UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

SCHEDULE 14A

 

Proxy Statement Pursuant to Section 14(a) of the Securities

Exchange Act of 1934 (Amendment No. )

 

Filed by the Registrant þ

 Filed by a Party other than the Registrant  o

Check the appropriate box:

o  Preliminary Proxy Statement

o  Confidential, for Use of the Commission Only (as permitted by Rule 14a-6(e)(2))

þ  Definitive Proxy Statement

o  Definitive Additional Materials

o  Soliciting Material Pursuant to §240.14a-12

 

Becton, Dickinson and Company

(Name of Registrant as Specified In Its Charter)

 

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

 

Payment of Filing Fee (Check the appropriate box):

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Becton, Dickinson and Company

1 Becton Drive

Franklin Lakes, New Jersey 07417-1880

www.bd.com

 

December 22, 2010

 

Dear Fellow Shareholders:

 

You are cordially invited to attend the 2011 Annual Meeting of Shareholders of Becton, Dickinson and Company (“BD”) to be held at 1:00 p.m. EST on Tuesday, February 1, 2011 at The Hilton Short Hills, 41 John F. Kennedy Parkway, Short Hills, New Jersey. You will find directions to the meeting on the back cover of the accompanying proxy statement.

 

The notice of meeting and proxy statement describe the matters to be acted upon at the meeting. We also will report on matters of interest to BD shareholders.

 

Your vote is important. Whether or not you plan to attend the Annual Meeting in person, we encourage you to vote so that your shares will be represented and voted at the meeting. You may vote by proxy on the internet or by telephone, or by completing and mailing the enclosed proxy card in the return envelope provided. You may also vote in person at the Annual Meeting.

 

Thank you for your continued support of BD.

 

Sincerely,

 

 

Edward J. Ludwig
Chairman and Chief Executive Officer

NOTICE OF ANNUAL MEETING OF SHAREHOLDERS

Becton, Dickinson and Company
1 Becton Drive
Franklin Lakes, New Jersey 07417-1880

 

December 22, 2010

 

The 2011 Annual Meeting of Shareholders of Becton, Dickinson and Company (“BD”) will be held as follows:

 

 

Shares represented by properly executed proxies will be voted in accordance with the instructions specified therein. Shares represented by proxies that are not limited to the contrary will be voted in accordance with the recommendations of the Board of Directors set forth in this proxy statement, except that if no instructions are provided on Proposal 4, your shares will be voted as abstentions.

 

Important Notice Regarding the Availability of Proxy Materials for the 2011 Annual Meeting of Shareholders to be held on February 1, 2011. BD’s proxy statement and 2010 Annual Report, which includes consolidated financial statements, are available at www.bd.com/investors/.

 

Shareholders of record at the close of business on December 10, 2010 will be entitled to attend and vote at the meeting.

 

By order of the Board of Directors,

 

 

Dean J. Paranicas

Vice President, Corporate Secretary and Public Policy

 

1.	VIA THE INTERNET: Visit the website noted on your proxy/voting instruction card.
2.	BY TELEPHONE: Use the toll-free telephone number noted on your proxy/voting instruction card.
3.	BY MAIL: Promptly return your signed and dated proxy/voting instruction card in the enclosed envelope.

 

Table of Contents

 

 

PROXY STATEMENT

 

 

 

 

2011 ANNUAL MEETING OF SHAREHOLDERS
Tuesday, February 1, 2011

 

 

 

 

BECTON, DICKINSON AND COMPANY
1 Becton Drive
Franklin Lakes, New Jersey 07417-1880

 

These proxy materials are being mailed or otherwise sent to shareholders of Becton, Dickinson and Company (“BD”) on or about December 22, 2010 in connection with the solicitation of proxies by the Board of Directors for BD’s Annual Meeting of Shareholders (the “2011 Annual Meeting”) to be held at 1:00 p.m. EST on Tuesday, February 1, 2011 at the Hilton Short Hills, 41 John F. Kennedy Parkway, Short Hills, New Jersey. Important Notice Regarding the Availability of Proxy Materials for the 2011 Annual Meeting of Shareholders to be held on February 1, 2011. This proxy statement and BD’s 2010 Annual Report (the “2010 Annual Report”) are also available at www.bd.com/investors/.

 

Directors, officers and other BD associates also may solicit proxies by telephone or otherwise. Brokers and other nominees will be requested to solicit proxies or authorizations from beneficial owners and will be reimbursed for their reasonable expenses. BD has retained MacKenzie Partners, Inc. to assist in soliciting proxies for a fee not to exceed $25,000 plus expenses. The cost of soliciting proxies will be borne by BD.

 

Shareholders of record at the close of business on December 10, 2010 are entitled to notice of, and to vote at, the meeting. As of such date, there were 226,252,937 shares of BD common stock outstanding, each entitled to one vote.

 

If your shares are held in the name of a bank, broker or other holder of record (also known as “street name”) and you wish to attend the meeting, you must present proof of ownership as of the record date, such as a current bank or brokerage account statement, to be admitted. BD also may request appropriate identification as a condition of admission.

 

The holders of a majority of the shares entitled to vote at the meeting must be present in person or represented by proxy to constitute a quorum. Abstentions and shares that brokers do not have the authority to vote in the absence of timely instructions from the beneficial owners (“broker non-votes”) are treated as present for the purposes of determining a quorum.

 

Directors are elected by a plurality of the votes cast at the meeting (Proposal 1). Under New Jersey law, abstentions and broker non-votes will not be counted as votes cast, and, accordingly, will have no effect on the outcome of the vote for directors. Under BD’s Corporate Governance Principles (the “Principles”), any nominee for director who receives a greater number of “withhold” votes than “for” votes is required to offer to submit his or her resignation from the Board following the shareholder vote. The Board will consider what action is to be taken with respect to the same. We will publicly disclose the Board’s decision. A more detailed description of these procedures is contained on page 20 under the heading “Corporate Governance—Significant Governance Practices—Voting for Directors” and in the Principles, which are available on BD’s website at www.bd.com/investors/corporate_governance/. Printed copies of the Principles may be obtained, without charge, by contacting the Corporate Secretary, BD, 1 Becton Drive, Franklin Lakes, New Jersey 07417-1880, phone 1-201-847-6800.

 

Approval of Proposals 2, 3, 5 and 6 requires the affirmative vote of a majority of the votes cast at the meeting. There is no minimum requisite affirmative vote under New Jersey law for Proposal 4. Abstentions and broker non-votes will not be counted as votes cast, and, accordingly, will not affect the outcome of these votes. Proposal 2 is a

“discretionary item” and New York Stock Exchange (“NYSE”) member brokers that do not receive instructions on how to vote may cast those votes in their discretion.

 

Shareholders of record may attend and cast their votes at the meeting. In addition, shareholders of record may cast their vote by proxy, and participants in the BD plans described below may submit their voting instructions, by:

 

(1) using the internet and voting at the website listed on the enclosed proxy/voting instruction card (the “proxy card”);

 

(2) using the toll-free telephone number listed on the enclosed proxy card; or

 

(3) signing, completing and returning the enclosed proxy card in the enclosed postage-paid envelope.

 

Votes cast through the internet and telephone votes are authenticated by use of a personal identification number. This procedure allows shareholders to appoint a proxy, and the various plan participants to provide voting instructions, and to confirm that their actions have been properly recorded. Specific instructions to be followed are set forth on the enclosed proxy card. If you vote through the internet or by telephone, you do not need to return your proxy card. In order to be timely processed, voting instructions submitted by participants in BD’s Global Share Investment Program (“GSIP”) must be received by 12:00 p.m. EST on January 26, 2011, and voting instructions submitted by participants in all other BD plans must be received by 12:00 p.m. EST on January 28, 2011. All proxies submitted by record holders through the internet or by telephone must be received by 11:00 a.m. EST on February 1, 2011.

 

If you are the beneficial owner of shares held in “street name,” you have the right to direct your bank, broker or other nominee on how to vote your shares by using the voting instruction form provided to you by them, or by following their instructions for voting through the internet or by telephone. In the alternative, you may vote in person at the meeting if you obtain a valid proxy from your bank, broker or other nominee and present it at the meeting.

 

Shares represented by properly executed proxies will be voted in accordance with the instructions specified therein. Shares represented by proxies that are not limited to the contrary will be voted in accordance with the recommendations of the Board of Directors set forth in this proxy statement, except that if no instructions are provided on Proposal 4, your shares will be voted as abstentions.

 

Savings Incentive Plan (SIP)

 

Participants in SIP may instruct the SIP trustee how to vote all shares of BD common stock allocated to their SIP accounts. The SIP trustee will vote the SIP shares for which it has not received instructions in the same proportion as the SIP shares for which it has received instructions.

 

Participants in Other Plans

 

Participants in the Savings Incentive Plan of Med-Safe Systems, Inc., a wholly-owned subsidiary of BD (the “Med-Safe Plan”), may instruct the Med-Safe Plan’s trustee how to vote all shares of BD common stock allocated to their accounts. The Med-Safe Plan’s trustee will vote shares for which it has not received instructions in the same proportion as the shares for which it has received instructions.

 

Participants in BD’s Deferred Compensation and Retirement Benefit Restoration Plan (“DCP”), the 1996 Directors’ Deferral Plan (“DDP”), and GSIP (if so provided under the terms of the local country GSIP plan) may provide voting instructions for all shares of BD common stock allocated to that person’s plan account. Trustees of DCP, DDP and GSIP will vote the plan shares for which they have not received instructions in the same proportion as the plan shares for which they have received instructions.

 

Proxies representing shares of BD common stock held of record also will serve as proxies for shares held under the Direct Stock Purchase Plan sponsored and administered by Computershare Trust Company, N.A. and any shares of BD common stock allocated to participants’ accounts under the plans mentioned above, if the registrations are the same. Separate mailings will be made for shares not held under the same registrations.

 

A proxy given by a shareholder of record may be revoked at any time before it is voted by sending written notice of revocation to the Corporate Secretary of BD at the address set forth above, by delivering a proxy (by one of the methods described above under the heading “How to Vote”) bearing a later date, or by voting in person at the meeting. Participants in the plans described above may change their voting instructions by delivering new voting instructions by one of the methods described above under the heading “How to Vote.”

 

If you are the beneficial owner of shares held in “street name,” you may submit new voting instructions in the manner provided by your bank or broker or other nominee, or you may vote in person at the 2011 Annual Meeting in the manner described above under the heading “How to Vote.”

