) annual base salary, including amounts deferred under the Corporation's
Employee Savings and Thrift Plan, amounts applied to the employee portion of the
welfare benefit plan premiums pursuant to a salary reduction agreement, and
amounts credited to health care and dependent care flexible spending accounts
pursuant to a salary reduction agreement and (b), for individuals paid on a
commission basis, annual base salary (as described above) plus commissions, but
commissions are included only to the extent that the sum of the annual base
salary and commissions does not exceed a designated amount. Normal Retirement
Date under the Pension Plan is defined as age 65, but there is no actuarial
reduction of a participant's pension for early retirement between the ages of 60
and 65.
The Pension Plan also provides for a special pension benefit formula that
would be used to recalculate benefits in the event of a change in control of the
Corporation. The special formula, which the Corporation plans to review and
modify from time to time as the funding status of the Pension Plan warrants, is
intended to ensure that excess Pension Plan assets at the time of a change in
control are used to provide increased retirement benefits for covered employees.
The special formula is similar in design to the final average earnings formula
described above under the amended Pension Plan, with the 1%, 1.5% and 1.2%
factors replaced by 1.25%, 1.75%, and 1.67%, respectively. For purposes of this
provision of the Pension Plan, a "change in control" would be deemed to have
occurred if (a) any person or group acquires beneficial ownership of 30% or more
of the Corporation's issued and outstanding shares of Common Stock, or (b) there
occurs a change in the Board such that the directors constituting the Board in
the immediately preceding year ("Incumbent Board") and any subsequently elected
directors who were recommended or approved by a majority of the Incumbent Board
no longer constitute a majority of the Board.
In accordance with Code requirements, the Pension Plan limits the maximum
amount of annual compensation that may be taken into account under the Pension
Plan ($160,000 in 1997) and the maximum annual employer provided benefit that
can be paid under the Pension Plan ($125,000 in 1997). The Corporation maintains
a supplemental employee retirement program ("SERP") pursuant to which certain
employees whose retirement benefits otherwise payable under the Pension Plan are
limited by these Code restrictions will receive payment of a supplemental
pension from non-Pension Plan sources. The total benefit payable under both the
Pension Plan and the SERP is calculated without regard to the Code limitations
applicable to the Pension Plan using the same pension formula(s) applicable
under the Pension Plan and using a 3-consecutive year average of both base
earnings and annual cash bonus (whether paid or deferred). The total benefit
thus calculated, reduced by the restricted benefit actually payable from the
Pension Plan, is the benefit payable from the SERP.
The following table shows the combined annual retirement benefit payable to
the Corporation's executive officers named in the Summary Compensation Table
under both the Pension Plan and the SERP, as amended effective January 1, 1994,
upon normal retirement, based on the indicated amount of final average
remuneration and number of credited years of service:
<TABLE>
<CAPTION>
PENSION PLAN TABLE <F3>
Years of Service <F2>
-----------------------------------------------------------
Remuneration<F1> 15 20 25 30 35 40
- ----------------- --------- --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C>
$ 400,000......... 87,800 117,070 146,340 175,600 204,870 228,870
450,000......... 99,050 132,070 165,090 198,100 231,120 258,120
500,000......... 110,300 147,070 183,840 220,600 257,370 287,370
550,000......... 121,550 162,070 202,590 243,100 283,620 316,620
600,000......... 132,800 177,070 221,340 265,600 309,870 345,870
650,000......... 144,050 192,070 240,090 288,100 336,120 375,120
700,000......... 155,300 207,070 258,840 310,600 362,370 404,370
750,000......... 166,550 222,070 277,590 333,100 388,620 433,620
800,000......... 177,800 237,070 296,340 355,600 414,870 462,870
850,000......... 189,050 252,070 315,090 378,100 441,120 492,120
900,000......... 200,300 267,070 333,840 400,600 467,370 521,370
950,000......... 211,550 282,070 352,590 423,100 493,620 550,620
1,000,000......... 222,800 297,070 371,340 445,600 519,870 579,870
1,050,000......... 234,050 312,070 390,090 468,100 546,120 609,120
1,100,000......... 245,300 327,070 408,840 490,600 572,370 638,370
1,150,000......... 256,550 342,070 427,590 513,100 598,620 667,620
1,200,000......... 267,800 357,070 446,340 535,600 624,870 696,870
1,250,000......... 279,050 372,070 465,090 558,100 651,120 726,120
1,300,000......... 290,300 387,070 483,840 580,600 677,370 755,370
1,350,000......... 301,550 402,070 502,590 603,100 703,620 784,620
1,400,000......... 312,800 417,070 521,340 625,600 729,870 813,870
- ---------------
<FN>
<F1> The compensation covered by the combination of the Pension Plan and SERP
includes the employee's final average earnings, as determined by the
average of the 3-consecutive year period that represents the employee's
highest base earnings during such employee's last 10 years of service,
together with the average of the employee's annual cash bonus payments also
earned in such 3-consecutive year period. In the case of the named
executive officers, the annual base earnings considered in such a
determination includes the amount of salary and bonus shown in columns (c)
and (d) of the Summary Compensation Table on page 11 of this Proxy
Statement.
