UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

 

SCHEDULE 14A

(RULE 14a-101)

SCHEDULE 14A INFORMATION

Proxy Statement Pursuant to Section 14(a) of the

Securities Exchange Act of 1934

(Amendment No.    )

 

 

Filed by the Registrant  ☒                                 Filed by a party other than the Registrant  ☐

Check the appropriate box:

 

☐		Preliminary Proxy Statement
☐		Confidential, for Use of the Commission Only (as permitted by Rule 14a-6(e)(2))
☒		Definitive Proxy Statement
☐		Definitive Additional Materials
☐		Soliciting Material Pursuant to § 240.14a-12

FORTIVE CORPORATION

(Name of Registrant as Specified In Its Charter)

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

Payment of Filing Fee (Check the appropriate box):

☒		No fee required.
☐		Fee computed on table below per Exchange Act Rules 14a-6(i)(1) and 0-11.
		1)		Title of each class of securities to which transaction applies:
		2)		Aggregate number of securities to which transaction applies:
		3)		Per unit price or other underlying value of transaction computed pursuant to Exchange Act Rule 0-11 (set forth the amount on which the filing fee is calculated and state how it was determined):
		4)		Proposed maximum aggregate value of transaction:
		5)		Total fee paid:
☐		Fee paid previously with preliminary materials.
☐		Check box if any part of the fee is offset as provided by Exchange Act Rule 0-11(a)(2) and identify the filing for which the offsetting fee was paid previously. Identify the previous filing by registration statement number, or the Form or Schedule and the date of its filing.
		1)		Amount previously paid:
		2)		Form, Schedule or Registration Statement No.:
		3)		Filing party:
		4)		Date Filed:

 

 

 

 

 

FORTIVE CORPORATION

6920 Seaway Blvd

Everett, WA 98203

Notice of 2018 Annual Meeting of Shareholders

 

 

 

 

When:   June 5, 2018 at 3:00 p.m., PDT.   Where:   Fortive Corporation 6920 Seaway Blvd Everett, WA 98203		Items of Business:   4 proposals as listed below   Date of Mailing:   The date of mailing of this Proxy Statement or Notice of Internet Availability is on or about April 18, 2018.		Who Can Vote:   Shareholders of Fortive’s common stock at the close of business on April 9, 2018.		Attending the Meeting:   Shareholders who wish to attend the meeting in person should review the instructions set forth in the attached proxy statement under “Annual Meeting Admission.”

Items of Business:

1.	To elect Mr. Feroz Dewan and Mr. James Lico to serve as Class II Directors, each for a three-year term expiring at the 2021 annual meeting and until their successors are elected and qualified.

 

2.	To ratify the selection of Ernst & Young LLP as Fortive’s independent registered public accounting firm for the year ending December 31, 2018.

 

3.	To approve on an advisory basis Fortive’s named executive officer compensation.

 

4.	To approve the Fortive Corporation 2016 Stock Incentive Plan, as amended and restated.

 

5.	To consider and act upon such other business as may properly come before the meeting or any adjournment thereof.

YOUR VOTE IS IMPORTANT. PLEASE SUBMIT YOUR PROXY OR VOTING INSTRUCTIONS AT YOUR EARLIEST CONVENIENCE, WHETHER OR NOT YOU PLAN TO ATTEND THE ANNUAL MEETING.

Most shareholders have a choice of voting over the Internet, by telephone or by using a traditional proxy card or voting instruction form. Please refer to the attached proxy materials or the information forwarded by your bank, broker or other holder of record to see which voting methods are available to you.

IMPORTANT NOTICE REGARDING THE AVAILABILITY OF PROXY MATERIALS FOR THE SHAREHOLDER MEETING TO BE HELD ON JUNE 5, 2018:

The Notice of Internet Availability, Notice of Annual Meeting, Proxy Statement and the Annual Report are available at: http://www.proxyvote.com.

By Order of the Board of Directors,

 

Daniel B. Kim

Secretary

April 18, 2018

 

 

2018 Annual Meeting of Shareholders

Notice of Annual Meeting and Proxy Statement

Table of Contents

 

 

 

 

 

 

		2018 Proxy Statement		i

 

 

 

 

 

 

 

 

 

ii		2018 Proxy Statement		FORTIVE CORPORATION

 

		Proxy Statement Summary

 

To assist you in reviewing the proposals to be acted upon at our 2018 Annual Meeting, below is summary information regarding the meeting contained elsewhere in this Proxy Statement. The following description is only a summary. For more information about these topics, please review the complete Proxy Statement.

2018 Annual Meeting of Shareholders

 

Date and time:		June 5, 2018, 3:00 p.m. PDT
Place:		Fortive Corporation 6920 Seaway Blvd Everett, WA 98203
Record date:		April 9, 2018
Voting:		Shareholders of Fortive’s common stock at the close of business on April 9, 2018 are entitled to one vote per share of common stock on each matter to be voted upon at the 2018 Annual Meeting of Shareholders (“Annual Meeting”).
Admission:		Shareholders who wish to attend the meeting in person should review the instructions set forth under “Annual Meeting Admission” on page 7

Items of Business

 

PROPOSAL		VOTE REQUIRED		BOARD RECOMMENDATION
Proposal 1: Election of Class II Directors (page 13)		For each Class II Director nominee, majority of votes cast.		FOR each nominee
Proposal 2: Ratification of the appointment of the independent registered public accounting firm (page 32)		The affirmative vote of a majority of the shares represented in person or by proxy.		FOR
Proposal 3: Approval on an advisory basis of Fortive’s named executive officer compensation (page 68)		The affirmative vote of a majority of the shares represented in person or by proxy.		FOR
Proposal 4: Approval of the Fortive Corporation 2016 Stock Incentive Plan, as amended and restated (page 69)		The affirmative vote of a majority of the shares represented in person or by proxy.		FOR

Company Overview

Fortive is a diversified industrial growth company comprised of Professional Instrumentation and Industrial Technologies businesses that are recognized leaders in attractive markets. With 2017 revenues of $6.7 billion, Fortive’s well-known brands hold leading positions in field instrumentation, transportation, sensing, product realization, automation and specialty, and franchise distribution. Fortive is headquartered in Everett, Washington and employs a team of more than 26,000 research and development, manufacturing, sales, distribution, service and administrative employees in more than 50 countries around the world. With a culture rooted in continuous improvement, the core of our company’s operating model is the Fortive Business System.

 

 

 

		2018 Proxy Statement		1

 

Proxy Statement Summary

 

2017 Company Performance Highlights

 

Total Shareholder Return   Our one-year total shareholder return (“TSR”) was 35.5%. The following graph shows our total shareholder return compared to the S&P 500 Index in fiscal 2017:						Financial Performance*   We continued to grow our business on a year-over-year basis. The following non-GAAP measures were used, among others, in our annual incentive compensation program:       * Core revenue, adjusted earnings per share and core operating margin are non-GAAP measures and are reconciled to the most directly comparable GAAP measures in Appendix A.

Acquisitions

 

$1.6 BILLION IN CAPITAL DEPLOYED IN 2017 FOR ACQUISITIONS

Landauer, Inc.   Leading global provider of subscription-based technical and analytical services to manage occupational and environmental radiation exposure

Industrial Scientific Corporation   Leading provider of portable gas detection solutions, including sensors, instruments and software, offered to customers as safety-as-a-service

Orpak Systems Limited   Leading provider of fuel station automation solutions, fleet management, automatic vehicle identification, payments and point-of-sale software in high growth markets

 

 

 

 

2		2018 Proxy Statement		FORTIVE CORPORATION

 

Proxy Statement Summary

 

Corporate Governance Highlights

Our Board of Directors recognizes that enhancing and protecting long-term value for our shareholders requires a robust framework of corporate governance that serves the best interests of all our shareholders.

In connection with our Board’s dedication to strong corporate governance, our Board has approved the following corporate governance matters following the separation of Fortive from Danaher Corporation (the “Separation”):

Recent Governance Actions

 

		Adopted proxy access to permit a shareholder, or a group of up to 20 shareholders, owning at least 3% of the outstanding shares continuously for at least 3 years to nominate and include in our proxy materials director nominees constituting up to 20% of the board of directors, as further detailed in our Bylaws
		Commenced the declassification of the Board to provide for the annual election of directors after a sunset period
		Documented our commitment to Board diversity in our Corporate Governance Guidelines and the Nominating and Governance Committee Charter
		Adopted and launched a formal annual shareholder engagement process, with the first shareholder outreach conducted in the fourth quarter of 2017
		Formalized and documented in the Audit Committee Charter oversight of our cybersecurity by the Audit Committee, with quarterly review by the Audit Committee of our cybersecurity planning, monitoring, risk management, remediation, and controls
		Adopted, launched and conducted an annual self-assessment process to assess in detail the effectiveness of the Board and each of its committees
		Increased the stock ownership requirements for non-CEO executive officers to a multiple of three times base salary and maintained the stock ownership requirements for CEO and directors as a multiple of five times base salary and annual cash retainer, respectively

Additional highlights of our corporate governance framework

 

		Our Chairman and CEO positions are separate, with an independent Chairman
		We maintain a majority vote requirement for the election of directors in uncontested elections
		We have no shareholder rights plan
		We have an anti-overboarding policy that limits the number of boards of other public companies on which our directors may serve to four
		All members of the Audit Committee are audit committee financial experts
		We maintain a related person transaction policy with oversight by the Nominating and Governance Committee
		All members of our Audit, Compensation, and Nominating and Governance Committees are independent as defined by the New York Stock Exchange listing standards and applicable Securities and Exchange Commission rules

 

 

 

		2018 Proxy Statement		3

 

Proxy Statement Summary

 

Executive Compensation Philosophy

Our compensation philosophy is aligned with building long-term shareholder value, with our executive compensation program designed to:

 

		ATTRACT, RECRUIT & RETAIN		Recruit, retain, and motivate talented, curious people with a passion for creativity, innovation, continuous improvement, and customer experience
		COMPETITIVE		Deliver a total pay opportunity that is competitive in the market for our executive talent
		ALIGNMENT WITH BUSINESS STRATEGY		Focus our incentive compensation programs on performance that leads to sustained shareholder value creation, consistent with our business strategy
		PAY FOR PERFORMANCE		With a culture of high expectations, set, achieve, and reward for both the short-term and long-term performance
		ALIGNMENT WITH SHAREHOLDERS		Support alignment with shareholders with an emphasis on long-term, equity-based compensation

2017 Summary Compensation

 

2017 Compensation Enhancements

The Compensation Committee made the following enhancements to our 2017 executive compensation program consistent with our compensation philosophy:

 

		Added Free Cash Flow and ROIC to supplement Adjusted EPS as financial performance measures for the 2017 annual incentive awards to better align compensation performance measures with our overall strategy and internal core value drivers
		Increased minimum stock ownership requirements for each of the non-CEO executive officers to a multiple of three times base salary while maintaining the requirement for Mr. Lico to a multiple of five times base salary

 

 

 

4		2018 Proxy Statement		FORTIVE CORPORATION

 

Proxy Statement Summary

 

		Revised the vesting schedule for the equity awards that we granted to the executive officers (other than our CEO) so that one-third of such awards vest on each of the 3rd, 4th and 5th anniversaries of the grant date rather than having them vest in 5 equal installments beginning on the first anniversary of the grant date, while the equity awards for our CEO will continue to vest 50% per year on the 4th and 5th anniversaries of the grant date
		Adopted a change in control plan that provides for a “double trigger” (an executive is entitled to benefits only if there is both a change in control and a termination of employment), includes a limited definition of “change in control,” and prohibits a tax gross up, to ensure that our executive officers remain focused on our businesses during periods of uncertainty and pursue transactions in the best interest of the shareholders

Compensation Governance Highlights

 

WHAT WE DO						WHAT WE DON’T DO

 

 

 

		2018 Proxy Statement		5

 

Proxy Statement Summary

 

 

[THIS PAGE INTENTIONALLY LEFT BLANK]

 

 

 

 

 

6		2018 Proxy Statement		FORTIVE CORPORATION

 

		Proxy Statement

 

Fortive Corporation

6920 Seaway Blvd

Everett, WA 98203

2018 Annual Meeting of Shareholders

June 5, 2018

This Proxy Statement is furnished in connection with the solicitation by the Board of Directors (“Board”) of Fortive Corporation, a Delaware corporation (“Fortive”), of proxies for use at the 2018 Annual Meeting of Shareholders (the “Annual Meeting”) to be held at Fortive Corporation, Headquarters, 6920 Seaway Blvd., Everett, WA 98203 at 3:00 p.m., PDT, and at any and all postponements or adjournments thereof. Fortive’s principal address is 6920 Seaway Blvd., Everett, WA 98203. The date of mailing of this Proxy Statement is on or about April 18, 2018.