 

The Board of Directors is not aware of any matters to be presented at the meeting other than those set forth in the accompanying notice. If any other matters properly come before the meeting, the persons named in the proxy card will vote on such matters in accordance with their best judgment.

 

Multiple BD shareholders who share an address may receive only one copy of this proxy statement and the 2010 Annual Report from their bank, broker or other nominee, unless contrary instructions are received. We will deliver promptly a separate copy of this proxy statement and the 2010 Annual Report to any BD shareholder who resides at a shared address and to which a single copy of the documents was delivered, if the shareholder makes a request by contacting the Corporate Secretary, BD, 1 Becton Drive, Franklin Lakes, New Jersey 07417-1880, phone 1-201-847-6800. Beneficial owners sharing an address who are receiving multiple copies of this proxy statement and the 2010 Annual Report and who wish to receive a single copy in the future will need to contact their bank, broker or other nominee.

 

The following table sets forth as of September 30, 2010, information concerning those persons known to BD to be the beneficial owner of more than 5% of BD’s outstanding common stock. This information is as reported by such persons in their Schedule 13G filings with the Securities and Exchange Commission (“SEC”).

 

 

 

 

The following table sets forth as of November 30, 2010 information concerning the beneficial ownership of BD common stock by (i) each director, (ii) the executive officers named in the Summary Compensation Table on page 37, and (iii) all BD directors and executive officers as a group. In general, “beneficial ownership” includes those shares that a director or executive officer has the power to vote or transfer, including shares that may be acquired under outstanding equity compensation awards or otherwise within 60 days of such date.

 

No individual director or executive officer owns more than 1% of the outstanding BD common stock. Together, the directors and executive officers, as a group, owned approximately 1.1% of the outstanding BD common stock as of November 30, 2010. Except as indicated in the footnotes to the table, each person has the sole power to vote and transfer the shares he or she beneficially owns.

 

 

 

 

The following table provides certain information as of September 30, 2010 regarding BD’s equity compensation plans.

 

 

 

 

Deferred Compensation and Retirement Benefit Restoration Plan. Information regarding the Deferred Compensation and Retirement Benefit Restoration Plan can be found beginning on page 45 of this proxy statement. The shares held in the plan as of September 30, 2010 include 141,718 shares acquired by participants through cash deferrals and 374,535 shares deferred under participants’ equity compensation awards. In the event a participant elects to have cash compensation deferred in a BD common stock account, the participant’s account is credited with a number of shares based on the prevailing market price of the BD common stock. The cash deferred by the participant is used to purchase the shares of BD common stock on the open market, which are then held in a trust.

 

Global Share Investment Program. BD maintains a Global Share Investment Program (“GSIP”) for its non-U.S. employees in certain jurisdictions outside of the U.S. The purpose of the GSIP is to provide non-U.S. employees with a means of saving on a regular and long-term basis and acquiring a beneficial interest in BD common stock. Participants may contribute a portion of their base pay, through payroll deductions, to the GSIP for their account. BD provides matching funds of up to 3% of the participant’s base pay through contributions to the participant’s plan account. Contributions to the GSIP are used to purchase shares of BD common stock on the open market, which are then held in a trust.

 

A participant may withdraw the vested portion of the participant’s account, although such withdrawals must be in the form of a cash payment if the participant is employed by BD at the time of withdrawal. Following termination of service, withdrawals will be paid in either cash or shares, at the election of the participant.

Non-Employee Directors 2000 Stock Option Plan. Non-management directors formerly received grants of non-qualified stock options under the Non-Employee Directors 2000 Stock Option Plan (the “Directors Stock Option Plan”), which provided for the granting of non-qualified stock options at each Annual Meeting to each non-management director elected at or continuing to serve after such meeting. Options are no longer granted under the Directors Stock Option Plan. The exercise price of stock options granted under the Directors Stock Option Plan was the fair market value of the BD common stock on the date of grant. Each option granted under the Directors Stock Option Plan has a term of 10 years from its date of grant. The options granted under the Directors Stock Option Plan have vesting periods of three to four years, depending on the year of grant.

 

1996 Directors’ Deferral Plan. The 1996 Directors’ Deferral Plan (the “Directors’ Deferral Plan”) allows non-management directors to defer receipt, in an unfunded cash account or a BD common stock account, of all or part of their annual retainer and other cash fees. In the event a director elects to have fees deferred in a BD common stock account, the director’s account is credited with a number of shares based on the prevailing market price of the BD common stock on the due date of such payment. The cash fees deferred by the director are used to purchase the shares of BD common stock on the open market, which are then held in a trust. Directors may also defer receipt of restricted stock units under the plan. The number of shares credited to the BD common stock accounts of participants is adjusted periodically to reflect the payment and reinvestment of dividends on the common stock. Participants may elect to have amounts held in a cash account converted into a BD common stock account. The Directors’ Deferral Plan is not qualified, and participants have an unsecured contractual commitment of BD to pay the amounts due under the Directors’ Deferral Plan. When such payments are due, the cash and/or common stock will be distributed from BD’s general assets.

 

Section 16(a) of the Securities Exchange Act of 1934 requires BD’s directors and executive officers to file initial reports of their ownership of BD’s equity securities and reports of changes in such ownership with the SEC and the NYSE. Directors and executive officers are required by SEC regulations to furnish BD with copies of all Section 16(a) forms they file with respect to BD securities. Based solely on a review of copies of such forms and written representations from BD’s directors and executive officers, BD believes that, for the period from October 1, 2009 through September 30, 2010, all of its directors and executive officers were in compliance with the disclosure requirements of Section 16(a), except that reports for one transaction by each of Marshall O. Larsen and Scott P. Bruder, and a report for two transactions by Willard J. Overlock, Jr., were inadvertently filed late.

THE BOARD RECOMMENDS A VOTE FOR EACH OF THE
NOMINEES NAMED IN PROPOSAL 1.

 

All members of our Board are nominated for election to serve a term of one year and until their successors have been elected and qualified. All of the nominees for election have consented to being named in this proxy statement and to serve if elected. Presented below is biographical information for each of the nominees.

 

BD directors have backgrounds that represent a rich portfolio that ably serves BD’s governance and strategic needs, and reflects the Board’s continuing objective to achieve a diversity of viewpoint, experience, background, knowledge, geography, ethnicity and gender. As more fully discussed under “Director Nomination Process” below, director nominees are considered on the basis of a range of criteria, including their broad-based business knowledge and background, prominence and excellent reputations in their primary fields of endeavor, together with a global business perspective and commitment to strong corporate citizenship. They must have demonstrated experience and ability that is relevant to the Board’s oversight role with respect to BD’s business and affairs. Each director’s biography includes the particular experience and qualifications that led the Board to conclude that the director should serve on the Board.

 

 

 

The Board of Directors recommends a vote FOR each of the nominees for director.

 

BD is governed by a Board of Directors that currently consists of 14 members, 13 of whom have been determined by the Board to be independent. The Board has established five Committees: the Executive Committee, the Audit Committee, the Compensation and Benefits Committee, the Corporate and Scientific Affairs Committee, and the Corporate Governance and Nominating Committee. All Committees meet regularly, except for the Executive Committee, which meets only as necessary. Committee meetings may be called by the Committee chair, the Chairman of the Board or a majority of Committee members. The Board has adopted written charters for each of the Committees that are posted on BD’s website at www.bd.com/investors/corporate_governance/. Printed copies of these charters, BD’s 2010 Annual Report on Form 10-K, and BD’s reports and statements filed with or furnished to the SEC, may be obtained, without charge, by contacting the Corporate Secretary, BD, 1 Becton Drive, Franklin Lakes, New Jersey 07417-1880, telephone 201-847-6800.

 

Set forth below is a summary description of each of the Board’s operating Committees.

 

Function

 

 

Christopher Jones

Marshall O. Larsen

Gary A. Mecklenburg

Cathy E. Minehan

James F. Orr

Bertram L. Scott

 

The Board has determined that the members of the Audit Committee meet the independence and financial literacy and expertise requirements of the NYSE. The Board also has determined that each of Messrs. Anderson, Larsen, Orr and Scott, and Ms. Minehan, qualifies as an “audit committee financial expert” under the rules of the SEC.

 

The Audit Committee regularly meets separately with the internal and external auditors to ensure full and frank communications with the Audit Committee.

 

Function

 

 

 

Basil L. Anderson

Marshall O. Larsen

James F. Orr

Willard J. Overlock, Jr.

Bertram L. Scott

 

The Board has determined that each member of the Compensation and Benefits Committee meets the independence requirements of the NYSE.

 

The Compensation and Benefits Committee oversees the compensation program for the named executive officers listed in the Summary Compensation Table on page 37 and for BD’s other executive officers. The Compensation and Benefits Committee does not delegate these responsibilities to another Committee, individual director or member of management.

 

Role of Management

 

The Compensation and Benefits Committee’s meetings are typically attended by BD’s Chief Executive Officer, Senior Vice President—Human Resources and others, who support the Compensation and Benefits Committee in fulfilling its responsibilities. The Compensation and Benefits Committee considers management’s views relating to compensation matters, including the performance metrics and targets for BD’s performance-based compensation. Management also provides information (which is reviewed by our Internal Audit Department) to assist the Committee in determining the extent to which performance targets have been achieved. This includes any recommended adjustments to BD’s operating results when assessing BD’s performance. The Chief Executive Officer and Senior Vice President—Human Resources also work with the Compensation and Benefits Committee chair in establishing meeting agendas.

 

The Compensation and Benefits Committee meets in executive session with no members of management present for part of each of its regular meetings. The Compensation and Benefits Committee also meets in executive session when considering compensation decisions regarding our executive officers.

 

Role of the Independent Advisor

 

The Compensation and Benefits Committee is also assisted in fulfilling its responsibilities by its independent advisor, Pay Governance LLC (“Pay Governance”). Pay Governance is engaged by, and reports directly to, the Compensation and Benefits Committee. Pay Governance reviews all materials prepared for the Compensation and Benefits Committee by management, prepares additional materials as may be requested by the Compensation and Benefits Committee, and attends Compensation and Benefits Committee meetings. In its advisory role, among other things, Pay Governance assists the Compensation and Benefits Committee in the design and implementation of BD’s compensation program. This includes assisting the Compensation and Benefits Committee in selecting the key elements to include in the program, the targeted payments for each element, and the establishment of performance targets. Pay Governance also provides market comparison data that is considered by the Compensation and Benefits Committee in making compensation decisions, and makes recommendations to the Compensation and Benefits Committee regarding the compensation of BD’s Chief Executive Officer.