<F2> The current estimated credited years of service for the named executive
officers are as follows: W. J. Hudson, Jr. - 31 years; J. E. Marley
32.5 years; R. Ripp - 2.33 years; D. Horowitz - 2.25 years; and
J. Gurski - 23.5 years. The estimated credited years of service for
the named executive officers at the Normal Retirement Date are as follows:
W. J. Hudson, Jr. - 33.42 years; J. E. Marley - 36.08 years; R. Ripp -
11.92 years; D. Horowitz - 30.58 years (adjusted for credited years and
earned retirement benefit at previous employer); and J. Gurski - 32.5
years.
<F3> The retirement benefit shown in the Pension Plan Table is a straight life
annuity amount and is not subject to any reduction for Social Security or
other offset amounts. However, as required by law, the form of payment for
married employees under the Pension Plan and SERP is a 50% joint and
survivor annuity, which is typically less than the straight life annuity
amount.
</TABLE>
SECURITY OWNERSHIP OF EXECUTIVE OFFICERS
In order to further align the interests of the Corporation's executives
with increasing the long-term value of the Corporation, in January 1995 the
Corporation implemented Stock Ownership Guidelines for Senior Management ("Stock
Guidelines"). The Stock Guidelines apply to approximately 130 executives
presently participating in the Stock Option or SAR segment of the 1993 Long-Term
Equity Incentive Plan. Affected executives are encouraged to directly own a
minimum number of real or phantom shares of stock, the value of which is
expressed as a multiple of the executive's annualized base salary. The
multiplier ranges from 4 times salary for the Chairman and the CEO and
President, to 1 time base salary for executives in less senior management
positions. Executives are expected to comply with the Stock Guidelines within a
5-year period.
The AMP equity security ownership as of March 4, 1997 by officers of the
Corporation who were executive officers during 1996 is as follows:
<TABLE>
<CAPTION>
Amounts and Nature Amount of Total Beneficial
Name and Address of Beneficial Ownership Beneficial Ownership Phantom Ownership and Phantom Ownership
Title of Class of Beneficial Owner (shares) as a Percent of Class (shares)<F3> (shares)
- -------------- ------------------------ ----------------------- --------------------- ----------------- ---------------------
<S> <C> <C> <C> <C> <C>
Common Stock....William J. Hudson, Jr. 218,480 <F1> less than 1 23,644 242,124
Harrisburg, Pennsylvania <F2>
<F4>
Common Stock....James E. Marley 174,839 <F2> less than 1 24,630 199,469
Harrisburg, Pennsylvania <F4>
Common Stock....Robert Ripp 50,900 <F4> less than 1 716 51,616
Harrisburg, Pennsylvania
Common Stock....Dennis Horowitz 44,138 <F4> less than 1 654 44,792
Harrisburg, Pennsylvania
Common Stock....John E. Gurski 54,083 <F1> less than 1 7,866 61,949
Harrisburg, Pennsylvania <F4>
Common Stock....all Executive Officers 2,927,950 <F1><F2><F4> 1.33 143,965 3,071,915
(13 persons)
and Directors as a Group
- -----------------
<FN>
<F1> Six executive officers have the right to acquire an undeterminable number
of shares under the Corporation's Bonus Plan (Stock Plus Cash) within 60
days after March 4, 1997.
<F2> A portion of the shares reported for five executive officers are held in
the Corporation's Employee Savings and Thrift Plan. Through further
contributions to this plan, two of the five executive officers may acquire
an undeterminable number of additional shares within 60 days after March 4,
1997.
<F3> Numbers in this column include phantom shares credited to executive
officers under a deferred compensation plan and/or in association with
dividend reinvestment of Performance Restricted Shares issued to designated
officers. Pursuant to the deferred compensation plan, designated executive
officers may defer receipt of all or a portion of their annual base salary
and all officers of the Corporation may defer receipt of all or a portion
of their annual cash bonus. Deferred compensation may be allocated to a
phantom AMP Common Stock account, as described in footnote 9 to the Summary
Compensation Table on page 13 of this Proxy Statement. Dividends earned on
Performance Restricted Shares are credited to the executive officer's
account and are deemed to be invested in phantom shares of Common Stock.
These phantom shares vest only when, and to the extent the associated
Performance Restricted Shares vest, as described in footnote 2 to the
Summary Compensation Table on page 12 of this Proxy Statement.