Purpose of the Annual Meeting

The purpose of the meeting is to:

 

1.	Elect Mr. Feroz Dewan and Mr. James Lico to serve as Class II Directors, each for a three-year term expiring at the 2021 annual meeting and until their successors are elected and qualified;

 

2.	Ratify the selection of Ernst & Young LLP as Fortive’s independent registered public accounting firm for the year ending December 31, 2018;

 

3.	Approve on an advisory basis Fortive’s named executive officer compensation;

 

4.	Approve the Fortive Corporation 2016 Stock Incentive Plan, as amended and restated; and

 

5.	Consider and act upon such other business as may properly come before the meeting or any adjournment thereof.

Annual Meeting Admission

Please be prepared to present photo identification for admittance. If you are a shareholder of record or hold your shares through the Fortive Corporation Retirement Savings Plan or the Fortive Corporation Union Retirement Savings Plan (collectively, the “Savings Plans”), your name will be verified against the list of shareholders of record or plan participants on the record date prior to your being admitted to the Annual Meeting. If you are not a shareholder of record or a Savings Plan participant but hold shares through a broker, bank or nominee (i.e., in street name), you should also be prepared to provide proof of beneficial ownership as of the record date, such as a brokerage account statement showing your ownership as of the record date, a copy of the voting instruction card provided by your broker, bank or nominee, or other similar evidence of ownership.

Outstanding Stock and Voting Rights

In accordance with Fortive’s Amended and Restated Bylaws, the Board has fixed the close of business on April 9, 2018 as the record date for determining the shareholders entitled to notice of, and to vote at, the Annual Meeting. Only shareholders of record at the close of business on that date will be entitled to vote. The only outstanding securities of Fortive entitled to vote at the Annual Meeting are shares of Common Stock, $.01 par value (“Common Stock”). Each outstanding share of Common Stock entitles the holder to one vote on each directorship and other matter brought before the Annual Meeting. As of the close of business on April 9, 2018, 348,538,488 shares of Common Stock were outstanding, excluding shares held by or for the account of Fortive.

 

 

 

		2018 Proxy Statement		7

 

Proxy Statement

 

Solicitation of Proxies

The proxies being solicited hereby are being solicited by Fortive’s Board. The total expense of the solicitation will be borne by Fortive, including reimbursement paid to banks, brokerage firms and nominees for their reasonable expenses in forwarding material regarding the Annual Meeting to beneficial owners. Solicitation of proxies may be made personally or by mail, telephone, internet, e-mail or facsimile by officers and other management employees of Fortive, who will receive no additional compensation for their services.

Proxy Instructions

Proxies will be voted as specified in the shareholder’s proxy.

If you sign and submit your proxy card with no further instructions, your shares will be voted:

 

•

FOR the election of each of Mr. Dewan and Mr. Lico to serve as Class II directors;

 

•

FOR ratification of the selection of Ernst & Young LLP as Fortive’s independent registered public accounting firm for the year ending December 31, 2018;

 

•

FOR approval of the Company’s named executive officer compensation;

 

•

FOR approval of the Fortive Corporation 2016 Stock Incentive Plan, as amended and restated; and

 

•

In the discretion of the proxy holders on any other matter that properly comes before the meeting or any adjournment thereof. The Board has selected Peter C. Underwood and Daniel B. Kim to act as proxies with full power of substitution.

Notice of Electronic Availability of Proxy Materials

As permitted by the SEC rules, we are making the proxy materials available to our shareholders primarily via the Internet. By doing so, we can reduce the printing and delivery costs and the environmental impact of the Annual Meeting. On April 18, 2018, we mailed a Notice of Internet Availability of Proxy Materials (the “Notice”) to our shareholders. The Notice contains instructions on how to access our proxy materials and how to vote online or by telephone. If you would like to receive a paper copy of the proxy materials, please follow the instructions in the Notice.

Voting Requirements With Respect to Each of the Proposals Described in this Proxy Statement

Quorum. The quorum necessary to conduct business at the Annual Meeting consists of a majority of the issued and outstanding shares of Common Stock entitled to vote at the Annual Meeting as of the record date. Abstentions and broker non-votes will be counted as present in determining whether the quorum requirement is satisfied.

Broker Non-Votes. Under New York Stock Exchange (“NYSE”) rules, if your broker holds your shares in its name and does not receive voting instructions from you, your broker has discretion to vote those shares on Proposal 2, which is considered a “routine” matter. However, on “non-routine” matters such as Proposals 1, 3 and 4, your broker must receive voting instructions from you, as it does not have discretionary voting power for these particular items. Therefore, if you are a beneficial owner and do not provide your broker with voting instructions, your shares may constitute broker non-votes with respect to Proposals 1, 3 and 4. Broker non-votes will not affect the required vote with respect to Proposals 1, 3 and 4.

Approval Requirements. If a quorum is present, the vote required under the Company’s Amended and Restated Bylaws and the Amended and Restated Certificate of Incorporation to approve each of the proposals is as follows:

 

•

With respect to Proposal 1, the election of directors, you may vote “for” or “against” any or all Class II director nominees or you may abstain as to any or all director nominees. In uncontested elections of directors, such as this election, a nominee is elected by a majority of the votes cast by the shares present in person or represented by proxy and entitled to

 

 

 

8		2018 Proxy Statement		FORTIVE CORPORATION

 

Proxy Statement

 

vote. A “majority of the votes cast” means that the number of votes cast “for” a director nominee must exceed the number of votes cast “against” that nominee. A vote to abstain is not treated as a vote “for” or “against,” and thus will have no effect on the outcome of the vote. Under our director resignation policy, our Board will not appoint or nominate for election to the Board any person who has not tendered in advance an irrevocable resignation effective in such circumstances where the individual does not receive a majority of the votes cast in an uncontested election and such resignation is accepted by the Board. If an incumbent director is not elected by a majority of the votes cast in an uncontested election, our Nominating and Governance Committee will submit for prompt consideration by the Board a recommendation whether to accept or reject the director’s resignation. The Board expects the director whose resignation is under consideration to abstain from participating in any decision regarding that resignation.

 

•

With respect to Proposals 2, 3 and 4, the affirmative vote of a majority of the shares of Common Stock represented in person or by proxy and entitled to vote on the proposal is required for approval. For these proposals, abstentions are counted for purposes of determining the minimum number of affirmative votes required for approval and, accordingly, have the effect of a vote against the proposal.

Tabulation of Votes. Our inspector of election, Broadridge Financial Services, will tabulate votes cast by proxy or in person at the meeting. We will report the results in a Current Report on Form 8-K filed with the SEC within four business days of the Annual Meeting.

Voting Methods

If your shares are registered directly in your name with our transfer agent, Computershare Trust Company, N.A., you are considered the registered holder of those shares. As the registered shareholder, you can ensure your shares are voted at the Annual Meeting by submitting your instructions by telephone, over the internet, by completing, signing, dating and returning the enclosed proxy card in the envelope provided, or by attending the Annual Meeting and voting your shares at the meeting. Telephone and internet voting for registered shareholders will be available 24 hours a day, up until 11:59 p.m., Central time on June 4, 2018.

Detailed instructions for telephone and internet voting are set forth on the Notice.

 

		Vote your shares at www.proxyvote.com.
		Have your Notice of Internet Availability or proxy card in hand for the 16-digit control number needed to vote.
		Call toll-free number 1-800-690-6903
		Mark, sign, date, and return the enclosed proxy card or voting instruction form in the envelope we have provided or return it to Vote Processing, c/o Broadridge, 51 Mercedes Way, Edgewood, NY 11717.

If you hold your shares through a broker, bank or nominee, rather than registered directly in your name, you are considered the beneficial owner of shares held in street name, and the proxy materials are being forwarded to you by your broker, bank or nominee, together with a voting instruction form. As the beneficial owner, you are entitled to direct the voting of your shares by your intermediary. Brokers, banks and nominees typically offer telephonic or electronic means by which the beneficial owners of shares held by them can submit voting instructions, in addition to the traditional mailed voting instruction forms.

 

 

 

		2018 Proxy Statement		9

 

Proxy Statement

 

If you participate in the Fortive Stock Fund through either of the Savings Plans, your proxy will also serve as a voting instruction for Fidelity Management Trust Company (“Fidelity”), the trustee of the Savings Plans, with respect to shares of Common Stock attributable to your Savings Plan account as of the record date. Fidelity will vote your Savings Plan shares as of the record date in the manner directed by you. If Fidelity does not receive voting instructions from you by June 1, 2018, Fidelity will not vote your Savings Plan shares on any of the proposals brought at the Annual Meeting.

Changing Your Vote

Any person giving a proxy pursuant to this solicitation has the power to revoke it at any time before it is voted. It may be revoked by filing with the Secretary of Fortive a written notice of revocation or a duly executed proxy bearing a later date, or it may be revoked by attending the meeting and voting in person. Please note, however, that if your shares are held of record by a broker, bank or nominee and you wish to revoke your proxy or vote at the meeting, you must follow the instructions provided to you by the record holder and/or obtain from the record holder a proxy issued in your name. Attendance at the meeting will not, by itself, revoke a proxy.

Householding

We are permitted to send a single set of our proxy statement and annual report to shareholders who share the same last name and address. This procedure is called “householding” and is intended to reduce our printing and postage costs. We will promptly deliver a separate copy of our annual report and proxy statement to you if you contact us at Fortive Corporation, Attn: Investor Relations, 6920 Seaway Blvd., Everett, WA 98203; telephone us at 425-446-5000; or email us at investors@fortive.com. In addition, if you want to receive separate copies of the proxy statement or annual report in the future; if you and another shareholder sharing an address would like to request delivery of a single copy of the proxy statement or annual report at such address in the future; or if you would like to make a permanent election to receive either printed or electronic copies of the proxy materials and annual report in the future, you may contact us at the same address, telephone number or email address. If you hold your shares through a broker or other intermediary and would like additional copies of our proxy statement or annual report or would like to request householding, please contact your broker or other intermediary.

 

 

 

10		2018 Proxy Statement		FORTIVE CORPORATION

 

		Beneficial Ownership of Common Stock by Directors, Officers and Principal Shareholders

 

Directors and Executive Officers

The following table sets forth as of April 9, 2018 (unless otherwise indicated) the number of shares and percentage of Common Stock beneficially owned by each of Fortive’s directors, nominees for director and each of the executive officers named in the Summary Compensation Table (the “named executive officers”), and all executive officers and directors of Fortive as a group. Except as otherwise indicated and subject to community property laws where applicable, each person or entity included in the table below has sole voting and investment power with respect to the shares beneficially owned by that person or entity. Under applicable SEC rules, the definition of beneficial ownership for purposes of this table includes shares over which a person or entity has sole or shared voting or investment power, whether or not the person or entity has any economic interest in the shares, and also includes shares as to which the person has the right to acquire beneficial ownership within 60 days of April 9, 2018. Except as indicated, the address of each director and executive officer shown in the table below is c/o Fortive Corporation, 6920 Seaway Blvd, Everett, WA 98203.

