The Board of Directors of GATX Corporation (“GATX”, the “Company”, “we”, “us” or “our”) is soliciting proxies for use at the Annual Meeting of Shareholders to be held on Friday,

April 25, 2014 (the “Annual Meeting”). This Proxy Statement and accompanying Proxy Card are being mailed to shareholders on or about March 14, 2014.

 

Only holders of shares of our common stock as of the close of business on February 28, 2014 (the “Record Date”) will be entitled to vote at the Annual Meeting. On that day, approximately 46,038,587 shares of common stock were

issued and outstanding and eligible to vote. Each share is entitled to one vote on each matter presented at the Annual Meeting.

 

Only holders of our common stock as of the Record Date, or their duly appointed proxies, will be entitled to attend the Annual Meeting. If you hold your shares through a broker, bank or other nominee, you will not be admitted to the Annual

Meeting unless you bring a copy of a statement (such as a brokerage statement) from your nominee reflecting your stock ownership as of the Record Date.

 

Shareholder of Record. If your shares are registered directly in your name with our transfer agent, Computershare Investor Services, then you are considered the shareholder “of record” with respect to those shares. You can vote (1) by Internet or telephone by following the instructions on the Proxy Card, (2) signing, dating and returning the Proxy Card, or (3) attending the Annual Meeting and voting in person.

Beneficial Owner of Shares Held in Street Name. If you hold your shares through a broker, bank or other nominee, then the

nominee holding your shares is considered the shareholder of record for purposes of voting at the Annual Meeting. As a beneficial owner, you have the right to instruct that nominee on how to vote the shares held in your account. Your nominee will provide you with instructions on how to vote your shares, including any available telephone or Internet voting options. If you hold your shares through a broker, bank or other nominee and would like to vote in person at the Annual Meeting, you must first obtain a legal proxy issued in your name from the nominee that holds your shares.

 

It means that you give someone else the right to vote your shares in accordance with your instructions. In this case, we are asking you to give your proxy to each of our Chief Executive

Officer, Chief Financial Officer and General Counsel (the “Proxyholders”). In this way, you ensure that your vote will be counted even if you are unable to attend the Annual Meeting.

 

Shareholder of Record. If you are a shareholder of record and you indicate when voting by Internet or telephone that you wish to vote as recommended by the Board of Directors (the “Board”), or you sign and return a Proxy Card without giving specific voting instructions, the Proxyholders will vote your shares (1) FOR the election of the Board’s nominees for

director; (2) FOR the ratification of the Audit Committee’s appointment of Ernst & Young LLP as our independent registered public accounting firm for 2014; and (3) FOR the adoption of the shareholder advisory resolution to approve the Company’s executive compensation.

 

Beneficial Owner of Shares Held in Street Name. If you hold your shares through a bank, broker or other nominee and you do not provide that nominee with specific voting instructions, under the rules of various national and regional securities exchanges, the nominee that holds your shares may generally vote on “routine” matters but cannot vote on “non-routine” matters. If your nominee does not receive instructions from you on how to vote your shares on a non-routine matter at least ten days before the Annual Meeting, that organization will inform the inspector of election that it does not have the authority to vote your shares on that matter. This is generally referred to as a “broker non-vote”.

Ratification of the Audit Committee’s appointment of Ernst & Young LLP as our independent registered public accounting firm for 2014 (Proposal No. 2) is considered a “routine” matter. A bank, broker or other nominee may generally vote on routine matters, and therefore, no broker non-votes are expected to occur in connection with Proposal No. 2. The election of directors (Proposal No. 1) and the advisory vote on executive compensation (Proposal No. 3) are considered “non-routine” matters. A bank, broker or other nominee cannot vote on those matters without instructions from the beneficial owner of the shares, and therefore, broker non-votes may occur on Proposals 1 and 3.

 

Our transfer agent, Computershare Investor Services, will serve as tabulator and will count the votes. You may vote FOR, AGAINST or ABSTAIN with respect to each director nominee and each other item of business. If you abstain from voting on any director nominee or item, your abstention will not have an

effect on the outcome of the vote. In tabulating the voting results, only FOR and AGAINST votes are counted. Broker non-votes and abstentions are counted for purposes of determining whether a quorum is present.

 

You may revoke your proxy and change your vote at any time before the final vote at the Annual Meeting. If you vote by Internet or by telephone only your latest Internet or telephone proxy that is timely submitted prior to the meeting will be counted. If you vote by signing and returning a Proxy Card, you may change your vote by completing a new Proxy Card with a later date. You may also revoke your proxy and change your

vote by attending the meeting and voting in person. However, your attendance at the Annual Meeting will not automatically revoke your proxy unless you vote again at the Annual Meeting or specifically request that your prior proxy be revoked by delivering written notice to the Company’s Corporate Secretary at 222 West Adams Street, Chicago, Illinois 60606.

 

If any matters other than those referred to in the Notice of Annual Meeting properly come before the meeting, the Proxyholders will have the discretion to vote the proxies held by

them in accordance with their best judgment. However, we have not received timely and proper notice from any shareholder of any other matter to be presented at the meeting.

 

The Annual Meeting will be held only if a quorum is present. A quorum will be present if a majority of the 46,038,587 shares of our common stock issued and outstanding on the Record Date

are represented, in person or by proxy, at the Annual Meeting. Broker non-votes and abstentions will be counted for purposes of determining whether a quorum is present.

 

Assuming a quorum is present, each director nominee will be elected by a majority of votes cast with respect to his or her election. A majority of votes cast means that the number of votes cast FOR the election of a director nominee exceeds the number of votes cast AGAINST such director nominee’s election. The Board’s existing policy regarding resignations by directors who fail to receive a majority vote will apply to any

director nominee who does not receive a majority of FOR votes at the Annual Meeting.

Approval of each other proposal requires the affirmative vote of a majority of the shares present in person or represented by proxy and entitled to vote on that proposal at the Annual Meeting.

 

Shareholders Who Are Not Current or Former GATX Employees. If you are not a current or former employee of GATX, the standard Proxy Card covers all shares held by you of record.

Current or Former GATX Employees. If you are a current or former employee of GATX and you have shares in the GATX Stock Fund as a result of your participation in the GATX salaried or hourly 401(k) plans (collectively, the “401(k) Plans”), you will receive a separate Proxy Card for any shares you hold in those plans (your “Plan Shares”). This separate Proxy Card will cover all of your Plan Shares. Subject to applicable law, the trustee of the 401(k) Plans will vote your Plan Shares in accordance with the voting instructions you provide by

completing and returning the Proxy Card for your Plan Shares or by voting your Plan Shares by Internet or by telephone. If you do not instruct the trustee how to vote, the trustee will vote your Plan Shares in the same proportion as those Plan Shares for which the trustee receives timely voting instructions from other shareholder participants in the 401(k) Plans. To allow sufficient time for the trustee to vote your Plan Shares in accordance with your direction, your voting instructions must be received by the trustee no later than April 21, 2014. Please note that the Proxy Card covering your Plan Shares does not cover any other GATX shares held by you outside of the 401(k) Plans, and you will need to provide separate voting instructions for your non-Plan Shares as described above.

 

GATX pays all the costs of preparing, mailing and soliciting proxies. We ask brokers, banks, voting trustees and other nominees to forward proxy materials to the beneficial owners and to obtain authority to execute proxies, and we generally reimburse these brokers, banks, voting trustees and other nominees for their expenses upon request.

