SCHEDULE 14A
(Rule 14a-101)

INFORMATION REQUIRED IN PROXY STATEMENT

 

SCHEDULE 14A INFORMATION

 

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

Exchange Act of 1934 (Amendment No.1)

 

Filed by the Registrant þ

 

Filed by a Party other than the Registrant o

 

Check the appropriate box:

 

 

ITT Corporation

(Name of Registrant as Specified In Its Charter)

 

(Name of Person(s) Filing Proxy Statement, if other than the Registrant)

 

Payment of Filing Fee (Check the appropriate box):

 

 

o  Fee computed on table below per Exchange Act Rules 14a-6(i)(1) and 0-11.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

•, 2008

 

 

Dear Fellow Shareholders:

 

Enclosed are the Notice of Annual Meeting and Proxy Statement for ITT’s 2008 Annual Meeting of Shareholders. This year’s meeting is intended to address only the business included on the agenda. Details of the business to be conducted at the Annual Meeting are given in the accompanying Notice of Annual Meeting and Proxy Statement, which provides information as required by applicable laws and regulations.

 

Your vote is important and we encourage you to vote whether you are a registered owner or a beneficial owner.

 

If you are the registered owner of ITT common stock, you may vote your shares by making a toll-free telephone call or using the Internet. You also may vote your shares by returning your proxy form by mail. Details of these voting options are explained in the Proxy Statement. You also can find useful instructions on the enclosed proxy card.

 

If you are a beneficial owner and someone else, such as your bank or broker, is the owner of record, the owner of record will communicate with you about how to vote your shares. We urge you to complete and return the enclosed proxy as promptly as possible. Your vote is important.

 

Sincerely,

 

March • , 2008

 

NOTICE OF 2008 Annual Meeting

 

 

By order of the Board of Directors,

 

 

Kathleen S. Stolar
Vice President and Secretary

 

Important Notice Regarding the Availability of Proxy Materials for the Shareholder Meeting to be held on Tuesday, May 13, 2008 at 10:30 a.m. at Tappan Hill, 81 Highland Avenue, Tarrytown, NY, 10591-4206.

 

The Company’s Proxy Statement, 2007 Annual Report on Form 10-K and Annual Report to Shareholders will be available at https://www.proxydocs.com/itt

Table of Contents

 

2008 Proxy Statement

 

Why did I receive these proxy materials?  Beginning • , 2008, this Proxy Statement is being mailed to shareholders who were shareholders as of the March 21, 2008 record date, as part of the Board of Directors’ solicitation of proxies for ITT’s 2008 Annual Meeting and any postponements or adjournments thereof. This Proxy Statement and ITT’s 2007 Annual Report to Shareholders and Annual Report on Form 10-K (which have been mailed to shareholders eligible to vote at the 2008 Annual Meeting) contain information that the Board of Directors believes offers an informed view of the Company and meet the regulations of the Securities and Exchange Commission (the “SEC”) for proxy solicitations.

 

Who is entitled to vote?  You can vote if you owned shares of the Company’s common stock as of the March 21, 2008 record date.

 

What items of business will I be voting on?  You are voting on the following items of business, which are described on pages 8 to 30:

 

 

 

 

How do I vote?  You can either vote in person at the Annual Meeting or by proxy whether or not you attend the Annual Meeting.

 

What are the proxy voting procedures?  If you vote by proxy, you can vote by following the voting procedures on the proxy card. You may vote:

 

 

Why does the Board solicit proxies from shareholders?  Since it is impractical for all shareholders to attend the Annual Meeting and vote in person, the Board of Directors recommends that you appoint the two people named on the accompanying proxy card to act as your proxies at the 2008 Annual Meeting.

 

How do the proxies vote?  The proxies vote your shares in accordance with your voting instructions. If you appoint the proxies but do not provide voting instructions, they will vote as

recommended by the Board of Directors. If any other matters not described in this Proxy Statement are properly brought before the meeting for a vote, the proxies will use their discretion in deciding how to vote on those matters.

 

How many votes do I have?  You have one vote for every share of ITT common stock that you own.

 

What if I change my mind?  You can revoke your proxy at any time before it is exercised by mailing a new proxy card with a later date or casting a new vote by the Internet or telephone. You can also send a written revocation to the Company Secretary at the address listed on the first page of the Proxy Statement. If you come to the Annual Meeting you can ask that the proxy you submitted earlier not be used.

 

What happens if I return my proxy without indicating how I want my shares voted?  If you return the proxy without specifying how you want your shares voted, you are giving discretionary authority to the proxies to vote your shares in accordance with the recommendations of the Board of Directors, which are described on pages 8 to 30. If any other matters are properly presented for consideration at the 2008 Annual Meeting, the persons named as proxies will have discretion to vote on these matters according to their best judgment to the same extent as the person delivering the proxy would be entitled to vote.

 

There are seven formal items scheduled to be voted upon at the Annual Meeting as described on page 1. As of the date of this Proxy Statement, the Board of Directors is not aware of any business other than as described in this Proxy Statement that will be presented for a vote at the 2008 Annual Meeting.

 

If I don’t return the proxy card for vote at the 2008 Annual Meeting, what happens to my vote?  If your shares are held by a broker, bank or other owner of record, your shares can be voted by the broker for agenda items one and two, election of directors and ratification of the independent auditor. Your broker does not have discretion to vote your shares held in street name on the other proposed agenda items. If you provide no instructions on how to vote on the remaining agenda items, the votes will be “broker non-votes” which means that the broker cannot vote the shares with respect to that agenda item. Under Indiana law, the law of the state where the Company is incorporated, broker non-votes and abstentions are counted to determine whether there is a quorum present.

 

How many votes are required to elect Directors or approve a proposal? How many votes are required for an agenda item to pass?  Under Indiana law, a plurality of the votes cast is required to elect directors. This means that the nine director candidates who receive the highest number of votes will be elected as the Directors of ITT. The Board of Directors proposed a resolution, subject to shareholder approval, that the Restated Articles of Incorporation of ITT Corporation be amended by the shareholders of the Corporation to authorize the Company’s By-laws to provide for majority voting for directors in uncontested elections, and to further provide in such by-laws that in uncontested elections, any Director nominee who receives less than majority of the votes cast shall not be elected. Any Director nominee who fails to be elected, but who also is a Director at the time, shall promptly provide a written resignation, as a holdover Director, to the Chair of the Nominating and Governance Committee. The Nominating and Governance Committee shall promptly consider the resignation and all relevant facts and circumstances concerning any vote, including whether the cause of the vote may be cured and the best interests of the Company and its shareholders. The independent directors of the Board will act on the Nominating and Governance Committee’s recommendation at its next regularly scheduled Board Meeting or within 90 days after certification of the shareholder vote, whichever is earlier, and the Board will promptly publicly disclose its decision and the reasons for its decision. The proposed amendments to the Restated Articles of Incorporation of ITT Corporation and the Board’s recommendation to approve such amendments are described on pages 14 to 16.

Under Indiana law, all other proposed agenda items require that the votes cast in favor of the proposal exceed the votes cast against the proposal. Accordingly, neither abstentions nor broker non-votes have any effect on the votes required under Indiana law. However, under the New York Stock Exchange rules, agenda items four and five relating to approval of the amendment and restatement of the ITT Corporation 2003 Equity Incentive Plan and re-approval of material terms of the ITT Corporation 2003 Equity Incentive Plan Performance Goals, respectively, must be approved by a majority of the votes cast and the number of votes cast must represent more than 50% of all the shares entitled to vote. Abstentions will have the effect of a vote against these agenda items and broker non-votes will have no effect, except to the extent they impact whether the 50% of all common shares entitled to vote test has been satisfied. For the purpose of determining whether the number of votes cast represent more than 50% of the shares of common stock entitled to vote, abstentions will count as votes cast and broker non-votes will not count as votes cast.

 

In addition, agenda items relating to approval of the amendment and restatement of the ITT Corporation 2003 Equity Incentive Plan including re-approval of material terms of the ITT Corporation 2003 Equity Incentive Plan Performance Goals, approval of the material terms of the ITT Corporation Annual Incentive Plan for Executive Officers, and approval of the material terms of the ITT Corporation 1997 Long-Term Incentive Plan are subject to the approval requirements of Section 162(m) of the Internal Revenue Code which requires the affirmative vote of a majority of the votes cast. Accordingly, abstentions will have the same effect as a vote against those proposals and broker non-votes will have no effect.

 

How many shares of ITT stock are outstanding?  As of the March 21, 2008 record date, •  shares of ITT common stock were outstanding.

 

How many holders of ITT outstanding shares must be present to hold the Annual Meeting?  In order to conduct business at the Annual Meeting it is necessary to have a quorum. To have a quorum, a majority of outstanding ITT shares of common stock on the record date must be present in person or by proxy.

 

How I vote?  You may vote “for” or “withhold” your vote with respect to any Director standing for reelection. With respect to other agenda items, you may vote for, against or abstain from voting.

 

What is the difference between a beneficial owner and a registered owner?  If shares you own are held in an ITT savings plan for salaried or hourly employees, a stock brokerage account, bank or by another holder of record you are considered the “beneficial owner” because someone else holds the shares on your behalf. If the shares you own are registered in your name directly with the Bank of New York, our transfer agent, you are the registered owner and the “shareholder of record”.

 

How do I vote if I am a participant in ITT’s savings plans for salaried or hourly employees?  If you participate in any of the ITT savings plans for salaried or hourly employees, your plan trustee will vote the ITT shares credited to your savings plan account in accordance with your voting instructions. The trustee votes the shares on your behalf because you are the beneficial owner, not the shareholder of record of the savings plan shares. The trustee votes the savings plan shares for which no voting instructions are received in the same proportion as the shares for which the trustee receives voting instructions.

 

I participate in the ITT savings plan for salaried employees and also am a shareholder of record of shares of ITT common stock. How many proxy cards will I receive?  You will receive only one proxy card. Your savings plan shares and any shares you own as the shareholder of record, including ownership through the ITT Direct Purchase, Sale and Dividend Reinvestment Plan, will be set out separately on the proxy card.

How many shares are held by participants in the ITT employee savings plans?  As of March 21, 2008, the record date, Wells Fargo Institutional Trust Services, as the trustee for the employee salaried savings plan, held •  shares of ITT common stock (approximately • % of the outstanding shares) and Northern Trust, as the trustee for the hourly employees savings plans, held •  shares of ITT common stock (approximately • % of the outstanding shares).

 

Who counts the votes? Is my vote confidential?  Representatives of the Bank of New York Mellon Shareowner Services count the votes. Representatives of IVS Associates, Inc. act as Inspectors of Election for the 2008 Annual Meeting. The Inspectors of Election monitor the voting and certify whether the votes of shareholders are kept in confidence in compliance with ITT’s confidential voting policy.

 

Who pays for the proxy solicitation cost?  ITT pays the cost of soliciting proxies from registered owners. ITT has appointed Georgeson & Company to help with the solicitation effort. ITT will pay Georgeson & Company a fee of $15,000 to assist with the solicitation and also reimburse brokers, nominees, custodians and other fiduciaries for their costs in sending proxy materials to beneficial owners.

 

Who solicits proxies?  Directors, officers or other regular employees of ITT may solicit proxies from shareholders in person or by telephone, facsimile transmission or other electronic communication.

 

How does a shareholder submit a proposal for the 2009 Annual Meeting?  Rule 14a-8 of the Securities Exchange Act of 1934, or the “Exchange Act,” establishes the eligibility requirements and the procedures that must be followed for a shareholder proposal to be included in a public company’s proxy materials. Under the rule, if a shareholder wants to include a proposal in ITT’s proxy materials for its next Annual Meeting, the proposal must be received by ITT at its principal executive offices on or before November • , 2008 and comply with eligibility requirements and procedures. An ITT shareholder who wants to present a matter for action at ITT’s next Annual Meeting, but chooses not to do so under Exchange Act Rule 14a-8, must deliver to ITT, at its principal executive offices, on or before November • , 2008 a written notice to that effect. In either case, as well as for shareholder nominations for Directors, the shareholder must also comply with the requirements in the Company’s By-laws with respect to a shareholder properly bringing business before the Annual Meeting. (You can request a copy of the By-laws from the Secretary of ITT.)

 

Can a shareholder nominate Director Candidates?  The Company’s By-laws permit shareholders to nominate Directors at the Annual Meeting. To make a Director nomination at the 2009 Annual Meeting, you must submit a notice with the name of the candidate on or before November • , 2008 to the Secretary of ITT. The nomination and notice must meet all other qualifications and requirements of the Company’s Governance Principles, By-laws and Regulation 14A of the Exchange Act. The nominee will be evaluated by the Nominating and Governance Committee of the Board using the same standards as it uses for all Director nominees, which are discussed in further detail below at pages 31 to 35 under “Information about the Board of Directors-Director Selection and Composition.” No one may be nominated for election as a Director after he or she has reached 72 years of age. (You can request a copy of the nomination requirements from the Secretary of ITT.)

 

The Board of Directors’ share ownership guidelines currently provide for share ownership levels at five times the annual retainer amount. Non-Management Directors receive a portion of their retainer in restricted stock and are encouraged to hold such restricted stock until such time as his or her total share ownership meets or exceeds the ownership guidelines.

 

Share ownership guidelines for corporate officers, first approved by ITT’s Board of Directors during 2001, are regularly reviewed. The guidelines specify the desired levels of Company stock ownership and encourage a set of behaviors for each officer to reach the guideline levels. The approved guidelines require share ownership expressed as a multiple of base salary for all corporate officers.

 

Specifically the guidelines apply as follows: chief executive officer at five times base salary; chief financial officer at three times annual base salary; senior vice presidents and group presidents at two times annual base salary; and all other corporate vice presidents at one times annual base salary. In achieving these ownership levels, shares owned outright, Company restricted stock and restricted stock units, shares held in the Company’s dividend reinvestment plan, shares owned in the ITT Salaried Investment and Savings Plan, and “phantom” shares held in a fund that tracks an index of the Company’s stock in the deferred compensation plan are considered.