 

NAME		NUMBER OF SHARES BENEFICIALLY OWNED (1)					PERCENT OF CLASS (1)
Feroz Dewan				8,580	(2)				*
James A. Lico				1,405,979	(3)				*
Kate D. Mitchell				8,580	(4)				*
Mitchell P. Rales				18,565,530	(5)				5.3	%
Steven M. Rales				21,570,210	(6)				6.2	%
Israel Ruiz				8,580	(7)				*
Alan G. Spoon				36,363	(8)				*
Martin Gafinowitz				271,242	(9)				*
Barbara B. Hulit				261,964	(10)				*
Charles E. McLaughlin				137,662	(11)				*
William W. Pringle				124,453	(12)				*
All current executive officers and directors as a group (18 persons)				42,867,828	(13)				12.2	%

 

(1)

Balances credited to each executive officer’s account under the Fortive Executive Deferred Incentive Plan (the “EDIP”) which are vested or are scheduled to vest within 60 days of April 9, 2018, are included in the table. See “Employee Benefit Plans—Fortive Executive Deferred Incentive Plan” for a description of our EDIP. The incremental number of notional phantom shares of Common Stock credited to a person’s EDIP account is based on the incremental amount of contribution to the person’s EDIP balance divided by the closing price of Common Stock as reported on the NYSE on the date of the contribution. In addition, for purposes of the table, the number of shares attributable to each executive officer’s 401(k) Plan account is equal to (a) the officer’s balance, as of March 31, 2018, in the Fortive stock fund included in the executive officer’s 401(k) Plan account (the “401(k) Fortive Stock Fund”), divided by (b) the closing price of Common Stock as reported on the NYSE on March 31, 2018. The 401(k) Fortive Stock Fund consists of a unitized pool of Common Stock and cash. The table also includes shares that may be acquired upon exercise of options that are exercisable within 60 days of April 9, 2018 or upon vesting of Restricted Stock Units (“RSUs”) that vest within 60 days of April 9, 2018. The table also includes unvested restricted shares that are subject only to time-vesting requirements. Restricted shares and performance shares, in each case, granted to executive officers that are subject to satisfaction of performance measures (all of which are subject to measurement more than 60 days after April 9, 2018) are not included in the table. In addition, RSUs granted to a non-executive director for which shares are not delivered until the earlier of the director’s death or the first day of the seventh month following the director’s resignation from the board are not included in the table.

 

(2)	Includes options to acquire 8,580 shares.

 

(3)	Includes options to acquire 1,041,453 shares, 11,585 RSUs, 92,338 unvested restricted shares, 49,996 shares attributable to Mr. Lico’s 401(k) Fortive Stock Fund and 95,661 notional phantom shares attributable to Mr. Lico’s EDIP account.

 

(4)	Includes options to acquire 8,580 shares.

 

(5)

Includes 17,000,000 shares (the “MR LLC Shares”) owned by limited liability companies of which Mr. Rales is the sole member (the “MR LLCs”), 1,184,955 other shares owned indirectly, and options to acquire 4,340 shares. Prior to the Separation, shares of Danaher Common Stock owned by MR LLCs were pledged to secure lines of credit with certain banks (the “Pre-existing Pledged MR DHR Shares”). The MR LLC Shares that were issued as a dividend in the Separation on the Pre-existing Pledged MR DHR Shares were pledged to secure the corresponding lines of credit, and each of these entities and Mr. Rales is in compliance with these lines of credit. Other than the MR LLC Shares issued as a dividend on the Pre-existing Pledged MR DHR Shares, no shares of Common Stock have been pledged or are permitted to be pledged by Mr. Rales. The business address of Mitchell Rales, and of each of the MR LLCs, is 11790 Glen Road, Potomac, MD 20854.

 

 

 

		2018 Proxy Statement		11

 

Beneficial Ownership of Common Stock by Directors, Officers and Principal Shareholders

 

 

(6)

Includes 17,000,000 shares owned by limited liability companies (the “SR LLC Shares”) of which Mr. Rales is the sole member (the “SR LLCs”), options to acquire 4,340 shares, and 58,500 shares owned by a charitable foundation of which Mr. Rales is a director. Mr. Rales disclaims beneficial ownership of the 58,500 shares held by the charitable foundation. Prior to the Separation, shares of Danaher Common Stock owned by SR LLCs were pledged to secure lines of credit with certain banks (the “Pre-existing Pledged SR DHR Shares”). The SR LLC Shares that were issued as a dividend in the Separation on the Pre-existing Pledged SR DHR Shares were pledged to secure the corresponding lines of credit, and each of these entities and Mr. Rales is in compliance with these lines of credit. Other than the SR LLC Shares issued as a dividend on the Pre-existing Pledged SR DHR Shares, no shares of Common Stock have been pledged or are permitted to be pledged by Mr. Rales. The business address of Steven Rales, and of each of the SR LLCs, is 2200 Pennsylvania Avenue, N.W., Suite 800W, Washington, D.C. 20037-1701.

 

(7)	Includes options to acquire 8,580 shares.

 

(8)	Includes options to acquire 13,690 shares.

 

(9)	Includes options to acquire 143,212 shares, 1,163 RSUs, 36,300 unvested restricted shares, and 52,276 notional phantom shares attributable to Mr. Gafinowitz’s EDIP account.

 

(10)	Includes options to acquire 179,991 shares, 2,321 RSUs, 31,553 unvested restricted shares, and 19,396 notional phantom shares attributable to Ms. Hulit’s EDIP account.

 

(11)	Includes options to acquire 103,377 shares, 17,685 unvested restricted shares, and 12,930 notional phantom shares attributable to Mr. McLaughlin’s EDIP account.

 

(12)	Includes options to acquire 92,104 shares, 1,855 RSUs, 10,615 unvested restricted shares, and 715 notional phantom shares attributable to Mr. Pringle’s EDIP account.

 

(13)	Includes options to acquire 1,956,838 shares, 26,862 RSUs, 240,461 unvested restricted shares, 49,996 shares attributable to 401(k) accounts and 188,294 notional phantom shares attributable to executive officers’ EDIP accounts.

 

*	Represents less than 1% of the outstanding Common Stock.

Principal Shareholders

The following table sets forth the number of shares and percentage of Common Stock beneficially owned by each person who owns of record or is known to Fortive to beneficially own more than five percent of Common Stock.

 

NAME AND ADDRESS		NUMBER OF SHARES BENEFICIALLY OWNED					PERCENT OF CLASS
T. Rowe Price Associates, Inc. 100 E. Pratt Street, Baltimore, MD 21202				36,677,427	(1)				10.5	%
The Vanguard Group 100 Vanguard Blvd., Malvern, PA 19355				21,445,917	(2)				6.2	%
FMR LLC 245 Summer Street, Boston, MA 02210				20,744,968	(3)				6.0	%
BlackRock, Inc. 55 East 52nd Street, New York, NY 10055				20,013,760	(4)				5.7	%

 

(1)

The amount shown and the following information is derived from a Schedule 13G/A filed February 14, 2018 by T. Rowe Price Associates, Inc. (“Price Associates”), which sets forth Price Associates’ beneficial ownership as of December 31, 2017. According to the Schedule 13G/A, Price Associates has sole voting power over 12,308,444 shares and sole dispositive power over 36,677,427 shares. Price Associates does not serve as custodian of the assets of any of its clients; accordingly, in each instance only the client or the client’s custodian or trustee bank has the right to receive dividends paid with respect to, and proceeds from the sale of, such securities. The ultimate power to direct the receipt of dividends paid with respect to, and the proceeds from the sale of, such securities, is vested in the individual and institutional clients which Price Associates serves as investment adviser. Any and all discretionary authority which has been delegated to Price Associates may be revoked in whole or in part at any time.

 

(2)

The amount shown and the following information is derived from a Schedule 13G/A filed February 12, 2018 by The Vanguard Group, which sets forth their respective beneficial ownership as of December 31, 2017. According to the Schedule 13G/A, The Vanguard Group has sole voting power over 438,524 shares, shared voting power over 67,404 shares, sole dispositive power over 20,948,035 shares and shared dispositive power over 497,882 shares.

 

(3)

The amount shown and the following information is derived from a Schedule 13G/A filed February 13, 2018 by FMR LLC and Abigail P. Johnson, which sets forth their respective beneficial ownership as of December 31, 2017. According to the Schedule 13G/A, FMR LLC has sole voting power over 3,095,586 shares and FMR LLC and Abigail P. Johnson have sole dispositive power over 20,744,968 shares.

 

(4)

The amount shown and the following information is derived from a Schedule 13G filed February 1, 2018 by BlackRock, Inc. which sets forth BlackRock, Inc.’s beneficial ownership as of December 31, 2017. According to the Schedule 13G, BlackRock, Inc. has sole voting power over 17,434,028 shares and sole dispositive power over 20,013,760 shares.

 

 

 

12		2018 Proxy Statement		FORTIVE CORPORATION

 

		Proposal 1. Election of Directors

 

Board Composition Overview

Our Board is comprised of directors with diverse skills, background, and experience, which the Board believes contributes to the effective oversight of our Company. Additional details on board membership criteria are set forth on page 25 under “Corporate Governance – Director Nomination Process.”

 

 

 

 

		2018 Proxy Statement		13

 

Proposal 1. Election of Directors

 

Declassification of the Board

Pursuant to our Certificate of Incorporation adopted prior to our separation from Danaher (the “Separation”), our Board has been constituted into three classes as follows:

 

•

Class I: Kate D. Mitchell and Israel Ruiz, whose terms expire at the 2020 Annual Meeting of Shareholders;

 

•

Class II: Feroz Dewan and James A. Lico, whose terms expire at the Annual Meeting; and

 

•

Class III: Mitchell P. Rales, Steven M. Rales, and Alan G. Spoon, whose terms expire at the 2019 Annual Meeting of Shareholders.

At the 2017 Annual Meeting of Shareholders, the shareholders approved a proposal from our Board to amend our Certificate of Incorporation to declassify the Board and to provide, starting with the 2019 Annual Meeting of Shareholders, for the election of directors to one-year terms. As a result, our Board will be declassified in the following manner:

 

		The Class II directors elected at the Annual Meeting will serve three-year terms expiring at the 2021 Annual Meeting of Shareholders
		The directors elected at the 2019 Annual Meeting of Shareholders (and at each annual meeting thereafter) will serve one-year terms
		Beginning with the 2020 Annual Meeting of Shareholders, a majority of the directors will be elected annually
		Beginning with the 2021 Annual Meeting of Shareholders, the entire Board will be elected annually

Election of Directors

At the Annual Meeting, shareholders will be asked to elect each of the Class II director nominees (each of whom has been recommended by the Nominating and Governance Committee, has been nominated by the Board and currently serves as a Class II Director of Fortive) to serve until the 2021 Annual Meeting of Shareholders and until his or her successor is duly elected and qualified.

We have included information as of April 9, 2018 relating to each nominee for election as director and each director continuing in office, including his or her age, the year in which he or she became a director, his or her principal occupation, any board memberships at other public companies during the past five years, and the other experience, qualifications, attributes or skills that led the Board to conclude that he or she should continue to serve as a director of Fortive. Please see “Corporate Governance – Director Nomination Process” for a further discussion of the Board’s process for nominating Board candidates. In the event a nominee declines or is unable to serve, the proxies may be voted at the discretion of the proxy holders for a substitute nominee designated by the Board, or the Board may reduce the number of directors to be elected. We know of no reason why this will occur.

 

 

 

14		2018 Proxy Statement		FORTIVE CORPORATION

 

Proposal 1. Election of Directors

 

Class II Director Nominees – Three-Year Terms That Will Expire in 2021

 

 

Feroz Dewan		Director since: 2016		Other Current Public Company Directorships: The Kraft Heinz Company
Age: 41		Independent

Feroz Dewan has served as the Chief Executive Officer of Arena Holdings Management LLC, an investment holding company, since 2016. Previously, Mr. Dewan served in a series of positions with Tiger Global Management, an investment firm with approximately $20 billion under management across public and private equity funds, from 2003 to 2015, including most recently as Head of Public Equities. He also served as a Private Equity Associate at Silver Lake Partners, a private equity firm focused on leveraged buyout and growth capital investments in technology, technology-enabled and related industries, from 2002 to 2003.

