Proxy Statement (definitive) (def 14a)

Date : 04/21/2017 @ 7:36AM
Source : Edgar (US Regulatory)
Stock : Allegion Plc Ordinary Shares (ALLE)
Quote : 82.17  0.0 (0.00%) @ 8:31AM
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Proxy Statement (definitive) (def 14a)


UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
SCHEDULE 14A
(Rule 14a-101)
Proxy Statement Pursuant to Section 14(a) of the
Securities Exchange Act of 1934
(Amendment No.     )
Filed by the Registrant   x     
Filed by a Party other than the Registrant   ¨
Check the appropriate box:
¨
Preliminary Proxy Statement
¨  
Confidential, for Use of the Commission Only (as permitted by Rule 14a-6(e)(2))
x
Definitive Proxy Statement
¨  
Definitive Additional Materials
¨  
Soliciting Material Pursuant to §240.14a-12

Allegion Public Limited Company
(Name of Registrant as Specified In Its Charter)
(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
x  
No fee required.
¨  
Fee computed on table below per Exchange Act Rules 14a-6(i)(1) and 0-11.
1) 
Title of each class of securities to which transaction applies:
___________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________ 
2) 
Aggregate number of securities to which transaction applies:
___________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________ 
3) 
Per unit price or other underlying value of transaction computed pursuant to Exchange Act Rule 0-11 (set forth the amount on which the filing fee is calculated and state how it was determined):
___________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________  
4) 
Proposed maximum aggregate value of transaction:
___________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________ 
5) 
Total fee paid:
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¨  
Fee paid previously with preliminary materials.
¨  
Check box if any part of the fee is offset as provided by Exchange Act Rule 0-11(a)(2) and identify the filing for which the offsetting fee was paid previously. Identify the previous filing by registration statement number, or the Form or Schedule and the date of its filing.
1) 
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3) 
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4) 
Date Filed:
 ___________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________ 





ALLEGIONLOGO2016A01.JPG
NOTICE OF 2017 ANNUAL GENERAL MEETING OF SHAREHOLDERS
The Annual General Meeting of Shareholders of Allegion plc (the “Company”) will be held at the following location to consider and vote upon the following proposals:
When
 
June 7, 2017, at 4:30 p.m., local time
 
 
 
 
 
 
Location
 
Waldorf Astoria Amsterdam, Herengracht 542-556, Amsterdam, 1017 CG, Netherlands
 
 
 
 
 
 
Items of Business
1.
By separate resolutions, to re-elect as directors for a period of one year expiring at the end of the Annual General Meeting of Shareholders of the Company in 2018, the following six individuals:
 
(a)
Michael J. Chesser
(d)
David D. Petratis
 
(b)
Carla Cico
(e)
Dean I. Schaffer
 
(c)
Kirk S. Hachigian
(f)
Martin E. Welch III
2.
To give advisory approval of the compensation of the Company’s named executive officers.
3.
To approve the appointment of PricewaterhouseCoopers as independent auditors of the Company and authorize the Audit and Finance Committee of the Board of Directors to set the auditors’ remuneration.
4.
To conduct such other business properly brought before the meeting.
 
 
 
 
 
 
Record Date
 
Only shareholders of record as of the close of business on April 10, 2017, are entitled to receive notice of and to vote at the Annual General Meeting.
Shareholders in Ireland may participate in the Annual General Meeting at the Company’s headquarters located at Block D, Iveagh Court, Harcourt Road, Dublin 2, Ireland. See “Information Concerning Voting and Solicitation” of the proxy statement for further information on participating in the Annual General Meeting in Ireland.
Whether or not you plan to attend the meeting, please provide your proxy by either using the Internet or telephone as explained in the accompanying proxy statement or filling in, signing, dating, and promptly mailing a proxy card. Your proxy must be received by 11:59 p.m. Eastern Time on June 6, 2017.
 
By Order of the Board of Directors,
 
S. WADE SHEEK
Secretary
IF YOU ARE A SHAREHOLDER WHO IS ENTITLED TO ATTEND AND VOTE, THEN YOU ARE ENTITLED USING THE FORM PROVIDED (OR THE FORM IN SECTION 184 OF THE COMPANIES ACT OF 2014) TO APPOINT A PROXY OR PROXIES TO ATTEND THE ANNUAL GENERAL MEETING AND VOTE ON YOUR BEHALF. A PROXY IS NOT REQUIRED TO BE A SHAREHOLDER IN THE COMPANY. IF YOU WISH TO APPOINT AS PROXY ANY PERSON OTHER THAN THE INDIVIDUALS SPECIFIED ON THE PROXY CARD, PLEASE CONTACT THE COMPANY SECRETARY AT OUR REGISTERED OFFICE.
Important Notice Regarding the Availability of Proxy Materials for the Annual General Meeting of Shareholders to be held on June 7, 2017: The Annual Report, the Form 10-K, Proxy Statement and the Irish Statutory Accounts are available at www.proxyvote.com.
Registered Office Address:
Block D
Iveagh Court
Harcourt Road
Dublin 2, Ireland
Ireland No. 527370

 
U.S. Mailing Address:
c/o Schlage Lock Company LLC
11819 N. Pennsylvania Street
Carmel, Indiana 46032





TABLE OF CONTENTS



SUMMARY INFORMATION
This summary highlights information contained elsewhere in this Proxy Statement. For more complete information about these topics, please review Allegion plc’s Annual Report on Form 10-K and the entire Proxy Statement.
ANNUAL GENERAL MEETING OF SHAREHOLDERS
When
  
June 7, 2017 at 4:30 p.m., local time
 
 
 
Location
  
Waldorf Astoria Amsterdam
Herengracht 542-556
Amsterdam, 1017 CG, Netherlands
  
  
 
 
 
Record Date
  
April 10, 2017
 
 
 
Voting
  
Shareholders as of the record date are entitled to vote. Each ordinary share is entitled to one vote for each director nominee and each of the other proposals.
 
 
 
Attendance
  
All shareholders of record on the record date may attend the meeting.
MEETING AGENDA AND VOTING RECOMMENDATIONS
The following items will be submitted for shareholder approval at the Annual General Meeting.
Agenda Item
 
Vote Required
 
Board Recommendation
 
Page
Election of six directors named in the proxy statement
 
Majority of votes cast
 
For
 
Advisory approval of the compensation of the Company’s named executive officers
 
Majority of votes cast
 
For
 
Approval of appointment of PricewaterhouseCoopers LLP as the Company’s independent auditors and authorize the Audit and Finance Committee to set auditors’ remuneration
 
Majority of votes cast
 
For
 
CORPORATE GOVERNANCE HIGHLIGHTS
We are committed to good corporate governance practices that promote the long-term interests of shareholders, strengthen Board and management accountability and help build public trust. The following is a summary of our corporate governance practices. Additional information is found under the Corporate Governance section of this Proxy Statement.
Things We Do
 
Things We Don’t Do
ü
Substantial majority of independent directors (5 of 6)
 
û
No pledging of Company stock
ü
Annual election of directors
 
û
No hedging of Company stock
ü
Majority vote for directors
 
û
No tax gross-ups in change-in-control agreements
ü
Independent Lead Director
 
û
No excessive perquisites
ü
Term limit for non-employee directors
 
û
No option repricing without shareholder approval
ü
Annual Board and committee self-assessments
 
û
No dividend equivalents on unearned awards
ü
Executive sessions of non-management directors
 
 
 
ü
Align pay with Company performance
 
 
 
ü
Executive and director stock ownership guidelines
 
 
 
ü
Clawback provisions for performance based compensation
 
 
 
ü
Board oversight of risk management
 
 
 
ü
Succession planning at all levels, including for Board and CEO
 
 
 

i


EXECUTIVE COMPENSATION
Our executive compensation program is designed to create a pay-for-performance culture by aligning the compensation program to the achievement of our strategic objectives and with shareholder interests. Our strategic objectives are: (i) expand in core markets; (ii) opportunistic acquisitions; (iii) enterprise excellence; (iv) innovation in existing and new product categories; and (v) growth in emerging markets.
The primary objectives of our executive compensation program are to:
Create and reinforce our pay-for-performance culture;
Align the interests of management with our shareholders;
Attract, retain and motivate executive talent by providing competitive levels of salary and targeted total pay;
Provide incentive compensation that promotes desired behavior without encouraging unnecessary and excessive risk; and
Integrate with our performance management process of goal setting and formal evaluation.
Pay-for-Performance
We achieved the following strong financial performance related to our executive compensation program:
Annual adjusted revenue of $2,232 billion, an increase of 9.0% compared to prior year;
Adjusted Earnings Before Interest Tax Depreciation and Amortization of $518 million, an increase of 19.4% compared to prior year;
Available Cash Flow of $330 million, an increase of 16.5% compared to prior year;
Adjusted earnings per share of $3.18, an increase of 7.8% compared to prior year; and
Total shareholder return of 54.9% for the 2014 - 2016 performance period, which falls into the 84th percentile of the S&P Capital Goods Index.
Based on this performance, we achieved 136% financial performance score under the Annual Incentive Plan (subject to region- and individual-specific performance) and a 200% payout of the Performance Share Unit awards for the 2014-2016 performance period.
ELECTION OF DIRECTORS
Set forth below is summary information about each director nominee the Board is recommending for election:
 
Nominee
 
Age
 
Director Since
 
Principal Occupation
 
Independent
 
Committee Memberships
 
 
Michael J. Chesser
 
68
 
2013
 
Former Chairman and Chief Executive Officer of Great Plains Energy Incorporated
 
ü
 
Ÿ Audit and Finance
Ÿ Compensation
Ÿ Corporate Governance and Nominating
 
 
Carla Cico
 
56
 
2013
 
Former Chief Executive Officer of Rivoli S.p.A.
 
ü
 
Ÿ Audit and Finance
Ÿ Compensation
Ÿ Corporate Governance and Nominating
 
 
Kirk S. Hachigian
(Lead Director)
 
57
 
2013
 
Non-Executive Chairman of JELD-WEN Holding, Inc.
 
ü
 
Ÿ Audit and Finance
Ÿ Compensation
Ÿ Corporate Governance and Nominating (Chair)
 
 
David D. Petratis
 
59
 
2013
 
Chairman, President and Chief Executive Officer of Allegion plc
 
 
 
 
 
 
Dean I. Schaffer
 
65
 
2014
 
Former Partner of Ernst & Young LLP
 
ü
 
Ÿ Audit and Finance
Ÿ Compensation (Chair)
Ÿ Corporate Governance and Nominating
 
 
Martin E. Welch III
 
68
 
2013
 
Former Executive Vice President and Chief Financial Officer of Visteon Corporation

 
ü
 
Ÿ Audit and Finance (Chair)
Ÿ Compensation
Ÿ Corporate Governance and Nominating
 

ii


ADVISORY VOTE ON THE COMPENSATION OF THE COMPANY’S NAMED EXECUTIVE OFFICERS
We are asking for your advisory approval of the compensation of our named executive officers. While our Board of Directors intends to carefully consider the shareholder vote resulting from the proposal, the final vote will not be binding on us and is advisory in nature. Before considering this proposal, please read our Compensation Discussion and Analysis, which explains our executive compensation program and the Compensation Committee’s compensation decisions.
APPOINTMENT OF INDEPENDENT AUDITORS
We are asking you to approve the appointment of PricewaterhouseCoopers LLP (“PwC”) as our independent auditors for 2017 and to authorize the Audit and Finance Committee to set PwC’s remuneration.
2018 ANNUAL GENERAL MEETING
Deadline for shareholder proposals for inclusion in the proxy statement:
  
December 22, 2017
Deadline for business proposals and nominations for director:
  
March 9, 2018



iii


 
 
ALLEGIONLOGO2016A01.JPG
 
 
 
 
 
 
 
 
 
 
PROXY STATEMENT
 
 
 
 
 
 
 
This Proxy Statement and the enclosed proxy card, or the Notice of Internet Availability of Proxy Materials , are first being mailed to shareholders of record on April 10, 2017 (the “Record Date”) on or about April 21, 2017.
PROPOSALS REQUIRING YOUR VOTE
Item 1. Election of Directors
We use a majority of votes cast standard for the election of directors in uncontested elections. 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 director nominee. In contested elections, where there is more than one nominee competing for a director seat, directors are elected by an affirmative plurality of the votes cast. Under our articles of association, if a director is not re-elected in a director election, the director shall retire at the close or adjournment of the Annual General Meeting.
Each director of the Company is being nominated for election for a one-year term beginning at the 2017 Annual General Meeting of Shareholders to be held on June 7, 2017 (the “Annual General Meeting”) and expiring at the end of the 2018 Annual General Meeting of Shareholders.
The Board of Directors recommends a vote FOR the following directors:
Michael J. Chesser
CHESSER2016AA01.JPG
Age
68
 
 
Director Since
2013
 
 
Experience
Former Chairman and Chief Executive Officer of Great Plains Energy Incorporated (an electric utilities holding company) from 2003 to 2013
 
 
Current Directorships
None
 
 
Former Directorships
Polypore International Inc.
Great Plains Energy Inc.