 

To attain the ownership levels set forth in the guidelines it is expected that any restricted shares that become unrestricted will be held, and that all shares acquired through exercise of stock options will be held, except in all cases to the extent necessary to meet tax obligations.

 

Compliance with the guidelines is monitored periodically and, as of January 31, 2008, the share ownership levels have been substantially met, except for Dr. Mohapatra who was elected to the Company’s Board, effective February 14, 2008.

 

Share Ownership Guideline Summary

 

The following table shows, as of February 29, 2008, the beneficial ownership of ITT common stock and options exercisable within 60 days by each Director, by each of the executive officers named in the Summary Compensation Table at page 67, and by all Directors and executive officers as a group. In addition, with respect to Mr. Loranger, we have provided information about ownership of restricted stock units that provide economic linkage to ITT common stock but do not represent actual beneficial ownership of shares.

 

 

 

 

 

The number of shares beneficially owned by each Director or executive officer has been determined under the rules of the SEC, which provide that beneficial ownership includes any shares as to which a person has sole or shared voting or dispositive power, and any shares which the person would have the right to acquire beneficial ownership of within 60 days through the exercise of any stock option or other right. Unless otherwise indicated, each Director or executive officer has sole dispositive and voting power, or shares those powers with his or her spouse.

 

As of February 29, 2008, all Directors and executive officers as a group owned 0.651% of the shares deemed to be outstanding. No individual Director or executive officer owned in excess of one percent of the shares deemed to be outstanding.

 

Schedule 13G Filings

 

Set forth below is information reported to the SEC on the most recently filed Schedule 13G by the following person who owned more than 5% of ITT outstanding common stock. This information does not include holdings by the Trustee with respect to individual participants in the ITT Salaried Investment and Savings Plan.

 

 

 

 

Section 16(a) Beneficial Ownership Reporting Compliance

 

Section 16(a) of the Exchange Act requires that the Company’s executive officers and directors, and any persons beneficially owning more than 10% of a registered class of the Company’s equity securities, file reports of ownership and changes in ownership with the SEC within specified time periods. To the Company’s knowledge, based upon a review of the copies of the reports furnished to the Company and written representations that no other reports were required, all filing requirements were satisfied in a timely manner for the year ended December 31, 2007.

 

 

The Board of Directors has nominated nine individuals for election as Directors at the 2008 Annual Meeting. Each of the nominees is currently serving as a Director of ITT and has agreed to continue to serve if elected until his or her retirement, resignation or death. If unforeseen circumstances arise before the 2008 Annual Meeting and a nominee becomes unable to serve, the Board of Directors could reduce the size of the Board or nominate another candidate for election. If the Board nominates another candidate, the proxies could use their discretion to vote for that nominee. Each Director elected at the 2008 Annual Meeting will be elected to serve as a Director until ITT’s next Annual Meeting. Mr. Raymond W. LeBoeuf, who has served as a Director of the Company since 2000, is not standing for re-election at the May 13, 2008 Annual Meeting. The Company and its Directors appreciate the valuable contributions and business judgment of Mr. LeBoeuf.

 

The Board of Directors recommends that you vote FOR the election of each of the following nine nominees:

 

 

Mr. Loranger, 56, was appointed President and Chief Executive Officer and elected a Director of ITT on June 28, 2004. He was elected Chairman of the Board of Directors on December 7, 2004. Mr. Loranger previously served as Executive Vice President and Chief Operating Officer of Textron, Inc. from 2002 to 2004, overseeing Textron’s manufacturing businesses, including aircraft and defense, automotive, industrial products and components. From 1981 to 2002, Mr. Loranger held executive positions at Honeywell International Inc. and its predecessor company, AlliedSignal, Inc., including serving as President and Chief Executive Officer of its Engines, Systems and Services businesses. Mr. Loranger is a member of the Business Roundtable and serves on the boards of the National Air and Space Museum and the Congressional Medal of Honor Foundation. Mr. Loranger received bachelors and masters degrees in science from the University of Colorado. Mr. Loranger is also a director of the FedEx Corporation.

 

Mr. Loranger has been a Director of ITT since 2004.

 

 

Dr. Crawford, 60, is President and Chief Executive Officer of XCEO, Inc. From April 1, 2002 to March 31, 2003 he served as President and Chief Executive Officer of Onix Microsystems, a private photonics technology company. He was Chairman of the Board of Directors of ON Semiconductor Corporation from September 1999 until April 1, 2002. Previously, he was President and Chief Executive Officer of ZiLOG, Inc. from 1998 to 2001 and its Chairman from 1999 to 2001. Dr. Crawford is a Director of E.I. DuPont de Nemours and Company, ON Semiconductor Corporation, and Agilysys, Inc. and is a member of the Board of Trustees of DePaul University. He received a B.A. degree in business administration and computer science and an M.A. degree from Governors State University, an M.B.A. from DePaul University and a Ph.D. from Capella University. Governors State University awarded him an honorary doctorate in 1996 and he received an honorary doctorate degree from DePaul University in 1999. Dr. Crawford is the author of two books on leadership and corporate governance.

 

Dr. Crawford has been a Director of ITT since 1996.

 

Mrs. Gold, 60, has been President and Chief Executive Officer of The Western Union Company, a leading company in global money transfer, since September 2006. From May 2002 to September 2006, Mrs. Gold was President of Western Union Financial Services, Inc. and Senior Executive Vice President of Western Union’s parent company, First Data Corporation. From October 1999 to May 2002, she was Chairman, President and Chief Executive Officer of Excel Communications, Inc. Mrs. Gold served as President and Chief Executive Officer of The Beaconsfield Group from March 1998 to October 1999. From 1997 to 1998, Mrs. Gold was Executive Vice President of Global Development of Avon Products, Inc., and from 1993 to 1997, she was President of Avon North America. Mrs. Gold is also a director of The Western Union Company and New York Life Insurance. Mrs. Gold is a graduate of Carleton University, Ottawa, Canada.

 

Mrs. Gold has been a Director of ITT since 1997.

 

 

Mr. Hake, 59, was Chairman and Chief Executive of Maytag Corporation from June of 2001 to March of 2006. Previously, he was Executive Vice President and Chief Financial Officer for Fluor Corporation, an engineering and construction firm. From 1987 to 1999, Mr. Hake served in various executive capacities at Whirlpool Corporation, including Chief Financial Officer and Senior Executive Vice President for global operations. He is also a director of Owens-Corning Corporation. Mr. Hake is a 1971 business and economics graduate of the University of Cincinnati and holds an M.B.A. from the University of Chicago.

 

Mr. Hake has been a Director of ITT since 2002.

 

Dr. Hamre, 57, was elected President and Chief Executive Officer of CSIS in April of 2000. Prior to joining CSIS, he served as U.S. Deputy Secretary of Defense from 1997 to 2000 and Under Secretary of Defense (Comptroller) from 1993 to 1997. Dr. Hamre is a Director of MITRE Corporation, Choicepoint, Inc. and SAIC, Inc. He received a B.A. degree, with highest distinction from Augustana College in Sioux Falls, South Dakota, was a Rockefeller Fellow at Harvard Divinity School and was awarded a Ph.D., with distinction, from the School of Advanced International Studies, Johns Hopkins University, in 1978.

 

Dr. Hamre has been a Director of ITT since 2000.

 

 

Mr. MacInnis, 61, has been Chairman of the Board and Chief Executive Officer of EMCOR Group, Inc. since April 1994. He was also President of EMCOR from April 1994 to April 1997. Mr. MacInnis is also a Director of The Williams Companies, Inc., The Greater New York Chapter of the March of Dimes and ComNet Communications, LLC. Mr. MacInnis received an undergraduate degree from The University of Alberta and is a graduate of The University of Alberta Law School, Alberta, Canada.

 

Mr. MacInnis has been a Director of ITT since 2001.

 

 

Dr. Mohapatra, 58, was appointed President and Chief Operating Officer of Quest Diagnostics Incorporated in June 1999, a Director in 2002, its Chief Executive Officer in May 2004, and Chairman of the Board in December 2004. Prior to joining Quest Diagnostics Incorporated in February 1999 as Senior Vice President and Chief Operating Officer, Dr. Mohapatra was Senior Vice President of Picker International, a worldwide leader in advanced medical imaging technologies, where he served in various executive positions during his 18-year tenure. Dr. Mohapatra earned a Bachelor of Science degree in electrical engineering from Sambalpur University in India. Additionally, he holds a Master of Science in medical electronics from the University of Salford, England, as well as a doctorate in medical physics from the University of London and The Royal College of Surgeons of England.

 

Dr. Mohapatra, who was identified by a third-party search firm, has been a director of ITT since February 2008.

 

Ms. Sanford, 55, was named Senior Vice President, Enterprise on Demand Transformation, IBM in January 2003. Previously, she was Senior Vice President and Group Executive, IBM Storage Systems Group, responsible for development of IBM’s Enterprise Storage Server and other storage-related hardware and software. She also has held positions as General Manager, IBM Global Industries and General Manager of IBM’s S/390 Division. Ms. Sanford is a member of the Women in Technology International Hall of Fame and the National Association of Engineers. She is on the Board of Trustees of St. John’s University and Rensselaer Polytechnic Institute, serves on the Board of Directors of Partnership for New York City and is Co-Chairperson of the Board of Directors for the Business Council of New York State, Inc. Ms. Sanford is a graduate of St. John’s University and earned an M.S. degree in operations research from Rensselaer Polytechnic Institute.

 

Ms. Sanford has been a Director of ITT since 1998.

 

 

Markos I. Tambakeras Former Chairman, President and Chief Executive Officer, Kennametal, Inc., a premier global tooling solutions, engineered components and advanced materials supplier to the automotive, aerospace, energy, mining, construction and other industries

 

Mr. Tambakeras, 57, served as Chairman of the Board of Directors, Kennametal, Inc. from July 1, 2002 until December 31, 2006. He was also President and Chief Executive Officer of Kennametal from July 1999 through December 31, 2005. From 1997 to June 1999, Mr. Tambakeras served as President, Industrial Controls Business of Honeywell Incorporated. Mr. Tambakeras also serves on the Board of Parker Hannifin Corporation. Mr. Tambakeras received a B.Sc. degree from the University of Witwatersrand, Johannesburg, South Africa and an M.B.A. from Loyola Marymount University, Los Angeles, CA.

 

Mr. Tambakeras has been a Director of ITT since 2001.

 

Subject to the shareholders’ ratification, the Board of Directors has appointed Deloitte & Touche LLP as ITT’s Independent Auditor (“Deloitte” or the “Independent Auditor”) for 2008. Deloitte is registered as a registered public accounting firm by the Public Company Accounting Oversight Board (“PCAOB”). Representatives of Deloitte attended all regularly scheduled meetings of the Audit Committee during 2007. The Audit Committee reviewed and considered Deloitte’s performance on the Company Audit. Performance factors reviewed included Deloitte’s :

 

 

The Audit Committee also reviewed the terms and conditions of Deloitte’s engagement letter including an agreement by the Company to submit disputes between Deloitte and the Company to a dispute resolution process and to limit awards based on punitive or exemplary damages under the dispute resolution procedures.

 

The Audit Committee discussed these considerations, fees and services with Deloitte and Company management. The Audit Committee also determined that any non-audit services provided by Deloitte were permitted under the rules and regulations concerning auditor independence promulgated by the SEC to implement the Sarbanes-Oxley Act of 2002, and rules promulgated by the PCAOB in Rule 3600T. Representatives of Deloitte will be present at the 2008 Annual Meeting to answer questions. Representatives of Deloitte also will have the opportunity to make a statement if they desire to do so.

 

Independent Auditor Fees

 

Aggregate fees billed to the Company for the fiscal years ended December 31, 2007 and 2006 represent fees billed by the Company’s Independent Auditor, Deloitte & Touche LLP, the member firms of Deloitte Touche Tohmatsu, and their respective affiliates.

 

 

 

 

 

 

 

 

 

i. Federal, foreign, state and local income tax return assistance; and

 

ii. Internal Revenue Code and foreign tax code technical consultations.

 

 

i. Transfer pricing consultations; and

 

ii. Tax advice related to intra-group restructuring.

 

 

Pre-Approval of Audit and Non-Audit Services

 

The Audit Committee pre-approves audit services provided by the Independent Auditor. The Audit Committee has also adopted a policy on pre-approval of non-audit services provided by the Independent Auditor and certain non-audit services provided by outside internal audit service providers. The purpose of the policy is to clearly identify thresholds for services, project amounts and circumstances where the Independent Auditor and any outside internal audit service providers may perform non-audit services. A second level of review and approval by the Audit Committee is required when such non-audit services, project amounts or circumstances exceed the specified amounts.

 

The Audit Committee has determined that, where practical, all non-audit services shall first be placed for competitive bid prior to selection of a service provider. Management may select the party deemed best suited for the particular engagement, which may or may not be the Independent Auditor. Providers other than the Independent Auditor shall be preferred in the selection process. The policy and its implementation are reviewed and reaffirmed on a regular basis to assure conformance with applicable rules.

The Audit Committee has approved specific categories of audit, audit-related and tax services incidental to the normal auditing function which the Independent Auditor may provide without further Audit Committee approval. These categories include among others, the following:

 

 

The Audit Committee has also approved specific categories of audit-related services, including assessment and review of internal controls and effectiveness of those controls, which outside internal audit service providers may provide without further approval.

 

If fees for any pre-approved non-audit services provided by either of the Independent Auditor or any internal audit service provider exceed a pre-determined threshold during any calendar year, any additional proposed non-audit services provided by that service provider must be submitted for second-level approval by the Audit Committee. Other audit-related and tax services which have not been pre-approved are subject to specific prior approval. The Audit Committee reviews the fees paid or committed to the Independent Auditor on at least a quarterly basis.

 

The Company may not engage the Independent Auditor to provide the services described below:

 

 

Employees of the Independent Auditor who are senior manager level or above, including lead or concurring partners and who have had any involvement with the Company in the independent audit, shall not be employed by the Company in any capacity for a period of five years after the termination of their activities on the Company account.