 

 

 

 

James A. Lico		Director since: 2016		Other Current Public Company Directorships: NetScout Systems, Inc.
Age: 52

James A. Lico has served as the Chief Executive Officer and President of Fortive since the Separation in 2016. From 1996 to 2016, Mr. Lico served in various leadership positions at Danaher Corporation, a global science and technology company, including as Executive Vice President from 2005 to 2016.

 

 

The Board of Directors recommends that shareholders vote “FOR” the election to the Board of each of the foregoing Class II Director Nominees.

 

 

 

		2018 Proxy Statement		15

 

Proposal 1. Election of Directors

 

Current Class I Directors – Directors with Terms That Will Expire in 2020

 

 

Kate D. Mitchell		Director since: 2016		Other Current Public Company Directorships: SVB Financial Group
Age: 59		Independent

Kate D. Mitchell has served as a partner and co-founder of Scale Venture Partners, a Silicon Valley-based firm that invests in early-in-revenue technology companies, since 1997. Prior to her current role, Ms. Mitchell served with Bank of America, a multinational banking and financial services corporation, from 1988 to 1996, most recently as Senior Vice President for Bank of America Interactive Banking. Ms. Mitchell currently serves on the boards of directors of SVB Financial Group, Silicon Valley Community Foundation and other private company boards on behalf of Scale Venture Partners.

 

 

 

 

Israel Ruiz		Director since: 2016		Other Current Public Directorships: None
Age: 46		Independent

Israel Ruiz has been the Executive Vice President and Treasurer at Massachusetts Institute of Technology (MIT), a private research university of science and technology, since 2011. In this role, Mr. Ruiz oversees all principal administrative and financial functions of MIT. Prior to his current role, Mr. Ruiz served as the Vice President for Finance for MIT from 2007 to 2011 and as a principal for MIT’s Office of Budget and Financial Planning from 2001 to 2007.

 

 

 

 

 

16		2018 Proxy Statement		FORTIVE CORPORATION

 

Proposal 1. Election of Directors

 

Current Class III Directors – Directors with Terms That Will Expire in 2019

 

 

Mitchell P. Rales		Director since: 2016		Other Current Public Company Directorships: Danaher Corporation and Colfax Corporation
Age: 61

Mr. Rales is a co-founder of Danaher Corporation and has served as Chairman of the Executive Committee of Danaher since 1984. He was also President of Danaher from 1984 to 1990. In addition, for more than the past five years, he has been a principal in private and public business entities in the manufacturing area.

 

 

 

 

Steven M. Rales		Director since: 2016		Other Current Public Company Directorships: Danaher Corporation
Age: 67

Mr. Rales is co-founder of Danaher Corporation and has served as Chairman of the Board of Danaher since 1984. He was also CEO of Danaher from 1984 to 1990. In addition, for more than the past five years, he has been a principal in a private business entity in the area of film production.

 

 

 

 

Alan G. Spoon Age: 66		Director since: 2016 Independent		Other Current Public Company Directorships: Danaher Corporation, IAC/InteractiveCorp., Match Group, Inc., and Cable One, Inc.

Mr. Spoon has served as Partner Emeritus of Polaris Partners, a company that invests in private technology and life science firms, since January 2015. Mr. Spoon has been a partner at Polaris since May 2000, and served as Managing General Partner from 2000 to 2010. In addition to his leadership role at Polaris Partners, Mr. Spoon previously served as president, chief operating officer and chief financial officer of one of the country’s largest, publicly-traded education and media companies, and has served on the boards of numerous public and private companies.

 

 

 

 

 

		2018 Proxy Statement		17

 

		Corporate Governance

 

Corporate Governance Overview

Our Board of Directors recognizes that protecting long-term value for our shareholders requires a robust framework of corporate governance that serves the best interests of all our shareholders.

In connection with our Board’s dedication to strong corporate governance, our Board has approved the following corporate governance matters following the Separation in 2016:

Recent Governance Actions

 

		Adopted proxy access to permit a shareholder, or a group of up to 20 shareholders, owning at least 3% of the outstanding shares continuously for at least 3 years to nominate and include in our proxy materials director nominees constituting up to 20% of the board of directors, as further detailed in our Bylaws
		Commenced the declassification of the Board to provide for the annual election of directors after a sunset period
		Documented our commitment to Board diversity in our Corporate Governance Guidelines and the Nominating and Governance Committee Charter
		Adopted and launched a formal annual shareholder engagement process, with the first shareholder outreach conducted in the fourth quarter of 2017
		Formalized and documented in the Audit Committee Charter oversight of our cybersecurity by the Audit Committee, with quarterly review by the Audit Committee of our cybersecurity planning, monitoring, risk management, remediation, and controls
		Adopted, launched and conducted an annual self-assessment process to assess in detail the effectiveness of the Board and each of its committees
		Increased the stock ownership requirements for non-CEO executive officers to a multiple of three times base salary and maintained the stock ownership requirements for CEO and directors as a multiple of five times base salary and annual cash retainer, respectively

Additional highlights of our corporate governance framework

 

		Our Chairman and CEO positions are separate, with an independent Chairman
		We maintain a majority vote requirement for the election of directors in uncontested elections
		We have no shareholder rights plan
		We have an anti-overboarding policy that limits the number of boards of other public companies on which our directors may serve to four
		All members of the Audit Committee are audit committee financial experts
		We maintain a related person transaction policy with oversight by the Nominating and Governance Committee
		All members of our Audit, Compensation, and Nominating and Governance Committees are independent as defined by the New York Stock Exchange listing standards and applicable Securities and Exchange Commission rules

 

 

 

18		2018 Proxy Statement		FORTIVE CORPORATION

 

Corporate Governance

 

Corporate Governance Guidelines, Committee Charters and Standards of Conduct

As part of its ongoing commitment to good corporate governance, our Board of Directors has codified its corporate governance practices into a set of Corporate Governance Guidelines and adopted written charters for each of the Audit Committee, the Compensation Committee, the Nominating and Governance Committee, and the Finance Committee of the Board. The Board of Directors has also adopted for the Company our Standards of Conduct that includes, among others, a code of business conduct and ethics for directors, officers (including our principal executive officer, principal financial officer and principal accounting officer) and employees. The Corporate Governance Guidelines, Audit Committee Charter, Compensation Committee Charter, Nominating and Governance Committee Charter, and Standards of Conduct referenced above are each available in the “Investor – Corporate Governance” section of our website at http://www.fortive.com.

Board Leadership Structure, Risk Oversight and Management Succession Planning

Board Leadership Structure

The Board has separated the positions of Chairman and CEO because it believes that the separation of the positions best enables the Board to ensure that our businesses, risks, opportunities and affairs are managed effectively and in the best interests of our shareholders.

The entire Board selects its Chairman, and our Board has selected Alan G. Spoon, an independent director, as its Chairman, in light of Mr. Spoon’s independence and his deep experience and knowledge with corporate governance, board management, shareholder engagement, risk management and Fortive’s diverse businesses and industries.

As the independent Chairman of the Board, Mr. Spoon leads the activities of the Board, including:

 

•

Calling and presiding at all meetings of the Board;

 

•

Together with the CEO and the Corporate Secretary, setting the agenda for the Board;

 

•

Calling and presiding at the executive sessions of non-management directors and of the independent directors;

 

•

Advising the CEO on strategic aspects of the Company’s business, including developments and decisions that are to be discussed with, or would be of interest to, the Board;

 

•

Acting as a liaison as necessary between the non-management directors and the management of the Company; and

 

•

Acting as a liaison as necessary between the Board and the committees of the Board.

In the event that the Chairman of the Board is not an independent director, the Corporate Governance Guidelines provide that the independent directors, upon recommendation from the Nominating and Governance Committee, will select by majority vote an independent director to serve as the Lead Independent Director with the authority to:

 

•

Preside at all meetings of the Board at which the Chair is not present, including the executive sessions;

 

•

Call meetings of the independent directors;

 

•

Act as a liaison as necessary between the independent directors and the CEO; and

 

•

Advise with respect to the Board’s agenda.

The Board’s non-management directors meet in executive session following the Board’s regularly-scheduled meetings, with the executive sessions chaired by the independent Chairman. In addition, the independent directors meet as a group in executive session at least once a year.

 

 

 

		2018 Proxy Statement		19

 

Corporate Governance

 

Risk Oversight

The Board’s role in risk oversight at the Company is consistent with the Company’s leadership structure, with management having day-to-day responsibility for assessing and managing the Company’s risk exposure and the Board and its committees overseeing those efforts, with particular emphasis on the most significant risks facing the Company.

In determining to separate the position of the CEO and the Chairman, and in determining the appointment of the Chairman of the Board and the Chairs of the committees of the Board, the Board and the Nominating and Governance Committee considered the implementation of a governance structure and appointment of chairpersons with appropriate and relevant risk management experience that would enable Fortive to efficiently and effectively assess and oversee its risks.

Risk Oversight by the Board of Directors

The Board oversees the Company’s risk management processes directly and through its committees. In general, the Board oversees the management of risks inherent in the operation of the Company’s businesses, the implementation of its strategic plan, its acquisition and capital allocation program, its capital structure and liquidity and its organizational structure, and also oversees the Company’s risk assessment and risk management policies.

Risk Oversight by the Committees

 

AUDIT COMMITTEE		COMPENSATION COMMITTEE		NOMINATING AND GOVERNANCE COMMITTEE		FINANCE COMMITTEE
The Audit Committee oversees risks related to financial controls, legal and compliance risks and major financial, privacy, security and business continuity risks. The Audit Committee also assists the Board in overseeing the Company’s risk assessment and risk management policies. Finally, the Audit Committee oversees our cybersecurity risk management and risk controls.		The Compensation Committee oversees risks associated with the Company’s compensation policies and practices.		The Nominating and Governance Committee oversees risks associated with corporate governance and board management.		The Finance Committee oversees risks associated with the execution of the Company’s acquisition, investment and divestiture strategies.

Each committee reports to the full Board on a regular basis, including as appropriate with respect to the committee’s risk oversight activities. In addition, since risk issues often overlap, committees from time to time request that the full Board discuss particular risks.

Cybersecurity

The Board has delegated to the Audit Committee the responsibility of exercising oversight with respect to the Company’s cybersecurity risk management and risk controls. Consistent with such delegation, our Chief Information Officer provides a report to the Audit Committee on quarterly basis, and to the Board on an annual basis, regarding the Company’s cybersecurity program, including the Company’s monitoring, auditing, implementation and communication processes, controls, and procedures.

 

 

 

20		2018 Proxy Statement		FORTIVE CORPORATION

 

Corporate Governance

 

Risk Committee

The Company’s Risk Committee (consisting of members of senior management) inventories, assesses and prioritizes the most significant risks facing the Company as well as related mitigation efforts, and, on at least an annual basis, provides a report to the Board and provides a report of the process to the Audit Committee.

Management Succession Planning

The entire Board oversees the recruitment, development, and retention of our executive officers, including oversight of management succession planning. In addition to the formal activities noted below, the Board and its committee members engage and assess our executive officers and high-potential employees during management presentations, our annual multi-day leadership conference, and periodic informal meetings.

 

BOARD MEETING DATE		ACTIVITY		SUCCESSION PLANNING IMPACT
January		Employee Engagement and Organizational Effectiveness Update		Reviewing employee engagement and overall organizational effectiveness
April		Enterprise Risk Assessment Report		Oversight on risk and mitigation efforts relating to talent recruitment, development and retention
August		Talent, Succession and Engagement Update		Review of senior management selection, succession readiness with respect to three different time periods (immediate, short-term and long-term), leadership development, diversity and employee engagement

Director Independence

At least a majority of the Board must qualify as independent within the meaning of the listing standards of the NYSE. The Board has affirmatively determined that Ms. Kate D. Mitchell and Messrs. Feroz Dewan, Israel Ruiz and Alan G. Spoon are independent within the meaning of the listing standards of the NYSE.

Board of Directors and Committees of the Board

Director Attendance

In 2017, the Board met ten times and acted by unanimous written consent two times. All directors attended at least 75% of the aggregate of the total number of meetings of the Board and of all committees of the Board on which they served during 2017. All members of the Board attended the 2017 Annual Meeting of Shareholders.