Director Qualifications
Mr. Chesser’s successful career as an energy sector CEO and his continuing service as a director of privately-held energy sector companies offers us insight into the latest developments in industrial processes, innovation and process improvement. His expertise will provide guidance into new technologies for our operations, help progress our productivity initiatives and offer instructive process methodologies to accelerate our innovation efforts. Mr. Chesser is a recognized authority on energy technologies which brings unique perspectives both within our own operations and on behalf of our customers and communities. His extensive experience with compensation and talent development are of particular benefit to us. Finally, his leadership for a North American company will provide practical insight to help drive our growth plans for that geography.






1


Carla Cico
CICO2016AA01.JPG
Age
56
 
 
Director Since
2013
 
 
Experience
Former Chief Executive Officer of Rivoli S.p.A. (prefabricated infrastructure company) from 2009 to 2011
Current Directorships
e2v technologies plc
 
 
Former Directorships
Alcatel-Lucent


 
 
 
 
Director Qualifications
Ms. Cico’s experience leading a prefabricated infrastructure company offers a deep understanding of the building and construction industries. She brings a unique perspective to the Board with her direct knowledge of application expertise, regulatory requirements, complex configurations and working with architects, contractors and engineers to adhere to specific safety requirements, all of which influence the successful execution of our strategic plan. Ms. Cico was cited as one of the most powerful women in international business in  Forbes  (1994) and  Fortune  (1995). She offers extraordinary insight into regional and global economic, social and political issues.




Kirk S. Hachigian
HACHIGIAN2016AA01.JPG
Age
57
 
 
Director Since
2013
 
 
Lead Director Since
2013
 
 
Experience
Non-Executive Chairman of JELD-WEN Holding, Inc. (global manufacturer of doors and windows) since 2017, Executive Chairman from 2015 to 2016 and President and Chief Executive Officer from 2014 to 2015
Former Chairman, President and Chief Executive Officer of Cooper Industries plc (global manufacturer of electrical components for the industrial, utility and construction markets) from 2006 to 2012
 
 
Current Directorships
JELD-WEN Holding, Inc.
NextEra Energy
Paccar Inc.
 
 
Former Directorships
Cooper Industries plc


Director Qualifications
Mr. Hachigian’s experiences as chairman and chief executive officer of JELD-WEN Holding, Inc., a $3.5 billion global manufacturer, and Cooper Industries plc, a $6 billion global manufacturer, bring substantial expertise to all of our operational and financial matters, including global manufacturing, engineering, marketing, labor relations, channel management and investor relations. His prior work will benefit our Board of Directors and management team as we pursue future business opportunities globally. He has a successful track record of creating value for shareholders, completing the $13 billion merger of Cooper Industries with Eaton Corporation in 2012. In addition, his leadership of an organization incorporated in Ireland provides valuable oversight experience to our Irish financial reporting and accounting requirements. His executive leadership positions directly correspond to key elements of our growth and operational strategies.



2


David D. Petratis
PETRATIS2017.JPG
Age
59
 
 
Director Since
2013
 
 
Experience
Chairman, President and Chief Executive Officer of Allegion plc since 2013
Former Chairman, President and Chief Executive Officer of Quanex Building Products Corporation (a manufacturer of engineered material and components for the building products markets) from 2008 to 2013
 
 
Current Directorships
None
 
 
Former Directorships
Gardner Denver, Inc.
Quanex Building Products Corporation
Director Qualifications
Mr. Petratis’s successful leadership of global manufacturing companies brings significant experience and expertise to the Company’s management and governance. In particular, Mr. Petratis has an extensive background in the building products industry, as well as strong experience with operations and lean manufacturing, distribution and channel marketing and management, the merger and acquisition process, and strategy development.




Dean I. Schaffer
SCHAFFER2016AA01.JPG
Age
65
 
 
Director Since
2014
 
 
Experience
Former Partner of Ernst & Young LLP (an international public accounting firm) from 1975 to 2014
 
 
Current Directorships
None
 
 
Former Directorships
None
 
 
Director Qualifications
Mr. Schaffer’s experience as a partner of an international accounting firm brings significant expertise to the Board of Directors in the areas of taxation, governance, strategy and acquisitions. During his career, Mr. Schaffer served on Ernst & Young’s Americas Executive Board, as the co-lead of the Americas Office of the Chairman Global Accounts Network and senior partner in the New York office and worked with many of the firm’s largest clients. Mr. Schaffer’s expertise will benefit the Board of Directors as it oversees our financial reporting and our governance and as it develops our tax and growth strategies.


Martin E. Welch III
WELCH2016AA01.JPG
Age
68
 
 
Director Since
2013
 
 
Experience
Former Executive Vice President and Chief Financial Officer of Visteon Corporation (a global automotive parts supplier) from 2011 to 2012
Former Executive Vice President and Chief Financial Officer of United Rentals, Inc. (an equipment rental company) from 2005 to 2009
 
 
Current Directorships
Global Brass and Copper Holdings, Inc.
 
 
Former Directorships
None
 
 
Director Qualifications
Mr. Welch’s experience as a chief financial officer brings substantial financial expertise to our Board. His senior leadership experience with global manufacturing companies brings a deep understanding of financings, mergers, acquisitions, divestitures, investments and strategic transactions as well as how to guide companies through changing markets. We believe this experience will benefit our Board as it develops our growth strategy, guides the Company through an evolving marketplace and will help drive our operational improvement. In addition, Mr. Welch’s experience as a business adviser to a private equity firm will benefit the Company’s long-term strategic planning.


3


Item 2. Advisory Approval of the Compensation of Our Named Executive Officers
We are presenting the following proposal, commonly known as a “Say-on-Pay” proposal, which gives you as a shareholder the opportunity to endorse or not endorse our compensation program for named executive officers (“NEOs”) by voting for or against the following resolution:
“RESOLVED, that the shareholders approve the compensation of the Company’s NEOs, as disclosed in the Compensation Discussion and Analysis, the compensation tables, and the related disclosure contained in the Company’s proxy statement.”
While our Board of Directors intends to carefully consider the shareholder vote resulting from the proposal, the final vote will not be binding on us and is advisory in nature.
The primary objectives of our executive compensation program are to:
Create and reinforce our pay-for-performance culture;
Align the interests of management with our shareholders;
Attract, retain and motivate executive talent by providing competitive levels of salary and targeted total pay;
Provide incentive compensation that promotes desired behavior without encouraging unnecessary and excessive risk; and
Integrate with our performance management process of goal setting and formal evaluation.
By following these objectives, we believe that our compensation program for NEOs is strongly aligned with the long-term interests of our shareholders.
The Board of Directors recommends a vote FOR the advisory approval of the compensation of our NEOs as disclosed in the Compensation Discussion and Analysis, the compensation tables, and the related disclosure contained in this proxy statement.


4


Item 3. Approval of Appointment of Independent Auditors
At the Annual General Meeting, shareholders will be asked to approve the appointment of PricewaterhouseCoopers (“PwC”) as our independent auditors for the fiscal year ending December 31, 2017, and to authorize the Audit and Finance Committee of our Board of Directors to set the independent auditors’ remuneration. PwC acted as our independent auditor since 2013 and has familiarity with our affairs. Based on such familiarity and its ability, we believe PwC is best qualified to perform this important function.
Representatives of PwC will be present at the Annual General Meeting and will be available to respond to appropriate questions. They will have an opportunity to make a statement if they so desire.
The Board of Directors recommends a vote FOR the proposal to approve the appointment of PwC as independent auditors of the Company and to authorize the Audit and Finance Committee of the Board of Directors to set the auditors’ remuneration.
Audit and Finance Committee Report
While management has the primary responsibility for the financial statements and the reporting process, including the system of internal controls, the Audit and Finance Committee reviews the Company’s audited financial statements and financial reporting process on behalf of the Board of Directors. The independent auditors are responsible for performing an independent audit of the Company’s consolidated financial statements in accordance with the standards of the Public Company Accounting Oversight Board (United States) (“PCAOB”) and to issue a report thereon. The Audit and Finance Committee monitors those processes. In this context, the Audit and Finance Committee has met and held discussions with management and the independent auditors regarding the fair and complete presentation of the Company’s results. The Audit and Finance Committee has discussed significant accounting policies applied by the Company in its financial statements, as well as alternative treatments. Management has represented to the Audit and Finance Committee that the Company’s consolidated financial statements were prepared in accordance with United States generally accepted accounting principles, and the Audit and Finance Committee has reviewed and discussed the consolidated financial statements with management and the independent auditors. The Audit and Finance Committee also discussed with the independent auditors the matters required to be discussed by Auditing Standard No. 1301, as amended (Communication with Audit Committees), as adopted by the PCAOB.
In addition, the Audit and Finance Committee has received and reviewed the written disclosures and the PCAOB-required letter from PwC regarding PwC’s communications with the Audit and Finance Committee concerning independence and discussed with PwC its independence. The Audit and Finance Committee also considered whether the independent auditors’ provision of non-audit services to the Company is compatible with the auditors’ independence. The Audit and Finance Committee has concluded that the independent auditors are independent from the Company and its management.
The Audit and Finance Committee discussed with the Company’s internal and independent auditors the overall scope and plans for their respective audits. The Audit and Finance Committee meets separately with the internal and independent auditors, with and without management present, to discuss the results of their examinations, the evaluations of the Company’s internal controls and the overall quality of the Company’s financial reporting.
In reliance on the reviews and discussions referred to above, the Audit and Finance Committee recommended to the Board of Directors, and the Board has approved, that the audited financial statements be included in the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2016 (“2016 Form 10-K”), for filing with the Securities and Exchange Commission (the “SEC”). The Audit and Finance Committee has selected PwC, subject to shareholder approval, as the Company’s independent auditors for the fiscal year ending December 31, 2017.
AUDIT AND FINANCE COMMITTEE
Martin E. Welch III (Chair)
Michael J. Chesser
Carla Cico
Kirk S. Hachigian
Dean I. Schaffer


5


Fees of the Independent Auditors
The following table shows the fees we paid or accrued for audit and other services provided by PwC for the fiscal years ended December 31, 2016 and 2015:
 
 
2016
 
2015
Audit Fees (a)
 
$
3,536,500

 
$
3,015,000

Audit-Related Fees (b)
 
57,700

 
178,200

Tax Fees (c)
 
402,100

 
936,000

All Other Fees
 

 

Total
 
$
3,996,300

 
$
4,129,200

_______________
(a)
Audit Fees for the fiscal years ended December 31, 2015 and 2016 were for professional services rendered for the audits of our annual consolidated financial statements, including statutory audits.
(b)
Audit-Related Fees for the fiscal years ended December 31, 2015 and 2016 consist of assurance services that are related to performing the audit and review of our financial statements. Audit-Related Fees for the fiscal year ended December 31, 2016 also includes employee benefit plan audits and verification reports and other services.
(c)
The Tax Fees for the fiscal years ended December 31, 2015 and 2016 relate to consulting services.