<F4> In addition, a total of 928 shares are held by immediate family members of
three executive officers; the executive officers disclaim beneficial
ownership. Additionally, a director has a 2% residual beneficial interest,
but no voting or dispositivie powers in a trust that holds 7,392 shares of
Common Stock of the Corporation. Also, ten directors hold a total of 46,000
options, some of which are exercisable within 60 days after March 4, 1997
and are reported in this number, and thirteen executive officers hold a
total of 1,275,400 options, some of which are exercisable within 60 days
after March 4, 1997 and are reported in this number, and 59,669 Stock Bonus
Units, some of which will convert within 60 days after March 4, 1997 and
are reported in this number.
</TABLE>
PERFORMANCE GRAPH
The following graph depicts the cumulative total shareholder return
(assuming a $100 investment and dividend reinvestment) during the 5-year
period from 1991 - 1996 for the Common Stock of the Corporation compared to
the cumulative total return during the same period for the Standard &
Poor's 500 Stock Index, and the peer group index devised by the Corporation
for inclusion starting with the 1996 Proxy Statement ("Peer Group").
In 1996 the Corporation modified the peer group for this graph to make it
more representative of the Corporation's industries and thus more valid for
comparison of performance. The Peer Group now contains the companies
included in the Electrical Equipment industrial classification of Standard
& Poor's, together with publicly-held competitors of the Corporation that
are not included in such classification and were not included in the
previous peer group.
Performance Graph
<TABLE>
<CAPTION>
CUMULATIVE TOTAL SHAREHOLDER RETURN
1991-96
<S> <C> <C>
300 |
| Base Period Indexes/Cumulative Returns
| Company/Index Name 1991 1992 1993 1994 1995 1996
275 | ------------------ ----------- ------ ------ ------ ------ ------
| AMP Incorporated 100 101.53 113.47 134.04 144.25 148.48
| S&P 500 100 107.62 118.46 120.03 165.13 203.05
250 | Peer Group 100 101.44 112.28 116.83 154.72 197.90
|
225 |
|
|
200 |
|
TOTAL |
SHAREHOLDER 175 |
RETURN<F2> |
(DOLLARS) |
150 |
|
| AMP _________
125 | S&P 500 ..........
| PEER GROUP __.__ <F1>
100 |___________________________________________________________
91 92 93 94 95 96
- ---------------------
<FN>
<F1> The Peer Group includes the following companies:
ADC Telecommunications Inc. Honeywell Inc.
Altron Inc. Hubbell Inc. - CL B
Amphenol Corp. Methode Electronics - CL A
Augat Inc. Molex Inc.
Elexsys Intl. Inc. Raychem Corp.
Emerson Electric Co. Robinson Nugent Inc.
General Signal Corp. Thomas & Betts Corp.
Grainger (W W) Inc. Westinghouse Electric Corp.
<F2> The Total Shareholder Return assumes a fixed investment of $100 in the AMP
Common Stock or indicated index, and a reinvestment of dividends. The total
return of each company included in the S&P 500 and Peer Group indexes has
been weighted in accordance with the company's market capitalization as of
the beginning of the year reported. The weighting was accomplished by: i)
calculating the market capitalization for each company at the beginning of
the respective calendar year based on the closing stock price and
outstanding shares; ii) determining the percentage that each such market
capitalization represents against the total of such market capitalizations
for all companies included in the index; and iii) multiplying the
percentage determined in ii) above by the total shareholder return of the
company in question for the year being reported.
</TABLE>
THE COMPENSATION AND MANAGEMENT DEVELOPMENT COMMITTEE REPORT
ON EXECUTIVE COMPENSATION
The Compensation and Management Development Committee of the Board of
Directors, among other responsibilities, has responsibility for the
Corporation's executive compensation program. The Committee, which is composed
entirely of outside directors, is chaired by Mr. Ralph D. DeNunzio, President,
Harbor Point Associates, Inc. The other Committee members are Mr. Dexter F.
Baker, Retired Chairman and CEO, Air Products and Chemicals, Inc.; Mr. John C.
Morley, President of Evergreen Ventures, Ltd. and Retired President and CEO,
Reliance Electric Company; and Mr. Paul G. Schloemer, Retired President and CEO,
Parker Hannifin Corporation.
Included within the Committee's executive compensation oversight charter
are the review and approval of salary levels and salary increases for executive
officers, annual Management Incentive Plan cash bonus awards for officers and
other key executives, performance restricted stock and stock option awards under
the 1993 Long-Term Equity Incentive Plan, and any special benefit programs
affecting officers and key executives such as supplemental retirement plans,
deferred compensation plans, change of control agreements and other plans. The
Committee in appropriate cases makes recommendations to the Board of Directors
on matters involving executive compensation.
The overriding objectives of the Corporation's executive compensation
program are to attract and retain qualified executive leadership and to reward
performance that creates shareholder value. In furtherance of these objectives,
the Corporation's executive compensation philosophy is (1) to deliver base
salary compensation that is kept competitive with the executive's counterparts
in the electrical/electronics industry and industry in general and (2) to
provide short-, intermediate-, and long-term incentive compensation plans that
supplement base salary and that correlate to the growth, success and
profitability of the Corporation. These at-risk, performance-based incentive
compensation plans, which directly align the interests of the Corporation's
executives with its shareholders, form a significant portion of the total
compensation opportunity for all officers and key executives.
