We will hold our 2014 annual meeting of stockholders at 9:00 a.m. on Monday, May 12, 2014 at our World Headquarters in Stamford, Connecticut. The Notice of Meeting and Proxy Statement and accompanying proxy card describe in detail the matters to be acted upon at the meeting.

 

It is important that your shares be represented at the meeting. Whether or not you plan to attend, please submit a proxy through one of the three convenient methods described in this proxy statement in order for your shares to be voted at the meeting. Your vote is important so please act at your first opportunity.

 

We have elected to furnish proxy materials and the Annual Report to Stockholders, including the Report on Form 10-K for the year ended December 31, 2013 to many of our stockholders via the Internet pursuant to Securities and Exchange Commission rules. We urge you to review those materials as well as our proxy statement for information on our financial results and business operations over the past year. The Internet availability of our proxy materials affords us an opportunity to reduce costs while providing stockholders the information they need. On or about March 27, 2014, we started mailing to many of our stockholders a Notice of Internet Availability of Proxy Materials containing instructions on how to access our proxy statement and annual report and how to submit a proxy online along with instructions on how to receive a printed copy of the proxy statement and annual report. We provided a copy of the annual meeting materials to all other stockholders by mail or through electronic delivery.

 

If you receive your annual meeting materials by mail, the Notice of Meeting and Proxy Statement, Annual Report to Stockholders, including the Report on Form 10-K for the year ended December 31, 2013 and proxy card are enclosed. Whether or not you plan to attend the annual meeting in person, please mark, sign, date and return your proxy card in the enclosed prepaid envelope, or submit your proxy via telephone or the Internet, as soon as possible in order for your shares to be voted at the meeting. If you decide to attend the annual meeting and wish to change your vote, you may do so by submitting a later dated proxy or by voting in person at the annual meeting. If you received your annual meeting materials via e-mail, the e-mail contains voting instructions and links to the proxy statement and annual report on the Internet, which are also available at www.proxyvote.com.

 

We look forward to seeing you at the meeting.

 

Michael I. Roth

Non-Executive Chairman of the Board

 

Stamford, Connecticut
March 27, 2014

 

 

 

 

The annual meeting of stockholders of Pitney Bowes Inc. will be held on Monday, May 12, 2014, at 9:00 a.m. at the company’s World Headquarters, 1 Elmcroft Road, Stamford, Connecticut 06926-0700. Directions to Pitney Bowes’ World Headquarters appear on the back cover page of the proxy statement.

 

Important Notice Regarding the Availability of Proxy Materials for the Stockholders Meeting to be held on May 12, 2014:

 

Pitney Bowes’ 2014 Proxy Statement and Annual Report to Stockholders, including the Report on Form 10-K for the year ended December 31, 2013, are available at www.proxyvote.com.

 

The items of business at the annual meeting are:

 

	1.		Election of 10 directors named in the proxy statement.
	2.		Ratification of the Audit Committee’s Appointment of the Independent Accountants for 2014.
	3.		Advisory Vote to Approve Executive Compensation.
	4.		Approval of the Pitney Bowes Directors’ Stock Plan.

 

Stockholders also will act on such other matters as may properly come before the meeting, including any continuation of the meeting caused by any adjournment or postponement of the meeting.

 

March 14, 2014 is the record date for the meeting.

 

This proxy statement and accompanying proxy card are first being distributed or made available via the Internet beginning on or about March 27, 2014.

 

Amy C. Corn

Corporate Secretary

 

NOTICE: Your vote is important. Brokers are not permitted to vote on our proposals regarding the election of directors, executive compensation and other matters to be considered at the meeting (except on ratification of the Audit Committee’s appointment of the Independent Accountants for 2014) without instructions from the beneficial owner. Therefore, if your shares are held through a broker, please instruct your broker, bank or other nominee on how to vote your shares. For your vote to be counted with respect to proposals 1, 3 or 4, you will need to communicate your voting decisions to your broker, bank, financial institution or other nominee.

 

 

 

 

 

Proxy Summary

 

In this summary we highlight certain information contained elsewhere in this proxy statement. This is only a summary and does not contain all the information you should consider before you submit your proxy or vote. Please read the complete proxy statement and Annual Report on Form 10-K before you submit your proxy or vote.

 

Annual Meeting Information

 

Time and Date:	Monday, May 12, 2014 at 9:00 a.m.
Place:	Pitney Bowes World Headquarters 1 Elmcroft Road Stamford, CT 06926-0700
Requirements for Attending the Meeting:	Admission ticket, which is attached to your proxy card, or Notice of Internet Availability of Proxy Materials, together with a form of photo identification, such as a driver’s license. If your shares are held in the name of a bank, broker or nominee, you must present proof of your ownership as of the record date (such as bank or brokerage account statement).
Record Date:	March 14, 2014
Voting:	Registered stockholders as of the record date (March 14, 2014) are entitled to submit proxies by Internet at www.proxyvote.com; telephone at 1-800-690-6903; or completing your proxy card; or you may vote in person at the annual meeting. If you hold your shares through a broker, bank, trustee or other nominee, you are a beneficial owner and should refer to instructions provided by that entity on voting methods.

 

Governance Structure and Leadership Roles

 

The board reappointed Michael Roth, an independent member of the board of directors, to serve as Non-Executive Chairman of the Board in May 2013. A description of the Independent Chairman role appears in the Board of Directors Governance Principles, which can be found on the company’s website at www.pb.com under the caption “Our Company—Leadership & Governance.” In December 2012, Marc Lautenbach became the company’s President and Chief Executive Officer. In his first year as President and CEO, Mr. Lautenbach focused on resetting the strategic direction of the company, assembling the right team to lead the company’s critical areas of development over the next several years and beginning to execute on initiatives consistent with the new strategies.

 

2013 Performance and Payout

 

SUMMARY OF 2013 BUSINESS RESULTS

 

In 2013, the company achieved significant success in executing on its strategy to transform the company for the future. This success was evidenced through our financial results and attainment of certain objectives targeted at longer-term success, including solidifying our balance sheet and divesting businesses no longer in line with the company’s long-term strategy. Our total shareholder return for the year was an extraordinary 132%, which placed us fifth in year-over-year total stockholder return among all S&P 500 companies for 2013. We believe the stock price increase reflected stockholder recognition that our first steps in executing on our new strategy to unlock the value embedded in our company were successful and position us well for the future.

 

We identified three major objectives for the company that would determine our progress towards transforming our businesses and made significant progress on each. These objectives were as follows: (1) stabilize the mailing business; (2) achieve operational excellence and (3) invest in growth initiatives.

 

•		Stabilize the Mailing Business. The recurring revenue streams in 2013 for our global Mailing business continued to decline at a slower rate than in prior years contributing to the overall stabilization of the Mailing business. Equipment sales in the Production Mail and Small and Medium Business Solutions (SMB) segments improved and grew year-over-year. Our new go-to-market strategy implementation in the SMB business is improving our sales process and enhancing our client experience, while reducing costs.
•		Achieve Operational Excellence. Our efforts in reducing expenses in 2013 resulted in a $71 million decline in selling, general and administrative expenses compared to the prior year. We are in the early stages of implementing a new

		enterprise resource planning (ERP) system to streamline and consolidate many of our back-office operations. We signed a contract to sell our World Headquarters building in 2014. This is another example of our commitment to reducing operating expenses going forward. In addition, in 2013, we sold three businesses, Pitney Bowes Management Services (PBMS), International Mailing Services (IMS) and the Nordic furniture business. We sold these businesses because they did not fit within our future strategic intent for the company. We used the net proceeds from the sale of the North American portion of the PBMS sale to strengthen our balance sheet by redeeming $300 million in bonds originally scheduled to mature in 2014. Also in 2013, our clear focus on initiatives surrounding inventory and accounts receivables, two key components of working capital, generated over $100 million of cash improvements.
•		Invest in Growth Initiatives. In 2013, we continued to invest in our e-commerce business which grew revenue sequentially at a high double digit rate. In our software business, we brought in new leadership with skill sets to support our new go-to-market strategy, which we expect will bring revenue growth in the software business. Effective in 2014, we also increased our investment to 100%, in our high growth potential Brazilian joint venture by purchasing our joint venture partner’s interest in the business.

 

We urge stockholders to read our Annual Report on Form 10-K for the year ended December 31, 2013, filed with the Securities and Exchange Commission (SEC) on February 21, 2014, which describes our business and 2013 financial results in more detail.

 

SUMMARY OF 2013 COMPENSATION PAYOUTS

 

Based on the 2013 financial results summarized above when compared against the pre-determined financial goals, the annual incentive payout multiplier for the named executive officers (NEOs) was 109.5% and the long-term 2011-2013 cash incentive award payout was $1.50.

 

Funding of the 2013 Annual Incentive Pool and Payout Multiplier
		The sum of the metrics may not exactly equal the total due to rounding.
		For additional detail on the calculation of the financial metrics shown in this chart please refer to the table on page 55 “Accounting Items and Reconciliation of GAAP to non-GAAP Measures.”

 

2013 Funding of the Cash Incentive Unit Pool and Payout Value
		The amounts above include the impact of the Modifier for total shareholder return (TSR). The sum of the metrics may not exactly equal the total due to rounding.
		The amounts shown in the charts above are based on non-GAAP measures. For additional detail on the calculation of the financial metrics shown in this chart please refer to the table on page 55 “Accounting Items and Reconciliation of GAAP to non-GAAP Measures.”

 

Summary of 2013 Executive Compensation Changes 

  

At the annual meeting in 2013, stockholders overwhelmingly approved our executive compensation (Say-on-Pay) with nearly 93% of votes cast in favor. The vote reflected stockholder approval for the compensation changes the Executive Compensation Committee adopted in late 2012 and early 2013 in connection with executive compensation. These actions included:

 

•		Reducing the CEO’s annual incentive target from 165% to 130% of base salary;
•		Enhancing the rigor and transparency of our annual incentive objectives;
•		Changing the mix of long-term incentives (LTI) to increase the performance-based component;
•		Enhancing the disclosure of performance targets; and
•		Eliminating excise tax gross-ups;

 

Continuing to make improvements in the executive compensation structure in 2013, the Executive Compensation Committee adopted the following changes to further strengthen the alignment of executive compensation incentives with stockholder interests:

 

•		Changing the LTI mix beginning with 2014 grants to 100% equity, firmly placing the executive in the shoes of the stockholder with respect to LTI payouts;
•		Revising our peer group in light of the evolving strategic direction of the company, making more appropriate comparisons in the way we compensate our executives;
•		Increasing the weighting of financial metrics to 100% for the annual incentive program;
•		Utilizing as part of the LTI program a three-year cumulative TSR metric;
•		Expanding the executive stock ownership policy to include more senior executives, while at the same time, restricting shares that count toward the stockholding requirement;
•		Reducing severance benefits payable upon a change of control by one-third at most senior management levels; and
•		Introducing premium-priced stock options as a manner of making special compensatory awards.

 

We have a “pay-for-performance” philosophy that is the foundation of all decisions regarding compensation of our NEOs. With the changes approved by the Executive Compensation Committee and the independent board members, we have enhanced the link between pay and performance in the design of our executive compensation program. Please see “Compensation Discussion and Analysis” beginning on page 35 of this proxy statement for a more detailed discussion of the 2013 executive compensation awards and payouts.

 

Direct Compensation Components and Mix 

 

For each NEO, the Executive Compensation Committee sets target total direct compensation levels (base salary plus annual and long-term incentives) so that the base salary, total cash compensation, and total direct compensation is at +/– 20% of the median for each position of the competitive data based on the Towers Watson Regressed Compensation Report, as regressed for companies approximately our size, and the Radford High-Tech Industry Survey focusing on companies with revenue scopes similar to ours (Survey Reports). NEO direct compensation is weighted toward variable compensation, where the actual amount earned may vary from the targeted amounts due to company performance.

 

 

The percentage in the above illustration is based on target compensation. Mr. Lautenbach’s long-term incentive amount includes the value of his one-time sign-on grant of premium-priced stock options.

 

Meeting Agenda Items

 

Proposal 1: Election of Directors

 

You are being asked to elect 10 directors. Each of the directors is standing for election to a one-year term ending as of the next annual meeting of stockholders in 2015 and until his or her successor has been duly elected and qualified.

 

All directors attended over 75% of the meetings of the board and board committees on which they served in 2013.

 

Summary Information about our Director Nominees

 

Director Nominee

Age

Director Since

Occupation

Independent

Committees

Other Public  Boards

Linda G. Alvarado

62

1992

President and CEO, Alvarado Construction, Inc.

X

• Finance • Governance

3M Company

Anne M. Busquet

64

2007

Principal, AMB Advisors, LLC

X

• Executive   Compensation • Governance

—

Roger Fradin

60

2012

President and CEO, Honeywell Automation and Control Solutions, Honeywell International, Inc.

X

• Audit • Finance

MSC Industrial Direct Co., Inc.

Anne Sutherland Fuchs

66

2005

Consultant to private equity firms

X

• Audit • Executive   Compensation

Gartner, Inc.

S. Douglas Hutcheson

58

2012

Former CEO, Leap Wireless International, Inc.

X

• Audit • Finance

—

Marc B. Lautenbach

52

2012

President and CEO, Pitney Bowes Inc.

• Executive

—

Eduardo R. Menascé

68

2001

Retired President, Enterprise Solutions Group, Verizon Communications Inc.

X

• Executive • Executive   Compensation** • Governance

John Wiley & Sons Inc., Hill-Rom Holdings, Inc., Hillenbrand, Inc.

Michael I. Roth*

68

1995

Chairman and CEO, The Interpublic Group of Companies, Inc.

X

• Audit • Executive** • Finance**

Ryman Hospitality Properties Inc., The Interpublic Group of Companies, Inc.

David L. Shedlarz

65

2001

Retired Vice Chairman, Pfizer Inc.