The Audit and Finance Committee has adopted policies and procedures which require that the Audit and Finance Committee pre-approve all non-audit services that may be provided to the Company by its independent auditors. The policy: (i) provides for pre-approval of an annual budget for each type of service; (ii) requires Audit and Finance Committee approval of specific projects over $50,000, even if included in the approved budget; and (iii) requires Audit and Finance Committee approval if the forecast of expenditures exceeds the approved budget on any type of service. The Audit and Finance Committee pre-approved all of the services described above. The Audit and Finance Committee has determined that the provision of all such non-audit services is compatible with maintaining the independence of PwC.



6


CORPORATE GOVERNANCE
CORPORATE GOVERNANCE GUIDELINES AND PRACTICES
Our Corporate Governance Guidelines, together with the charters of the various Board committees, provide a framework for the corporate governance of the Company. The following is a summary of our Corporate Governance Guidelines and our corporate governance practices. A copy of our Corporate Governance Guidelines, as well as the charters of each of our Board committees, are available on our website at www.allegion.com under the heading “About Allegion – Corporate Governance.”
Role of the Board of Directors
Our business is managed under the direction of the Board of Directors. The role of the Board of Directors is to oversee our management and governance and monitor senior management’s performance.
Board Responsibilities
The Board of Directors’ core responsibilities include, among other things:
selecting, monitoring, evaluating and compensating senior management;
assuring that management succession planning is ongoing;
overseeing the implementation of management’s strategic plans and capital allocation strategy;
reviewing our financial controls and reporting systems;
overseeing our management of enterprise risk;
reviewing our ethical standards and compliance procedures; and
evaluating the performance of the Board of Directors, Board committees and individual directors.
Board Leadership Structure
The Board of Directors believes that establishing the right leadership structure is one of its primary responsibilities and key to ensuring appropriate oversight of management and creating a strategic-asset Board. The right leadership structure will vary depending upon the needs of the Company and the Board’s assessment of the Chief Executive Officer (“CEO”). In evaluating its leadership structure, the Board has considered a number of factors, including, the CEO’s experience and leadership, the Board and committee processes and procedures, investor feedback and best practices. The Board is committed to regularly evaluating its leadership structure.
Based upon Mr. Petratis’s extensive understanding of our business, our strategic goals, competitive pressures, Mr. Petratis’s demonstrated leadership and the current Board dynamics, the Board of Directors believes that it is appropriate to combine the positions of Chairman of the Board and CEO of the Company at this time. It is the Board’s view that our corporate governance principles, the quality, stature and substantive business knowledge of the members of the Board, as well as the Board’s culture of open communication with the CEO and senior management are conducive to Board effectiveness with a combined Chairman and CEO position. The Board reserves the right to separate the roles of Chairman and CEO in the event that there are changes in circumstances or performance.
The Board of Directors recognizes the need to appoint a strong, independent Lead Director when the positions of Chairman and CEO are combined. The Board believes establishing a Lead Director with clearly defined roles and responsibilities adequately addresses the need for independent leadership and an organizational structure for the independent directors. The Chairman and CEO is responsible for working with the Lead Director so that together they achieve the Board governance objectives outlined by the Board.
Mr. Hachigian has served as the Lead Director since December 2013. The Board of Directors appoints a Lead Director for a three-year minimum term from among the Board’s independent directors. The Lead Director coordinates the activities of all of the Board’s independent directors. The Lead Director is the principal confidant to the CEO and ensures that the Board of Directors has an open, trustful relationship with the Company’s senior management team. In addition to the duties of all directors, as set forth in the Company’s Governance Guidelines, the specific responsibilities of the Lead Director are as follows:
Chair the meetings of the independent directors when the Chairman is not present;
Ensure the full participation and engagement of all Board members in deliberations;
Lead the Board of Directors in all deliberations involving the CEO’s employment, including hiring, contract negotiations, performance evaluations and dismissal;

7


Counsel the Chairman on issues of interest/concern to directors and encourage all directors to engage the Chairman with their interests and concerns;
Work with the Chairman to develop an appropriate schedule of Board meetings and approve such schedule, to ensure that the directors have sufficient time for discussion of all agenda items, while not interfering with the flow of Company operations;
Work with the Chairman to develop the Board and Committee agendas and approve the final agendas;
Keep abreast of key Company activities and advise the Chairman as to the quality, quantity and timeliness of the flow of information from Company management that is necessary for the directors to effectively and responsibly perform their duties; although Company management is responsible for the preparation of materials for the Board of Directors, the Lead Director will approve information provided to the Board and may specifically request the inclusion of certain material;
Engage consultants who report directly to the Board of Directors and assist in recommending consultants that work directly for Board Committees;
Work in conjunction with the Corporate Governance and Nominating Committee in compliance with Governance Committee processes to interview all Board candidates and make recommendations to the Board of Directors;
Assist the Board of Directors and Company officers in assuring compliance with and implementation of the Company’s Corporate Governance Guidelines; work in conjunction with the Corporate Governance Committee to recommend revisions to the Corporate Governance Guidelines;
Call, coordinate and develop the agenda for and chair executive sessions of the Board’s independent directors; act as principal liaison between the independent directors and the CEO;
Work in conjunction with the Corporate Governance and Nominating Committee to identify for appointment the members of the various Board Committees, as well as selection of the Committee chairs;
Be available for consultation and direct communication with major shareholders in coordination with the CEO;
Make a commitment to serve in the role of Lead Director for a minimum of three years; and
Help set the tone for the highest standards of ethics and integrity.
Board Risk Oversight
The Board of Directors has oversight responsibility of the processes established to report and monitor systems for material risks applicable to us. The Board of Directors focuses on our general risk management strategy and the most significant risks we face and ensures that appropriate risk mitigation strategies are implemented by management. The full Board is responsible for considering strategic risks and succession planning and receives reports from each committee as to risk oversight within their areas of responsibility. The Board of Directors has delegated to its various committees the oversight of risk management practices for categories of risk relevant to their functions as follows:
The Audit and Finance Committee oversees risks associated with our systems of disclosure controls and internal controls over financial reporting, our compliance with legal and regulatory requirements and risks associated with foreign exchange, insurance, credit and debt. The Audit and Finance Committee also oversees risks related to information technology, data privacy and cyber security.
The Compensation Committee considers risks related to the attraction and retention of talent and risks related to the design of compensation programs and arrangements.
The Corporate Governance and Nominating Committee oversees risks associated with our governance policies and practices as well as sustainability.
We have appointed the Chief Financial Officer (“CFO”) as our Chief Risk Officer and, in that role, the Chief Risk Officer periodically reports on risk management policies and practices to the relevant Board Committee or to the full Board so that any decisions can be made as to any required changes in our risk management and mitigation strategies or in the Board’s oversight of these.
Finally, as part of its oversight of our executive compensation program, the Compensation Committee considers the impact of the executive compensation program and the incentives created by the compensation awards on our risk profile. In addition, we review all of our compensation policies and procedures, including the incentives that they create and factors that may reduce the likelihood of excessive risk taking, to determine whether they present a significant risk to the Company and we also engage our independent compensation consultant, Willis Towers Watson (“WTW”), to complete an assessment of risk. In 2016, the Compensation Committee and WTW concluded that our compensation policies and procedures are not reasonably likely to have a material adverse effect on the Company.

8


Succession Planning
We believe that providing for continuity of leadership at both the Board of Directors and at the senior management levels is critical to our success. The Board regularly reviews emergency and long-term succession plans for the CEO. With the assistance of the CEO and our Chief Human Resources Officer, the Board annually reviews the performance of the members of senior management and succession plans for those members. The Board also discusses leadership development programs.
The Corporate Governance and Nominating Committee, led by the Lead Director, regularly evaluates the composition of the Board of Directors and succession plans. The Committee considers the needs of the Board and the Company in light of the overall composition of the Board with a view of achieving a balance of skills, experience and attributes that would contribute to the Board’s overall effectiveness and oversight of management. In addition, an evaluation of the Board, its effectiveness and its needs is part of the Board’s annual self-evaluation process.
Director Compensation and Stock Ownership
It is the policy of the Board of Directors that directors’ fees, initial restricted stock unit (“RSU”) awards and annual RSU awards be the sole compensation received from us by any non-employee director. The director stock ownership policy requires non-employee directors to own ordinary shares equal to three times their annual cash retainer. Non-employee directors must hold any shares acquired until the stock ownership requirement is met and must thereafter maintain the ownership requirement until retirement.
Board Size and Composition
The Board of Directors has the authority to set the size of the Board. The size of the Board of Directors is currently set at six directors. The Board of Directors consists of a substantial majority of independent directors, with five independent, non-employee directors and one executive director. The Board of Directors may increase or decrease the size of the Board as it deems appropriate to function effectively as a body, subject to the Company’s Articles of Association. In addition, our Corporate Governance Guidelines require that all members of the committees of the Board must be independent directors. The Board of Directors has the following three standing committees: Audit and Finance Committee, Compensation Committee and Corporate Governance and Nominating Committee. The Board of Directors has determined that each member of each of these committees is “independent” as defined in the New York Stock Exchange (“NYSE”) listing standards and our Guidelines for Determining Independence of Directors. In 2016, each non-employee director served on each Board committee. We expect to rotate chairs of the committees periodically. In 2016, Mr. Schaffer was appointed Chair of the Compensation Committee.
Board Diversity
Our policy on Board diversity relates to the selection of nominees for the Board of Directors. In selecting a nominee for the Board, the Corporate Governance and Nominating Committee considers the skills, expertise and background that would complement the existing Board and ensure that its members are of sufficiently diverse and independent backgrounds, recognizing that our businesses and operations are diverse and global in nature. The Board of Directors has one female director.
Board Advisors
The Board of Directors and its committees may, under their respective charters, retain their own advisors to assist in carrying out their responsibilities.
Executive Sessions
Our independent directors meet privately in regularly scheduled executive sessions, without management present, to consider such matters as the independent directors deem appropriate. These executive sessions are required to be held no less than twice each year.
Board Evaluation
The Corporate Governance and Nominating Committee assists the Board in evaluating its performance and the performance of the Board committees. Each committee also conducts an annual self-evaluation. The effectiveness of individual directors is considered each year when the directors stand for re-nomination.
Director Orientation and Education
We have developed an orientation program for new directors and provide continuing education for all directors. In addition, the directors are given full access to management and corporate staff as a means of providing additional information.