The Corporation annually reviews compensation surveys and other published
compensation data covering comparably-sized companies in both the
electrical/electronics industry and industry in general to assess whether its
executive base salary ranges and total compensation opportunities remain
competitive. Where they do not remain competitive, appropriate adjustments are
made. In this process of comparing the Corporation's executive compensation
levels and practices against those of other companies, the compensation levels
and practices at the companies comprising the Peer Group Index in the
Performance Graph on pages 20-21 of this Proxy Statement are reviewed
separately, but due to the small sample size the Peer Group data alone is not
used as the primary comparative benchmark. Rather, the comparative data relied
upon by the Committee is drawn from a broader survey of comparably-sized
companies in the electrical/electronic industry and industry in general, which
survey includes 6 of the 16 Peer Group companies.
The salaries, and any periodic increases thereof, of the Chairman and the
CEO are determined by the Board of Directors of the Corporation based on
recommendations made by the Committee. These officers in turn recommend the
salary adjustments for the other executive officers, with the review and
oversight of the Committee. The level of base salary compensation for officers
and key executives is determined by both their scope of responsibility and the
competitive salary ranges established by the survey process described above.
Periodic increases in base salary are dependent on the individual's performance
in his or her position for a given period, on the individual's competency, skill
and experience, and on the growth of salary levels both inside and outside the
Corporation.
The AMP Management Incentive Plan provides opportunity for annual cash
bonuses based on two or more of the following weighted performance components:
(1) overall corporate performance for a given year, adjusted to net out
extraordinary, non-recurring gains or losses and then compared against corporate
performance targets for the year (this component is weighted four-fifths for
named executive officer participants such as the CEO with corporate-wide
responsibilities and three-fifths for those named executive officers with
specific unit responsibilities); (2) operating unit performance for a given year
measured against operating unit income, sales and AMP value added (AVA) targets
for the year; and (3) individual performance for a given year measured against
individual performance objectives for such year (this component is weighted
one-fifth for named executive officer participants such as the CEO with
corporate-wide responsibilities and two-fifths for those named executive
officers with specific unit responsibilities). The corporate performance
component of the annual cash bonus of Management Incentive Plan participants
below the level of the named executive officers and the two regional presidents
not included in the named executive officers group is based on attainment of
global revenue, operating income, and AVA targets; with respect to the named
executive officers and the two additional regional presidents, however, the
corporate performance component is based on attainment of an earnings per share
(EPS) target. The Committee sets the EPS target for the year at the start of
each year, with the review of the Board of Directors, and also sets the
individual performance objectives of the Chairman and the CEO. The EPS target
for 1996 was $2.40 and the actual EPS performance (adjusted for plan purposes)
was $1.89. In keeping with the pay-for-performance design and intent of the
Management Incentive Plan, this 1996 EPS performance resulted in no bonus being
paid for 1996 under the Management Incentive Plan's corporate performance
component to the named executive officers and the two additional regional
presidents. All other participants received a minimal corporate performance
component bonus based on global revenue performance against the 1996 targets.
The unit and individual performance targets for 1996 and the actual unit and
individual performance results for 1996 necessarily varied widely between units
and individuals. In addition to setting the EPS target, the Committee assigns to
each participant under the Management Incentive Plan minimum, target and maximum
bonus percentages, which vary from participant to participant to reflect
competitive practice and the scope of the participant's responsibility. Actual
corporate and unit performance between 90% and 120% of the target performance
levels results in a bonus calculation that ranges between the participant's
assigned minimum and maximum bonus percentages.
In granting long-term incentive awards during 1996, the Committee gave
considerable weight to the annual long-term incentive award levels and practices
of a diverse range of over 350 major companies that participated in the Towers
Perrin survey of long-term incentive compensation practices. Of the 16 companies
comprising the Peer Group Index in the Performance Graph on pages 20-21 of this
Proxy Statement, 6 were included in this Towers Perrin survey. The Corporation's
long-term incentive award levels for 1996 were generally set at between the 50th
and the 75th percentile of the award levels reflected in the Towers Perrin
survey.
Long-term incentive compensation awards in the form of performance
restricted shares and stock options were made by the Committee in 1996 under the
1993 Long-Term Equity Incentive Plan. Seven individuals, including the five
named executive officers, received a 1996 long-term incentive award that was
split so that approximately 50% of the value of the 1996 award was provided in
the form of performance restricted shares, with the balance provided in the form
of stock options. All other recipients of a 1996 long-term incentive award
received 100% of the award in the form of stock options.
The performance restricted shares granted in 1996 will be forfeited at the
end of 1998 if the Corporation fails to attain for the three-year period from
January 1, 1996 through December 31, 1998 a minimum average annual level of
return on equity (ROE) that was set by the Committee at the beginning of 1996.