X

• Audit** • Executive • Finance

Teachers Insurance and Annuity Association, The Hershey Company

David B. Snow, Jr.

59

2006

Managing Partner and CEO, Cedar Gate Partners LLC

X

• Executive • Executive   Compensation • Governance**

—

 

*	Non-Executive Chairman, Pitney Bowes Inc.
**	Committee Chair

 

 

Proposal 2: Ratification of the Audit Committee’s Appointment of the Independent Accountants for 2014

 

The board is asking stockholders to ratify the selection of PricewaterhouseCoopers LLP as our independent accountants for 2014.

 

Proposal 3: Advisory Vote to Approve Executive Compensation

 

The board is asking stockholders to approve, on an advisory basis, the compensation of the named executive officers as disclosed in this proxy statement. The board has determined to hold this advisory vote on an annual basis. The next advisory vote will be at the 2015 annual meeting of stockholders.

 

The vote on executive compensation is an advisory vote and the results will not be binding on the board or Pitney Bowes Inc. The affirmative vote of the majority of the votes cast will constitute the stockholders’ non-binding approval with respect to our executive compensation programs. Abstentions and broker non-votes will not be votes cast and therefore will have no effect on the outcome of the vote.

 

Proposal 4: Approval of the Pitney Bowes Directors’ Stock Plan

 

The board is asking stockholders to approve the Directors’ Stock Plan. The plan will govern grants of stock-based awards to non-employee directors. The plan does not require the authorization of additional shares. All awards under the Directors’ Stock Plan will be satisfied from the shares approved in 2013 in connection with the 2013 Employee Stock Plan.

 

 

 

The Annual Meeting and Voting

 

Our board of directors is soliciting proxies to be used at the annual meeting of stockholders to be held on May 12, 2014, at 9:00 a.m. at the company’s World Headquarters, 1 Elmcroft Road, Stamford, Connecticut, and at any adjournment or postponement of the meeting. This proxy statement contains information about the items being voted on at the annual meeting.

 

Annual Meeting Admission

 

An admission ticket, which is required for entry into the annual meeting, is attached to your proxy card if you hold shares directly in your name as a registered stockholder. If you plan to attend the annual meeting, please submit your proxy but keep the admission ticket and bring it to the annual meeting.

 

If your shares are held in the name of a bank, broker or nominee and you plan to attend the meeting, you must present proof of your ownership of Pitney Bowes stock as of the record date (such as a bank or brokerage account statement) to be admitted to the meeting.

 

If you have received a Notice of Internet Availability of Proxy Materials (a “Notice”), your Notice is your admission ticket. If you plan to attend the annual meeting, please submit your proxy, but keep the Notice and bring it to the annual meeting.

 

Stockholders also must present a form of photo identification, such as a driver’s license, in order to be admitted to the annual meeting. No cameras, recording equipment, large bags, or packages will be permitted in the annual meeting. Many cellular phones have built-in cameras, and, while these phones may be brought into the annual meeting, the camera function may not be used at any time.

 

Who is entitled to vote?

 

Record stockholders of Pitney Bowes common stock and $2.12 convertible preference stock at the close of business on March 14, 2014 (the record date) can vote at the meeting. As of the record date, 202,609,582 shares of Pitney Bowes common stock and 20,853 shares of $2.12 convertible preference stock were issued and outstanding. Each stockholder has one vote for each share of common stock owned as of the record date, and 16.53 votes for each share of $2.12 convertible preference stock owned as of the record date.

 

How do I vote?

 

If you are a registered stockholder which means you hold shares in your name, you may choose one of three methods to grant your proxy to have your shares voted:

 

•		you may grant your proxy on-line via the Internet by accessing the following website and following the instructions provided: www.proxyvote.com;
•		you may grant your proxy by telephone (1-800-690-6903); or

•

if you received your annual meeting material by mail, you also may choose to grant your proxy by completing and mailing the proxy card.

 

Alternatively, you may attend the meeting and vote in person.

 

If you hold your shares through a broker, bank, trustee or other nominee, you are a beneficial owner and should refer to instructions provided by that entity on voting methods.

 

May I revoke my proxy or change my vote?

 

If you are a registered stockholder, you may revoke your proxy or change your vote at any time before your proxy is voted at the meeting by any of the following methods:

 

•		you may send in a revised proxy dated later than the first proxy;
•		you may vote in person at the meeting; or
•		you may notify the corporate secretary in writing prior to the meeting that you have revoked your proxy.

 

Attendance at the meeting alone will not revoke your proxy.

 

If you hold your shares through a broker, bank, trustee or other nominee, you are a beneficial owner and should refer to instructions provided by that entity on how to revoke your proxy or change your vote.

 

What constitutes a quorum?

 

The holders of shares representing a majority of the votes entitled to be cast at the annual meeting constitutes a quorum. If you submit your proxy by Internet, telephone or proxy card, you will be considered part of the quorum. Abstentions and broker non-votes are included in the count to determine a quorum. If a quorum is present, director candidates receiving the affirmative vote of a majority of votes cast will be elected. Proposals  2, 3 and 4 will be approved if a quorum is present and a majority of the votes cast by the stockholders are voted for the proposal.

 

How are votes counted?

 

Your broker is not permitted to vote on your behalf on the election of directors, executive compensation and other matters to be considered at the stockholders meeting (except on ratification of the selection of PricewaterhouseCoopers LLP as auditors for 2014), unless you provide specific instructions by completing and returning the voting instruction form or following the instructions provided to you to vote your stock via telephone or the Internet. If you do not own your shares of record, for your vote to be counted with respect to proposals 1, 3 or 4, you will need to communicate your voting decisions to your broker, bank, financial institution or other nominee.

 

Under New York Stock Exchange rules, if your broker holds your shares in its “street” name, the broker may vote your shares in its discretion on proposal 2 if it does not receive instructions from you.

If your broker does not have discretionary voting authority and you do not provide voting instructions, or if you abstain on one or more agenda items, the effect would be as follows:

 

Proposal 1: Election of Directors

 

Broker non-votes and abstentions would not be votes cast and therefore would not be counted either for or against. As a result, broker non-votes and abstentions will have no effect in the election of directors.

 

Proposal 2: Ratification of Audit Committee’s Appointment of the Independent Accountants for 2014

 

If you choose to abstain in the ratification of the Audit Committee’s selection of the independent accountants for 2014, the abstention will have no effect.

 

Proposal 3: Advisory Vote to Approve Executive Compensation

 

The vote to approve executive compensation is an advisory vote and the results will not be binding on the board of directors or the company. The board of directors will review the results and take them into consideration when making future decisions regarding executive compensation. Broker non-votes and abstentions would not be votes cast and therefore would not be counted either for or against. As a result, broker non-votes and abstentions will have no effect on the advisory vote on executive compensation.

 

Proposal 4: Approval of the Pitney Bowes Inc. Directors’ Stock Plan

 

Under our By-laws, broker non-votes and abstentions would not be votes cast and therefore would not be counted either for or against. As a result, broker non-votes and abstentions will have no effect on the vote on the Directors’ Stock Plan. However, for purposes of approval under New York Stock Exchange rules, abstentions are treated as votes cast, and, therefore, will have the same effect as an “against” vote, and broker non-votes are not considered votes cast, and, therefore, will have no effect on the outcome of the vote.

 

How do Dividend Reinvestment Plan participants or employees with shares in the 401(k) plans vote by proxy?

 

If you are a registered stockholder and participate in our Dividend Reinvestment Plan, or our employee 401(k) plans, your proxy includes the number of shares acquired through the Dividend Reinvestment Plan and/or credited to your 401(k) plan account.

 

Shares held in our 401(k) plans are voted by the plan trustee in accordance with voting instructions received from plan participants. The plans direct the trustee to vote shares for which no instructions are received in the same proportion (for, against or abstain) indicated by the voting instructions given by participants in the plans.

 

Who will count the votes?

 

Broadridge Financial Solutions, Inc. (Broadridge) will tabulate the votes and act as Inspector of Election.

 

Want more copies of the proxy statement? Getting too many copies?

 

Only one Notice or, if paper copies are requested, only one proxy statement and annual report to stockholders including the report on Form 10-K are delivered to

multiple stockholders sharing an address unless one or more of the stockholders give us contrary instructions. You may request to receive a separate copy of these materials, either now or in the future, and we will promptly deliver the requested materials.

 

Similarly, any stockholder currently sharing an address with another stockholder but nonetheless receiving separate copies of the materials may request delivery of a single copy in the future.

 

Requests can be made to:

 

Broadridge Householding Department by phone at 1-800-579-1639 or by mail to:

 

Broadridge Householding Department

51 Mercedes Way

Edgewood, New York 11717.

 

If you own shares of stock through a bank, broker, trustee or other nominee and receive more than one copy of the materials, please contact that entity to eliminate duplicate mailings.

 

Additional copies of our annual report to stockholders, including the report on Form 10-K or the proxy statement will be sent to stockholders free of charge upon written request to:

 

Investor Relations, Pitney Bowes Inc.

1 Elmcroft Road, MSC 63-02

Stamford, CT 06926-0700.

 

Want Electronic Delivery of the Annual Report and Proxy Statement?

 

We want to communicate with you in the way you prefer. You may choose to receive:

 

	•	a full set of printed materials, including the proxy statement, annual report and proxy card; or
	•	an email with instructions for how to view the annual meeting materials and vote online.

 

During the voting season, you can select the method of delivery for the future by following the instructions when you vote online or by telephone. If you choose to receive the annual meeting materials electronically, you will receive an e-mail for future meetings listing the website locations of these documents and your choice will remain in effect until you notify us that you wish to resume mail delivery of these documents. If you hold your Pitney Bowes stock through a bank, broker, trustee or other nominee, you should refer to the information provided by that entity for instructions on how to elect this option. This proxy statement and our 2013 annual report may be viewed online at www.proxyvote.com.

 

Stockholder Proposals and Other Business for the 2015 Annual Meeting

 

If a stockholder wants to submit a proposal for inclusion in our proxy material for the 2015 annual meeting, which is scheduled to be held on Monday, May 11, 2015, it must be received by the corporate secretary by the close of business on November 27, 2014. Also, under our By-laws, a stockholder can present other business at an annual meeting, including the nomination of candidates for director, only if written notice of the business or candidates is received by the corporate secretary no earlier than the close of business on January 12, 2015 and no later than the close of business on February 11, 2015. However, in the event that the date of the 2015 annual

meeting is more than 30 days before or more than 60 days after the anniversary of our 2014 annual meeting, then the stockholder’s notice must be delivered no earlier than the close of business on the 120th day prior to the meeting and no later than the close of business on the later of the 90th day prior to the meeting or, if the first public announcement of the date of the annual meeting is less than 100 days prior to the date of such meeting, the 10th day after the first public announcement of the meeting date. There are other procedural requirements in the By-laws pertaining to stockholder proposals and director

nominations. The By-laws are posted on our Corporate Governance website at www.pb.com under the caption “Our Company—Leadership & Governance.” If notice of a matter is not received within the applicable deadlines or does not comply with the By-laws, the chairman of the meeting may refuse to introduce such matter. If a stockholder does not meet these deadlines, or does not satisfy the requirements of Rule 14a-4 of the Exchange Act, the persons named as proxies will be allowed to use their discretionary voting authority when and if the matter is raised at the annual meeting.

	Key Corporate Governance Practices Enhancing the Board’s Independent Leadership, Accountability and Oversight
	•	Separate Chairman and CEO. Our Governance Principles include well-defined responsibilities, qualifications and selection criteria with respect to the Chairman role. The board has appointed Michael I. Roth, an independent director, as Non-Executive Chairman.
	•	Independent Committees. The board of directors determined that all board committees, other than the Executive Committee, should consist entirely of independent directors.
	•	Executive Sessions. At each regular board meeting, our independent directors meet without the CEO or other members of management present to discuss issues, including matters concerning management. The Non-Executive Chairman presides at these executive sessions.
	•	Majority Voting in Director Elections. Our By-Laws provide that in uncontested elections, director nominees must be elected by a majority of the votes cast.
	•	Annual Election of Directors. Our By-Laws provide that our stockholders elect all directors annually.
	•	Stock Holding Requirements. Under the current Directors’ Stock plan, restricted stock awards may not be transferred or sold, subject to limited exceptions, until the later of (i) termination of service as a director, or, if earlier, the date of a change of control (as defined in the Directors’ Stock Plan), and (ii) the expiration of the six-month period following the grant of such shares.
	•	No Hedging or Pledging. Directors may not pledge or transfer for value Pitney Bowes securities, engage in short-term speculative (“in and out”) trading in Pitney Bowes securities, or participate in hedging and other derivative transactions, including short sales, “put” or “call” options, swaps, collars or similar derivative transactions, with respect to Pitney Bowes securities.

Effective December 3, 2012, the board of directors separated the roles of Chairman and CEO. The board appointed Michael I. Roth, an independent director, as Non-Executive Chairman of the board of directors and reappointed him to this role in May 2013 for a term of one year. The board of directors believes it should have the flexibility to establish a leadership structure that works best for the company at a particular time, and it reviews that structure from time to time, including in the context of a change in leadership. The board decided that, with the election of Mr. Lautenbach as CEO, and due to the fact that the responsibilities of the Lead Director, which

was Mr. Roth’s role prior to his appointment as Non-Executive Chairman, were similar in most respects to those of a Non-Executive Chairman, this was an appropriate time to separate the roles of CEO and Chairman.

 

The board of directors has established well-defined responsibilities, qualifications and selection criteria with respect to the Chairman role. This information is set forth in detail in the Governance Principles of the Board of Directors, which can be found on our website at www.pb.com under the caption “Our Company—Leadership & Governance.”