9


Director Nomination Process
The Corporate Governance and Nominating Committee reviews the composition of the full Board to identify the qualifications and areas of expertise needed to further enhance the composition of the Board, makes recommendations to the Board concerning the appropriate size and needs of the Board and, on its own or with the assistance of management, a search firm or others, identifies candidates with those qualifications. Each director nominee was elected by the Company’s shareholders at the 2016 annual general meeting. In considering candidates, the Corporate Governance and Nominating Committee will take into account all factors it considers appropriate, including breadth of experience, understanding of business and financial issues, ability to exercise sound judgment, diversity, leadership, and achievements and experience in matters affecting business and industry. The Corporate Governance and Nominating Committee considers the entirety of each candidate’s credentials and believes that at a minimum each nominee should satisfy the following criteria: highest character and integrity, experience and understanding of strategy and policy-setting, sufficient time to devote to Board matters, and no conflict of interest that would interfere with performance as a director. Shareholders may recommend candidates for consideration for Board membership by sending the recommendation to the Corporate Governance and Nominating Committee, in care of the Secretary of the Company. Candidates recommended by shareholders are evaluated in the same manner as director candidates identified by any other means.
Application of Non-U.S. Corporate Governance Codes
Our Corporate Governance Guidelines and general approach to corporate governance as reflected in our Memorandum and Articles of Association and our internal policies and procedures are guided by U.S. practice and applicable federal securities laws and regulations and NYSE requirements. Although we are an Irish public limited company, we are not listed on the Irish Stock Exchange and therefore are not subject to the listing rules of the Irish Stock Exchange or any of its governance standards or guidelines.
DIRECTOR INDEPENDENCE
The Board of Directors has determined that all of our current directors, except Mr. Petratis, who is our CEO, are independent under the standards set forth in Exhibit I to our Corporate Governance Guidelines, which are consistent with the NYSE listing standards. In determining the independence of directors, the Board evaluated transactions between us and entities with which directors were affiliated that occurred in the ordinary course of business and that were provided on the same terms and conditions available to other customers. A copy of Exhibit I to our Corporate Governance Guidelines is available on our website, www.allegion.com , under the heading “About Allegion—Corporate Governance.”
COMMUNICATION WITH DIRECTORS
Shareholders and other interested parties wishing to communicate with the Board of Directors, the non-employee directors or any individual director (including our Lead Director and Compensation Committee Chair) may do so either by sending a communication to the Board and/or a particular Board member, in care of the Secretary of the Company, or by e-mail at allegionboard@allegion.com . Depending upon the nature of the communication and to whom it is directed, the Secretary will: (a) forward the communication to the appropriate director or directors; (b) forward the communication to the relevant department within the Company; or (c) attempt to handle the matter directly (for example, a communication dealing with a share ownership matter).
CODE OF CONDUCT
We have adopted a worldwide Code of Conduct, applicable to all employees, directors and officers, including our CEO, our CFO and our Controller. The Code of Conduct meets the requirements of a “code of ethics” as defined by Item 406 of Regulation S-K, as well as the requirements of a “code of business conduct and ethics” under the NYSE listing standards. The Code of Conduct covers topics including, but not limited to, conflicts of interest, confidentiality of information, and compliance with laws and regulations. A copy of the Code of Conduct is available on our website located at www.allegion.com under the heading “About Allegion—Corporate Governance.” Amendments to, or waivers of the provisions of, the Code of Conduct, if any, made with respect to any of our directors and executive officers will be posted on our website.
ANTI-HEDGING POLICY AND OTHER RESTRICTIONS
We prohibit our directors and executive officers from (i) purchasing any financial instruments designed to hedge or offset any decrease in the market value of our securities and (ii) engaging in any form of short-term speculative trading in our securities. Directors and executive officers are also prohibited from holding our securities in a margin account or pledging our securities as collateral for a loan unless pre-approved by the Corporate Governance and Nominating Committee.

10


COMMITTEES OF THE BOARD
The Board of Directors oversees the management of the Company’s business and affairs. The Board has appointed three committees to help carry out its duties - the Audit and Finance Committee, the Compensation Committee and the Corporate Governance and Nominating Committee. The Board has adopted a charter for each of these committees, copies of which are available on our website, www.allegion.com , under the heading “About Allegion—Corporate Governance.”
The following table sets forth the current membership for each Board Committee:
 
Audit and Finance Committee
 
Compensation Committee
 
Corporate Governance and Nominating Committee
Michael J. Chesser
ü
 
ü
 
ü
Carla Cico
ü
 
ü
 
ü
Kirk S. Hachigian
ü
 
ü
 
Chair
Dean I. Schaffer
ü
 
Chair
 
ü
Martin E. Welch III
Chair
 
ü
 
ü
Audit and Finance Committee
 
Key Functions
 
Ÿ Review annual audited and quarterly financial statements, as well as disclosures under our “Management’s Discussion and Analysis of Financial Conditions and Results of Operations,” with management and the independent auditors.
Ÿ Obtain and review periodic reports, at least annually, from management assessing the effectiveness of our internal controls and procedures for financial reporting.
Ÿ Review our processes to assure compliance with all applicable laws, regulations and corporate policy.
Ÿ Oversee risk related to our financial reporting and compliance with legal and regulatory requirements.
Ÿ Recommend the accounting firm to be proposed for appointment by the shareholders as our independent auditors and review the performance of the independent auditors, including receipt of their annual independence statement.
Ÿ Review the scope of the audit and the findings and approve the fees of the independent auditors.
Ÿ Approve in advance permitted audit and non-audit services to be performed by the independent auditors.
Ÿ Review proposed borrowings and issuances of securities and cash management policies.
Ÿ Recommend to the Board of Directors the dividends to be paid on our ordinary shares.
Ÿ Review periodic reports of the investment performance of our employee benefit plans.
 
 
 
 
 
 
 
Independence
 
The Board of Directors has determined that each member of the Audit and Finance Committee is “independent” for purposes of the applicable rules and regulations of the SEC, as defined in the NYSE listing standards and our Corporate Governance Guidelines and has determined that each member of the Audit and Finance Committee meets the qualifications of a financial expert. The Board of Directors has determined that Mr. Welch meets the qualifications of an “audit committee financial expert.”

Compensation Committee
 
Key Functions
 
Ÿ Establish executive compensation policies.
Ÿ Approve the CEO’s compensation based on the evaluation by the Board of Directors of the CEO’s performance against the goals and objectives set by the Board of Directors.
Ÿ Approve compensation of officers.
Ÿ Review and approve executive compensation and benefit programs.
Ÿ Oversee our equity compensation plan.
Ÿ Review and recommend significant changes in principal employee benefit programs.
Ÿ Approve and oversee Compensation Committee consultants.
For a discussion concerning the processes and procedures for determining executive compensation and the role of executive officers and compensation consultants in determining or recommending the amount or form of compensation, see “Compensation Discussion and Analysis.”
 
 
 
 
 
 
 
Independence
 
The Board of Directors has determined that each member of the Compensation Committee is “independent” as defined in the NYSE listing standards and our Corporate Governance Guidelines. In addition, the Board of Directors has determined that each member of the Compensation Committee qualifies as a “Non-Employee Director” within the meaning of Rule 16b-3 of the Securities Exchange Act of 1934 and an “outside director” within the meaning of Section 162(m) of the Code.

11



Corporate Governance and Nominating Committee
 
Key Functions
 
Ÿ Identify individuals qualified to become directors and recommend the candidates for all directorships.
Ÿ Recommend individuals for election as officers.
Ÿ Review our Corporate Governance Guidelines and make recommendations for changes.
Ÿ Consider questions of independence and possible conflicts of interest of directors and executive officers.
Ÿ Take a leadership role in shaping our corporate governance.
Ÿ Oversee our sustainability efforts.
 
 
 
 
 
 
 
Independence
 
The Board of Directors has determined that each member of the Corporate Governance and Nominating Committee is “independent” as defined in the NYSE listing standards and our Corporate Governance Guidelines.


Board, Committee and Annual Meeting Attendance
The Board of Directors and its committees held the following number of meetings during the fiscal year ended December 31, 2016:
Board
5

Audit and Finance Committee
9

Compensation Committee
6

Corporate Governance and Nominating Committee
5

Each incumbent director attended at least 75% of the total number of meetings of the Board of Directors and the committees on which he or she served during the year. It is the Board’s policy for non-employee directors to meet as necessary, but at least twice a year, in executive session to consider such matters as they deem appropriate without management being present. In 2016, the non-employee directors met in executive session five times.
We expect all Board members to attend the annual general meeting, but from time to time other commitments prevent all directors from attending the meeting. All of the directors attended the 2016 annual general meeting of shareholders.



12


COMPENSATION OF DIRECTORS
Director Compensation
Our director compensation program is designed to compensate non-employee directors fairly for work required for a company of our size and scope and align their interests with the long-term interests of our shareholders. The program reflects our desire to attract, retain and use the expertise of highly qualified people serving on our Board of Directors. The Corporate Governance and Nominating Committee periodically reviews the compensation level of our non-employee directors in consultation with the Committee’s independent compensation consultant and makes recommendations to the Board of Directors. Employee directors do not receive any additional compensation for serving as a director.
Our director compensation program for non-employee directors consisted of the following elements:
Compensation Element
 
Compensation Value
Annual Cash Retainer
 
$
140,000

Audit and Finance Committee Chair Cash Retainer
 
$
15,000

Compensation Committee Chair Cash Retainer
 
$
10,000

Corporate Governance and Nominating Committee Chair Cash Retainer
(unless also the Lead Director)
 
$
8,000

Lead Director Cash Retainer
(plus $5,000 if also the Corporate Governance and Nominating Committee Chair)
 
$
20,000

Additional Meetings or Unscheduled Planning Session Fees *
 
$
1,500 (per meeting or session)

Annual Grant of RSUs
 
$
70,000

Initial Grant of RSUs
 
$
50,000

* The Board has 5 regularly scheduled meetings each year. The Audit and Finance Committee has 9 regularly scheduled meetings each year; the Compensation Committee has at least 5 regularly scheduled meetings each year; and the Corporate Governance and Nominating Committee has at least 3 regularly scheduled meetings each year.
Share Ownership Requirement    
To align the interest of the directors with the shareholders, the Board of Directors adopted a share ownership policy applicable to non-employee directors. Directors are required to own ordinary shares with a value equal to three times the annual cash retainer ($420,000), calculated as of the date of the share acquisition.
Director Product Program
In order for non-employee directors to develop a deeper understanding of our products and services, we maintain a program that permits directors to receive up to $2,000 of our products and services in any fiscal year.
2017 Director Compensation Changes
The Corporate Governance and Nominating Committee, which oversees non-employee director compensation, undertook its first formal evaluation of the director compensation program since our separation from Ingersoll-Rand plc in 2013. The Committee engaged WTW to advise on the program. In considering potential changes to the non-employee director compensation program, the Committee evaluated the size of the Board and scope of the Board’s responsibilities, the service of each independent director on each Board Committee and the time commitment required of each director, as well as the director compensation programs of our Compensation Peer Group.
Based upon the recommendation of the Corporate Governance and Nominating Committee and the advise of WTW, the Board approved the following changes to the non-employee director compensation program, effective as of June 7, 2017:
The value of the annual grant of RSUs increases from $70,000 to $100,000;
The Compensation Committee Chair cash retainer increases from $10,000 to $12,000;
The Corporate Governance and Nominating Committee chair cash retainer increases from $8,000 to $10,000; and
The initial grant of RSUs is eliminated from the program.
All other elements of the non-employee director compensation program remain unchanged.

13


2016 Director Compensation
The compensation paid or credited to our non-employee directors for the year ended December 31, 2016, is summarized in the table below.
Name
 
Fees earned
or paid
in cash
($)
 
Stock Awards
($)(a)
 
All Other
Compensation
($)(b)  
 
Total  
($)
M. J. Chesser
 
145,896
 
70,008
 
 
215,904
C. Cico
 
141,500
 
70,008
 
 
211,508
K. S. Hachigian
 
166,500
 
70,008
 
 
236,508
D. I. Schaffer
 
147,104
 
70,008
 
 
217,112
M. E. Welch
 
156,500
 
70,008
 
 
226,508
____________________
(a)
The amount represents the aggregate grant date fair value of the annual grant of RSUs to non-employee directors, computed in accordance with Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) Topic 718. As of December 31, 2016, each non-employee director held 1,025 RSUs.
(b)
The aggregate amount of perquisites and other personal benefits received by each of our non-employee directors in 2016 was less than $10,000.