We have retained AST Phoenix Advisors to aid in the solicitation of proxies by mail, telephone, facsimile, e-mail and personal solicitation. For these services, we will pay AST Phoenix Advisors a fee of $8,500 plus expenses. In addition, certain directors, officers or employees of the Company, who will receive no extra compensation for their services, may solicit proxies by telephone, facsimile, e-mail or personal contact.

 

Our Board is currently composed of eight directors. All eight directors are standing for re-election for a term of one year, to serve until the 2015 Annual Meeting of Shareholders or until their successors are elected and qualified. All of the director nominees named below have consented to serve on the Board,

if elected. At the time of the Annual Meeting, if any director nominee is unable or declines to serve, the proxies may be voted for any other person who may be nominated by the Board to fill the vacancy, or the size of the Board may be reduced accordingly.

 

Anne L. Arvia

 

 

Anne L. Arvia has served as President and Chief Operating Officer of Nationwide Direct, Growth Solutions & Strategic Partnerships since July 2013. Previously, she was President and Chief Operating Officer of Nationwide Direct, Affinity & Growth Solutions from August 2012 to July 2013, President of Nationwide Retirement Plans from November 2009 to August 2012, and Chief Executive Officer of Nationwide Bank, a unit of Nationwide Mutual Insurance Company, from 2006 to November 2009. Prior to joining Nationwide, Ms. Arvia served

as President and Chief Executive Officer of ShoreBank, a community development and environmental bank, from 2001 to 2006. She joined ShoreBank in 1991 as Assistant Controller and was named Chief Financial Officer in 1998. Ms. Arvia serves as the Chair of the GATX Audit Committee and also serves on the Governance Committee. She is a Certified Public Accountant, qualifies as an Audit Committee Financial Expert, and provides the Audit Committee with the benefit of her experience and knowledge of accounting standards and financial reporting rules and regulations. In addition, Ms. Arvia’s experience in various senior management positions in the financial services sector provides the Board with valuable expertise on investment and financial matters.

 

Ernst A. Häberli

 

 

Ernst A. Häberli retired as President, Commercial Operations International, The Gillette Company in 2004, having served in that position since 2001. Mr. Häberli formerly served as President, North American Tissue Operations and Technology, Executive Vice President and Chief Financial Officer, Senior Vice President, Strategy and on the Board of Directors of Fort James Corporation. Prior to joining Gillette, Mr. Häberli served as President of Pet International and in various roles with the Phillip Morris Companies, Inc. and spent six years with the Boston Consulting Group in Europe and the United States. He served as a director of Smurfit-Stone Container Corp. from July 2010 to May 2011. Currently, Mr. Häberli is a member of the GATX Compensation and Governance Committees. With his consulting background and many years in senior management roles, Mr. Häberli brings to the Board extensive operational, financial and international business management experience.

Brian A. Kenney

 

 

Brian A. Kenney has served as Chairman, President and Chief Executive Officer of GATX since 2005. Previously, he served as President from 2004 to 2005, Senior Vice President, Finance and Chief Financial Officer from 2002 to 2004, and Vice President, Finance and Chief Financial Officer from 1999 to 2002. As our Chief Executive Officer, Mr. Kenney provides the Board with the unique perspective that comes from managing the Company’s business on a day-to-day basis. His extensive financial background and expertise make Mr. Kenney uniquely well qualified to serve as Chairman of the Board as he is able to provide critical insight into the Company’s leasing business and corporate strategies. Mr. Kenney also serves on the board of directors of USG Corporation, a publicly held manufacturer and supplier of building supply products.

James B. Ream

 

 

James B. Ream served as Senior Vice President—Operations of American Airlines from January 2012 to January 2014 and as American’s Senior Vice President, Maintenance and Engineering, from January 2010 to January 2012. Before joining American, Mr. Ream served as Chief Executive Officer of ExpressJet Holdings, Inc., an operator of regional jets in North America, from 2001 to January 2010, and as ExpressJet’s President from 1999 to January 2010. He also was a director of ExpressJet Holdings, Inc. from 2002 to January 2010. Prior to joining ExpressJet, Mr. Ream held

various positions of increasing responsibility with Continental Airlines and American Airlines, where his responsibilities included managing the accounting department at Continental and serving as Managing Director, Financial Planning and Analysis, for American. Mr. Ream serves as the Chair of the GATX Compensation Committee and as a member of the Audit Committee. He has financial and accounting expertise and qualifies as an Audit Committee Financial Expert. With his years of experience as a senior executive, Mr. Ream brings to the Board considerable expertise on strategic and management issues, including extensive experience relating to management, maintenance and operations of large fleets of transportation assets.

Robert J. Ritchie

 

 

Robert J. Ritchie retired as Chief Executive Officer of the Canadian Pacific Railway Company in 2006, having served in that role since 1995. Mr. Ritchie began his career with the Canadian Pacific in 1970 as a research analyst and served in a variety of increasingly responsible positions over his 36 years with the company, including as President from 1990 to 1995. Mr. Ritchie is a member of the GATX Audit and Governance Committees. He has financial and accounting expertise and qualifies as an Audit Committee Financial Expert. With his prior experience as a Chief Executive Officer and Board member of a large, publicly held railroad company and a long career in the railway industry, Mr. Ritchie brings to the Board critical operational, financial and management expertise. In addition, he has a wealth of knowledge about the railroad industry, which comprises a significant part of the Company’s railcar leasing customer base.

David S. Sutherland

 

 

David S. Sutherland retired as President and Chief Executive Officer of IPSCO, Inc., a steel producer, in 2007, having served in that position since 2002. During his 30-year career with IPSCO, Mr. Sutherland held a number of strategically important roles for the company, including Executive Vice President and Chief Operating Officer from 2001 to 2002 and Vice President from 1997 to 2001. Mr. Sutherland currently serves as the GATX Lead Director. He contributes valuable insights based on his operational, financial and management experience as the former Chief Executive Officer of a publicly held steel producer. In addition, the Board values Mr. Sutherland’s perspective on market conditions and trends in the steel and manufacturing industries, which are critical sectors for the Company’s business. Mr. Sutherland also serves as non-executive chairman and a director of United States Steel Corporation and as a director of Imperial Oil Ltd.

 

Casey J. Sylla

 

 

Casey J. Sylla retired in 2007 as Chairman and Chief Executive Officer of Allstate Life Insurance Company, a principal division of the Allstate Insurance Company, a company offering life insurance, annuities and related retirement and savings products. Mr. Sylla previously served in various key roles at Allstate, including President of Allstate Financial Group from 2002 to 2006 and Chief Investment Officer for Allstate Corporation, the holding company for Allstate Insurance Company, from 1995 to 2002. Mr. Sylla currently serves on the GATX Audit and Compensation Committees. He has financial and accounting expertise and qualifies as an Audit Committee Financial Expert. Mr. Sylla provides substantial management, business and leadership experience based upon his experience as a senior executive. The Board also benefits from his perspectives on financial and investment matters due to his management experience in an investment and financial business. Mr. Sylla also serves as a trustee of Northern Funds and Northern Institutional Funds.