Among the board’s most important responsibilities is to oversee succession planning and leadership development. As part of this process, the Governance Committee oversees long-term and short-term plans for CEO succession. The board of directors is responsible for evaluating the performance of the CEO and for selection of successors to that position. The criteria used when assessing the qualifications of potential CEO successors include, among others, strategic vision and leadership, operational excellence, financial management, executive officer leadership development, ability to motivate employees, and an ability to develop an effective working relationship with the board. The Governance Principles of the Board of Directors, which are posted on the company’s website at www.pb.com under the caption “Our Company—Leadership & Governance,” include additional information about succession planning.

In late 2012, the board used the succession planning process described above to plan for the succession from our former CEO to the hiring of our new President and CEO, Mr. Lautenbach, and to the appointment of a new Non-Executive Chairman of the board, Michael I. Roth.

 

Periodically, but not less than annually, the board of directors considers management’s recommendations concerning succession planning for senior management roles other than the role of CEO. As part of this process, the board reviews development plans to strengthen and supplement the skills and qualifications of internal succession candidates.

The board of directors is responsible for oversight of the risk assessment and risk management process. Management is responsible for risk management, including identification and mitigation planning. The company established the enterprise risk management process to identify, assess, monitor and address risks across the entire company and its business operations. The description, assessments, mitigation plan and status for each enterprise risk are developed and monitored by management, including management “risk owners” and an oversight management risk committee.

 

Upon the recommendation of the Governance Committee, the board of directors assigns oversight responsibility for each of the identified enterprise-wide risks to either a specific committee of the board, or to the full board. In addition to the board, each committee, with the exception of the Executive Committee, is responsible for oversight of one or more risks. The assignments are generally made based upon the type of enterprise risk and the linkage of the subject matter to the responsibilities of the

committee as described in its charter or the nature of the enterprise risk warranting review by the full board. For example, the Finance Committee oversees risks relating to liquidity and the Audit Committee oversees risks relating to internal controls. Each enterprise risk and its related mitigation plan is reviewed by either the board of directors or the designated board committee on an annual basis. The Audit Committee is responsible for overseeing and reviewing on an ongoing basis the overall process by which management identifies and manages risks. On an annual basis the board of directors receives a report on the status of all enterprise risks and their related mitigation plans.

 

Management monitors the risks and determines, from time to time, whether new risks should be considered either due to changes in the external environment, changes in the company’s business, or for other reasons. Management also determines whether previously identified risks should be combined with new or emerging risks.

The board of directors conducts an annual review of the independence of each director under the New York Stock Exchange listing standards and our standards of independence, which are set forth in the Governance Principles of the Board of Directors available on our website at www.pb.com under the caption “Our Company—Leadership & Governance.” In making these determinations, the board of directors considers, among other things, whether any director has had any direct or indirect material relationship with Pitney Bowes or its management, including current or past employment with Pitney Bowes or its independent accountants by the director or the director’s immediate family members.

Based upon its review, the board of directors has concluded in its business judgment that the following directors are independent: Linda G. Alvarado, Anne M. Busquet, Roger Fradin, Anne Sutherland Fuchs, S. Douglas Hutcheson, Eduardo R. Menascé, Michael I. Roth, David L. Shedlarz, and David B. Snow, Jr. In addition, the board of directors previously determined that Rodney C. Adkins, James H. Keyes and Robert E. Weissman, who served on the board until May 2013, were independent. Marc B. Lautenbach is not independent because he is a Pitney Bowes executive officer.

Stockholders and other interested parties may communicate with the Non-Executive Chairman of the board via e-mail at boardchairman@pb.com, the Audit Committee chair via e-mail at audit.chair@pb.com or they may write to one or more directors, care of the Corporate Secretary, Pitney Bowes Inc., 1 Elmcroft Road, MSC 65-19, Stamford, CT 06926-0700.

 

The board of directors has instructed the corporate secretary to assist the Non-Executive Chairman, Audit Committee chair and the board in reviewing all electronic and written communications, as described above, as follows:

 

(i)		Customer, vendor or employee complaints or concerns are investigated by management and copies are forwarded to the Chairman;
(ii)		If any complaints or similar communications regarding accounting, internal accounting controls or auditing matters are received, they will be forwarded by the corporate secretary to the General Auditor and

to the Audit Committee chair for review and copies will be forwarded to the Chairman. Any such matter will be investigated in accordance with the procedures established by the Audit Committee; and

 

(iii)

Other communications raising matters that require investigation will be shared with appropriate members of management in order to permit the gathering of information relevant to the directors’ review, and will be forwarded to the director or directors to whom the communication was addressed.

 

Except as provided above, the corporate secretary will forward written communications to the full board of directors or to any individual director or directors to whom the communication is directed unless the communication is threatening, illegal or similarly inappropriate. Advertisements, solicitations for periodical or other subscriptions, and other similar communications generally will not be forwarded to the directors.

During 2013, each director attended at least 75% of the total number of board meetings and meetings held by the board committees on which he or she served. The board of directors met ten times in 2013, and the independent directors met in executive session, without any member of management in attendance, seven times. Members of the board of directors serve on one or more of the five standing committees described below. As the need arises, the board may establish ad hoc committees of the board to consider specific issues. Mr. Lautenbach is a member of the Executive Committee.

The members of all other board committees are independent directors pursuant to New York Stock Exchange independence standards. Each committee of the board operates in accordance with a charter. The members of each of the board committees are set forth in the following chart.

 

It is the longstanding practice and the policy of the board of directors that the directors attend the annual meeting of stockholders. All directors attended the May 2013 annual meeting.

The Audit Committee monitors our financial reporting standards and practices and our internal financial controls to confirm compliance with the policies and objectives established by the board of directors and oversees our ethics and compliance programs. The committee appoints independent accountants to conduct the annual audits, and discusses with our independent accountants the scope of their examinations, with particular attention to areas where either the committee or the independent accountants believe special emphasis should be directed. The committee reviews the annual financial statements and independent accountant’s report, invites the independent accountant’s recommendations on internal controls and on other matters, and reviews the evaluation given and corrective action taken by management. It reviews the independence of the independent accountants and approves their fees. It also reviews our

internal accounting controls and the scope and results of our internal auditing activities, and submits reports and proposals on these matters to the board. The committee is also responsible for overseeing the process by which management identifies and manages the company’s risks. The committee meets in executive session with the independent accountants and internal auditor at each committee meeting.

 

The board of directors has determined that the following members of the Audit Committee, S. Douglas Hutcheson, Michael I. Roth and David L. Shedlarz are “audit committee financial experts,” as that term is defined by the SEC. All Audit Committee members are independent as independence for audit committee members is defined in the New York Stock Exchange standards.

The Executive Compensation Committee is responsible for our executive compensation policies and programs. The committee chair frequently consults with, and the committee meets in executive session with, Pay Governance LLC, its independent compensation consultant. The committee recommends to all of the independent directors for final approval policies, programs and specific actions regarding the compensation of the CEO, and approves the same for all of our other executive of-

ficers. The committee also recommends the “Compensation Discussion and Analysis” for inclusion in our proxy statement, in accordance with the rules and regulations of the SEC, and reviews and approves stock grants and other stock-based compensation awards. All Executive Compensation Committee members are independent as independence for compensation committee members is defined in the New York Stock Exchange standards.

The Finance Committee reviews our financial condition and capital structure, and evaluates significant financial policies and activities, oversees our major retirement programs, advises management and recommends financial action to the board of directors. The committee’s duties include monitoring our current and projected financial condition, reviewing and recommending for

board approval major investment decisions including financing, mergers and acquisitions, divestitures and overseeing the financial operations of our retirement plans. The committee recommends for approval by the board of directors the establishment of new plans and any amendments that materially affect cost, benefit coverages, or liabilities of the plans.

The Governance Committee recommends nominees for election to the board of directors, recommends membership in, and functions of, the board committees, reviews and recommends to the board of directors the amount and form of compensation to non-employee members of the board, and, with the Non-Executive Chairman and the CEO, is responsible for CEO succession planning and ensuring management continuity. The Governance Principles of the Board of Directors, which are posted on our website at www.pb.com under the caption “Our Company—Leadership & Governance,” include additional information about succession planning. The committee reviews and evaluates the effectiveness of board administration and its governing documents, and reviews and monitors company programs and policies relating to directors. The committee reviews related-person transactions in accordance with company policy.

 

The Governance Committee generally identifies qualified candidates for nomination for election to the board of directors from a variety of sources, including other board members, management and stockholders. The committee also may retain a third-party search firm to assist the committee members in identifying and evaluating potential nominees to the board of directors.

 

Stockholders wishing to recommend a candidate for consideration by the Governance Committee may do so by writing to: c/o Corporate Secretary, Pitney Bowes Inc., 1 Elmcroft Road, MSC 65-19, Stamford, CT 06926-0700. Recommendations submitted for consideration by the committee in preparation for the 2015 annual meeting of stockholders must be received by January 5, 2015, and must contain the following information: (i) the name and address of the stockholder; (ii) the name and address of the person to be nominated; (iii) a representation that the stockholder is a holder of our stock entitled

to vote at the meeting; (iv) a statement in support of the stockholder’s recommendation, including a description of the candidate’s qualifications; (v) information regarding the candidate as would be required to be included in a proxy statement filed in accordance with the rules of the SEC; and (vi) the candidate’s written, signed consent to serve if elected.

 

The Governance Committee evaluates candidates stockholders recommend based on the same criteria it uses to evaluate candidates from other sources. The Governance Principles of the Board of Directors, which are posted on our Corporate Governance website at www.pb.com under the caption “Our Company—Leadership & Governance,” include a description of director qualifications. A discussion of the specific experience and qualifications the committee identified for directors and nominees may be found under “Director Qualifications” on page 23 of this proxy statement.

 

If the Governance Committee believes that a potential candidate may be appropriate for recommendation to the board of directors, there is generally a mutual exploration process, during which the committee seeks to learn more about the candidate’s qualifications, background and interest in serving on the board of directors, and the candidate has the opportunity to learn more about the company, the board, and its governance practices. The final selection of the board’s nominees is within the sole discretion of the board of directors.

 

Alternatively, as referenced on page 11 of this proxy statement, stockholders intending to nominate a candidate for election by the stockholders at the meeting must comply with the procedures in Article I, Section 5 of the company’s By-laws. The By-laws are posted on our Corporate Governance website at www.pb.com under the caption “Our Company—Leadership & Governance.”

During 2013, each director who was not an employee received an annual retainer of $65,000 and a meeting fee of $1,500 for each board and committee meeting attended. Committee chairs (except for the Audit Committee chair) receive an additional $1,500 for each committee meeting that they chair, and the Audit Committee chair receives an additional $2,000 for each Audit Committee meeting chaired.

The Non-Executive Chairman receives an additional annual retainer of $50,000. All directors are reimbursed for their out-of-pocket expenses incurred in attending board and committee meetings.

 

The board of directors maintains directors’ stock ownership guidelines, requiring, among other things, that each director accumulate and retain a minimum of 7,500

shares of our common stock within five years of becoming a director of Pitney Bowes. The stock ownership guidelines provide limited exceptions for the transfer of these shares while the director continues to serve on our board, as discussed in more detail under “Directors’

Stock Plan” below. All members of the board of directors are in compliance with these guidelines. The directors’ stock ownership guidelines are available on our Corporate Governance website at www.pb.com under the caption “Our Company—Leadership & Governance.”

Under the Directors’ Stock Plan, in 2013 each director who was not an employee of the company received an award of 2,200 shares of restricted stock which are fully vested after six months from the date of grant. (Directors appointed by the board to fill a vacancy during the year receive a prorated grant of shares as described in the Directors’ Stock Plan.) The shares carry full voting and dividend rights upon grant but, unless certain conditions are met, may not be transferred or sold until the later of (i) termination of service as a director, or, if earlier, the date of a change of control (as defined in the Directors’ Stock Plan), and (ii) the expiration of the six-month period following the grant of such shares. The Directors’ Stock Plan permits certain dispositions of stock granted under the restricted stock program provided that the di-

rector effecting the disposition had accumulated and will retain 7,500 shares of common stock. Permitted dispositions are limited to: (i) transfer to a family member or family trust or partnership; and (ii) donations to charity after the expiration of six months from date of grant. The original restrictions would continue to apply to the donee except that a charitable donee would not be bound by the restriction relating to termination of service from the board of directors.

 

Shares shown in the table on page 21 of this proxy statement disclosing security ownership of directors and executive officers include shares granted to the directors under the Directors’ Stock Plan.

We maintain a Directors’ Deferred Incentive Savings Plan under which directors may defer all or part of the cash portion of their compensation. Deferred amounts will be notionally “invested” in any combination of sev-

eral institutional investment funds. The investment choices available to directors under this plan are the same as those offered to employees under the company’s 401(k) plan.

The board discontinued the Directors’ Retirement Plan, with all benefits previously earned by directors frozen as of May 12, 1997.

 

Linda G. Alvarado is the only current director who is eligible to receive a retirement benefit under the plan after termination of service on the board of directors. As of

the date the plan was frozen, she had completed five years of service as a director, the minimum years of service required to receive an annual retirement benefit of 50% of her retainer as of May 12, 1997. Therefore she will receive an annual benefit of $15,000.