14


COMPENSATION DISCUSSION AND ANALYSIS
This Compensation Discussion and Analysis (“CD&A”) provides a detailed description of our executive compensation philosophy and programs and the compensation decisions made by the Compensation Committee under those programs. This CD&A focuses on the compensation of our NEOs for 2016, which were:
Name
 
Position
D. D. Petratis
 
Chairman, President and CEO (“CEO”)
P. S. Shannon
 
Senior Vice President and CFO (“CFO”)
J. N. Braun
 
Senior Vice President and General Counsel
T. P. Eckersley
 
Senior Vice President - Americas
L. V. Moretti
 
Senior Vice President - EMEIA
This CD&A is divided into the following sections:
Executive Summary
Compensation Philosophy and Design Principles
How We Make Compensation Decisions
Compensation Elements
2016 Compensation Structure Decisions
2016 Incentive Program Designs and Compensation Values for 2016 Performance
2017 Compensation
Other Compensation and Tax Matters
EXECUTIVE SUMMARY
In this section, we highlight 2016 performance and key actions that our Compensation Committee took to support our strategic priorities and to effectively align the interests of our NEOs with shareholders.
2016 Allegion Performance
We achieved the following strong financial performance related to our executive compensation program:
9%   Annual Adjusted Revenue Growth
 
$330m   Available Cash Flow
Annual Adjusted Revenue of $2,232 Billion
 
Available Cash Flow (“ACF”) increased by 16.5% over the prior year
$518m   EBITDA
 
$3.18 Adjusted EPS
 
84 th   Percentile TSR
Adjusted Earnings Before Interest Tax Depreciation and Amortization grew 19.4% over the prior year
 
Adjusted Earnings Per Share increased 7.8% over the prior year
 
Total Shareholder Return of 54.9% for the 2014 - 2016 Performance Period
Consistent with our philosophy, the achievement of this above-target performance resulted in above-target compensation under our incentive plans. These results led to a 136% financial performance score under the Annual Incentive Plan (“AIP”) (subject to region- and individual-specific performance) and a 200% payout of the performance share unit awards (“PSUs”) for the 2014-2016 performance period.
Overview of 2016 NEO Target Compensation
The target compensation for our NEOs in 2016 was:
NEO
 

Base Salary
($)
 
Annual Incentive Target Value
($)
 
Long-term Incentive Target Value
($)
 
Total Target Compensation
($)
D. D. Petratis
 
950,000

 
1,045,000

 
3,000,000

 
4,995,000

P. S. Shannon
 
463,250

 
347,438

 
750,000

 
1,560,688

J. N. Braun
 
384,200

 
230,520

 
400,000

 
1,014,720

T. P. Eckersley
 
420,000

 
294,000

 
500,000

 
1,214,000

L. V. Moretti*
 
363,370

 
236,190

 
300,000

 
899,560

*
Ms. Moretti is paid in Euros. The U.S. Dollar (“USD”) amounts above are shown as of April 2016 based on the Euro to USD exchange rate at that time.

15


Overall Pay Mix
As illustrated in the charts below, we place a significant emphasis on performance-based compensation (short- and long-term) so that a substantial percentage of each NEO’s total direct target compensation is contingent on the successful achievement of our strategic goals, in accordance with our compensation philosophy.
CEOCHART2016AA01.JPG
OTHERNEO2017.JPG
Consideration of 2016 Advisory Vote on Executive Compensation
The Compensation Committee regularly reviews the philosophy, objectives and elements of our executive compensation programs in relation to our short- and long-term business objectives. In undertaking this review, the Compensation Committee considers the views of shareholders as reflected in their annual advisory vote on our executive compensation proposal. At our 2016 annual general meeting, shareholders approved our executive compensation proposal by an overwhelming majority (approximately 98%). Based on the Compensation Committee’s review and the support our executive compensation programs received from shareholders, the Compensation Committee maintained the core elements of our executive compensation programs in 2016.
COMPENSATION PHILOSOPHY AND DESIGN PRINCIPLES
Compensation Philosophy and Executive Compensation Program Objectives
Our executive compensation program is designed to create a pay-for-performance culture by aligning the compensation program to the achievement of our strategic objectives and with shareholder interests. Our strategic objectives are: (i) expand in core markets; (ii) opportunistic acquisitions; (iii) enterprise excellence; (iv) innovation in existing and new product categories; and (v) growth in emerging markets. We strive to provide our NEOs with a compensation package that is aligned with the market median, with the expectation that above-target performance will result in above-median pay, and below-target performance will result in below-median pay.
The primary objectives of our executive compensation program and the guiding principles for setting and awarding executive compensation are:
Create and reinforce our pay-for-performance culture
The compensation program should pay for performance. Exceptional performance should result in increased compensation; missing performance goals should result in reduced or no incentive pay.

Align the interests of management with our shareholders
To better align the interests of management with the interests of shareholders, a significant portion of executive compensation should be equity based, and stock ownership guidelines should be utilized to better ensure a focus on long-term, sustainable growth.

Attract, retain and motivate executive talent by providing competitive levels of salary and targeted total pay
Compensation should be competitive with those organizations with which we compete for top talent.
Provide incentive compensation that promotes desired behavior without encouraging unnecessary and excessive risk
Incentive compensation should help drive business strategy. The compensation program should encourage both the desired results and the right behaviors. It should help drive business strategy and strike a balance between short-term and long-term performance, while incorporating risk-mitigating design features to ensure that excessive risk is not encouraged.

Integrate with our performance management process of goal setting and formal evaluation
Target level goals should be generally aligned with the strategy and the Annual Operating Plan (“AOP”), and be considered stretch yet achievable, as appropriately established, for each year.

16


Maintaining Best Practices Regarding Executive Compensation
Our Compensation Committee intends to compensate our NEOs effectively and consistent with the objectives and design principles outlined above. We have adopted the following compensation practices, which are intended to promote strong governance and alignment with shareholder interests:
Compensation Committee Practices
Independence of Committee members
 
Committee members satisfy the NYSE independence standards, are “non-employee directors” under SEC rules and satisfy the requirements of an “outside director” for purposes of the Internal Revenue Code (the “Code”).
Independent Compensation Consultant
 
The Compensation Committee retains and annually reviews the independence of its compensation consultant.
Annual Risk Assessment
 
The Compensation Committee annually assesses the materiality and likelihood of our compensation program to ensure that our plans and awards are designed and working in a way to not encourage excessive risk taking.
Compensation at Risk
 
We grant a high percentage of at-risk compensation. We believe this is essential to creating a pay-for-performance culture.
Target Pay at the Median Level
 
We generally target total direct compensation opportunities at the competitive market median and allow performance (both operational and shareholder return) to determine actual or realized pay. Actual pay may be above or below the target median based on performance.
Mitigate Undue Risk
 
We mitigate undue risk in our compensation program by instituting governance policies such as capping potential payments under our incentive plans, instituting clawback provisions, utilizing multiple performance metrics, including absolute and relative metrics, striking a balance between short- and long-term incentives and adopting stock ownership requirements.
Stock Ownership Guidelines
 
The Compensation Committee has adopted stock ownership guidelines (i) equal to six times base salary for the CEO, (ii) equal to three times base salary for the CFO and (iii) equal to two times base salary for the CEO’s direct reports. The executive officer must achieve compliance with the guidelines by the fifth anniversary of the officer’s appointment. All executive officers are in compliance with the guidelines.
Clawback Policy
 
We have the right to seek recoupment of all or part of annual cash incentives or PSUs if there is a restatement of our financial statements for any such year which results from fraud or intentional misconduct committed by an award holder.
Anti-Hedging and Pledging Policy
 
We prohibit our executive officers from hedging Allegion securities. Pledging is also prohibited unless approved by the Nominating and Corporate Governance Committee.
“Double triggers” in Change in Control Agreements
 
The NEOs and other executive officers do not receive change in control benefits unless their employment is terminated without cause (or by the executive for good reason) within a specified period following a change in control.
No Tax Gross Ups on Change in Control Benefits
 
The NEOs and other executive officers are not entitled to tax gross ups in the event that their change in control benefits are subject to the “golden parachute” excise tax under the Code.
HOW WE MAKE COMPENSATION DECISIONS
Decision Making Process
The Compensation Committee reviews and discusses the performance of the CEO and makes determinations regarding his compensation. For other NEOs, the CEO considers individual performance and makes individual compensation recommendations to the Compensation Committee. The Compensation Committee reviews and discusses these compensation recommendations and modifies and approves them, as appropriate. In making compensation decisions, the Compensation Committee uses several resources and tools, including competitive market information, and reviews accumulated and potential equity holdings.
Use of Comparator Groups for Pay and Performance
The Compensation Committee primarily uses two comparator groups as part of its executive compensation process. The “Compensation Benchmarking Peer Group” is used to assess the competitiveness of our NEOs’ compensation, and the “Performance Peer Group” is used to evaluate our performance relative to our peers. As described below, the two comparator groups vary because executive compensation levels and practices are influenced by business complexity and company size.

17


Compensation Benchmarking Peer Group
The Compensation Committee considers relevant market pay practices, among other factors, when setting executive compensation to enhance our ability to recruit and retain high performing talent. In assessing market competitiveness, the compensation of our NEOs is reviewed against executive compensation at a set of companies with which we compete for executive talent. The Compensation Benchmarking Peer Group consists of companies that generally:
Are similar to us in terms of certain factors, including one or more of the following: size (i.e., revenue, market capitalization and growth characteristics), industry, lifecycle stage, and global presence;
Have NEOs whose scope of responsibilities are comparable in terms of breadth and complexity; and
Compete with us for executive talent.
The following twenty-four companies comprised our Compensation Benchmarking Peer Group for 2016:
ADT
Checkpoint Systems
Masonite International
Ply Gem Holdings
A.O. Smith
Diebold
Masco
Quanex Building Products
Apogee Enterprises
Flir Systems
NCI Building Systems
Roper Industries
Armstrong World Industries
Fortune Brands Home & Security
Nortek
ScanSource
Brady
Griffon
OSI Systems
Steelcase
Builders FirstSource
Lennox International
Owens Corning
USG
Our Compensation Committee reviews the Compensation Benchmarking Peer Group on an annual basis and determines, with input from its independent consultant, whether any changes are appropriate. This annual review ensures that the peer group companies remain appropriate from a business and talent perspective.
In 2016, the Compensation Committee revised the Compensation Benchmarking Peer Group to be used for 2017. The Committee approved revisions to the Compensation Peer Group so that it better reflects the industries in which we compete and companies that align with our industry lifecycle stage with similar scope characteristics (i.e., revenue and market capitalization). Upon advice from its consultant, the Committee removed the following eleven peer companies due to industry considerations and M&A activity, and added the following six size-appropriate companies that are more similar comparisons:
Companies Removed
 
Companies Added
ADT *
Nortek*
 
Acuity Brands
Apogee Enterprises
OSI Systems
 
Belden
Armstrong World Industries*
Ply Gem Holdings
 
Carlisle Companies
Builders FirstSource
Quanex Building Products
 
Hubbell
Checkpoint Systems*
ScanSource
 
Rockwell Automation
Griffon
 
 
Simpson Manufacturing
*
ADT, Checkpoint Systems and Nortek were acquired and are no longer public companies. Armstrong World Industries spun-off a portion of its business and is no longer considered a similar comparison.
Beginning in 2017, the Compensation Benchmarking Peer Group will be comprised of the following companies:
Acuity Brands
Diebold
Masco Corp
Roper Technologies
A.O. Smith
Flir Systems
Masonite International
Simpson Manufacturing
Belden
Fortune Brands Home & Security
NCI Building Systems
Steelcase
Brady
Hubbell
Owens Corning
USG
Carlisle Companies
Lennox International
Rockwell Automation
 
Relative to these companies, we approximate the 26 th percentile on revenue and 53 rd percentile on market capitalization.
Performance Peer Group
Our Compensation Committee utilizes a performance peer group consisting of the companies in the S&P 400 Capital Goods Index (the “Performance Peer Group”). We believe the Performance Peer Group provides an appropriate measure of our relative TSR performance because it contains companies in similar industries and that operate in similar geographical markets to Allegion. Our Performance Peer Group is used for assessing relative TSR performance for our PSUs.

