Emerson Electric (EMR) DEF 14ADefinitive proxy

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

SCHEDULE 14A

(Rule 14a-101)

INFORMATION REQUIRED IN PROXY STATEMENT

SCHEDULE 14A INFORMATION

Proxy Statement Pursuant to Section 14(a) of the

Securities Exchange Act of 1934

(Amendment No.     )

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Check the appropriate box:

EMERSON ELECTRIC CO.

(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)

8000 W. Florissant Avenue

St. Louis, MO 63136

Dear Fellow Shareholder:

I am pleased to invite you to join us at the 2021 Annual Meeting of Shareholders of Emerson Electric Co. to be held on Tuesday, February 2, 2021 at 10:00 a.m., Central Time, currently scheduled at the Emerson headquarters located at 8000 W. Florissant Avenue, St. Louis, Missouri 63136.   At this year’s meeting, we will vote on the election of four Directors and the ratification of the selection of KPMG LLP as Emerson’s independent registered public accounting firm. We will hold a non-binding advisory vote on the compensation of Emerson’s named executive officers. We will also report on our business and provide an opportunity for shareholders to ask questions.   2020 will be long remembered as a defining moment in the history of our company. This year brought obstacles that were impossible to foresee, but it also opened up new opportunities to adapt and rise to the needs and expectations of our employees, customers, communities and shareholders. The COVID-19 pandemic transformed the global economic landscape and brought to the foreground the importance of prioritizing the health of employees, customers and other stakeholders.

The pandemic highlighted the immense responsibility we have to support critical industries around the world: life sciences, water, food and beverage, power and energy, the cold chain, and indoor air comfort and quality, just to name a few. In my two decades as CEO, never has a single external shock had such far-reaching and lasting effects on the world – and never have I been prouder of our company’s ability to meet and overcome the toughest of challenges. Amid the evolving market dynamics and uncertainties, we quickly shifted and accelerated our cost containment and restructuring actions to address the new demand environment. And, thanks to our disciplined management process, we continue to deliver strong and consistent performance even in the most challenging of conditions, marking in 2020 our 64^th year of consecutive increased dividends. For more information on our 2020 results, please see our 2020 Annual Report to Shareholders that is being made available with this Proxy Statement.

Through 2020 we further positioned the company to provide solutions from devices, instruments and sensors, to control systems, to data management, analytics and services. Software enables each of these critical value layers. In fact, as part of our ongoing work to guide customers through their individual digital transformation journeys, we are reinforcing our commitment to software as a critical enabler and value driver with our software-enabled innovation portfolio. In 2020, our investment strategy included acquisitions such as Open Systems International, Inc. (OSI Inc.), strengthening our ability to help customers incorporate renewable energy sources and improve energy efficiency and reliability; Verdant, broadening our energy management and optimization capabilities for residential and commercial applications; American Governor Company, building our technology capabilities and expertise in the renewable hydro-electric power industry; and Progea Group, expanding our robust embedded software and control portfolio for manufacturing, infrastructure and building automation applications. We are excited to welcome this new expertise and talent to the Emerson family and excited to further develop and scale these technologies.

Our progress this year would not have been possible without the work and guidance of our Board of Directors. I want to extend a special welcome to our newest board member, William H. Easter III who was elected in October. Bill will bring a wealth of business acumen and wisdom to our ranks. On behalf of the Board and the full team at Emerson, we thank you, our shareholders, for your continued support and trust. We remain committed to creating long-term value for you every day, as we work to make the world a better place.

Your vote is very important. I encourage you to complete, sign and return your proxy card, or use telephone or internet voting prior to the meeting, so that your shares will be represented and voted at the meeting even if you cannot attend. On behalf of the Board of Directors and all of us at Emerson, we thank our shareholders for your continued trust and support.

December 11, 2020

Sincerely,

DAVID N. FARR

Chairman and

Chief Executive Officer

Table of Contents

Proxy Statement Summary

    

This summary highlights information contained elsewhere in this Proxy Statement and does not contain all of the information you should consider. You should read the entire Proxy Statement before voting.

Annual Meeting

 

2021 ANNUAL MEETING INFORMATION

For additional information about our Annual Meeting, including virtual or hybrid options that may be necessary due to COVID-19, see Questions and Answers beginning on page 61.