 

DIRECTOR COMPENSATION FOR 2013

 

	Name		Fees Earned or Paid in Cash ($)(1)				Stock Awards ($)(2)				Change in Pension Value and Nonqualified Deferred Compensation Earnings ($)(3)				All Other Compensation ($)(4)				Total ($)
	Rodney C. Adkins(5)			34,875				0				0				0				34,875
	Linda G. Alvarado			96,500				33,363				0				0				129,863
	Anne M. Busquet			98,000				33,363				0				0				131,363
	Roger Fradin			93,500				33,363				0				5,000				131,863
	Anne Sutherland Fuchs			105,500				33,363				0				5,000				143,863
	S. Douglas Hutcheson			95,000				33,363				0				5,000				133,363
	James H. Keyes(5)			40,875				0				0				0				40,875
	Eduardo R. Menascé			119,000				33,363				0				0				152,363
	Michael I. Roth			160,000				33,363				0				5,000				198,363
	David L. Shedlarz			107,000				33,363				0				0				140,363
	David B. Snow, Jr.			108,500				33,363				0				0				141,863
	Robert E. Weissman(5)			40,875				0				0				0				40,875

 

	(1)	Each non-employee director receives an annual retainer of $65,000 ($16,250 per quarter) and a meeting fee of $1,500 for each board and committee meeting attended. Committee chairs (except for the Audit Committee chair) receive an additional $1,500 for each committee meeting that they chair, and the Audit Committee chair receives an additional $2,000 for each Audit Committee meeting chaired. In 2012, the Lead Director received an additional annual retainer of $10,000. Effective January 1, 2013, the Non-Executive Chairman receives an additional annual retainer of $50,000.
	(2)	On May 13, 2013, each non-employee director then serving received an award of 2,200 shares of restricted stock. The fair market value of the restricted share awards was calculated using the average of the high and low stock price, $15.40 and $14.93, respectively, as reported on the New York Stock Exchange on May 13, 2013, the date of grant. The closing price on May 13, 2013 on the New York Stock Exchange was $15.01. The grant date fair market value of the restricted stock awards was computed in accordance with the share-based payment accounting guidance under ASC718. The aggregate number of shares of restricted stock held by each director as of December 31, 2013 is as follows: Ms. Alvarado – 33,400 shares; Ms. Busquet – 14,322 shares; Mr. Fradin – 4,997 shares; Ms. Fuchs – 17,763 shares; Mr. Hutcheson – 4,056 shares; Mr. Menascé – 23,392 shares; Mr. Roth – 30,200 shares; Mr. Shedlarz – 23,392 shares; and Mr. Snow – 16,800 shares. Stock options were not awarded to non-employee directors during 2013.
	(3)	Ms. Alvarado is the only non-employee director who served on the board of directors during 2013 eligible to receive payments from the discontinued Directors’ Retirement Plan. Ms. Alvarado is eligible to receive payments upon her retirement from the board of directors. The change in Ms. Alvarado’s pension value was ($10,710).
	(4)	Ms. Fuchs, Messrs. Fradin, Hutcheson and Roth utilized the Pitney Bowes Non-Employee Director Matching Gift Program during 2013. The company matches individual contributions by non-employee directors, dollar for dollar to a maximum of $5,000 per board member per calendar year.
	(5)	Mr. Adkins completed his term as a director in May 2013, having expressed his preference not to be re-nominated. Messrs. Keyes and Weissman retired in May 2013.

 

In accordance with the Governance Principles of the Board, the Governance Committee reviews and recommends to the board of directors the amount and form of compensation to non-employee members of the board of directors. The Governance Committee reviews the di-

rector compensation policy periodically and may consult from time to time with a compensation consultant, to be selected and retained by the committee, as to the competitiveness of the program.

The Governance Committee undertook a review of director compensation in 2013. The compensation for the board of directors was last modified in 2007. The Governance Committee retained an independent compensation consultant, Farient Advisors, to assist in its review. Farient provides no other consulting services to the company.

 

Farient presented a recommendation to the Governance Committee for changes to the board of directors compensation program, based upon an extensive analysis of comparative data, including director compensation at companies in the peer group used for executive com-

pensation purposes. Farient concluded that the company’s director compensation was below market, particularly in the equity component of the program, when compared with the peer group and the broader benchmark of comparably sized companies.

 

Based upon its review, including the information Farient provided, the Governance Committee recommended that the board of directors approve changes to the director compensation program. The Governance Committee recommended that the compensation level be set at about the 50th percentile of the total compensation in the peer and broader benchmark groups. The board of

directors approved the changes to the compensation program, subject to the approval by our stockholders of an amended and restated Directors’ Stock Plan. No new

shares need to be authorized to satisfy awards under the amended and restated Directors’ Stock Plan.

 

COMPARISON OF CURRENT AND NEW DIRECTOR COMPENSATION PROGRAMS

 

												Incremental Leadership
				Board Member								Premiums
	Compensation Element			Current				New				Current				New
	Board service								(Board Chairman)
	Cash retainer			$65,000				$75,000				$50,000				$100,000
	Meeting fee			$1,500				$0				$0				$0
	Equity Award			2,200 shares				$100,000
	Annual Equity Grant							value-based grant
	Committee service															Committee
	Cash retainer															Chairmen
	• Audit			$0				$12,000				$0				$12,000
	• Executive Compensation			$0				$10,500				$0				$10,500
	• Governance			$0				$9,000				$0				$9,000
	• Finance			$0				$9,000				$0				$9,000
	Meeting Fee
	• Audit			$1,500				$0				$2,000				$0
	• Executive Compensation			$1,500				$0				$1,500				$0
	• All Other Committees			$1,500				$0				$1,500				$0
	Total Compensation			@$125,000				@$195,000
	Ownership Guidelines			7,500 shares;				5 times cash retainer;
				5 years to reach				5 years to reach
				compliance				compliance

 

The board of directors has a written “Policy on Approval and Ratification of Related-Person Transactions” which states that the Governance Committee is responsible for reviewing and approving any related person transactions between Pitney Bowes and its directors, nominees for director, executive officers, beneficial owners of more than five percent of any class of Pitney Bowes voting stock and their “immediate family members” as defined by the rules and regulations of the SEC (related persons).

 

Under the related-person transaction approval policy, any newly proposed transaction between Pitney Bowes and a related person must be submitted to the Governance Committee for approval if the amount involved in the transaction or series of transactions is greater than $120,000. Any related-person transactions that have not been pre-approved by the Governance Committee must be submitted for ratification as soon as they are identified. Ongoing related-person transactions are reviewed on an annual basis. The material facts of the transaction and the related person’s interest in the transaction must be disclosed to the Governance Committee. It is the expectation and policy of the board of directors that any related-person transactions will be at arms’ length and on terms that are fair to the company.

 

If the proposed transaction involves a related person who is a Pitney Bowes director or an immediate family member of a director, that director may not participate in the deliberations or vote regarding approval or ratification of the transaction but may be counted for the purposes of determining a quorum.

 

The following related-person transactions do not require approval by the Governance Committee:

 

1.

Any transaction with another company with which a related person’s only relationship is as an employee or beneficial owner of less than ten percent of that company’s shares, if the aggregate amount invested does not exceed the greater of $1 million or two percent of that company’s consolidated gross revenues;

2.

A relationship with a firm, corporation or other entity that engages in a transaction with Pitney Bowes where the related person’s interest in the transaction arises only from his or her position as a director or limited partner of the other entity that is party to the transaction;

3.

Any charitable contribution by Pitney Bowes to a charitable organization where a related person is an officer, director or trustee, if the aggregate amount involved does not exceed the greater of $1 million or two percent of the charitable organization’s consolidated gross revenues;

4.

Any transaction involving a related person where the rates or charges involved are determined by competitive bids; and

5.

Any transaction with a related person involving services as a bank depositary of funds, transfer agent, registrar, trustee under a trust indenture, or similar services.

 

The Governance Committee may delegate authority to approve related-person transactions to one or more of its members. The member to whom such authority is delegated must report, for informational purposes only, any approval or ratification decisions to the Governance Committee at its next scheduled meeting.

 

During 2013, the company submitted one transaction to the Governance Committee for review and ratification. Abby F. Kohnstamm was appointed Executive Vice President and Chief Marketing Officer, effective as of June 17, 2013. Prior to the effective date of her appointment as Chief Marketing Officer, on February 1, 2013, Pitney Bowes had entered into a consulting agreement for a period of four months with Abby F. Kohnstamm & Associates, Inc., a marketing consulting firm which Ms. Kohnstamm founded and served as President and Chief Executive Officer. Pitney Bowes paid Abby F. Kohnstamm & Associates, Inc. $200,000 during 2013 under the consulting agreement. The term of the consulting agreement, and all services performed thereunder, ended prior to the effective date of Ms. Kohnstamm’s appointment as Chief Marketing Officer.

The board of directors believes that, as a whole, the board should include individuals with a diverse range of experience to give the board depth and breadth in the mix of skills represented for the board to oversee management on behalf of our stockholders. In addition, the board of directors believes that there are certain attributes that each director should possess, as described below. Therefore, the board of directors and the Governance Committee consider the qualifications of directors and nominees both individually and in the context of the overall composition of the board of directors.

 

The board of directors, with the assistance of the Governance Committee, is responsible for assembling appropriate experience and capabilities within its membership as a whole, including financial literacy and expertise needed for the Audit Committee as required by applicable law and New York Stock Exchange listing standards. The Governance Committee is responsible for reviewing and revising, as needed, criteria for the selection of directors. It also reviews and updates, from time to time, the board candidate profile used in the context of a director search, in light of the current and anticipated needs of the company and the experience and talent then represented on the board of directors. The Governance Committee reviews the qualifications of director candidates in light of the criteria approved by the board of directors and recommends candidates to the board for election by the stockholders at the annual stockholders meeting.

 

The Governance Committee seeks to include individuals with a variety of occupational and personal backgrounds on the board of directors in order to obtain a range of viewpoints and perspectives and to enhance the diversity of the board of directors in such areas as experience and geography, as well as race, gender, ethnicity and age.

 

Among other things, the board of directors has determined that it is important that the board should include members with the following skills and experiences:

 

•

Financial acumen for evaluation of financial statements and capital structure.

	•	International experience and experience with emerging markets to evaluate our global operations.
	•	Software and technology acumen, coupled with in-depth understanding of our business and markets, to provide counsel and oversight with regard to our strategy.
	•	Operating experience, providing specific insight into developing, implementing and assessing our operating plan and business strategy.
	•	Human resources experience, including executive compensation experience to help us attract, motivate and retain world-class talent.
	•	Corporate governance experience at publicly traded companies to support the goals of greater transparency, accountability for management and the board, and protection of stockholder interests.
	•	Understanding of customer communications and marketing channels to support our client focus and customer communications and marketing strategy.
	•	Turnaround experience to help us assess opportunities to reposition certain of our businesses.
	•	Leadership to motivate others and identify and develop leadership qualities in others.

 

Additionally, the board believes all directors should demonstrate integrity and ethics, business acumen, sound judgment, and the ability to commit sufficient time and attention to the activities of the board of directors, as well as the absence of any conflicts with our interests.

 

The Governance Committee assesses the effectiveness of its criteria when evaluating and recommending new candidates.

 

Each director brings experience and skills that complement those of the other directors. The board of directors believes that all the directors nominated for election are highly qualified, and have the attributes, skills and experience required for service on the board of directors. Additional information about each director is included with biographical information for each appearing below.

Directors are elected to terms of one year. The board of directors has ten members whose terms expire in 2014. Each of the nominees for election at the 2014 annual meeting of stockholders is a current board member and was selected by the board of directors as a nominee in accordance with the recommendation of the Governance Committee. If elected at the 2014 annual meeting of stockholders, each of the nominees would serve until the 2015 annual meeting of stockholders and until his or her successor is elected and has qualified, or until such director’s death, resignation or removal.

Information about each nominee for director, including the nominee’s age, as of March 1, 2014, is set forth below.

 

Should any nominee become unable to accept nomination or election as a director (which is not now anticipated), the persons named in the enclosed proxy will vote for such substitute nominee as may be selected by the board of directors, unless the size of the board is reduced. At the annual meeting, proxies cannot be voted for more than the ten director nominees.

Report of the Audit Committee

The Audit Committee functions pursuant to a charter that is reviewed annually and was last amended in September 2013. The committee represents and assists the board of directors in overseeing the financial reporting process and the integrity of the company’s financial statements. The committee is responsible for retaining the independent accountants and pre-approving the services they will perform, and for reviewing the performance of the independent accountants and the company’s internal audit function. The board of directors, in its business judgment, has determined that all five of the members of the committee are “independent,” as required by applicable listing standards of the New York Stock Exchange. 

 

In the performance of its responsibilities, the committee has reviewed and discussed the audited financial statements with management and the independent accountants. The committee has also discussed with the independent accountants the matters required to be discussed under the rules adopted by the Public Company Accounting Oversight Board (“PCAOB”). Finally, the committee has received the written disclosures and the letter from the independent accountants required by applicable requirements of the PCAOB regarding the independent accountant’s communications with the audit committee concerning independence, and has discussed with the independent accountants their independence. 

 

In determining whether to recommend that the stockholders ratify the selection of PricewaterhouseCoopers LLP (“PricewaterhouseCoopers”) as Pitney Bowes’ independent auditor for 2014, management and the committee, as they have done in prior years, engaged in a review of PricewaterhouseCoopers. In that review, the committee considers the continued independence of PricewaterhouseCoopers, its geographic presence compared to that of Pitney Bowes, its industry knowledge, the quality of the audit and its services, the audit approach and supporting technology, any Securities and Exchange Commission actions and other legal issues as well as PCAOB inspection reports. Pitney Bowes management prepares an annual assessment that includes an analysis of (1) the above criteria for PricewaterhouseCoopers and the other “Big Four” accounting firms; (2) an assessment of whether firms outside of the “Big Four” should be considered; and (3) a detailed analysis of the PricewaterhouseCoopers’ fees. In addition, PricewaterhouseCoopers reviews with the committee its analysis of its independence. Based on the results of this review this year, the committee concluded that PricewaterhouseCoopers is independent and that it is in the best interests of Pitney Bowes and its investors to appoint PricewaterhouseCoopers to serve as Pitney Bowes’ independent registered accounting firm for 2014. 

 

Based upon the review of information received and discussions as described in this report, the committee recommended to the board of directors that the audited financial statements be included in the company’s Annual Report on Form 10-K for the year ended December 31, 2013 as filed with the Securities and Exchange Commission on February 21, 2014. 