 

Pay Governance also conducts an annual review of the compensation practices of select peer companies. Based on this review, Pay Governance advises the Compensation and Benefits Committee with respect to the competitiveness of BD’s compensation program in comparison to industry practices, and identifies any trends in executive compensation. During fiscal year 2010, Pay Governance was not engaged to perform any services for BD’s management. The Compensation and Benefits Committee has adopted a policy prohibiting Pay Governance from providing any services to BD’s management without the Compensation and Benefits Committee’s prior approval, and has expressed its intention that such approval will be given only in exceptional cases.

 

Setting Compensation

 

At the end of each fiscal year, the Board conducts a review of the Chief Executive Officer’s performance. As part of this process, the Chief Executive Officer provides a self-assessment report. At the following Board meeting, the Board sets the compensation of the Chief Executive Officer after considering the assessment of the Chief

Executive Officer’s performance, market comparison data and the recommendations of the Compensation and Benefits Committee. Neither the Chief Executive Officer nor any other members of management are present during this session. The Chief Executive Officer does not play a role in determining his own compensation.

 

The Compensation and Benefits Committee is responsible for determining the compensation of BD’s other executive officers. The Chief Executive Officer, in consultation with the Senior Vice President—Human Resources, reviews the performance of the other executive officers with the Compensation and Benefits Committee and presents compensation recommendations for its consideration. The Compensation and Benefits Committee determines the compensation for these executives, in consultation with Pay Governance, after considering the Chief Executive Officer’s recommendations, market comparison data regarding compensation levels among peer companies and the views of Pay Governance. All decisions regarding the compensation of BD’s other executive officers are made in executive session.

 

The Board has delegated responsibility for formulating recommendations regarding non-management director compensation to the Corporate Governance and Nominating Committee, which is discussed below.

 

Function

 

 

Henry P. Becton, Jr.

Claire M. Fraser-Liggett

Christopher Jones

Adel A.F. Mahmoud

Gary A. Mecklenburg

Cathy E. Minehan

 

Function

 

 

Edward F. DeGraan

Claire M. Fraser-Liggett

Adel A.F. Mahmoud

Willard J. Overlock, Jr.

Alfred Sommer

 

The Board has determined that each member of the Corporate Governance and Nominating Committee meets the independence requirements of the NYSE. The Corporate Governance and Nominating Committee also reviews the compensation program for the non-management directors and makes recommendations to the Board regarding their compensation, and does not delegate these responsibilities to another Committee, individual director or member of management. The Corporate Governance and Nominating Committee has retained Pay Governance as an independent advisor for this purpose. Pay Governance’s responsibilities include providing assistance in developing an appropriate non-management director compensation peer group; generating market comparison data on the elements and levels of non-management director compensation at peer companies; tracking trends in

non-management director compensation practices; and advising the Corporate Governance and Nominating Committee regarding the components and levels of non-management director compensation. Executive officers do not play any role in either determining or recommending non-management director compensation.

 

The Board and its Committees held the following number of meetings during fiscal year 2010:

 

 

The Executive Committee did not meet during fiscal year 2010.

 

Each director attended 75% or more of the total number of the meetings of the Board and the Committees on which he or she served during fiscal year 2010. BD’s non-management directors met in executive session at each of the Board’s six regular meetings held during fiscal year 2010.

 

The Board has adopted a policy pursuant to which directors are expected to attend the Annual Meeting in the absence of a scheduling conflict or other valid reason. With the exception of one director who had a scheduling conflict, all of the directors then in office attended BD’s 2010 Annual Meeting.

 

The Board believes that providing competitive compensation is necessary to attract and retain qualified non-management directors. The key elements of BD’s non-management director compensation are a cash retainer, equity compensation, Committee chair fees and a Lead Director fee. Of the base compensation paid to the non-management directors (not including Committee chair fees), approximately two-thirds currently is equity compensation that directors will be required to retain until they complete their service on the Board. See “Corporate Governance—Significant Governance Practices—Equity Ownership by Directors” on page 20. This retention feature serves to better align the interests of the directors and BD shareholders and ensure compliance with the director share ownership guidelines discussed below. Mr. Ludwig does not receive compensation related to his service as a director.

 

Cash Retainer

 

Each non-management director currently receives an annual cash retainer of $75,000 for services as a director. Directors do not receive meeting attendance fees.

 

Equity Compensation

 

Each non-management director elected at an Annual Meeting is granted restricted stock units as of the date of the meeting, then valued at $150,000. Directors newly elected by the Board receive a grant pro-rated from the effective date of their election to the next Annual Meeting. The restricted stock units are valued using the same methodology used for the most recent annual grant of equity compensation to BD’s executive officers. The shares of BD common stock underlying the restricted stock units are not issuable until a director’s separation from the Board.

 

Committee Chair/Lead Director Fees

 

An annual fee of $6,500 is paid to each Committee chair, except that the fee for the Audit Committee chair is $10,000 in recognition of the Audit Committee’s responsibilities. No fee is paid to the chair of the Executive Committee. An annual fee of $10,000 is paid to the Lead Director.

 

Other Arrangements

 

BD reimburses non-management directors for travel and other business expenses incurred in the performance of their services for BD. Directors may travel on BD aircraft in connection with such activities, and, on limited occasions, spouses of directors have joined them on such flights. No compensation is attributed to the director for these flights in the table below since the aggregate incremental costs of spouse travel are minimal. In the event

directors utilize other private aircraft, they are reimbursed for the incremental cost thereof. Directors are also reimbursed for attending director education courses. BD occasionally invites spouses of directors to Board-related business events, for which they are reimbursed their travel expenses.

 

Directors are eligible, on the same basis as BD employees, to participate in BD’s Matching Gift Program, pursuant to which BD matches contributions made by a director or employee to qualifying nonprofit organizations. The aggregate limit per participant in 2010 was $5,000.

 

The following table sets forth the compensation received by the non-management directors during fiscal year 2010.

 

Fiscal Year 2010 Non-Management Directors’ Compensation

 

 

 

 

Listed below are the aggregate outstanding restricted stock unit awards and option awards held by each non-management director at the end of fiscal year 2010. Stock options have not been issued to non-management directors since the 2005 Annual Meeting.

 

 

 

Changes to Non-Management Director Compensation

 

During fiscal year 2010, the Board undertook a review of the compensation of its non-management directors. This review included an analysis of the director compensation practices of certain peer companies, including the forms of equity compensation used, the mix of cash and equity compensation, and total compensation.

 

The peer group included the following companies: Agilent Technologies, Inc.; Alcon, Inc.; Allergan, Inc.; C.R. Bard, Inc.; Baxter International Inc.; Beckman Coulter, Inc.; Boston Scientific Corporation; Covidien plc; Hospira, Inc.; Medtronic, Inc.; PerkinElmer, Inc.; St. Jude Medical, Inc.; Stryker Corporation; Thermo Fisher Scientific Inc.; and Zimmer Holdings, Inc.

 

As a result of its review, the Board approved the following revised compensation structure for its non-management directors, effective at the conclusion of the 2011 Annual Meeting, so as to maintain parity with the non-management director compensation being paid by the peer group.

 

 

Directors’ Deferral Plan

 

Directors may defer receipt of all or part of their annual cash retainer and other cash fees pursuant to the provisions of the 1996 Directors’ Deferral Plan. Directors may also defer receipt of shares issuable to them under their restricted stock units upon leaving the Board. A general description of the 1996 Directors’ Deferral Plan appears on page 6.

 

Shareholders or other interested parties wishing to communicate with the Board, the non-management directors or any individual director (including complaints or concerns regarding accounting, internal accounting controls or audit matters) may do so by contacting the Lead Director either:

 

 

All communications will be kept confidential and promptly forwarded to the Lead Director, who shall, in turn, forward them promptly to the appropriate director(s). Such items as are unrelated to a director’s duties and responsibilities as a Board member may be excluded by the Director of Corporate Security, including, without limitation, solicitations and advertisements; junk mail; product-related communications; job referral materials such as resumes; surveys; and material that is determined to be illegal or otherwise inappropriate. The director(s) to whom such information is addressed is informed that the information has been removed, and that it will be made available to such director(s) upon request.

 

BD’s commitment to good corporate governance is embodied in its Corporate Governance Principles (the “Principles”). The Principles, originally adopted in 2001, set forth the Board’s views and practices regarding a number of governance topics, and the Corporate Governance and Nominating Committee assesses on an ongoing basis BD’s corporate governance practices in light of evolving practices. The Principles cover a wide array of subject areas, including voting for directors; the designation of a Lead Director to represent non-management directors; selection of director nominees; relationships between directors and BD; annual evaluations of the Chief Executive Officer, the Board, its Committees and individual directors; conflicts of interest; and charitable contributions to entities with which BD’s executive officers and directors are affiliated, each of which is discussed below, along with other significant governance practices.

 

As stated in the Principles, the Board currently is of the view that it is in BD’s best interest for its Chief Executive Officer also to serve as the Board’s Chairman. The Board believes this arrangement permits a clear, unified strategic vision for BD that ensures alignment between the Board and management, provides clear leadership for BD and helps ensure accountability for BD’s performance.

 

The Board’s goal is to achieve the optimal model for effective oversight of BD’s management. It believes that there is no single, generally accepted approach to providing Board leadership, and that each of the possible leadership structures for a board must be considered in the context of the individuals involved and the specific circumstances facing a company. Accordingly, given the dynamic and competitive environment in which BD operates, the right Board leadership structure may vary as circumstances warrant, as has occurred at BD when deemed appropriate by the Board.

 

The Board believes that its current leadership structure provides independent Board leadership and engagement while deriving the benefit of having the Chief Executive Officer also serve as Chairman. As the individual with primary responsibility for managing BD’s day-to-day operations and with in-depth knowledge and understanding of BD, he is best positioned to lead the Board through reviews of key business and strategic issues. Having an independent Lead Director provides independent oversight of management, including risk oversight, while avoiding the risk of confusion regarding the Board’s oversight responsibilities and the day-to-day management of business operations.

 

BD’s strong corporate governance practices have provided balance and accountability to the unified role of Chairman and Chief Executive Officer. This is evidenced by a substantial majority of independent and experienced

non-management directors, including a Lead Director with specified responsibilities on behalf of the non-management directors, key Board committees comprised entirely of independent directors, and strong and effective Principles.

 

The Principles provide for a Lead Director to be designated by the independent directors whenever the Chairman is not an independent director. The Board has designated a Lead Director since 2002. While the designation is subject to the annual review of the Corporate Governance and Nominating Committee, the Lead Director is expected to serve in such capacity for several years. BD’s Lead Director currently is Henry P. Becton, Jr. BD’s Lead Director plays a broad role that has expanded since the position was created, and currently includes the following responsibilities:

 

 

The Lead Director also is a valuable resource to the Chairman and Chief Executive Officer as part of an informal consultative process on key Board and corporate governance issues.

 

BD’s management engages in a process referred to as Enterprise Risk Management (“ERM”) to identify, aggregate, assess, manage and mitigate a broad range of risks across BD’s multiple businesses, regions and functions, and ensure alignment of our risk assessment and mitigation efforts with BD’s corporate strategy. The Audit Committee, through the authority delegated to it by the Board of Directors, is primarily responsible for overseeing BD’s ERM activities to determine whether that process is functioning as intended and is consistent with BD’s business and strategy. At least twice a year, senior management reviews the results of its ERM activities with the Audit Committee, including the process used within the organization to identify risks, management’s assessment of the significant categories of risk faced by BD (including any changes in such assessment since the last review), and management’s plans to mitigate the potential exposures. On at least an annual basis, the significant risks identified through BD’s ERM activities and the related mitigation plans are reviewed with the full Board. Often, particular risks are reviewed in-depth with the Audit Committee or the full Board at subsequent meetings.

 

In addition to its involvement with ERM, the full Board reviews the risks associated with BD’s strategic plan and discusses the appropriate level of risk in light of BD’s objectives. This is done through an annual strategic planning process, and, because ERM is dynamic, periodically throughout the year as part of its ongoing review of corporate strategy, and otherwise as necessary. The full Board also regularly oversees other areas of potential risk, including BD’s capital structure, acquisitions and divestitures, and succession planning for BD’s Chief Executive Officer and other members of senior management.

 

The various Committees of BD’s Board are also responsible for monitoring and reporting on risks associated with their respective areas of responsibility. The Audit Committee oversees BD’s accounting and financial reporting processes and the integrity of BD’s financial statements, BD’s processes to ensure compliance with laws, its hedging activities and insurance coverages. The Compensation and Benefits Committee oversees risks associated with BD’s compensation practices and programs, and the Corporate Governance and Nominating Committee oversees risks relating to BD’s corporate governance practices, including director independence, related person transactions and conflicts of interest. In performing this function, each Committee often meets with members of management who are primarily responsible for the management of risk in their respective areas, including BD’s Chief Financial Officer, business unit leaders, Senior Vice President–Human Resources, Senior Vice President and General Counsel, Senior Vice President–Regulatory Affairs, and Chief Ethics and Compliance Officer.

Risk Assessment of Compensation Programs

 

With respect to our compensation policies and practices, BD’s management reviewed our policies and practices to determine whether they create risks that are reasonably likely to have a material adverse effect on BD. In connection with this risk assessment, we reviewed the design of BD’s compensation and benefits programs (in particular our performance-based compensation programs) and related policies, potential risks that could be created by the programs, and features of our programs and corporate governance generally that help to mitigate risk. Among the factors we considered were the mix of cash and equity compensation, and fixed and variable compensation, paid to our associates, the balance between short- and long-term objectives of our incentive compensation, the performance metrics, performance targets, threshold performance requirements and funding formulas related to our incentive compensation, the degree to which programs are formulaic or provided discretion to determine payout amounts, caps on payouts, our clawback and share ownership policies, and our general governance structure. Management reviewed and discussed the results of this assessment with the Compensation and Benefits Committee. Based on this review, we believe that our compensation policies and practices do not create risks that are reasonably likely to have a material adverse effect on the BD.

 

The Corporate Governance and Nominating Committee reviews the skills, characteristics and experience of potential candidates for election to the Board, and recommends nominees for director to the full Board for approval. The assessment of the overall composition of the Board encompasses considerations of diversity, age, skills, international background, and significant experience and prominence among directors in areas of importance to BD. In considering the needs of the Board, which can vary at different times, the Board seeks to achieve among directors a diversity of viewpoint, experience, background, knowledge, geography, ethnicity and gender.

 

When considering individual director candidates, the Corporate Governance and Nominating Committee will seek individuals with backgrounds and qualities that, when combined with those of BD’s other directors, provide a blend of skills and experience that will further enhance the Board’s effectiveness. From time-to-time, the Corporate Governance and Nominating Committee has retained an executive search firm to assist it in its efforts to identify and evaluate potential director candidates.

 

The Corporate Governance and Nominating Committee believes that any nominee must meet the following minimum qualifications:

 

 

The Corporate Governance and Nominating Committee assesses the characteristics and performance of incumbent director nominees against the above criteria as well, and, to the extent applicable, considers the impact of any change in the principal occupations of such directors during the last year. Upon completion of the individual director evaluation process, the Corporate Governance and Nominating Committee reports its conclusions and recommendations for nominations to the Board.

 

It is the Corporate Governance and Nominating Committee’s policy to consider referrals of prospective nominees for the Board from other Board members and management, as well as shareholders and other external sources such as retained executive search firms. The Corporate Governance and Nominating Committee utilizes the same criteria for evaluating candidates irrespective of their source.

 

To recommend a candidate for consideration, a shareholder should submit a written statement of the qualifications of the proposed nominee, including full name and address, to the Corporate Secretary, BD, 1 Becton Drive, Franklin Lakes, New Jersey 07417-1880.

 

Described below are some of the significant corporate governance practices that have been instituted by the BD Board.

 

Annual Election of Directors

 

In 2009, in response to changing shareholder views and evolving corporate governance practices, BD’s Restated Certificate of Incorporation was amended to provide for the annual election of directors. In recommending this action, the Board recognized that many investors and commentators believe that the election of directors is the primary means for shareholders to influence corporate governance policies and hold management accountable for implementing those policies. The Board also noted that annual elections of directors are in line with emerging corporate governance practices, providing shareholders with the opportunity to register their views on the performance of the entire Board each year.

 

Voting for Directors

 

The Board has adopted a Principle that provides that any nominee in an uncontested election who receives more “withhold” votes than “for” votes must offer to submit his or her resignation following the shareholder vote (the “Director Resignation Policy”). The Corporate Governance and Nominating Committee will consider and recommend to the Board whether to accept the resignation offer. The Board will decide the action to take with respect to the offer of resignation within 90 days following the shareholder vote. The Board’s decision will be disclosed in a report on a Form 8-K filed by BD with the SEC within four business days following the decision. Any director who offers to submit his or her resignation pursuant to this provision will not participate in the deliberations of either the Corporate Governance and Nominating Committee or the Board. Consideration of all relevant factors on a case-by-case basis pursuant to the Director Resignation Policy gives the Board flexibility and enables it to avoid undesirable and disruptive governance consequences. This structure allows the Board the opportunity to identify and assess the reasons for the vote, including whether the vote is attributable to dissatisfaction with a director’s overall performance or is the result of shareholder views on a particular issue. The Board believes this structure allows BD to maintain a stable Board of experienced and knowledgeable directors while evaluating an appropriate response to shareholder dissatisfaction. The complete terms of this policy are included in the Principles.

 

Board Evaluation

 

Each year the Board evaluates its performance and effectiveness. As part of this process, each director completes a Board Evaluation Form on specific aspects of the Board’s role, organization and meetings. The collective comments are then presented by the Chair of the Corporate Governance and Nominating Committee to the full Board. As part of the evaluation, the Board assesses the progress in the areas targeted for improvement a year earlier, and develops actions to be taken to enhance the Board’s effectiveness over the next year. The Board’s evaluation covers many areas (a complete list is available on BD’s website at www.bd.com/investors/corporate_governance). Additionally, each Board Committee conducts an annual self-evaluation of its performance through a similar process.

 

Equity Ownership by Directors

 

The Board believes that directors should hold meaningful equity ownership positions in BD. To that end, the compensation structure for non-management directors provides that a significant portion of non-management director compensation is in the form of restricted stock units that are not distributable until a director completes his or her service on the Board. The Board believes these equity interests help to better align the interests of the non-management directors with shareholders. Under the Board’s share ownership guidelines, each non-management director is required to own shares of common stock (which includes restricted stock units) valued at 50% of the amount obtained by multiplying the annual cash retainer by the number of years the director has served. Each non-management director who has served for at least one full year currently owns shares in an amount sufficient to comply with these guidelines.

 

Annual Report of Charitable Contributions

 

In furtherance of BD’s commitment to good governance and disclosure practices, the Principles require that BD’s charitable contributions or pledges in an aggregate amount of $50,000 or more (not including contributions

under BD’s Matching Gift Program) to entities with which BD’s directors, executive officers, and their families are affiliated must be approved by the Corporate Governance and Nominating Committee. In addition, BD is required by the Principles to post on its website, at www.bd.com/investors/corporate_governance/, an Annual Report of Charitable Contributions (the “Contributions Report”) listing all such contributions and pledges made by BD during the preceding fiscal year in an amount of $10,000 or more. The Contributions Report, which BD has voluntarily issued since 2002, includes a discussion of BD’s contributions philosophy and the alignment of BD’s philanthropic activities with its philosophy, together with additional information about each contribution or pledge.

 

Recovery of Compensation

 

The Board has adopted a policy that enables BD to recover incentive compensation paid to a BD Leadership Team member based on BD’s financial results that are later restated as a result of such member’s misconduct. This policy also grants the Board the ability to recover from members of the BD Leadership Team who were not involved in such misconduct the amount by which any incentive compensation payout exceeded the amount they would have been paid based on the restated results. BD’s compensation recovery policy is available on BD’s website at www.bd.com/investors/corporate_governance/.

 

Equity Grant Dating

 

The Compensation and Benefits Committee has adopted a comprehensive policy that incorporated BD’s existing practices regarding the issuance of equity grants that effectively guard against the backdating of awards, and added a provision intended to ensure that public announcements are not timed to affect the valuation of an equity grant. BD’s equity grant dating policy is available on BD’s website at www.bd.com/investors/corporate_governance/.

 

Enterprise Compliance

 

Under the oversight of the Audit Committee, BD’s enterprise compliance function is aimed at ensuring that BD is effective at preventing and detecting violations of the many laws, regulations and policies affecting its business (“Enterprise Compliance”), and that BD continuously encourages lawful and ethical conduct. Launched in 2005, Enterprise Compliance supplements the various compliance and ethics functions that were already in place at BD, and seeks to ensure better coordination and effectiveness through program design, prevention, and promotion of an organizational culture of compliance. A Compliance Committee comprised of members of senior management oversees the activities of the Chief Ethics and Compliance Officer. Another key element of this program is training. Courses offered include a global computer-based compliance training program focused on BD’s Business Conduct and Compliance Guide, as well as other courses covering various compliance topics such as antitrust, anti-bribery, conflicts of interest, financial integrity, industry marketing codes and information security.

