DEF 2015 Proxy Statement
Table of Contents

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.     )
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Allegion Public Limited Company
(Name of Registrant as Specified In Its Charter)
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Table of Contents


NOTICE OF 2015 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 10, 2015, at 9:00 a.m., Mountain Time
 
 
 
 
 
 
Location
 
The Broadmoor, 1 Lake Avenue, Colorado Springs, Colorado
 
 
 
 
 
 
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 2016, 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 approve the material terms of the performance goals under the Company’s Incentive Stock Plan of 2013.
5.
To approve the material terms of the performance goals under the Company’s Senior Executive Performance Plan.
6.
To conduct such other business properly brought before the meeting.
 
 
 
 
 
 
Record Date
 
Only shareholders of record as of the close of business on April 13, 2015, 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 further explained in the accompanying proxy statement or filling in, signing, dating, and promptly mailing a proxy card.
 
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 TO APPOINT A PROXY OR PROXIES TO ATTEND 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 10, 2015: The Annual Report and Proxy Statement 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


TABLE OF CONTENTS
 
Page 
 
Item 3. Approval of Appointment of Independent Auditors
Item 4. Approval of the Material Terms of the Performance Goals under the Company’s Incentive Stock Plan of 2013
Item 5. Approval of the Material Terms of the Performance Goals under the Company’s SEPP
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Appendix A - INCENTIVE STOCK PLAN OF 2013
Appendix B - SENIOR EXECUTIVE PERFORMANCE PLAN


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 10, 2015 at 9:00 a.m., Mountain Time
 
 
 
Location
  
The Broadmoor
  
1 Lake Avenue
  
Colorado Springs, Colorado
 
 
 
Record Date
  
April 13, 2015
 
 
 
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 6 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
 
Approval of the material terms of the performance goals under the Company’s Incentive Stock Plan of 2013.
 
Majority of votes cast
 
For
 
Approval of the material terms of the performance goals under the Company’s Senior Executive Performance Plan.
 
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
Executive and director stock ownership guidelines
 
 
 
ü
Board oversight of risk management
 
 
 
ü
Succession planning at all levels, including for Board and CEO
 
 
 




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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 in 2014:
Annual revenue of $2.12 billion, an increase of 2.4% compared to prior year (up 5.0% on an adjusted basis);
Adjusted Earnings Before Interest Tax Depreciation and Amortization (“EBITDA”) of $436.9 million, an increase of 5.5% over 2013 adjusted EBITDA;
Available Cash Flow of $237.4 million, which represents 127.4% of net earnings from continuing operations;
Adjusted earnings per share (“EPS”) of $2.49, an increase of 14.2% over 2013 adjusted EPS; and
Total shareholder return of 26.7%, which falls into the 93rd percentile of our peers.
Based on the achievement of this performance, we achieved 133% financial performance under the Annual Incentive Plan and achieved a 197% payout of the performance share units.
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
 
66
 
2013
 
Former Chairman and Chief Executive Officer of Great Plains Energy Incorporated
 
ü
 
Ÿ Audit and Finance
Ÿ Compensation (Chair)
Ÿ Corporate Governance and Nominating
 
 
Carla Cico
 
54
 
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
 
55
 
2013
 
Chairman and Chief Executive Officer of JELD-WEN, Inc.
 
ü
 
Ÿ Audit and Finance
Ÿ Compensation
Ÿ Corporate Governance and Nominating (Chair)
 
 
David D. Petratis
 
57
 
2013
 
Chairman, President and Chief Executive Officer of Allegion plc
 
 
 
 
 
 
Dean I. Schaffer
 
63
 
2014
 
Former Partner of Ernst & Young LLP
 
ü
 
Ÿ Audit and Finance
Ÿ Corporate Governance and Nominating
 
 
Martin E. Welch III
 
66
 
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
 

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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 2015 and to authorize the Audit and Finance Committee to set PwC’s remuneration.
MATERIAL TERMS OF THE PERFORMANCE GOALS UNDER THE INCENTIVE STOCK PLAN OF 2013
We are asking you to approve the performance measures included in the Incentive Stock Plan of 2013 in order to preserve the Company’s ability to deduct compensation earned by certain executives pursuant to any performance-based award that may be made in the future under the plan.
MATERIAL TERMS OF THE PERFORMANCE GOALS UNDER THE SEPP
We are asking you to approve the performance measures included in the Senior Executive Performance Plan in order to preserve the Company’s ability to deduct compensation earned by certain executives pursuant to any performance-based award that may be made in the future under the plan.
2016 ANNUAL GENERAL MEETING
Deadline for shareholder proposals for inclusion in the proxy statement:
  
December 28, 2015
Deadline for business proposals and nominations for director:
  
March 11, 2016



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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 13, 2015 (the “Record Date”) on or about April 24, 2015.
PROPOSALS REQUIRING YOUR VOTE
Item 1. Election of Directors
We use a majority of votes cast standard for the election of directors. 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. Each director of the Company is being nominated for election for a one-year term beginning at the 2015 Annual General Meeting of Shareholders to be held on June 10, 2015 (the “Annual General Meeting”) and expiring at the end of the 2016 Annual General Meeting of Shareholders.
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.
The Board of Directors recommends a vote FOR the following directors:
Michael J. Chesser
Age
66
 
 
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
Polypore International Inc.
 
 
Former Directorships
Great Plains Energy Inc.
Itron Inc.
UMB Financial Corp.
Director Qualifications
Mr. Chesser’s successful career in the energy sector 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.







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Carla Cico
Age
54
 
 
Director Since
2013
 
 
Experience
Former Chief Executive Officer of Rivoli S.p.A. (prefabricated infrastructure company) from 2009 to 2011
Former Chief Executive Officer of Ambrosetti Consulting (a consulting company) from 2008 to 2009
 
 
Current Directorships
Alcatel-Lucent
 
 
 
Former Directorships
None
 
 
 
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
Age
55
 
 
Director Since
2013
 
 
Experience
Chairman and Chief Executive Officer of JELD-WEN, Inc. (global manufacturer of doors and windows) since February 2014
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
Paccar Inc.
NextEra Energy
 
 
Former Directorships
Cooper Industries plc
Director Qualifications
Mr. Hachigian’s experience as chairman and chief executive officer of a $6 billion New York Stock Exchange (“NYSE”) global diversified manufacturing organization brings 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 to shareholders, completing the $13 billion merger of Cooper Industries with Eaton Corporation. 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.



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David D. Petratis
Age
57
 
 
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
Age
63
 
 
Director Since
2014
 
 
Experience
Former Partner of Ernst & Young LLP (an international public accounting firm) from 1975 to March 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
Age
66
 
 
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
Delphi Corporation
 
 
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 will benefit our Board as it develops our growth strategy and will help drive our operational improvement. In addition, Mr. Welch’s experience as a business advisor to a private equity firm will benefit the Company’s long-term strategic planning.


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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 that you vote FOR 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.


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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, 2015, 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) 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. 16, as amended (Communication with Audit Committees), as adopted by the Public Company Accounting Oversight Board (United States) (“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, 2014 (“2014 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, 2015.
AUDIT AND FINANCE COMMITTEE
Martin E. Welch III (Chair)
Michael J. Chesser
Carla Cico
Kirk S. Hachigian
Dean I. Schaffer


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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, 2014 and 2013:
 
 
2014
 
2013 (a)
Audit Fees (b)
 
$
2,890,000

 
$
2,511,000

Audit-Related Fees (c)
 
80,000

 
4,800

Tax Fees (d)
 
1,941,564

 

All Other Fees (e)
 
55,000

 

Total
 
$
4,966,564

 
$
2,515,800

_______________
(a)
Prior to the spin-off of our commercial and residential security businesses (the “Spin-off”) from Ingersoll-Rand plc (“Ingersoll Rand”) on December 1, 2013, Ingersoll Rand paid any audit, audit-related, tax and other fees of PwC.
(b)
Audit Fees for the fiscal year ended December 31, 2013 and 2014 were for professional services rendered for the audits of our annual consolidated financial statements, including statutory audits.
(c)
Audit-Related Fees consists of certain assurance services related to specific transactions.
(d)
In 2014, $108,184 of the Tax Fees related to tax compliance and $1,833,380 related to consulting services.
(e)
All Other Fees relate to an audit of our United Kingdom pension plan and known verification reports and other 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.