 

By the Audit Committee of the board of directors, 

 

David L. Shedlarz, Chair

Roger Fradin

Anne Sutherland Fuchs

S. Douglas Hutcheson

Michael I. Roth

The Audit Committee has appointed PricewaterhouseCoopers LLP (“PricewaterhouseCoopers”) as the independent accountants for Pitney Bowes for 2014. Although not required by law, this matter is being submitted to the stockholders for ratification, as a matter of good corporate governance. If this proposal is not ratified at the annual meeting by the affirmative vote of a majority of the votes cast, the Audit Committee intends

to reconsider its appointment of PricewaterhouseCoopers as its independent accountants. PricewaterhouseCoopers has no direct or indirect financial interest in Pitney Bowes or any of its subsidiaries. A representative from PricewaterhouseCoopers is expected to attend the annual meeting and to be available to respond to appropriate questions and will have the opportunity to make a statement if he or she desires to do so.

Aggregate fees billed for professional services rendered for the company by PricewaterhouseCoopers for the years ended December 31, 2013 and 2012, were (in millions):

 

		2013					2012
Audit			$	8.8				$	7.0
Audit-Related				.3					.4
Tax				.6					1.1
All Other				—					—
Total			$	9.7				$	8.5

 

Audit fees: The Audit fees for the years ended December 31, 2013 and 2012 were for services rendered for the audits of the consolidated financial statements and internal control over financial reporting of the company and selected subsidiaries, statutory audits, issuance of comfort letters, consents, income tax provision procedures, and assistance with review of documents filed with the SEC. The Audit fees were higher in 2013 compared with 2012 due to the additional audit services required in connection with the divestiture of Pitney Bowes Management Services in 2013.

 

Audit-Related Fees: The Audit-Related fees for the years ended December 31, 2013 and 2012 were for assurance and related services related to employee benefit plan audits, procedures performed for SSAE 16 reports, attestation services pertaining to financial reporting that are not required by statute or regulation

and consultations concerning financial accounting and reporting standards.

 

Tax Fees: The Tax fees for the years ended December 31, 2013 and 2012 were for services related to tax compliance, including the preparation and/or review of tax returns and claims for refunds.

 

The Audit Committee has adopted policies and procedures to pre-approve all services to be performed by PricewaterhouseCoopers. Specifically the committee’s policy requires pre-approval of the use of PricewaterhouseCoopers for audit services as well as detailed, specific types of services within the following categories of audit-related and non-audit services: merger and acquisition due diligence and audit services; employee benefit plan audits; tax services; procedures required to meet certain regulatory requirements; and selected consulting services. The committee will not approve any service prohibited by regulation. In each case, the committee’s policy is to pre-approve a specific annual budget by category for such audit, audit-related and tax services which the company anticipates obtaining from PricewaterhouseCoopers, and has required management to report the actual fees (versus budgeted fees) to the committee on a periodic basis throughout the year. In addition, any new, unbudgeted engagement for audit services or within one of the other pre-approved categories described above must be pre-approved by the committee or its chair.

In accordance with SEC rules, stockholders are being asked to approve, on an advisory or non-binding basis, the compensation of our named executive officers as disclosed in this proxy statement.

 

This proposal, commonly known as a “Say-On-Pay” proposal and required by the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010 provides our stockholders with the opportunity to express their views, on an advisory (non-binding) basis, on our executive compensation for our named executive officers (“NEOs”) for fiscal year 2013 as described in “Compensation Discussion and Analysis” or (CD&A) beginning on page 35 of this proxy statement, as well as the “Summary Compensation Table” and other related compensation tables and narratives, on pages 57 through 73 of this proxy statement.

 

The stockholders have approved the board of directors’ recommendation to hold advisory votes on executive compensation annually. At the company’s annual meeting of stockholders in 2013, stockholders overwhelmingly approved the company’s executive compensation by a vote of approximately 93% of the votes cast in favor.

 

The Executive Compensation Committee and the board of directors believe that the compensation program described in the CD&A establishes effective incentives for the sustainable achievement of positive results without encouraging unnecessary or excessive risk-taking. Our compensation program appropriately aligns pay and performance incentives with stockholder interests and enables the company to attract and retain talented executives. The company and the committee have reached out to stockholders to solicit their views on the company’s executive compensation structure.

 

The following are the most critical factors driving the board and the committee’s conclusion in establishing the incentive compensation payouts:

 

•

the company’s stock price increased from $10.64 to $23.30 from December 31, 2012 to December 31, 2013, an increase which placed the company as the fifth

		best performing stock on the basis of total shareholder return in the entire S&P 500;
	•	the financial results in 2013 were within the guidance provided by the company to its stockholders; and
	•	the rate of decrease in revenue was the lowest in recent years, and earnings per diluted share and adjusted earnings before interest and taxes both showed an improvement in the company’s performance as compared to prior years.

 

Based on these financial results when compared against the pre-determined financial goals established by the committee for 2013¹, the annual incentive payout multiplier for the NEOs was 109.5% and the 2011-2013 long-term cash incentive units award payout was $1.50.

 

As discussed in the CD&A, the committee has structured our executive compensation program based on the following central principles:

 

	(1)	Compensation should be tied to performance and long-term stockholder return and performance based compensation should be a greater part of total compensation for more senior positions;
	(2)	Compensation should reflect leadership position and responsibility;
	(3)	Incentive compensation should reward both short-term and long-term performance;
	(4)	Compensation levels should be sufficiently competitive to attract and retain talent; and
	(5)	Executives should own meaningful amounts of Pitney Bowes stock to align their interests with Pitney Bowes stockholders.

 

We believe our executive compensation program demonstrates a strong link between pay and performance in its design and exhibits strong pay governance practices.

1	See detailed discussion of the 2013 pre-determined financial goals beginning on page 44.

 

Key Changes Made to our Executive Compensation Program in 2013

 

	•	Increased the weighting of financial objectives to 100% for the annual incentive program;
	•	Utilizing as part of the LTI program a three-year cumulative TSR metric;
	•	Reduced duplicative metrics across award types by replacing the Adjusted earnings per share financial objective with an Adjusted earnings before interest and taxes objective in annual incentive;
	•	Enhanced disclosure of performance targets in the 2013 and 2014 proxy;
	•	Revised our peer group in light of the evolving strategic direction of the company with increasing emphasis in the software and technology arena and to reflect the divestiture of PBMS;
	•	Restructured the LTI design to be implemented in 2014 awards, making all long-term awards stock based;
	•	Expanded the executive stock ownership policy to: (i) include more senior executives, and (ii) restrict the shares that will count toward stock holding requirement;
	•	Introduced the Radford Survey High-Tech Industry in addition to the Towers Watson Regressed Compensation Report in determining the competitiveness of executive compensation; and
	•	Reduced severance benefits payable on account of a Change of Control from three to two times participant’s annual salary and average annual incentive award and eliminated the excise tax gross-up.

 

In addition to the changes summarized above, we are maintaining the existing compensation practices that represent strong corporate governance policies.

 

We urge stockholders to read the CD&A beginning on page 35 of this proxy statement, which describes in more detail how our executive compensation policies and procedures operate and are designed to achieve our compensation objectives, as well as the “Summary Compensation Table” and other related compensation tables and narratives on pages 57 through 73, which provide detailed information on the compensation of our NEOs.

 

We also invite stockholders to read our Annual Report on Form 10-K for the year ended December 31, 2013, as filed with the Securities and Exchange Commission on February 21, 2014, which describes our business and 2013 financial results in more detail.

 

In accordance with Section 14A of the Exchange Act, and as a matter of good corporate governance, we are

asking stockholders to indicate their support for our NEO compensation by voting FOR this advisory resolution at the 2014 Annual Meeting:

 

RESOLVED, that the stockholders of Pitney Bowes Inc. approve on an advisory basis the compensation of the company’s named executive officers disclosed in the Compensation Discussion and Analysis, the Summary Compensation Table and the related compensation tables, notes and narratives in this proxy statement for the company’s 2014 Annual Meeting of Stockholders.

 

This advisory resolution, commonly referred to as a “Say-On-Pay” resolution, is non-binding on the board of directors. Although non-binding, our board of directors and the committee will carefully review and consider the voting results when making future decisions regarding our executive compensation program. The next “Say-on-Pay” advisory vote will occur at the 2015 annual meeting.

Proposal 4: Approval of the Pitney Bowes Inc.
Directors’ Stock Plan, as Amended and Restated

 

The board of directors recommends that stockholders approve the Pitney Bowes Inc. Directors’ Stock Plan, as amended and restated (Plan). The board of directors unanimously approved the Plan in February 2014. The Plan will become effective May 12, 2014, upon stockholder approval at our annual meeting. The Plan governs grants of stock-based awards to non-employee directors, which is an important component of our non-

employee director compensation program, enabling us to attract and retain persons of outstanding competence to serve as non-employee directors and encouraging the alignment of non-employee director compensation with stockholder interests.

 

The complete text of the Plan approved by the board of directors is attached as Annex A to this Proxy Statement. The following discussion is qualified in all respects by reference to Annex A.

Equity compensation is an essential part of our non-employee director compensation program and enables us to attract and retain persons of outstanding ability. We believe our future success depends on our ability to attract, motivate and retain high quality non-employee directors and approval of the Plan is critical to achieving this success. The potential change in value of the equity compensation to the board members over time directly aligns their interests with the long-term interests of our stockholders.

We believe that we have demonstrated our commitment to sound equity compensation practices. We recognize that equity compensation awards dilute stockholder equity and, therefore, we have carefully managed our equity incentive compensation. In fact, the equity to be utilized under the new Directors’ Stock Plan will be drawn from the Pitney Bowes Stock Plan equity reserve which the stockholders previously approved in 2013. The board targeted its compensation, including the equity component, to be consistent with the market median, and we believe our historical share usage has been responsible and mindful of stockholder interests, as described further below.

The Plan provides for automatic annual grants of restricted stock units for non-employee directors.

 

Awards granted under the Plan will be settled by the issuance of shares of common stock, $1 par value per share, of the company (Common Stock), that are drawn from the shares of Common Stock available for issuance under the Pitney Bowes Inc. 2013 Stock Plan (2013 Stock Plan), previously approved by the company’s stockholders. As has historically been and continues to be the case, however, non-employee directors will not participate in the 2013 Stock Plan. Approval of the Plan will not result in an increase in the number of shares that are available for issuance under our equity compensation plans. As of December 31, 2013, 19,180,600 shares remain available for issuance under the 2013 Stock Plan. Based on our past experience, we believe the previously approved share pool under the 2013 Stock Plan will provide us an opportunity to grant equity awards under the 2013 Stock Plan and the Plan for approximately four more years before we would need to seek stockholder approval of more shares.

Provisions Designed to Protect Stockholder Interests

 

The Plan has several provisions designed to protect stockholder interests and promote effective corporate governance including:

 

	•	Limit on grants of awards (specific annual grant amounts are “hard-wired” into the Plan);
	•	Prohibition on share recycling or “Liberal Share Counting” practices (pursuant to the share counting provisions of the 2013 Stock Plan); and
	•	No “evergreen” provision to automatically increase the number of shares issuable under the Plan (shares issuable under the Plan are drawn from the 2013 Stock Plan share pool).

Awards granted under the Plan will be settled by the issuance of shares of Common Stock that are drawn from the shares of Common Stock available for issuance from time to time under the 2013 Stock Plan, previously approved by the company’s stockholders. Shares of Common Stock issued pursuant to awards of restricted stock units under the Plan shall reduce, on a one-for-one basis, both (a) the overall maximum number of shares of Common Stock available for issuance under the 2013 Stock Plan and (b) the sub-limit under the 2013 Stock Plan for the number of shares that may be issued for awards that are not options or stock appreciation rights.

 

As of December 31, 2013, 19,180,600 shares remain available for issuance under the 2013 Stock Plan share pool. In addition to the number of shares described in the preceding sentence, any shares associated with outstanding awards under the prior plans (as defined in the 2013 Stock Plan) as of April 30, 2013 that on or after

such date cease for any reason to be subject to such awards (other than by reason of exercise or settlement of the awards to the extent they are exercised for or settled in vested and nonforfeitable shares) will become available for issuance under the 2013 Stock Plan share pool. Shares delivered out of the 2013 Stock Plan share pool will be authorized but unissued shares of Common Stock, treasury shares or shares purchased in the open market or otherwise. To the extent that any award payable in shares is forfeited, cancelled, returned to the company for failure to satisfy vesting requirements or upon the occurrence of other forfeiture events, or otherwise terminates without payment being made, the shares covered thereby will no longer be charged against the maximum share limitation under the 2013 Stock Plan share pool and may again become available under the 2013 Stock Plan share pool.

Each non-employee director then serving as a director of the company will receive an annual award on the date of the first meeting of directors after each annual stockholders’ meeting of restricted stock units with respect to a number of shares of Common Stock having a fair market value equal to $100,000; provided, however, that a non-employee director who joins the board after such date will receive a pro-rated award of restricted stock units. Each restricted stock unit granted under the Plan will represent the right to receive one share of Common Stock on the date that is one year following the date the award is granted; provided, however, that with respect to each annual grant the company may, in its sole discretion, provide non-employee directors with the one-time opportunity to elect to defer the settlement of the restricted stock units until the termination of the non-employee director’s service as a director of the company.

 

Unless the Committee determines otherwise, non-employee directors will have the right to receive dividend equivalents in connection with the restricted stock units

granted under the Plan pursuant to which the non-employee directors will be entitled to receive payments equivalent to dividends with respect to the number of shares subject to the corresponding award of restricted stock units, which payments, unless the Committee determines otherwise, shall be paid to the non-employee directors in cash as and when such dividends are paid to the holders of Common Stock.