Paul G. Yovovich

 

 

Paul G. Yovovich is President of Lake Capital, a private equity firm he co-founded in 1998. In addition, from 1993 through its sale in 1996, Mr. Yovovich served as President of Advance Ross Corporation, a public company engaged in international financial transaction services and pollution control equipment manufacturing, and from 1982 to 1992, he served in various executive positions with Centel Corporation, a publicly held national communications company. Mr. Yovovich currently serves as a member of the GATX Audit and Compensation Committees. He is a Certified Public Accountant and qualifies as an Audit Committee Financial Expert. With over thirty years of experience as a senior executive, principal and corporate director, Mr. Yovovich brings to the Board extensive strategic, operational, financial and business management experience. As a private equity executive, Mr. Yovovich has substantial experience investing in, and actively overseeing the management of, Lake Capital’s portfolio companies to foster growth and value creation. As a result, he also provides the Board with considerable expertise in transactional, financial and capital markets matters.

 

The Board, upon recommendation of the Governance Committee, has determined that all candidates for election to the Board should possess and have demonstrated the following minimum criteria:

 

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the highest level of personal and professional ethics, integrity and values

 

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an inquisitive and objective perspective

 

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broad experience at the policy-making level in business, finance, accounting, government or education

 

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expertise and experience that is useful to the Company and complementary to the background and experience of other Board members, so that an optimal balance and diversity of Board members may be achieved and maintained

 

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broad business and social perspective and mature judgment

 

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commitment to serve on the Board for an extended period of time to ensure continuity and to develop knowledge about our business

 

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demonstrated ability to communicate freely with management and the other directors, as well as the ability

and disposition to meaningfully participate in a collegial decision-making process

 

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willingness to devote the required time and effort to carry out the duties and responsibilities of a Board member

 

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independence from any particular constituency and the ability to represent the best interests of all shareholders and to appraise objectively the performance of management.

The Governance Committee and the Board evaluate each director candidate in the context of the Board as a whole, with the objective of assembling a group of directors that can effectively address the challenges and risks facing our business and represent shareholder interests by using their diversity of experience to exercise sound business judgment. In applying the criteria for Board members described above, the Governance Committee and the Board consider diversity to include differences of viewpoint, professional experience, education, skill and other individual qualities and attributes that contribute to an active, effective Board. In this regard, while the Board does not have a formal policy with regard to the consideration of diversity, the Board believes that its efforts to achieve diversity on the Board have been effective.

 

The Audit Committee has appointed Ernst & Young LLP to serve as our independent registered public accounting firm for 2014. Ernst & Young also served in this capacity in 2013. Representatives of Ernst & Young are expected to be present at the Annual Meeting. They will have the opportunity to make a statement if they so desire and will be available to respond to appropriate questions by shareholders.

Although the rules of the US Securities and Exchange Commission (the “SEC”) and the listing standards of the New

York Stock Exchange (the “NYSE”) require that the Audit Committee be directly responsible for selecting and retaining the independent registered public accounting firm, we are providing shareholders with the opportunity to express their views on this issue. While this vote cannot be binding, if the shareholders do not ratify the appointment of Ernst & Young, the Audit Committee will take the vote into account in making future appointments.

 

Our Board of Directors is committed to excellence in governance. As part of that commitment, and pursuant to Section 14A of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), each year we ask shareholders to vote to approve the compensation of our named executive officers as disclosed in the Proxy Statement. This advisory resolution, commonly referred to as a “say-on-pay” resolution, is non-binding on the Board and the Compensation Committee. However, the Board and the Committee value the opinions of our shareholders and will carefully consider the outcome of the vote in determining future compensation decisions and policies.

As described more fully in the Compensation Discussion and Analysis section of this Proxy Statement, our executive compensation program is structured to provide opportunities that appropriately:

 

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reflect the competitive marketplace in which we operate

 

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balance executive focus on short- and long-term objectives

 

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align management and shareholder interests

 

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attract, motivate and retain key executives who are critical to our long-term success.

A significant portion of our executive compensation is performance-based and, on a relative basis, we emphasize incentives that focus on creating long-term economic value over those that focus on delivering short-term results. In addition, our executive compensation program uses stock grants and mandatory stock ownership and stock retention policies to help align executive and shareholder interests.

GATX delivered record earnings per share in 2013. Excluding the impact of tax adjustments and other items, our net income was $164.8 million, an increase of 23.2% or $31.0 million from 2012, or $3.50 per diluted share.¹ The increase was due primarily to achieving historically high lease rates for extended terms in the North American tank car market, maintaining high fleet utilization in North America and Europe, and strong asset remarketing income across our business segments. Our total investment volume for the year was $859.6 million, up from $770.0 million in 2012. Return on equity, excluding tax adjustments and other items, also improved to 12.5% from 11.3%.¹

We encourage shareholders to read the Compensation Discussion and Analysis, as well as the Summary Compensation Table and the related tables and disclosures, for a more complete understanding of our executive compensation policies and procedures. We believe that the 2013 compensation of our named executive officers was appropriate and aligned with the Company’s performance.

Accordingly, we are asking shareholders to approve the following advisory resolution at the Annual Meeting:

“RESOLVED, that the shareholders of GATX Corporation (the “Company”) approve, on an advisory basis, the compensation of the Company’s named executive officers as disclosed in this Proxy Statement pursuant to Item 402 of Regulation S-K, including the Compensation Discussion and Analysis, and the Executive Compensation Tables, together with the narrative discussion related thereto.”

 

The Board of Directors provides oversight, strategic direction, and counsel to management regarding the business, affairs, and long-term interests of GATX and our shareholders. Its responsibilities include the following:

 

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reviewing and approving our major financial objectives, strategic and operating plans, strategic transactions with third parties, and other significant actions

 

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overseeing the conduct of our business

 

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assessing our business risks to evaluate whether any changes to our business, strategy or risk management practices may be warranted

 

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overseeing our processes for maintaining the integrity of our financial statements and other public disclosures

 

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ensuring compliance with law and ethical standards.

GATX has a long-standing commitment to strong corporate governance and ethical standards. Demonstrating this commitment, the Board has adopted the GATX Corporate

Governance Guidelines, Code of Business Conduct and Ethics, and Code of Ethics for Senior Company Officers, as well as charters of each of the Board’s committees. These documents constitute the foundation of our corporate governance structure and are available on our website (www.gatx.com) in the Investor Relations section under “Corporate Governance”.

The Board and its committees meet throughout the year on an established schedule and hold special meetings from time to time as appropriate. Following each meeting, the Board’s independent directors meet in executive sessions without the Chairman and Chief Executive Officer or other members of management present. The Lead Director serves as Chair of the executive sessions of the Board.

The Board met nine times during 2013.

During 2013, each director attended at least 75% of the meetings of the Board and the committees on which he or she served. We encourage all directors to attend the 2014 Annual Meeting of Shareholders, and in 2013, all directors then serving on the Board attended the annual meeting.

 

The Board has adopted the GATX Director Independence Standard set forth in Annex A to this Proxy Statement to evaluate the independence of directors and director nominees and to ensure compliance with the independence standards required by the NYSE for listed companies. In accordance with this standard, and considering all relevant facts and

circumstances, the Board has made an affirmative determination that none of the following directors has a material relationship with GATX and that all of the following directors are independent: Anne L. Arvia, Ernst A. Häberli, James B. Ream, Robert J. Ritchie, David S. Sutherland, Casey J. Sylla and Paul G. Yovovich.