 

Meeting Date: Tuesday February 2, 2021		Meeting Place: Emerson Headquarters 8000 W. Florissant Ave. St. Louis, MO 63136		Meeting Time: 10:00 a.m. Central Time		Record Date: November 24, 2020

 

Voting Matters		Board Recommendation		Vote Standard		Page
Management Proposals
Item 1 Election of Directors		FOR each nominee		Majority present & entitled to vote		50
Item 2 Ratification of appointment of KPMG LLP as Independent Registered Public Accounting Firm		FOR		Majority present & entitled to vote		57
Item 3 Approval of named executive officer compensation		FOR		Majority present & entitled to vote		58

 

For the election of Directors, you have the choice of voting “FOR” all or individual nominees or to “Withhold Authority” to vote for all or individual nominees. For the other proposals, you have the choice to vote “FOR”, “AGAINST” or “ABSTAIN”.

Whether or not you plan to attend the meeting, please provide your proxy by internet, phone, or by filling in, signing, dating and promptly mailing your proxy card or voting instruction form.

 

By Internet: www.proxyvote.com				By Phone: 1-800-690-6903 (toll free within U.S. and Canada)				By Mail: Vote Processing, c/o Broadridge 51 Mercedes Way Edgewood, NY 11717

Attending the Meeting

You may also vote at the meeting. All attendees must present government-issued photo identification, such as a driver’s license or passport. If you are a shareholder of record, please check the box on your proxy card and bring the tear-off admission ticket with you. If you are a beneficial, or “street name”, holder and your shares are held in the name of someone else (such as a broker, bank or other nominee), please bring a letter or account statement from that firm showing you were a beneficial holder on November 24, 2020. Failure to provide such identification may result in your exclusion from the meeting.

PROXY STATEMENT SUMMARY

Our Board of Directors

Nominees and Continuing Directors

The Emerson Board is divided into three classes. You are being asked to vote on the four Director nominees indicated below for the specified terms. The eight continuing Directors were previously elected to terms ending at the Annual Meeting specified. All Directors are independent, except Mr. Farr. Please see “Proxy Item No. 1 – Election of Directors” for more information.

 

AC   Audit Committee

CC  Compensation Committee

FC   Finance Committee

NC  Corporate Governance and Nominating Committee

EC  Executive Committee

 

 

Nominees for Terms Ending in 2024

Mark A. Blinn Former Chief Executive Officer and President, Flowserve Corp.   Age: 58 Director Since 2019 Committees: AC, CC

Arthur F. Golden Sr. Counsel, Davis Polk and Wardwell   Age: 74 Director Since 2000 Committees: EC, FC

Candace Kendle Retired Chairman and Chief Executive Officer, Kendle International, Inc.   Age: 73 Director Since 2014 Committees: AC, NC

James S. Turley Retired Chairman and Chief Executive Officer, Ernst & Young LLP   Age: 65 Director Since 2013 Committees: AC, EC, NC

 

To Continue in Office Until 2022

Clemens A. H. Boersig Retired Chairman of the Supervisory Board, Deutsche Bank AG   Age: 72 Director Since 2009 Committees: CC, EC, FC

Joshua B. Bolten President and Chief Executive Officer, Business Roundtable   Age: 66 Director Since 2012 Committees: EC, NC

William H. Easter III Former Chairman, President and CEO, DCP Midstream   Age: 71 Director Since 2020 Committees: CC, FC

Lori M. Lee Chief Executive Officer AT&T Latin America and Global Marketing Officer, AT&T, Inc.   Age: 55 Director Since 2018 Committees: AC, FC

 

To Continue in Office Until 2023

Martin S. Craighead Former Chairman and Chief Executive Officer, Baker Hughes, Inc.   Age: 60 Director Since 2019 Committees: CC, NC

David N. Farr Chairman and Chief Executive Officer, Emerson   Age: 65 Director Since 2000 Committee: EC

Gloria A. Flach Retired Corporate Vice President and COO, Northrop Grumman Corp.   Age: 61 Director Since 2017 Committees: CC, FC

Matthew S. Levatich Former President and Chief Executive Officer, Harley-Davidson, Inc.   Age: 55 Director Since 2012 Committees: AC, FC

PROXY STATEMENT SUMMARY

PROXY STATEMENT SUMMARY

PROXY STATEMENT SUMMARY

From Lead Independent Director

		CLEMENS A.H. BOERSIG

Dear Fellow Shareholder:

In my role as Lead Independent Director, I have the unique opportunity to work closely with the Emerson Board of Directors, as well as David Farr, the CEO and chairman. The Board’s focus is to guide Emerson as the Company responds to the dynamic economic environment and makes strategic investments that will deliver value now and in the future. Independence among Board members is key, so we can effectively represent the voice and interests of shareholders as we consult on Company direction.

This year brought its share of challenges, as the COVID-19 pandemic upended global economies and increased pressure on our world’s essential businesses in industries such as healthcare, manufacturing, power and energy, and food and beverage. Emerson’s response made me extremely proud. The Company’s disciplined management style and ability to adapt in real time helped Emerson sustain its business, lead its industries and support its customers and employees through the long, difficult months.