For this purpose, the Corporation's annual ROE result for each of the three
years will be separately determined, totaled, and divided by three to determine
the average annual ROE. If the average annual ROE over the three-year period is
at least equal to this minimum level, then the extent to which the performance
restricted shares granted in 1996 will become vested at the end of 1998 will be
determined by the Corporation's average annual earnings growth rate over the
same three-year period. A target level of average annual earnings growth over
the three-year period was set by the Committee at the beginning of 1996, and
average annual earnings growth between 0% and this target level will result in
vesting of the performance restricted shares that ranges proportionately from 0%
to 100%. The Committee also set a super-target level of average annual earnings
growth at the beginning of 1996, and average annual earnings growth between the
target level and the super-target level will result in vesting of the
performance restricted shares that ranges proportionately from 100% to 200%.
Performance restricted shares that are forfeited at the end of 1998 either
because of the Corporation's failure to attain the minimum average annual ROE
level or to attain the target level of average annual earnings growth will be
canceled and revert to the Corporation.
In general, the stock options granted in 1996 vest on the third anniversary
of the grant date, are exercisable thereafter until the tenth anniversary of the
award date, and have an exercise price equal to the award date fair market value
of a share of the Corporation's Common Stock.
In 1995, with the review and approval of the Committee, the Corporation
implemented formal share ownership guidelines applicable to its key executives.
By the end of a phase-in period, the guidelines require that the Chairman and
the CEO each own real or phantom shares of Corporation Common Stock with a value
of at least four times annual base salary. The guideline applicable to the other
named executive officers is ownership of shares with a value of at least three
times annual base salary. The primary intent of these guidelines is to
significantly increase the extent to which the personal wealth of the
Corporation's executives is directly linked to the performance of the
Corporation's Common Stock, thereby materially expanding the community of
interest between the executives and the Corporation's shareholders.
Section 162(m) of the Internal Revenue Code imposes a $1,000,000 per year
per named executive officer limitation on the amount of non-performance based
compensation that can be paid and deducted by the Corporation. The Corporation's
policy with respect to this limitation is to maximize the deductibility of all
compensation paid to each named executive officer by (1) delivering compensation
to named executive officers that to a substantial extent meets the Code Section
162(m) definition of performance-based compensation and (2) affording the named
executive officers the opportunity to defer receipt of compensation to years
after their retirement. In furtherance of this policy, the Corporation's
Management Incentive Plan, under which the named executive officers have an
opportunity to earn an annual cash bonus, and the 1993 Long-Term Equity
Incentive Plan, under which the named executive officers receive long-term
incentive compensation awards, have been designed and are administered so that
all or a significant portion of the compensation received pursuant to such plans
will qualify as performance-based compensation within the meaning of Section
162(m). In addition, the Corporation has implemented a Deferred Compensation
Plan under which the named executive officers may defer receipt of up to 25% of
annual base salary and up to 100% of annual cash bonus amounts. All compensation
paid to the named executive officers in 1996 was deductible and it is
anticipated that all compensation to be paid to named executive officers in 1997
will be deductible.
1996 CEO Compensation
Effective January 1, 1996, Mr. Hudson's base salary rate per annum was
adjusted to $810,000, representing an increase of $110,000 over his 1995 base
salary rate. In adjusting Mr. Hudson's salary, the Committee considered the
Corporation's favorable growth and performance in 1995, Mr. Hudson's individual
performance since his prior increase, his competency, skill and experience, and
salary range survey data relating to his counterparts at comparably-sized
companies in the electrical/electronic industry and industry in general. The
salary level of $810,000 set for Mr. Hudson for 1996 brought his salary to the
median annual salary that was paid in 1995 to CEOs of comparably-sized companies
in the electrical/electronics industry and industry in general. For 1997, the
Committee made no adjustment to Mr. Hudson's base salary rate, retaining it at
its 1996 level.
Mr. Hudson's assigned minimum, target, and maximum bonus percentages under
the Management Incentive Plan for 1996 were 10%, 65% and 100%, respectively.
Accordingly, Mr. Hudson had the potential to earn an annual bonus of up to 100%
of base annual salary if the Corporation were to attain 120% or more of the
$2.40 EPS target and Mr. Hudson were to fully accomplish his individual
performance targets. In keeping with the pay-for-performance design and intent
of the Management Incentive Plan, no 1996 Management Incentive Plan bonus was
paid to Mr. Hudson.