 

The Board of Directors recommends you vote FOR ratification of appointment of the Company’s Independent Auditor.

 

 

 

The Company’s Board of Directors has proposed, and recommends that shareholders approve at the Annual Meeting, a proposal to amend paragraph (a) of ARTICLE FOURTH of the Company’s

Restated Articles of Incorporation to increase the number of authorized shares of Common Stock of the Company from 250,000,000 shares to 500,000,000 shares and the Board of Directors further has proposed, and recommends shareholders approve at the Annual Meeting a proposal to amend ARTICLE FIFTH of the Company’s Restated Articles of Incorporation in its entirety to authorize the Company’s By-laws to provide for majority voting for directors in uncontested elections. The descriptions of the amendments provided are qualified in their entirety by the text of the amendments set forth below.

 

The Board of Directors believes that the proposed amendments to the Restated Articles of Incorporation shown below are in the best interests of the Company and its shareholders:

 

 

“(A) The aggregate number of shares of stock that the Corporation shall have authority to issue is 550,000,000 shares, consisting of 500,000,000 shares designated “Common Stock” and 50,000,000 shares designated “Preferred Stock”. The shares of Common Stock shall have a par value of $1 per share, and the shares of Preferred Stock shall not have any par or stated value, except that, solely for the purpose of any statute or regulation imposing any fee or tax based upon the capitalization of the Corporation, the shares of Preferred Stock shall be deemed to have a par value of $.01 per share.”

 

 

ARTICLE FIFTH

 

 

 

 

 

As of February 29, 2008, approximately 181,527,145 shares of Common Stock were issued and outstanding and approximately 11,303,000 unissued shares were reserved for issuance under the Company’s equity compensation plans, including approximately 2,630,000 shares of Common Stock available for future issuance. As of February 29, 2008, none of the Company’s 50,000,000 shares of authorized Preferred Stock had been issued.

 

Authorized additional shares of Common Stock will assure that Common Stock will be available in the event the Board of Directors determines that it is necessary or appropriate to permit future

stock splits in the form of stock dividends, to raise additional capital through the sale of equity securities, to acquire another company or its assets, to establish strategic relationships with corporate partners or to provide equity incentives to employees and officers or for other corporate purposes.

 

If the proposed amendment to paragraph (a) of ARTICLE FOURTH is approved by the shareholders, the Board of Directors may issue such additional shares without soliciting further shareholder approval, except as may be required by applicable law. The additional shares, when issued, will have the same voting and other rights as the Company’s presently authorized Common Stock. Shareholders of the Company shall not have any preemptive rights to subscribe for additional issues of stock except as may be agreed from time to time by the Company and any such shareholder.

 

The increase in the authorized number of shares of Common Stock and the subsequent issuance of such shares could have the effect of delaying or making more difficult a change of control of the Company. While it may be deemed to have potential anti-takeover effects, the proposed amendment to increase the authorized Common Stock is not prompted by any specific effort or takeover threat currently perceived by management.

 

The Company does not have any current intentions, plans, arrangements, commitments or understandings to issue any shares of its capital stock except in connection with its existing equity compensation and purchase plans.

 

ARTICLE FIFTH of the Restated Articles of Incorporation is proposed to be amended to provide that the Company’s By-laws may increase the plurality vote required to elect Directors in an uncontested election. If this amendment is approved, the Company’s By-laws will be amended to provide that in any uncontested election Directors shall be elected by a majority of the votes cast by the shares entitled to vote in the election at which a quorum is present. Any Director nominee who receives less than a majority of the votes cast will not be elected. Any Director nominee who fails to be elected but who is a Director at the time shall promptly provide a written resignation as a holdover Director to the Chair of the Nominating and Governance Committee. The Nominating and Governance Committee shall promptly consider the resignation and all relevant facts and circumstances concerning the vote, including whether the cause of the vote may be cured and in the best interests of the Company and its shareholders. The independent directors of the Board will act on the Nominating and Governance Committee’s recommendation at its next regularly scheduled Board Meeting or within 90 days after certification of the shareholder vote, whichever is earlier, and the Board will promptly publicly disclose its decision and the reasons for its decision.

 

If approved, this proposal will become effective upon the filing of Articles of Amendment to the Restated Articles of Incorporation with the Secretary of State of the State of Indiana substantially in the form attached as Appendix A which the Company intends to do promptly after the 2008 Annual Meeting.

 

The Board of Directors recommends you vote FOR the amendment to Paragraph (a) of ARTICLE FOURTH of the Restated Articles of Incorporation to increase the number of authorized shares of Common Stock from 250,000,000 to 500,000,000. The Board of Directors further recommends you vote FOR the amendment to the ARTICLE FIFTH of the Restated Articles of Incorporation in its entirety to authorize the Company’s By-laws to provide for majority voting for directors in uncontested elections.

 

 

We request shareholder approval of the ITT Corporation 2003 Equity Incentive Plan, as amended and restated on February 15, 2008, to

 

 

 

Shareholder approval is required prior to increasing the number of shares that can be issued under the plan or increasing the number of shares that can be issued with respect to restricted stock and restricted stock units. As previously approved by the shareholders in 2003, the plan authorizes issuance of up to 12,200,000 shares (as adjusted for the February 21, 2006 2:1 stock split) of our common stock. Of those 12,200,000 shares originally authorized for issuance under the plan, as of February 29, 2008 there were approximately 2,630,000 shares remaining available for future grants. As previously approved, the plan provides that 2,000,000 shares (as adjusted for the February 21, 2006 2:1 stock split) may be issued with respect to restricted stock and restricted stock unit awards.

 

Upon recommendation of the Compensation and Personnel Committee, at its February 15, 2008 meeting, our Board of Directors approved a 3,200,000 increase in the number of shares that can be issued under the plan, a 2,000,000 increase in the number of shares that can be issued with respect to restricted stock and restricted stock unit awards, and the other amendments noted above, subject to shareholder approval at the 2008 Annual Meeting.

 

The following is a summary of the material terms of the plan, as amended. The description of the plan is qualified in its entirety by the actual provisions of the plan, which are attached to this Proxy Statement as Appendix B.

 

Summary Description of the Plan

 

The following summary of the terms of the plan is qualified in its entirety by reference to the text of the plan, which is attached as Appendix B. If approved, the number of shares of our common stock authorized for issuance under the plan will be increased effective as of May 13, 2008.

 

Plan History.  The ITT Corporation 2003 Equity Incentive Plan, formerly known as the ITT Industries, Inc. 2003 Equity Incentive Plan, was approved by the Board of Directors on March 11, 2003 and became effective upon approval by the shareholders at the 2003 Annual Meeting. On May 13, 2003, the plan replaced, on a prospective basis, the 2002 ITT Industries Stock Option Plan for Non-Employee Directors, the ITT Industries 1996 Restricted Stock Plan for Non-Employee Directors, and the 1994 ITT Industries Incentive Stock Plan. No new grants may be made from these prior plans. The plan has been renamed the ITT Corporation 2003 Equity Incentive Plan.

 

Administration.  The plan is administered by the Compensation and Personnel Committee of the Board of Directors, which we refer to in this summary as the committee. The committee interprets the terms and intent of the plan and determines who is eligible to receive awards under the plan. The committee may adopt rules, regulations and guidelines for administering the plan and may delegate administrative duties to one or more of its members or to one or more agents or advisors. Additionally, the committee may, by resolution, authorize one or more of our officers to designate who can receive awards and the size of the awards, except that the committee may not delegate these responsibilities to any officer for awards granted to an employee that is considered one of our elected officers, or to the extent it would unintentionally cause awards not to qualify as performance-based compensation for purposes of Section 162(m) of the Internal Revenue Code.

Eligibility.  All of our employees and directors and the employees of our subsidiaries and other affiliates are eligible to participate in the plan. Approximately 39,700 employees and 9 non-employee directors are currently eligible to participate. Because the plan provides for broad discretion in selecting participants and in making awards, the total number of persons who will participate in the plan and the benefits that will be provided to the participants cannot be determined at this time.

 

Stock Available for Issuance Under the Plan.  Under the original terms of the plan, up to 6,100,000 shares (12,200,000 as adjusted for the February 21, 2006 2:1 stock split) of our common stock were authorized for issuance under the plan. The number of shares that could be issued with respect to restricted stock and restricted stock units could not exceed 2,000,000 shares (as adjusted for the February 21, 2006 2:1 stock split).

 

As amended and restated, the total number of shares that may be issued under the plan will be increased by 3,200,000 shares to a total of 15,400,000 shares and the number of shares that can be issued with respect to restricted stock and restricted stock unit awards will be increased by 2,000,000 shares to a total of 4,000,000 shares. The shares available for issuance under the plan may be authorized and unissued shares or treasury shares. The last reported sale price of a share of ITT Corporation common stock on March • , 2008 was $ • .

 

The plan provides that shares related to awards that terminate by expiration, forfeiture, cancellation or otherwise without the issuance of shares, are settled in cash rather than shares, or are exchanged with the committee’s permission for awards not involving shares, may be available again for grants under the plan. As amended and restated, the plan also provides that upon the exercise of a stock-settled stock appreciation right, the number of shares subject to an award that are then being exercised will be counted against the maximum aggregate number of shares that may be issued under the plan as provided above, on the basis of one share for every share subject thereto, regardless of the actual number of shares used to settle the stock appreciation right upon exercise. Prior to the amendment and restatement, the plan provided that if shares were tendered by participants to satisfy the exercise price of a stock option or tax withholding obligations, or if a stock appreciation right was exercised, only the net number of shares issued would count against the share reserve. The prior provision also provided that the share reserve would not be reduced to reflect dividends or dividend equivalents that are reinvested into additional shares or credited as additional restricted stock or restricted stock units. The amendment and restatement removes these net share counting provisions.

 

Description of Awards Under the Plan.  Stock-based compensation will typically be issued in consideration for the performance of services to us and our subsidiaries and other affiliates. The plan provides for a number of forms of stock-based compensation. The committee may award stock options, stock appreciation rights, restricted stock, and restricted stock units. The forms of awards are described in greater detail below.

 

Stock Options.  The committee can award incentive stock options, which are intended to comply with Section 422 of the Internal Revenue Code, or nonqualified stock options, which are not intended to comply with Section 422 of the Internal Revenue Code. The committee determines the terms of the stock options, including the period during which the stock options may be exercised, which may not exceed ten years, and the exercise price of the stock options, which, except with respect to stock options granted outside the United States, may not be less than the fair market value of the underlying shares of common stock on the date the stock option is granted. A nonqualified stock option granted outside the United States may be granted with an exercise price less than the fair market value of the underlying shares of common stock on the date of grant if necessary to comply with local tax laws and regulations. Subject to the specific terms of the plan, the committee has discretion to set any additional limitations on stock option grants as it deems appropriate.

Each stock option award agreement sets forth the extent to which the participant will have the right to exercise the stock option following termination of the participant’s employment or service as a director. The termination provisions are determined within the discretion of the committee, need not be uniform among all participants and may reflect distinctions based on the reasons for termination of employment or service as a director.

 

Upon the exercise of a stock option granted under the plan, the exercise price is payable in full either in cash or its equivalent, by tendering shares having a fair market value at the time of exercise equal to the total exercise price, by a combination of these methods, or by any other method approved by the committee in its discretion.

 

Stock Appreciation Rights.  The committee may grant stock appreciation rights in tandem with stock options, freestanding and unrelated to options, or any combination of these forms. In any case, the form of payment of a stock appreciation right will be determined by the committee at the time of grant, and may be in shares of common stock, cash, or a combination of the two. If granted other than in tandem, the committee will determine the number of shares of common stock covered by, and the exercise period for, the stock appreciation right.

 

As amended and restated, the plan provides that, unless required to comply with applicable foreign laws, a stock appreciation right’s base price may not be less than the fair market value of the underlying shares of common stock on the date the stock appreciation right is granted. Prior to the amendment and restatement, the plan permitted issuance of stock appreciation rights with a base price that was less than the stock’s fair market value. Stock appreciation rights granted outside the United States may be granted with a base price less than the fair market value of the underlying shares of common stock on the date of grant if necessary to comply with local tax laws and regulations.

 

Upon exercise of the stock appreciation right, the participant will receive an amount equal to the excess of the fair market value of one share of stock on the date of exercise over the fair market value of one share of the stock on the grant date, multiplied by the number of shares of stock covered by the stock appreciation right exercise. If granted in tandem with an option, a stock appreciation right’s exercise period may not exceed that of the option. The participant may exercise a tandem stock appreciation right when the option is exercisable, surrender the option, and receive on exercise an amount equal to the excess of the fair market value of one share of stock on the date we receive the surrender election over the option exercise price, multiplied by the number of shares of stock covered by the stock appreciation right exercise.

 

Each stock appreciation right award agreement will set forth the extent to which the participant will have the right to exercise the stock appreciation right following termination of the participant’s employment or service as a director. The termination provisions will be determined within the discretion of the committee, need not be uniform among all participants and may reflect distinctions based on the reasons for termination of employment or service as a director.

 

Restricted Stock.  The committee is also authorized to award shares of restricted common stock under the plan upon such terms and conditions as it may establish. The participants may be required to pay a purchase price for each share of restricted stock granted. The award agreement will specify the period(s) of restriction, the number of shares of restricted common stock granted, such other provisions as the committee determines and/or restrictions under applicable federal or state securities laws. Although participants may have the right to vote these shares from the date of grant, they will not have the right to sell or otherwise transfer the shares during the applicable period of restriction or until satisfaction of other conditions imposed by the committee in its sole discretion. Participants may also receive dividends on their shares of restricted stock and the committee, in its discretion, will determine how such dividends are to be paid.

 

Each award agreement for restricted stock will set forth the extent to which the participant will have the right to retain unvested restricted stock following termination of the participant’s

employment or service as a director. These provisions are determined in the sole discretion of the committee, need not be uniform among all shares of restricted stock issued under the plan and may reflect distinctions based on reasons for termination of employment or service as a director.