 

Under the NYSE rules and Principle No. 7, a director is deemed not to be independent if the director has a direct or indirect material relationship with BD (other than his or her relationship as a director). The Corporate Governance and Nominating Committee annually reviews the independence of all directors and reports its findings to the full Board. To assist in this review, the Board has adopted director independence guidelines based on the NYSE rules (“Independence Guidelines”) that are contained in Principle No. 7. The NYSE rules and the Independence Guidelines include a bright-line quantitative test whereby a director may not be deemed independent if there is a transaction involving BD and an organization with which a director or an immediate family member is, or was, affiliated during the preceding three-fiscal year period (a “director-affiliated organization”), in which payments made to, or from, the director-affiliated organization exceeded the greater of $1 million or 2% of the director-affiliated organization’s consolidated gross revenues for any fiscal year during such period. The Independence Guidelines set forth certain types of relationships between BD and directors and their immediate family members, or entities with which they are affiliated, that the Board, in its judgment, has deemed to be either material or immaterial for purposes of assessing a director’s independence. In the event a director has any relationship with BD that is not addressed in the Independence Guidelines, the independent members of the Board review the facts and circumstances to determine whether such relationship is material.

 

The Board has determined that the following directors are independent under the Independence Guidelines: Basil L. Anderson, Henry P. Becton, Jr., Edward F. DeGraan, Christopher Jones, Claire M. Fraser-Liggett, Marshall

O. Larsen, Adel A.F. Mahmoud, Gary A. Mecklenburg, Cathy E. Minehan, James F. Orr, Willard J. Overlock, Jr., Bertram L. Scott and Alfred Sommer. Edward J. Ludwig is an employee of BD, and, therefore, is not independent under the NYSE rules and the Principles.

 

In determining that each of the non-management directors is independent, the Board reviewed BD’s transactions or other dealings in the ordinary course of business with director-affiliated organizations. Such affiliations included service by the director or an immediate family member as an officer, employee, adjunct faculty member or governing or advisory board member of such organizations. In conducting its review, the Board determined that, in each instance, the nature of the relationship, the director’s involvement with, the director-affiliated organization and the amount involved would not impair the director’s independence under the Independence Guidelines. In addition, in most instances, the director played no active role in the director-affiliated organization’s relationship with BD, and, in some instances, the relationship involved a unit of such organization other than the one with which the director has been involved. Accordingly, the Board determined that none of these relationships was material or conflicted with BD’s interests, or impaired the relevant director’s independence or judgment.

 

The types of transactions with director-affiliated organizations considered by the Board in this respect consisted of payments related to the purchase or sale of products and/or services, the licensing of intellectual property rights or other activities (in the cases of Messrs. Anderson, Becton, Jones, Larsen, Mecklenburg, Orr, Overlock and Scott, Drs. Fraser-Liggett, Mahmoud and Sommer, and Ms. Minehan) and charitable contributions (in the cases of Messrs. Jones and Overlock and Dr. Sommer). These transactions also included an established relationship between BD and CIGNA Corporation and affiliated companies (collectively, “CIGNA”), as a result of Mr. Scott’s joining CIGNA as President, U.S. Commercial, effective June 28, 2010. CIGNA is one of BD’s medical claims administrators under BD’s self-insured medical plan, which involves the administration and processing of medical claims for BD associates. BD pays CIGNA an administrative fee for the use of CIGNA’s networks, claims processing and customer service inquiries for these purposes. CIGNA also acts as the insurer for BD’s Basic and Voluntary Accident Programs and Business Travel Accident insurance program for BD associates, for which BD pays to CIGNA the premiums for BD associates’ basic insurance coverage. The Board also considered the fact that Ms. Minehan’s husband is a Managing Director at The Goldman Sachs Group, Inc., a financial services company which, together with affiliated entities (collectively “Goldman Sachs”), has provided investment banking and certain financial services to BD predating Ms. Minehan’s election to the Board. Ms. Minehan’s husband has played no role at any time in Goldman Sach’s dealings with BD. BD paid Goldman Sachs approximately $6.2 million for all such services during fiscal year 2010, which represented a small fraction of one percent (.01%) of Goldman Sachs’ consolidated gross revenues during its most recent fiscal year. This figure is well below the bright-line quantitative test applied in determining director independence described above. Accordingly, the Board concluded that BD’s relationship with Goldman Sachs was not a material relationship that would impede the exercise of independent judgment by Ms. Minehan.

 

The Board has also established a policy (the “Policy”) requiring Board approval or ratification of transactions involving more than $120,000 per year where a director, executive officer or shareholder owning more than 5% of BD’s stock (excluding certain passive investors) or their immediate family members, has, or will have, a material interest, regardless of whether the transaction impacts a director’s independence. The Policy is available on BD’s website at www.bd.com/investors/corporate_governance/. The Policy excludes specified transactions including certain charitable contributions, transactions available to employees generally, and indemnification and advancement of certain expenses. The Corporate Governance and Nominating Committee is responsible for the review and approval or ratification of transactions subject to the Policy. The Corporate Governance and Nominating Committee will approve or ratify only those transactions that it determines in its business judgment are fair and reasonable to BD and in (or not inconsistent with) the best interests of BD and its stockholders, and do not impact the director’s independence when relevant.

 

BD also engaged one shareholder (or its affiliated operating units) holding 5% or more of BD common stock during fiscal year 2010 for various financial services for which BD paid fees in excess of $120,000. BD paid to State Street Bank and Trust Company, Trustee (“State Street”), $621,500 for banking services and investment management of various Savings Incentive Plan funds. These transactions are not required to be approved under the Policy since State Street is considered a passive investor in BD.

Business Conduct and Compliance Guide

 

BD maintains a Business Conduct and Compliance Guide (the “Guide”), which was adopted by the Board in 1995. The Guide is a code of conduct and ethics applicable to all directors, officers and employees of BD, including its Chief Executive Officer and its Chief Financial Officer, principal accounting officer and other senior financial officers. It sets forth BD’s policies and expectations on a number of topics, including conflicts of interest, confidentiality, compliance with laws (including insider trading laws), preservation and use of BD’s assets, and business ethics. The Guide also sets forth procedures for the communicating and handling of any potential conflict of interest (or the appearance of any conflict of interest) involving directors or executive officers, and for the confidential communication and handling of issues regarding accounting, internal controls and auditing matters.

 

Since 1995, BD has also maintained an Ethics Help Line telephone number (the “Help Line”) for BD associates as a means of raising concerns or seeking advice. The Help Line is serviced by an independent contractor and is available to all associates worldwide, 7 days a week, 24 hours a day. Translation services are also available to associates. Associates using the Help Line may choose to remain anonymous and all inquiries are kept confidential to the extent practicable in connection with investigation of an inquiry. All Help Line inquiries are forwarded to BD’s Chief Ethics and Compliance Officer for investigation. Any matters reported to the Chief Ethics and Compliance Officer, whether through the Help Line or otherwise, involving accounting, internal control or audit matters, or any fraud involving management or persons who have a significant role in BD’s internal controls, are reported directly to the Audit Committee.

 

The Chief Ethics and Compliance Officer leads the BD Ethics Office, a unit within BD that administers BD’s Ethics program. In addition to the Help Line, the Ethics program provides for broad communication of BD’s Core Values, associate education regarding the Guide and its requirements, and ethics training sessions. BD’s Core Values are:

 

 

Any waivers from any provisions of the Guide for executive officers and directors would be promptly disclosed to shareholders. In addition, certain amendments to the Guide, as well as any waivers from certain provisions of the Guide relating to BD’s Chief Executive Officer, Chief Financial Officer or principal accounting officer would be posted at the website address set forth below.

 

The Guide is available on BD’s website at www.bd.com/investors/corporate_governance/. Printed copies of the Guide may be obtained, without charge, by contacting the Corporate Secretary, BD, 1 Becton Drive, Franklin Lakes, New Jersey 07417-1880, phone 1-201-847-6800.

 

The primary objective of the BD compensation program is to fully support the strategic business goal of delivering superior long-term shareholder returns through sustained revenue growth, EPS growth and return on capital. As such, we intend to ensure a high degree of alignment between pay and the long-term value and financial soundness of BD. The Compensation and Benefits Committee of the Board of Directors (the “Committee”) has established the following compensation principles to meet this objective:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

The Committee has reviewed and discussed the Compensation Discussion and Analysis with management, and based on such review and discussions, has recommended to the Board of Directors that the Compensation Discussion and Analysis be included in BD’s Annual Report on Form 10-K for the year ended September 30, 2010 and in this proxy statement.

 

COMPENSATION AND BENEFITS COMMITTEE

 

Edward F. DeGraan—Chair

Basil L. Anderson

Marshall O. Larsen

James F. Orr

Willard J. Overlock, Jr.

Bertram L. Scott

 

This section discusses our executive compensation program and the compensation actions taken with respect to the executive officers named in the Summary Compensation Table on page 37. We sometimes refer to these individuals as the “named executive officers” or “NEOs.” All references in this section to years are references to our fiscal year, which ends on September 30, unless otherwise noted.

 

This section includes a discussion of performance targets in the limited context of our executive compensation program. These targets are not statements of management’s expectations of our future results or other guidance. Investors should not use or evaluate these targets in any other context or for any other purpose.

 

Executive Summary

 

Overview of our compensation program

 

Our goal is to provide an executive compensation program that best serves the long-term interests of our shareholders. We believe that attracting and retaining superior talent is a key to delivering superior shareholder returns, and that a competitive compensation plan is critical to that end. Therefore, we intend to provide a competitive compensation package to our executives, tie a significant portion of pay to performance and utilize components that best align the interests of our executives with those of BD’s shareholders.

 

The following is a summary of important aspects of our executive compensation program discussed later in this section.