On July 23, 1996 Mr. Hudson was awarded 75,600 stock options (2,500
incentive stock options and 73,100 nonqualified stock options) under the 1993
Long-Term Equity Incentive Plan, all with an exercise price of $36.625. These
options will first be exercisable July 23, 1999 and remain exercisable to July
23, 2006. On the same date, Mr. Hudson was also awarded 46,900 performance
restricted shares of Common Stock of the Corporation under the 1993 Long-Term
Equity Incentive Plan. These shares will either vest or be forfeited at the end
of 1998 based on the Corporation's performance in 1996, 1997 and 1998 with
respect to average annual return on equity and average annual earnings growth
targets that were set by the Committee. In making these long-term incentive
awards, the Committee's intent was to continue a practice begun in 1993, when
the Corporation's first stock option plan became effective, of increasing the
proportion of stock-based compensation in the total compensation package of the
Corporation's senior executive officers, particularly the CEO, thereby further
increasing the executives' community of interest with the Corporation's
shareholders. The aggregate long-term incentive award levels set for Mr. Hudson
in 1996 were at the 75th percentile of comparable long-term incentive award
recipients reflected in Towers Perrin survey data relied upon by the Committee.
Since the 1993 inception of the Long-Term Equity Incentive Plan, Mr. Hudson has
been granted a total of 361,600 stock options and 71,900 performance restricted
shares of Common Stock of the Corporation.
In April, 1992, Mr. Hudson had been awarded 12,200 bonus units under the
Corporation's former Stock Plus Cash Bonus Plan, with a designated value of
$27.87 and an unspecified cash bonus percentage (not in excess of 50%) to cover
Federal taxes on the payout. In April 1996, when the fair market value of a
share of the Corporation's Common Stock had increased to $43.875, 4,066 of these
12,200 bonus units matured, resulting in a stock bonus payment to Mr. Hudson of
1,483 shares of Common Stock of the Corporation and a cash payment of
$32,547.87. In making these payout calculations, the award date designated value
of $27.87 per bonus unit was used to determine the spread in lieu of the
alternative designated value defined under the Plan. The Plan's alternative
designated value, which is based on earnings per share growth between the award
date and the maturity date, is used in payout calculations whenever it would
result in a greater stock bonus payout than would the award date designated
value. (For an explanation of the alternative designated value, see footnote (1)
to the Aggregated Option/SAR Exercises in 1996 and FY-End Option/SAR Values
Table, on pages 15-16 of this Proxy Statement).
The Compensation and Management Development Committee:
Dexter F. Baker Ralph D. DeNunzio, Chairman
John C. Morley Paul G. Schloemer
TERMINATION OF EMPLOYMENT AND CHANGE OF CONTROL ARRANGEMENTS
The Corporation has entered into agreements with the named executive
officers to assure their unbiased counsel and continued dedication in the event
of an unsolicited tender offer or other occurrence that may result in a change
of control. The terms of the agreements provide that, in the event of a change
of control, as previously defined on page 9 of this Proxy Statement, and the
termination of the executive's employment at any time during the 2-year period
thereafter, the executive will be paid a lump sum equal to a multiplier of 2 or
3 times the sum of his highest salary rate in effect during the 12 months prior
to termination of employment and his highest annual bonus paid during the prior
3-year period, together with payment of an amount necessary to pay any excise
tax, and any taxes thereon, due on the lump sum or other payment.
Additionally, upon a change of control: i) all awards that the executive
has received under any bonus plans he is participating in will be immediately
vested and either paid or exercisable, as appropriate; ii) the executive will be
paid in cash installments per the terms of the applicable contract for all
restricted stock, if any, issued by contract; iii) he will be vested in deferred
compensation matching amounts; and iv) he will receive continuation of any
existing split dollar life insurance policy until the latter of the policy
anniversary date following the executive's 65th birthday or the 15th anniversary
of the policy. Upon a change of control and termination of the executive's
employment within 2 years thereafter, the executive also shall be vested in all
pension benefits based on the highest annual salary rate in effect during the 12
months prior to termination of employment with respect to the pension plan and,
with respect to the pension restoration plan, the amount of compensation on
which the lump sum severance payment described above is calculated, plus an
additional accrual for 2 or 3 years; shall receive the conversion of the
executive's group term life insurance policy, if any, to a fully paid permanent
life insurance policy remaining in effect for 2 or 3 years at the Corporation's
cost; and shall receive continuation of health, dental, and disability benefits
until the latter of 2 or 3 years, attainment of the age or other condition at
which the benefits discontinue according to the terms of the related plan,
reduced to the extent of comparable benefits provided by a new employer without
cost.
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
During 1996 there were: a) no transactions between the Corporation and
management, the Directors (and Nominees for director) or related third parties;
b) no business relationship between the Corporation and a Director or Nominee
for director; and c) no indebtedness to the Corporation by management, the
Directors (and Nominees for director) or related third parties or entities, that
must be disclosed.
SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section 16(a) of the Securities Exchange Act of 1934, as amended, requires
the Corporation's officers, directors, and persons owning more than ten percent
of a registered class of the Corporation's equity securities to file reports of
ownership and changes in ownership of all equity and derivative securities of
the Corporation with the Securities and Exchange Commission ("SEC") and the New
York Stock Exchange. The SEC regulations also require that a copy of all such
Section 16(a) forms filed must be furnished to the Corporation by the officers,
directors and greater than ten percent shareholders.