 

Restricted Stock Units.  The committee is also authorized to award restricted stock units under the plan upon such terms and conditions as it establishes. The award agreement will specify the period(s) of restriction, the number of restricted stock units granted, such other provisions as the committee determines and/or restrictions under applicable federal or state securities laws. The participants have no voting rights with respect to the restricted stock units and do not have the right to sell or otherwise transfer the units during the applicable period of restriction or until earlier satisfaction of other conditions imposed by the committee in its sole discretion. Participants may receive credit for dividends or dividend equivalents on their restricted stock units and the committee, in its discretion, will determine how such credits for dividends or dividend equivalents on restricted stock units are to be paid.

 

Each award agreement for restricted stock units will set forth the extent to which the participant will have the right to retain unvested restricted stock units following termination of the participant’s employment or service as a director. These provisions will be determined in the sole discretion of the committee, need not be uniform among all awards of restricted stock units issued under the plan and may reflect distinctions based on reasons for termination of employment or service as a director.

 

Performance Measures.  The committee may grant awards under the plan subject to the attainment of the following performance measures: net earnings, earnings per share, net income (before or after taxes), net sales growth, net operating profit, return measures (including, but not limited to, return on assets, capital, equity, or sales), productivity ratios, expense targets, working capital targets, cash flow (including, but not limited to, operating cash flow and free cash flow), cash flow return on capital, earnings before or after taxes, interest, depreciation and/or amortization, gross or operating margins, margins, operating efficiency, customer satisfaction, employee satisfaction metrics, human resources metrics, share price (including, but not limited to, growth measures and total shareholder return), and EVA^®.

 

Performance measures may be measured solely on the company’s or an affiliate’s performance, on a business unit basis, or a combination thereof. Performance measures may reflect absolute entity performance or a relative comparison of entity performance to the performance of a group of comparator companies, or published or special index that the committee selects. The committee may also compare the company’s stock price to various stock market indices. The committee may provide in any award that any evaluation of performance may include or exclude any of the following events that occur during a performance period: (1) asset write-downs, (2) litigation or claim judgments or settlements, (3) the effect of changes in tax laws, accounting principles, or other laws or provisions affecting reported results, (4) any reorganization and restructuring programs, (5) extraordinary nonrecurring items as described in Accounting Principles Board Opinion No. 30 and/or in management’s discussion and analysis of financial condition and results of operations appearing in the Company’s annual report to shareholders for the applicable year, (6) acquisitions or divestitures, and (7) foreign exchange gains and losses.

 

Subject to the individual and plan limits described herein, the number of performance-based awards granted to any participant in any year is determined by the committee in its sole discretion. The committee may reduce, but not increase, the value of a performance-based award.

 

Individual Limits.  The maximum number of shares with respect to which stock options may be granted to an individual during any one year is 600,000. The maximum number of shares with respect to which stock appreciation rights may be granted to any individual during any one year is 600,000. The maximum number of shares of restricted stock or restricted stock units that may be granted to an individual during any one year is 300,000.

Adjustment, Change of Control and Amendments.  The plan provides for appropriate adjustments in the number and nature of shares of common stock subject to outstanding awards, the number of shares available for awards under the plan, the individual award limits in the plan and the exercise price of options and the grant price of stock appreciation rights, in the event of restructuring events and certain other events that change the value of our stock, such as a merger, reorganization, stock split, stock dividend, recapitalization through a large, non-recurring cash dividend, spin off or other similar event. The committee specifies in each Participant’s award agreement the treatment of outstanding awards upon a change of control.

 

The plan may be modified or amended by the committee at any time and for any purpose which the committee deems appropriate, except that no amendment can adversely affect any outstanding awards in a material way without the affected award holder’s consent. Except for adjustments made in connection with events described in the prior paragraph, the exercise price of stock options and the grant price of stock appreciation rights issued under the plan may not be reduced without the approval of shareholders. Prior to the amendment and restated, the plan contained a restriction on repricing, but it was limited to stock options and it only required shareholder approval of a repricing if shareholder would be required by law, regulation or stock exchange rule.

 

Nontransferability.  Unless otherwise determined by the committee and provided in a participant’s award agreement, awards may not be assigned or transferred by a plan participant except by will or by the laws of descent and distribution, and any stock option or stock appreciation right is exercisable during a participant’s lifetime only by the participant or by the participant’s guardian or legal representative. Nonqualified stock options and stock appreciation rights may not be transferred for value or consideration.

 

Duration of the Plan.  Subject to the committee’s right to terminate the plan earlier, the plan will remain in effect until all shares subject to the plan have been purchased or acquired.

 

Federal Income Tax Consequences.  The following discussion covers some of the United States federal income tax consequences with respect to awards that may be granted under the plan. It is a brief summary only. Participants should consult with their tax advisors for a complete statement of all relevant federal tax consequences. This summary does not describe state, local, or foreign tax consequences of an individual’s participation in the plan.

 

Federal Income Tax Consequences — Participants

 

Options.  A plan participant will not recognize income for federal income tax purposes when incentive stock options are granted or exercised. If the participant disposes of shares acquired by exercise of an incentive stock option either before the expiration of two years from the date the options are granted or within one year after the issuance of shares upon exercise of the incentive stock option, the participant will recognize in the year of disposition: (a) ordinary income, to the extent the lesser of either (1) the fair market value of the shares on the date of option exercise, or (2) the amount realized on disposition, exceeds the option exercise price; and (b) capital gain, to the extent the amount realized on disposition exceeds the fair market value of the shares on the date of option exercise. If the shares are sold after expiration of these holding periods, the participant generally will recognize capital gain or loss equal to the difference between the amount realized on disposition and the option exercise price.

 

The exercise of an incentive stock option may result in alternative minimum tax liability. The excess of the fair market value of the shares purchased on exercise of an incentive stock option over the exercise price paid for such shares is considered alternative minimum taxable income for alternative minimum tax purposes.

 

With respect to nonqualified stock options, the participant will recognize no income upon grant of the option, and, upon exercise, will recognize ordinary income to the extent of the excess of the fair market value of the shares on the date of option exercise over the stock option exercise price.

Upon a subsequent disposition of the shares received from the exercise of an option, the participant generally will recognize capital gain or loss to the extent of the difference between the fair market value of the shares at the time of exercise and the amount realized on the disposition.

 

Stock Appreciation Rights.  The recipient of a grant of stock appreciation rights will not realize taxable income on the date of such grant. Upon the exercise of a stock appreciation right, the recipient will realize ordinary income equal to the amount of cash or fair market value of stock received.

 

Restricted Stock.  A participant holding restricted stock will, at the time the shares vest, realize ordinary income in an amount equal to the fair market value of the shares and any cash received at the time of vesting. Dividends paid to the participant on the restricted stock during the restriction period will generally be ordinary income to the participant.

 

Restricted Stock Units.  A participant holding restricted stock units will, at the time the units vest, realize ordinary income in an amount equal to the fair market value of the shares and any cash received at the time of vesting.

 

Federal Tax Consequences — ITT Corporation.  In general, we will receive an income tax deduction at the same time and in the same amount as the amount which is taxable to the employee as ordinary income, except to the extent prohibited by Section 162(m) of the Internal Revenue Code. To the extent a participant realizes capital gains, as described above, we will not be entitled to any corresponding deduction for federal income tax purposes.

 

Section 162(m).  Under Section 162(m) of the Internal Revenue Code, compensation paid to covered employees in excess of $1 million for any taxable year generally is not deductible by us unless such compensation qualifies as performance-based compensation, which requires, among other things, that the compensation is paid pursuant to a plan, the material terms of which have been approved by our shareholders. Proposal 5 requests shareholder approval of the material terms of the plan for this purpose.

 

Generally, a covered employee under Section 162(m) means the principal executive officer and our three other highest compensated executive officers, other than our principal financial officer, as of the last day of the applicable taxable year.

 

It is presently anticipated that the committee will at all times consist of outside directors as required for purposes of Section 162(m), and that the committee will take the effect of Section 162(m) into consideration in structuring plan awards.

 

Future Plan Benefits.  The future benefits that will be received under the plan by particular individuals or groups are not determinable at this time

 

As of March 1, 2008 Mr. Loranger has received 621,967 options under the plan, Ms. Ramos has received 16,359 options under the plan, Mr. Minnich has received 83,270 options under the plan, Mr. Driesse has received 113,627 options under the plan, Mr. Gaffney has received 89,431 options under the plan, and Ms. McClain has received 73,880 options under the plan. All current executive officers as a group have received 1,382,960 options under the plan. All current directors who are not executive officers as a group have received 83,560 options under the plan. The nominees for election as directors, other than Mr. Loranger, have received the following number of options under the plan: Dr. Crawford 10,360 options; Mrs. Gold 10,360 options; Mr. Hake 10,360 options; Dr. Hamre 10,360 options; Mr. MacInnis 10,360 options; Dr. Mohapatra 680 options; Ms. Sanford 10,360 options; and Mr. Tambakeras 10,360 options. No associates of such directors, executive officers or nominees have received options under the plan. All employees, including all current officers who are not executive officers, as a group have received 7,456,962 options under the plan.

The Board of Directors Recommendation.

 

Under the laws of the State of Indiana, this matter is approved if the votes cast in favor of the proposal exceed the votes cast against the proposal. Accordingly, neither abstentions nor broker non-votes have any effect on the votes required under Indiana law. However, under the New York Stock Exchange rules, the plan must be approved by a majority of the votes cast and the number of votes cast must represent more than 50% of all the shares entitled to vote. For purposes of the approval required under the New York Stock Exchange rules, abstentions will have the effect of a vote against this agenda item and broker non-votes will have no effect, except to the extent they impact whether the 50% of all common shares entitled to vote test has been satisfied. For the purpose of determining whether the number of votes cast represents more than 50% of the shares of common stock entitled to vote, abstentions will count as votes cast and broker non-votes will not count as votes cast.

 

The Board of Director recommends you vote “FOR” approval of the ITT Corporation 2003 Equity Incentive Plan.

 

 

We request that shareholders re-approve the material terms of the ITT Corporation 2003 Equity Incentive Plan to preserve ITT’s ability to deduct compensation associated with future performance-based incentive awards to be made under the plan.

 

Section 162(m) of the Internal Revenue Code places a limit of $1,000,000 on the amount we may deduct in any one year for compensation paid to our principal executive officer and our other three most highly-compensated executive officers other than our principal financial officer. There is, however, an exception to this limitation for certain performance-based compensation. Awards made pursuant to the plan may constitute performance-based compensation that is not subject to the deductibility limitation of Section 162(m). To continue to qualify for this exception, the shareholders must reapprove the material terms of the performance measures of the plan every five years. Shareholders last approved the plan’s performance measures in 2003. We are now submitting the plan’s performance goals for re-approval at the 2008 Annual Meeting. If this proposal is not approved by shareholders, we will continue to grant awards under the plan, but certain awards to executive officers will not qualify as performance-based compensation under Section 162(m) of the Internal Revenue Code and will therefore not be fully tax deductible. The material terms of the plan being submitted for re-approval for purposes of Section 162(m) are outlined below. The description of the plan is qualified in its entirety by the actual provisions of the plan, which are attached to this Proxy Statement as Appendix B.

 

Eligibility and Participation.  All of our employees and directors and the employees of our subsidiaries and other affiliates are eligible to participate in the plan. Approximately 39,700 employees and 9 non-employee directors are currently eligible to participate. Because the plan provides for broad discretion in selecting participants and in making awards, the total number of persons who will participate in the plan and the benefits that will be provided to the participants cannot be determined at this time.

 

Performance Measures.  The committee that administers the plan may grant awards subject to the attainment of the following performance measures: net earnings, earnings per share, net income (before or after taxes), net sales growth, net operating profit, return measures (including, but not limited to, return on assets, capital, equity, or sales), cash flow (including, but not limited to, operating cash flow and free cash flow), cash flow return on capital, earnings before or after taxes, interest, depreciation and/or amortization, gross or operating margins, productivity ratios, share price (including, but not limited to, growth measures and total shareholder return), expense targets, margins, operating efficiency, customer satisfaction, employee satisfaction metrics, human resources metrics, working capital targets, and EVA^®.

Performance goals may be measured solely on the company’s or an affiliate’s performance, on a business unit basis, or a combination thereof. Performance goals may reflect absolute entity performance or a relative comparison of entity performance to the performance of a group of comparator companies, or published or special index that the committee selects. The committee may also compare the company’s stock price to various stock market indices. The committee may provide in any award that any evaluation of performance may include or exclude any of the following events that occur during a performance period: (1) asset write-downs, (2) litigation or claim judgments or settlements, (3) the effect of changes in tax laws, accounting principles, or other laws or provisions affecting reported results, (4) any reorganization and restructuring programs, (5) extraordinary nonrecurring items as described in Accounting Principles Board Opinion No. 30 and/or in management’s discussion and analysis of financial condition and results of operations appearing in the Company’s annual report to shareholders for the applicable year, (6) acquisitions or divestitures, and (7) foreign exchange gains and losses.

 

Restrictions and Adjustments.  Grants under the plan may be made in the form of incentive and nonqualified stock options, stock appreciation rights, restricted stock, and restricted stock units. Except in the case of adjustments or grants made under the plan’s anti-dilution adjustment provision upon an event that changes the company’s stock price, and replacement grants made in connection with mergers, acquisitions, reorganizations or similar transactions, the per share exercise price of stock options and the grant price of stock appreciation rights awarded under the plan will not be less than the fair market value of our common stock on the date of grant. The committee has the authority to provide for accelerated vesting of any award based on the achievement of performance goals. Awards that are designed to qualify as performance-based compensation, and that are held by employees covered under Section 162(m) may not be adjusted upward, but the committee may adjust such awards downward. If applicable tax and/or securities laws change to permit committee discretion to alter the governing performance measures without obtaining shareholder approval of such changes, the committee may make such changes without obtaining shareholder approval.