 

Unless the Committee provides otherwise, non-employee directors have no voting or other rights (other than the dividend equivalent rights described above) as a stockholder with respect to the shares of Common Stock subject to and/or issuable pursuant to any awards of restricted stock units granted under the Plan until such shares are actually issued.

 

The restricted stock units granted under the Plan may not be sold, assigned, pledged or otherwise transferred by the non-employee director, other than by will or the laws of descent and distribution.

In the event of any change in the number or kind of outstanding shares of Common Stock of the company by reason of a recapitalization, merger, consolidation, dividend, combination of shares or any other change in the corporate structure or shares of stock of the company, the board will make equitable and appropriate adjust-

ments in the number of restricted stock units to be awarded to non-employee directors, in the number of shares subject to and any other affected provisions of outstanding awards of restricted stock units to prevent enlargement or diminution of the benefits intended to be granted under the Plan.

As described above, each non-employee director then serving as a director of the company will receive an annual award on the date of the first meeting of directors after each annual stockholders’ meeting of restricted stock units with respect to a number of shares of Common Stock having a fair market value equal to $100,000; provided, however, that a non-employee director who

joins the board after such date will receive a pro-rated award of restricted stock units.

 

On February 28, 2014, the closing price of our common stock traded on the New York Stock Exchange was $25.45 per share.

The following discussion summarizes the material U.S. federal income tax consequences to the company and the participating non-employee directors in connection with the Plan under existing applicable provisions of the IRC and the accompanying regulations. The discussion is general in nature and does not address issues relating to the income tax circumstances of any individual non-employee director. The discussion is based on federal income tax laws in effect on the date of this proxy statement and is, therefore, subject to possible future changes in the law. The discussion does not address the consequences of state, local or foreign tax laws.

Restricted Stock Units

 

Non-employee directors do not recognize income at the time of the grant of restricted stock units. When the award vests or is paid, non-employee directors generally recognize ordinary income in an amount equal to the fair market value of the restricted stock units at such time, and the company will receive a corresponding deduction.

Equity Compensation Plan Information

 

The following table provides information as of December 31, 2013 regarding the number of shares of common stock that may be issued under our equity compensation plans.

 

								(c)
								Number of securities
		(a)						remaining available for
		Number of securities to be			(b)			future issuance under equity
		issued upon exercise of			Weighted-average exercise			compensation plans
		outstanding options,			price of outstanding options,			excluding securities
Plan Category		warrants and rights			warrants and rights			reflected in column (a)
Equity compensation plans approved by security holders		14,526,633			$31.78			19,180,600
Equity compensation plans not approved by security holders		—			—			—
Total		14,526,633			$31.78			19,180,600

 

Report of the Executive Compensation Committee

 

The Executive Compensation Committee of the board of directors (1) has reviewed and discussed with management the section included below in this proxy statement entitled “Compensation Discussion and Analysis” and (2) based on that review and discussion, the Committee has recommended to the board of directors that the CD&A be included in the company’s Annual Report on Form 10-K for the year ended December 31, 2013 and this proxy statement.

 

By the Executive Compensation Committee of the board of directors,

 

Eduardo R. Menascé, Chairman
Anne M. Busquet
Anne Sutherland Fuchs
David B. Snow, Jr.

Executive Summary

 

Overview

 

This Compensation Discussion and Analysis, or CD&A, section explains our compensation philosophy, summarizes the material components of our compensation programs and reviews compensation decisions made by the Executive Compensation Committee (the Committee) and the independent board members. The Committee, comprised of only independent directors, makes all compensation decisions regarding the seven executives identified as Named Executive Officers (NEOs) in the Summary Compensation Table below. The independent board members, based on recommendations by the Committee, decide compensation actions impacting the Chief Executive Officer (CEO).

 

In 2013, the company’s NEOs included two former executive officers (Leslie Abi-Karam and Vicki A. O’Meara) who would have been in the top five highly paid officers had they still been employed by the company at the end of the year (see page 68 for additional details). As a result, there are seven NEOs for 2013:

 

2013 Named Executive Officers
	•	Marc B. Lautenbach, President and Chief Executive Officer
	•	Michael Monahan, Executive Vice President and Chief Financial Officer
	•	Abby F. Kohnstamm, Executive Vice President and Chief Marketing Officer
	•	Mark F. Wright, Executive Vice President and President, PB Digital Commerce Solutions1
	•	Daniel J. Goldstein, Executive Vice President and Chief Legal & Compliance Officer
	•	Leslie Abi-Karam, former Executive Vice President and President, Pitney Bowes Communications Solutions
	•	Vicki A. O’Meara, former Executive Vice President and President, Pitney Bowes Services Solutions

 

Effective December 3, 2012, the board of directors elected Marc B. Lautenbach President and CEO and appointed Michael I. Roth non-executive chairman of the board of directors.

 

In his first year as our new President and CEO, Mr. Lautenbach focused on resetting the strategic direction of the company and beginning to execute on that strategy, assembling the right team to lead the company’s critical areas of development over the next several years and beginning to execute on initiatives consistent with the new strategies outlined below. Considering the future prospects of the company, Mr. Lautenbach invested $1,000,000 of his own financial resources in company stock. In addition, two newly hired executive business unit heads also purchased company stock from their own financial resources.

 

Summary of 2013 Business Results²

 

In 2013, the company achieved significant success in the early stages of executing on its strategy to transform the company for the future. This success was evidenced through our financial results and attainment of certain objectives targeted at longer-term achievement, including solidifying our balance sheet and divesting businesses no longer in line with the company’s long-term strategy. Our total shareholder return (TSR) for the year was an extraordinary 132%, which placed us fifth in year-over-year TSR among all S&P 500 companies for 2013. We believe the stock price increase reflected stockholder recognition that our first steps in executing on our new strategy to unlock the value embedded in our company were successful and position us well for the future.

 

We identified three major objectives for the company that would determine our progress towards transforming our businesses and made significant progress on each. These objectives were as follows: (1) stabilize the mailing business; (2) achieve operational excellence; and (3) invest in growth initiatives.

 

•

Stabilize the Mailing Business. The recurring revenue streams in 2013 for our global Mailing business continued to decline at a slower rate compared to prior years contributing to the overall stabilization of the Mailing business. Equipment sales in the Production Mail and Small and Medium Business Solutions (SMB) segments improved. Our new go-to-market strategy implementation in the SMB business is improving our sales process and enhancing our client experience, while reducing costs.

 

1	Title effective as of February 2014.
2	The financial results discussed in this summary are on a GAAP and non-GAAP basis. See detailed discussion under the table on page 55 “Accounting Items and Reconciliation of GAAP to non-GAAP Measures.”

	•	Achieve Operational Excellence. Our efforts in reducing expenses in 2013 resulted in a $71 million savings in selling, general and administrative expenses compared to the prior year. We are in the early stages of implementing a new enterprise resource planning (ERP) system to streamline and consolidate many of our back-office operations. We signed a contract to sell our World Headquarters building in 2014. This is another example of our commitment to reducing operating expenses going forward. In addition, in 2013, we sold three businesses, Pitney Bowes Management Services (PBMS), International Mailing Services (IMS) and the Nordic furniture business. We sold these businesses because they did not fit within our future strategic intent for the company. We used the net proceeds from the North American portion of the PBMS sale to strengthen our balance sheet by redeeming $300 million in bonds originally scheduled to mature in 2014. Also in 2013, our clear focus on initiatives surrounding inventory and accounts receivables, two key components of working capital, generated over $100 million of cash improvements.
	•	Invest in Growth Initiatives. In 2013, we continued to invest in our e-commerce business which grew revenue sequentially at a high double digit rate. In our software business, we brought in new leadership with skill sets to support our new go-to-market strategy, which we expect will bring revenue growth in the software business. We also moved to increase our investment to 100% effective 2014, in our high growth potential Brazilian joint venture by purchasing our joint venture partner’s interest in the business.

 

Turning to our financial performance in 2013, revenue was $3.869 billion compared to $3.915 billion in 2012; however the 1% decrease was more favorable than the year-over-year trend from prior years. Also, we grew revenue in the fourth quarter of 2013, with total revenue of $1 billion representing an increase of 2% over the prior year’s fourth quarter. Adjusted earnings per diluted share from continuing operations for 2013 were $1.88, compared to $1.96 in 2012. Adjusted earnings before interest and taxes were $711 million compared to $744 million in 2012. Adjusted free cash flow for the year was $635 million, and we generated $625 million in cash from operations. Our digital commerce solutions segment experienced higher growth with revenue increasing 3% year over year, including a 17% growth rate in the fourth quarter. Our digital commerce solutions revenue for the year increased from $578 million to $596 million. Our production mail business had an outstanding year due to the growth in its revenue and gross margin. In 2013, we reduced debt on the balance sheet by $671 million compared to year-end 2013. In aggregate, the 2013 financial results were within the guidance the company provided to the investment community.

 

In addition, in 2013:

 

	•	We accelerated globalization of key shared service functions including Information Technology, supply chain, service, and client care which will standardize and consolidate key business processes.
	•	We created a single global marketing organization, which will enable us to better serve our clients, leverage our size, and create the foundation to enable us to integrate our organization.
	•	We reorganized our business into three segments: (i) a Digital Commerce solution; (ii) SMB Solution Group; and (iii) an Enterprise Business Solutions Group, which will better align our businesses for which we have a similar strategic intent and will enable us to better serve our clients.
	•	We took important steps to improve our go-to-market capabilities by deepening our specialization in our software business and creating a more robust go-to-market capability in our SMB business.
	•	We announced a multi-year licensing agreement with Twitter, the leading global real-time information network, to provide location intelligence solutions for its mobile platform.
	•	We announced an interactive digital communications exchange with Broadridge Financial Solutions, Inc. utilizing technology developed by VollyTM that will make it easier for businesses to communicate with consumers about their most important transactions. This new platform, powered by Amazon Web Services (AWS), enables consumers to securely receive and store comments and manage payments on any participating online channel they choose.
	•	We solidified our financial flexibility by strengthening our balance sheet, reducing our dividend payments and implementing key initiatives to reduce our cost structure, working capital and improve our overall efficiency.
	•	We enhanced the company’s existing strong business talent with outside recruits of seasoned executives with critical skills and pertinent experience necessary to lead our company’s transformative development over the next several years.

 

In summary, in 2013, we saw improving trends in our business and made significant progress to unlocking the long-term value embedded in our company for the benefit of our clients, our shareholders, and our employees.

 

Some of the amounts in the CD&A portion of this proxy statement are shown on a non-GAAP basis. For additional detail on the calculation of the financials reported, please refer to the table on page 55 “Accounting Items and Reconciliation of GAAP to Non-GAAP Measures”. We urge stockholders to read our Annual Report on Form 10-K for the year ended December 31, 2013, filed with the SEC on February 21, 2014, which describes our business and 2013 financial results in more detail.

CEO 2013 Compensation

 

The compensation package of our President and CEO reflects the enhanced performance-linked pay philosophy the board adopted in 2012 and further enhanced in 2013 and is competitive when compared to our peer group and two third-party compensation survey reports. Mr. Lautenbach’s total direct compensation is 91% of the market median of total direct compensation for CEOs in our peer group and 94% of the average of the median CEO total direct compensation using the Towers Watson Regressed Compensation Report and Radford High Tech Industry Survey (Survey Reports). Mr. Lautenbach’s base compensation is 87% of the market median of the peer group and 85% of the average of the median of the Survey Reports. His total cash compensation is 86% of the market median of the peer group and 88% of the average of the median of the Survey Reports.

 

 

The following highlights 2013 compensation actions for the President and CEO approved by the board of directors:

 

	•	Base salary remained at $850,000 in 2013 (the board of directors and the Committee approved a freeze of base salaries for the CEO and NEOs in 2013);
	•	Annual incentive target remained at 130%, resulting in a payout of $1,209,975 (after applying the Committee-approved 2013 Annual Incentive multiplier (see pages 44 and 45 for details));
	•	Long-term incentive target remained at $4,000,000 with the February 2013 grant consisting of 60% Cash Incentive Units (CIUs) and 40% Restricted Stock Units (RSUs); and
	•	The second and final tranche of a one-time sign-on grant of 400,000 premium-priced stock options was granted in February 2013 with an exercise price equal to 160% of the closing price of company stock on February 11, 2013.

º

The option awards will vest in four equal annual installments beginning on December 3, 2013 and ending on December 3, 2016, the fourth anniversary of the grant.

Summary of 2013 Executive Compensation Changes

 

At the company’s annual meeting of stockholders in 2013, stockholders overwhelmingly approved the company’s executive compensation by a vote of approximately 93% of the votes cast in favor. During 2013, management and the Committee maintained their commitment to obtaining and considering stockholder feedback on the company’s compensation program by soliciting feedback over the course of the year. The following highlights the changes that we made to the program in 2013. These highlights will be discussed in more detail in “2013 Compensation” beginning on page 43 of this proxy statement.

 

	•	Increased the weighting of financial objectives to 100% for the annual incentive program;
	•	Reduced duplicative metrics across award types by replacing the Adjusted earnings per share financial objective with an Adjusted earnings before interest and taxes objective in the annual incentive plan;
	•	Enhanced disclosure of performance targets in the 2013 proxy statement;
	•	Revised our peer group in light of the evolving strategic direction of the company with increasing emphasis in the software and technology arena and to reflect the divestiture of PBMS;
	•	Restructured the LTI design to be implemented in 2014 awards, making all long-term awards stock based;
	•	Expanded the executive stock ownership policy to: (i) include more senior executives, and (ii) restrict the shares that will count toward stock holding requirement;
	•	Introduced the Radford High-Tech Industry Survey Report in addition to the Towers Watson Regressed Compensation Report in determining the competitiveness of executive compensation; and
	•	Reduced severance benefits payable on account of a Change of Control from three to two times the participant’s annual salary and average annual incentive award and eliminated the excise tax gross-up.