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Item 4. Approval of the Material Terms of the
Performance Goals under the Company’s Incentive Stock Plan of 2013

On October 1, 2013, prior to the Spin-off, our board of directors approved the Allegion plc Incentive Stock Plan of 2013 (the “2013 Stock Plan”). On November 14, 2013, our shareholders prior to the Spin-off approved the 2013 Stock Plan. The Board is requesting that you approve the material terms of the performance goals pursuant to the 2013 Stock Plan in order to preserve the Company’s ability to grant fully tax-deductible performance-based awards under the 2013 Stock Plan. You are not being asked to approve any amendment to the 2013 Stock Plan or to otherwise approve the 2013 Stock Plan itself.
Section 162(m) of the Internal Revenue Code (“Section 162(m)”) imposes a $1 million limit on the amount that a public company may deduct for compensation paid to the company’s CEO or any of the company’s three most highly compensated executive officers (other than the CFO) who are employed as of the end of the year. This limitation does not apply to compensation that meets the requirements under Section 162(m) for “performance-based” compensation. Market-priced stock options and stock appreciation rights (“SARs”) are two examples of performance-based compensation. Other types of awards, such as restricted stock and restricted stock units that are granted pursuant to pre-established objective performance formulas, may also qualify as fully-deductible performance-based compensation, so long as certain requirements are met. One of the requirements for compensation to qualify as performance-based under Section 162(m) is that the material terms of the performance goals, including the list of permissible business criteria for performance objectives under the plan, be disclosed to and approved by shareholders. The Company is currently eligible for a post-spin-off transition rule under which certain amounts paid under the 2013 Stock Plan may be exempt from the deduction limitations of Section 162(m). In order to preserve the Company’s ability to grant fully tax-deductible performance-based awards following the end of this transition period, the Company is seeking shareholder approval of the material terms of the performance goals under the 2013 Stock Plan for purposes of compliance with Section 162(m).
Shareholder approval of the material terms of performance goals under the 2013 Stock Plan is only one of several requirements under Section 162(m) that must be satisfied for amounts realized under the 2013 Stock Plan to qualify for the performance-based compensation exemption under Section 162(m), and shareholder approval of the material terms of the performance goals of the 2013 Stock Plan does not alone ensure that all compensation paid under the 2013 Stock Plan will qualify as tax-deductible compensation. There can be no guarantee that amounts payable under the 2013 Stock Plan will be treated as qualified performance-based compensation under Section 162(m). In addition, nothing in this proposal precludes the Company from granting awards that do not meet the requirements for tax-deductible compensation under Section 162(m).
MATERIAL TERMS OF THE PERFORMANCE GOALS UNDER THE 2013 STOCK PLAN
For purposes of Section 162(m), the material terms of the performance goals include: (i) the employees eligible to receive compensation; (ii) the description of the performance objectives on which the performance goals may be based; and (iii) the maximum amount, or the formula used to calculate the maximum amount, of compensation that can be paid to an employee under the performance goals. Each of these aspects is discussed below, and shareholder approval of this Item 4 constitutes approval of each of these aspects for purposes of the Section 162(m) shareholder approval requirements. The following summary is qualified in its entirety by reference to the complete text of the 2013 Stock Plan, which is attached hereto as Appendix A.
Eligibility. The 2013 Stock Plan permits the grant of awards to employees and directors of the Company and its affiliates as selected by the Compensation Committee. As of the Record Date, approximately 145 employees, including ten executive officers, and five non-employee directors are eligible to receive awards under the 2013 Stock Plan. The group of employees whose compensation would be subject to the performance goals described in this Item 4 would include the Company’s executive officers. Although Section 162(m) only limits deductibility for compensation paid to the CEO or any of the Company’s three most highly compensated executive officers (other than the CFO) who are employed as of the end of the year, we may apply the performance goals to all senior officers in the event that any of them becomes a covered employee under Section 162(m) during the time that they hold an award described in this proposal.
Performance Objectives. Options and SARs granted under the 2013 Stock Plan are designed to be exempt from the $1,000,000 deduction limit imposed by Section 162(m). When granting any other award, the Compensation Committee may designate such award as a “qualified performance-based award” intended to qualify for the Section 162(m) exemption. If an award is so designated, the Compensation Committee must establish objectively determinable performance goals for such award within the time period prescribed by Section 162(m) based on one or more of the following criteria:
consolidated earnings before or after taxes (including earnings before interest, taxes, depreciation and amortization);
net income;

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operating income;
operating income margin;
gross margin
earnings per share;
book value per share;
return on shareholders’ equity;
expense management;
return on invested capital;
improvements in capital structure;
profitability of an identifiable business unit or product;
maintenance or improvement of profit margins or revenue;
stock price;
market share;
revenues or sales;
costs;
available cash flow;
working capital;
return on assets;
total shareholder return;
productivity ratios; and
economic value added.
Limitations and Maximum Grants under the 2013 Stock Plan. The maximum amount of a performance-based award during a calendar year to any participant is: (i) with respect to performance-based awards that are options or SARs, 750,000 ordinary shares and (ii) with respect to performance-based awards that are not options or SARs, $10,000,000 on the date of the award.
These limits are subject to anti-dilution adjustments in the event of stock splits, mergers, consolidations, stock dividends, recapitalizations and similar transactions, but may not otherwise be amended without shareholder approval.
SUMMARY OF THE 2013 STOCK PLAN
The following is a summary of the principal features of the 2013 Stock Plan and is qualified in its entirety by reference to the 2013 Stock Plan, which is attached to this proxy statement as Appendix A. The summary does not purport to be a complete description of all the provisions of the 2013 Stock Plan.
Purpose
The purpose of the 2013 Stock Plan is to assist the Company and its affiliates in recruiting and retaining key employees and directors and in motivating such individuals to exert their best efforts on behalf of the Company and its shareholders by providing appropriate stock incentive awards.
Ordinary Shares Subject to the 2013 Stock Plan
The 2013 Stock Plan authorizes the issuance of up to 8,000,000 ordinary shares in connection with stock incentives. Shares not issued because of the termination or cancellation of individual stock incentives or in order to satisfy tax withholding obligations on full value awards can be reused under the 2013 Stock Plan. Shares not issued in order to satisfy tax withholding obligations in connection with options or SARs cannot be reused under the 2013 Stock Plan. Awards granted in assumption of or substitution for awards granted by companies we acquire are not counted against the 2013 Stock Plan’s share limit. The limitations on individual awards are discussed above under “Material Terms of the Performance Goals under the 2013 Stock Plan.”

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Governance Features
The following features of the 2013 Stock Plan illustrate the Company’s commitment to good corporate governance practices:
The 2013 Stock Plan prohibits reducing the exercise price of stock options or SARs without shareholder approval.
The 2013 Stock Plan prohibits the cancellation of stock options or SARs and replacement with a cash payment that is greater than the fair market value of the stock option or SAR or with a new award that has a lower exercise price than the replaced stock option or SAR without shareholder approval.
The 2013 Stock Plan prohibits the granting of stock options or SARs with an exercise price that is lower than the fair market values of the Company’s ordinary shares on the date of grant.
Awards do not automatically accelerate upon a change in control unless a replacement award is not provided.
Awards granted under the 2013 Stock Plan will be subject to the Company’s clawback policy.
Neither dividends nor dividend equivalents will be payable with respect to outstanding stock options or SARs.
Dividend equivalents are accumulated on unvested stock-based awards, other than stock options and SARs, including performance-based awards, but are not paid unless and until the corresponding award vests.
Any material amendment to the 2013 Stock Plan requires shareholder approval to be effective.
Awards granted under the 2013 Stock Plan are also subject to our policies and procedures, including our Insider Trading Policy and restrictions on the hedging or pledging of our securities.
Permissible Awards
The 2013 Stock Plan authorizes the granting of awards in any of the following forms:
options to purchase ordinary shares, which may be nonqualified stock options or incentive stock options under the United States Internal Revenue Code;
SARs, which give the holder the right to receive the difference between the opening price per ordinary share on the date of exercise over the exercise price;
other stock-based awards, such as restricted stock and restricted stock units; and
performance awards, which are payable upon the attainment of specified performance goals (any award that may be granted under the 2013 Stock Plan may be granted in the form of a performance award).
Adjustment and Change in Control Provisions
The 2013 Stock Plan provides that in the event of a reorganization, recapitalization, split-up or consolidation of ordinary shares of, or other significant corporate transaction involving the Company, shares subject to a stock incentive shall be equitably adjusted by the Compensation Committee as to number, classification, exercise price or any other affected terms of the applicable award, including, without limitation, affected performance measures or goals applicable to performance-based awards.
Stock-based awards do not automatically accelerate in a change in control (as defined in the 2013 Stock Plan) if an “alternate award” (as described below) is provided. If an alternate award is not provided upon a change in control:
all outstanding non-performance based stock options and SARs will become fully vested and exercisable and non-performance based stock awards will become vested and payable; and
all outstanding performance-based awards, participants will be deemed to have earned their target award opportunity for the performance periods multiplied by a fraction, the numerator of which is the number of full plus partial months in the performance period that have elapsed prior to the date of the change in control and the denominator of which is the total number of months in the performance period.
An “alternate award” will be deemed to be provided in respect of an outstanding award if such award is assumed or substituted in a manner that will substantially preserve the otherwise applicable terms of the award, as determined by the Compensation Committee in its sole discretion prior to the occurrence of a change in control, provided that any such alternate award must (i) be based on stock which is traded on an established securities market; (ii) provide the affected participant with rights and entitlements substantially equivalent to or better than the rights, terms and conditions applicable under the original award; (iii) have substantially equivalent economic value to the original award; and (iv) vest in full upon any termination of the participant’s employment or service with the surviving entity by such entity without cause or by the participant with good reason (as such terms are defined in the 2013 Stock Plan), in each case on or within 24 months following the Change in Control.
In addition, the Compensation Committee has authority to take certain actions upon a change in control, including, without limitation, cancellation of awards for fair value (as determined in the sole discretion of the Compensation Committee).