The circumstances of 2020 reinforced the value of an experienced, innovative leadership team to help navigate and address macrotrends impacting the industries Emerson serves. The Company has a deep bench of leaders, and the Board is committed to engaging in the development of this next generation to build on Emerson’s strong foundation. We continue to take a particularly active role in CEO and Director succession planning, a duty we approach with the utmost intentionality.

Our current Board and Emerson’s leadership team continue to place special focus on the Company’s sustainability strategy. This is ultimately the responsibility of every executive and employee throughout Emerson, and the Board has an important role to support the Company’s continued drive toward improved operations and innovative solutions for Emerson customers. Emerson has expanded upon its efforts in its latest Corporate Social Responsibility Report, available at Emerson.com/CSR, and we plan to continue looking for opportunities to align our disclosures with established disclosure frameworks.

We’re also committed to ensuring diversity of our Board. I’ve seen firsthand how our collective knowledge and varied expertise – in business leadership, manufacturing and corporate governance in all types of socioeconomic landscapes – have driven our success. In 2020, we were pleased to welcome W.H. (Bill) Easter III, former chairman, president and chief executive officer of DCP Midstream, LLC. Bill brings 35 years of industrial knowledge and expands the range of perspectives on the Board – crucial for the Company’s continued vitality and innovation.

On behalf of the entire Board, thank you for your continued support and engagement. I wish all of you health and success in these unique and challenging times.

Sincerely,

Dr. Clemens A.H. Boersig

Lead Independent Director, Emerson

Board and Committee Operations

Board and Corporate Governance

Board Responsibility

The primary responsibility of our Board is to foster our long-term success. In fulfilling this role, each Director must exercise good faith business judgment in the best interests of Emerson, our shareholders, employees and communities in which we operate. Our Board has responsibility for establishing broad corporate policies, setting strategic direction and overseeing management. Management has responsibility for our day-to-day operations, implementing these policies and strategic direction, subject to Board oversight.

Governance Principles and Ethics Program

Our Board has adopted Corporate Governance Principles and Practices that govern the structure and operations of our Board, Board oversight of management and relations between the Board and our shareholders. In addition, our Board has adopted an ethics program that applies to all Emerson employees and our Directors, and includes an Employee Code of Conduct, supplements that are specifically applicable to our Directors and executive officers, and an additional code of ethics applicable to our Chief Executive Officer, Chief Financial Officer, Chief Accounting Officer and Controller.

The Company’s Corporate Governance Principles and each component of its ethics program are available on the Company’s website at www.Emerson.com, Investors, Corporate Governance, Business Ethics. Printed copies of these documents are available to shareholders upon written request to Emerson Electric Co., 8000 West Florissant Avenue, St. Louis, Missouri 63136, Attn: Secretary. The Company intends to satisfy the disclosure requirement under Item 5.05 of Form 8-K by posting any amendments and/or waivers to its ethics code at the same location on its website.

The Board of Directors annually reviews its governance policies and practices, taking into account changes in applicable law, trends in corporate governance and input from shareholders.

Sustainability and Corporate Social Responsibility

Our sustainability and corporate social responsibility strategy is overseen by our Board and its committees as a part of their oversight of our overall strategy and risk management. The full Board has responsibility for the oversight of our sustainability efforts. These efforts are part of a process that is designed to provide the Board timely visibility into the identification, reporting, assessment, and management of sustainability issues. The Corporate Governance and Nominating Committee is responsible for assisting the Board in the oversight of the Company’s sustainability strategy, which includes, among other things, the matters covered in the Company’s Social Responsibility Report (CSR). Our CSR report has been published annually since 2015 and these reports are available on our website. In addition, our Audit Committee reviews a summary of the Company’s environmental activities and a summary of anticipated environmental audits and expenditures each year.

In our business and manufacturing operations around the world, our strategy focuses on efficient use of energy and natural resources to help reduce the intensity of the Company’s greenhouse gas (GHG) emissions. In 2019, we committed to reducing our GHG emissions by 20%, normalized to sales, across our manufacturing and shared services facilities by the year 2028. As part of these efforts, in 2020 we created the Environmental Sustainability Steering Committee, comprised of senior-level Emerson executives, to further our environmental sustainability efforts.