 

Snapshot of 2013 Compensation Payout Decisions

 

In making its compensation decisions and recommendation for the 2013 performance year, the Committee considered, among other things, our financial results, the achievement of the compensation objectives (see discussion beginning on page 44), our relative and absolute TSR and the feedback received from stockholders. Our one year TSR placed us at the top of our peer group, while our three year TSR placed us at the 25th percentile, further illustrating the significant improvement that occurred in our businesses in 2013. Based on 2013 financial results, the Committee and independent board members approved an annual incentive payout of 109.5% of target, after application of the Strategic Modifier. For the 2011 – 2013 CIU long-term incentive award, the Committee approved a CIU payout of $1.50 per unit, after application of the TSR Modifier. The following tables compare the actual payouts in 2013 and 2012.

 

		2013 Actual Payout				2012 Actual Payout				Percentage change
Annual Incentive		Factor as a % of Target				Factor as a % of Target				2013 vs. 2012
Financial Objectives			100.5	%			64.0	%
Strategic Objectives			n/a				11.0	%
Payout Modifier			9.0	%			0.0	%
Subtotal			109.5	%			75.0	%
Negative Discretion			0	%			(11.0	%)
Total Payout Factor			109.5	%			64.0	%			71.1	%

		2013 Actual Unit Payout				2012 Actual Unit Payout				Percentage change
Long-Term Incentive		Value (2011 – 2013 cycle)				Value (2010 – 2012 cycle)				2013 vs. 2012
Adjusted Earnings per Share			$0.83				$0.62
Adjusted Free Cash Flow			$0.77				$0.80
TSR Modifier1			($0.10	)			($0.28	)
Subtotal			$1.50				$1.14
Negative Discretion			$0.00				($0.40	)
Total Payout Value			$1.50				$0.74				102.7	%

 

1

The TSR Modifier for 2011 – 2013 and 2010 – 2012 CIU cycles is an annual modifier aggregated over each three year cycle, which modifies the final payout by up to +/– 25% based on the company’s TSR as compared to the TSR of companies within the S&P 500. The relative TSR for 2010, 2011, 2012 and 2013 was –10%, –25%,–25%, and +25% respectively.

 

See “2013 Compensation” beginning on page 43 of this proxy statement for a discussion of each of the compensation components and the respective payouts.

Pay For Performance Alignment

 

We have designed our compensation program to link pay with performance.

 

	•	2013 Program Design. 86% of target total direct compensation for our CEO is variable and is subject to performance metrics. In addition, 69% of target total direct compensation for the other executive officers is variable and subject to performance metrics. In 2014, the LTI mix has been changed to 100% equity based.
	•	2014 Actual Payout. In 2013, in the aggregate, the company exceeded 100% of its financial targets for its annual incentive and long-term incentive plans.

		º	Annual incentive. With respect to its annual incentive targets, the company achieved 98% of its Adjusted earnings before interest & taxes target, 105% of its Adjusted free cash flow target and exceeded threshold on its revenue growth target, with fourth quarter 2013 results showing positive revenue growth for the first time in recent years. These results supported a payment for achievement of financial objectives of 100.5% of target. The Committee awarded a 9.0% strategic modifier add-on in connection with the company’s achievement of strategic goals including improved client satisfaction and implementing a culture change. The combination of financial and strategic performances resulted in a payment of 109.5% of target. The previous year annual incentive payout was 64% of target.
		º	Long-term incentive. With respect to its long-term incentive targets, the company achieved an average of 110% of target for the Adjusted earnings per share metric and an average of 109% of target for the Adjusted free cash flow metric over the three-year award cycle. This level of performance supported a CIU payout of $1.60 per unit. However, in applying the company’s TSR Modifier, which compares the company’s TSR to the TSR of S&P 500 companies over the three year cycle, the Committee reduced the payout to $1.50 per unit. Although the TSR for 2013 placed us fifth among S&P 500 companies, the TSR applicable to the long-term incentive award for 2011-2013 compares the company’s TSR to the TSR of S&P 500 companies in each of the cycle years.

In February 2013, the Committee implemented changes to the compensation program in response to feedback received from the company’s stockholders. These

changes ensured a stronger link between company financial performance and executive compensation and will be reflected beginning with the February 2014 payouts.

In February 2013, based on the business results for 2012, the Committee and the independent directors froze the base salaries for the CEO and the NEOs. The

company also imposed a freeze on the base salaries of the broad-based employee population.

NEOs are eligible for annual incentives under the KEIP primarily for achieving challenging enterprise-wide financial objectives established at the beginning of

each year. Individual performance and its impact on financial, strategic, unit or individual objectives may be considered.

We believe that together these financial objectives effectively measure how well our business is performing on a short-term basis and thus represent appropriate metrics upon which to base annual incentive awards. In 2012 our stockholders expressed concern regarding duplicative financial metrics in our short and long-term compensation programs. In response to that concern, we replaced the earnings per share metric with an Adjusted earnings before interest and taxes metric for the 2013 annual incentive program.

 

•

Adjusted EBIT is a stronger measure for annual incentive compensation because it more directly reflects current profitability and performance.

 

•

Revenue growth is an appropriate measure because it indicates whether our business is expanding.

 

•

Adjusted free cash flow is an appropriate measure of the company’s ability to pursue discretionary opportunities that enhance stockholder value.

 

Each of these metrics exclude the impact of certain special items, both positive and negative, which could mask the underlying trend or performance within a business.

 

We set the targets for the Adjusted earnings before interest and taxes and Adjusted free cash flow financial objectives at approximately the midpoint of our guidance provided to stockholders and the financial community at the beginning of 2013. We set the target for 2013 revenue at the lower end of guidance because we believed achieving that goal would be challenging in light of continuing uncertainties in the core business environment and the transformational changes being made inside the company. The only revision to targets during the course of the year reflected the revision to guidance announced as a result of the sale of PBMS, IMS and our Nordic furniture business. We believe that the 2013 financial objectives at each level (threshold, target and maximum) accurately balance difficulty of attainment of the level with the related payout. In 2013, we increased the weighting of the financial metrics to be 100%, from 70%, of the annual incentive design. This demonstrates our commit-

ment to place more rigor in the payouts and reflects stockholder feedback. While strategic metrics did not play a primary role in the annual incentive design, we included these important goals as a zero to 10% modifier to the ultimate payout. Strategic goals are targets that are important to the successful operation of the enterprise above and beyond financial goals. The strategic goals for 2013 included improving client satisfaction and implementing a culture change throughout the organization. These important strategic goals are the foundation for our future business success. Depending on the achievement of the strategic goals, the annual incentive multiplier may be increased by 0% to 10%.

 

Funding of the Annual Incentive Pool and 2013 Actual Payout

 

Funding of the annual incentive pool begins with the sum of the annual incentive targets of eligible Pitney Bowes Incentive Plan (PBIP) participants. For more information on setting the target see “Assessing Competitive Practice” on page 51. After the close of the calendar year, the Committee determines the company’s achievement of the overall financial results against each metric (see above) and approves a multiplier to be applied to the sum of the annual incentive targets. For NEOs, executive officers, unit presidents and staff vice presidents the annual incentive is only paid if the company achieves its IRC 162(m) threshold target of $276,086,000 in income from continuing operations, excluding certain special events. (See “Treatment of Special Events” beginning on page 55 of this proxy statement.) This IRC 162(m) target is an additional target intended to ensure tax deductibility of compensation paid. Actual 2013 Adjusted income from continuing operations, excluding all special events, was $380,668,000. The IRC 162(m) threshold target income from continuing operations was restated to exclude the PBMS, IMS and Nordic furniture businesses sold.

 

The chart below shows actual financial results and the payout as compared to target.

The Committee compared the 2013 performance against the financial targets and approved a 2013 annual incentive multiplier of 100.5%. Next the Committee assessed the predetermined strategic goals for 2013 which included improving client satisfaction and implementing a culture change throughout the organization.

 

•

With respect to the client satisfaction goal, the Committee noted that the company successfully implemented the Net Promoter Score (NPS) universal metric across four key business units, established a baseline metric and a monthly management process. The Committee also noted that the company showed improvement among four core relationship drivers - sales support, products and services, customer support and customer communications - within those business units. The client satisfaction threshold, target, and maximum objectives were to achieve a 3%, 5% or 10% improvement in these four core relationship drivers in reducing the gap to goal. The company ultimately achieved a 9% improvement in closing the gap to goal among these relationship drivers, which was slightly below the maximum achievement of 10%.

•

In considering the culture metric, the Committee noted that the company far exceeded the maximum objective of achieving 2% improvement in each of the company’s core principles of Client Centricity, Accountability, One Team, Sense of Urgency, and Shared Vision, plus almost achieved the maximum 6% improvement in employee engagement by ending with a 5% improvement in that metric.

 

Noting the significant progress made in addressing client satisfaction across the four key business units and achieving outstanding results in implementing a culture change throughout the organization, the Committee, and independent board members with respect to the CEO, added a 9% strategic modifier resulting in a final annual incentive multiplier of 109.5%.

 

Based on the above analysis, Mr. Lautenbach made recommendations to the Committee for his direct reports. The Committee considered those recommendations and the actual performance against objectives as shown, resulting in the annual incentive awards to our NEOs as follows:

CIUs are long-term cash awards granted annually with three year performance and vesting cycles. The vesting of long-term incentive awards are generally subject to achieving an initial financial threshold target established for purposes of IRC 162(m). At any given time there are three cycles outstanding. NEOs are awarded CIUs with payouts based on achieving challenging enterprise-wide financial objectives established at the beginning of each individual year of the three-year cycle. If the threshold level of performance is not met for a calendar year for both of these goals, one-third of the award value will be forfeited. Beginning with the 2014 – 2016 cycle, we have eliminated this component of LTI compensation and replaced it with Performance Stock Units, discussed below.

 

The Committee believes that Adjusted earnings per share and Adjusted free cash flow are important indicators of

our long-term viability and performance and thus appropriate metrics upon which to base long-term incentive awards. Adjusted earnings per share is an appropriate measure of long-term profitability, and a strong Adjusted free cash flow provides us with the resources we need to reposition and pursue new growth opportunities.

 

The Committee generally sets the financial targets at the midpoint of the guidance we provide to stockholders and the financial community at the beginning of each year. Subsequent revisions of guidance during the course of the year do not affect the targets set at the beginning of a year. Before finalizing payouts, the Committee compares the company’s cumulative three-year TSR to a cumulative three-year TSR of the company’s peer group. The Committee believes it sets the 2013 objectives with the appropriate level of difficulty and stretch for each target.

2013 Funding of the Cash Incentive Unit Pool and Actual Payout

 

For the 2011 – 2013 CIU cycle, the unit value at target is $1.00. The CIU value range is between $0 and $1.80 based upon the achievement of the pre-determined financial objectives described above, each weighted at 50%. The Committee modifies the resulting unit value by up to +/– 25% based on our TSR as compared to the TSR of companies within the S&P 500, therefore linking payout to our relative TSR.

For NEOs, executive officers, unit presidents and staff vice presidents the 2011 – 2013 CIU cycle is only paid if the company achieves an IRC 162(m) threshold target of average income from continuing operations over the cycle of $298,086,000, excluding certain special events. (See “Treatment of Special Events” beginning on page 55 of this proxy statement.) Adjusted average annual income from continuing operations for the 2011 – 2013 CIU cycle exceeded the threshold and was $426,332,000. The IRC 162(m) threshold target for income from continuing operations on the 2011 – 2013 period was restated to exclude PBMS, IMS and Nordic furniture.

The TSR Modifier in aggregate decreased the CIU pay-out level for the 2011 – 2013 cycle by 6%.

 

The CIU payout in February 2014, for 2011-2013 cycle, was $1.50. This compares to the 2010-2012 cycle pay-out which was $0.74, after the Committee applied negative discretion.

 

Performance-Based Restricted Stock Units

 

An annual grant of performance-based restricted stock units (RSUs) is made during the first quarter of the year.

 

For NEOs, executive officers, unit presidents and staff vice presidents, no performance-based restricted stock units (RSUs) will vest unless the company achieves its IRC 162(m) threshold target of $276,086,000 income from continuing operations, excluding certain special events. (See “Treatment of Special Events” beginning page 55 of this proxy statement.) Actual 2013 Adjusted income from continuing operations, excluding all special events, was $380,668,000, which exceeded the target. The IRC 162(m) threshold targets for income from continuing operations and actual 2013 income from continuing operations were restated to exclude PBMS, IMS and Nordic furniture.

 

The 2013 award vests in four equal installments commencing on the first anniversary of the grant date if the executive is still employed on the vesting date. If the initial threshold had not been achieved, the performance-based RSUs granted in 2013 would have been forfeited.

Performance-Based Market Stock Units

 

Performance-based market stock units (MSUs) were granted to executive officers, including NEOs, in February 2012 for the first and only time. The number of MSUs that can vest is capped at 200% of the number of MSUs originally granted. A minimum number of shares, comprising 50% of the award, will vest at the end of the three-year performance period.

 

Because the IRC 162 (m) threshold target was achieved, the 2012 award will vest on the third anniversary of the grant date. The number of performance-based MSUs that will vest at that time is contingent on our TSR over the vesting period and the executives’ continued employment until the vesting date. The vesting percentage is determined by multiplying the number of units by a fraction, the numerator of which is the Pitney Bowes ending stock price¹ plus cumulative dividends paid on outstanding company stock during the vesting period, and the denominator, of which is the Pitney Bowes beginning stock price.²

 

In 2013, the Committee determined that MSUs would no longer be a part of the company’s executive compensation structure.

(1)	Pitney Bowes ending stock price is the average of the closing price of company stock for the 20 trading days ending on the last day of the month prior to the vesting date.

 

(2)	Pitney Bowes beginning stock price is the average of the closing price of company stock for the 20 trading days ending with the grant date.