 

 

 

		2018 Proxy Statement		21

 

Corporate Governance

 

Committee Membership

The membership of each of the Audit, Compensation, Nominating and Governance and Finance committees as of April 9, 2018 is set forth below.

 

NAME OF DIRECTOR		AUDIT		COMPENSATION		NOMINATING AND GOVERNANCE		FINANCE
Feroz Dewan		Member		Member
James A. Lico								Member
Kate D. Mitchell		Member		Chair
Mitchell P. Rales								Member
Steven M. Rales								Member
Israel Ruiz		Chair				Chair
Alan G. Spoon						Member		Chair

Audit Committee

In 2017, the Audit Committee met eight times. The Audit Committee is responsible for:

 

•

Assessing the qualifications and independence of Fortive’s independent auditors;

 

•

Appointing, compensating, retaining, and evaluating Fortive’s independent auditors;

 

•

Overseeing the quality and integrity of Fortive’s financial statements and making a recommendation to the Board regarding the inclusion of the audited financial statements in Fortive’s Annual Report on Form 10-K;

 

•

Overseeing Fortive’s internal auditing processes;

 

•

Overseeing management’s assessment of the effectiveness of Fortive’s internal control over financial reporting;

 

•

Overseeing management’s assessment of the effectiveness of Fortive’s disclosure controls and procedures;

 

•

Overseeing risks related to financial controls, legal and compliance risks and major financial, privacy, security and business continuity risks;

 

•

Overseeing Fortive’s risk assessment and risk management policies;

 

•

Overseeing Fortive’s compliance with legal and regulatory requirements;

 

•

Overseeing Fortive’s cybersecurity risk management and risk controls; and

 

•

Overseeing swap and derivative transactions and related policies and procedures.

The Audit Committee relies on the expertise and knowledge of management, the internal auditor, and the independent auditor in carrying out its oversight responsibilities. Management is responsible for the preparation, presentation, and integrity of Fortive’s financial statements, accounting and financial reporting principles, internal control over financial reporting, and disclosure controls and procedures designed to ensure compliance with accounting standards, applicable laws, and regulations. Management is also responsible for objectively reviewing and evaluating the adequacy, effectiveness, and quality of Fortive’s system of internal control over financial reporting. Fortive’s independent auditor, Ernst & Young LLP, is responsible for performing independent audits of Fortive’s financial statements and internal control over financial reporting and expressing an opinion on the conformity of those financial statements with accounting principles generally accepted in the United States.

The Audit Committee also prepares a report as required by the SEC to be included in this proxy statement. The Audit Committee typically meets in executive session, without the presence of management, at each regularly scheduled meeting, and reports to the Board on its actions and recommendations at each regularly scheduled Board meeting.

 

 

 

22		2018 Proxy Statement		FORTIVE CORPORATION

 

Corporate Governance

 

The Board has determined that each member of the Audit Committee is:

 

•

Independent for purposes of Rule 10A-3(b)(1) under the Securities Exchange Act and the NYSE listing standards;

 

•

Qualified as an audit committee financial expert as that term is defined in SEC rules; and

 

•

Financially literate within the meaning of the NYSE listing standards.

Furthermore, as of the date of this proxy statement, no Audit Committee member serves on the audit committee of more than three public companies.

Compensation Committee

In 2017, the Compensation Committee met nine times and acted by unanimous written consent three times.

The Compensation Committee is responsible for:

 

•

Determining and approving the form and amount of annual compensation of the CEO and our other executive officers, including evaluating the performance of, and approving the compensation paid to, our CEO and other executive officers;

 

•

Reviewing and making recommendations to the Board with respect to the adoption, amendment and termination of all executive incentive compensation plans and all equity compensation plans, and exercising all authority with respect to the administration of such plans;

 

•

Reviewing and making recommendations to the Board with respect to the form and amounts of director compensation;

 

•

Overseeing and monitoring compliance with Fortive’s compensation recoupment policy;

 

•

Overseeing and monitoring compliance by directors and executive officers with Fortive’s stock ownership requirements;

 

•

Overseeing risks associated with Fortive’s compensation policies and practices;

 

•

Overseeing our engagement with shareholders and proxy advisory firms regarding executive compensation matters; and

 

•

Reviewing and discussing with management the Compensation Discussion & Analysis (“CD&A”) in the annual proxy statement and recommending to the Board the inclusion of the CD&A in the proxy statement.

The Chair of the Compensation Committee works with our Senior Vice President-Human Resources and our Corporate Secretary to schedule the Compensation Committee’s meetings and set the agenda for each meeting. Our Senior Vice President-Human Resources, Vice President-Total Rewards, Senior Vice President-General Counsel, and Vice President-Associate General Counsel and Secretary generally attend, and from time-to-time our CEO and CFO attend, the Compensation Committee meetings and support the Compensation Committee in preparing meeting materials and taking meeting minutes. In particular, our CEO provides background regarding the interrelationship between our business objectives and executive compensation matters and advises on the alignment of incentive plan performance measures with our overall strategy; participates in the Compensation Committee’s discussions regarding the performance and compensation of the other executive officers; and provides recommendations to the Compensation Committee regarding all significant elements of compensation paid to such other executive officers, their annual, personal performance objectives and his evaluation of their performance. The Compensation Committee typically meets in executive session, without the presence of management, at each regularly scheduled meeting, and reports to the Board on its actions and recommendation at each regularly scheduled Board meeting.

Under the terms of its charter, the Compensation Committee has the authority to engage the services of outside advisors and experts to assist the Compensation Committee. Following the assessment and determination of Frederic W. Cook & Co, Inc.’s (“F.W. Cook”) and Pearl Meyer & Partners, LLC’s (“Pearl Meyer”) respective independence from Fortive’s management, the Compensation Committee engaged F.W. Cook and Pearl Meyer as the Compensation Committee’s independent compensation consultants for 2017. The Compensation Committee had the sole discretion and authority to select, retain and terminate each of F.W. Cook and Pearl Meyer as well as to approve any fees, terms and other conditions of their

 

 

 

		2018 Proxy Statement		23

 

Corporate Governance

 

respective services. Each of F.W. Cook and Pearl Meyer reported directly to the Compensation Committee and took its direction solely from the Compensation Committee. F.W. Cook’s and Pearl Meyer’s primary responsibilities in 2017 were to provide advice and data in connection with the selection of Fortive’s peer group for assessing executive compensation, the structuring of the executive compensation programs in 2017 and 2018, the compensation levels for our executive officers, and the compensation levels for our directors; assess our executive compensation program in the context of market practices and corporate governance best practices; and advise the Compensation Committee regarding our proposed executive compensation public disclosures. In the course of discharging its responsibilities, the Compensation Committee’s independent compensation consultants may, from time to time and with the Compensation Committee’s consent, request from management certain information regarding compensation amounts and practices, the interrelationship between our business objectives and executive compensation matters, the nature of our executive officer responsibilities and other business information. Neither F.W. Cook nor Pearl Meyer provided any services to Fortive or its management in 2017, and the Compensation Committee is not aware of any work performed by F.W. Cook or Pearl Meyer that raises any conflicts of interest.

Each member of the Compensation Committee is:

 

•

A “non-employee director” for purposes of Rule 16b-3 under the Securities Exchange Act; and

 

•

Based on the determination of the Board, independent under NYSE listing standards and under Rule 10C-1 under the Securities Exchange Act.

Compensation Committee Interlocks and Insider Participation

During 2017, none of the members of the Compensation Committee was an officer or employee of Fortive. No executive officer of Fortive served on the compensation committee (or other board committee performing equivalent functions) or on the board of directors of any entity having an executive officer who served on the Compensation Committee.

Nominating and Governance Committee

In 2017, the Nominating and Governance Committee met three times.

The Nominating and Governance Committee is responsible for:

 

•

Reviewing and making recommendations to the Board regarding the size, classification and composition of the Board;

 

•

Assisting the Board in identifying individuals qualified to become Board members;

 

•

Assisting the Board in identifying characteristics, skills, and experiences for the Board with the objective of having a Board with diverse backgrounds, experiences, skills, and perspectives;

 

•

Proposing to the Board the director nominees for election by our shareholders at each annual meeting;

 

•

Assisting the Board in determining the independence and qualifications of the Board and Committee members and making recommendations to the Board regarding committee membership;

 

•

Developing and making recommendations to the Board regarding a set of corporate governance guidelines and reviewing such guidelines on an annual basis;

 

•

Overseeing compliance with the corporate governance guidelines;

 

•

Overseeing director education and director orientation process and programs;

 

•

Assisting the Board and the Committees in engaging in annual self-assessment of their performance; and

 

•

Administering Fortive’s Related Person Transactions Policy.

The Board has determined that each member of the Nominating and Governance Committee is independent within the meaning of the NYSE listing standards.

 

 

 

24		2018 Proxy Statement		FORTIVE CORPORATION

 

Corporate Governance

 

The Nominating and Governance Committee typically meets in executive session, without the presence of management, at each regularly scheduled meeting and reports to the Board on its actions and recommendations at each regularly scheduled Board meeting.

Finance Committee

The Finance Committee assists the Board in assessing potential acquisition, investment and divestiture opportunities and approving business acquisitions, investments and divestitures up to the levels of authority delegated to it by the Board.

Director Nomination Process

The Nominating and Governance Committee recommends to the Board director candidates for nomination and election at the annual meeting of shareholders and, in the event of vacancies between annual meetings of shareholders, for appointment to fill such vacancies.

Board Membership Criteria

In assessing the candidates for recommendation to the Board as director nominees, the Nominating and Governance Committee will evaluate such candidates against the standards and qualifications set out in our Corporate Governance Guidelines, including:

 

		Personal and professional integrity and character
		Prominence and reputation in the candidate’s profession
		Skills, knowledge, diversity of background and experience, and expertise (including business or other relevant experience) useful and appropriate to the effective oversight of our business
		The extent to which the interplay of the candidate’s skills, knowledge, expertise and diversity of background and experience with that of the other Board members will help build a Board that is effective in collectively meeting our strategic needs and serving the long-term interests of the shareholders
		The capacity and desire to represent the interests of the shareholders as a whole
		Availability to devote sufficient time to the affairs of Fortive

 

 

 

		2018 Proxy Statement		25

 

Corporate Governance

 

The Nominating and Governance Committee annually reviews with the Board the skills, knowledge, experience, background and attributes required of Board nominees, considering current Board composition and the Company’s circumstances. In making its recommendations to our Board, the Nominating and Governance Committee considers the criteria noted above, as well as, among others, the following skills, knowledge, experience, background and attributes:

 

The Nominating and Governance Committee takes into account a candidate’s ability to contribute to the diversity of perspective and analysis of the Board and, as such, believes it is important to consider attributes such as race, ethnicity, gender, age, education, cultural experience, and professional experience in evaluating candidates who may be able to contribute to the diverse perspective and practical insight of the Board as a whole. Although we do not have a formal diversity policy and the Board does not make any particular weighting of diversity or any other characteristic in evaluating nominees and directors, the Board’s and the Nominating and Governance Committee’s commitment to diversity as an essential consideration in the director nominee selection process has been documented in both the Corporate Governance Guidelines and the Nominating and Governance Committee’s Charter.

Shareholder Recommendations

Shareholders may recommend a director nominee to the Nominating and Governance Committee. A shareholder who wishes to recommend a prospective nominee for the Board should notify the Nominating and Governance Committee in writing using the procedures described below under “—Communications with the Board of Directors” with whatever supporting material the shareholder considers appropriate. If a prospective nominee has been identified other than in connection with a director search process initiated by the Nominating and Governance Committee, the Nominating and Governance Committee makes an initial determination as to whether to conduct a full evaluation of the candidate. The Nominating and Governance Committee’s determination of whether to conduct a full evaluation is based primarily on the Nominating and Governance Committee’s view as to whether a new or additional Board member is necessary or appropriate at such time, and the likelihood that the prospective nominee can satisfy the evaluation factors described above under “—Board Membership Criteria” and any such other factors as the Nominating and Governance Committee may deem appropriate. The Nominating and Governance Committee takes into account whatever information is provided to it with the recommendation of the prospective candidate and any additional inquiries the Nominating and Governance Committee may in its discretion conduct or have conducted with respect to such prospective nominee. The Nominating and Governance Committee evaluates director nominees in the same manner whether a shareholder or the Board has recommended the candidate.