 

Maximum Grants under the Plan.  Subject to adjustment pursuant to the anti-dilution provisions of the plan, the total number of shares with respect to which options may be granted in any calendar year to any participant shall not exceed 600,000 shares, the total number of shares of restricted stock or restricted stock units that may be granted in any calendar year to any participant shall not exceed 300,000 shares or units, as the case may be, and the total number of shares granted in the form of stock appreciation rights that may be granted in any calendar year to any participant shall not exceed 600,000 shares.

 

Board of Directors Recommendation.

 

The Board of Directors believes that it is in the best interests of ITT Corporation and its shareholders to receive the full income tax deduction for performance-based compensation paid under the plan. The Board is therefore asking the shareholders to re-approve, for purposes of Section 162(m) of the Internal Revenue Code, the material terms of the plan set forth above. The complete text of the plan is set forth as Appendix B. A more complete summary of the material terms of the plan appear under Proposal 4 above.

 

Re-approval of the material terms of the plan for purposes of Section 162(m) requires the affirmative vote of a majority of votes cast. Abstentions will have the same effect as a vote against this proposal and broker non-votes will have no effect. Under the laws of the State of Indiana, the matter is approved if the votes cast in favor of the proposal exceed the votes cast against the proposal. Neither abstentions nor broker non-votes have any effect on the votes required under Indiana law.

The Board of Director recommends you vote “FOR” re-approval of the material terms of the ITT Corporation 2003 Equity Incentive Plan.

 

 

We request that shareholders approve the material terms of the ITT Corporation Annual Incentive Plan for Executive Officers, as amended and restated on February 15, 2008. Approval of these material terms will preserve our ability to deduct compensation associated with performance-based incentive awards made under the plan.

 

Section 162(m) of the Internal Revenue Code places a limit of $1,000,000 on the amount we may deduct in any one year for compensation paid to our principal executive officer and our three other most highly-compensated executive officers other than our principal financial officer. There is, however, an exception to this limit for certain performance-based compensation. Awards made pursuant to the plan may constitute performance-based compensation and thereby avoid the deductibility limitation of Section 162(m).

 

To continue to qualify for this exception, the shareholders must re-approve the material terms of the performance goals of the plan every five years. In addition, if changes are made to the material terms of the performance goals, shareholder approval must be obtained. In 2008, upon the recommendation of our Compensation and Personnel Committee, our Board approved amendments to the plan, subject to shareholder approval at the 2008 Annual Meeting. These amendments

 

 

We are now submitting the material terms of the plan, as amended and restated, for approval at the 2008 Annual Meeting. If this proposal is not approved by shareholders, we will continue to grant awards under the plan, but certain awards to executive officers will not qualify as performance-based compensation under Section 162(m) of the Internal Revenue Code and will therefore not be fully tax deductible.

 

Following is a description of the material terms of the plan, as amended and restated and approved by our Board at its February 15, 2008 meeting. The description of the plan is qualified in its entirety by the actual provisions of the plan, which are attached to this Proxy Statement as Appendix C.

 

Plan History.  The Annual Incentive Plan for Executive Officers was originally adopted by our Board in 1997 and approved by the shareholders at the annual meeting held May 15, 1997. The plan was amended and restated as of July 13, 2004 to amend the definition of an acceleration event to include mergers where ITT is the surviving entity, but not the initiator of a transaction. This amendment did not require shareholder approval. The plan was previously known as the ITT Industries 1997 Annual Incentive Plan for Executive Officers. The plan has been renamed the ITT Corporation Annual Incentive Plan For Executive Officers.

 

Purpose of the Plan.  The primary purpose of the plan is to provide incentive compensation in the form of short-term cash incentives for achievement of specific pre-established performance objectives and to continue to motivate participating executive officers to achieve their business goals, while tying a portion of their compensation to measures affecting shareholder value. It is intended that awards under the plan qualify as “performance-based compensation” for purposes of Section 162(m) of the Internal Revenue Code so that we can fully deduct the incentive awards paid under the plan as business expenses for federal income tax purposes.

Eligibility.  One of the changes made in the amendment and restatement of the plan was a change to the plan provision that identifies the eligible group of participants. As amended and restated, the plan limits eligibility to our executive officers. For this purpose, the term “executive officers” is defined by reference to the definition of executive officer in Rule 3b-7 under the Securities Exchange Act of 1934, which defines executive officers as the president, any vice president of the company in charge of a principal business unit, division or function (such as sales, administration or finance), any other officer who performs a policy making function or any other person who performs similar policy making functions for the company. Executive officers of subsidiaries may be deemed executive officers of the company if they perform such policy making functions for the company. Prior to the amendment and restatement, eligibility was limited to executive officers of ITT Corporation who are senior vice presidents or above. Currently, there are approximately 10 senior vice presidents or above who would be eligible to be selected to receive an award under the plan. If the amendment and restatement is approved, there would be approximately 12 executive officers who would be eligible to be selected to receive an award under the plan.

 

Not all individuals who are eligible to participate actually receive awards under the plan. Our Compensation and Personnel Committee selects from the eligible group those to whom awards will be made.

 

Awards are based on performance against pre-established targets expressed as an objective formula over the performance period and are subject to negative discretion.

 

Plan Administration.  The plan is administered and interpreted by our Compensation and Personnel Committee. The committee approves the participants for any particular performance period, the applicable performance targets and the other key terms of the awards. To the extent permitted by law and the provisions of the plan, the committee may delegate to any officer or employee of the company authority to administer and interpret procedural aspects of the plan.

 

Description of Awards.  Incentive awards under the plan are based upon performance measured against pre-established performance targets over a specified performance period. The performance period used for awards is generally the calendar year; however, the committee may approve a different period. Within the first ninety days of the applicable performance period or, if sooner, prior to the time twenty-five percent of the relevant performance period has elapsed, the committee must establish, in writing, the performance targets applicable to each participant with respect to that performance period. The performance targets are based upon one or more performance measures and are expressed as an objective formula to be used in calculating the amount of the incentive award the participant will be eligible to receive at various levels of achievement. Performance targets are established at the discretion of the committee and can be expressed in absolute terms, as a goal relative to performance in prior periods, as a goal compared to the performance of comparable companies or as an index covering multiple companies or in such other way as the committee prescribes.

 

Performance Measures.  Performance measures are based upon one or more of the following factors: consolidated earnings before or after taxes, net income, operating income, earnings per share, book value per share, return on shareholders’ equity, expense management, return on investment, improvements in capital structure, profitability of an identifiable business unit or product, maintenance or improvement of profit margins, stock price, market share, revenues or sales (including organic revenue), costs, cash flow, working capital, return on assets, total shareholder return, return on invested or total capital and economic value added.

 

In addition, the following additional performance measures may also be used to the extent consistent with the requirements of Section 162(m) of the Internal Revenue Code: negotiating transactions or sales, implementation of company policy, development of long-term business goals or strategic plans, negotiation of significant corporate transactions, meeting specified market penetration goals, productivity measures, geographic business expansion goals, cost targets, customer satisfaction or employee satisfaction goals, goals relating to merger synergies,

management of employment practices and employee benefits, or supervision of litigation and information technology, and goals relating to acquisitions or divestitures of subsidiaries and/or other affiliates or joint ventures; provided, however, that the measurement of any such performance measures must be objectively determinable.

 

The list of performance measures that can be used for awards under the plan was significantly expanded in the amendment and restatement that is the subject of this shareholder proposal. Prior to this amendment and restatement, the performance measures specified in the plan were limited to net operating profit after tax, economic value added, earnings per share, return on equity, return on total capital and negotiating transactions or sales and developing long-term goals.

 

The committee may not increase the amount payable to a participant under the plan. It may, however, reduce or totally eliminate the amount if deemed appropriate to reflect the participant’s performance or unanticipated factors during the performance period.

 

The terms of the awards may vary from year to year and from participant to participant.

 

Certification of Awards.  Following each performance period, the committee must certify in writing the degree to which the performance targets for each performance period have been achieved and the applicable amount to which the participant might be entitled.

 

Limitation on Award Amounts.  The plan limits the amount that can be paid with respect to awards to any one participant in any one calendar year to $8,000,000. This limitation does not apply in the case of an incentive award that is paid early because of a change of control or other transaction or event that provides for accelerated payment of an award. Prior to the amendment and restatement, the plan provided that no awards paid with respect to any performance period could exceed 200% of the participant’s annual base salary in effect on the last day of the performance period or $4,000,000.

 

Payment of Awards.  If an award is earned, payment is made in cash as soon as practicable, and in any event no later than 21/2 months, after the end of the performance period. In the event of death, payment may be made to the participant’s estate. Amounts payable may be prorated or eliminated, at the discretion of the committee, in the event that the participant is not an employee on the last day of the performance period. The plan provides that, upon the occurrence of a change of control, payments will be made in cash promptly at the target achievement level for the entire performance period.

 

Amendment and Termination of the Plan.  The plan may be amended, modified or terminated by the Board, provided that no amendment, modification or termination that adversely affects outstanding awards may be made without consent of the participant holding the award.

 

Indemnification.  The plan provides that the company will indemnify and hold harmless committee and Board members against, and from, any loss, cost, liability or expense that may be imposed upon or incurred by them in connection with or resulting from claims, actions, suits or proceedings relating to their involvement with the plan.

 

Future Awards.  Since the determination of whether awards will be made and, if awards are made, the selection of plan participants and the key terms of awards, including performance targets, performance periods and performance measures are established each year in the discretion of our Compensation and Personnel Committee, it cannot be determined at this time what amounts, if any, will be paid in the future.

 

Awards Contingent Upon Shareholder Approval.  As of the date of the mailing of this Proxy Statement, the terms of awards that will be made in 2008 had not been approved by the committee. However, the awards must be made contingent upon shareholder approval of the material terms of the plan at the 2008 Annual Meeting in order to qualify as performance-based compensation for purposes of Section 162(m) of the Internal Revenue Code. Consequently, if the Compensation and Personnel Committee approves awards with respect to 2008 for certain officers that might be

subject to Section 162(m), it will make those awards contingent upon shareholder approval of the material terms of the plan at the 2008 Annual Meeting.

 

Board of Directors Recommendation.

 

The Board believes that it is in the best interests of ITT Corporation and its shareholders to receive the full income tax deduction for performance-based compensation paid under the plan. The Board is therefore asking the shareholders to approve, for purposes of Section 162(m) of the Internal Revenue Code, the material terms of the plan set forth above. The complete text of the plan is set forth as Appendix C hereto.

 

Re-approval of the material terms of the plan for purposes of Section 162(m) requires the affirmative vote of a majority of votes cast. Abstentions will have the same effect as a vote against this proposal and broker non-votes will have no effect. Under the laws of the State of Indiana, the matter is approved if the votes cast in favor of the proposal exceed the votes cast against the proposal. Neither abstentions nor broker non-votes have any effect on the votes required under Indiana law.

 

The Board of Director recommends you vote “FOR” approval of the material terms of the ITT Corporation Annual Incentive Plan for Executive Officers

 

 

We request that shareholders approve the material terms of the ITT Corporation 1997 Long-Term Incentive Plan, as amended and restated on March 1, 2008. Approval of these material terms will preserve our ability to deduct compensation associated with performance-based incentive awards made under the plan.

 

Section 162(m) of the Internal Revenue Code places a limit of $1,000,000 on the amount we may deduct in any one year for compensation paid to our principal executive officer and our three other most highly-compensated executive officers other than our principal financial officer. There is, however, an exception to this limit for certain performance-based compensation. Awards made pursuant to the plan may constitute performance-based compensation and thereby avoid the deductibility limitation of Section 162(m).

 

To continue to qualify for this exception, the shareholders must re-approve the material terms of the performance goals of the plan every five years. In addition, if changes are made to the material terms of the performance goals, shareholder approval must be obtained. In 2008, upon the recommendation of our Compensation and Personnel Committee, on February 15, 2008, our Board approved amendments to the plan, subject to shareholder approval at the 2008 Annual Meeting. These amendments increase the plan’s limitation on the amount that can be paid under the plan to a participant during a specified period. The plan was also amended to remove the ability to issue stock under the plan. As amended and restated, the maximum payment that can be made under the amended and restated plan during any one calendar year to any participant is $10,000,000. Prior to the amendment and restatement, the plan provided that no award value could exceed the lesser of 200% of the participant’s annual base salary in effect at the time of the award or $4,000,000.

 

We are now submitting the material terms of the plan, as amended and restated, for approval at the 2008 Annual Meeting. If this proposal is not approved by shareholders, we will continue to grant awards under the plan, but certain awards to executive officers will not qualify as performance-based compensation under Section 162(m) of the Internal Revenue Code and will therefore not be fully tax deductible.

 

Following is a description of the material terms of the plan, as amended and restated and approved by our Board at its February 15, 2008 meeting. The description of the plan is qualified in its entirety by the actual provisions of the plan, which are attached to this Proxy Statement as Appendix D.

Plan History.  The plan was originally adopted by our Board in 1997 and approved by the shareholders at the annual meeting held May 15, 1997. The plan was amended and restated as of July 13, 2004 to amend the definition of an acceleration event to include mergers where ITT is the surviving entity, but not the initiator of a transaction. This amendment and restatement did not require shareholder approval. The plan was previously known as the ITT Industries 1997 Long-Term Incentive Plan. The plan has been renamed the ITT Corporation 1997 Long-Term Incentive Plan.

 

Purpose of the Plan.  The primary purpose of the plan is to promote the achievement of our long-term objectives by tying participants’ long-term incentive opportunities to pre-established goals and to reward performance based on the successful achievement of the pre-established objectives. It is intended that awards under the plan may qualify as “performance-based compensation” for purposes of Section 162(m) of the Internal Revenue Code so that we can fully deduct the incentive awards paid under the plan as business expenses for federal income tax purposes.