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Administration, Amendment and Termination
The 2013 Stock Plan is administered by the Compensation Committee, which is composed of independent directors. In general, the Compensation Committee may grant awards pursuant to the 2013 Stock Plan, establish the terms and conditions of awards, and establish, amend and rescind any rules and regulations relating to the 2013 Stock Plan, and make any other determinations that it deems necessary or desirable for the administration of the 2013 Stock Pan.
The 2013 Stock Plan may be amended, altered or discontinued by the Board of Directors at any time without shareholder approval. However, no amendment shall be effective without shareholder approval if it (i) increases the total number of shares that may be issued under the 2013 Stock Plan other than through application of the adjustments and change in control provisions of the 2013 Stock Plan as described above, (ii) extends the term of the 2013 Stock Plan, (iii) materially expands the classes of persons eligible to receive awards or the types of award available under the 2013 Stock Plan or (iv) is otherwise an amendment requiring shareholder approval pursuant to any law or the rules of any exchange on which the Company’s ordinary shares are listed for trading. No amendment may materially and adversely the rights of a participant under any outstanding award without their consent.
U.S. FEDERAL INCOME TAX CONSEQUENCES
The following is a brief description of the U.S. Federal income tax consequences generally arising with respect to the grant, exercise and disposition of stock options and other stock-based incentives, based on current U.S. Federal income tax laws. This summary is not intended to be exhaustive, does not constitute tax advice and, among other things, does not describe state, local or foreign tax consequences, all of which may be substantially different.
Stock Options. Generally, the grant of a stock option will create no tax consequences for the participant or for us. Upon exercise of a nonqualified stock option, the participant will generally recognize ordinary income equal to the excess of the share’s fair market value on the exercise date over the stock option exercise price. We generally will be entitled to a tax deduction at the same time and in the same amount. Upon exercise of an incentive stock option (as defined in the Code), no taxable income will be recognized by the participant and we will not be entitled to a tax deduction by reason of such exercise. However, if shares purchased pursuant to the exercise of an incentive stock option are sold within two years from the date of grant or within one year after the transfer of such shares to the participant, then the participant will recognize ordinary income in the year of disposition equal to the difference, with certain adjustments, between the fair market value of the shares at the date of exercise and the stock option exercise price and we will generally be entitled to a tax deduction at the same time and in the same amount. In the event of a sale of shares purchased upon exercise of either a nonqualified stock option or an incentive stock option, any appreciation above or depreciation below the fair market value at the date of exercise will generally qualify as capital gain or loss. If shares purchased upon the exercise of a nonqualified stock option are transferred to the participant subject to restrictions, then, depending upon the nature of the restrictions, the income realized by the participant and our tax deduction may be deferred and measured by the excess of the fair market value of the shares over the stock option price at the time the restrictions lapse.
Restricted Stock Units. A participant generally will not recognize taxable income on the grant of a restricted stock unit (“RSU”) until shares subject to the award are distributed. At that time, the amount of the ordinary income will be the fair market value of the shares on the date of distribution. Any dividend equivalents paid on the RSUs at vesting are taxable as ordinary income when paid to the participant. Generally, subject to Section 162(m), we will be entitled to an income tax deduction at the same time and in the same amount.
Restricted Stock. Generally, a participant who receives restricted stock will recognize ordinary income at the time that the restricted stock is no longer subject to a substantial risk of forfeiture and, subject to Section 162(m), we will be entitled to a corresponding income tax deduction at that time. The amount of this ordinary income will be the fair market value of the shares on that date. However, a participant may elect under Section 83(b) of the Code, within 30 days after the grant, to recognize ordinary income on the date of grant in an amount equal to the excess of the fair market value of the shares on that date over the amount, if any, paid for the restricted shares. By reason of such an election, the participant will have a tax basis in the restricted shares equal to the fair market value of the shares (determined without regard to the restriction imposed on the shares under the 2013 Stock Plan) on the date of grant. If the shares are forfeited after an 83(b) election, the participant will not be entitled to a deduction, loss or credit for the ordinary income recognized or the taxes paid in respect of the election, but will generally be entitled to a capital loss for the amount, if any, paid for the restricted shares.

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Stock Awards. A participant will recognize taxable income on the grant of unrestricted stock in an amount equal to the fair market value of the shares on the grant date. Subject to Section 162(m), we will generally be entitled to a deduction at the same time and in the same amounts as the ordinary income recognized by the participant.
Stock Appreciation Rights (SARs). A participant generally will not recognize taxable income at the time stock-settled SARs are granted but will recognize ordinary income upon the exercise of a stock-settled SAR in an amount equal to the difference between the fair market value of shares received on exercise and the fair market value of shares on the date the SAR was granted. Subject to certain limitations, we will generally be entitled to a deduction at the same time and in the same amounts as the ordinary income recognized by the participant.
Section 409A. Section 409A of the Code may cause certain deferred compensation amounts to be deemed currently taxable and at a rate of income taxation that would be at least 20% higher than would otherwise apply to such amounts, if the conditions specified in Section 409A are not satisfied. It is intended that awards made under the 2013 Stock Plan that are treated as deferred compensation under Section 409A shall be administered in a manner that is compliant with Section 409A.
PLAN BENEFITS
Under the 2013 Stock Plan, our NEOs have received the following number of stock options: Mr. Petratis, 81,587; Mr. Shannon, 59,928; Mr. Eckersley, 55,009; Mr. Muhlenkamp, 26,352; Mr. Yu, 49,154; and Ms. Santoro, 49,258. Our current executive officers as a group have received 402,896 stock options and all other employees have received 2,319,834 stock options under the 2013 Stock Plan. Our non-employee directors have not received any stock options under the 2013 Stock Plan. On the Record Date, the closing price of our ordinary shares on the NYSE was $60.28 per share.
The selection of employees to receive stock options under the 2013 Stock Plan is determined by the Compensation Committee in its discretion. Therefore, future stock options or the value of such benefits that will be received under the 2013 Stock Plan by any individual or group is not determinable.
EQUITY COMPENSATION PLAN INFORMATION
The following table provides information as of December 31, 2014, with respect to our ordinary shares that may be issued under equity compensation plans:
Plan Category 
 
Number of Securities to
be Issued upon
Exercise of Outstanding
Options, Warrants and
Rights
 
Weighted-
Average
Exercise Price of
Outstanding
Options,
Warrants  and
Rights
 
Number of Securities
Remaining Available for
Future Issuance  Under
Equity Compensation
Plans (Excluding
Securities Reflected in
First Column)
Equity compensation plans approved by security holders (1)
 
3,393,847

 
$
27.08

 
4,606,153

Equity compensation plans not approved by security holders (2)
 
76,046

 

 

Total
 
3,469,893

 
 
 
4,606,153

____________
(1)
Represents the 2013 Stock Plan. The weighted average exercise price includes stock options and stock appreciation rights outstanding under the 2013 Stock Plan. Performance share units (“PSUs”) are included assuming target performance.
(2)
Represents the Executive Deferred Compensation Plan (“EDCP”). Plan participants acquire our shares under the EDCP as a result of the deferral of salary, annual incentive awards and PSUs.

The Board of Directors recommends a vote FOR the proposal to approve the material terms of the performance goals under the Company’s Incentive Stock Plan of 2013.