18


Role of the Compensation Committee and Independent Adviser
Our Compensation Committee has the authority to obtain advice and assistance from advisors and to determine their fees and terms of engagement. In 2016, the Committee engaged Meridian Compensation Partners, LLC (“Meridian”) and WTW as its compensation consultants. Meridian and WTW provided advice to the Committee on our compensation program for executive officers and incentive programs for eligible employees. In 2016, WTW also advised our Corporate Governance and Nominating Committee on the non-employee director compensation program.
Meridian did not provide any other services to us in 2016.
In 2016, WTW provided approximately $230,000 in services to the Compensation Committee and the Corporate Governance and Nominating Committee. WTW also provides certain benefits-related services to the Company, including retirement consulting, actuarial and outsourced pension administration. For these services, WTW received approximately $3 million. The Committee was aware of the other services provided by WTW at the time of engagement but did not review and approve the provision of these services because they are of the type directly procured by management in the ordinary course of business.
The Compensation Committee evaluated whether any work provided by Meridian or WTW raised a conflict of interest and determined that it did not and that both consultants are independent.
COMPENSATION ELEMENTS
Primary Compensation Elements
We have three primary elements of total direct compensation - base salary, annual incentive, and long-term equity. The majority of our NEOs’ compensation is performance based and not guaranteed. The following table summarizes the key elements of our executive compensation program and describes why each element is provided:
 
 
Salary
 
AIP
 
PSUs
 
Options
 
RSUs
 
 
 
 
 
 
 
 
 
 
 
Who Receives
 
All NEOs
 
 
 
 
 
 
 
When Granted / Received
 
Reviewed annually
 
Annually for prior year performance
 
First Quarter Annually
 
 
 
 
 
 
 
Form of Delivery
 
Cash
 
Equity
 
 
 
 
 
Type of Performance
 
Short Term Emphasis
 
Long Term Emphasis
 
 
 
 
 
 
 
Performance / Service Period
 
Ongoing
 
1 Year
 
3 Years
 
 
 
 
 
 
 
 
 
How Payout is Determined
 
Compensation Committee Discretion
 
Formulaic; Compensation Committee Approves
 
Formulaic; Compensation Committee Approves
 
Stock Price on Exercise/Vest Date
 
 
 
 
 
 
 
 
 
Most Recent Performance Measure
 
N/A
 
Mix of Financial and Individual Goals
 
EPS & Relative TSR
 
Stock Price Appreciation
`

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2016 COMPENSATION STRUCTURE DECISIONS
Our Compensation Committee annually reviews the base salaries, and the annual and long-term target opportunities of our NEOs to determine whether these programs competitively reward our NEOs for their services based on a comparison to executives in the Compensation Benchmarking Group and a review of other competitive market information.
Base Salary
It is our Compensation Committee’s philosophy that NEOs will not receive automatic annual merit increases to their base salaries. The Compensation Committee annually considers each NEO’s experience, proficiency, performance and potential to impact future business results, the NEO’s behavior against competencies and key corporate values as well as the competiveness in the market, in making future base salary decisions.
The base salary for NEOs remained unchanged from the prior year, other than for Mr. Braun. The Compensation Committee increased Mr. Braun’s base salary to better align with the applicable market median for his position.
NEO
 
2015 Base Salary
($)
 
2016 Base Salary
($)
 
Increase
(%)
D. D. Petratis
 
950,000

 
950,000

 

P. S. Shannon
 
463,250

 
463,250

 

J. N. Braun
 
333,500

 
384,200

 
15.2

T. P. Eckersley
 
420,000

 
420,000

 

L.V. Moretti *
 
344,704

 
363,370

 
*

*
Ms. Moretti’s base salary was not increased for 2016. The USD amounts above are shown as of April of the applicable year based on the Euro to USD exchange rate on that day. The difference between 2015 and 2016 solely reflects the fluctuation in the exchange rate.
Annual and Long-Term Incentive Target Opportunities
Each year, the Compensation Committee reviews the short- and long-term target incentive opportunities to ensure alignment with our compensation philosophy. The following table shows the increases in the short-term target incentive opportunities for 2016 and the long-term target incentive opportunities. The increases reflect market based adjustments.
NEO
 
2015 Target AIP
(% of Base
Salary)
 
2016 Target AIP
(% of Base Salary)
 
Target AIP
Increase
(%)
 
2015 Target
LTI
($)
 
2016 Target
LTI
($)
 
Target LTI
Increase
($)
D. D. Petratis
 
110

 
110

 

 
3,000,000

 
3,000,000

 

P. S. Shannon
 
70

 
75

 
7

 
750,000

 
750,000

 

J. N. Braun
 
55

 
60

 
9

 
300,000

 
400,000

 
100,000

T. P. Eckersley
 
65

 
70

 
8

 
500,000

 
500,000

 

L.V. Moretti
 
60

 
65

 
8

 
300,000

 
300,000

 

2016 INCENTIVE PROGRAM DESIGNS AND COMPENSATION VALUES FOR 2016 PERFORMANCE
Annual Incentive Program
Annual Incentive Plan Design
For 2016, our NEOs, including the CEO, participated in our AIP. The AIP is designed to reward executives for profitable revenue growth, the delivery of strong cash flow and individual contributions, consistent with our strategic objectives. Individual AIP payouts are calculated as the product of (i) base salary, (ii) target percentage of base salary, (iii) the financial performance score and (iv) the individual performance score. In no case will an AIP award exceed 200% of the NEO’s opportunity.
Base Salary
 
X
 
Target Percentage
 
X
 
Financial Performance Score
 
X
 
Individual Performance Score
 
=
 
AIP Award

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Financial Performance
The financial performance score is based on achievement of financial metrics established annually by the Compensation Committee during the first quarter of the fiscal year. The financial metrics are broadly aligned with key elements of our AOP. Development of our AOP is a robust process that involves input from all of our regions and is reviewed and approved by the Board of Directors.
The financial metrics are aligned with the executive’s line of sight and scope of impact. Executives serving in a corporate role are measured based on the corporate financial metrics. Regional Presidents (Mr. Eckersley and Ms. Moretti) are measured based on a combination of corporate (45%) and regional (55%) financial metrics. We believe this combination focuses Regional Presidents on achieving the pre-established objectives for their business unit as well as aligning their interests with corporate goals to help create sustainable shareholder value.
The financial performance score is calculated as follows:
Revenue
 
+
 
EBITDA
(Corporate)
or
Operating Income
(Regions)
 
+
 
Available Cash Flow
(Corporate)
or
Operating Cash Flow
(Regions)
 
=
 
Financial
Performance Score
(1/3 Weight)
 
 
(1/3 Weight)
 
 
(1/3 Weight)
 
 
The Compensation Committee believes each metric is equally important and therefore weighs each equally. In order to further emphasize the importance of meeting profitability goals, we must achieve corporate EBITDA at least equal to the threshold performance level in order for any incentive award to be earned (the “Threshold Goal”). If the Threshold Goal is not achieved, no incentive award is earned under the AIP regardless of any other performance acheived.
The Compensation Committee reviews our financial performance following the end of the fiscal year and determines the financial performance score. The Compensation Committee retains the authority to adjust our reported financial results for items causing significant differences from the assumptions contained in the AOP, including the impact of changes in accounting principles, extraordinary items and unusual or non-recurring gains or losses. The Compensation Committee has adopted a set of guidelines to help it evaluate potential adjustments. Adjustments to reported financial results are intended to better reflect executives’ line of sight and ability to affect performance results, align award payments with decisions that support the AOP, avoid artificial inflation or deflation of awards due to unusual or non-recurring items in the applicable period and emphasize long-term and sustainable growth.
Our 2016 AIP metrics and goals were:
 
 
Corporate
 
 
 
 
Pre-established Financial Targets (in millions)
 
Payout as a % of Target
 
 
Revenue
($)
 
EBITDA
($)
 
ACF
($)
 
Threshold
 
2,100
 
440
 
234
 
50%
Target
 
2,210
 
518
 
285
 
100%
Maximum
 
2,277
 
580
 
345
 
200%
 
 
Americas
 
 
 
 
Pre-established Financial Targets (in millions)
 
Payout as a % of Target
 
 
Revenue
($)
 
OI
($)
 
OCF
($)
 
Threshold
 
1,542
 
414
 
412
 
50%
Target
 
1,623
 
453
 
444
 
100%
Maximum
 
1,672
 
498
 
511
 
200%
 
 
EMEIA
 
 
 
 
Pre-established Financial Targets (in millions)
 
Payout as a % of Target
 
 
Revenue
($)
 
OI
($)
 
OCF
($)
 
Threshold
 
460
 
48
 
43
 
50%
Target
 
485
 
56
 
52
 
100%
Maximum
 
499
 
63
 
63
 
200%

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Individual Performance
Individual objectives are established annually and include strategic initiatives with both financial and non-financial metrics. Participants are evaluated based upon non-financial metrics including core competencies. At the end of each year, the CEO evaluates performance against the pre-established individual objectives for officers other than himself and submits a recommendation to the Compensation Committee. The Compensation Committee evaluates the CEO’s performance against his pre-established individual objectives. Based on the Compensation Committee’s evaluation of the CEO and the CEO’s recommendations, the Compensation Committee determines and approves the individual performance score for each officer, which can range from 0% to 150% of target.
Actual Financial Performance vs. Target Goals
The table below shows the actual 2016 adjusted performance compared to the pre-established financial performance targets.
 
 
Financial Target Goals
($)
 
Adjusted Actual Performance
($)
 
Performance as a % of Target Goal
 
Financial Performance Score
Corporate
 
 
 
 
 
 
 
 
Revenue
 
2,210

 
2,232

 
132.2
%
 
 
EBITDA
 
518

 
518

 
100.4
%
 
135.82%
ACF
 
285

 
330

 
174.8
%
 
 
Americas
 
 
 
 
 
 
 
 
Revenue
 
1,623

 
1,646

 
145.8
%
 
 
OI
 
453

 
466

 
128.1
%
 
130.67%
OCF
 
444

 
456

 
118.1
%
 
 
EMEIA
 
 
 
 
 
 
 
 
Revenue
 
485

 
480

 
90.8
%
 
 
OI
 
56

 
47

 
%
 
73.77%
OCF
 
52

 
56

 
130.5
%
 
 
For 2016, the Committee adjusted our financial results to remove the impact of (i) companies acquired during the fiscal year, (ii) mergers and acquisitions activity, (iii) accounting changes, (iv) restructuring, (v) environmental remediation charge, and (vi) divestitures. These adjustments increased the financial performance achieved by corporate from 135.25% to 135.82%, increased the financial performance achieved by Americas from 111.33% to 130.67% and decreased the financial performance achieved by EMEIA from 76.79% to 73.77%.
Evaluated Individual Performance
For 2016, the Compensation Committee determined each NEO achieved the following individual performance score:
NEO
 
Individual
Performance Score
D. D. Petratis
130
P. S. Shannon
130
J. N. Braun
125
T. P. Eckersley
130
L.V. Moretti
120
In determining the individual performance score for each NEO’s AIP award, the Compensation Committee considered pre-established individual performance objectives, and then evaluated actual performance relative to these objectives to determine an overall performance score. No specific weighting of individual objectives was used, although particular emphasis is given to meeting key financial goals such as business profitability, growth and efficient capital allocation.

22


The following provides select key accomplishments during the year which factored into each NEO’s individual performance scoring:
D. D. Petratis
Ÿ Exceeded pre-determined organic growth objectives, and ensured growth was accomplished profitably
Ÿ Delivered over target cash flow results and improved our ROIC
Ÿ Ensured industry-leading safety and loss control results for Allegion
Ÿ Oversaw increased global employee engagement for third straight year (as measured by Gallup survey instrument)
P. S. Shannon
Ÿ Execution of the capital deployment strategy
Ÿ Evaluation of strategic M&A opportunities in support of growth strategies
Ÿ Execution of a comprehensive tax strategy
Ÿ Support of a talent strategy, including career development opportunities which led to improved employee engagement with a focus on Allegion values
J. N. Braun
Ÿ Advised on all major capital deployment decisions
Ÿ Continued to build internal intellectual property capability
Ÿ Service as interim Chief Human Resources Officer
Ÿ Drove efficient and cost effective delivery of legal services
T. P. Eckersley
Ÿ Delivered industry leading organic growth goals in the Americas region
Ÿ Extended Allegion’s market position in the repair and replace commercial market
Ÿ Extended Allegion’s industry leading position in electronics
Ÿ Engaged and grew our people through a focus on Allegion values

L. V. Moretti
Ÿ Led business transformation efforts to improve profitability for EMEIA region
Ÿ Evaluation of strategic M&A opportunities in support of growth strategies
Ÿ Deployment of Enterprise Excellence initiatives that improved customer service, safety and productivity


2016 AIP Award
Our Compensation Committee approved the following AIP awards for our NEOs:
NEO
 
Target AIP Amount
(A)($)
 
Financial Performance Score
(B)
 
AIP Earned from Financial Performance
(C)=(A)x(B)($)
 
Individual Performance Score
(D)
 
2016 AIP Award
(E)=(C)x(D)($)
D. D. Petratis
 
1,045,000

 
135.82
%
 
1,419,318

 
130%
 
1,845,116

P. S. Shannon
 
347,438

 
135.82
%
 
471,890

 
130%
 
613,456

J. N. Braun
 
230,520

 
135.82
%
 
313,092

 
125%
 
391,365

T. P. Eckersley
 
294,000

 
132.99
%
 
390,991

 
130%
 
508,288

L. V. Moretti*
 
224,239

 
101.69
%
 
228,028

 
120%
 
273,634

*
The amounts for Ms. Moretti are based on the Euro to USD exchange rate in February 2017.