 

Eligibility.  The plan limits eligibility to key employees of ITT Corporation and its subsidiaries and other affiliates whose responsibilities and decisions, in the judgment of the Compensation and Personnel Committee, directly affect the performance of ITT Corporation and its subsidiaries. There are approximately 500 key employees who are eligible to be selected to receive an award under the plan. Not all key employees who are eligible to participate actually receive awards under the plan. Our Compensation and Personnel Committee selects from the eligible group those to whom awards will be made.

 

Plan Administration.  The plan is administered and interpreted by our Compensation and Personnel Committee or by such other committee designated by our Board, provided that all members of the committee must meet the independence requirements applicable under relevant securities and tax laws. The committee selects the key employees who will receive awards, the size and frequency of awards, and the terms and conditions of awards, including the performance measures, performance goals and performance periods. To the extent permitted by law and the provisions of the plan, the committee may delegate to any officer or employee of the company authority to administer and interpret procedural aspects of the plan.

 

Description of Awards.  Awards under the plan are based upon performance measured against pre-established performance targets over a specified performance period. The committee determines the performance periods, which must be in excess of one year and the goal or goals to be achieved by each participant, which must be established in writing within the first ninety days of the applicable performance period. The performance goals may be based upon one or more of the performance measures. The performance goals are expressed as an objective formula to be used in calculating the amount of the award the participant will be eligible to receive at various levels of achievement and may differ from participant to participant and from performance period to performance period.

 

The committee may use as performance measures financial or performance criteria with respect to ITT Corporation and its subsidiaries, or with respect to a participating company, based upon one or more of the following measurements: economic value added; after-tax profits; operational cash flow; debt or other similar financial obligations; earnings; revenues; net income; return on capital; shareholders’ equity; return on shareholders’ equity; and total shareholder return (measured as a change in the market price of our common stock, plus dividends), relative to one or more indices such as the S&P^® 500 or the S&P^® Industrials. The committee can use other performance measures for awards not intended to qualify as performance-based compensation.

 

The committee may not increase the amount payable to a participant under the plan. It may, however, reduce or totally eliminate the amount if deemed appropriate to reflect the participant’s performance or unanticipated factors during the performance period.

Certification of Awards.  Following each performance period, the committee must certify in writing the degree to which the performance targets for each performance period have been achieved and the applicable amount to which the participant might be entitled.

 

Limitation on Award Amounts.  As amended and restated, the plan limits the amount that can be paid with respect to awards to any one participant in any one calendar year to $10,000,000. This limitation does not apply in the case of an incentive award that is paid early because of a change of control or other transaction or event that provides for accelerated payment of an award. Prior to the amendment and restatement, the plan provided that no award could exceed 200% of the participant’s annual base salary in effect at the time of the award or $4,000,000.

 

Payment of Awards.  If an award is earned, payment is made in cash as soon as practicable after the end of the performance period. Prior to the amendment and restatement, awards could be paid in cash or company common stock, as determined by the committee.

 

Payments may be prorated in cases of death, disability or retirement, as determined by the committee. Upon the occurrence of a change of control, payments are made in cash at the maximum achievement level for the performance period.

 

Amendment and Termination of the Plan.  The plan may be amended, modified or terminated by the Board, provided that no amendment, modification or termination that adversely affects outstanding awards may be made without consent of the participant holding the award.

 

Indemnification.  The plan provides that the company will indemnify and hold harmless committee and Board members against, and from, any loss, cost, liability or expense that may be imposed upon or incurred by them in connection with or resulting from claims, actions, suits or proceedings relating to their involvement with the plan.

 

Future Awards.  Since the determination of whether awards will be made and, if awards are made, the selection of plan participants and the key terms of awards, including performance targets, performance periods and performance measures are established each year in the discretion of our Compensation and Personnel Committee, it cannot be determined at this time what amounts, if any, will be paid in the future.

 

Awards Contingent Upon Shareholder Approval.  As of the date of the mailing of this Proxy Statement, the terms of awards that will be made in 2008 had not been approved by the committee. However, the awards must be made contingent upon shareholder approval of the material terms of the plan at the 2008 Annual Meeting in order to qualify as performance-based compensation for purposes of Section 162(m) of the Internal Revenue Code. Consequently, if the Compensation and Personnel Committee approves awards with respect to 2008 for certain officers that might be subject to Section 162(m), it will make those awards contingent upon shareholder approval of the material terms of the plan at the 2008 Annual Meeting.

 

Board of Directors Recommendation.

 

The Board believes that it is in the best interests of ITT Corporation. and its shareholders to receive the full income tax deduction for performance-based compensation paid under the plan. The Board is therefore asking the shareholders to approve, for purposes of Section 162(m) of the Internal Revenue Code, the material terms of the plan set forth above. The complete text of the plan is set forth as Exhibit D.

 

Re-approval of the material terms of the plan for purposes of Section 162(m) requires the affirmative vote of a majority of votes cast. Abstentions will have the same effect as a vote against this proposal and broker non-votes will have no effect. Under the laws of the State of Indiana, the matter is approved if the votes cast in favor of the proposal exceed the votes cast against the proposal. Neither abstentions nor broker non-votes have any effect on the votes required under Indiana law.

 

THE BOARD OF DIRECTORS RECOMMENDS YOU VOTE FOR THE REAPPROVAL OF THE ITT CORPORATION 1997 LONG-TERM INCENTIVE PLAN.

 

Responsibilities of the Board of Directors.  The Board of Directors sets policy for ITT and advises and counsels the chief executive officer and the executive officers who manage the Company’s business and affairs. The Board of Directors is responsible for assuring that:

 

 

The Board of Directors has adopted principles for governance of the Board (the “Corporate Governance Principles”) and charters for each of its standing committees. The Corporate Governance Principles provide, among other things, that an Independent Presiding Director shall be appointed on an annual basis to preside at meetings of the Board of Directors at which the Chairman is not present, including regularly scheduled private sessions of the Non-management Directors. The Independent Presiding Director, whose position is described more fully at Section 7c of ITT’s Governance Principles, http://itt.com/profile/govandcharters.asp, is also available to address issues or concerns raised by other directors, senior executives or major shareholders; communicate any issues or concerns to the full Board and the Chairman, President and Chief Executive Officer; assist the Chairman, President and Chief Executive Officer in developing appropriate schedules and agendas for board and committee meetings, and act on behalf of the Chairman, President and Chief Executive Officer and the Board as a formal coordinating point for facilitating, canvassing, reconciling and communicating board issues, concerns and recommendations. The Board of Directors has selected Frank T. MacInnis as its Independent Presiding Director, to serve a one-year term.

 

The Corporate Governance Principles further provide that Directors must be able to devote the requisite time for preparation and attendance at regularly scheduled Board and Board Committee meetings, as well as be able to participate in other matters necessary for good corporate governance. To help assure that Directors are able to fulfill their commitments to the Company, the Corporate Governance Principles provide that Directors who are chief executive officers of publicly traded companies may serve on not more than two public company boards (including the ITT Board) in addition to service on their own board and other Directors may not serve on more than four public company boards (including the ITT Board). The Corporate Governance Principles and Committee Charters are reviewed by the Board at least annually and posted on the Company’s website at http://itt.com/profile/govandcharters.asp. A copy of the Corporate Governance Principles will be provided, free of charge, to any shareholder upon request to the Secretary of ITT.

 

Communication with the Board of Directors.  Interested parties may contact the Independent Presiding Director, all outside Directors as a group or an individual Director by submitting a letter to the desired recipient in a sealed envelope labeled “Independent Presiding Director,” “Outside

Directors” or with the name of a specific director. This letter should be placed in a larger envelope and mailed to the Corporate Secretary, ITT Corporation, 4 West Red Oak Lane, White Plains, NY 10604, USA. The Corporate Secretary will forward the sealed envelope to the designated recipient.

 

Policies for Approving Related Person Transactions.  The Company and the Board have adopted formal written policies for evaluation of potential related person transactions, as those terms are defined in the SEC’s rules for executive compensation and related person disclosure, which provide for review and pre-approval of transactions which may or are expected to exceed $120,000 involving Directors, Executive Officers, members of a Director’s Immediate Family and beneficial owners of five percent or more of the Company’s common stock or other securities. The Company’s Related Person Transaction Policy includes standards and is posted on the Company’s website at: http://itt.com/profile/govandcharters.asp.  

 

The Company has also adopted the ITT Code of Corporate Conduct which applies to the Company’s chief executive officer, chief financial officer and principal accounting officer and, where applicable, to its Directors. The Code of Corporate Conduct is also posted on the Company’s website at www.itt.com.  The Company discloses any changes or waivers from its code of ethics on its website for the Company’s chief executive officer, chief financial officer, principal accounting officer and controller and other executive officers. A copy of the Code of Corporate Conduct will be provided, free of charge, to any shareholder upon request to the Secretary of ITT.

 

Independent Directors.  The Company’s By-laws require that a majority of the Directors must be independent directors. Additionally, the Company’s Directors must meet the NYSE and the Company’s Corporate Governance Principles independence standards. The Company’s Corporate Governance Principles define independence and the Charters of the Audit, Compensation and Personnel, Nominating and Governance, Strategy and Finance Committees and the resolution establishing the Special Litigation Committee require all members to be independent directors.

 

Based on its review, the Board of Directors affirmatively determined, after considering all relevant facts and circumstances, that no Non-Management Director has a material relationship with the Company and that all Non-Management Directors, including all members of the Audit, Compensation and Personnel, Corporate Responsibility, Nominating and Governance and Strategy and Finance Committees, meet the independence standards of the Company’s Corporate Governance Principles and By- laws as well as the independence definition in the current New York Stock Exchange corporate governance rules for listed companies.

 

NYSE Independence Requirements:

 

(a) A Director qualifies as “independent” when the board of directors affirmatively determines that the director has no material relationship with the company, or any subsidiary in a consolidated group (either directly or as a partner, shareholder or officer of an organization that has a relationship with the company). Companies must identify which directors are independent and disclose the basis for that determination.

 

(b) In addition, a director is not independent if:

 

 

 

 

 

In addition to the NYSE standards, and the independence standards in the Company’s By-laws, the Board has adopted the following categorical standards for independence described below which are included in the Board’s Corporate Governance Principles at www.itt.com/profile/govandcharters.asp.

 

Under the Corporate Governance Principles, an independent director is someone who is free of any relationship that would interfere with the exercise of independent judgment, and within the past 5 years:

 

 

Each year, the Company’s Directors and executive officers complete annual questionnaires designed to elicit information about potential related person transactions. Additionally, Directors and executive officers must promptly advise the Corporate Secretary if there are any changes to the information previously provided.

 

The Nominating and Governance Committee reviews and considers all relevant facts and circumstances with respect to independence for each Director standing for election prior to recommending selection as part of the slate of Directors presented to the shareholders for election at the Company’s Annual Meeting. The Nominating and Governance Committee reviews its recommendations with the full Board, which separately considers and evaluates the independence of Directors standing for reelection using the categorical standards described above.

 

In February 2008, the Board considered regular commercial sales and payments in the ordinary course of business as well as charitable contributions with respect to Non-Management Directors standing for re-election at the Company’s 2008 Annual Meeting. In particular, the Board evaluated the amount of sales to ITT or purchases by ITT with respect to companies where Directors Hamre,

MacInnis, Sanford, Mohapatra and Tambakeras serve or served as an executive officer or director and determined that these sales or purchases were below one percent of the annual revenues for each respective company. The Board also considered the Company’s charitable contributions to non-profit organizations with respect to Directors Gold, Hamre and Sanford, which contributions were less than one percent of the consolidated gross revenues of each non-profit organization.

 

Mr. Loranger is not independent because of his position as Chairman, President and Chief Executive Officer of the Company.

 

The following are the independent directors standing for election: Drs. Crawford, Hamre, and Mohapatra, Messrs. Hake, MacInnis, and Tambakeras, Mrs. Gold and Ms. Sanford.

 

Compensation Committee Interlocks and Insider Participation:  None of the members of the Compensation and Personnel Committee during fiscal 2007 or as of the date of this proxy statement has been an officer or employee of the Company and no executive officer of the Company served on the compensation committee or board of any company that employed any member of the Company’s Compensation and Personnel Committee or Board of Directors.

 

Director Selection and Composition:  Directors of the Company must be persons of integrity, with significant accomplishments and recognized business stature. To be considered by the Nominating and Governance Committee as a Director candidate, a nominee must meet the requirements of the Company’s By-laws and Corporate Governance Principles. A nominee should also have experience as a board member, chief executive officer or senior officer of a publicly traded or large privately held company, or have achieved recognized prominence in a relevant field as, for example, a distinguished faculty member of a highly regarded educational institution or senior governmental official. In addition to these minimum qualifications, the Nominating and Governance Committee evaluates each nominee’s skills to determine if those skills are complementary to the skills demonstrated by current Board members. The Nominating and Governance Committee also evaluates the Board’s needs for operational, technical, management, financial, international or other expertise.

 

Prior to recommending nominees for election as Directors, the Company’s Nominating and Governance Committee engages in a deliberative, evaluative process to assure each nominee possesses the skills and attributes that individually and collectively will contribute to an effective Board of Directors. Biographical information for each candidate for election as a Director is evaluated and candidates for election participate in interviews with existing Board members and management, and are subject to thorough background checks. Director nominees must be willing to commit the requisite time for preparation and attendance at regularly scheduled Board and Committee meetings and participation in other matters necessary for good corporate governance.

 

The Nominating and Governance Committee identifies Director candidates through a variety of sources including personal references and business contacts. On occasion the Nominating and Governance Committee utilizes a search firm to identify and screen Director candidates and pays a fee to that firm for each such candidate elected to the Board of the Company. Dr. Mohapatra was identified through a search firm. The Nominating and Governance Committee will consider shareholder nominees for election to the Company’s Board who meet the qualification standards described above. (See Section II.5 of the Nominating and Governance Charter at http://itt.com/profile/govandcharters.asp.)

 

The Nominating and Governance Committee also evaluates and makes recommendations to the Board of Directors concerning appointment of Directors to Board Committees, selection of Board Committee Chairs, Committee member qualifications, Committee member appointment and removal, Committee structure and operations and proposal of the Board slate for election at the Annual Meeting of Shareholders, consistent with criteria approved by the Board of Directors.