 

 

 

26		2018 Proxy Statement		FORTIVE CORPORATION

 

Corporate Governance

 

Proxy Access

Pursuant to the proxy access provisions in Section 2.12 of our Amended and Restated Bylaws adopted by the Board, a shareholder, or group of up to 20 shareholders, owning 3% or more of Fortive’s outstanding shares of common stock continuously for at least three years may nominate and include in our proxy materials directors constituting up to 20% of the Board. With respect to the 2019 Annual Meeting of Shareholders, the nomination notice and other materials required by these provisions must be delivered or mailed to and received by Fortive’s Secretary in writing between November 19, 2018 and December 19, 2018 (or, if the 2019 Annual Meeting of Shareholders is called for a date that is not within 30 calendar days of the anniversary of the date of the Annual Meeting, by the later of the close of business on the date that is 120 days prior to the date of the 2019 Annual Meeting of Shareholders or within 10 days after the public announcement of the date of the 2019 Annual Meeting of Shareholders) at the following address: Fortive Corporation, Attn: Secretary, 6920 Seaway Blvd., Everett, WA 98203. When submitting nominees for inclusion in the proxy materials pursuant to the proxy access provisions, shareholders must follow the notice procedures and provide the information required by our Amended and Restated Bylaws. Our Amended and Restated Bylaws are available at “Investor—Corporate Governance” section of our corporate website, http://www.fortive.com.

Majority Voting for Directors

Our Amended and Restated Bylaws provide for majority voting in uncontested director elections, and our Board has adopted a related director resignation policy. Under the policy, our Board will not appoint or nominate for election to the Board any person who has not tendered in advance an irrevocable resignation effective in such circumstances where the individual does not receive a majority of the votes cast in an uncontested election and such resignation is accepted by the Board. If an incumbent director is not elected by a majority of the votes cast in an uncontested election, our Nominating and Governance Committee will submit for prompt consideration by the Board a recommendation whether to accept or reject the director’s resignation. The Board expects the director whose resignation is under consideration to abstain from participating in any decision regarding that resignation.

At any meeting of shareholders for which Fortive’s Secretary receives a notice that a shareholder has nominated a person for election to the Board in compliance with our Amended and Restated Bylaws and such nomination has not been withdrawn on or before the tenth day before we first mail our notice of meeting to our shareholders, the directors will be elected by a plurality of the votes cast (which means that the nominees who receive the most affirmative votes would be elected to serve as directors).

Communications with the Board of Directors

Shareholders and other parties interested in communicating directly with the Board or with individual directors, the independent Chairman of the Board or, if the Chairman is not independent, the Lead Independent Director, or the non-management directors as a group may do so by addressing communications to the Board of Directors, to the specified individual director or to the non-management directors, as applicable, c/o Corporate Secretary, Fortive Corporation, 6920 Seaway Blvd, Everett, WA 98203.

Shareholder Engagement

In 2017, we implemented our formal shareholder engagement plan designed to engage our shareholders in an open and transparent manner and to solicit our shareholders’ input on corporate governance, board composition, executive compensation and corporate social responsibility matters. Our engagement plan provides for primary engagement during the fourth quarter after our Annual Meeting and after we are able to evaluate updated policy statements of our shareholders, the voting results from our Annual Meeting, and developments in corporate governance, compensation and corporate social responsibility best practices.

 

 

 

		2018 Proxy Statement		27

 

Corporate Governance

 

Our engagement team is comprised primarily of our executive officers and other key employees and may include our Chairman of the Board and the Chair of our Compensation Committee as appropriate. As part of our annual engagement, we expect to reach out to our largest shareholders holding in the aggregate approximately 35% of our total outstanding shares. We also engage with proxy advisory firms that advise our primary shareholders. The results of our shareholder engagement activities are shared with our Nominating and Governance Committee, our Compensation Committee and the full Board of Directors.

 

 

 

28		2018 Proxy Statement		FORTIVE CORPORATION

 

		Certain Relationships and Related Transactions

 

Policy

Under our Related Person Transactions Policy adopted by the Board, the Nominating and Governance Committee of the Board is required to review and, if appropriate, approve all related person transactions prior to consummation whenever practicable. If advance approval of a related person transaction is not practicable under the circumstances or if our management becomes aware of a related person transaction that has not been previously approved or ratified, the transaction is submitted to the Nominating and Governance Committee at its next meeting. The Nominating and Governance Committee is required to review and consider all relevant information available to it about each related person transaction, and a transaction is considered approved or ratified under the policy if the Nominating and Governance Committee authorizes it according to the terms of the policy after full disclosure of the related person’s interests in the transaction. Related person transactions of an ongoing nature are reviewed annually by the Nominating and Governance Committee. The definition of “related person transactions” for purposes of the policy covers the transactions that are required to be disclosed under Item 404(a) of Regulation S-K promulgated under the Securities Exchange Act.

Relationships and Transactions

On July 2, 2016, we completed the Separation of Fortive from Danaher. Following the Separation, Danaher and Fortive operate as separate publicly-traded companies and neither entity has any ownership interest in the other. However, two of our directors, Messrs. Steven M. Rales and Mitchell P. Rales, collectively own more than 10% of the equity of Danaher. Furthermore Messrs. Rales and Rales are executive officers of Danaher. In connection with the Separation, Danaher and Fortive entered into various agreements to effect the Separation and provide a framework for their relationship after the Separation, including an employee matters agreement, a tax matters agreement, an intellectual property matters agreement, a license agreement with respect to the Danaher Business System, or DBS (a proprietary set of business processes and methodologies that are designed to continuously improve business performance), and a transition services agreement. These agreements provide for the allocation between Danaher and Fortive of assets, employees, liabilities and obligations (including investments, property and employee benefits and tax-related assets and liabilities) attributable to periods prior to, at and after the Separation and govern certain relationships between Danaher and Fortive after the Separation. In addition, following the Separation, certain of our subsidiaries sell products and services to, or purchase products and services from, Danaher from time to time in the ordinary course of business and on an arms’-length basis. In 2017, the net amount payable by Danaher to Fortive under the transition services agreement was approximately $9.0 million. In addition, our subsidiaries purchased approximately $13.0 million of products and services from, and sold approximately $17.7 million of products and services to, Danaher, which in each case is less than 0.3% of Fortive’s, and of Danaher’s, revenues for 2017. Our subsidiaries intend to sell products to and purchase products from Danaher in the future in the ordinary course of their businesses and on an arms’-length basis.

In addition, Messrs. Steven Rales and Mitchell Rales collectively own more than 10% of the equity of Colfax Corporation, a publicly traded company. Certain of our subsidiaries sell products to Colfax from time to time in the ordinary course of business and on an arms’-length basis. In 2017, our subsidiaries sold approximately $0.3 million of products to Colfax, which is less than 0.01% of Colfax’s, and of Fortive’s, revenues for 2017. Our subsidiaries intend to sell products to Colfax in the future in the ordinary course of their businesses and on an arms’-length basis.

Furthermore, Israel Ruiz, our director, is an executive officer of Massachusetts Institute of Technology, a private research university of science and technology. As part of our strategic, research, and networking efforts, Fortive became a member of technology-focused networking programs offered by certain leading research universities, including the Industrial Liaison Program offered by Massachusetts Institute of Technology (the “ILP Program”). Fortive’s membership in the ILP Program is pursuant to the standard terms and conditions of the program, including the payment of the standard membership fee of $150,000 and the receipt of benefits generally available to members of the program.

 

 

 

		2018 Proxy Statement		29

 

		Director Compensation

 

Summary of Director Compensation

Each of our non-management directors receives the following compensation:

 

•

An annual retainer of $100,000, payable pursuant to an election made the prior year under the Non-Employee Director’s Deferred Compensation Plan described below (the “Election”).

 

•

If a director attends more than 20 Board and Board committee meetings in aggregate during a calendar year, a cash meeting fee of $2,000 for each Board and committee meeting attended during such year in excess of such threshold, paid in aggregate following completion of such year.

 

•

An annual equity award with a target award value of $175,000, divided equally between options and RSUs; provided, however, that, upon request by a director and at the sole discretion of the Compensation Committee or the Board, such annual equity award may be comprised solely of RSUs. The options will be fully vested as of the grant date. The RSUs will vest upon the earlier of (1) the first anniversary of the grant date, or (2) the date of, and immediately prior to, the next annual meeting of our shareholders following the grant date, but the underlying shares are not issued until the earlier of the director’s death or the first day of the seventh month following the director’s retirement from the Board.

 

•

Reimbursement for out-of-pocket expenses, including travel expenses, related to the director’s service on the Board.

In addition, the Board chair receives an annual retainer of $92,500 payable pursuant to the Election and an annual equity award with a target value of $92,500 (divided either equally between options and RSUs or comprised solely of RSUs, as described above), the chair of the Audit Committee receives an annual retainer of $25,000, the chair of each of the Compensation Committee receives an annual retainer of $20,000, and the chair of the Nominating and Governance Committee receives an annual cash retainer of $15,000, in each case, payable pursuant to the Election.

Pursuant to the Non-Employee Director’s Deferred Compensation Plan adopted by the Board on August 3, 2017 with respect to annual retainer payable on or after July 1, 2018, each director may make an election during the prior year to receive such annual retainer, including the base annual retainer payable to all directors, additional annual retainer payable to the Board chair, and the additional annual retainer payable to the committee chairs, in:

 

•

cash payable in four, equal installments following each quarter of service;

 

•

RSUs with a target value equal to the annual retainer and granted concurrently with the annual equity award that will:

 

•

vest upon the earlier of (1) the first anniversary of the grant date, or (2) the date of, and immediately prior to, the next annual meeting of our shareholders following the grant date;

 

•

have the underlying shares not issued until the earlier of the director’s death or, based on the election made by the director, the first day of the seventh month, first year, third year, or fifth year following the director’s retirement from the Board; or

 

•

a combination of cash and RSUs as allocated in increments of 1% of the total annual retainer.

Our Board has also adopted stock ownership requirements for non-management directors. Under the requirements, each non-management director (within five years of his or her initial election or appointment) is required to beneficially own shares of our common stock with a market value of at least five times his or her annual cash retainer. Once a director has acquired a number of shares that satisfies such ownership multiple, such number of shares then becomes such director’s minimum ownership requirement (even if his or her retainer increases or the fair market value of such shares subsequently declines). Under the policy, beneficial ownership includes RSUs and restricted shares held by the director and shares in which the director or his or her spouse or child has a direct or indirect interest, but does not include shares subject to unexercised stock options. In addition, our Board has adopted a policy that prohibits any director or executive officer from pledging as security under any obligation any shares of our common stock that he or she directly or indirectly owns and controls (other than shares that were issued in the Separation as a dividend on shares of Danaher common stock that were already pledged as of February 21, 2013), and provides that pledged shares of our common stock do not count toward our

 

 

 

30		2018 Proxy Statement		FORTIVE CORPORATION

 

Director Compensation

 

stock ownership requirements. We have also adopted a policy that prohibits our directors and employees from engaging in any transactions involving a derivative of our securities, including hedging transactions.

Director Summary Compensation Table

The table below summarizes the compensation paid to the non-management directors for the year ended December 31, 2017. Mr. Lico is a member of the Board but does not receive any additional compensation for services provided as a director.