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Item 5. Approval of the Material Terms of the
Performance Goals under the Company’s Senior Executive Performance Plan

On October 1, 2014, prior to the Spin-off , our board of directors approved the Allegion plc Senior Executive Performance Plan (the “SEPP”). On November 14, 2013, our shareholders prior to the Spin-off approved the SEPP. The Board is requesting that you approve the material terms of the performance goals pursuant to the SEPP in order to preserve the Company’s ability to grant fully tax-deductible incentive awards under the SEPP. You are not being asked to approve any amendment to the SEPP or to otherwise approve the SEPP itself.
Section 162(m) imposes a $1 million limit on the amount that a public company may deduct for compensation paid to the company’s CEO or any of the company’s three most highly compensated executive officers (other than the CFO) who are employed as of the end of the year. This limitation does not apply to compensation that meets the requirements under Section 162(m) for “performance-based” compensation. Incentive awards that are granted pursuant to pre-established objective performance formulas may qualify as fully-deductible performance-based compensation, so long as certain requirements are met. One of the requirements for compensation to qualify as performance-based under Section 162(m) is that the material terms of the performance goals, including the permissible business criteria for performance objectives under the plan, be disclosed to and approved by shareholders. The Company is currently eligible for a post-spin-off transition rule under which certain amounts paid under the SEPP may be exempt from the deduction limitations of Section 162(m). In order to preserve the Company’s ability to grant fully tax-deductible performance-based incentive awards following the end of this transition period, the Company is seeking shareholder approval of the material terms of the performance goals under the SEPP for purposes of compliance with Section 162(m).
Shareholder approval of the material terms of performance goals under the SEPP is only one of several requirements under Section 162(m) that must be satisfied for amounts realized under the SEPP to qualify for the performance-based compensation exemption under Section 162(m), and shareholder approval of the material terms of the performance goals of the SEPP does not alone ensure that all compensation paid under the SEPP will qualify as tax-deductible compensation. There can be no guarantee that amounts payable under the SEPP will be treated as qualified performance-based compensation under Section 162(m). In addition, nothing in this proposal precludes the Company from granting awards that do not meet the requirements for tax-deductible compensation under Section 162(m).
MATERIAL TERMS OF THE PERFORMANCE GOALS UNDER THE SEPP
For purposes of Section 162(m), the material terms of the performance goals include: (i) the employees eligible to receive compensation; (ii) the description of the performance objectives on which the performance goals may be based; and (iii) the maximum amount, or the formula used to calculate the maximum amount, of compensation that can be paid to an employee under the performance goals. Each of these aspects is discussed below, and shareholder approval of this Item 5 constitutes approval of each of these aspects for purposes of the Section 162(m) shareholder approval requirements. The following summary is qualified in its entirety by reference to the complete text of the SEPP, which is attached hereto as Appendix B.
Eligibility. Our chief executive officer, chief financial officer, and our three most highly compensated officers (other than our chief executive officer and our chief financial officer), in each case occupying such position on the last day of our fiscal year and as determined pursuant to the executive compensation disclosure rules under the Securities Exchange Act of 1934, are eligible to participate in the SEPP.
Performance Objective. The performance objective used to determine incentives payable under the SEPP for any performance period is the Company’s Consolidated Operating Income from continuing operations for that performance period. Consolidated Operating Income from continuing operations is as shown in our audited annual consolidated statement of income, adjusted for any nonrecurring gains/losses included in operating income from continuing operations including, but not limited to, restructuring charges and asset impairments. Consolidated Operating Income will exclude the effects of any changes in accounting principles as determined in accordance with generally accepted accounting principles.
Maximum Amount Payable. The maximum amount payable for any performance period is 1.5% of Consolidated Operating Income from continuing operations for our chief executive officer and 0.6% of Consolidated Operating Income from continuing operations for all other participants in the SEPP. Consistent with the requirements of Section 162(m), the Compensation Committee retains discretion to reduce the actual amounts payable under the new SEPP from the maximum amounts permitted based on such criteria as it deems appropriate.

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SUMMARY OF THE SEPP
The following is a summary of the principal features of the SEPP and is qualified in its entirety by reference to the SEPP, which is attached to this proxy statement as Appendix B. The summary does not purport to be a complete description of all the provisions of the SEPP.
Performance Period
The performance period is the period from January 1 to December 31st.
Time and Form of Payment
Payments under the SEPP will be made in cash, net of required withholding taxes, in the calendar year following the performance period as soon as administratively practical following the public announcement of our financial results for the fiscal year and certification by the Compensation Committee that the performance goals of the SEPP have been met. Notwithstanding the foregoing, a participant may elect to defer payment of all or a portion of an incentive payment under the SEPP pursuant to the terms of the EDCP.
Plan Administration
The Compensation Committee administers the SEPP. Each member of the Compensation Committee is an “outside director” as defined under Section 162(m). The Compensation Committee has full authority to interpret the SEPP, to establish and amend rules and regulations relating to plan administration and to make all other determinations necessary or advisable for administration of the SEPP.
Recoupment
The Compensation Committee may direct the Company to recover any awards paid under the SEPP from a participant or former participant who engages in fraud or intentional misconduct that results in a need for us to restate our financial statements.
Amendment and Termination
Our Board of Directors may amend or terminate the SEPP at any time, provided that (i) no such amendment may affect payment of an award for a performance period already ended and (ii) no proposed amendment which would require shareholder approval under Section 162(m) in order to preserve the tax deductibility of payments made under the SEPP will be implemented without obtaining such shareholder approval.
U.S. FEDERAL INCOME TAX CONSEQUENCES
The following is a brief description of the U.S. Federal income tax consequences generally arising with respect to incentive awards payable under the SEPP, based on current U.S. Federal income tax laws. This summary is not intended to be exhaustive, does not constitute tax advice and, among other things, does not describe state, local or foreign tax consequences, all of which may be substantially different.
Unless deferred pursuant to the EDCP, payments made to SEPP participants will be included for federal income tax purposes in the recipient’s income as taxable income for the year in which paid.
PLAN BENEFITS
Awards under the SEPP will be granted at the discretion of the Compensation Committee. Therefore, the actual awards or the value of benefits that will be received under the SEPP by any individual or group is not determinable.

The Board of Directors recommends a vote FOR the proposal to approve the material terms of the performance goals under the Company’s Senior Executive Performance Plan.


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CORPORATE GOVERNANCE
CORPORATE GOVERNANCE GUIDELINES
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. 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 positions of Chairman of the Board and Chief Executive Officer (“CEO”) of the Company are held by the same person. It is the Board of Directors’ 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.
In addition, the Board of Directors has a strong, independent Lead Director and it believes this role 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.
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;
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

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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.
Mr. Hachigian has been the Board’s Lead Director since December 2013.
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, as well as our compliance with legal and regulatory requirements. The Audit and Finance Committee also oversees risks associated with foreign exchange, insurance, credit and debt.
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 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 that it administers 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. In 2014, the Compensation Committee concluded that our compensation policies and procedures are not reasonably likely to have a material adverse effect on the Company.
Director Compensation and Stock Ownership
It is the policy of the Board of Directors that directors’ fees and annual equity awards be the sole compensation received from us by any non-employee director. In 2014, directors were required to own ordinary shares equal to their annual cash retainer, or $210,000. Effective July 1, 2015, the annual cash retainer will be reduced to $140,000 and the director ownership requirement will be increased to three times the annual cash retainer, or $420,000. Directors must hold any shares acquired until the stock ownership requirement is met and must thereafter maintain the ownership requirement until retirement.

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Board Size and Composition
The Board of Directors consists of a substantial majority of independent, non-employee directors. 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 NYSE listing standards and our Guidelines for Determining Independence of Directors. Each director, other than Mr. Schaffer, serves on each Board committee. We expect to rotate chairs of the committees periodically.
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.
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 2014 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.

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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.
COMMITTEES OF THE BOARD
Audit and Finance Committee
Members:
Martin E. Welch, III (Chair)
 
Michael J. Chesser
 
Carla Cico
 
Kirk S. Hachigian
 
Dean I. Schaffer
Key Functions:
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.
Obtain and review periodic reports, at least annually, from management assessing the effectiveness of our internal controls and procedures for financial reporting.
Review our processes to assure compliance with all applicable laws, regulations and corporate policy.
Oversee risk related to our financial reporting and compliance with legal and regulatory requirements.
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.
Review the scope of the audit and the findings and approve the fees of the independent auditors.
Approve in advance permitted audit and non-audit services to be performed by the independent auditors.
Review proposed borrowings and issuances of securities and cash management policies.
Recommend to the Board of Directors the dividends to be paid on our ordinary shares.
Review periodic reports of the investment performance of our employee benefit plans.