 

Committees of the Board of Directors: The standing Committees of the Board described below perform essential corporate governance functions. In October 2007 the Board formed a Strategy

and Finance Committee to oversee all areas of strategy and corporate finance. Also, as more fully described below, in October of 2007 the Board formed a Special Litigation Committee to oversee an independent investigation involving the Company’s Night Vision matter.

 

Audit Committee

 

2007 Audit Committee Members:

 

 

 

 

 

Independence

 

The Board of Directors has determined that each member of the Audit Committee meets the independence standards set out in the Board’s Corporate Governance Principles and its Audit Committee Charter and the requirements of the New York Stock Exchange currently in effect and Rule 10A-3 of the Exchange Act. The Board of Directors has evaluated the performance of the Audit Committee consistent with the regulatory requirements.

 

A copy of the Audit Committee Charter is available on the Company’s website (www.itt.com/profile/govandcharters.asp). The Company will provide, free of charge, a copy of the Audit Committee Charter to any shareholder, upon request to the Secretary of ITT.

Compensation and Personnel Committee

 

2007 Compensation and Personnel Committee Members:

 

 

The Compensation and Personnel Committee approves and oversees administration of the Company’s executive compensation program. The Committee’s primary objective is to establish a competitive executive compensation program that clearly links executive compensation to business performance and shareholder return. More detail regarding the processes and procedures used to determine executive compensation including the delegation of authority to Company executives and the role of Company executives in compensation decisions and recommendations regarding the amount or form of executive compensation, and the role of Towers Perrin, the Committee’s outside compensation consultant, is found in the Compensation Discussion and Analysis starting on page 50.

Independence

 

The Board of Directors has determined that each member of the Compensation and Personnel Committee meets the independence standards set out in the Board’s Corporate Governance Principles and its Compensation and Personnel Committee Charter and the requirements of the New York Stock Exchange currently in effect.

 

A copy of the Compensation and Personnel Committee Charter is available on the Company’s website (www.itt.com/profile/govandcharters.asp). The Company will provide, free of charge, a copy of the Compensation and Personnel Committee Charter to any shareholder, upon request to the Secretary of ITT.

 

Corporate Responsibility Committee

 

2007 Corporate Responsibility Committee Members:

 

 

The Corporate Responsibility Committee met once in 2007. The Board of Directors considered Corporate Responsibility Agenda items during the Board’s regular meetings.

 

A copy of the Corporate Responsibility Committee Charter is available on the Company’s website (www.itt.com/profile/govandcharters.asp). The Company will provide, free of charge, a copy of the Corporate Responsibility Committee Charter to any shareholder, upon request to the Secretary of ITT.

 

Nominating and Governance Committee

 

2007 Nominating and Governance Committee Members:

 

 

 

As described on pages 32 to 34 the Nominating and Governance Committee will consider shareholder nominees for election to the Company’s Board who meet the qualification standards. (See Section II.5 of the Nominating and Governance Charter at http://itt.com/profile/govandcharters.asp.)

 

Independence

 

The Board of Directors has determined that each member of the Nominating and Governance Committee meets the independence standards set out in the Board’s Nominating and Governance Committee Charter, its Corporate Governance Principles and the requirements of the New York Stock Exchange currently in effect. A copy of the Nominating and Governance Committee Charter is available on the Company’s website (www.itt.com/profile/govandcharters.asp). The Company will provide, free of charge, a copy of the Nominating and Governance Committee Charter to any shareholder, upon request to the Secretary of ITT.

 

Strategy and Finance Committee

 

 

 

Independence

 

The Board of Directors has determined that each member of the Strategy and Finance Committee meets the independence standards set out in the Board’s Corporate Governance Principles and its Charter and the requirements of the New York Stock Exchange currently in effect.

 

A copy of the Strategy and Finance Committee Charter is available on the Company’s website (www.itt.com/profile/govandcharters.asp). The Company will provide, free of charge, a copy of the Strategy and Finance Committee Charter to any shareholder, upon request to the Secretary of ITT.

 

Special Litigation Committee

 

On March 27, 2007, the Company reached a settlement relating to an investigation of its ITT Night Vision compliance with International Traffic in Arms Regulations (“ITAR”). The settlement included the Company pleading guilty in the United States District Court for the Western District of Virginia to one ITAR violation relating to the improper handling of sensitive documents and one ITAR violation involving making misleading statements. On April 17, 2007, the Company’s Board of Directors received a letter on behalf of a shareholder requesting that the Board take appropriate action against the employees responsible for the actions described in the Company’s agreements with the United States Attorney’s Office for the Western District of Virginia. During the following months, the Board, with the assistance of outside counsel for the Company, engaged in a process of identifying independent counsel to advise it regarding the investigation and the processes required to establish a Special Litigation Committee. In October 2007, the Company created the Special Litigation Committee to oversee the objective, investigative work by independent counsel previously selected to investigate the Night Vision matter and report to the Board with respect to the shareholder letter request. The Special Litigation Committee’s work is well underway. The Special Litigation Committee will provide updates to the Board as it deems appropriate. The members of the Special Litigation Committee are Messrs. MacInnis and LeBoeuf and Dr. Crawford.

 

The Board of Directors has determined that each member of the Special Litigation Committee meets the independence standards set out in the Board’s Corporate Governance Principles and the requirements of the New York Stock Exchange currently in effect.

 

Meetings of the Board and Committees

 

During 2007, there were 6 regularly scheduled Board meetings, three special meetings and 18 meetings of standing Committees. All Directors attended at least 85% of the aggregate of all meetings of the Board and standing Committees on which they served. It is Company practice that all Directors attend the Company’s Annual Meeting. For 2008, the Board has scheduled 5 regular meetings. In conjunction with the regular meetings, those Directors who are not employees of ITT are scheduled to meet privately (without management) following each Board meeting during the year. The Independent Presiding Director presides over these private meetings.

 

 

As discussed in more detail in the narrative following the table, all Non-Management Directors receive the same cash, stock, and options awards for service as a Director (except Mr. Hake as the Audit Committee Chair receives an additional $10,000 cash payment). Mr. Loranger, as an employee Director, does not receive compensation for his Board service. Stock awards in column (c) and option awards in column (d) reflect the Company’s expense recognized for financial

statement reporting purposes for the fiscal year ended December 31, 2007 and not the value of awards granted in 2007. The grant date fair value of stock awards and option awards granted to Directors in 2007 is provided in footnote (2) to the table.

 

 

 

 

 

 

 

On May 8, 2007 the Board of Directors approved compensation for the Directors consistent with recommendations provided by Towers Perrin in December 2005. As approved, for 2007, Non-management Directors received total annual compensation valued at approximately $180,000 when awarded, as follows:

 

 

Additionally, the Board of Directors approved (with the Audit Committee Chair abstaining) a supplemental retainer of $10,000 in cash to be paid to Mr. Hake, the Audit Committee chair, effective as of the Company’s 2007 Annual Meeting to reflect the significant responsibilities and time commitments associated with leadership of that Committee.

 

The number of restricted shares granted in May 2007 for all Non-Management Directors under the Non-Management Director compensation program adopted in 2003 was determined by dividing $90,000 by ($65.78, the average of the high and low sales prices per share of ITT common stock on the date of the 2007 Annual Meeting). The resulting number of shares, 1,369, was rounded up to the nearest whole share. Directors receive dividends on the restricted shares and may vote the shares during the restriction period. Restricted stock granted under these programs is held in escrow by the Company until the restrictions lapse. Non-Management Director stock option grants are priced and awarded on the same day employee stock options are priced and awarded. The number of Non-Management Directors stock options granted is calculated using the binomial lattice valuation model and the exercise price of Non-Management Directors stock options granted is the closing price on the grant date.

 

The Compensation and Personnel and Nominating and Governance Committees retained Towers Perrin to review director compensation components and total director compensation paid, with director compensation components and total director compensation paid for companies in the S&P Industrials group with revenue comparable to ITT. Effective October 9, 2007, the Board of Directors, upon review and recommendation by its Compensation and Personnel and Nominating

and Governance Committees, approved changes to its Non-Management Director compensation program to bring Non-Management Director compensation closer to the median. The Board approved Non-Management Director compensation changes to be effective with the Company’s 2008 Annual Meeting to increase of the cash component of the non-employee Director compensation to $90,000 and to continue providing the Audit Chair with an additional $10,000 cash payment.

 

After review, the Committees recommended and the full Board approved, an increase in overall Non-Management Director cash compensation to raise Director compensation to a level closer to the median of companies in the S&P Industrials group with comparable revenues. The components of Director compensation are weighted toward restricted stock and stock option awards to align the interests of Directors with shareholders of the Company. The Board of Directors agreed to review Non-Management Director compensation on a biennial basis.

 

The Board of Directors’ share ownership guidelines currently provide for share ownership levels at five times the annual retainer amount. Restricted shares awarded under the ITT 1996 Restricted Stock Plan for Non-Employee Directors, which preceded the 2003 Plan, and under which restricted shares are still outstanding, provided that each Director’s restricted shares are held in escrow and may not be transferred in any manner until one of the following events occurs:

 

 

Under the 2003 Plan and the ITT 1996 Restricted Stock Plan for Non-Employee Directors, Non-Management Directors may choose to extend the restriction period for up to two successive five year periods, or until six months and one day following the Non-Management Director’s termination from service from the Board under certain permitted circumstances.

 

The ITT 1996 Restricted Stock Plan for Non-Employee Directors also provided that if a Director ceased serving on the Board under any other circumstances, shares with respect to which the Plan restrictions have not been lifted would be forfeited. Under the 2003 Plan, the period of restriction for restricted stock granted pursuant to that Plan, as indicated above, is currently five years. The Compensation and Personnel Committee may determine that a Director whose service from the Board is terminated, has fulfilled the purpose for which the grant of restricted stock was made and lift the restriction for all or a portion of restricted stock grants.

 

ITT reimburses Directors for expenses they incur to travel to and from Board, Committee and shareholder meetings and for other Company-business related expenses (including the travel expenses of spouses if they are specifically invited to attend an event for appropriate business purposes). Such travel may include use of the Company aircraft if available and approved in advance by the Chairman of the Board and Chief Executive Officer. Director commercial airfare is reimbursed at no greater than first-class travel rates.

 

Indemnification and Insurance.  As permitted by its By-laws, ITT indemnifies its Directors to the full extent permitted by law and maintains insurance to protect the Directors from liabilities, including certain instances where it could not otherwise indemnify them. All Directors are covered under a non-contributory group accidental death and dismemberment policy that provides each of them with $750,000 of coverage. They may elect to purchase additional coverage under that policy. Non-Management Directors also may elect to participate in an optional non-contributory group life insurance plan that provides $100,000 of coverage.

 

The following Report of the Audit Committee does not constitute soliciting material and the Report should not be deemed filed or incorporated by reference into any other previous or future filings by the Company under the Securities Act of 1933 or the Exchange Act of 1934, except to the extent the Company specifically incorporates this Report by reference therein.

 

 

The Audit Committee of the Board of Directors provides oversight on matters relating to the Company’s financial reporting process and assures that the Company develops and maintains adequate financial controls and procedures, and monitors compliance with these processes. This includes responsibility for, among other things:

 

 

The Audit Committee also has oversight responsibility for confirming the scope and monitoring the progress and results of internal audits conducted by the Company’s internal auditor. The Audit Committee discussed with the Company’s internal auditors and Independent Auditors the plans for their respective audits. The Audit Committee met with the internal auditors and Independent Auditor, with and without management present, and discussed results of their examinations, their evaluation of the Company’s internal controls, and the Company’s financial reporting.

 

The Company’s management has primary responsibility for the financial statements, including the Company’s system of disclosure and internal controls. The Audit Committee may investigate any matter brought to its attention. In that regard, the Audit Committee has full access to all books, records, facilities and personnel of the Company and the Audit Committee may retain outside counsel, auditors or other independent experts to assist the Committee in performing its responsibilities. Any individual may also bring matters to the Audit Committee confidentially or on an anonymous basis, by submitting the matter in a sealed envelope addressed to the “Audit Committee” to the Corporate Secretary who then forwards the sealed envelope to the Audit Committee.

 

 

The Audit Committee has responsibility for monitoring all elements of the Company’s compliance with Sections 302 and 404 of SOX relating to internal control over financial reporting.

 

 

The Board of Directors has adopted a written charter for the Audit Committee, which the Board and the Audit Committee review, and at least annually update and reaffirm. The Charter sets out the purpose, membership and organization, and key responsibilities of the Audit Committee.

 

 

The Audit Committee is comprised of four members of the Company’s Board. The Board of Directors has determined that each Audit Committee member meets the independence standards set out in the Audit Committee Charter and Corporate Governance Principles and the requirements

of the New York Stock Exchange currently in effect, including the audit committee independence requirements of Rule 10A-3 of the Exchange Act. No member of the Audit Committee has any relationship with the Company that may interfere with the exercise of independence from management and the Company. All members of the Audit Committee, in the business judgment of the full Board of Directors, are financially literate and several have accounting or related financial management expertise.

 

 

During 2007, the Audit Committee reviewed and discussed the Company’s audited financial statements with management. The Audit Committee, management and the Company’s Independent Auditor reviewed and discussed the Company’s unaudited financial statements before the release of each quarter’s earnings report and filing on Form 10-Q, and the Company’s audited financial statements before the annual earnings release and filing on Form 10-K.

 

 

The Audit Committee has discussed with Deloitte & Touche LLP, the Independent Auditor, the matters required by Statement on Auditing Standards No. 61, Communication with Audit Committees (“SAS 61”), as adopted by the PCAOB in Rule 3600T. These discussions included all matters required by SAS 61, including the Independent Auditor’s responsibilities under generally accepted auditing standards in the United States, significant accounting policies and management judgments, the quality of the Company’s accounting principles and accounting estimates. The Audit Committee met privately with the Independent Auditor 5 times during 2007.