Based solely on a review of the copies of such forms and amendments thereto
received by the Corporation, or written representations from the Corporation's
officers and directors that no Forms 5 were required to be filed, the
Corporation believes that during 1996 all Section 16(a) filing requirements
applicable to its officers, directors and greater than ten-percent beneficial
owners were met with the exception of reports covering two transactions that
were filed late. Mr. Morley's Section 16(a) filings for 1995 inadvertently
omitted 300 shares acquired and held by an investment group of which Mr. Morley
holds a 1/26th interest. The investment group sold the 300 shares in 1996; this
transaction also was inadvertently omitted from Mr. Morley's 1996 Section 16(a)
filings. Late filings were made promptly upon discovery of the oversight.
PRINCIPAL SHAREHOLDERS
As of March 4, 1997, the only persons known to management to own beneficially
more than 5% of the outstanding Common Stock of the Corporation are named
below:
- ----------------------------------------------------------------------------
Name Amount
Title of and Address and Nature of Percent
Class of Beneficial Beneficial of Class
Owner Ownership
- ----------------------------------------------------------------------------
Common Stock FMR Corp. 16,424,348 7.5
82 Devonshire Street,
Boston, Massachusetts 02109
The nature of ownership is as follows:
Sole Voting Powers................... 744,471
Shared Voting Powers................. 0
Sole Dispositive Powers..............16,424,348
Shared Dispositive Powers............ 0
INDEPENDENT ACCOUNTANTS
The selection of Arthur Andersen LLP as the independent accountants for
previous years has continued during the year 1997. Arthur Andersen LLP has no
financial interest, direct or indirect, in the Corporation or any of its
subsidiaries.
A representative of Arthur Andersen LLP will attend the Annual Meeting with
the opportunity to make a statement if he desires to do so and to answer
questions that may be asked of him by the shareholders.
1998 SHAREHOLDER PROPOSALS
Any shareholder, whether of record or a beneficial owner, desiring to
submit a proposal for consideration to appear in the Corporation's 1998 Proxy
Statement shall submit such proposal, typewritten or printed, addressed to the
Corporate Secretary. Such proposal must identify the name and address of the
shareholder, the number of the Corporation's shares held of record or
beneficially, the dates upon which the shareholder acquired such shares and
documentary support for a claim of beneficial ownership. The proposal should be
sent Certified Mail - Return Receipt Requested to the attention of the Corporate
Secretary, P.O. Box 3608, Mail Stop 176-48, Harrisburg, Pennsylvania 17105-3608
and must be received not later than November 14, 1997.
In addition to the foregoing procedure for inclusion of a shareholder
proposal in the Corporation's Proxy Statement, the Corporation will consider
other items of business and nominations for election as director of the
Corporation that are properly brought before the Annual Meeting by a
shareholder. To be properly brought before the Annual Meeting, items of business
must be appropriate subjects for shareholder consideration, timely notice
thereof must be given in writing to the Corporate Secretary, and other
applicable requirements must be met. In general, such notice is timely if it is
received at the principal executive offices of the Corporation at least 30 days
and not more than 60 days in advance of the date in the then-current year that
corresponds to the date of the previous year's Annual Meeting. Alternative
notice deadlines apply if the date of the Annual Meeting differs by more than 15
days from the date of the previous year's Annual Meeting. The Bylaws specify the
information to be included in the shareholder's notice.
Shareholders may either recommend nominations of director for consideration
by the Nominating and Governance Committee in the process described on page 10
of this Proxy Statement, or directly nominate persons for election to the Board
by complying with the notice provisions set forth in the Bylaws. In general,
such notice is timely if it is received by the Corporate Secretary at least 60
days in advance of the date in the then-current year that corresponds to the
date of the previous year's Annual Meeting. Alternative notice deadlines apply
if the date of the Annual Meeting differs by more than 15 days from the date of
the previous year's Annual Meeting or if the election is to be held at a special
meeting of shareholders. The Bylaws specify the information to be included in
the shareholder's notice of nomination.
Interested shareholders can obtain full copies of the Bylaw provisions by
making a written request therefor to the Corporate Secretary.
GENERAL AND OTHER MATTERS
The Corporation knows of no matter that will be brought before the meeting
other than the matters expressly mentioned in the Notice of Annual Meeting of
Shareholders. However, if any further matters properly come before the meeting
or any of its adjournments, the Proxy Committee will vote the shares of stock
represented by the proxies in accordance with their best judgment on such
matters. The Corporation will bear the expense of preparing, printing, and
mailing this proxy material, as well as the cost of any required solicitation.
In addition, the Corporation has retained Georgeson & Company Inc. to aid in the
solicitation of proxies from brokers, banks and other nominees as well as
institutional holders, at a fee of $8,500 plus expenses. The Corporation may
also use regular employees, without additional compensation, to solicit proxies
by personal solicitation, telephone or otherwise.