 

 

Changes made in 2010 to our compensation program

 

At the beginning of 2010, the Compensation and Benefits Committee (the “Compensation Committee”) reviewed our compensation program in light of the economic climate and our company-wide cost control efforts. The Compensation Committee also considered ways to increase the link between pay and performance. In conducting its review, the Compensation Committee was mindful of the need to attract and retain executives to lead BD’s future growth. As a result of this review, the following actions were taken for 2010:

 

Performance Incentive Plan

 

 

 

Equity compensation

 

 

Overview of 2010 operating performance and summary of compensation actions

 

In 2010, BD continued to face a challenging economic climate. Reduced hospital visits in the U.S., lower diagnostic testing in Europe and other effects of the global economy resulted in weakened demand for our products during the year. In response, our management team undertook significant cost-control measures, increased productivity and took other steps to maintain our profitability during this difficult period. As a result of these efforts, we reported a 5.5% increase in revenues, and an increase in adjusted earnings per share that exceeded our initial guidance for the year. BD also generated operating cash flows of $1.7 billion. This strong cash flow allowed us to invest $431 million (or approximately 6% of revenues) in research and development and $537 million in capital expenditures to support future growth. At the same time, we returned $1.1 billion to our shareholders through dividends and share repurchases, an increase of 26% from the prior year.

 

Despite BD’s strong performance for the year, total cash compensation paid to BD’s executives was lower than in 2009. Given the uncertain business environment we faced going into 2010, and based on management’s recommendation, the Compensation Committee froze the salaries of our executives at calendar year 2009 levels. Also, due to the changes to the PIP put in place for 2010 discussed above, PIP awards to our executive officers were significantly lower than in 2009, despite BD’s having exceeded target performance for the year.

 

In addition, the lower revenue growth BD experienced in 2010 contributed to a below-target payout of Performance Units covering the 2008-2010 performance cycle. These Performance Units paid out at 44% of the share target.

 

Consistent with our past practice, performance-based equity compensation represented a significant component of compensation in 2010. Equity compensation award values for our executives increased compared to 2009, primarily due to adjustments made to align award values with those of peer companies.

 

Objectives of Our Executive Compensation Program

 

The objectives of our executive compensation program include:

 

Offering competitive compensation. We seek to offer a competitive compensation package that helps us attract and retain our executives.

 

Linking compensation to performance. We seek to implement a pay-for-performance philosophy by rewarding the achievement of financial and other goals that support long-term shareholder value.

 

Aligning executives with our shareholders. We seek to align the interests of our executives with those of our shareholders through equity compensation and share ownership guidelines.

 

The Process for Setting Executive Compensation

 

The role of the Compensation Committee, its consultant and management

 

The Compensation Committee oversees the compensation program for the named executive officers and our other executive officers. The Compensation Committee is assisted in fulfilling its responsibilities by its independent consultant, Pay Governance LLC (“Pay Governance”), and BD’s senior management. Additional information about our process for setting executive compensation, including the role of Pay Governance and management, may be found on pages 12-13. In order to maintain the independence of its outside consultant, the Compensation Committee has established a policy that prohibits its consultant from performing any services for BD’s management

without the Compensation Committee’s prior approval. In accordance with this policy, BD did not engage Pay Governance to perform services in 2010.

 

The use of market comparison data

 

The Compensation Committee considers a number of factors in structuring our program and making compensation decisions. This includes the compensation practices of select peer companies in the healthcare industry, which we refer to as the “Comparison Group.” These companies were chosen by the Compensation Committee after considering the recommendations of Pay Governance and management, and were selected because they have significant lines of business that are similar to BD’s. The Compensation Committee believes that reference to the Comparison Group is appropriate when reviewing BD’s compensation program because it believes we compete with these companies for executive talent. The Compensation Committee reviews the composition of the Comparison Group at least annually. The companies in the Comparison Group are:

 

 

Compensation data from Abbott Laboratories, Johnson & Johnson and Roche Diagnostics is only used by the Compensation Committee when reviewing the compensation of Messrs. Forlenza, Kozy and Cohen. These three companies are not considered when reviewing the compensation of Messrs. Ludwig and Elkins.

 

The Compensation Committee attempts to set the compensation of our executive officers at levels that are competitive with the Comparison Group. To do this, the Compensation Committee seeks to estimate the median salary, annual cash incentive and long-term equity compensation, and the combined total of these elements, of persons holding the same or similar positions at the Comparison Group companies, based on available information. The Compensation Committee then generally seeks to target the compensation of our executive officers for each of these elements within a competitive range, assuming payout of performance-based compensation at target. The Compensation Committee considers targeted compensation to be in a competitive range if it is within 15% of the median of the Comparison Group. This range is a guideline, and the Compensation Committee retains the flexibility to set target compensation outside the range for an individual or for a specific element of compensation when the Compensation Committee deems it appropriate. An executive’s actual compensation may vary from the target amount set by the Compensation Committee based on the individual’s and BD’s performance and changes in our stock price.

 

Setting compensation targets based on market comparison data is intended to ensure that our compensation practices remain competitive. Because each compensation element is reviewed individually, compensation decisions made with respect to one element of compensation generally do not affect decisions made with respect to other elements. It is also for this reason that no specific formula is used to determine the allocation between cash and equity compensation, although it is the Compensation Committee’s intent that equity compensation represent the largest percentage of overall target compensation. In addition, because an executive’s compensation target is set by reference to persons with similar duties at the Comparison Group companies, the Compensation Committee does not establish any fixed relationship between the compensation of our Chief Executive Officer (“CEO”) and that of the other named executive officers.

 

The use of tally sheets

 

Annually, the Compensation Committee is provided a “tally sheet” report prepared by management for each named executive officer. The tally sheet includes, among other things, total annual compensation, the value of unexercised or unvested equity compensation awards, and amounts payable upon termination of employment under various circumstances, including retirement or a change of control. The Compensation Committee uses tally sheets to provide perspective on the wealth the executives have accumulated from prior equity awards and plan accruals and their retentive value, consider any changes to our program that may be appropriate (including the mix of compensation elements), and provide additional context for their compensation decisions.

Our emphasis on pay-for-performance

 

We do not use a specific formula to determine the mix of performance-based and fixed compensation paid to our executives. However, our emphasis on pay-for-performance resulted in performance-based compensation (which we define as PIP awards, Performance Units and SARs) being a significant part of executive compensation in 2010, representing 87% of total target compensation of our CEO and an average of 78% for our other named executive officers, as shown in the charts below. This compares to 70% for our CEO and 62% for our other named executive officers in 2009 (excluding Mr. Elkins, who only joined BD in 2009).

 

2010 Total Target Compensation

 

 

The above charts are based on the target values of performance-based compensation. Actual amounts received (and the percentage of total compensation coming from performance-based compensation) may differ based on performance and BD’s stock price.

 

Our risk analysis of performance-based compensation

 

While a significant portion of executive compensation is performance-based, we do not believe that our program encourages excessive or unnecessary risk-taking. While risk-taking is a necessary part of operating and growing a business, the Compensation Committee focuses on aligning BD’s compensation policies with our long-term strategy and attempts to avoid short-term rewards for management decisions that could pose long-term risks to BD. This includes:

 

 

The Key Elements of Our Compensation Program

 

The key elements of our executive compensation program are summarized in the table below.

 

 

The Compensation Committee believes this combination of cash and equity compensation furthers the objectives of our executive compensation program. Based on prevailing market practices, the Compensation Committee provides a mix of salary, annual cash incentive and equity compensation awards to offer a competitive compensation package. This structure also promotes our pay-for-performance philosophy by linking pay levels to both our short-term performance (through PIP awards) and long-term performance (through Performance Units and SARs). A significant portion of compensation is also provided through equity compensation awards, which align the interests of the executives with our shareholders, promote executive retention and reward the creation of shareholder value.

 

How PIP and Equity Compensation Are Awarded

 

PIP

 

The PIP provides our executives an opportunity to receive a cash incentive award for BD’s performance for the fiscal year and their contribution to that performance, as part of our pay-for-performance philosophy.

 

Target awards. Target PIP awards for the named executive officers for 2010 are expressed as a percentage of base salary, as follows:

 

 

Based on available data, the 2010 target awards for our named executive officers were within the competitive range targeted by the Compensation Committee. The “Grants of Plan-Based Awards in Fiscal Year 2010” table on page 39 shows the range of possible awards under the PIP.

Executive officers are eligible to receive PIP awards only if BD first meets a baseline net income target established by the Compensation Committee. Achievement of this baseline performance target results in an allocation of the maximum PIP award that may be paid to a named executive officer (200% of target). The Compensation Committee has the discretion (and has always exercised this discretion) to reduce the amount of the award based on such factors as the Compensation Committee deems appropriate.

 

The factors the Compensation Committee considers when setting PIP awards include BD’s overall performance for the year, and the executive’s target award and performance. CEO performance is measured against the performance goals for the year established by the Board. For the other named executive officers, the CEO provides an assessment to the Compensation Committee of how those executive officers performed against the performance objectives relating to the businesses or functions they oversee. In each case, the performance objectives for a named executive officer involve a combination of quantitative and qualitative goals. However, no specific formula or weighting of individual performance objectives is used to determine a named executive officer’s PIP award, nor is the achievement of any particular individual performance objective a condition to receiving an award. Instead, the Compensation Committee uses its business judgment to determine the appropriate PIP award to recognize BD’s performance and the executive’s contribution.

 

Performance Targets. Funding for PIP awards is determined by a formula tied to how BD performs during the year against the performance targets set by the Compensation Committee. Historically, we have used diluted earnings per share from continuing operations (“EPS”) as the performance measure for the PIP. In 2010, the Compensation Committee added a revenue growth target as well. The EPS target is weighted 75% and the revenue growth target is weighted 25%. The EPS and revenue targets are based on BD’s business plan for the fiscal year. Revenue growth is measured after eliminating the effects of foreign currency translation so that only improvement in underlying performance is considered. In reviewing BD’s operating results against the performance targets, the Compensation Committee has the discretion to adjust BD’s results to account for acquisitions and divestitures, and items that are not considered part of our ordinary operations. This ensures that management makes decisions based on the best interests of BD, rather than the possible effects on its compensation. This discretion is also used to make sure our executives are not unfairly penalized by, or benefitted from, these types of events.

 

We use EPS as a performance target because it is the primary basis on which we set our performance expectations for the year, and EPS is a widely-used measure of overall company performance. For this reason, EPS is more heavily weighted than revenue growth. The revenue growth target was added to increase management’s focus on achieving strong “top-line” growth, consistent with our business strategy. We believe that consistent EPS and revenue growth will result in the creation of long-term shareholder value. We also use these targets because they are clear, measurable and easy for our associates to understand.

 

In 2010, the Compensation Committee also raised the threshold performance required for the granting of PIP awards from 80% to 90% of target performance. This change was made to further emphasize the link between pay and performance. The Compensation Committee does not believe that this is an unreasonably high threshold. As part of our cost control measures, the Compensation Committee also decided that, for 2010, meeting target performance will only result in awards at 60% of an executive officer’s target, subject to the Compensation Committee’s discretion to adjust the awards based on individual performance.