 

 

The Company’s Independent Auditor is directly accountable to the Audit Committee and the Board of Directors. The Audit Committee has received from the Independent Auditor required written disclosures, including a formal written statement, setting out all the relationships between the Company and its Independent Auditor, as adopted by the PCAOB Rule 3600T. The Audit Committee has discussed the Independent Auditor’s independence, any disclosed relationships and the impact of those relationships on the Independent Auditor’s independence.

 

 

In performing its oversight function during 2007 with regard to 2007 financial statements, the Audit Committee relied on financial statements and information prepared by the Company’s management. It also relied on information provided by the internal audit staff as well as the Independent Auditor. The Audit Committee reviewed and discussed with management the Company’s audited financial statements as of and for the year ended December 31, 2007. Based on these discussions, and the information received and reviewed, the Audit Committee recommended to the Company’s Board of Directors that the financial statements be included in the Annual Report on Form 10-K for that year (or the Annual Report to Shareholders if distributed prior to the filing of Form 10-K).

 

This report is furnished by the members of the 2007 Audit Committee.

 

2007 Audit Committee:

 

Ralph F. Hake, Chair
Christina A. Gold
Raymond W. LeBoeuf
Curtis J. Crawford

 

Dr. Surya N. Mohapatra was appointed to the Audit Committee on February 14, 2008.

 

The following Report of the Compensation and Personnel Committee does not constitute soliciting material and the Report should not be deemed filed or incorporated by reference into any other previous or future filings by the Company under the Securities Act of 1933 or the Securities Exchange Act of 1934, except to the extent the Company specifically incorporates this Report by reference therein.

 

ITT’s Compensation and Personnel Committee approves and oversees administration of the Company’s executive compensation program and senior leadership development and continuity programs. The Committee’s primary objective is to establish a competitive executive compensation program that clearly links executive compensation to business performance and shareholder return and ensures senior leadership succession and performance excellence.

 

Recommendation Regarding Compensation Discussion and Analysis.

 

In performing its oversight function during 2007 with regard to Compensation Discussion and Analysis prepared by management, the Compensation and Personnel Committee relied on statements and information prepared by the Company’s management. It also relied on information provided by Towers Perrin, its outside compensation consultant. The Committee reviewed and discussed the Compensation Discussion and Analysis included with this proxy statement with management. Based on this review and discussion, the Compensation and Personnel Committee recommended to the Company’s Board of Directors that the Compensation Discussion and Analysis be included in the Company’s Annual Report on Form 10-K for 2007 and this Proxy Statement.

 

This report is furnished by the members of the 2007 Compensation and Personnel Committee.

 

2007 Compensation and Personnel Committee:

 

Linda S. Sanford, Chair
Curtis J. Crawford
Ralph F. Hake
Raymond W. LeBoeuf

 

The following sets forth information concerning the shares of common stock that may be issued under equity compensation plans as of December 31, 2007.

 

 

 

 

Executive Summary

 

ITT’s Compensation and Personnel Committee (the “Committee”) approves and oversees administration of the Company’s executive compensation program.

 

This Compensation Discussion and Analysis sets out the Committee’s executive compensation philosophy and objectives, describes all elements of the Company’s executive compensation program and explains why the Committee selected each compensation element as part of its total executive compensation program.

 

In 2007, the Committee selected and retained Towers Perrin as its outside compensation consultant (the “Compensation Consultant”) to provide an assessment of and recommendations for executive and non-executive employee compensation programs, incentives and standards. The Compensation Consultant also provides consultation advice to the Board on Non-Management Director compensation and provides health care and benefits advice to the Company. The Committee annually reviews Towers Perrin’s independence and engaged in such a review in 2007.

 

There are three elements of executive compensation in addition to benefits and perquisites:

 

Salary:  The salary component of compensation provides a necessary element of stability and reflects comparable salary levels based on survey data provided by the Compensation Consultant.

 

Annual Incentive Plan:  The Company’s Annual Incentive Plan (“AIP”) targets return on invested capital, cash flow, organic revenue, organic margin rate and earnings per share growth on an annual basis. These “premier” metrics were identified as predictive of top-ranking operating performance and AIP targets are established accordingly.

Long-Term Incentive Program:  The Company’s long-term incentive program directly links compensation to increases in shareholder value. Restricted stock and stock option awards link to absolute share price return and the Company’s long-term incentive plan awards link to increases in the Company’s share price relative to S&P500^® Industrials Index.

 

ITT’s compensation philosophy underlies a competitive program that clearly ties compensation to business performance and shareholder return.

 

Hallmarks of ITT’s Compensation Program

 

Aligned with long-term value creation
Focused on sustained, quality growth and long-term increases in shareholder value
Designed to drive the Company’s key performance and business priorities

 

 

The Company’s senior executives have responsibility for administering the executive compensation program and make recommendations to the Committee regarding executive compensation awards. The Committee, however, makes the final determination regarding executive compensation using the processes described in this Compensation Discussion and Analysis. The Committee believes its compensation programs reflect an overarching business rationale and are designed to be reasonable, fair, fully disclosed, and consistently aligned with shareholder interests.

 

Key Aspects of Our
Executive Compensation Philosophy and Objectives

 

 

 

We believe our compensation philosophy encourages individual behaviors that balance risk and reward and assist the Company in achieving steady, continuous growth.

 

CONSTRUCTION OF OUR EXECUTIVE COMPENSATION PROGRAM

 

Overall compensation policies and programs.  In establishing overall compensation polices and programs that address executive compensation, benefits and perquisites in the 2007 executive compensation program the Committee looked to competitive market compensation data for companies comparable to ITT.

 

This included analyses of the Executive Compensation Database information provided by the Compensation Consultant. The Executive Compensation Database is derived from compensation data for a peer group of 206 industrial companies in the S&P^® Industrials Composite that has been adjusted by the Compensation Consultant for differences in scope of operations and revenue.

 

Information on which companies compose the S&P^® Industrials Composite may be found through the Standard & Poor’s website at www.standardandpoors.com. The Committee considered scope of operation an important differentiator because companies with industrial operations similar to ITT most closely reflect the group with which the Company competes for talent.

 

The Compensation Consultant also compiled and analyzed data that the Committee considered in weighting compensation components. The Committee considered allocation of short-term and long-term compensation, cash and non-cash compensation and different forms of non-cash compensation based on its assessment of the proper compensation balance needed to achieve the Company’s short-term and long-term goals.

 

The Compensation Consultant also provides competitive data for health and welfare benefits and perquisites.

 

Individual executive positions.  The Company’s senior management positions, including each of its Named Executive Officer positions, are compared to benchmark positions with similar attributes and responsibilities based on the adjusted Executive Compensation Database information. This

information is used to provide a dollar value for each component of compensation: salary, annual incentive and longer-term incentive compensation.

 

The Committee uses the Executive Compensation Database, along with other information, in making its determination of target and actual compensation provided to each of the Company’s officers. The Committee generally targets total compensation and each compensation component at the median of the Executive Compensation Database peer group. Certain positions may be targeted above or below the median depending on their strategic value, the Company’s objectives and strategies, and individual experience and performance in the position.

 

We do not consider prior years’ compensation payouts, restricted stock vesting or option exercises in compensation decisions.  The Company does not consider short-term or long-term incentive payouts from prior year awards, vesting of restricted stock granted in past years or stock option exercises from prior stock option awards in the determination of future compensation.

 

Qualitative considerations.  The Company considers qualitative performance factors in addition to quantitative measures discussed in this Compensation Discussion and Analysis. While there is no formal weighting of the factors, we consider the following factors important in making compensation decisions and allow the Committee and the Chief Executive Officer discretion in establishing corporate and group compensation pools based on performance and business priorities, except that discretion applied for Named Executive Officers may only be negative discretion:

 

 

OUR COMPENSATION CYCLE

 

We review compensation every year during the first quarter. This review includes:

 

 

The actual date of stock option awards, restricted stock awards and long-term incentive plan awards is determined by the meeting date at which the Committee considers and approves these awards. In recent years, this meeting date has been in March. New employee salaries are set when an employee begins work. New employees receive equity and other incentive awards either immediately following their first day of employment or on the date on which an award is approved by the Committee, which may be later than the employment start date.

 

Current employees whose position and/or responsibilities materially change after the general grant date in March may receive compensation awards at different times of the year.

 

ELEMENTS OF COMPENSATION

 

BASE SALARY

 

Salary recognizes individual performance, market value of the position and the incumbent’s experience, responsibilities, contribution to the Company and growth in his or her role. Salary merit increases are based on overall performance and relative competitive position. The Committee reviewed and assessed the performance of the Company’s senior executives, including its Named

Executive Officers, during 2007. The Committee will continue to review and assess the performance of the Chief Executive Officer and all senior executives and authorize salary actions it believes are appropriate, commensurate with relevant competitive data and the Company’s Committee approved salary program.

 

ANNUAL INCENTIVE AWARDS

 

Annual Incentive Plan:  The 1997 Annual Incentive Plan for Executive Officers was approved by shareholders in 1997 and rewards Named Executive Officers described below for achievement of short-term performance and operational goals as well as individual performance. The Company’s AIP provides for an annual cash payment to participating executives established as a target percentage of base salary, adjusted to reflect annual performance measures. The AIP target awards are set with reference to the median of competitive practice based on the Executive Compensation Database. AIP target awards are structured to achieve competitive compensation levels when targeted performance results are achieved. The actual AIP award is based on performance against metrics with an opportunity for the Committee to approve negative discretionary adjustments with respect to Named Executive Officers. The AIP award, recognizes an executive’s contributions to the year’s results and is determined by performance against specific premier metrics on both the individual business segment and enterprise level.

 

Establishing AIP Performance

 

We use objective formulas to establish potential AIP performance awards. For 2007, the AIP formulas for determining Named Executive Officer potential payment amounts were:

 

Corporate Headquarters:

Base Salary x Target Award x Applicable Performance Components = AIP potential payment

Defense and Fluid Technology Segments:

Base Salary x Target Award x ((Applicable Segment Performance Components x 70%)
+ (ITT EPS Growth Component x 30%)) = AIP potential payment

Weighting of AIP Performance Components — Corporate
(for each Named Executive Officer in Corporate Headquarters)

 

 

 

 

Weighting of AIP Performance Components — Segments
(for each Named Executive Officers in the Defense and Fluid Technology Segments)

 

 

ITT EPS Growth Metric: In order to encourage focus on total Company performance, earnings per share growth across the enterprise was a performance metric in the Company’s 2007 AIP at the Corporate level as shown in column (b) and represented 30% of the Segment overall performance factor, as shown in column (i).

 

2007 Component Attainment vs. Payout%

 

The following table shows the potential payout percentage for non-EPS performance metrics.

 

 

The ITT EPS growth payout ranges between 50% and 200% and is based on a 100% EPS target at $3.38.

 

In 2007, each performance component of the AIP was capped at 250% and the overall AIP award was capped at 200% of the Target Award.

 

AIP Multi-Industry Peer Companies: The Committee and management first looked at a peer group to determine premier performance. In 2005 the Committee studied past and projected earnings per share and other performance measures of comparable multi-industry peers. Six multi-industry companies were identified as “premier” based on their rankings in the top quartile of the majority of the quantitative metrics evaluated.

 

 

AIP Performance Metrics:  Based on an analysis of the premier companies, the Company identified five performance metrics most closely predictive of top ranking operating performance:

 

 

Why these metrics:  The Committee considers ROIC to be an easily understood measurement of capital utilization in the Company’s businesses and a key element of premier performance. The percentage weighting allocated to ROIC reflects the Company’s view of the importance of ROIC in overall performance. Similarly, weighting in organic revenue, organic operating margin and cash flow reflect the Company’s emphasis on organic growth as well as cash flow generation. Organic performance measures exclude the impact of foreign exchange, acquisitions and dispositions. The Committee believes that EPS growth is an appropriate measure of the Company’s total performance and employed the ITT EPS growth metric to encourage focus on the achievement of premier earnings growth for the overall Company.

AIP Performance Targets:  The Committee and management established separate 2007 AIP performance targets for each business segment and corporate headquarters based on the applicable premier performance metrics listed above and the Company’s approved annual operating plan, taking into consideration the Company’s aspirational goals.

 

The Company’s Named Executive Officers include executives at the Corporate headquarters and Defense and Fluid Technology business segments. The targets for earnings per share growth, and annual free cash flow performance targets for Corporate headquarters and organic revenue performance targets for 2007 the Defense and Fluid Technology segments are described below.

 

 

Remaining Performance Targets:  We set the remaining performance targets, including ROIC, segment operating cash flow, and operating margin rates, at challenging levels that are consistent with our long-term premier targets. The ITT Fluid Technology operating margin performance target represents significant growth over the prior year and is above the high end of the Company’s guidance. We consider these levels to be difficult to achieve. Successful attainment of both quantitative factors and qualitative factors (on page 53 of the Proxy Statement) are achievable only if the businesses and the individual Named Executive Officer perform at target levels.

 

AIP 2007 Awards Paid in 2008:  On March 10, 2008 the Committee determined the actual AIP awards for the Chief Executive Officer and the other Named Executive Officers for the 2007 AIP. The Committee excluded the impact of acquisitions, dispositions and other special items in computing AIP performance relating to AIP targets which also excluded these items. 2007 AIP Awards are also included in the Summary Compensation Table on page 67.

 

 

 

 

 

The ITT Corporation Annual Incentive Plan for Executive Officers, which is summarized on pages 25 to 28 of this Proxy Statement and is included as Appendix C, has been adopted by the Board and will be effective commencing with performance year 2008, subject to shareholder

approval. The ITT Corporation Annual Incentive Plan for executive officers is designed to provide competitive incentive compensation for its senior executive officers which is linked to measures affecting growth in shareholder value. Performance targets for 2008 under the Annual Incentive Plan have not been established.

 

LONGER-TERM INCENTIVES

 

Program structure:  The Committee believes that longer-term incentives directly reward Named Executive Officers for success in the creation of shareholder value over time. The Committee employed four considerations in designing the long-term incentive award program: