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.    )

 

 

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FORTIVE CORPORATION

(Name of Registrant as Specified In Its Charter)

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

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Essential technology for the people who accelerate progress. 2019 Notice of Annual Meeting of Shareholders and Proxy Statement

 

 

FORTIVE CORPORATION

6920 Seaway Blvd

Everett, WA 98203

Notice of 2019 Annual Meeting of Shareholders

 

 

 

 

When:   June 4, 2019 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 is on or about April 17, 2019.		Who Can Vote:   Shareholders of Fortive’s common stock at the close of business on April 8, 2019.		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. Mitchell P. Rales, Mr. Steven M. Rales and Mr. Alan Spoon to serve as Class III Directors and Ms. Jeannine Sargent to serve as a Class I Director, each for a one-year term expiring at the 2020 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, 2019.

 

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

 

4.	To approve Fortive’s Amended and Restated Certificate of Incorporation, as amended and restated to eliminate the supermajority voting requirements applicable to shares of common stock.

 

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 4, 2019:

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 17, 2019

 

 

2019 Annual Meeting of Shareholders

Notice of Annual Meeting and Proxy Statement

Table of Contents

 

 

 

 

 

 

		2019 Proxy Statement		i

 

 

 

 

 

 

 

 

 

 

ii		2019 Proxy Statement		FORTIVE CORPORATION

 

		Proxy Statement Summary

 

To assist you in reviewing the proposals to be acted upon at our 2019 Annual Meeting, below is a summary of 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.

2019 Annual Meeting of Shareholders

 

Date and time:		June 4, 2019, 3:00 p.m. PDT
Place:		Fortive Corporation 6920 Seaway Blvd Everett, WA 98203
Record date:		April 8, 2019
Voting:		Shareholders of Fortive’s common stock at the close of business on April 8, 2019 are entitled to one vote per share of common stock on each matter to be voted upon at the 2019 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 Mr. Mitchell P. Rales, Mr. Steven M. Rales and Mr. Alan Spoon to serve as Class III Directors and Ms. Jeannine Sargent to serve as a Class I Director, in each case, for a one-year term (page 13)		For each nominee, majority of votes cast.		FOR each nominee
Proposal 2: Ratification of the appointment of the independent registered public accounting firm (page 35)		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 74)		The affirmative vote of a majority of the shares represented in person or by proxy.		FOR
Proposal 4: Approval of Fortive’s Amended and Restated Certificate of Incorporation, as amended and restated to eliminate the supermajority voting requirements applicable to shares of common stock (page 75)		The affirmative vote of at least 80 percent of the shares entitled to vote generally as of the record date.		FOR

Company Overview

Fortive is a diversified industrial technology growth company comprised of Professional Instrumentation and Industrial Technologies businesses that are recognized leaders in attractive markets. We are guided by our shared purpose to deliver essential technology for the people who accelerate progress, and we are united by our culture of continuous improvement and bias for action that embody our Fortive Business System (FBS). Through rigorous application of our proprietary FBS set of growth, lean, and leadership tools and processes, we continuously improve business performance in the critical areas of innovation, product development and commercialization, global supply chain, sales and marketing and leadership

 

 

 

		2019 Proxy Statement		1

 

Proxy Statement Summary

 

development. Our commitment to FBS and our goal of creating long-term shareholder value enable us to drive customer satisfaction and profitability, significant improvements in innovation, growth and operating margins, and disciplined acquisitions to execute strategy and expand our portfolio into new and attractive markets. Our well-known brands hold leading positions in advanced instrumentation and solutions, sensing, transportation technology, and franchise distribution markets. We are headquartered in Everett, Washington and employ a team of more than 24,000 research and development, manufacturing, sales, distribution, service and administrative employees in more than 50 countries around the world.

2018 Company Performance Highlights

Portfolio Evolution

 

OVER $2.8 BILLION IN CAPITAL DEPLOYED IN 2018 FOR ACQUISITIONS

Leading provider of physical resource management software with an integrated, cloud-based framework that provides insights spanning the full lifecycle of real estate, facilities and asset management

Leading provider of construction cost data, software and service offerings that serve the entire building lifecycle and provide workflow solutions to optimize every stage of an asset owner’s construction and maintenance needs

The transactions executed in 2018 represented an acceleration of our portfolio evolution and transformation. Since our separation from Danaher in July 2016, we have identified and executed transactions that continue to shape our portfolio with operating companies with higher growth in attractive end markets, less cyclicality, stronger margin potential and significant opportunities for value creation through implementation of the Fortive Business System. In 2018, we consummated a tax-efficient divestiture of four of our legacy businesses that participate in more cyclical industries, and we continued our execution of our digital strategy to address a range of critical, software-enabled workflows for our customers.

 

 

 

 

2		2019 Proxy Statement		FORTIVE CORPORATION

 

Proxy Statement Summary

 

 

Total Shareholder Return

 

 

*

Fortive separated from Danaher on July 2, 2016.

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 in recent years implemented the following corporate actions:

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 election of directors for a one-year term beginning with the election of director nominees at this Annual Meeting
		Subject to approval by the shareholders of Proposal 4, approved the elimination of the supermajority voting requirements applicable to shares of common stock
		Documented and executed our commitment to Board diversity in our Corporate Governance Guidelines and the Nominating and Governance Committee Charter
		Implemented a corporate social responsibility program, with the publication of our first Corporate Social Responsibility Report in 2018 and with oversight by the Nominating and Governance Committee
		Adopted and launched a formal annual shareholder engagement process
		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 our 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

 

 

 

		2019 Proxy Statement		3

 

Proxy Statement Summary

 

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 Pay Mix

 

Recent Compensation Enhancements

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

 

		Starting in 2018, further enhanced the performance-based element of equity awards by re-allocating 25% of the target value of the annual equity grants made to each executive officer (matching prior allocation for our CEO) from time-based restricted stock units to performance stock units, with performance measured against relative total shareholder return
		Starting in 2018, implemented additional objective performance measures to the annual restricted stock unit grant to each executive officer by including a financial performance measure based on Adjusted EPS, Free Cash Flow Ratio and ROIC

 

 

 

4		2019 Proxy Statement		FORTIVE CORPORATION

 

Proxy Statement Summary

 

		Starting in 2017, added two additional financial measures to supplement Adjusted EPS as performance measures for annual incentive awards to better align compensation performance measures with our overall strategy and internal core value drivers
		Starting in 2017, 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
		Starting in 2017, revised the vesting schedule for our annual equity awards 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 annual installments, while equity awards for our CEO continue to vest 50% per year on the 4th and 5th anniversaries of the grant date

Compensation Governance Highlights

 

WHAT WE DO						WHAT WE DON’T DO

 

 

 

		2019 Proxy Statement		5

 

 

 

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6		2019 Proxy Statement		FORTIVE CORPORATION

 

		Proxy Statement

 

Fortive Corporation

6920 Seaway Blvd

Everett, WA 98203

2019 Annual Meeting of Shareholders

June 4, 2019

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 2019 Annual Meeting of Shareholders (the “Annual Meeting”) to be held at Fortive Corporation, 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 17, 2019.

Purpose of the Annual Meeting

The purpose of the meeting is to:

 

1.	Elect Mr. Mitchell Rales, Mr. Steven Rales, and Mr. Alan Spoon to serve as Class III Directors and Ms. Jeannine Sargent to serve as a Class I Director, each for a one-year term expiring at the 2020 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, 2019;

 

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

 

4.	Approve Fortive’s Amended and Restated Certificate of Incorporation, as amended and restated, to eliminate the supermajority voting requirements applicable to shares of common stock; 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 8, 2019 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 8, 2019, 335,048,368 shares of Common Stock were outstanding, excluding shares held by or for the account of Fortive.

 

 

 

		2019 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. Rales, Mr. Rales and Mr. Spoon to serve as Class III directors and the election of Ms. Sargent to serve as Class I director, each for a one-year term;

 

•

FOR ratification of the selection of Ernst & Young LLP as Fortive’s independent registered public accounting firm for the year ending December 31, 2019;

 

•

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

 

•

FOR approval of an amendment to the Amended and Restated Certificate of Incorporation to eliminate the supermajority voting requirement applicable to shares of common stock; 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 17, 2019, 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 and 3. However, because approval of Proposal 4 requires the affirmative vote of the holders of 80 percent of the outstanding shares entitled to vote generally in the election of directors on the record date, broker non-votes will have the same effect as a vote against Proposal 4.

 

 

 

8		2019 Proxy Statement		FORTIVE CORPORATION

 

Proxy Statement

 

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 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 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 and 3, 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.

 

•

With respect to Proposal 4, the affirmative vote of the holders of 80% of the outstanding shares of Common Stock entitled to vote generally in the election of directors on the record date is required to approve this proposal. For this proposal abstentions are counted for the 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 3, 2019.

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.

 

 

 

		2019 Proxy Statement		9

 

Proxy Statement

 

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.

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 May 31, 2019, 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		2019 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 8, 2019 (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 8, 2019. 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				12,100	(2)				*
James A. Lico				1,398,476	(3)				*
Kate D. Mitchell				12,100	(4)				*
Mitchell P. Rales				18,315,530	(5)				5.5	%
Steven M. Rales				21,570,210	(6)				6.4	%
Israel Ruiz				12,100	(7)				*
Jeannine Sargent				—					*
Alan G. Spoon				59,733	(8)				*
Martin Gafinowitz				325,201	(9)				*
Barbara B. Hulit				310,105	(10)				*
Charles E. McLaughlin				160,933	(11)				*
William W. Pringle				152,823	(12)				*
All current executive officers and directors as a group (19 persons)				42,856,519	(13)				12.7	%

 

(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 8, 2019, 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, 2019, 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, 2019. 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 8, 2019 or upon vesting of Restricted Stock Units (“RSUs”) that vest within 60 days of April 8, 2019. 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 8, 2019) 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, at the earliest, 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 12,100 shares.

 

(3)	Includes options to acquire 1,036,356 shares, 11,585 RSUs, 92,338 unvested restricted shares, 22,027 shares attributable to Mr. Lico’s 401(k) Fortive Stock Fund and 99,557 notional phantom shares attributable to Mr. Lico’s EDIP account.

 

(4)	Includes options to acquire 12,100 shares.

 

(5)

Includes 16,000,000 shares (the “MR LLC Shares”) owned by limited liability companies (“MR LLCs”), with Mr. Rales, as the grantor and trustee of the sole member of the MR LLCs, having sole voting power and sole dispositive power over the MR LLC Shares. In addition, includes 1,010,079 other shares owned indirectly, and options to acquire 4,340 shares. Prior to the separation of Fortive from Danaher (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

 

 

 

		2019 Proxy Statement		11

 

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

 

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.

 

(6)

Includes 17,000,000 shares (“SR LLC Shares”) owned by limited liability companies (the “SR LLCs”), with Mr. Rales, as the grantor and trustee of the sole member of the SR LLCs, having sole voting power and sole dispositive power over the SR LLC Shares. In addition, includes 4,507,370 other shares owned indirectly, 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 12,100 shares.

 

(8)	Includes options to acquire 19,060 shares.

 

(9)	Includes options to acquire 191,427 shares, 1,161 RSUs, 28,328 unvested restricted shares, and 53,799 notional phantom shares attributable to Mr. Gafinowitz’s EDIP account.

 

(10)	Includes options to acquire 232,786 shares, 2,319 RSUs, 24,573 unvested restricted shares, and 25,394 notional phantom shares attributable to Ms. Hulit’s EDIP account.

 

(11)	Includes options to acquire 125,884 shares, 17,685 unvested restricted shares, and 14,351 notional phantom shares attributable to Mr. McLaughlin’s EDIP account.

 

(12)	Includes options to acquire 116,324 shares, 1,855 RSUs, 10,615 unvested restricted shares, and 7,920 notional phantom shares attributable to Mr. Pringle’s EDIP account.

 

(13)	Includes options to acquire 2,155,343 shares, 24,808 RSUs, 225,509 unvested restricted shares, 22,027 shares attributable to 401(k) accounts and 227,895 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			47,539,102	(1)			14.2	%
FMR LLC 245 Summer Street, Boston, MA 02210			28,456,946	(2)			8.5	%
The Vanguard Group 100 Vanguard Blvd., Malvern, PA 19355			22,228,700	(3)			6.6	%
BlackRock, Inc. 55 East 52nd Street, New York, NY 10055			21,146,621	(4)			6.3	%

 

(1)

The amount shown and the following information is derived from a Schedule 13G/A filed February 14, 2019 by T. Rowe Price Associates, Inc. (“Price Associates”), which sets forth Price Associates’ beneficial ownership as of December 31, 2018. According to the Schedule 13G/A, Price Associates has sole voting power over 16,369,318 shares and sole dispositive power over 47,539,102 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 13, 2019 by FMR LLC and Abigail P. Johnson, which sets forth their respective beneficial ownership as of December 31, 2018. According to the Schedule 13G/A, FMR LLC has sole voting power over 5,185,136 shares and FMR LLC and Abigail P. Johnson have sole dispositive power over 28,456,946 shares.

 

(3)

The amount shown and the following information is derived from a Schedule 13G/A filed February 11, 2019 by The Vanguard Group, which sets forth their respective beneficial ownership as of December 31, 2018. According to the Schedule 13G/A, The Vanguard Group has sole voting power over 360,391 shares, shared voting power over 66,574 shares, sole dispositive power over 21,810,895 shares and shared dispositive power over 417,805 shares.