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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, or will meet within one year, the qualifications of a financial expert. The Board of Directors has determined that Mr. Welch meets the qualifications of an “audit committee financial expert” as that term is defined by rules of the SEC.
A copy of the charter of the Audit and Finance Committee is available on our website, www.allegion.com, under the heading “About Allegion—Corporate Governance.”
Compensation Committee
Members:
Michael J. Chesser (Chair)
 
Carla Cico
 
Kirk S. Hachigian
 
Martin E. Welch, III
Key Functions:
Establish executive compensation policies.
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.
Approve compensation of officers and key employees.
Review and approve executive compensation and benefit programs.
Administer our equity compensation plans.
Review and recommend significant changes in principal employee benefit programs.
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.”
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.
A copy of the charter of the Compensation Committee is available on our website, www.allegion.com, under the heading “About Allegion—Corporate Governance.”
Corporate Governance and Nominating Committee
Members:
Kirk S. Hachigian (Chair)
 
Michael J. Chesser
 
Carla Cico
 
Dean I. Schaffer
 
Martin E. Welch, III
Key Functions:
Identify individuals qualified to become directors and recommend the candidates for all directorships.
Recommend individuals for election as officers.
Review our Corporate Governance Guidelines and make recommendations for changes.
Consider questions of independence and possible conflicts of interest of directors and executive officers.
Take a leadership role in shaping our corporate governance.
Oversee our sustainability efforts.
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.
A copy of the charter of the Corporate Governance and Nominating Committee is available on our website, www.allegion.com, under the heading “About Allegion—Corporate Governance.”

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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, 2014:
Board
5

Audit and Finance Committee
9

Compensation Committee
5

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 2014, the non-employee directors met in executive session three 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 2014 annual general meeting of shareholders.



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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 2014 director compensation program for non-employee directors consisted of the following elements:
Compensation Element
 
Compensation Value
Annual Cash Retainer
 
$
210,000

Audit and Finance Committee Chair Cash Retainer
 
$
15,000

Compensation Committee Chair Cash Retainer
 
$
10,000

Corporate Governance and Nominating Committee Chair 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)

Initial Grant of RSUs
 
$
50,000

*
The Board has 5 regularly scheduled meetings each year. Each Committee, other than the Audit and Finance Committee, has at least 3 regularly scheduled meetings each year. The Audit and Finance Committee has 9 regularly scheduled meetings each year.
Share Ownership Requirement    
To align the interests of directors with shareholders, the Board of Directors has adopted a requirement that each director invest $50,000 annually to acquire Company shares until they own ordinary shares with a value equal to their annual retainer of $210,000, calculated as of the date of acquisition.
Travel Expenses
We pay or reimburse directors for their travel and related expenses in connection with attending Board meetings and Board-related activities, such as Allegion site visits, industry trade shows and continuing director education programs. Under Irish law, the payment or reimbursement of travel and related expenses in connection with attending Board meetings is deemed compensation to the director on which the director must pay taxes. We consider such travel and related expenses to be ordinary business expenses for which we are responsible. As such, in order to continue attracting highly qualified directors, we pay the taxes imposed on directors in connection with their travel to Board meetings.
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.
2015 Director Compensation Changes
In order to further align the non-employee directors’ compensation program with shareholders, the Board of Directors approved the following changes effective July 1, 2015:
(i)
the reduction of the annual cash retainer to $140,000;
(ii)
the adoption of an annual grant of RSUs having a grant date fair value of $70,000 and the elimination of the $50,000 annual investment requirement; and
(iii)
the increase of the share ownership requirement to $420,000, or three times the annual cash retainer.

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2014 Director Compensation
The compensation paid or credited to our non-employee directors for the year ended December 31, 2014, is summarized in the table below.
Name
 
Fees earned
or paid
in cash
($)
 
Stock Awards
($)(a)
 
All Other
Compensation
($)(b) 
 
Total 
($)
M. J. Chesser
 
220,000
 

 
30,495
 
250,495
C. Cico
 
210,000
 

 
11,337
 
221,337
K. S. Hachigian
 
235,000
 

 
37,879
 
272,879
D. I. Schaffer
 
157,500
 
50,022

 
15,489
 
223,011
M. E. Welch
 
225,000
 

 
36,120
 
261,120
____________________
(a)
The amount represents the aggregate grant date fair value of the RSUs, computed in accordance with Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) Topic 718, granted to Mr. Schaffer upon joining the Board. As of December 31, 2014, Mr. Schaffer held 973 RSUs. No other director owned equity awards as of such date.
(b)
The amount represents the tax paid by the Company on behalf of directors in connection with director travel and related expenses incurred in attending Board meetings.



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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 2014, which were:
Name
 
Position
D. D. Petratis
 
Chairman, President and CEO (“CEO”)
P. S. Shannon
 
Senior Vice President and CFO (“CFO”)
T. P. Eckersley
 
Senior Vice President - Americas
C. E. Muhlenkamp
 
Senior Vice President - Global Operations
F. W. Yu
 
Senior Vice President - Asia Pacific
B. A. Santoro*
 
Former Senior Vice President, General Counsel and Secretary
* Ms. Santoro departed the Company on June 16, 2014. Details of her separation arrangement can be found under the Post-Employment Benefits section of this Proxy Statement.

This CD&A is divided into the following sections:
Executive Summary
Compensation Philosophy and Design Principles
How We Make Compensation Decisions
Compensation Elements
2014 Compensation Structure Decisions
2014 Incentive Program Designs and Compensation Values for 2014 Performance
2015 Compensation
Other Compensation and Tax Matters
EXECUTIVE SUMMARY
In this section, we highlight 2014 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.
2014 Allegion Performance
We achieved the following strong financial performance in 2014:
Annual revenue (“Revenue”) of $2.12 billion, an increase of 2.4% compared to prior year (up 5.0% on an adjusted basis);
Adjusted Earnings Before Interest Tax Depreciation and Amortization (“EBITDA”) of $436.9 million, an increase of 5.5% over 2013 adjusted EBITDA;
Available Cash Flow (“ACF”) of $237.4 million, which represents 127.4% of net earnings from continuing operations;
Adjusted earnings per share (“EPS”) of $2.49, an increase of 14.2% over 2013 adjusted EPS; and
Total shareholder return (“TSR”) of 26.7%, which falls into the 93rd percentile of our peers.
Overview of 2014 NEO Target Compensation
The following chart summarizes our NEO’s target compensation in 2014.
NEO
 

Base Salary
($)
 
Annual Incentive Target Value
($)
 
Long-term Incentive Target Value
($)
 
Total Target Compensation
($)
D. D. Petratis
 
900,000

 
990,000

 
3,000,000

 
4,890,000

P. S. Shannon
 
425,000

 
297,500

 
750,000

 
1,472,500

T. P. Eckersley
 
420,000

 
273,000

 
500,000

 
1,193,000

C. E. Muhlenkamp
 
350,000

 
210,000

 
300,000

 
860,000

F. W. Yu
 
374,630

 
187,315

 
150,000

 
711,945

B. A. Santoro
 
350,000

 
227,500

 
375,000

 
952,500


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Overall Pay Mix
As illustrated in the charts below, we place a significant emphasis on variable compensation (short- and long-term) so that a substantial percentage of each NEO’s total direct compensation is contingent on the successful achievement of our strategic goals.
Consideration of 2014 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 2014 annual general meeting, shareholders approved our executive compensation proposal by an overwhelming majority (approximately 97%). 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.
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 market competitive within our industry and recognizes and rewards superior individual and company performance.
The following are the primary objectives of our executive compensation program and the guiding principles for setting and awarding executive compensation:
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. That would include organizations in our industry sectors of similar size and scale to Allegion.
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 aligned with the strategy and the Annual Operating Plan (“AOP”), and be considered stretch yet achievable, as appropriately established, for each year.

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Table of Contents

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 culture of pay-for-performance.
Target Pay at the Median Level
 
We target all components of pay to be at or near the median level of competitive practice 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, instituting clawback provisions, utilizing multiple performance 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 (iv) equal to two times base salary for the CEO’s direct reports.
Clawback Policy
 
We have the right to seek recoupment of all or part of annual cash incentives or PSUs that relate to a performance period beginning after January 1, 2014 if there is a: (1) significant or material restatement of our financial statements covering any of the three fiscal years preceding the grant or payment, or (2) a restatement of our financial statements for any such year which results from fraud or willful 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, discusses, modifies and approves, as appropriate, these compensation recommendations. In making these compensation decisions, the Compensation Committee uses several resources and tools, including competitive market information. One such tool is a tally sheet which assigns a dollar amount to each of the compensation elements discussed above as well as accumulated outstanding long-term equity awards and deferred compensation.