You are urged to mark, sign and return your proxy promptly to make certain
your shares will be voted at the meeting. For your convenience, a stamped
self-addressed envelope is enclosed.
The Annual Report of the Corporation for the year 1996, including financial
statements, was mailed with this Proxy Statement. Such Annual Report is not
incorporated in this Proxy Statement by reference, and is not deemed a part of
the proxy soliciting material.
UPON THE WRITTEN REQUEST OF ANY PERSON WHOSE PROXY IS SOLICITED HEREUNDER,
THE CORPORATION WILL FURNISH WITHOUT CHARGE TO SUCH PERSON A COPY OF ITS ANNUAL
REPORT FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON FORM 10-K, INCLUDING
THE FINANCIAL STATEMENTS AND SCHEDULES THERETO, FOR THE CALENDAR YEAR 1996. SUCH
WRITTEN REQUEST IS TO BE DIRECTED TO J. E. MARLEY, CHAIRMAN, P.O. BOX 3608, Mail
Stop 176-40, HARRISBURG, PENNSYLVANIA 17105-3608.
Dated: March 14, 1997.
(Recycled Symbol) Printed on Recycled Paper
APPENDIX
- --------
[front side of first proxy card]
PROXY
AMP INCORPORATED
The undersigned hereby appoints W. J. Hudson, J. E. Marley and D. F.
Henschel, and each of them, his or her proxy, with full power of substitution,
to vote all stock of the undersigned at the ANNUAL MEETING OF THE SHAREHOLDERS
OF THE CORPORATION TO BE HELD ON WEDNESDAY, APRIL 23, 1997, AT 10:30 a.m., LOCAL
TIME, at the AMP Global Executive Leadership Center, 411 South Fortieth Street,
Harrisburg, Pennsylvania, and at any adjournment or adjournments thereof, hereby
revoking any proxy previously given and ratifying all that said proxy or proxies
may do pursuant hereto. Shares not held in Plan accounts will be voted as
directed on the reverse side of this Proxy card; if no direction is made, the
shares will be voted in accordance with the recommendations of your Board of
Directors. In their discretion, the proxies are authorized to vote upon such
other business as may properly come before the meeting.
For those participants who hold accounts with Common Stock through the AMP
Incorporated Employee Savings and Thrift Plan -- 401(k) ("401(k)"), the MERIT
Plan of Benefits of M/A-COM, Inc. ("MERIT"), and the M/A-COM, Inc. Employee
Stock Ownership Plan ("ESOP"): The undersigned instructs the applicable
Trustee(s) under the Plans to vote all shares or fractions of shares credited to
the undersigned's account as of the latest available processing date on or
before March 4, 1997 as directed on the reverse side of this Proxy card. Those
shares in 401(k) accounts for which no directions are received will be voted by
the Trustee in its sole and absolute discretion. Those shares in MERIT and ESOP
accounts for which no directions are received will be voted by the Trustee(s) in
the proportion established by all directions received from the other
participants in the applicable Plan.
If you have Common Stock held directly and under one or more of the Plans,
the voting directions on the reverse side of this proxy card will apply to your
combined shares.
(Continued and to be signed on reverse side)
[example of reverse side of first proxy card]
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| |
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| (1) (2) |
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| (3) |
|----------------------------------|
[part (1) information is as follows:]
--------- ---------
Common D.R.S.
YOUR BOARD OF DIRECTORS RECOMMENDS A VOTE
"FOR ALL NOMINEES" IN ITEM 1.
Item 1--Election of the following For all Withheld
Nominees as Directors: Nominees for all
D. F. Baker, R. D. DeNunzio, Nominees
B. H. Franklin, J. M. Hixon,
W. J. Hudson, J. M. Magliochetti
J. E. Marley, H. A. McInnes,
J. J. Meyer, J. C. Morley,
P. G. Schloemer and T. Shiina
Withheld for the following only (Write the name
of the Nominee(s) in the space below)
- -----------------------------------------------------------
[part (2) information is as follows:]
THE PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS. The undersigned
hereby acknowledges receipt of the Notice of the Annual Meeting dated March 14,
1997.
The shares represented by this proxy will be voted as directed by the
shareholder. Abstentions are not counted as votes cast with respect to Item 1.
YES
[ ] I PLAN TO ATTEND THE ANNUAL MEETING -- please send me an admission
card.
[part (3) information is as follows:]
Signature(s)______________________ Date_______________
NOTE: Please date and sign exactly as name appears hereon. Each joint owner
should sign. When signing as attorney, executor, trustee, guardian or corporate
officer, please give full title as such. Corporations should indicate full
corporate name and have a duly authorized officer sign.
ADMISSION CARD
The shareholder bearing this ticket
is entitled to attend the Annual
Meeting of Shareholders of
AMP Incorporated
DATE:
Wednesday, April 23, 1997
TIME:
10:30 A.M.
LOCATION:
Global Executive Leadership Center
411 South Fortieth Street
Harrisburg, Pennsylvania