 

(4)

The amount shown and the following information is derived from a Schedule 13G/A filed February 11, 2019 by BlackRock, Inc. which sets forth BlackRock, Inc.’s beneficial ownership as of December 31, 2018. According to the Schedule 13G/A, BlackRock, Inc. has sole voting power over 18,670,477 shares and sole dispositive power over 21,146,621 shares.

 

 

 

12		2019 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 the Company. Additional details on board membership criteria are set forth on page 26 under “Corporate Governance – Director Nomination Process.”

 

 

 

 

		2019 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, Israel Ruiz and Jeannine Sargent, whose terms expire at the 2020 Annual Meeting of Shareholders; provided, however, that Ms. Sargent, who was appointed to our Board on February 11, 2019 to fill a vacancy, will stand for election at this Annual Meeting for a one-year term expiring at the 2020 Annual Meeting;

 

•

Class II: Feroz Dewan and James A. Lico, whose terms expire at the 2021 Annual Meeting of Shareholders; and

 

•

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

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 this 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 directors elected at this 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 Mitchell P. Rales, Steven M. Rales, and Alan G. Spoon to serve as Class III directors and Jeannine Sargent to serve as a Class I director (each of whom has been recommended by the Nominating and Governance Committee, has been nominated by the Board and currently serves as a director of Fortive) to serve a one-year term until the 2020 Annual Meeting of Shareholders and until his or her successor is duly elected and qualified.

We have included information as of April 8, 2019 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		2019 Proxy Statement		FORTIVE CORPORATION

 

Proposal 1. Election of Directors

 

Class III Director Nominees – For One-Year Terms That Will Expire in 2020

 

 

Mitchell P. Rales Age: 62		Director since: 2016		Other Current Public Company Directorships: Danaher Corporation and Colfax Corporation

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 Age: 68		Director since: 2016		Other Current Public Company Directorships: Danaher Corporation

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: 67		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 our Chairman of the Board since 2016. In addition, Mr. Spoon served as a Partner of Polaris Partners, a company that invests in private technology and life science firms, from 2000 to 2018, including as Managing General Partner from 2000 to 2010 and as Partner Emeritus from 2015 to 2018. In addition to his prior 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.

 

 

 

 

 

		2019 Proxy Statement		15

 

Proposal 1. Election of Directors

 

Class I Director Nominee – For One-Year Term That Will Expire in 2020

 

 

Jeannine Sargent Age: 55		Director since: 2019		Other Current Public Company Directorships: Cypress Semiconductor Corp.

Ms. Sargent has served as an operating partner of Katalyst Ventures, an early-stage technology venture fund, since 2018. Previously, Ms. Sargent served as president of Innovation and New Ventures at Flex, a leader in global design and manufacturing, from 2012 until 2017. Prior to joining Flex, Ms. Sargent served as the chief executive officer at Oerlikon Solar, a thin-film silicon solar photovoltaic module manufacturer and a wholly owned subsidiary of Oerlikon, a publicly-traded Swiss company, and Voyan Technology, an embedded systems software provider. Ms. Sargent is also a director and a member of the compensation committee and the nominating and governance committee of Cypress Semiconductor Corp., a publicly-traded provider of advanced embedded system solutions. She also currently serves on several investment and advisory boards and is on the board of trustees at Northeastern University. She holds a bachelor of science in chemical engineering from Northeastern University and certificates from the executive development programs at the MIT Sloan School of Management, Harvard University and Stanford University.

 

 

 

 

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

 

 

 

16		2019 Proxy Statement		FORTIVE CORPORATION

 

Proposal 1. Election of Directors

 

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

 

 

Kate D. Mitchell Age: 60		Director since: 2016 Independent		Other Current Public Company Directorships: SVB Financial Group

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 Age: 47		Director since: 2016 Independent		Other Current Public Directorships: Moderna, Inc.

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.

 

 

 

 

 

		2019 Proxy Statement		17

 

Proposal 1. Election of Directors

 

Class II Directors – Directors with Terms That Will Expire in 2021

 

 

Feroz Dewan Age: 42		Director since: 2016 Independent		Other Current Public Company Directorships: The Kraft Heinz Company

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 Age: 53		Director since: 2016		Other Current Public Company Directorships: None

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. Mr. Lico also served as a director of NetScout Systems, Inc., a public company, from 2015 to 2018.

 

 

 

 

 

18		2019 Proxy Statement		FORTIVE CORPORATION

 

		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 in recent years implemented the following corporate actions:

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 election of directors for a one-year term beginning with the election of director nominees at this Annual Meeting
		Subject to approval by the shareholders of Proposal 4, approved the elimination of the supermajority voting requirements applicable to shares of common stock
		Documented and executed of our commitment to Board diversity in our Corporate Governance Guidelines and the Nominating and Governance Committee Charter
		Implemented a corporate social responsibility program, with the publication of our first Corporate Social Responsibility Report in 2018 and with oversight by the Nominating and Governance Committee
		Adopted and launched a formal annual shareholder engagement process
		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 our 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

 

 

 

		2019 Proxy Statement		19

 

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 “Investors – 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.

 

 

 

20		2019 Proxy Statement		FORTIVE CORPORATION

 

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.

 

 

 

		2019 Proxy Statement		21

 

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 Mss. Kate D. Mitchell and Jeannine Sargent and Messrs. Feroz Dewan, Israel Ruiz and Alan G. Spoon are independent within the meaning of the listing standards of the NYSE. In addition, at the time of the Separation on July 2, 2016, Danaher Corporation designated the role of Chairman of the Board and the role of Chairman of the Executive Committee of the Board as “executive officer” positions. As a result, Mr. Steven Rales, as the Chairman of the Board of Danaher, and Mr. Mitchell Rales, as the Chairman of the Executive Committee of the Board of Danaher, were designated as executive officers of Danaher at the time of the Separation. Under the listing standards of the NYSE, because of such designation as executive officers, Messrs. Rales and Rales cannot be deemed independent directors of Fortive until July 2, 2019, the third anniversary of the Separation. Following the expiration of such three-year look-back period from the time of the Separation, the Board will have the ability to affirmatively determine that Messrs. Rales and Rales are independent within the meaning of the listing standards of the NYSE.

Board of Directors and Committees of the Board

Director Attendance

In 2018, the Board met eleven times and acted by unanimous written consent three 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 2018. As a general matter, directors are expected to attend annual meetings of shareholders. All members of the Board attended the 2018 Annual Meeting of Shareholders.

 

 

 

22		2019 Proxy Statement		FORTIVE CORPORATION

 

Corporate Governance

 

Committee Membership

The membership of each of the Audit, Compensation, Nominating and Governance and Finance committees as of April 8, 2019 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
Jeannine Sargent				Member
Alan G. Spoon						Member		Chair

Audit Committee

In 2018, 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.

 

 

 

		2019 Proxy Statement		23

 

Corporate Governance

 

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.

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 2018, the Compensation Committee met six times and acted by unanimous written consent two 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 Pearl Meyer & Partners, LLC’s (“Pearl Meyer”) independence from Fortive’s management, the Compensation Committee engaged Pearl Meyer as

 

 

 

24		2019 Proxy Statement		FORTIVE CORPORATION

 

Corporate Governance

 

the Compensation Committee’s independent compensation consultant for 2018. The Compensation Committee had the sole discretion and authority to select, retain and terminate Pearl Meyer as well as to approve any fees, terms and other conditions of its services. Pearl Meyer reported directly to the Compensation Committee and took its direction solely from the Compensation Committee. Pearl Meyer’s primary responsibilities in 2018 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 2018 and 2019, 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 consultant 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. Pearl Meyer did not provide any services to Fortive or its management in 2018, and the Compensation Committee is not aware of any work performed by 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 2018, 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 2018, the Nominating and Governance Committee met eight 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;

 

•

Overseeing Fortive’s corporate social responsibility reporting;

 

•

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

 

•

Administering Fortive’s Related Person Transactions Policy.

 

 

 

		2019 Proxy Statement		25

 

Corporate Governance

 

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

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

 

 

 

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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.

 

 

 

		2019 Proxy Statement		27

 

Corporate Governance

 

Director Evaluation Process

On an annual basis, the Nominating and Governance Committee reviews and assesses, with input from other directors, the process for the annual self-assessment of the full Board and each of the committees of the Board. The process assessment takes into account the feedback from the directors on the effectiveness of the prior self-assessment process and input from the shareholder engagement process. The following describes the self-assessment process implemented and conducted by the Board and the committees of the Board in 2018.

 

 

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

 

 

 

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Corporate Governance

 

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.

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 2020 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, 2019 and December 19, 2019 (or, if the 2020 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 2020 Annual Meeting of Shareholders or within 10 days after the public announcement of the date of the 2020 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 Secretary, Fortive Corporation, 6920 Seaway Blvd, Everett, WA 98203.

 

 

 

		2019 Proxy Statement		29

 

Corporate Governance

 

Shareholder Engagement

 

Corporate Social Responsibility

Corporate Social Responsibility (“CSR”) Highlights

We have many operating companies that participate in a variety of end markets, but we are all guided by our shared purpose—to deliver essential technology for the people who accelerate progress. In today’s world, so much of innovation and progress centers around the development of new technologies to improve the quality of life, finding ways to live and work safely, and improving our health, infrastructure and environment. Our shared purpose means that we are ideally suited to contribute to these efforts.

In 2017, utilizing our FBS tools and processes we undertook a materiality analysis to generate a list of priority issues, drawn from the leading CSR initiatives, and prioritized those issues based on their importance to Fortive’s business and to key stakeholders. We considered the list through the lens of our shared purpose and values and incorporated feedback from company leaders, investors and customers.

Key Pillars to Our Social Responsibility

Through our materiality assessment, we identified seven core pillars—or focus areas—for Fortive’s CSR strategy. We then aligned these pillars with our values, which drive our strategic priorities and our key performance indicators. This framework positions us for long-term impact and continuous improvement across the many aspects of social responsibility.

 

 

 

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Corporate Governance

 

 

Corporate Social Responsibility Reporting

Using our seven core pillars, we published our first CSR report in 2018 in which we highlighted many of the actions we are taking in support of those pillars. The report discusses our efforts to bring diverse teams together in a collaborative environment that fuels innovation, to empower our employees through meaningful opportunities for professional development and growth, and to advance employee engagement, safety, and well-being. We discuss how Fortive employees contribute to their communities in meaningful ways, whether it’s providing disaster relief, volunteering to create positive social change, or demonstrating leadership through our annual Day of Caring, which gives our employees the opportunity to spend a day out in their communities helping to make those communities better places to live and work.

As part of our evolving strategy, we intend to deploy CSR-related goals applicable across all of Fortive, and to report on those goals and our results in subsequent CSR publications. Our CSR pillars will be a critical framework for evolving these goals and metrics to measure our future performance. They will influence new products we create, how we operate, and how we engage with our stakeholders. They will help us attract and keep the best people who share our values.

Oversight Structure

 

 

 

 

		2019 Proxy Statement		31

 

		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

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 their respective capacity as Chairman of the Board of Danaher and Chairman of the Executive Committee of the Board 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, among others, a transition services agreement. In addition, 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 2018, the net amount payable by Danaher to Fortive under the transition services agreement was approximately $2.8 million. Furthermore, in 2018, our subsidiaries purchased approximately $14.4 million of products and services from, and sold approximately $16.2 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 2018. 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 2018, our subsidiaries sold approximately $287,000 of products to Colfax. 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 participates as 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.

 

 

 

32		2019 Proxy Statement		FORTIVE CORPORATION

 

		Director Compensation

 

Summary of Director Compensation

The Compensation Committee reviews our non-employee director compensation policy annually and proposes changes to the Board, as appropriate. In reviewing the non-employee director compensation policy in 2018, the Compensation Committee worked with Pearl Meyer to assess the competitiveness of our non-employee director compensation policy based on benchmark information from peer companies and relevant compensation surveys. Based on its review, the Compensation Committee proposed that the Board maintain in 2018 the same non-employee director compensation policy that applied in 2017, which recommendation the Board adopted.

Pursuant to our non-employee director compensation policy, 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

 

 

 

		2019 Proxy Statement		33

 

Director Compensation

 

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 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 Compensation Table

The table below summarizes the compensation paid to the non-management directors for the year ended December 31, 2018. 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)(3)				OPTION AWARDS ($) (1)(2)				TOTAL ($) (3)
Feroz Dewan (3)		$	50,000			$	183,965			$	80,291			$	314,256
Kate D. Mitchell (3)		$	60,000			$	203,583			$	80,291			$	343,874
Mitchell P. Rales (3)		$	50,000			$	269,839				—			$	319,839
Steven M. Rales (3)		$	50,000			$	269,839				—			$	319,839
Israel Ruiz (3)		$	112,000			$	141,027			$	80,291			$	333,318
Jeannine Sargent (4)			—				—				—				—
Alan G. Spoon (3)		$	144,375			$	225,792			$	122,490			$	492,657

 

(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 our 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 2.89%; a stock price volatility rate of 21.20%; and a dividend yield of 0.38% 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, 2018. 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, 2018		AGGREGATE NUMBER OF UNVESTED FORTIVE RSUs OWNED AS OF DECEMBER 31, 2018
Feroz Dewan		12,100		2,485
Kate D. Mitchell		12,100		2,750
Mitchell P. Rales		4,340		3,645
Steven M. Rales		4,340		3,645
Israel Ruiz		12,100		1,905
Jeannine Sargent (4)		—		—
Alan G. Spoon		19,060		3,050

 

(3)

Pursuant to the Non-Employee Director’s Deferred Compensation Plan, each of the directors was entitled to defer up to 100% of the annual retainer, beginning with the annual retainer accruing after July 1, 2018, into RSUs with a target value equal to the amount of the annual retainer deferred. Each of Ms. Mitchell and Messrs. Dewan, Rales and Rales elected to defer 100%, Mr. Ruiz elected to defer 40%, and Mr. Spoon elected to defer 50%, of the annual retainer payable for the annual period from July 1, 2018 through June 30, 2019 into RSUs granted on June 5, 2018 with target value equal to the amount deferred and vesting on the anniversary of the grant date. Since RSUs granted in 2018 for the annual retainer deferred are accounted for under FASB ASC Topic 718, they are reported under the “Stock Awards” column in the table above. Because the period for our annual retainer is from July 1 through June 30, the amount reported under “Total” for 2018 includes the grant date fair value of the RSUs granted in 2018 (and vesting one year from the date of the grant) for the portion of the deferred annual retainer amount that otherwise would have been payable in cash from January 1, 2019 through June 30, 2019.

 

(4)	Ms. Sargent was appointed to the Board on February 11, 2019.

 

 

 

34		2019 Proxy Statement		FORTIVE CORPORATION

 

		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, 2019. 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 2019.

Fees Paid to Independent Registered Public Accounting Firm

Aggregate fees for professional services rendered by our independent registered public accounting firm, Ernst & Young LLP, for 2017 and 2018 are set forth in the table below.

 

FEE CATEGORIES		FISCAL 2017 FEES				FISCAL 2018 FEES
Audit Fees (1)		$	8,993,671			$	14,117,936
Audit-Related Fees (2)		$	471,491			$	225,000
Tax Fees (3)		$	1,305,871			$	3,621,135
All Other Fees (4)		$	0			$	0
TOTAL FEES		$	10,771,033			$	17,964,071

 

(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. In addition, with respect to fiscal 2018, Audit Fees included approximately $3.3 million in fees for audit services related to the separation of the A&S Businesses from Fortive, including audit services associated with the corresponding filings with the SEC.

 

(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 $186,088 and $202,782 in fiscal 2017 and 2018, respectively. All other tax fees were $1,119,783 and $3,418,353 in fiscal 2017 and 2018, respectively. With respect to fiscal 2018, the other tax fees included approximately $2.2 million in fees for tax services related to the separation of the A&S Businesses.

 

(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.

 

 

 

		2019 Proxy Statement		35

 

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.

 

 

 

36		2019 Proxy Statement		FORTIVE CORPORATION

 

		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. In addition, the Audit Committee reviews with management the Company’s risk assessment process and risk management policies. Furthermore, within the scope of its compliance oversight responsibilities, the Audit Committee reviews with management the Company’s major cybersecurity risk exposures and the steps management has taken to monitor and mitigate such exposures.

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 2019.

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, 2018 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, 2018 be included in the Company’s Annual Report on Form 10-K for its fiscal year 2018 for filing with the Securities and Exchange Commission.

Audit Committee of the Board of Directors

Israel Ruiz (Chair)

Feroz Dewan

Kate D. Mitchell

 

 

 

		2019 Proxy Statement		37

 

		Compensation Discussion and Analysis

 

Table of Contents

 

Executive Summary			39
2018 Company Performance			40
Compensation Philosophy			42
Elements of Executive Compensation			42
2018 Compensation Mix			43
Our Compensation Governance Practices			43
Recent Compensation Enhancements			44
Aligning Compensation with Our Business Strategy			44
Aligning Compensation with Our Shared Purpose and Values			45
Consideration of 2018 Say-on-Pay Vote and Shareholder Engagement			46
Executive Compensation Decision-Making and Oversight			46
Analysis of 2018 Executive Compensation			47
Peer Group Compensation Analysis			49
Elements of Compensation — In Detail			50
Compensation Governance Policies			59
Regulatory Considerations			60
Risk Considerations and Review of Executive Compensation Practices			61

 

 

 

38		2019 Proxy Statement		FORTIVE CORPORATION

 

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 2018.

Named Executive Officers

Our NEOs for 2018 are listed below:

 

•

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

Executive Summary

 

The Compensation Committee uses a deliberate and continuous process to ensure that our executive compensation philosophy and our executive compensation program reflect our unique identity, strategy and performance with the goal of creating long-term value for our shareholders. With that in mind, our program and philosophy are designed to align with Fortive’s Business Strategy, Shared Purpose and Values, and Performance.   The Compensation Committee designed our 2018 executive compensation program based on the Design Consideration Factors that we describe on page 47 under “—Analysis of 2018 Executive Compensation-Design Consideration Factors.”

 

 

 

		2019 Proxy Statement		39

 

Compensation Discussion and Analysis

 

2018 Company Performance

One of the primary pillars of our compensation philosophy is aligning actual compensation with the Company’s performance. The 2018 compensation for our NEOs reflects the strong performance by Fortive, including the following highlights:

Portfolio Evolution

 

OVER $2.8 BILLION IN CAPITAL DEPLOYED IN 2018 FOR ACQUISITIONS

Leading provider of physical resource management software with an integrated, cloud-based framework that provides insights spanning the full lifecycle of real estate, facilities and asset management

Leading provider of construction cost data, software and service offerings that serve the entire building lifecycle and provide workflow solutions to optimize every stage of an asset owner’s construction and maintenance needs

The transactions executed in 2018 represented an acceleration of our portfolio evolution and transformation. Since our separation from Danaher in July 2016, we have identified and executed transactions that continue to shape our portfolio with operating companies with higher growth in attractive end markets, less cyclicality, stronger margin potential and significant opportunities for value creation through implementation of the Fortive Business System. In 2018, we consummated a tax-efficient divestiture of four of our legacy businesses that participate in more cyclical industries, and we continued our execution of our digital strategy to address a range of critical, software-enabled workflows for our customers.

 

 

 

 

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Compensation Discussion and Analysis

 

Total Shareholder Return

 

2018 Company Performance Factor *

 

Adjusted EPS				Free Cash Flow Ratio				ROIC
$3.47				120%				14.1%
Target of $3.21				Target of 105%				Target of 16.8%
WEIGHTING: 70%				WEIGHTING: 20%				WEIGHTING: 10%

 

Actual Company Performance Factor of 161.9%

 

*	Company Performance Factor is the primary financial measure for our 2018 annual incentive awards. Adjusted EPS, Free Cash Flow Ratio, and ROIC are defined on page 51.

 

 

 

		2019 Proxy Statement		41

 

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, high-quality leaders with a passion for creativity, innovation, continuous improvement, and customer experience
		BE COMPETITIVE		Deliver a total pay opportunity that is competitive in the market
		ALIGN 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 short-term and long-term performance
		ALIGN WITH SHAREHOLDERS		Place a strong emphasis on long-term, equity-based compensation to align interests of our executive officers with those of our shareholders

Elements of Executive Compensation

Consistent with our executive compensation philosophy, the Compensation Committee adopted a program in 2018 that emphasizes equity-based compensation with long-term vesting requirements and is dependent on long-term company performance, as follows:

 

		BASE SALARY		ANNUAL INCENTIVE COMPENSATION		STOCK OPTIONS		RESTRICTED STOCK UNITS (“RSUs”)		PERFORMANCE STOCK UNITS (“PSUs”)
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		Formulaic		Formulaic

 

 

 

42		2019 Proxy Statement		FORTIVE CORPORATION

 

Compensation Discussion and Analysis

 

2018 Compensation Mix

Our executive compensation program emphasizes performance-based compensation that aligns compensation with the creation of long-term shareholder value. As shown below, the significant majority of our 2018 executive compensation was performance-based (89.8% for the CEO and an average of 78.0% for our other NEOs). See “Executive Compensation Tables —2018 Summary Compensation Tables” for additional details.

2018 Compensation Mix from the Summary Compensation Tables

 

Our Compensation Governance Practices

 

WHAT WE DO						WHAT WE DON’T DO

 

 

 

		2019 Proxy Statement		43

 

Compensation Discussion and Analysis

 

Recent Compensation Enhancements

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

 

		Starting in 2018, further enhanced the performance-based element of equity awards by re-allocating 25% of the target value of the annual equity grants made to each executive officer (matching prior allocation for our CEO) from time-based restricted stock units to performance stock units, with performance measured against relative total shareholder return
		Starting in 2018, implemented additional objective performance measures to the annual restricted stock unit grant to each executive officer by including a financial performance measure based on Adjusted EPS, Free Cash Flow Ratio and ROIC
		Starting in 2017, added two additional financial measures to supplement Adjusted EPS as performance measures for annual incentive awards to better align compensation performance measures with our overall strategy and internal core value drivers
		Starting in 2017, 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
		Starting in 2017, revised the vesting schedule for our annual equity awards 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 annual installments, while equity awards for our CEO continue to vest 50% per year on the 4th and 5th anniversaries of the grant date

Aligning Compensation with Our Business Strategy

The foundation of our business strategy is built on the continued execution of the Fortive Formula.

 

 

Our executive compensation program was designed to align the compensation measures to the execution of our business strategy. As such, the core metrics underlying the Fortive Formula, including earnings per share, free cash flow, core revenue growth, operating margin expansion and return on invested capital, are embedded in our executive compensation programs.

 

 

 

44		2019 Proxy Statement		FORTIVE CORPORATION