 

NAME		FEES EARNED OR PAID IN CASH ($)				STOCK AWARDS ($) (1)(2)				OPTION AWARDS ($) (1)(2)				TOTAL ($)
Feroz Dewan		$	100,000			$	88,480			$	75,642			$	264,122
Kate D. Mitchell		$	117,500			$	88,480			$	75,642			$	281,622
Mitchell P. Rales		$	100,000			$	176,960				—			$	276,960
Steven M. Rales		$	100,000			$	176,960				—			$	276,960
Israel Ruiz		$	137,500			$	88,480			$	75,642			$	301,622
Alan G. Spoon		$	192,500			$	135,248			$	115,603			$	443,351

 

(1)

The amounts reflected in these columns represent the aggregate grant date fair value of the applicable award computed in accordance with Accounting Standards Codification Topic 718 (“ASC 718”). With respect to stock awards, the grant date fair value under ASC 718 is calculated based on the number of shares of Common Stock underlying the award, times the closing price of a share of our common stock on the date of grant. With respect to stock options, the grant date fair value under ASC 718 has been calculated using the Black-Scholes option pricing model, based on the following assumptions (and assuming no forfeitures): an 8 year option life, a risk-free interest rate of 2.26%; a stock price volatility rate of 23.5%; and a dividend yield of 0.49% per share.

 

(2)

The table below sets forth as to each non-management director the aggregate number of unvested RSUs and aggregate number of stock options outstanding as of December 31, 2017. All of the stock options set forth in the table below are fully vested. The RSUs set forth in the table below vest in accordance with the terms described above.

 

NAME		AGGREGATE NUMBER OF FORTIVE STOCK OPTIONS OWNED AS OF DECEMBER 31, 2017		AGGREGATE NUMBER OF UNVESTED FORTIVE RSUs OWNED AS OF DECEMBER 31, 2017
Feroz Dewan		8,580		1,400
Kate D. Mitchell		8,580		1,400
Mitchell P. Rales		4,340		2,800
Steven M. Rales		4,340		2,800
Israel Ruiz		8,580		1,400
Alan G. Spoon		13,690		2,140

 

 

 

		2018 Proxy Statement		31

 

		Proposal 2. Ratification of Independent Registered Public Accounting Firm

 

The Audit Committee on behalf of the Company has selected Ernst & Young LLP, an international accounting firm of independent certified public accountants, to act as the independent registered public accounting firm for the Company and its consolidated subsidiaries for the year ending December 31, 2018. Representatives of Ernst & Young LLP are expected to be present at the Annual Meeting, will have the opportunity to make a statement if they desire to do so and will be available to respond to appropriate questions. Although shareholder approval of the selection of Ernst & Young LLP is not required by law, the Board of Directors believes that it is advisable to give our shareholders an opportunity to ratify this selection. If this proposal is not approved by our shareholders at the Annual Meeting, the Audit Committee will reconsider its selection of Ernst & Young LLP. Even if the selection of Ernst & Young LLP is ratified, the Audit Committee in its discretion may select a different independent registered public accounting firm at any time during the year if it determines that such a change would be in the best interests of the Company and our shareholders.

 

The Board of Directors recommends that shareholders vote “FOR” the ratification of the appointment of Ernst & Young LLP to serve as the Company’s independent registered public accounting firm for 2018.

Fees Paid to Independent Registered Public Accounting Firm

Concurrently with the Separation, the Audit Committee selected Ernst & Young LLP to act as the independent registered public accounting firm for the Company and its consolidated subsidiaries for the year ended December 31, 2016. Aggregate fees for professional services rendered by our independent registered public accounting firm, Ernst & Young LLP, for the portion of 2016 following the Separation and for the entire 2017 are set forth in the table below. Prior to the Separation, Danaher Corporation paid any audit, audit related, tax or other fees related to the Company’s businesses.

 

FEE CATEGORIES		FISCAL 2016 FEES				FISCAL 2017 FEES
Audit Fees (1)		$	6,916,442			$	8,993,671
Audit-Related Fees (2)		$	18,000			$	471,491
Tax Fees (3)		$	494,316			$	1,305,871
All Other Fees (4)		$	0			$	0
TOTAL FEES		$	7,428,758			$	10,771,033

 

(1)

Audit Fees consist of fees for the integrated audit of annual financial statements and internal control over financial reporting, reviews of quarterly financial statements, statutory audits, audit of captive insurance company, audit procedures associated with the adoption of new accounting standards, consents, review of documents filed with the SEC and other services normally provided by the auditor in connection with statutory and regulatory filings or engagements.

 

(2)

Audit-Related Fees consist of fees billed for assurance and related services reasonably related to the performance of the audit or review of financial statements and internal control over financial reporting that are not reported under “Audit Fees” above, including employee benefit plan audits, due diligence related to acquisitions, and consultations concerning financial accounting and reporting standards.

 

(3)

Tax Fees consist of fees billed for professional services for tax compliance, tax advice and tax planning. These services include assistance regarding federal, state and international tax compliance, assistance with tax reporting requirements and audit compliance, mergers and acquisitions tax diligence, and tax advice on international, federal and state tax matters. None of these services were provided under contingent fee arrangements. Tax compliance fees were $62,632 and $186,088 in fiscal 2016 and 2017, respectively. All other tax fees were $431,684 and $1,119,783 in fiscal 2016 and 2017, respectively.

 

(4)	All Other Fees consist of fees for products and services provided by Ernst & Young LLP, other than the services reported under “Audit Fees,” “Audit-Related Fees” or “Tax Fees” above.

 

 

 

32		2018 Proxy Statement		FORTIVE CORPORATION

 

Proposal 2. Ratification of Independent Registered Public Accounting Firm

 

Audit Committee Pre-Approval of Audit and Permissible Non-Audit Services of Independent Auditors

Under its charter, the Audit Committee must pre-approve all auditing services and permitted non-audit services to be performed for the Company and its consolidated subsidiaries by our independent registered public accounting firm. To assure that the audit and non-audit services performed by the independent registered public accounting firm do not impair its independence, the Audit Committee establishes on an annual basis the Pre-Approval Policy of the Audit Committee (the “Policy”). The Policy outlines the scope of services that Ernst & Young LLP may provide to the Company. The Policy sets forth guidelines and procedures the Company must follow when retaining Ernst & Young LLP to perform audit, audit-related, tax and other services. The Policy also specifies certain non-audit services that may not be performed by Ernst & Young LLP under any circumstances. Pursuant to the Policy, the Audit Committee approves services to be provided by Ernst & Young LLP and fee thresholds within each of the service categories, and services within these thresholds are deemed pre-approved. Additional services and fees materially exceeding those thresholds require further pre-approval. Requests for specific pre-approvals may be considered by the full Audit Committee. In addition, the Audit Committee has delegated to the Chair the authority to grant specific pre-approvals. Any such pre-approvals are reported to the full Audit Committee at its next meeting. The Policy is evaluated and updated annually by the Audit Committee.

 

 

 

		2018 Proxy Statement		33

 

		Audit Committee Report

 

This report is not deemed to be “soliciting material” or to be “filed” with the SEC or subject to the SEC’s proxy rules or to the liabilities of Section 18 of the Securities Exchange Act of 1934, and shall not be deemed to be incorporated by reference into any prior or subsequent filing by Fortive Corporation under the Securities Act of 1933 or the Securities Exchange Act of 1934, except to the extent Fortive Corporation specifically incorporates this report by reference therein.

The Audit Committee has been appointed by the Board of Directors to assist the Board of Directors in the oversight of (i) the integrity of the Company’s financial statements, (ii) the Company’s compliance with legal and regulatory requirements, (iii) the qualifications and independence of the Company’s independent auditor, and (iv) the performance of the Company’s internal audit function and independent auditors.

Each member of the Audit Committee meets the criteria for independence applicable to audit committee members under the Securities Exchange Act and the NYSE listing standards. Each member of the Audit Committee is financially literate within the meaning of the NYSE listing standards, and the Board of Directors has further determined that each member of the Audit Committee qualifies as an “audit committee financial expert” as that term is defined in Regulation S-K.

Management is responsible for the financial reporting process, including its internal control over financial reporting, and for the preparation of its consolidated and combined financial statements in accordance with accounting principles generally accepted in the United States (“GAAP”). The Company’s independent registered public accounting firm is responsible for performing an independent audit of the consolidated and combined financial statements, and expressing opinions on the conformity of the financial statements with GAAP.

The Audit Committee is directly responsible for the appointment, compensation, retention and oversight of the independent registered public accounting firm retained to audit the Company’s financial statements. Ernst & Young LLP had been retained by Danaher Corporation as the independent registered public accounting firm for the Company’s businesses prior to the separation of the Company from Danaher. In addition, Ernst & Young was first appointed by the Audit Committee as the Company’s independent registered public accounting firm concurrently with the Company’s separation from Danaher in 2016. The Audit Committee believes that the continued retention of Ernst & Young to serve as the Company’s independent registered public accounting firm is in the best interests of the Company and its shareholders. Consequently, the Audit Committee has appointed Ernst & Young as the Company’s independent registered public accounting firm for 2018.

The Audit Committee has reviewed and discussed with the Company’s management and with Ernst & Young (with and without management present) the audited consolidated and combined financial statements of the Company contained in the Company’s Annual Report on Form 10-K for year ended December 31, 2017 and the Company’s internal control over financial reporting. The Audit Committee has also discussed with Ernst & Young LLP the matters required to be discussed by AS 1301, Communications with Audit Committees.

The Audit Committee has received and reviewed the written disclosures and the letter from Ernst & Young required by applicable requirements of the Public Company Accounting Oversight Board regarding the independent accounting firm’s communications with the Audit Committee concerning independence. The Audit Committee has discussed with Ernst & Young LLP its independence, including a review of both audit and non-audit fees, and considered the compatibility of non-audit services with maintaining Ernst & Young’s independence.

Based on the review and discussions referred to above, the Audit Committee recommended to the Board of Directors that the audited consolidated and combined financial statements for the Company for the year ended December 31, 2017 be included in the Company’s Annual Report on Form 10-K for its fiscal year 2017 for filing with the Securities and Exchange Commission.

Audit Committee of the Board of Directors

Israel Ruiz (Chair)

Feroz Dewan

Kate D. Mitchell

 

 

 

34		2018 Proxy Statement		FORTIVE CORPORATION

 

		Compensation Discussion and Analysis

 

Table of Contents

 

CD&A Executive Summary			36
Compensation Philosophy			38
Elements of Executive Compensation			38
2017 Summary Compensation			39
Our Compensation Governance Practices			39
2017 Compensation Enhancements			40
Aligning Compensation with Our Business Strategy			40
Aligning Compensation with Our Shared Purpose and Values			41
Consideration of 2017 Say-on-Pay Vote and Shareholder Engagement			42
Executive Compensation Decision-Making and Oversight			42
Analysis of 2017 Executive Compensation			43
Peer Group Compensation Analysis			45
Elements of Compensation — In Detail			46
Compensation Governance Policies			54
Regulatory Considerations			55
Risk Considerations and Review of Executive Compensation Practices			56

 

 

 

		2018 Proxy Statement		35

 

Compensation Discussion and Analysis

 

This Compensation Discussion and Analysis (“CD&A”) describes Fortive’s executive compensation philosophy and the pay program that we provided to our named executive officers (“NEOs”) for 2017.

CD&A Executive Summary

 

Introduction   Beginning with Fortive’s separation from Danaher Corporation in July 2016, the Compensation Committee commenced a multi-year process of evaluating the executive compensation program we inherited from Danaher and shaping our program to align our compensation program with Fortive’s separate course and strategy. In doing so, the Compensation Committee has engaged in a deliberate and incremental process to ensure that we design our compensation philosophy and our compensation practices to reflect our unique identity, strategy and performance with the ultimate goal of creating long-term value for our shareholders. With that in mind, our compensation program and philosophy are founded on aligning compensation with Fortive’s Business Strategy, Shared Purpose and Values, and Performance.

The Compensation Committee designed our 2017 executive compensation program based on the 2017 Design Consideration Factors that we describe on page 43 under “—Analysis of 2017 Executive Compensation-2017 Design Consideration Factors.”

Named Executive Officers

This CD&A addresses the compensation of the following Named Executive Officers, whom we refer to as NEOs, for 2017:

 

•

James A. Lico

  President and Chief Executive Officer

 

•

Charles E. McLaughlin

  Senior Vice President and Chief Financial Officer

 

•

Martin Gafinowitz

  Senior Vice President

 

•

Barbara B. Hulit

  Senior Vice President

 

•

William W. Pringle

  Senior Vice President

 

 

 

36		2018 Proxy Statement		FORTIVE CORPORATION

 

Compensation Discussion and Analysis

 

2017 Company Performance

One of the primary pillars of our compensation philosophy is aligning actual compensation with our company’s performance. The 2017 compensation for our NEOs reflects the exceptional performance by Fortive in 2017, including the following highlights:

 

Total Shareholder Return   Our one-year total shareholder return (“TSR”) was 35.5%. The following graph shows our total shareholder return compared to the S&P 500 Index in fiscal 2017:						Financial Performance*   We continued to grow our business on a year-over-year basis. The following non-GAAP measures were used, among others, in our annual incentive compensation program:       * Core revenue, adjusted earnings per share and core operating margin are non-GAAP measures and are reconciled to the most directly comparable GAAP measures in Appendix A.

Acquisitions

 

$1.6 BILLION IN CAPITAL DEPLOYED IN 2017 FOR ACQUISITIONS

Landauer, Inc.   Leading global provider of subscription-based technical and analytical services to manage occupational and environmental radiation exposure

Industrial Scientific Corporation   Leading provider of portable gas detection solutions, including sensors, instruments, and software, offered to customers as safety-as-a-service

Orpak Systems Limited   Leading provider of fuel station automation solutions, fleet management, automatic vehicle identification, payments and point-of-sale software in high growth markets

 

 

 

 

		2018 Proxy Statement		37

 

Compensation Discussion and Analysis

 

Compensation Philosophy

Our compensation philosophy is aligned with building long-term shareholder value, with our executive compensation program designed to:

 

		ATTRACT, RECRUIT & RETAIN		Recruit, retain, and motivate talented curious people with a passion for creativity, innovation, continuous improvement, and customer experience
		COMPETITIVE		Deliver a total pay opportunity that is competitive in the market for our executive talent
		ALIGNMENT WITH BUSINESS STRATEGY		Focus our incentive compensation programs on performance that leads to sustained shareholder value creation, consistent with our business strategy
		PAY FOR PERFORMANCE		With a culture of high expectations, set, achieve, and reward both the short-term and long-term performance
		ALIGNMENT WITH SHAREHOLDERS		Support alignment with shareholders with an emphasis on long-term, equity-based compensation

Elements of Executive Compensation

Consistent with our executive compensation philosophy, the Compensation Committee adopted a program in 2017 that emphasizes equity-based compensation with long-term vesting requirement, with an overall bias toward compensation that is aligned with building long-term shareholder value and is dependent on long-term company performance, as follows:

 

		BASE SALARY		ANNUAL INCENTIVE COMPENSATION		STOCK OPTIONS		RESTRICTED STOCK UNITS/ RESTRICTED SHARES		PERFORMANCE SHARES
Form of Compensation		Cash				Equity
Performance Timing		Near-Term Emphasis				Long-Term Emphasis
Compensation Period		N/A		Annual Performance		5 years		5 years		3 years with an additional 2 year holding period
Key Performance Measures		N/A		Annual Financial, Operational and Individual Performance		Stock Price Appreciation		Annual Financial Performance and Stock Price Appreciation		Multi-Year Relative Total Shareholder Return and Stock Price Appreciation
Determination of Performance-Based Payouts		N/A		Formulaic + Discretion		N/A		Target Award Fixed		Formulaic

 

 

 

38		2018 Proxy Statement		FORTIVE CORPORATION

 

Compensation Discussion and Analysis

 

2017 Summary Compensation

The 2017 compensation for our NEOs was designed to reward performance and align with building long-term value for our shareholders. See “Executive Compensation Tables —2017 Summary Compensation Tables” for additional details.

2017 Compensation Results from the Summary Compensation Tables¹

 

 

1

Prior to 2018, any equity grants made to executive officers that were subject to outstanding performance measures that otherwise would have been granted in the form of Restricted Stock Units and Performance Stock Units were granted in the form of Restricted Stock Awards and Performance Stock Awards, respectively, solely for Section 162(m) purposes. We use the term “RSU” to refer to both Restricted Stock Units and Restricted Stock Awards and “PSU” to refer to both Performance Stock Units and Performance Stock Awards.

Our Compensation Governance Practices

 

WHAT WE DO						WHAT WE DON’T DO

 

 

 

		2018 Proxy Statement		39

 

Compensation Discussion and Analysis

 

2017 Compensation Enhancements

The Compensation Committee made the following enhancements to our 2017 executive compensation program consistent with our compensation philosophy:

 

		Added Free Cash Flow and ROIC to supplement Adjusted EPS as financial performance measures for the 2017 annual incentive awards to better align the compensation performance measures with our overall strategy and internal core value drivers
		Increased minimum stock ownership requirements for each of the non-CEO executive officers to a multiple of three times base salary while maintaining the requirement for Mr. Lico to a multiple of five times base salary
		Revised the vesting schedule for the equity awards that we granted to the executive officers (other than our CEO) so that one-third of such awards vest on each of the 3rd, 4th and 5th anniversaries of the grant date rather than having them vest in 5 equal installments beginning on the first anniversary of the grant date, while the equity awards for our CEO will continue to vest 50% per year on the 4th and 5th anniversaries of the grant date
		Adopted a change in control plan that provides for a “double trigger” (an executive is entitled to benefits only if there is both a change in control and a termination of employment), includes a limited definition of “change in control,” and prohibits a tax gross up, to ensure that our executive officers remain focused on our businesses during periods of uncertainty and pursue transactions in the best interest of the shareholders

Aligning Compensation with Our Business Strategy

Aligning compensation with our business strategy is an essential consideration in the design of our executive compensation program, with the success of our business strategy grounded on the execution of the Fortive Formula.

The Fortive Formula

 

As a result, we based the financial performance measures for our 2017 incentive compensation program primarily on the key elements of the Fortive Formula, including core revenue growth, operating margin expansion, free cash flow, return on invested capital, and earnings per share.

 

 

 

40		2018 Proxy Statement		FORTIVE CORPORATION

 

Compensation Discussion and Analysis

 

Aligning Compensation with Our Shared Purpose and Values

We designed our incentive compensation program with the goal of translating our Shared Purpose and Values into action by each of our executive officers.

 

		•   We seek out talented, curious people with a passion for creativity, innovation, continuous improvement, and customer experience.   •   We apply creativity and rigor to breakthrough products, services and processes.   •   Kaizen, or continuous improvement, is the foundation of our culture and fuels our passion for finding a better way.   •   We build our businesses to attract and retain long-term shareholders and employees.

As we describe below in “-Annual Incentive Awards – Personal Performance Factor,” the personal performance goals for our incentive compensation program are anchored in the Values underlying our Shared Purpose. For example, the Compensation Committee established the following personal performance measures for Mr. Lico, our President and CEO, each of which is anchored in one of the Values:

 

 

 

 

 

		2018 Proxy Statement		41

 

Compensation Discussion and Analysis

 

Consideration of 2017 Say-on-Pay Vote and Shareholder Engagement

Our shareholders approved the 2017 advisory say-on-pay resolution on our 2016 executive compensation with approximately 98.4% of the votes cast in favor of our executive compensation. In addition, during the fourth quarter of 2017, we reached out to shareholders who beneficially own in the aggregate approximately 35% of our outstanding shares and to proxy advisory firms to solicit their input on, among other matters, our compensation practices. The input from our shareholders was an important consideration in the Compensation Committee’s evaluation of opportunities to make further enhancements to our compensation program in 2018.

Executive Compensation Decision-Making and Oversight

Decisions and Oversight

We summarize the allocation of responsibilities for executive compensation decisions in the table below:

 

Compensation Committee		•  Determines our compensation program and policies for our executive officers; and •  Approves the compensation levels applicable to our executive officers
Board of Directors and Management		•  The Compensation Committee consults the Board of Directors, the SVP, Human Resources, and other members of management as the Committee evaluates performance of, and establishes the compensation program and policies for, our executive officers
Independent Compensation Consultant		•  Provides counsel and guidance to the Compensation Committee concerning our compensation levels and our compensation program; and •  Reports directly to the Compensation Committee

The Compensation Committee engaged F.W. Cook directly as its independent compensation consultant in 2017 to provide counsel and guidance to the Compensation Committee with respect to our 2017 executive compensation program. The Compensation Committee has also engaged Pearl Meyer in 2017 as its independent compensation consultant to provide counsel and guidance in the design of our 2018 executive compensation program. The Compensation Committee assessed the independence of each of F.W. Cook and Pearl Meyer in accordance with the New York Stock Exchange (“NYSE”) Listing Standards and applicable SEC regulations and concluded that neither firm’s work raises any conflict of interest.

 

 

 

42		2018 Proxy Statement		FORTIVE CORPORATION

 

Compensation Discussion and Analysis

 

Analysis of 2017 Executive Compensation

2017 Design Consideration Factors

Prior to designing the 2017 compensation program, the Compensation Committee considered the factors listed below with input and guidance from the independent compensation consultants and guided by our overall compensation philosophy. We refer to these factors as the 2017 Design Consideration Factors:

 

The Competitive Landscape for Executive Talent		The Compensation Committee considered the competitive demand for our executive officers in light of our historical performance before and after the Separation and our executive officers’ prior success in executing our business strategies and leveraging the Fortive Business System. While the Compensation Committee did not target a specific competitive position versus the market in determining the compensation of our executive officers, how our executive compensation package compared to those of our peer group companies was an important factor in the design of our 2017 compensation program.
The Company’s and Individual Executive’s Performance		The Compensation Committee considered the exceptional performance of Fortive since the Separation, the expansion of the executive officers’ respective roles and their contributions to our performance. We designed a program with “at-risk” elements that appropriately motivate and reward executive officers for our continued high performance and align them with the goal of long-term shareholder value creation.
An Executive Officer’s Potential to Assume Additional Leadership Responsibility		In designing individual compensation for each executive officer, the Compensation Committee considered the historical performance of such executive officer, readiness of such executive officer to assume greater leadership responsibility, and the ability to execute on succession planning.
The Relative Complexity and Importance of the Executive Officer’s Position within Fortive		The Compensation Committee considered the importance of pay equity among the executive officers based on the relative complexity and importance of the position and each executive officer’s historical performance, tenure and leadership potential.

Based on the 2017 Design Consideration Factors noted above, the Compensation Committee established each executive officer’s total target compensation for 2017. After establishing each executive officer’s total target compensation, the Compensation Committee then allocated the total target compensation amount among each of the elements of compensation described below.

 

 

 

		2018 Proxy Statement		43

 

Compensation Discussion and Analysis

 

Elements of Compensation – At a Glance

The Compensation Committee believes that, while fixed compensation is important to provide a stable source of income, the compensation for executive officers should primarily be performance-based compensation, with a bias toward long-term incentive compensation in the form of equity awards. As such, the Committee weighted the allocation of 2017 executive compensation, including allocation of incremental increases in total target compensation from 2016, primarily toward performance-based compensation, with a majority of the total target compensation for 2017 comprised of long-term equity compensation. The following table sets forth the four elements of our compensation program:

 

ELEMENT		FORM OF COMPENSATION		PRIMARY OBJECTIVES		COMPENSATION PHILOSOPHY
Base Salary		Cash		•  Help attract and retain executive talent.   •  Provide stable source of income.   •  Recognize day-to-day role and scope of responsibility.
Annual Incentive     Compensation		Cash		•  Align compensation with business strategy.   •  Reward annual performance on key operational and financial measures.   •  Motivate and reward high individual performance.
Long-Term Incentive   Compensation		•  Stock Options   •  RSUs   •  PSUs		•  Drive sustainable performance that delivers long-term value to shareholders.   •  Help retain executive talent through an extended vesting schedule.   •  Align the interest of the executive with those of the shareholders.
Other     Compensation		Employee Benefit Plans; Perquisites; Severance Benefits		•  Provide competitive compensation at an actual cost to the company lower than the perceived value to the executives.

ATTRACT, RECRUIT & RETAIN		COMPETITIVE		ALIGNMENT WITH BUSINESS STRATEGY		PAY FOR PERFORMANCE		ALIGNMENT WITH SHAREHOLDERS

 

 

 

44		2018 Proxy Statement		FORTIVE CORPORATION