 

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Brian A. Kenney serves as our Chairman and Chief Executive Officer

 

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David S. Sutherland serves as our Lead Director

 

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Seven of our eight directors are independent under the NYSE listing standards and the GATX Director Independence Standard

 

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All of the members of the Board’s Audit, Compensation and Governance Committees are independent

The Board believes that having our Chief Executive Officer serve as Chairman of the Board is in the best interest of our shareholders because the Chief Executive Officer’s extensive knowledge of our business and strategy provides the Board with a clear understanding of the issues facing the Company and promotes effective Board decision-making, alignment on corporate strategy, and effective execution of that strategy by management.

In selecting the Chairman of the Board, the Board believes it is important to select the most qualified and appropriate director to serve as Chairman, whether that individual is an outside director or a member of executive management. Currently, Brian A. Kenney, our Chief Executive Officer, serves as Chairman. The Board believes that Mr. Kenney is the most appropriate individual to serve as Chairman because of his extensive knowledge of our business and strategy, as well as his demonstrated skill and commitment to performing

effectively as Chairman of the Board. Having the Chief Executive Officer serve as Chairman provides the Board with a clear understanding of issues facing GATX, which, in turn, promotes effective Board decision-making, alignment on corporate strategy and accountability of management.

Our Board is structured to promote independence whether or not its Chairman is a member of executive management. The entire Board, with the exception of Mr. Kenney, consists of independent directors, and the Audit, Compensation and

 

Governance Committees all are composed entirely of independent directors. The independent directors on the Board meet after each Board meeting in executive sessions that are not attended by Mr. Kenney or other members of management.

In addition, under our Corporate Governance Guidelines, the independent directors serving on the Board annually designate an independent Lead Director to provide leadership to the non-management members of the Board and to work with the Chairman and Chief Executive Officer and the other Board members to provide effective and independent oversight of our management and affairs. Currently, David S. Sutherland serves as Lead Director. The Board’s independent directors have adopted the Lead Director Guidelines, which establish the powers and duties of the Lead Director, including the following:

 

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presiding at meetings of the Board if the Chairman and Chief Executive Officer is not present (unless the Lead

Director is not a US citizen, in which case such meetings will be chaired by an independent US citizen director designated by a majority of the independent US citizen directors present at the meeting)

 

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regularly convening and serving as chair of executive sessions of the independent directors

 

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serving as principal liaison between the Chairman and Chief Executive Officer and the independent directors

 

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advising the Chairman and Chief Executive Officer as to the quality, quantity and timeliness of the flow of information from the Company’s management that is necessary for the independent directors to effectively and responsibly perform their duties.

 

The Board has three standing committees: the Audit Committee, the Compensation Committee, and the Governance Committee. Each committee is composed of directors determined by the Board to be independent in accordance with the listing standards of the NYSE.

Mr. Sutherland serves as Lead Director, and while he does not serve as a member of any particular Board committee, he has a standing invitation as Lead Director to attend the meetings of all Board committees. The following table shows the current membership of these committees:

 

The members of the Audit Committee are Ms. Arvia (Chair), Mr. Ream, Mr. Ritchie, Mr. Sylla, and Mr. Yovovich. The Board has determined that each member of the Audit Committee has accounting or related financial management expertise and is “financially literate”, as that term is used in the listing standards of the NYSE. In addition, the Board has determined that each member of the Audit Committee is an “audit committee financial expert”, as such term is defined by SEC rules. All members of the Audit Committee satisfy the NYSE’s independence standards applicable to audit committee members.

The functions of the Audit Committee include retaining our independent registered public accounting firm and reviewing

any related party transactions. The Committee also assists the Board in oversight of: (i) the integrity of our financial statements; (ii) our compliance with legal and regulatory requirements; (iii) our guidelines and policies with respect to risk assessment and risk management; (iv) the independent registered public accounting firm’s qualifications and independence; and (v) the performance of our internal audit function and the independent registered public accounting firm. The Audit Committee maintains free and open communication and meets separately at each regularly scheduled Board meeting, with our independent registered public accounting firm, our internal auditors, and management.

The Audit Committee met five times during 2013.

 

The members of the Compensation Committee are Mr. Ream (Chair), Mr. Häberli, Mr. Sylla, and Mr. Yovovich. The functions of the Compensation Committee include:

 

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assisting the Board in the discharge of its responsibilities with respect to compensation of our directors, officers and executives

 

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general responsibility for ensuring the appropriateness of our executive compensation and benefit programs, and the criteria for awards to be issued under such programs

 

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evaluating the qualifications and independence of the Committee’s independent compensation consultant.

During 2013, the Compensation Committee engaged Pay Governance LLC (“Pay Governance”) to serve as its independent compensation consultant. In addition to providing advice on various aspects of GATX’s compensation plans, programs and policies, Pay Governance also advises the Committee periodically on current trends and best practices

and reviews the Committee agendas and supporting materials with management and the Committee Chair in advance of each Committee meeting. A representative of Pay Governance attends all Committee meetings, including executive sessions at which management is not present, and meets independently with the Committee as appropriate. In addition, the independent compensation consultant provides specific recommendations for the Chief Executive Officer’s compensation and advice on the recommendations made by the Chief Executive Officer with respect to the compensation of other executives. The Compensation Committee has assessed the independence of Pay Governance and its employees working on GATX matters pursuant to applicable SEC rules and NYSE listing standards and concluded that there were no conflicts of interest or potential conflicts of interest with respect to the engagement of the independent compensation consultant or its employees working on the engagement.

The Compensation Committee met five times during 2013.

 

The members of the Governance Committee are Mr. Häberli, Mr. Ritchie, and Ms. Arvia. The Committee’s functions include:

 

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identifying individuals qualified to become Board members and recommending to the Board a slate of director nominees for election at each annual meeting of shareholders

 

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ensuring that all of the Board committees have the benefit of qualified and experienced independent directors

 

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developing and overseeing an effective set of corporate governance policies and procedures designed to ensure

that GATX adheres to strong corporate governance and ethical standards and complies with all applicable legal and regulatory requirements

 

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reviewing the performance of all members of the Board in their capacities as directors, including attendance and contributions to Board deliberations, and making such recommendations to the Board as may be appropriate.

The Governance Committee met four times during 2013.

 

While management is responsible for managing risk, the Board and its committees play a role in overseeing our risk management practices. The full Board is ultimately responsible for risk oversight, and it discharges this responsibility by, among other things, receiving regular reports from management concerning our business and the material risks facing GATX.

Each of the Board’s committees also plays a role in risk oversight:

 

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Audit Committee. Under the terms of its charter and the listing standards of the NYSE, the Audit Committee plays a key role in the Board’s risk oversight process. The Audit Committee’s duties include discussing the Company’s risk assessment and risk management guidelines and policies with management, the internal auditors and the independent registered public accounting firm. The Audit Committee also receives regular reports from management and discusses with management the steps taken to monitor and control risk exposures. In addition, the Audit Committee reviews all

of our quarterly financial reports, including any disclosure therein of risk factors affecting us and our business. The Audit Committee provides regular reports to the full Board on its risk oversight activities and any issues identified thereby.

 

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Compensation Committee. The Compensation Committee receives regular reports from its independent compensation consultant and management, as appropriate, concerning our compensation plans, policies and practices. The Committee also sets performance goals under our annual bonus and long-term incentive plans. In setting the performance targets and overseeing our compensation plans, policies and practices, the Committee considers the risks that may be created and whether any such risks are reasonably likely to have a material adverse impact on GATX. The Committee provides regular reports to the full Board on our compensation plans, policies and practices and the Committee’s oversight of compensation-related risks. Our human resources staff, with input from the

 

Committee and the independent compensation consultant, conducts an annual assessment of the potential risks that may be created by our compensation plans, policies and practices. This risk assessment indicated that the compensation plans, practices and policies maintained by GATX in 2013 did not create risks that would be reasonably likely to have a material adverse effect on the Company. In making this determination, we considered the overall mix of compensation for employees, as well as the various risk control and mitigation features of our compensation plans, including appropriate performance measures and targets, incentive plan payout maximums, our compensation recoupment policy, and mandatory stock retention requirements for our executive officers.

