8-KLeadership Changes

CUMMINS INC 8-K Report, Executive Changes (Dec 16, 2011)

Filed December 16, 2011For Securities:CMI

Summary

This 8-K filing by Cummins Inc. (CMI) details significant changes to executive compensation arrangements, primarily focused on the transition of N. Thomas Linebarger to Chairman and CEO and adjustments to severance and equity award policies. Effective January 1, 2012, Mr. Linebarger's base salary will increase to $1,125,000 annually, with his target annual bonus set at 125% of his base salary, reflecting his expanded leadership role. The filing also outlines amendments to the 2006 Executive Retention Plan, reducing severance multiples for named executive officers (excluding the CEO) from three times to two times their base salary and target bonus in the event of a termination without cause or for good reason following a change in control. Additionally, the company has eliminated tax gross-ups for excess parachute payments and implemented a "double trigger" vesting requirement for all future equity awards, meaning accelerated vesting will only occur if employment is terminated without cause or for good reason after a change in control.

Key Highlights

  • 1N. Thomas Linebarger's base salary will increase to $1,125,000 annually, effective January 1, 2012.
  • 2Mr. Linebarger's target annual bonus will be 125% of his base salary, effective January 1, 2012.
  • 3Severance multiples for named executive officers (excluding the CEO) under the Retention Plan have been reduced from 3x to 2x annual base salary and target bonus upon specific termination events post-change in control.
  • 4The CEO's severance multiple remains at 3x annual base salary and target bonus.
  • 5All tax gross-ups for excise taxes on "excess parachute payments" have been eliminated for executive compensation arrangements.
  • 6Future equity awards will be subject to "double trigger" vesting, requiring both a change in control and termination of employment (without cause or for good reason) for vesting acceleration.

Frequently Asked Questions

The primary reason for the compensation changes is to align executive compensation with N. Thomas Linebarger's new role as Chairman and Chief Executive Officer, effective January 1, 2012, and to standardize and potentially reduce severance and equity acceleration risks for other named executive officers in the event of a change in control.

For named executive officers, excluding the CEO, the severance payment upon termination without cause or for good reason after a change in control has been reduced from three times (3x) their annual base salary and target bonus to two times (2x) their annual base salary and target bonus. The CEO's severance multiple remains unchanged at three times (3x).

A 'double trigger' vesting means that unvested equity awards will only accelerate their vesting if two conditions are met: first, a change in control of the company occurs, and second, the award holder's employment is terminated by the company without cause, or by the award holder for good reason, following that change in control. Without the second condition being met, the equity awards will not accelerate.

Yes, Cummins has eliminated all tax gross-ups that were previously provided for excise taxes imposed on "excess parachute payments" under Section 280G and Section 4999 of the Internal Revenue Code. This means executives will no longer be compensated by the company for these specific tax liabilities.