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Long-term Incentive Program
Long-term Incentive Program Design
Our long-term incentive program (“LTI”) for NEOs is comprised 50% of PSUs, 25% of stock options, and 25% of RSUs. We grant executives a mix of equity awards in order to provide an effective balance between risk and retention. This design aligns the executives’ interests and long-term strategies with the interests of shareholders. LTI targets are expressed in dollar amounts which are converted to a number of shares based on the fair value of the award on the grant date.
Performance Share Units : PSUs are earned based equally on our absolute EPS growth (from continuing operations) and relative TSR as compared to the Performance Peer Group companies over a three-year performance period as shown below. PSUs will vest at the end of the three-year performance period and the NEO will earn a number of shares based upon achievement of the performance metrics during the performance period. Upon vesting, PSUs convert into our ordinary shares on a one-for-one basis.
Performance Relative to
S&P 400 Capital Goods Index
 
% of Target PSUs Earned *
< 25 th  Percentile
 
No award earned

25 th  Percentile
 
50
%
50 th  Percentile
 
100
%
>= 75 th  Percentile
 
200
%
EPS Performance**
 
% of Target PSUs Earned *
Below Threshold
 
No award earned
Threshold
 
25%
Target
 
100%
Maximum
 
200%
*
Results are interpolated between percentiles achieved. The Compensation Committee retains the authority and discretion to make downward adjustments to the calculated PSU award payouts, either as a percentage or a dollar amount, or not to grant any award payout regardless of actual performance against pre-established goals.
**
EPS is calculated in accordance with GAAP, subject to adjustment by the Compensation Committee based on pre-approved categories.
Dividend equivalents are accrued on outstanding PSU awards at the same time and at the same rate as dividends are paid to shareholders. Dividend equivalents are not earned until the PSUs vest and are payable in cash at the time of distribution unless the NEO elects to defer the PSUs into our Executive Deferred Compensation Plan (“EDCP”), in which case the dividends are also deferred. The actual dividend equivalents paid are determined by the actual number of PSUs earned at the end of the performance period.
Stock Options/Restricted Stock Units : Stock options are considered “at risk” since there is no value unless the stock price appreciates during the term of the option period. RSUs, on the other hand, provide strong retentive value, while still providing alignment with shareholder value creation. Both stock options and RSUs vest ratably over a three-year period following the grant. Stock options expire on the tenth anniversary of the grant date. Dividend equivalents are accrued on outstanding RSU awards at the same time and at the same rate as dividends are paid to shareholders. Dividend equivalents on RSUs are only payable if the underlying RSU award vests. At the time of vesting, one ordinary share is issued for each RSU and any accrued dividend equivalents are paid in cash. No dividends are payable on stock options.
Equity Awards Granted in 2016
The Compensation Committee approved the annual grants shown in the table below in the first quarter of 2016.
NEO
 
Target
2016-2018
PSU Award
($)
 
Target
2016-2018
PSU Award
(#)
 
Stock
Option Award
($)
 
Stock
Option Award
(#)
 
RSU
Award
($)
 
RSU
Award
(#)
D. D. Petratis
 
1,581,600

 
25,930

 
750,004

 
47,289

 
750,025

 
12,965

P. S. Shannon
 
395,431

 
6,483

 
187,513

 
11,823

 
187,550

 
3,242

J. N. Braun
 
210,921

 
3,458

 
100,013

 
6,306

 
100,023

 
1,729

T. P. Eckersley
 
263,620

 
4,322

 
125,009

 
7,882

 
125,014

 
2,161

L.V. Moretti
 
158,160

 
2,593

 
75,002

 
4,729

 
75,031

 
1,297

In addition to the annual grant shown above, Mr. Eckersley received a special retention RSU award ($1,000,053) which vests 50% on December 31, 2018 and 50% on December 31, 2020.

24


PSUs Earned for 2014 - 2016 Performance Period and Founder’s Awards
The PSUs earned for the 2014 - 2016 performance period were based on the (i) EPS performance against pre-established goals and (ii) TSR performance relative to the Peer Performance Group companies. For this performance period, our performance exceeded the maximum goals, resulting in the vesting of the maximum number of units, consistent with our pay-for-performance philosophy.
Performance Metric
 
Threshold
 
Target
 
Maximum
 
Actual
 
% of Target Earned
EPS*
 
$2.55
 
$2.81
 
$3.13
 
$3.18
 
200
TSR
 
25 th percentile
 
50 th percentile
 
>= 75 th percentile
 
84 th percentile (54.9% TSR)
 
200
*
EPS was adjusted to eliminate the impact of (i) mergers and acquisitions activity, (ii) accounting changes, (iii) restructuring, (iv) sales of marketable securities, and (v) an impairment charge related to a divestiture.
As a result of the foregoing performance, our NEOs earned the following awards for the 2014 - 2016 performance period:
NEO
 
Target PSUs Awarded
(#)
 
PSUs Earned
(#)
D. D. Petratis
 
27,714

 
55,428

P. S. Shannon
 
6,929

 
13,858

T. P. Eckersley
 
4,619

 
9,238

L.V. Moretti
 
2,684

 
5,368

In connection with our separation from Ingersoll-Rand plc, certain NEOs were granted special PSU awards (the “Founder’s PSUs”). The Founder’s PSUs were earned based on our three-year TSR relative to the Performance Peer Group measured from December 2013 to December 2016. TSR performance at or above the 50th percentile resulted in earning 100% of the award. For this performance period, we achieved a three-year TSR of 54.6% which resulted in performance at the 82nd percentile.
As a result of the foregoing performance, our NEOs earned the following for the Founder’s PSUs:
NEO
 
Target PSUs Awarded
(#)
 
PSUs Earned
(#)
D. D. Petratis
 
15,568

 
15,568

P. S. Shannon
 
7,352

 
7,352

T. P. Eckersley
 
7,072

 
7,072

2017 COMPENSATION
The Compensation Committee annually reviews the total direct compensation for each NEO. Based on recommendations from the CEO and in accordance with our compensation philosophy, the Compensation Committee approved 2017 compensation shown in the table below:
NEO
 
2017 Base Salary
($)
 
2017 Target Annual Incentive
(as a % of Base Salary)
 
2017 Target
Annual LTI
($)
D. D. Petratis
 
950,000

 
110
 
3,350,000

P. S. Shannon
 
505,000

 
75
 
850,000

J. N. Braun
 
400,000

 
60
 
450,000

T. P. Eckersley
 
450,000

 
70
 
550,000

L. V. Moretti*
 
352,487

 
65
 
300,000

*
Ms. Moretti is paid in Euros. The USD amounts above are shown as of February 2017 based on the Euro to USD exchange rate at that time.

25


OTHER COMPENSATION AND TAX MATTERS
Retirement Programs and Other Benefits
We maintain qualified and nonqualified defined benefit pension plans intended to provide fixed benefits upon retirement based on the individual’s age and number of years of service. Refer to the Pension Benefits table for additional details on these programs.
A qualified defined contribution 401(k) plan called the Employee Savings Plan (“ESP”) is available for the U.S. salaried and hourly non-union workforce. The ESP provides a dollar-for-dollar match on the first 6% of the employee’s eligible contributions to the ESP. The ESP has a number of investment options and is an important component of the retirement program. Employees who were actively employed prior to July 1, 2012 were given a one-time choice between continuing to participate in the defined benefit plan until December 31, 2022 or moving to an enhanced version of the ESP effective January 1, 2013 under which they would receive an employer core contribution of 2% of eligible pay in addition to the matching contribution and no longer accrue benefits under the defined benefit plan after December 31, 2012. Employees hired on or after July 1, 2012 were automatically covered under the enhanced version of the ESP and do not participate in the defined benefit plan. Employees hired after December 1, 2013 are not eligible for the 2% employer core contribution. Effective as of December 31, 2022, accruals in the qualified defined benefit plan will cease for all employees.
Additionally, we offer a U.S. nonqualified, defined contribution plan called the Supplemental Employee Savings Plan (the “Supplemental ESP”). The Supplemental ESP is an unfunded plan that makes up matching and core contributions that cannot be made to the ESP due to Internal Revenue Service (“IRS”) or plan limitations. The Supplemental ESP is deemed invested in funds selected by participants and includes the same funds available in the ESP except for a self-directed brokerage account, which is not available in the Supplemental ESP.
Our nonqualified EDCP allows eligible employees to defer receipt of a part of their annual salary, AIP award and PSU award. Cash deferrals may be invested in select mutual fund investments and PSU award deferrals are required to be invested in our ordinary shares. Refer to the Nonqualified Deferred Compensation table for additional details on the deferred compensation plans.
We also provide certain other benefits believed to be consistent with prevailing market practice and to be competitive with peer company practices. For executives assigned to work outside their home countries, we may provide an expatriate allowance and tax equalization benefits to mitigate the impact of living in another jurisdiction. For these benefits, we may also provide tax assistance on the income imputed to the executives. These other benefits and their incremental costs to the Company are reported in “All Other Compensation” shown in the Summary Compensation Table.
Severance Arrangements
We have not adopted a formal severance policy for executives. In most cases, we would expect to provide for severance in the event of termination without cause.
In connection with recruiting certain officers, we generally enter into employment arrangements that provide for severance payments upon certain termination events, other than in the event of a change in control (which is described in “Change-In-Control Provisions” below). In the event of an involuntary termination other than for cause, Mr. Petratis and Mr. Shannon are eligible to receive severance equal to two times (Mr. Petratis) or one times (Mr. Shannon) base salary plus actual annual incentive award, not to exceed target and pro-rated for the number of days worked during the performance period.
Change-In-Control Provisions
We have a change in control plan (“CIC Plan”) that covers our NEOs in order to focus them on the best interests of our shareholders and to assure continuity of management in circumstances that reduce or eliminate job security and might otherwise lead to accelerated departures. This CIC Plan provides cash severance benefits in the event that a change in control occurs and an officer is terminated within two years of that change in control for reasons other than cause. Cash severance benefits in the event of a qualifying termination will be based on an individually defined Severance Multiple ranging from 2.0 for officers up to 3.0 for the CEO. Individual cash severance benefits will include (i) base salary in effect at termination times the Severance Multiple, (ii) current cash target incentive award times the Severance Multiple, and (iii) a target incentive award in the year of termination pro-rated for the portion of the performance cycle completed through the date of termination. Cash severance benefits under the CIC Plan will be reduced by severance-related benefits provided through any other Allegion severance program. NEOs will also immediately vest in their Elected Officer Supplemental Program (“EOSP”) and Key Management Supplemental Pension Plan (“KMP”) benefits following a change in control. For purposes of calculating Mr. Shannon’s EOSP benefits, two years would be added to his age and service if his employment is terminated within two years after a change in control. In addition, participants in the CIC Plan will, in the event of a qualifying termination, receive continued health and welfare coverage for a term of years equal to the Severance Multiple and outplacement benefits of up to $25,000.
The CIC Plan does not provide for payment of, or reimbursement for, any tax payments or other tax gross ups related to the severance benefits. However, the CIC Plan does provide for cash severance benefits to be adjusted such that participants