Periodic Off-Cycle Long-Term Awards

 

In special circumstances, the Committee, or in the case of the CEO, the independent board members, may determine that it is appropriate to make additional long-term award grants to executives during the course of the year. In February 2013, the independent board members awarded the second and final tranche of premium-priced stock options promised to Mr. Lautenbach upon commencement of his employment in December 2012. These options were awarded at a 160% premium to the award date stock price. In July 2013, the Committee awarded a one-time grant of 400,000 premium-priced stock options, with a premium ranging from 115% to 160% of the award date stock price, to Mr. Monahan for retention purposes.

 

See details of the grants for Mr. Lautenbach and Mr. Monahan in the “Grants of Plan-Based Awards in 2013” table on page 59 of this proxy statement.

 

2014 LTI Design Mix

 

In November 2013, reflecting the tenor of comments made by stockholders, the Committee changed the design mix for the 2014 LTI awards to 100% equity to further align long-term incentives with long-term stockholder interests. The 2014 LTI design mix will be 70%

performance stock units (PSUs) and 30% performance-based RSUs, both paid in stock. The long-term executive compensation structure will be entirely impacted by changes in company stock price.

 

PSUs, which the Committee decided will be granted in place of CIUs beginning in 2014, have many of the same features as the previously granted CIUs, except that the PSUs are based on and settled in stock instead of cash. The new LTI mix of 100% equity further aligns the LTI program with market best practices. In addition, the vesting period for the RSUs was changed from four years to three years.

 

Because PSUs are equity-based and CIUs are cash-based, beginning in 2014, the Summary Compensation Table will reflect for reporting purposes only a “bunching” of award values. The outstanding and previously granted cash-based CIU awards will continue to be reflected as required under SEC rules when paid, but the equity denominated PSUs are required to be reported when granted. The result will look like the total value of LTI has increased when in fact it only reflects the different timing of when cash versus equity is reported. Since outstanding and previously awarded CIU awards will continue to vest through 2016, this “bunching” effect will continue through 2016.

Retirement Compensation

 

In the United States, retirement benefits include:

 

•

Qualified and nonqualified restoration pension plans for employees hired prior to January 1, 2005.

 

•

Qualified and nonqualified restoration 401(k) plans with company matching contributions up to 4% of eligible compensation and 2% company core contribution for those not eligible for the Pension Plan.

 

Nonqualified restoration plans (pension and 401(k)) are based on the same formulas as are used under the qualified plans and make up for benefits that otherwise would be unavailable due to limitations set forth under the Internal Revenue Code of 1986, as amended (IRC). Restoration plans are available to employees including the NEOs.

 

Nonqualified plans are unfunded obligations of the company subject to claims by our creditors. The 401(k) Restoration Plan:

 

•

is adjusted on the basis of notional investment returns of publicly-available mutual fund investments; and

 

•

does not receive any above-market earnings.

 

The Pension Restoration Plan applies the same standard actuarial rules as are applied under the qualified Pension Plan.

 

Effective April 1, 2013, the board of directors approved the freezing of all future Pension Plan benefit accruals for employees with fewer than 16 years of service as of

March 31, 2013. Employees with 16 or more years of service on March 31, 2013 will continue to accrue pension benefits through December 31, 2014, after which date no further benefits will accrue under the Pension Plan. Similar amendments were adopted with respect to the Pension Restoration Plan. At the same time, the board of directors amended the 401(k) Plan, effective April 1, 2013, to provide eligibility to participate in the 2% employer core contribution to those employees who will no longer accrue benefits under the Pension Plan. The 2% employer core contribution has been in effect since 2005 when the Pension Plan was closed to employees hired after December 31, 2004.

 

For additional information, please see the narrative accompanying the “Pension Benefits as of December 31, 2013” table on page 65 and the narrative accompanying the “Nonqualified Deferred Compensation for 2013” table on pages 66 and 67 of this proxy statement.

 

Other Benefits

 

Other benefits include:

 

•

Nonqualified Deferred Incentive Savings Plan:

 

º

Provides a savings vehicle in a tax efficient manner

 

º

Provides certain executives the ability to voluntarily defer payouts of annual cash incentives, CIUs and base pay into a nonqualified deferred compensation plan

 

•

Limited additional benefits, including, financial counseling to assist with tax law compliance and

to provide guidance in managing complex investment, tax, legal and estate matters; up to a maximum of $7,500 per year

 

•

Relocation assistance for executives asked to move to a new work location facilitates the place-

 

		ment of the right person in the job and aids in developing talent
	•	Executive physical
	•	Spousal travel

The Committee is responsible for reviewing the performance of and approving compensation awarded to our executive officers, other than the CEO. The independent board members, with the input of the Committee, annually set the CEO’s individual target compensation, review his performance and determine his compensation payout in the context of the established objectives,

the actual performance against those objectives and the TSR. In addition, the Committee may exercise negative discretion in its sole determination. The Committee works closely with its independent consultant, Pay Governance LLC, and management to examine various pay and performance matters throughout the year.

The Committee hired Pay Governance as its independent compensation consultant in June, 2012. The Committee considers advice and information from its independent compensation consultant in determining the compensation for the CEO and the other NEOs. The consultant advises on a range of matters, including peer group composition and plan design. The consultant regularly attends the Committee meetings. The consultant does not perform other services for the company. We incurred $145,396 in fees for Pay Governance for services performed for the Committee during 2013. The Committee considered the following six factors and determined there was no conflict in the engagement of Pay Governance and that Pay Governance is independent: i) the provision

of other services to the company by Pay Governance; (ii) the amount of fees received from the company by Pay Governance, as a percentage of the total revenue of Pay Governance; (iii) the policies and procedures of Pay Governance that are designed to prevent conflicts of interest; (iv) any business or personal relationship of the Pay Governance consultant with a member of the Committee; (v) any company stock owned by the Pay Governance consultants; and (vi) any business or personal relationship of the Pay Governance consultant or Pay Governance with any of the company’s executive officers. The Committee has the sole authority to hire and terminate its consultant.

At the beginning of each year our CEO, on behalf of senior management, recommends to the Committee financial objectives for the incentive plans based on the financial objectives set by the board of directors. The Committee and the independent directors review the recommendations of management particularly with respect to the appropriateness and rigor of the objectives and approve the final annual and long term objectives.

 

After reviewing benchmarking data presented by external consultants, our CEO and Executive Vice President and Chief Human Resources Officer recommend compensation target levels for total direct compensation as well as the annual and long-term incentive compensation for executive officers, including the NEOs, other than the CEO. The Committee reviews management’s recommendations and determines the appropriate financial objectives, base salary and the target levels of annual and long-term incentive compensation. The Committee also recommends for approval by the independent board members the CEO’s base salary and annual and long-term incentive target levels. Generally at this time the Committee also approves any changes to the compensation program for the coming year.

 

At the end of each year, each NEO completes a written self-assessment of his or her performance against his or her objectives. The CEO evaluates the performance of his executive officer direct reports and recommends incentive compensation actions other than for himself to the Committee. The Committee recommends to the independent board members an individual rating for the CEO. The Committee reviews the financial accomplishments of the company, taking into account predetermined objectives for the preceding year, and determines actual base salary increases as well as the annual and long-term incentive compensation for the NEOs and recommends for approval by the independent board members the CEO’s compensation. The actual payout levels for annual incentive compensation are based upon the com-

pany’s performance against the predetermined financial objectives and other criteria, as discussed in further detail under “Annual Incentives” beginning on page 44. For long-term incentive compensation, the recommendation to the Committee for payout levels is based on pre-determined financial objectives and a TSR Modifier, as discussed in further detail under “Long-term Incentives” beginning on page 46 of this proxy statement.

 

To assist in this process, the Committee also reviews tally sheets the Human Resources department prepares to evaluate the individual components and the total mix of compensation. The tally sheets show the dollar amount of each of the components of each executive officer’s compensation, summarizing the total compensation opportunity, including the executive’s fixed and variable compensation, perquisites and potential payments upon termination or Change of Control. In addition, the tally sheets include a summary of historical compensation. These tally sheets aid the Committee in analyzing the individual compensation components as well as the compensation mix and weighting of the components within the total compensation package.

 

To evaluate whether each NEO’s compensation package is competitive with the marketplace, the Committee, and with respect to the CEO, the independent board members, also reviews each executive’s total direct compensation against market data during the benchmarking process as more fully described in “Assessing Competitive Practice” below. Based on the structure of our current management team, the Committee and the board strive to ensure that the relationship between the compensation paid to the CEO and the second highest paid NEO are within acceptable market norms, subject to considerations such as performance, the market median compensation of the respective positions, contributions to the company and experience that may lead to deviations from market relationships.

 

To evaluate whether Pitney Bowes’ executive compensation is competitive in the marketplace, the Committee annually compares each executive’s total direct compensation (base salary, annual incentive and long-term incentives) against two independent reports with a view towards determining the optimal mix and level of compensation, the Towers Watson Regressed Compensation Report (Towers Watson Report), and the Radford High-Tech Industry Survey Report (Radford Report). We then review the targets and actual payouts against publicly available data from our peer group to evaluate ongoing compensation opportunity and competitiveness. Finally, the Committee’s independent compensation consultant reviews the data presented to the Committee, before the Committee establishes the target total direct compensation structure. The Committee sets compensation targets on the assumption that specific incentive award performance objectives are achieved at their target level. The Towers Watson data is regressed for corporate revenue of approximately $4.0 billion for corporate leaders and actual regressed revenue for business unit leaders. The Radford Report bases its analysis on applicable revenue ranges as they pertain to various roles. The Committee believes using the Towers Watson Report regressed revenue scope and the revenue ranges in the Radford Report more accurately reflect market competitiveness against outside companies. However, the exact number of companies included in the data for each executive position may vary depending on the structure of the applicable company and whether the company submitted the relevant data. The Towers Watson Report is a sub-section of the 2013 US CDB General Industry Executive Database. The Radford Report is derived from a database of survey results from high-tech companies.

 

This market data provides important reference points for the Committee but is not the sole basis for determining appropriate compensation design, compensation targets, or individual pay levels. Use of comparative industry data and outside surveys only serves to indicate to the Committee whether those decisions are in line with industry in general and our peer group in particular. The Committee believes that the comparative industry data used from the Towers Watson Report, the Radford Report and the peer group are consistent with our compensation philosophy. In addition, compensation targets and individual pay levels may vary from the median for various reasons, including:

 

	•	the value of the total rewards package;
	•	program design and strategic considerations;
	•	affordability;
	•	changing competitive conditions;
	•	program transition considerations;
	•	the definition and scope of the executive’s role;
	•	the executive’s individual contributions to the company; or
	•	succession or retention considerations.

 

In making its determination that the Pitney Bowes compensation package is appropriate and competitive, the

 

Committee takes the following actions. The Committee first references for each NEO the median of the data presented in the Towers Watson and Radford Reports in determining target base salary, target total cash compensation and target total direct compensation. However, in making its final determination on any one position, the Committee will also take into account unique skill sets presented by the employee in high-growth areas targeted by the company. In addition, as a supplement to the Towers Watson and Radford information, the Committee asks Pay Governance to perform its analysis and provide its opinion on the specific compensation program design. The Committee and the board also consider the burn rate with respect to the equity awards when deciding how much of the total direct compensation package should be composed of equity-based awards. Burn rate is the total equity awarded in a fiscal year divided by the total common stock outstanding at the beginning of the year. Our three-year average burn rate of 1.00% for the time period from 2011 to 2013 is below the median burn rate of 1.72% for S&P 1500 companies in fiscal year 2012 (source: Equilar 2013 Equity Trends Report).

 

Next, the Committee annually reviews our relative performance, compensation targets and actual payouts against the relative performance and compensation of the peer group listed below.

 

Based on this rigorous review, the Committee has determined that the Pitney Bowes total compensation package for 2013 is appropriate and competitive considering all the factors outlined above.

 

PEER GROUP

 

Although we do not have a single completely overlapping competitor due to the unique mix of our business, we use a peer group of companies similar in size and complexity to benchmark our executive compensation against. In 2013, the Committee changed the composition of the peer group to reflect the sale of Pitney Bowes Management Services (PBMS) and the company’s enhanced focus on software and technology. Pay Governance and the Committee designed our peer group so the Committee could analyze compensation packages, including compensation mix and other benefits, within the competitive market to attract and retain the talent and skill required to lead our business. This peer group consists of services, industrial and technology companies. When evaluating the appropriateness of the peer group, the Committee considered factors such as revenue, net income, market capitalization, number of employees, and complexity of the business to ensure a reasonable balance in terms of company size and an adequate number of peers. The Committee also considered feedback received from stockholders. The new peer group consists of companies with revenues between $2.7 billion and $22.3 billion, and market capitalization between $1.5 billion and $16.4 billion.

 

Based upon these considerations, the Committee eliminated the following companies from the prior peer group:

 

	•	Agilent Technologies
	•	Avery Dennison

 

The Committee eliminated Agilent Technologies because of its primary focus on bioanalytical solutions, a business that does not closely reflect our portfolio. The Committee removed Avery Dennison to reflect our emphasized focus on technology and software following the sale of PBMS.

 

The Committee added the following companies to the peer group:

 

	•	EchoStar Corp.
	•	Fidelity National Information Services, Inc.
	•	The Western Union Co.

 

The Committee added EchoStar Corp. since it is an appropriately-sized equipment manufacturing business, Fidelity National Information Services, Inc. because of its focus on data processing solutions and services, similar to the geocoding and address processing services we provide to our clients and the Western Union Co. because of its focus on financial transactions as well as data processing and outsourcing services, which are similar to our leasing, banking and processing services functions. The Committee decided to continue to include Xerox in our peer group despite the revenue size difference because the Committee considers it our closest direct peer in the office equipment space and it also is undergoing a similar transformation in its core business.