 

Long-Term Equity Compensation

 

The equity compensation awards made to the named executive officers in 2010 consisted of SARs and Performance Units. A description of each type of award is on page 40. In 2009, the named executive officers received time-vested restricted stock units, or “Time-Vested Units,” in addition to Performance Units and SARs. In 2010, the Compensation Committee discontinued the use of Time-Vested Units for our executive officers and other members of senior management. This change to purely performance-based equity compensation was made to increase the link between executive compensation and long-term performance.

 

How awards are determined. The Compensation Committee determines the grant date dollar value of the award to be made to each named executive officer, based on market compensation comparison data and individual performance, and awards approximately half of such value in Performance Units and the other half in SARs. The values given to equity compensation awards by the Compensation Committee are only estimates, and are not intended to be predictive of the actual value that will be realized from the awards. The amount ultimately realized will based on BD’s performance and our stock price.

Performance Unit targets. The performance measures used for the Performance Units are average revenue growth and average return on invested capital (“ROIC”). For the awards made in 2010, revenue growth is weighted 70% and ROIC is weighted 30%. In setting revenue growth and ROIC targets, the Compensation Committee considers BD’s business plan at the time of the grant and what the Compensation Committee believes is a reasonable range of performance over the performance period, as well as economic trends in the segments in which we operate. The Compensation Committee’s goal is to set challenging but achievable targets. Despite the effects of the global recession, the Compensation Committee has not revised the performance targets of any prior Performance Unit grants.

 

We use revenue growth as a performance metric because it is directly tied to our long-term growth strategy. For this reason, it is weighted more heavily than ROIC. Revenue growth is measured after eliminating the effect of foreign currency translation so that only improvement in underlying performance is counted. ROIC is used to motivate our executives to maintain BD’s profitability and balance sheet strength. The Compensation Committee believes that sustained performance in revenue growth and ROIC will lead to increasing long-term value for our shareholders.

 

Performance Unit awards are given a share target. The actual number of shares issued is determined by a grid, and can range anywhere from zero (if BD fails to meet the minimum performance threshold for both revenue growth and ROIC) to 200% of the share target (if BD meets or exceeds the maximum payout threshold for both revenue growth and ROIC). In determining payouts, the Compensation Committee has the discretion to adjust BD’s operating results to account for events that occur during the performance period, similar to its discretion under the PIP.

 

As with PIP awards, the named executive officers are eligible to receive Performance Unit payouts only if BD first meets a baseline net income target set by the Compensation Committee. Meeting this baseline target results in a maximum award payout, subject to the discretion of the Compensation Committee (which has always exercised this discretion) to reduce the amount of the payout based on the revenue and ROIC grid discussed above. For purposes of this proxy statement, when discussing performance measures for Performance Units, we refer to the revenue and ROIC targets.

 

Compensation Actions

 

Below is a discussion of compensation actions taken with respect to the named executive officers.

 

Salary adjustments

 

The base salaries of the named executive officers are reviewed each November, and any adjustments go into effect on January 1 of the following calendar year. In light of economic conditions and based on management’s recommendation, our named executive officers did not receive any salary increase for calendar year 2010. Based on available data, the 2010 salaries for our named executive officers, other than Mr. Forlenza, were within the competitive range targeted by the Compensation Committee. Mr. Forlenza’s salary was slightly above the competitive range, in recognition of the additional duties Mr. Forlenza has assumed beyond his role as President (which ultimately led to the Board adding Chief Operating Officer to his title in July 2010).

 

PIP awards

 

Our performance for 2010 compared to the performance targets was as follows:

 

 

Both the EPS and revenue targets were adjusted for divestitures during the year. Reported EPS for the year was $4.90. In reviewing BD’s results, the Compensation Committee exercised its discretion to adjust EPS for the charge we took as a result of provisions in the recently-enacted federal healthcare reform law. The Compensation Committee adjusted for this charge because it resulted purely from a change in existing law and was not related to our ordinary operations. The Compensation Committee also adjusted EPS for the one-time gain recognized in connection with a divestiture and for certain tax benefits originally budgeted to be realized in 2010, but which are now expected to be realized in 2011 and are factored into the EPS target for the 2011 PIP awards.

Based on this performance, BD achieved 102% of target performance for the year, which ordinarily would result in PIP funding for 110% of target awards. However, as discussed earlier, the Compensation Committee decided that, for 2010, target performance would result in awards at 60% of an executive officer’s target, subject to the Compensation Committee’s discretion to adjust the awards. After its review of BD’s performance and that of the named executive officers, the Compensation Committee increased the awards for the named executive officers above the 60% level for the reasons discussed below. However, each executive still received less than his target award.

 

The following table shows the PIP awards granted for 2010. These awards are also set forth in the Summary Compensation Table on page 37 under the heading “Non-Equity Incentive Plan Compensation.”

 

 

The awards to the named executive officers reflect what the Compensation Committee believes was superior performance during the year by BD’s management team. In making these awards, the Compensation Committee considered that, through management’s efforts, BD was able to achieve its revenue and earnings goals for the year despite continuing challenges in the global economy. Importantly, BD was able to achieve these results without sacrificing our investment in BD’s growth opportunities. In addition, the Compensation Committee noted significant progress during the year on projects and initiatives that are important to BD’s future growth. These include further development of BD’s business strategy, including a go-to-market strategy in China and other emerging markets, initiatives to improve product innovation, a review of BD’s global cost structure and other operating effectiveness projects, the upgrade of our enterprise resource planning system, and efforts to strengthen BD’s international distribution management and ensure compliance with BD’s ethical standards by distributors and agents.

 

Equity compensation awards

 

The Compensation Committee made the equity compensation awards to the named executive officers reflected on page 39. The increase in award values over the prior year for Messrs. Ludwig, Forlenza, Kozy and Cohen is attributable in part to adjustments in target award values the Compensation Committee made after considering compensation data relating to the Comparison Group and determining that the previous award values were below the competitive range. The increase is also due in part to a change in the Compensation Committee’s methodology in valuing the awards. Because of the sharp decline in the stock market at the time, the Compensation Committee used an assumed BD stock price to value the 2009 grants that was significantly higher than the BD stock price on the date of grant, resulting in fewer SARs and units being granted. For the 2010 grants, the Compensation Committee used the average BD closing price for the 20 trading days prior to the grant to value the awards, which more closely approximated the value of BD stock on the grant date.

 

Based on available data, the equity compensation awards for Messrs. Ludwig, Kozy and Cohen were within the competitive range targeted by the Compensation Committee. The Compensation Committee set the value of Mr. Forlenza’s award above the competitive range, in recognition of the additional duties Mr. Forlenza has assumed, as discussed above. The award made to Mr. Elkins was below the competitive range for chief financial officers. The Compensation Committee set Mr. Elkins’ award value at this level since he was new to his role when the grant was made. The Compensation Committee subsequently reset Mr. Elkins’ target award value to more closely approximate the median of the Comparison Group.

 

The Performance Units included in these awards cover the 2010-2012 performance period, and have the minimum performance thresholds, target performance and maximum payout thresholds set forth below.

 

The revenue growth target for the 2010 grant is lower than the target for the previous year’s grant, while the ROIC target is higher. The Compensation Committee set this revenue target after considering the prevailing economic conditions and the growth trends in the segments in which we operate. The Compensation Committee believes this revenue target is higher than the average expected revenue growth of the Comparison Group companies over the period covered by the award, and represents a challenging goal for management given the economic climate and its expected effect on BD’s near-term results.

 

Payout of prior Performance Unit awards

 

2007-2009 performance period

 

In November 2009, Performance Units covering the 2007-2009 performance period vested. These awards had performance targets of 9% currency-neutral revenue growth and 30% ROIC. Our adjusted revenue growth and ROIC over the performance period were 6.1% and 31.7%, respectively, resulting in a payout of 77% of the share target. See the “Option Exercises and Stock Vested in Fiscal Year 2010” table on page 43.

 

In determining the payout, the Compensation Committee used its discretion to adjust BD’s revenue growth and ROIC to take into account acquisitions and divestitures. The Compensation Committee also adjusted ROIC for the period to eliminate the effects of non-cash charges incurred in connection with acquisitions and the charge relating to the pending settlement of certain antitrust cases. It was determined that these actions were in the best interests of BD, and the Compensation Committee did not believe it was appropriate for the Performance Unit payouts to be reduced as a result. Based on these adjustments, the share payout of the awards was adjusted upward from 74% to 77% of the share target.

 

2008-2010 performance period

 

In November 2010, Performance Units covering the 2008-2010 performance period vested. These awards had performance targets of 8.5% currency-neutral revenue growth and 31% ROIC. Our adjusted revenue growth and ROIC over the performance period were 5.8% and 30.8%, respectively. This resulted in a payout of these awards at 44% of the share target. In determining the payout, the Compensation Committee used its discretion to adjust BD’s revenue growth and ROIC to take into account acquisitions and divestitures. ROIC was also adjusted for the charge relating to the litigation settlement mentioned above. However, these adjustments did not affect the final share payout of the awards.

 

Other Benefits Under Our Executive Compensation Program

 

Company transportation

 

The Compensation Committee encourages Mr. Ludwig to use BD aircraft for his personal and business travel, in order to make more efficient use of his travel time, enhance his personal security and reduce business continuity risk. BD and Mr. Ludwig have entered into a time-sharing arrangement under which Mr. Ludwig makes payments to BD for his personal use of BD aircraft. For 2010, Mr. Ludwig paid BD $236,028 in time-share payments. These payments covered all of the incremental costs relating to Mr. Ludwig’s personal flights. Additional information on the time-sharing arrangement is set forth in the notes to the Summary Compensation Table on page 38.

 

Deferred compensation

 

Our Deferred Compensation and Retirement Benefit Restoration Plan is an unfunded, nonqualified plan that, among other things, allows eligible associates to defer receipt of cash compensation and shares issuable under certain equity compensation awards. The plan is offered to our eligible associates as part of a competitive compensation program. It gives eligible associates the opportunity to defer compensation on a pre-tax basis in addition to what is allowed under our tax-qualified 401(k) plan. The table on page 46 shows activity in the deferral accounts of the named executive officers during 2010. We do not provide any guaranteed earnings on amounts deferred by the named executive officers. Earnings on these accounts are based on their individual investment elections. BD provides matching contributions on cash amounts deferred under the plan, subject to certain limits.