26


will receive the better after tax benefit treatment (“Best of Net” approach) between (i) cash severance payments paid in full, with the executive responsible for all taxes incurred, or (ii) cash severance payments reduced to avoid triggering excise taxes.
Under the Incentive Stock Plan of 2013 (the “2013 Stock Plan”), outstanding unvested stock options and RSUs will not immediately vest and become exercisable or payable, as applicable, following a change in control if an alternate award is provided by the acquiring company. Such awards will immediately vest and become exercisable or payable, as applicable, if an alternate award is not provided. PSUs, other than Founder’s PSUs, will be deemed to have earned a pro-rata award based on the target award opportunity and total number of months worked in the applicable performance period. Founder’s PSUs will be deemed to have earned the full amount of the award upon a change in control. Founder’s PSUs vested in February 2017.
Senior Executive Performance Plan
The SEPP is a shareholder approved plan that funds the annual cash incentive awards that may be granted to each of the NEOs under the AIP. Under the SEPP, the maximum amount of cash incentive that can be paid to the CEO is 1.5% of Consolidated OI from Continuing Operations (as defined in the SEPP) and the maximum amount of cash incentive that can be paid to any other covered executive is 0.6% of Consolidated OI from Continuing Operations. Our Compensation Committee generally exercises its discretion to pay less than the maximum amount to the NEOs, after considering the factors described in the AIP.
Tax and Accounting Considerations
Section 162(m) of the Code imposes a limit of $1,000,000 on the amount that a publicly-traded company may deduct for federal income tax purposes in any taxable year for compensation paid to our CEO and the three other highest-paid NEOs, other than our CFO, who are employed as of the end of the year. To the extent that compensation is “performance-based” within the meaning of Section 162(m), the Section’s limitations will not apply. To qualify as performance based, compensation must, among other things, be paid pursuant to a shareholder approved plan upon the attainment of objective performance criteria.
Our Compensation Committee believes that the tax deductibility of compensation is an important factor, but not the sole factor, in setting executive compensation policies and in rewarding superior executive performance. Accordingly, our executive compensation program has been designed with the intent that most of the variable compensation ( i.e. , AIP, PSUs and stock options) paid to NEOs would qualify as performance-based within the meaning of Section 162(m) so as to be tax deductible to avoid the loss of a tax deduction due to Section 162(m). However, the Compensation Committee reserves the right to approve the payment of compensation to our executive officers that does not qualify as “performance-based” within the meaning of Section 162(m) and therefore, may not be deductible for federal income tax purposes.
In determining variable compensation program designs, our Compensation Committee considers other tax and accounting implications of particular forms of compensation, such as the implications of Section 409A of the Code governing deferred compensation arrangements and favorable accounting treatment afforded certain equity based plans that are settled in shares. The forms of variable compensation utilized are determined primarily by their effectiveness in creating maximum alignment between key strategic objectives and the interests of shareholders.
Timing of Awards
We intend to regularly grant annual equity grants following our earnings release for the fourth quarter and full year results. The equity grant date is never selected or changed to increase the value of equity awards for executives.


COMPENSATION COMMITTEE REPORT
We have reviewed and discussed with management the Compensation Discussion and Analysis contained in this Proxy Statement.
Based on our review and discussion, we recommended to the Board of Directors that the Compensation Discussion and Analysis be included in this Proxy Statement as well as the Company’s Annual Report on Form 10-K for the year ended December 31, 2016.
COMPENSATION COMMITTEE
Dean I. Schaffer (Chair)
Michael J. Chesser
Carla Cico
Kirk S. Hachigian
Martin E. Welch, III

27


EXECUTIVE COMPENSATION
The following table provides summary information concerning compensation paid to or accrued on behalf of our NEOs for services rendered during the years ended December 31, 2016, 2015 and 2014.
SUMMARY COMPENSATION TABLE
Name and
Principal Position  
 
Year  
 
Salary
($)(a)  
 
Bonus
($)  
 
Stock
Awards
($)(b)  
 
Option
Awards
($)(c)  
 
Non-
Equity
Incentive
Plan
Compensation
($)(d)  
 
Change in
Pension
Value  and
Nonqualified
Deferred
Compensation
Earnings
($)(e)
 
All
Other
Compensation
($)(f)  
 
Total
($) 
D. D. Petratis
 
2016
 
950,000

 

 
2,331,625

 
750,004

 
1,845,116

 
874,915

 
377,832

 
7,129,492

Chairman, President and Chief Executive Officer
 
2015
 
938,462

 

 
2,514,691

 
750,012

 
1,875,880

 
891,188

 
475,236

 
7,445,469

 
2014
 
900,000

 

 
4,786,693

 
750,009

 
1,838,806

 
540,916

 
179,040

 
8,995,464

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
P. S. Shannon
 
2016
 
463,250

 

 
582,981

 
187,513

 
613,456

 
795,478

 
75,172

 
2,717,850

Senior Vice President and Chief Financial Officer
 
2015
 
454,423

 

 
628,750

 
187,508

 
562,033

 
874,547

 
113,640

 
2,820,901

 
2014
 
425,000

 
75,000

 
1,128,967

 
187,502

 
552,571

 
632,877

 
179,765

 
3,181,682

J. N. Braun
 
2016
 
372,500

 

 
310,944

 
100,013

 
391,365

 

 
58,868

 
1,233,690

Senior Vice President and General Counsel
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
T. P. Eckersley
 
2016
 
420,000

 

 
1,388,687

 
125,009

 
508,288

 
297,253

 
75,600

 
2,814,837

Senior Vice President - Americas
 
2015
 
420,000

 

 
419,148

 
125,017

 
439,402

 
273,810

 
93,006

 
1,770,383

 
2014
 
418,709

 
200,000

 
738,148

 
125,008

 
419,721

 
369,946

 
72,341

 
2,343,873

L. V. Moretti (g)
 
2016
 
352,957

 

 
233,191

 
75,002

 
273,634

 

 
532,864

 
1,467,648

Senior Vice President - EMEIA
 
2015
 
352,864

 
109,400

 
765,050

 
75,007

 
252,203

 

 
157,637

 
1,712,161

______________
(a)
A portion of a participant’s annual salary may be deferred into a number of investment options under our EDCP. In 2016, no NEO deferred any salary.
(b)
The amounts shown in this column reflect the aggregate grant date fair value of PSU awards and any RSU awards granted for the year under ASC Topic 718 and do not reflect amounts paid to or realized by the NEOs. In determining the aggregate grant date fair value of the PSU awards, the awards are valued assuming target level performance achievement. If the maximum level performance achievement is assumed, the aggregate grant date fair value of the PSU awards granted in 2016 would be as follows:
Name
 
Maximum Grant Date Value   of   PSU Awards 
($) 
D. D. Petratis
 
3,163,200

P. S. Shannon
 
790,862

J. N. Braun
 
421,842

T. P. Eckersley
 
527,240

L. V. Moretti
 
316,320

For a discussion of the assumptions made in determining the ASC 718 values, see Note 15, “Share-Based Compensation,” to our consolidated financial statements contained in the 2016 Form 10-K. The ASC 718 grant date fair value of the PSU award is spread over the number of months of service required for the grant to become non-forfeitable, disregarding any adjustments for potential forfeitures. Please see also the Grants of Plan-Based Awards table for additional details of the 2016 grants included in this column.
(c)
The amounts in this column reflect the aggregate grant date fair value of stock option grants for financial reporting purposes for the year under ASC 718 and do not reflect amounts paid to or realized by the NEOs. For a discussion of the assumptions made in determining the ASC 718 values, see Note 15, “Share-Based Compensation,” to our consolidated financial statements contained in the 2016 Form 10-K.
(d)
This column reflects the amounts earned as annual awards under our AIP program. Unless deferred into the EDCP, AIP awards are paid in cash. Mr. Petratis elected to defer 50% of his AIP payment. Amounts shown in this column are not reduced to reflect deferrals of AIP awards into the EDCP.

28


(e)
Amounts reported in this column reflect the aggregate increase in the actuarial present value of the benefits under the qualified Pension Plan (the “Pension Plan”), Supplemental Pension Plan, KMP and EOSP, as applicable. The increase in pension benefits value is attributable to the additional year of service and age, the annual AIP award and any annual salary increase and any changes in the interest rates used to value the benefits. The plans do not permit above-market or preferential earnings on any nonqualified deferred compensation.
(f)
The following table summarizes the components of this column for 2016:
Name
 
Company Matching Contributions
($)(1)
 
Tax Equalization ($)(2)  
 
Tax
Assistance
($)(2)  
 
Other
Benefits  
($)(3)
 
Total
($)
D. D. Petratis
 
224,433

 

 

 
153,399

 
377,832

P. S. Shannon
 
48,327

 

 

 
26,845

 
75,172

J. N. Braun
 
46,602

 

 

 
12,266

 
58,868

T. P. Eckersley
 
48,340

 

 

 
27,260

 
75,600

L. V. Moretti
 
6,321

 
231,358

 
280,365

 
14,820

 
532,864

_____________
(1)
Represents matching contributions under our ESP and Supplemental ESP plans for Messrs. Petratis, Shannon, Braun and Eckersley, and contributions under the Italian Providential fund for Ms. Moretti.
(2)
Represents tax equalization provided to Ms. Moretti to mitigate the impact of being required to live in a high tax jurisdiction and the tax assistance provided by the Company for the additional tax owed as a result of the income imputed from the tax equalization payment for 2015 and 2016.
(3)
The other benefits the NEOs received in 2016 are:
Name
 
Aircraft Use
($)(i)
 
Other
($)(ii)
 
Total
($)
D. D. Petratis
 
120,442

 
32,957

 
153,399

P. S. Shannon
 

 
26,845

 
26,845

J. N. Braun
 

 
12,266

 
12,266

T. P. Eckersley
 

 
27,260

 
27,260

L. V. Moretti
 

 
14,820

 
14,820

(i)
Represents the actual cost of the hired aircraft.
(ii)
Represents (a) the incremental cost of the leased cars, calculated based on the lease, insurance, fuel and maintenance costs for all NEOs; (b) financial counseling services; and (c) executive health program.
In 2015, Mr. Petratis received $227,351 in Company Matching Contributions, $43,846 more than the amount reported in the prior year’s proxy statement. The “All Other Compensation” amount reported for 2015 was adjusted to reflect this correction.
(g)
Cash amounts for Ms. Moretti were paid in Euros. For reporting purposes, these amounts have been converted from Euro to United States dollars in this table and throughout this Proxy Statement. Where amounts are reported as a point in time, Euros were converted to United States dollars using the closing currency exchange rate as of December 31, 2016. Where payments were made throughout the year, Euros were converted to United States dollars using the closing currency exchange rate as of the last day of the month in which the cash compensation was received or deemed to have been received.


29


2016 GRANTS OF PLAN-BASED AWARDS
The following table shows all plan-based awards granted to the NEOs during 2016. This table is supplemental to the Summary Compensation Table and is intended to complement the disclosure of equity awards and grants made under non-equity incentive plans in the Summary Compensation Table.
Name
 
Grant Date
 
Estimated Future Payouts
Under Non-Equity
Plan Awards  
 
Estimated Future Payouts
Under Equity
Incentive Plan Awards
 
All Other Stock Awards: Number of Shares of Stock or Units
(#)(c)  
 
All Other Option Awards: Number of Securities Underlying Options
(#)(c)  
 
Exercise
or Base
Price of
Option
Awards
($/Sh)
(d)  
 
Closing Stock Price on Grant Date
($/Sh)
 
Grant
Date
Fair
Value of
Stock
and
Option
Awards
($)(e)  
Threshold
($)(a)  
 
Target
($)(a)  
 
Maximum
($)(a)  
 
Threshold
(#)(b)  
 
Target
(#)(b)  
 
Maximum
(#)(b)  
 
D. D. Petratis
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
AIP
 
2/3/2016
 
522,500

 
1,045,000

 
2,090,000

 

 

 

 

 

 

 

 

PSUs (2016-18)
 
2/16/2016
 

 

 

 
9,724

 
25,930

 
51,860

 

 

 

 

 
1,581,600

Options
 
2/16/2016
 

 

 

 

 

 

 

 
47,289

 
57.85

 
58.50

 
750,004

RSUs
 
2/16/2016
 

 

 

 

 

 

 
12,965

 

 

 

 
750,025

P. S. Shannon
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
AIP
 
2/3/2016
 
173,719

 
347,438

 
694,875

 

 

 

 

 

 

 

 

PSUs (2016-18)
 
2/16/2016
 

 

 

 
2,431

 
6,483

 
12,966

 

 

 

 

 
395,431

Options
 
2/16/2016