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Table of Contents

Use of Comparator Groups for Pay and Performance
The Committee uses two comparator groups when evaluating and making executive compensation decisions. 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.
Compensation Benchmarking Peer Group
The Committee considers relevant market pay practices when setting executive compensation to increase 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 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, net income, market capitalization), industry, 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 companies comprise our Compensation Benchmarking Peer Group:
ADT Corp
Diebold Inc.
ITT Corp
Regal-Beloit Corp
Apogee Enterprises, Inc.
Donaldson Co.
Lennox International Inc.
Roper Industries Inc.
Armstrong World Industries
Enersys
Masco Corp
ScanSource, Inc.
Brady
Enpro Industries, Inc.
NCI Building Systems Inc.
A.O. Smith Corp
Brinks Co.
Esterline Technologies Corp
Nortek Inc.
Steelcase Inc.
Builder’s FirstSource
Flir Systems
Ply Gem Holdings Inc.
USG Corp
CACI International
Checkpoint Systems
Quanex Building Products
Valmont Industries Inc.
Fortune Brands Home & Security
Griffon Corp
 
 
Our Compensation Committee reviews the Compensation Benchmarking Group on an annual basis and determines whether any changes are appropriate.
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”). The Performance Peer Group contains companies in similar industries and who operate in similar geographical markets. Our Performance Peer Group is used for assessing relative TSR performance for our PSUs.
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 2014, the Compensation Committee engaged Meridian Compensation Partners, LLC (the “Consultant”) as its compensation consultant. In connection with this engagement, the Compensation Committee evaluated the Consultant’s independence and determined the Consultant was independent from management. The Compensation Committee did not engage any other advisor in 2014.
The Consultant provides advice to the Compensation Committee on our compensation program for executive officers and incentive programs for eligible employees. The Consultant may also provide our Corporate Governance and Nominating Committee advice on director compensation matters. The Consultant does not provide any services to the Company. The Compensation Committee evaluated whether any work provided by the Consultant raised any conflict of interest and determined that it did not.

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Table of Contents

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 every 12 months
 
Annually in March for prior year
 
First Quarter Annually
 
 
 
 
 
 
 
Form of Delivery
 
Cash
 
Equity
 
 
 
 
 
Type of Performance
 
Short Term Emphasis
 
Long Term Emphasis
 
 
 
 
 
 
 
Performance Period
 
Ongoing
 
1 Year
 
3 Years
 
 
 
 
 
 
 
 
 
How Payout is Determined
 
Compensation Committee
 
Formulaic; Compensation Committee Approves
 
Formulaic; Compensation Committee Certifies
 
Time; Depends on Stock Price on Exercise/Vest Date
 
 
 
 
 
 
 
 
 
Most Recent Performance Measure
 
N/A
 
Mix of Disclosed Financial and Individual Goals
 
EPS & Relative TSR
 
Stock Price Appreciation
Other Elements of Compensation
We also provide retirement and benefit programs as well as minimal perquisites, including an auto allowance for select NEOs, executive health reimbursement, financial counseling reimbursement and executive long-term disability.
2014 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 they competitively reward our NEOs for their services based on a comparison to executives in the Compensation Benchmarking Group.
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.

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Table of Contents

The following table shows the increases in the annual base salary approved by the Compensation Committee for each NEO. The increases for Messrs. Eckersley and Yu reflect market based adjustments. Mr. Muhlenkamp’s base salary increased in connection with his promotion to Senior Vice President and in order to align it with current market practices.
NEO
 
2013 Base Salary
($)
 
2014 Base Salary
($)
 
Increase
(%)
D. D. Petratis
 
900,000
 
900,000
 

P. S. Shannon
 
425,000
 
425,000
 

T. P. Eckersley
 
408,807
 
420,000
 
2.7

C. E. Muhlenkamp
 
290,628
 
350,000
 
20.4

F. W. Yu
 
344,630
 
374,630
 
8.7

B. A. Santoro
 
350,000
 
350,000
 

Annual and Long-Term Incentive Target Opportunities
The Compensation Committee approved the following increases to certain NEO’s short- and long-term incentive opportunities to better align their compensation with internal equity and market practice on a comparison to the Compensation Peer Benchmarking Group:
NEO
 
2013 Target AIP
(% of Base Salary)
 
2014 Target AIP
(% of Base Salary)
 
Target AIP Increase
(%)
 
2013 Target LTI
($)
 
2014 Target LTI
($)
 
Target LTI Increase
($)
D. D. Petratis
 
110

 
110

 

 
3,000,000

 
3,000,000

 

P. S. Shannon
 
70

 
70

 

 
650,000

 
750,000

 
100,000

T. P. Eckersley
 
60

 
65

 
5
%
 
380,000

 
500,000

 
120,000

C. E. Muhlenkamp
 
60

 
60

 

 
150,000

 
300,000

 
150,000

F. W. Yu
 
50

 
50

 

 
100,000

 
150,000

 
50,000

B. A. Santoro
 
65

 
65

 

 
375,000

 
375,000

 

2014 INCENTIVE PROGRAM DESIGNS AND COMPENSATION VALUES FOR 2014 PERFORMANCE
Annual Incentive Program
Annual Incentive Plan Design
For 2014, our NEOs, including the CEO, participated in a new annual incentive plan (the “AIP”) adopted by our Compensation Committee. The AIP is designed to reward executives for profitable revenue growth, the delivery of strong cash flow and individual contributions. Individual AIP payouts are calculated as the product of (i) the target annual incentive, (ii) the financial performance score and (iii) the individual performance score.
Financial Performance Factor
The financial score is based on achievement of pre-established financial metrics established by the Compensation Committee:
Revenue;
EBITDA for corporate and Operating Income (“OI”) for regions; and
ACF for corporate and Operations Cash Flow (“OCF”) for regions.
The Compensation Committee believes each metric is equally important and weighs each equally. In order to further emphasize the importance of meeting profitability goals, we must achieve EBITDA for corporate at least equal to a pre-established 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.

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Our 2014 AIP metrics and goals were:
 
 
Corporate
 
 
 
 
Pre-established Financial Targets (in millions)
 
Payout as a % of Target
 
 
Revenue
($)
 
EBITDA
($)
 
ACF
($)
 
Threshold
 
2,041

 
409

 
205

 
50%
Target
 
2,120

 
438

 
215

 
100%
Maximum
 
2,175

 
459

 
230

 
200%
 
 
Americas
 
 
 
 
Pre-established Financial Targets (in millions)
 
Payout as a % of Target
 
 
Revenue
($)
 
OI
($)
 
OCF
($)
 
Threshold
 
1,463

 
390

 
390

 
50%
Target
 
1,521

 
414

 
400

 
100%
Maximum
 
1,560

 
425

 
420

 
200%
 
 
Asia Pacific
 
 
 
 
Pre-established Financial Targets (in millions)
 
Payout as a % of Target
 
 
Revenue
($)
 
OI
($)
 
OCF
($)
 
Threshold
 
153

 
6

 
6

 
50%
Target
 
165

 
7

 
8

 
100%
Maximum
 
185

 
11

 
13

 
200%
AIP metrics are aligned with individuals’ line of sight and scope of impact. Executives serving in a corporate level role are measured solely based on the corporate financial metrics. The regional Presidents (Messrs. Eckersley and Yu) are measured based on a combination of corporate (45%) and regional (55%) financial objectives. 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.
Individual Performance Factor
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. In no case will an AIP award exceed 200% of the NEO’s target opportunity.

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Table of Contents

Actual Financial Performance vs. Target Goals
The table below shows the actual 2014 adjusted performance compared to the pre-established financial performance targets.
 
 
Financial Target Goals
($)
 
Adjusted Actual Performance
($)
 
Performance as a % of Target Goal
 
Aggregate Performance as a % of Target
Corporate
 
 
 
 
 
 
 
 
Revenue
 
2,120

 
2,120

 
99.7
%
 
 
EBITDA
 
438

 
437

 
98.3
%
 
133%
ACF
 
215

 
237

 
200.0
%
 
 
Americas
 
 
 
 
 
 
 
 
Revenue
 
1,521

 
1,541

 
144.5
%
 
 
OI
 
414

 
414

 
99.7
%
 
124%
OCF
 
400

 
406

 
129.4
%
 
 
Asia Pacific
 
 
 
 
 
 
 
 
Revenue
 
165

 
161

 
81.3
%
 
 
OI
 
7

 
2

 
%
 
55%
OCF
 
8

 
7

 
85.0
%
 
 
The Compensation Committee retains the authority to adjust our reported financial results for items causing significant differences from the assumptions contained in the AOP upon which the incentive targets were established, including the impact of changes in accounting principles, extraordinary items and unusual or non-recurring gains or losses. 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 which 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. For 2014, the Committee adjusted our financial results to remove the impact of (i) mergers and acquisitions activity, (ii) change in accounting from LIFO to FIFO, (iii) debt issuance costs, (iv) certain discrete tax items, (v) non-controlling interest in our Venezuelan entity, (vi) legacy bad debt charges, and (vii) certain extraordinary spin-off costs. These adjustments reduced the AIP results achieved by corporate from 135% to 133%; Americas from 167% to 124% and Asia Pacific from 100% to 55%.
Evaluated Individual Performance
For 2014, the Compensation Committee determined each NEO achieved the following individual performance rating:
NEO
 
Individual
Performance Rating
D. D. Petratis
140%
P. S. Shannon
140%
T. P. Eckersley
120%
C. E. Muhlenkamp
125%
F. W. Yu
100%
B. A. Santoro
100%
In determining the individual factor for each NEO’s AIP award, the Compensation Committee considered pre-established individual performance objectives, including the following:
Mr. Petratis: Led the successful Spin-off; established a system of leadership and management for Allegion that reinforces ethical behavior and promotes our values; set the tone for a culture of integrity in all we do; and created a capital allocation program designed to promote long-term shareholder value.
Mr. Shannon: Developed a comprehensive tax strategy designed to optimize our effective tax rate; developed an investor relations approach that showcases the Allegion story and appropriately connects with and informs investors; built M&A capability within Allegion to support our growth strategy; and engaged and grew our people through the focus of Allegion values.
Mr. Eckersley: Delivered organic and productivity growth goals in the Americas region; built capability in the Americas region to deliver best-in-class customer experience; established the M&A strategy for the Americas region; and engaged and grew our people through the focus of Allegion values.