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Governance Committee. Under its charter, the Governance Committee is responsible for, among other things, maintaining a set of effective corporate governance guidelines and procedures designed to assure compliance with all applicable legal and regulatory requirements and governance standards. The Governance Committee provides regular reports to the Board on its activities.

Through the activities of the Audit, Compensation and Governance Committees, as well as the full Board’s interactions with management concerning our business and the material risks that may impact GATX, the independent directors on the Board are able to monitor the Company’s risk management process and offer critical insights to our management.

 

GATX recognizes that transactions with related parties present a heightened risk of real or perceived conflicts of interest and, therefore, may raise questions as to whether those transactions are consistent with the best interests of GATX and its shareholders. Accordingly, we have a formal, written policy, which requires that all related party transactions are subject to review and approval by the Audit Committee. A “related party transaction” means any transaction (or series of transactions) valued at over $120,000 in which GATX is a participant and in which any “related party” has or will have a direct or indirect material interest. Our policy defines a “related party” to include all of our directors and executive officers, holders of more than 5% of our voting stock, and the immediate family members of those persons.

Under our policy, the Audit Committee will approve a related party transaction only if it determines that the transaction is in,

or not inconsistent with, the best interests of GATX and its shareholders, including, for example, situations where:

 

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the transaction may enable us to obtain products or services of a nature, quantity or quality, or on other terms, that are not readily available from alternative sources

 

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The transaction is on “arm’s length” terms comparable to the terms on which we provide products or services to unrelated third parties or to our employees generally.

Upon completion of its review, the Audit Committee approves or disapproves the related party transaction. In approving any related party transaction, the Audit Committee also makes a determination that the transaction does not constitute a conflict of interest under our Code of Business Conduct and Ethics.

 

As of December 31, 2013, BlackRock, Inc. (including its affiliated entities) was the beneficial owner of approximately 7.2% of our outstanding common stock. BlackRock also provides investment management services to our pension plans in the United States and in the United Kingdom. During

the year ended December 31, 2013, the total amount of the fees paid by GATX to BlackRock for investment management services was approximately $220,637. The aggregate amount of our pension assets under management by BlackRock as of December 31, 2013 was approximately $207,713,187 million.

 

As required by the Company’s By-Laws, we indemnify our directors and officers to the fullest extent permitted by the New York Business Corporation Law. In addition, we have entered into indemnification agreements with each member of the Board that contractually obligate us to provide this indemnification to our directors.

Pursuant to the New York Business Corporation Law and the Company’s By-Laws, we also maintain insurance policies that

provide liability protection to our directors and officers for claims for which they may not be indemnified by the Company. These insurance policies also provide reimbursement to GATX for indemnification payments we make on behalf of our directors and officers, subject to the conditions and exclusions specified in the policies.

 

In addition to prohibiting our directors, officers and employees from trading in GATX stock while in possession of material non-public information, our Insider Trading Policy also prohibits certain transactions in GATX stock that may create the potential for the interests of a director, officer or employee to diverge from the interests of GATX and its shareholders. More

specifically, our policy prohibits directors, officers and employees from engaging in hedging transactions, short sales, and transactions in publicly traded options involving GATX stock. In addition, the policy prohibits directors, officers and employees from holding GATX stock in a margin account or pledging GATX stock as collateral for a loan.

 

Each year, the Board recommends a slate of director nominees for election at the annual meeting of shareholders. The Board has delegated the process for screening potential director candidates to the Governance Committee with input from the Chairman and Chief Executive Officer. When the Governance Committee determines that it is desirable to add a director or fill a vacancy on the Board, the Committee will identify one or more individuals qualified to become directors and recommend them to the Board. In identifying qualified individuals, the Committee seeks suggestions from other directors and may also retain a search firm for this purpose. The Committee also will consider any candidates that may be recommended by shareholders. The Committee conducts such inquiry into each candidate’s background, qualifications and independence as it

believes is necessary or appropriate under the circumstances and regardless of whether the candidate was recommended by shareholders or by others. Any recommendations of director candidates by shareholders should be submitted to the Governance Committee, c/o the Corporate Secretary, GATX Corporation, 222 West Adams Street, Chicago, Illinois 60606. The recommendation must be received not more than 120 and not less than 90 days prior to the first anniversary of the preceding year’s annual meeting and must include all information required by the proxy rules and applicable law. If a shareholder submits a director candidate in accordance with the requirements specified in our By-Laws, the Governance Committee will consider such director candidate using the same standards it applies to evaluate other director candidates.

 

GATX shareholders and other interested parties may, at any time, communicate directly with the Board, any of our directors (including the Lead Director), or our non-management directors as a group through the office of our Corporate Secretary as follows: (1) by mail addressed to the Board, any director, or the non-management directors as a group, c/o the Corporate Secretary, GATX Corporation, 222 West Adams Street, Chicago, Illinois 60606; (2) electronically by sending an e-mail to contactboard@gatx.com; or (3) anonymously by telephone by calling (888) 749-1947. Our Corporate Secretary will review

communications received by any of these methods and will forward the communication promptly to the Board, the directors, the Lead Director, or the non-management directors as a group, as appropriate, depending on the subject matter and facts and circumstances described in the communication.

Communications that are not related to the duties and responsibilities of the Board, are patently frivolous, or are otherwise considered to be improper for submission to the intended recipient(s), will not be forwarded.

 

This Compensation Discussion and Analysis describes our compensation plans, policies and practices for the executive officers named in the Summary Compensation Table (our “named executive officers”). For 2013, our named executive officers are:

 

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Brian A. Kenney – Chairman of the Board, President and Chief Executive Officer

 

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Robert C. Lyons – Executive Vice President and Chief Financial Officer

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James F. Earl – Executive Vice President and President, Rail International

 

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Thomas A. Ellman – Executive Vice President and President, Rail North America

 

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Deborah A. Golden – Executive Vice President, General Counsel and Corporate Secretary.

 

GATX delivered record earnings per share in 2013. Excluding the impact of tax adjustments and other items, our net income was $164.8 million, an increase of 23.2% or $31.0 million from 2012, or $3.50 per diluted share.² The increase was due primarily to achieving historically high lease rates for extended terms in the North American tank car market, maintaining high

fleet utilization in North America and Europe, and generating strong asset remarketing income across our business segments. Our total investment volume for the year was $859.6 million, up from $770.0 million in 2012. Return on equity, excluding tax adjustments and other items, also improved to 12.5% from 11.3%.²

 

Our executive compensation program is designed to align compensation with the interests of our shareholders and to reward executive leadership for contributing to the achievement of our annual and long-term objectives. In 2013, the Company’s performance exceeded the goals established for the year resulting in above-target payouts under our incentive plans. More specifically:

 

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Our 2013 net income, excluding the impact of tax adjustments and other items, exceeded our budgeted net income goal of $147.3 million by 11.9% or $17.5 million. Under the terms of our annual incentive plan, this level of net income achievement resulted in a payout to our executives at 118.7% of their target awards.2

 

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For the 2011-2013 performance period under our performance share plan, we achieved 104.9% of our

targeted investment volume goal (investment volume of $2.1 billion versus a goal of $2.0 billion), reflecting the purchase of new cars in North America and Europe under long-term supply agreements, as well as the acquisition of rail portfolios in the secondary market. We also achieved 114.4% of our targeted return on equity goal (average return on equity achievement of 10.3% over the three-year performance period versus a goal of 9.0%). Return on equity improved steadily during this three-year performance period up from 8.8% in 2011,10.2% in 2012 and 12.0% in 2013.3 Based upon this investment volume and return on equity achievement, our executives received a payout of 130.5% on their performance shares for the 2011-2013 performance period.

 

At our 2013 Annual Meeting of Shareholders, approximately 97.5% of the shares were voted in favor of an advisory resolution approving the executive compensation of our named executive officers as disclosed in the 2013 proxy statement (the “say on pay” vote). The Compensation Committee believes that the overwhelming shareholder vote in favor of the say-on-pay resolution was an affirmation of shareholders’ support of our approach to executive compensation, and, therefore, the

Committee did not make any specific changes to its executive compensation plans or programs as a result of the vote.

We regularly review and refine our executive compensation program to ensure that it continues to reflect practices and policies that are aligned with our pay-for-performance philosophy and the interests of our shareholders. In this regard, our executive compensation program reflects the following:

 

WHAT WE DO
		We have a clear, consistent compensation strategy utilizing GATX net income as the common Company-wide performance metric for annual incentive compensation payable to salaried employees
		We have a recoupment policy that enables us to recover compensation paid to executive officers in the event of a material restatement of our financial results
		We have mandatory stock ownership and stock retention requirements for our named executive officers and other senior management
		The Committee engages an independent compensation consultant to advise it on executive compensation matters
		The Committee conducts a thorough review annually of all of our executive and director compensation programs with the assistance of the Company’s human resources staff and the Committee’s independent compensation consultant
		The Committee’s independent compensation consultant provides regular briefings and updates to the Committee on current trends and key developments in executive compensation programs and practices
		The Committee, with the assistance of the Company’s human resources staff, conducts an annual review and assessment of any potential risks that could result from our compensation plans and programs

WHAT WE DON’T DO
û		We do not provide our executive officers with employment agreements, other than severance agreements in the event of a change of control of GATX
û		We do not provide perquisites to our named executive officers, other than modest reimbursements for financial and legal counseling
û		We prohibit our officers, directors and employees from hedging, margining, pledging, short selling, or publicly trading options involving GATX common stock
û		We prohibit share repricing
û		We prohibit single-trigger vesting of outstanding equity awards in the event of a change of control of GATX. We allow only double-trigger vesting, which requires both a change of control and termination of an executive’s employment before vesting will be accelerated
û		We do not provide excise tax gross up benefits in executive Change of Control Agreements entered into after 2009

 

 

Our executive compensation program is structured to provide compensation opportunities that (1) reflect the competitive marketplace in which we operate, (2) appropriately balance executive focus between short- and long-term objectives, (3) align the interests of management with those of our shareholders, and (4) attract, motivate and retain key executives who are critical to our long-term success. Our compensation program has been developed with the following key principles in mind:

 

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A significant portion of compensation should be performance-based. Through annual and long-term incentive awards, our executives are encouraged to focus attention on a combination of critical strategic and financial

goals. The weight placed on each of these goals may vary from time to time depending on the Company’s strategies and operating environment.

 

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On a relative basis, long-term incentive opportunities should be emphasized more heavily than short-term incentive opportunities. We invest predominantly in long-lived assets and the outcomes of key decisions are often not realized for several years. Creating long-term economic value should outweigh focus on short-term results.

 

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A meaningful equity stake helps ensure that executive and shareholder interests are aligned. We accomplish this by granting our executives equity incentives in GATX stock and through our mandatory stock ownership and

 

stock retention policies, which are intended to ensure that executives acquire and retain a meaningful equity stake in GATX.

We believe that our compensation program is consistent with the principles described above. As shown in the following chart, the overall mix of compensation for our Chief Executive Officer

and our other named executive officers is allocated among three primary components (base salary, target annual incentives and target long-term incentives) and performance-based components are more heavily weighted than non-performance based components.

 

Ultimately, our executive compensation program is intended to effectively communicate and reinforce the Company’s annual and long-term strategic goals to executives and incentivize them to achieve results that contribute to the success of our

business and enhance shareholder return. Our programs are structured to appropriately reward executives for achieving or surpassing these goals, based on the level of achievement.

 

The Compensation Committee annually reviews recent developments and current trends in executive compensation practices with guidance from its independent compensation consultant. As discussed in greater detail below, the Committee also reviews the competitiveness of compensation for our executive officers, including base pay and annual and long-term incentive awards. Based on input from the independent compensation consultant and the Company’s human resources staff, the Committee makes all decisions with respect to the compensation of the Chief Executive Officer. The Chief Executive Officer does not participate in, nor is he present during, any discussions of his own compensation. Such discussions occur during the Committee’s executive sessions. The Committee reviews its pay decisions regarding the Chief Executive Officer with the other independent directors on the Board.

As part of our regular compensation review cycle, the Chief Executive Officer, with input from the Company’s human resources staff, makes recommendations to the Committee regarding base salary increases and long-term incentive award

grants for the other named executive officers. The Chief Executive Officer also may make recommendations to the Committee to increase or decrease target levels for annual bonus and long-term incentive awards. After reviewing these recommendations, the Committee approves the compensation of such named executive officers.

In setting 2013 compensation, the Committee relied on advice from Pay Governance LLC, an independent compensation consultant, to assist in oversight of the design of our executive compensation plans and programs. In connection with such engagement, we conducted a review to determine any potential conflicts of interest that could result from the existing relationships between the Committee, GATX, Pay Governance LLC, and the individual Pay Governance employees who provided advice to the Committee with respect to compensation matters. Based on the results of that review, there were no conflicts of interest or potential conflicts of interest with respect to the engagement of the independent compensation consultant or its employees working on the engagement.

 

Our executive compensation program has been structured to provide pay opportunities, including base salaries and short- and long-term incentive compensation, believed to be comparable to the median range of opportunities provided by companies of similar revenue size to GATX (which we refer to as “competitive” or “market” pay levels). Because we have no direct peers in the railcar leasing business for which relevant compensation data is available, gathering information on competitive pay levels with precision for our particular industry is not possible. The Committee, with assistance from our human resources staff and the independent compensation consultant, regularly reviews information on pay for executives as reported in national compensation surveys published by AonHewitt and Towers Watson for organizations of similar revenue size to GATX. These surveys include general

compensation information, on an aggregate basis. The samples we utilize are based on data for approximately 200 public companies with annual revenues between $1-3 billion, but the surveys do not identify the specific compensation paid by any particular company participating in the survey. We use these surveys to better understand current compensation practices at other companies of similar revenue size and as a data point to assist us in meeting our goal of having the various elements of compensation be market-competitive. While these surveys are a starting point for our compensation review process, actual compensation decisions with respect to specific individuals are influenced by a variety of factors in addition to the surveys, including experience, tenure, skills, unique responsibilities, individual performance and our specific talent requirements.

 

The elements of our compensation program for named executive officers include:

 

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Base salary

 

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Annual incentive awards

 

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Long-term equity-based incentive awards

 

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Employee benefits

 

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Change of control severance protection.

 

Base salary helps us attract and retain an appropriate caliber of executive talent and provides our executives with a degree of financial certainty since base salary is not subject to Company performance risk, unlike most other pay elements. In establishing salary levels, we typically consider market pay levels, the specific responsibilities and experience of the named executive officer, and his or her individual performance.

Based upon its annual review described above, the Committee approved the following base salary increases for the named executive officers effective March 1, 2013: Mr. Kenney (3.0%), Mr. Earl (2.8%), Mr. Lyons (3.3%), Ms. Golden (3.0%), and

Mr. Ellman (5.7%). In addition, on July 1, 2013, Mr. Ellman was promoted to Executive Vice President and President, Rail North America and received a 16.9% promotional increase to his base salary. Base salaries constitute between 23% (for the Chief Executive Officer) and 34% (for the other named executive officers, collectively) of their total targeted compensation, which is consistent with our philosophy that a majority of executive compensation should be performance-based (as illustrated by the Pay Mix Chart set forth on the preceding page).

 

 

Named executive officers are eligible to receive annual incentive awards under the GATX Cash Incentive Compensation Plan (the “CICP”) based on the extent to which pre-established financial performance goals are achieved. The CICP was approved by our shareholders in 2004. Under the CICP, the maximum possible incentive award payable to named executive officers has been established as 0.75% of “Total Gross Income Less Total Ownership Costs” (as such term is defined in the CICP), calculated on the basis of the financial results reported in our financial statements. At the end of each year, the Committee certifies the actual level of performance on this

measure and may reduce, but not increase, the annual award based upon underlying metrics communicated to each executive at the beginning of the year.

Historically, the Committee has reduced the bonuses payable under the CICP by applying separate financial performance standards, which may vary from year to year in accordance with the Company’s strategic objectives. In 2013, as in other recent years, the Committee measured performance against budgeted net income to provide executives with a strong incentive to increase our profitability.

 

Target incentive opportunities for named executive officers are expressed as a percentage of base salary and reflect typical competitive opportunities. As a result of its annual review of executive compensation for 2013, the Committee increased the annual cash incentive target for Mr. Lyons from 65% to 70% and Ms. Golden from 55% to 60%. Each year, the Committee, after reviewing recommendations from management, approves a schedule establishing the incentive opportunities payable at various levels of financial performance. The level of financial performance required for the payment of maximum incentive opportunities is established based on the Committee’s assessment of the level of performance that shareholders would likely consider superior in view of general economic conditions and the economic outlook for GATX and its industry in particular. This process is essentially reversed to establish the threshold or minimum performance level, defined as the level of financial performance below which no incentive is payable.

For 2013, the Committee increased the net income goal for our annual incentive plan over the prior year’s goal to reflect a higher level of budgeted performance for GATX. The goals and

payout levels under the 2013 annual incentive plan are described below:

 

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Plan Design. As in 2012, the Committee based the 2013 plan’s target funding upon achievement of 100% of the Company’s budgeted net income goal, as approved by the Board. The plan limited the payout to no more than 170% of target (for achieving 140% of the budgeted net income goal) and established a threshold payout of 70% of target (for achieving a minimum of 80% of the budgeted net income goal).

 

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2013 Payout. Net income for 2013, excluding the impact of tax adjustments and other items, was $164.8 million, which was 111.9% of budget. This performance resulted in incentive payouts of 118.7% of the target award level to the named executive officers. For additional information regarding the 2013 annual incentive plan, including the specific numerical levels of performance required for target, maximum and threshold incentive payouts, please see the Narrative Discussion Related to the Summary Compensation Table and Grants of Plan-Based Awards Table.

 

Long-term incentive compensation helps us to attract and retain qualified executives, reward the achievement of our long-term objectives, encourage stock ownership, and promote close alignment of interests between our management and our shareholders. Target long-term incentive opportunities are established for named executive officers in accordance with typical competitive opportunities and are expressed as a percentage of the midpoint of the officer’s base salary range.

We divide the total value of the regular, annual long-term incentive awards to each named executive officer equally between stock-settled stock appreciation rights (“SARs”) and performance shares. We chose this combination of grant types because it focuses executive attention on total shareholder return and on specific financial goals, both of which are essential to our long-term success.

 

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SARs. SARs are granted to align the interests of our named executive officers and other employees with our shareholders. SARs are granted at a price equal to the average of the high and low prices of our common stock on the date of grant as approved by the Committee. Because total shareholder return is comprised of stock price appreciation and dividends, dividend equivalents are attached to SARs. We believe that rewarding both components of shareholder return better aligns management and shareholder interests. Dividend equivalents accrue until vesting and are paid in cash thereafter until the SAR is exercised or expires. Because the value of dividend equivalents is fully factored into the determination of grant size, recipients receive no additional compensation; the number of SARs granted are correspondingly smaller than they would be if dividend equivalents were not attached because the value of each SAR is higher.

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Performance Shares. Performance shares are designed to focus attention on, and to reward the achievement of, our long-term financial and strategic objectives. The Committee establishes the goals for which the performance shares may be earned at the beginning of a multi-year performance period rather than annually. The length of the performance period is three years. At the end of the performance period, a percentage ranging from 0% to 200% of the number of shares initially awarded will be earned based on the extent to which the multi-year goals are achieved. The value of each earned performance share equals the price of one share of our common stock at the end of the performance period, with payment of earned performance shares made in the form of GATX common stock.

Performance shares are earned based on achievement of a specified level of “Total Gross Income Less Total Ownership Costs” (as such term is defined in the GATX 2004 Equity Incentive Compensation Plan and the GATX 2012 Incentive Award Plan) at the end of the performance period. If the goal has not been met, the entire performance share award is cancelled. If the goal has been met, the Committee may reduce, but not increase, the number of performance shares otherwise payable based on the achievement of other long-term performance objectives established at the beginning of the performance period. Accumulated dividend equivalents are paid on the number of performance shares earned at the end of the performance period.

2013 Long-Term Incentive Grants. As in past years, we determined the actual number of performance shares awarded by dividing the performance share award value by the average closing prices of GATX stock on the four Fridays immediately

 

preceding the Committee meeting at which the grant was awarded. The number of SARs awarded is determined using the same average closing price and the Black-Scholes value.

The 2013 performance share award has a three-year performance period. In addition to the Total Gross Income Less Total Ownership Costs threshold goal specified in the GATX 2012 Incentive Award Plan, the number of 2013 performance shares earned will also be subject to two equally weighted measures: three-year average return on equity and three-year cumulative investment volume. These measures reflect our objectives for sustained profitability and growth. Please see the Equity-Based Long-Term Incentives section of the Narrative Discussion Related to the Summary Compensation Table and the Grants of Plan-Based Awards Table for a discussion of the numerical goals established for both performance measures, the definition of the measures, and the percentage of the initial grant of performance shares payable at the threshold, target and maximum levels of actual performance. For the 2013-2015 performance period, the named executive officers can earn 100% of the shares awarded provided the Company achieves an 11% average return on equity and $2.3 billion in cumulative investment volume over the three-year performance period.

2011-2013 Performance Share Payouts. The performance shares granted in 2011 vested at the end of 2013. Each target award was based 50% on a three-year average return on

equity goal and 50% on a three-year cumulative investment volume goal.⁴ The three-year average return on equity for the period was 10.3% versus a goal of 9.0% (return on equity improved steadily over the three-year performance period — 8.8% in 2011, 10.2% in 2012, and 12.0% in 2013). The cumulative investment volume for the period was $2.1 billion, which exceeded the goal of $2.0 billion. Based on these results, performance share payouts were 130.5% of target incentive awards. These awards were made in accordance with the provisions of the plan as established at the beginning of the period. For details regarding the 2011-2013 performance share payments to the named executive officers, please see the Option Exercises and Shares Vested Table.

Grant Policies. The grant date for regular long-term incentive awards is the date of the Committee’s first meeting of each calendar year. We make off-cycle grants (if any) to newly hired employees on the last trading date of the month following the hire date and Committee approval of the award. We grant SARs to named executive officers at the same time we grant them to other employees. SARs vest ratably over a three-year period and expire after seven years. We have no program, plan or practice to time SAR grants to named executive officers or any other employees in coordination with the release of material non-public information.

 

We sponsor a standard array of retirement, health and welfare benefits. Our retirement programs include a 401(k) and defined benefit pension programs as well as a supplemental plan intended solely to restore pension benefits limited by law to the level specified by formula in the qualified pension plan applicable to all salaried employees. The pension and 401(k) programs are intended to supplement employees’ personal retirement savings and social security benefits. Health and welfare benefits include medical, dental, vision, life and disability insurance. These programs provide protection against catastrophic loss and encourage health maintenance. Named

executive officers participate in the same programs and on the same basis as other salaried employees. No retirement, savings, medical, disability or other insurance program or arrangement exists which provides benefits to named executive officers in excess of those provided generally.

Consistent with our desire to minimize status-oriented compensation elements, the only perquisites offered to named executive officers in 2013 were financial and legal counseling reimbursements.

 

Each named executive officer has entered into an Agreement of Employment Following a Change of Control which provides certain benefits should employment be terminated following a change of control (“COC”). This protection is provided for competitive reasons and to ensure the stability, continuity and impartiality of our executives in a COC situation. The level of protection provided is intended to be similar to that provided by similarly sized organizations.

The COC agreements are “double-trigger” agreements, meaning that benefits are payable only if a COC occurs and an executive’s employment is terminated, or constructively terminated. The key terms of these agreements that were in effect during 2013 are summarized in the Executive Compensation Tables section of this Proxy Statement under “Potential Payments upon Termination or Change of Control”. After 2009, we have not provided excise tax gross up benefits in any new COC agreements we enter into with our executives. Treatment of all long-term incentive awards in the

 

event of a COC is governed not by the COC agreements but rather by the GATX 2004 Equity Incentive Compensation Plan or the GATX 2012 Incentive Award Plan, as applicable, and related grant agreements, which apply to all employees who

receive long- term incentive awards. In addition, all grant agreements require both a COC event and an executive’s actual or constructive termination before vesting will be accelerated for any outstanding long-term incentive awards.

 

To underscore the importance of stock ownership, we have established a mandatory stock ownership and stock retention policies for our named executive officers and other members of senior management. These policies require that our executives must retain shares of GATX stock having a value equal to 50% of the after-tax profits realized from GATX equity awards until the executive owns GATX shares equal in value to a multiple of salary based on his or her position. The multiple is 5.0 times

salary for the Chief Executive Officer and 2.5 times salary for other named executive officers.

As of January 31, 2014, the named executive officers had achieved the following approximate percentages of their respective stock retention requirements: Mr. Kenney (274%), Mr. Lyons (344%), Mr. Earl (402%), Mr. Ellman (160%), and Ms. Golden (236%).

 

We have a compensation recoupment policy, which provides that in the event of a material restatement of our financial results, the Board, or a Committee designated by the Board, will review the facts and circumstances that led to the requirement for the restatement and will take such actions as it deems necessary or appropriate. The Board will consider whether any executive officer received excess compensation due to the fact that the original financial statements were incorrectly presented. The Board also will consider the accountability of any executive officer whose acts or omissions were responsible in whole or in part for the events that led to the restatement and whether such acts or omissions constituted misconduct.

The actions the Board may elect to take against a particular executive officer, depending on all the facts and circumstances as determined during their review, could include: (1) the recoupment of all or part of any bonus or other compensation paid to the executive officer that was based upon the achievement of financial results that were subsequently restated, (2) disciplinary actions, up to and including termination, or (3) the pursuit of any other available remedies, including, but not limited to, canceling stock-based awards.

 

Our incentive compensation programs have been designed and administered in a manner generally intended to preserve federal income tax deductions. However, the Committee considers the tax and accounting consequences of utilizing various forms of

compensation and retains the discretion to pay compensation that is not tax deductible or could have adverse accounting consequences for GATX.

 

Annual Incentive Awards

In 2013, the named executive officers were eligible for annual incentive awards based solely on financial performance goals measured in terms of GATX net income. The target incentive awards were payable at 100% of budgeted net income. Threshold and maximum incentive awards (70% and 170%, respectively, of the target awards) were payable at 80% and 140% or more, respectively, of budgeted net income.

Based on individual targets and on actual net income as described in the Compensation Discussion and Analysis, 2013 incentive payouts under the GATX Cash Incentive Compensation Plan are shown in column (g) of the Summary Compensation Table. GATX net income achievement was $164.8 million for incentive payout purposes, or 111.9% of budget, resulting in payouts at 118.7% of target.

Equity-Based Long-Term Incentives

In 2013, equity-based long-term incentive awards consisted of stock-settled stock appreciation rights (“SARs”) and performance shares.

SARs have a seven-year term and vest in three equal annual installments beginning on the first anniversary of the grant date. The grant price is based on the average of the high and low prices of GATX common stock on the date of grant. Dividend equivalents accrue on SAR grants and are not paid until vesting and each quarter thereafter until the SARs are exercised or expire. The SARs granted to the named executive officers on January 27, 2013 will vest in three equal installments on January 27 of 2014, 2015 and 2016.

The number of SARs awarded in 2013 and their grant date fair value are shown in columns (j) and (m), respectively, in the Grants of Plan-Based Awards Table. The grant date fair value of the 2013, 2012 and 2011 SAR awards are shown in column (f) of the Summary Compensation Table for each year granted.

The percentage of each performance share award that will be earned is based on the extent to which pre-established goals on two independent performance measures, each of which is weighted at 50%, are achieved over a three-year performance period ending on December 31, 2015. The two performance measures are three-year average return on equity (defined as net income divided by average equity) and three-year

 

cumulative investment volume (defined as the sum of cumulative GAAP-basis portfolio investments and capital additions as reported on the Company’s audited statement of cash flows for each year in the performance period), subject to adjustment.

The number of performance shares earned at the end of the performance period ranges from 0% to 200% of the initial target grant. For the return on equity component, the 2013 target grant will be earned if return on equity is 100% of budgeted performance. The threshold and maximum number of performance shares are 25% and 200% of the target grant, respectively. For the cumulative investment volume component, the 2013 target grant is earned if cumulative investment volume

is 99% of budgeted performance. The threshold and maximum number of performance shares are 25% and 200% of the target grant, respectively. Dividend equivalents accrue throughout the performance period and are only paid on the number of performance shares earned at the end of the performance period.

The grant date fair value of the 2013, 2012 and 2011 performance shares are shown in column (e) of the Summary Compensation Table. The number of performance shares granted in 2013 that may be earned at target, threshold and maximum levels is shown in columns (g), (f) and (h), respectively, of the Grants of Plan-Based Awards Table.