Pension benefits

 

We offer retirement benefits for all of our U.S. associates. Because the Internal Revenue Code limits the maximum annual benefit that may be paid to an individual under our qualified Retirement Plan, we provide additional retirement benefits through our non-qualified Deferred Compensation and Retirement Benefit Restoration Plan. Together, these plans are designed to provide a market-competitive level of income replacement for our retirement-eligible associates, reduce associate turnover and contribute towards providing a competitive compensation package. A more complete description of our pension benefits begins on page 43. The named executive officers participate in these plans on the same basis as all eligible associates.

 

Change of control agreements

 

We have an agreement with each named executive officer relating to his employment following a change of control. This agreement provides the executive with continued employment for a period of two years following a change of control of BD. It also provides certain benefits to the executive in the event his employment is terminated, or he leaves his employment for “good reason” (also known as a constructive termination), during this period. Generally, these benefits include a severance payment equal to a multiple of the executive’s salary and PIP award, and certain other benefits. A more complete description of the terms and potential payouts of our change of control agreements begins on page 47.

 

General purpose. Our change of control agreements are intended to retain the executives and provide continuity of management in the event of an actual or threatened change of control of BD. These change of control benefits are reviewed from time-to-time by the Compensation Committee to ensure that they are consistent with our compensation objectives and market practices. Based on information provided by Pay Governance, change of control arrangements are used by a substantial majority of the companies in the Comparison Group, and the terms of our agreements, including the severance multiple, are consistent with the prevailing practices at those companies. The Compensation Committee believes the benefits provided under these agreements are appropriate and are consistent with our objective of attracting and retaining highly-qualified executives.

 

In setting the potential payments under these agreements, the Compensation Committee does not consider the wealth accumulated by the named executive officers under prior compensation awards or our benefit plans, because the Compensation Committee believes these agreements are important in protecting shareholder interests in the event of an actual or threatened change of control. In addition, while salary and PIP decisions affect the potential payouts under these agreements, this did not affect the Compensation Committee’s decision-making. The Compensation Committee does not believe it is appropriate to base salary and PIP decisions on the potential effect they may have under change of control agreements that may never be triggered.

 

Triggering events. Our agreements contain a “double trigger”—that is, there must be a change of control of BD and a termination of the executive’s employment in order for any payments to be made. We opted for a double-trigger, rather than a “single trigger” that provides for severance payments solely on the basis of a change of control, since a double trigger is consistent with the purpose of encouraging the continued employment of the executive.

 

“Gross-up” payments. In certain instances, payments made to a named executive officer on account of his termination may be subject to a 20% excise tax. To offset the effect of the excise tax, we will make a “gross-up” payment to the named executive officer to reimburse him for the excise tax. We provide for these payments because they allow an executive to recognize the full intended economic benefit of his agreement and eliminate unintended disparities between executives that the excise tax can arbitrarily impose, owing to the particular structure of this tax provision.

 

Other change of control provisions

 

Upon a change of control, all outstanding equity compensation awards granted to our associates, including the named executive officers, immediately vest. Unlike the “double trigger” discussed above, no termination of employment is required for the accelerated vesting of the awards. This “single-trigger” vesting provides our associates with the same opportunity as our shareholders to realize the value created by the transaction. Based on information provided by Pay Governance, the Compensation Committee believes that these accelerated vesting provisions are consistent with market practices.

Significant Policies and Additional Information Regarding Executive Compensation

 

Recovery of prior compensation

 

The Board of Directors has adopted a policy that gives the Board the discretion to require a member of the BD Leadership Team to reimburse BD for any PIP award or Performance Unit payout that was based on financial results that were subsequently restated as a result of such member’s misconduct. The Board also has the discretion to cancel any equity compensation awards (or recover payouts under such awards) that were granted to such person with respect to the restated period, and require the person to reimburse BD for any profits realized on any sale of BD stock occurring after the public issuance of the financial statements that were subsequently restated. The BD Leadership Team consists of 53 members of senior management, and includes the named executive officers.

 

The policy also gives the Board the authority to require those members of the BD Leadership Team who were not involved in the misconduct to reimburse BD for the amount by which their PIP award or Performance Unit payouts exceeded the amount they would have received based on the restated results.

 

Share retention and ownership guidelines

 

In order to increase executive share ownership and promote a long-term perspective when managing our business, our share retention and ownership guidelines require the named executive officers and other members of the BD Leadership Team to retain in BD stock 75% of the net after-tax proceeds from any equity compensation awards until the person achieves the required ownership level. The required ownership levels are as follows:

 

 

Shares held directly, shares held indirectly through our 401(k) plan and deferred compensation plan, and time-vested restricted stock units are included in determining a person’s share ownership. Each of the named executive officers has holdings in excess of his ownership requirement, other than Mr. Elkins, who joined BD in December 2008. We have a policy that prohibits our associates from engaging in options, puts, calls or other transactions that are intended to hedge against the economic risk of owning BD shares.

 

Timing of equity awards

 

The Compensation Committee has adopted a policy that prohibits the backdating of any equity grant, and requires our annual equity compensation awards and any “off-cycle” awards approved by our CEO to be made on fixed dates. The policy also prohibits manipulating the timing of either the public release of information or the grant of an award in order to increase the value of the award. Under the policy, the exercise price of any stock option or SAR award will be the closing price of BD stock on the grant date.

 

Tax considerations

 

Section 162(m) of the Internal Revenue Code precludes BD from taking a federal income tax deduction for compensation paid in excess of $1 million to a named executive officer (other than our Chief Financial Officer). This limitation does not apply, however, to “performance-based” compensation, which includes SARs, stock options, Performance Units and PIP awards. Salary does not constitute “performance-based” compensation and is subject to the limitations of Section 162(m). While the Compensation Committee generally attempts to preserve the deductibility of compensation paid to the named executive officers, the Compensation Committee believes the primary purpose of our compensation program is to support BD’s business strategy and the long-term interests of our shareholders. Therefore, the Compensation Committee maintains the flexibility to award compensation that may be subject to the limits of Section 162(m) if doing so furthers the objectives of our executive compensation program.

 

The following table shows the compensation provided by BD to each of the named executive officers.

 

 

 

 

 

Amounts included in the “Stock Awards” column for 2010 represent awards of Performance Units, which are performance-based restricted stock units. The amounts shown represent the grant date fair value of these awards at target payout. Below are the grant date fair values of these awards, assuming maximum payout (200% of target):

 

 

 

Pension—Amounts shown are the aggregate changes in the actuarial present value of accumulated benefits under our defined benefit pension plans (including our restoration plan). These amounts represent the difference between the present value of accumulated pension benefits at normal retirement age at the beginning and end of the fiscal year. A decrease in present value is shown in the above table as “0.” Information regarding the named executive officers’ accumulated benefits under our pension plans at normal retirement age is on page 44.

 

Deferred Compensation—Earnings on nonqualified deferred compensation are not included in this column, since no named executive officer earned above-market or preferential earnings on nonqualified deferred compensation during the fiscal years shown. Information on the named executive officers’ nonqualified deferred compensation accounts is on page 46.

 

 

The following is a description of these benefits:

 

 

BD and Mr. Ludwig have entered into a time-sharing arrangement under which Mr. Ludwig makes time-share payments to BD for his personal use of BD aircraft. The payments are for the maximum amount permitted by Federal Aviation Administration regulations without subjecting BD to regulation as a charter carrier. Mr. Ludwig made total payments of $236,028 under this arrangement for personal flights taken in fiscal year 2010, which covered all of the variable costs incurred by BD in connection with these flights. Accordingly, no value has been attributed to his use of corporate aircraft in the Summary Compensation Table.

 

BD also makes available a driver and BD-leased car to Mr. Ludwig on occasion for commuting to and from work. The incremental costs incurred by BD in connection with this transportation are fuel charges and any other variable costs related to such use. Since BD-leased cars are used predominantly for business purposes, we have not included fixed costs, such as driver salaries, which do not change based on usage.

 

Mr. Ludwig is responsible for the payment of any tax on any income imputed to him as a result of his personal use of corporate transportation.

 

 

 

Set forth below is information regarding awards provided to the named executive officers in fiscal year 2010. The non-equity incentive awards were made under the BD Performance Incentive Plan. The equity awards were made under BD’s 2004 Employee and Director Equity-Based Compensation Plan.

 

Grants of Plan-Based Awards in Fiscal Year 2010

 

 

 

 

Description of Awards

 

Performance Incentive Plan

 

The BD Performance Incentive Plan (“PIP”) provides an opportunity for annual cash incentive payments to eligible associates. A more detailed discussion of the PIP and the performance targets established under the PIP for fiscal year 2010 appears in the Compensation Discussion and Analysis section of this proxy statement. Total awards to BD’s executive officers may not, in the absence of special circumstances, exceed 3% of our reported after-tax net income for the fiscal year.

Equity Compensation Awards

 

Performance Units. Performance Units are performance-based restricted stock units that vest three years after grant. The potential payouts under these awards range anywhere from zero to 200% of the award’s share target. The actual payout will be based on BD’s performance against the performance targets over the three-year performance period covering fiscal years 2010-2012. The performance targets include 7% average annual revenue growth (after excluding the effects of foreign currency translation) and average return on invested capital of 32%. Performance Units accrue dividend equivalents each time BD pays a dividend on its common stock, which are deemed to be reinvested in BD shares on the date the dividend is paid. Dividend equivalents accrue at the same rate as dividends are paid on BD common stock, and are paid, in the form of shares, only if and when the underlying award vests. The value of the dividend equivalent rights is included in the amount shown in the above table and the “Stock Awards” column of the Summary Compensation Table. Performance Units are not transferable, and holders may not vote shares underlying the award until the shares have been distributed.

 

Stock-Settled Stock Appreciation Rights. A stock appreciation right (“SAR”) represents the right to receive, upon exercise, shares of BD common stock equal in value to the difference between the market price of BD common stock at the time of exercise and the exercise price. SARs have a ten-year term, and become exercisable in four equal annual installments, beginning one year following the grant date. Executive officers are required to hold 75% of the net, after-tax shares received upon exercise of the SARs for a period of one year following exercise.

 

Change of Control. Performance Units and SARs fully vest upon a change of control (see “Accelerated Vesting of Equity Compensation Awards Upon a Change of Control” on page 48).

OUTSTANDING EQUITY AWARDS

 

The following table sets forth the outstanding equity awards held by the named executive officers at the end of fiscal year 2010.