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Mr. Muhlenkamp: Implemented the Allegion Enterprise Excellence program globally; built global capability to deliver best-in-class customer experience; executed cash flow initiatives; engaged and grew our people through the focus of Allegion values.
Mr. Yu: Delivered organic growth and profitability goals in the AP region; developed and implemented an effective cash management process for the AP region; built capability in the AP region to deliver best-in-class customer experience; and engaged and grew our people through the focus of Allegion values.
2014 AIP Payouts to NEOs
Our Compensation Committee approved the following AIP awards for our NEOs:
NEO
 
Target Bonus Amount
(A)($)
 
Financial Factor
(B)
 
AIP Earned from Financial Performance
(C)=(A)x(B)($)
 
Individual Performance Factor
(D)
 
2014 AIP Amount
(E)=(C)x(D)($)
D. D. Petratis
 
990,000

 
133
%
 
1,316,700

 
140
%
 
1,838,806

P. S. Shannon
 
297,500

 
133
%
 
395,675

 
140
%
 
552,571

T. P. Eckersley
 
273,000

 
128
%
 
349,768

 
120
%
 
419,721

C. E. Muhlenkamp
 
210,000

 
133
%
 
278,607

 
125
%
 
348,259

F. W. Yu
 
187,315

 
90
%
 
168,864

 
100
%
 
168,864

B. A. Santoro
 
104,089

 
133
%
 
138,095

 
100
%
 
138,095

Long-term Incentive Program
Long-term Incentive Program Design
Our long-term incentive program (“LTI”) is comprised 50% of PSUs, 25% of stock options, and 25% of RSUs. 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.
PSUs: 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. 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 *
< 25th Percentile
 
No award earned
25th Percentile
 
50
%
50th Percentile
 
100
%
>= 75th 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 adjustments for extraordinary, unusual or infrequent items; the impact of any change in accounting principles; goodwill and other intangible asset impairments; and gains or charges associated with discontinued operations or with obtaining or losing control of a business.
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 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.

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Stock Options/RSUs: We grant executives an equal mix (by value) of stock options and RSUs in order to provide an effective balance between risk and retention. 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 because they have value even if our stock price does not grow during the restricted period. 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.
Equity Awards Granted in 2014
The Compensation Committee approved the grants shown in the table below in the first quarter of 2014.
NEO
 
Target
2014 PSU Award
($)
 
Target
2014 PSU Award
(#)
 
Target 2014-2015 PSU Award
($)
 
Target 2014-2015 PSU Award
(#)
 
Target 2014-2016 PSU Award
($)
 
Target 2014-2016 PSU Award
(#)
D. D. Petratis
 
500,007

 
9,238

 
1,000,014

 
18,476

 
1,500,020

 
27,714

P. S. Shannon
 
108,358

 
2,002

 
216,717

 
4,004

 
375,032

 
6,929

T. P. Eckersley
 
68,739

 
1,270

 
137,315

 
2,537

 
250,003

 
4,619

C. E. Muhlenkamp
 
21,704

 
401

 
43,408

 
802

 
150,035

 
2,772

F. W. Yu*
 
18,132

 
335

 
36,210

 
669

 
75,017

 
1,386

B. A. Santoro
 
62,514

 
1,155

 
125,029

 
2,310

 
187,543

 
3,465

NEO
 
2014 Stock Option Award
($)
 
2014 Stock Option Award
(#)
 
2014 RSU Award
($)
 
2014 RSU Award
(#)
D. D. Petratis
 
750,009

 
38,344

 
750,010

 
13,857

P. S. Shannon
 
187,502

 
9,586

 
187,543

 
3,465

T. P. Eckersley
 
125,008

 
6,391

 
125,029

 
2,310

C. E. Muhlenkamp
 
75,013

 
3,835

 
75,017

 
1,386

F. W. Yu*
 
37,516

 
1,918

 
37,509

 
693

B. A. Santoro
 
93,751

 
4,793

 
93,799

 
1,733

*
In addition to his annual grant shown above, Mr. Yu received a special retention RSU award with a grant date value of $1,000,023 on June 11, 2014.
In 2014, the Compensation Committee granted PSUs with one-, two- and three-year performance periods. The PSUs with one- and two-year performance periods are replacement awards for that portion of the Ingersoll Rand PSUs that were canceled in connection with the Spin-off. The Ingersoll Rand PSUs held by our NEOs were prorated based on the number of days employed and the remaining portion was canceled. For Mr. Yu, the pro-rated Ingersoll Rand PSUs were converted into Allegion PSUs.
PSUs Earned for 2014
The PSUs earned for 2014 were based on a one-year performance period. The PSUs were earned based on the (i) one year EPS performance against pre-established goals and (ii) one year TSR performance relative to the Peer Performance Group companies. For Mr. Yu, he received a PSU based on a three-year performance period but that portion of his PSUs that relates to the pre-Spin-off period were earned based on Ingersoll Rand’s performance during that period.
For 2014, the Compensation Committee established an EPS threshold of $2.25, a target of $2.35 and a maximum of $2.50. We achieved an adjusted EPS from continuing operations of $2.49 in 2014 which resulted in a payout equal to 193% of target; and achieved 26.7% TSR which resulted in performance in the 93rd percentile and a 200% payout. On aggregate, PSUs were earned at 197% of target. EPS was adjusted to eliminate the impact of Spin-off and restructuring charges, Venezuela devaluation and inventory impairment, write-off of unamortized debt issuance costs, and to adjust the tax provision for tax expense related to the excluded items.

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Our NEOs received the following based on our 2014 performance:
NEO
 
Target PSUs Awarded
(#)
 
PSUs Earned
(#)
D. D. Petratis
 
9,238

 
18,199

P. S. Shannon
 
2,002

 
3,944

T. P. Eckersley
 
1,270

 
2,502

C. E. Muhlenkamp
 
401

 
790

F. W. Yu*
 
1,358

 
2,706

B. S. Santoro**
 
529

 
1,043

*
The Ingersoll Rand Compensation Committee certified results for the 2012-2014 PSU performance cycle and approved payout at 200% of target based on 2012-2014 relative EPS growth and TSR performance.
**
Ms. Santoro received a prorated number of PSUs due to her departure in June 2014.
2015 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 2015 compensation shown in the table below:
NEO
 
2015 Base Salary
($)
 
2015 Target Annual Incentive
(as a % of Base Salary)
 
2015 Target LTI
($)
D. D. Petratis
 
950,000

 
110
%
 
3,000,000

P. S. Shannon
 
463,250

 
70
%
 
750,000

T. P. Eckersley
 
420,000

 
65
%
 
500,000

C. E. Muhlenkamp
 
350,000

 
60
%
 
300,000

F. W. Yu
 
374,630

 
50
%
 
300,000

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 below for additional details on these programs.
A qualified defined contribution 401(k) plan called the Employee Savings Plan (“ESP”) is available for the salaried and hourly U.S. 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, a nonqualified, defined contribution plan called the Supplemental Employee Savings Plan (the “Supplemental ESP”) is offered. 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.
A nonqualified EDCP that allows eligible employees to defer receipt of a part of their annual salary, annual incentive award and/or PSP award in exchange for investments in ordinary shares or mutual fund investment equivalents is also available. Refer to the Nonqualified Deferred Compensation table for additional details on the deferred compensation plans.
In China, we offer employees the Huabao Service Retention Bonus Plan (the “Huabao Plan”), that provides for an annual company contribution equal to a percentage of annual base salary after income tax deduction (excluding bonus,

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allowance and/or benefits). Participants in the Huabao Plan vest at the earlier of retirement, death, permanent disability or company initiated termination.
An enhanced, long-term disability plan is provided to certain NEOs in order to provide for a higher monthly maximum than the standard group plan and a more favorable definition of disability and has an underlying individual policy that is portable when the executive terminates.
We also provide certain other benefits believed to be consistent with prevailing market practice and to be competitive with peer company practices. 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.
During 2014, we maintained a Spin-off Protection Plan that provided certain employees, including our NEOs, with certain benefits in the event of a termination of employment without cause or for good reason between December 1, 2013 and December 1, 2014 (the first anniversary of the Spin-off). The Spin-off Protection Plan was terminated in December 2014.
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 1.5 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) 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 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.
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

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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, 2014.
COMPENSATION COMMITTEE
Michael J. Chesser (Chair)
Carla Cico
Kirk S. Hachigian
Martin E. Welch, III





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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, 2014, 2013 and 2012. The services rendered by our NEOs in 2013 and 2012 were primarily for Ingersoll Rand and were, in some instances, in capacities not equivalent to the positions in which they now serve.
SUMMARY COMPENSATION TABLE
Name and
Principal
Position 
 
Year 
 
Salary
($)(a) 
 
Bonus
($)(b) 
 
Stock
Awards
($)(c) 
 
Option
Awards
($)(d) 
 
Non-
Equity
Incentive
Plan
Compensation
($)(e) 
 
Change in
Pension
Value  and
Nonqualified
Deferred
Compensation
Earnings
($)(f)
 
All
Other
Compensation
($)(g) 
 
Total
($) 
D. D. Petratis
 
2014
 
900,000

 

 
4,786,693

 
750,009

 
1,838,806

 
540,916

 
179,040

 
8,995,464

Chairman, President and Chief Executive Officer
 
2013
 
363,461

 
1,330,000

 
2,039,921

 
675,023

 

 
73,858

 
54,116

 
4,536,379

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
P. S. Shannon
 
2014
 
425,000

 
75,000

 
1,128,967

 
187,502

 
552,571

 
632,877

 
179,765

 
3,181,682

Senior Vice President and Chief Financial Officer
 
2013
 
384,308

 
75,000

 
516,040

 
445,057

 
355,749

 

 
281,723

 
2,057,877

2012
 
355,757

 

 
319,554

 
113,147

 
167,588

 
395,851

 
56,593

 
1,408,490

T. P. Eckersley
 
2014
 
418,709

 
200,000

 
738,148

 
125,008

 
419,721

 
369,946

 
72,341

 
2,343,873

Senior Vice President - Americas
 
2013
 
406,059

 
200,000

 
504,273

 
437,924

 
382,228

 
32,122

 
57,919

 
2,020,525

 
2012
 
394,666

 

 
314,970

 
118,236

 
265,455

 
187,116

 
45,868

 
1,326,311

C. E. Muhlenkamp
 
2014
 
343,149

 
140,000

 
363,486

 
75,013

 
348,259

 
53,494

 
42,744

 
1,366,145

Senior Vice President - Global Operations
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 


 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
F. W. Yu (h)
 
2014
 
366,951

 
150,000

 
1,211,342

 
37,516

 
168,864

 

 
88,335

 
2,023,008

Senior Vice President - Asia Pacific
 
2013
 
331,529

 
150,000

 
251,891

 
307,155

 
231,029

 

 
84,164

 
1,355,768

 
2012
 
289,221

 

 
82,890

 
31,122

 
144,525

 

 
56,559

 
604,317

B. A. Santoro (i)
 
2014
 
162,885

 

 
598,494

 
93,751

 

 
609,952

 
1,457,107

 
2,922,189

Former Senior Vice President, General Counsel and Secretary
 
2013
 
316,373

 
75,000

 
380,078

 
350,548

 
234,862

 
17,776

 
79,783

 
1,454,420

 
2012
 
306,750

 

 
206,187

 
67,415

 
132,459

 
423,923

 
58,469

 
1,195,203

______________
(a)
A portion of a participant’s annual salary may be deferred into a number of investment options under our EDCP. In 2014, no NEO deferred any salary.
(b)
The amount represents 50% of a transition cash bonus awarded by Ingersoll Rand in recognition of the critical nature of the role and assistance required in implementing the Spin-off. The initial 50% was paid on December 1, 2013 and the remaining 50% was paid on December 1, 2014, the first anniversary of the Spin-off.
(c)
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. The PSU awards represent the annual grant of a PSU with a three year performance period as well as the replacement PSU awards for the one- and two-year performance periods following the Spin-off. 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 for the PSU awards granted in February 2014, the aggregate grant date fair value of the PSU awards would be as follows:
Name
 
Maximum Grant Date Value of PSU Awards 
($) 
D. D. Petratis
 
8,073,365

P. S. Shannon
 
1,882,848

T. P. Eckersley
 
1,226,238

C. E. Muhlenkamp
 
576,939

F. W. Yu
 
347,620

B. A. Santoro
 
1,009,389



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For a discussion of the assumptions made in determining the ASC 718 values, see Note 13, “Share-Based Compensation,” to our consolidated financial statements contained in the 2014 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 2014 grants included in this column.
(d)
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 13, “Share-Based Compensation,” to our consolidated financial statements contained in the 2014 Form 10-K.
(e)
This column reflects the amounts earned as annual awards under our AIP program. Unless deferred into the EDCP, AIP payments are made in cash. Mr. Eckersley elected to defer 50% of his AIP payment and Mr. Muhlenkamp elected to defer 30% of his AIP payment. Amounts shown in this column are not reduced to reflect deferrals of AIP awards into the EDCP.
(f)
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 change in pension benefits value is attributable to the additional year of service and age, the annual AIP award and any annual salary increase and the interest rates used to value the benefits. The changes in pension benefit values during 2014 increased from 2013 due to a decrease in interest rates and a change in mortality rates. The plans do not permit above-market or preferential earnings on any nonqualified deferred compensation.
(g)
The following table summarizes the components of this column for 2014:
Name
 
Company Matching Contributions
($)(1)
 
Company
Cost for
Life
Insurance
($)
 
Retiree
Medical
Plan
($)(2)
 
Tax
Assistance
($)(3) 
 
Other
Benefits 
($)(4)
 
Total
($)
D. D. Petratis
 
109,692

 
1,285

 

 

 
68,063

 
179,040

P. S. Shannon
 
43,903

 
607

 

 
17,674

 
117,581

 
179,765

T. P. Eckersley
 
42,361

 
600

 

 

 
29,380

 
72,341

C. E. Muhlenkamp
 
33,549

 
428

 

 

 
8,767

 
42,744

F. W. Yu
 
39,952

 

 

 

 
48,383

 
88,335

B. A. Santoro
 
23,865

 
228

 
1,850

 
13,523

 
1,417,641

 
1,457,107

_____________
(1)
Represents matching contributions under our ESP and Supplemental ESP plans for Messrs. Petratis, Shannon and Eckersley, Muhlenkamp and Ms. Santoro and under the Huabao Plan for Mr. Yu.
(2)
Represents the estimated interest on the value of the retiree medical plan benefit, calculated based on the methods used for financial statement reporting purposes.
(3)
Represents tax assistance provided to the NEOs in connection with relocation costs incurred.
(4)
The other benefits the NEOs received in 2014 are:
Name
 
Car Usage
($)(i)
 
Long-term Disabilty
($)
 
Relocation
($)
 
Financial Counseling
($)
 
Executive Health Program
($) 
 
Severance
($)(ii)
 
Total
($)
D. D. Petratis
 
18,000

 

 
43,893

 
4,325

 
1,845

 

 
68,063

P. S. Shannon
 
15,000

 
893

 
91,167

 
10,521

 

 

 
117,581

T. P. Eckersley
 
15,000

 
1,832

 

 
10,548

 
2,000

 

 
29,380

C. E. Muhlenkamp
 

 

 

 
6,767

 
2,000

 

 
8,767

F. W. Yu
 
48,058

 

 

 

 
325

 

 
48,383

B. A. Santoro
 
7,500

 
1,907

 
35,180

 
4,959

 

 
1,368,095

 
1,417,641

(i)
Represents the incremental cost of the leased cars, calculated based on the lease, insurance, fuel and maintenance costs for all NEOs other than Mr. Yu. For Mr. Yu, the amount represents the value of the car and driver provided under the Chinese car policy.
(ii)
Represents amounts paid pursuant to the Spin-off Protection Plan.
(h)
Cash amounts for Mr. Yu were paid in Chinese Yuan. For reporting purposes, these amounts have been converted from Chinese Yuan to United States dollars in this table and throughout this Proxy Statement. Where amounts are reported as of a point in time, Chinese Yuan were converted to United States dollars using the closing currency exchange rate as of December 31, 2014. Where payments were made throughout the year, Chinese Yuan 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.
(i)
Ms. Santoro departed the Company effective June 16, 2014.

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2014 GRANTS OF PLAN-BASED AWARDS
The following table shows all plan-based awards granted to the NEOs during 2014. 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
 
2/10/2014
 
495,000

 
990,000