Our human capital management and succession planning, including diversity and inclusion initiatives, are important components of our strategy. Attracting, developing, and retaining talent is key to our business and operating results. As part of our diversity and inclusion efforts, among other things, the Company formed a Diversity Council in 2012, comprised of 14 senior-level Emerson executives to advance diversity and inclusion within the company. In addition, the Company has established the following employee resource groups: Blacks Reinforcing Diversity, Women in STEM, LGBTQ + Allies and the Veterans Resource Group. We are forming a new employee resource group named “Somos,” which will focus on supporting Latin Americans and Hispanics at Emerson and in the communities we serve.

BOARD AND COMMITTEE OPERATIONS

Recent Corporate Governance Changes

Our Corporate Governance and Nominating Committee regularly considers a broad range of corporate governance issues and is committed to adopting governance practices that are the most beneficial to the Company and its shareholders. As part of its review process, the Board recently made changes to Emerson’s corporate governance polices:

We believe these actions are indicators of good governance and enhance our accountability to shareholders.

Board Meetings and Attendance

There were nine meetings of the Board during fiscal 2020. All Directors attended at least 75% of the meetings of the Board and committees on which he or she served. Moreover, Directors had 98% Board meeting attendance and the Directors’ average attendance rate at meetings of the committees on which they serve was 98%. Directors are strongly encouraged to attend the Annual Meeting, although the Company has no policy requiring attendance. Ten of the eleven Directors then in office attended the 2020 Annual Meeting.

Board Leadership Structure

The Board believes that it should have the flexibility to determine whether the same person should serve as both Chair and CEO based on what it believes will provide appropriate Company leadership and deep global industry knowledge. The Board believes that its current

BOARD AND COMMITTEE OPERATIONS

structure, with Mr. Farr serving as both Chair and CEO, is appropriate given Mr. Farr’s past success and extensive experience in these roles, the efficiencies of having the CEO serve as Chair, the Company’s strong corporate governance structure, including Mr. Boersig’s strong leadership role as Lead Independent Director, and the Company’s financial performance under Mr. Farr’s leadership.

As part of its leadership structure review, in 2016 the Board established the Lead Independent Director position to strengthen the independent leadership of the Board. The Lead Independent Director is elected from the independent Directors for a three-year term. Among other things, the Lead Independent Director chairs regularly scheduled meetings of non-management Directors, reviews Board agendas and information, calls meetings of the independent Directors, acts as the Board’s key liaison with the Chairman and serves on the Board’s executive committee. The Lead Independent Director is available for consultation with shareholders. The Chair and CEO consults periodically with the Lead Independent Director and the committee Chairs, all of whom are independent, on Board matters and on issues facing the Company.

Each year the Board, through its Corporate Governance and Nominating Committee, reviews its leadership structure including the combined Chair and CEO, to ensure that it remains appropriate for the Company.

Board Role in Risk Oversight

The Board has responsibility for oversight of the Company’s risk management process. This process is designed to provide to the Board timely visibility into the identification, assessment and management of critical risks. The Audit Committee assists the Board by annually reviewing and discussing with management this process and its functionality. The areas of critical risk include strategic, operational, cyber security, compliance, environmental, sustainability, financial and reputational. The full Board, or the appropriate committee, receives this information through updates from management to enable it to understand and monitor the Company’s risk management process.

Shareholder Engagement

We value our shareholders’ perspective on our businesses and each year interact with shareholders and investment analysts through a variety of engagement activities. These engagement activities include our annual investor conference in February and participation in industry conferences throughout the year. In addition, we routinely schedule additional engagement meetings with investors and analysts in various locations around the world, which in 2020 included meetings in New York City, Boston, Chicago and Frankfurt, Germany, among other locations. In 2020, we also hosted analysts and investors at key operational headquarters in Shakopee, Minnesota and Shanghai, China. Investors and analysts may schedule meetings with our Director of Investor Relations to request additional information regarding the Company. We reach out to our largest shareholders each year in connection with our Annual Meeting to discuss, among other things, the matters that will be voted on at the meeting, leadership structure, business strategy, financial performance, governance, executive compensation, diversity, sustainability initiatives, and we respond to questions or concerns raised by shareholders. We discuss input provided by our shareholders during these meetings with our full Board, Corporate Governance and Nominating Committee, Compensation Committee, and other Committees of the Board as appropriate. Our Investor Relations department can be reached at 314-553-2197, investor.relations@emerson.com, or at www.Emerson.com, Investors, Investor Resources, Shareholder Information.

Board Composition

Our Board consists of twelve Directors. We have added five new Directors in the last four years.

As required by our Restated Articles of Incorporation, our Board is divided into three classes, with the terms of office of each class ending in successive years. The Directors in one class are elected at each Annual Meeting to serve for a three-year term and until their successors are duly elected and qualified, subject to their earlier death, resignation or removal. Periodically, a Director is elected to a class with a shorter term, or moved into a different class between meetings, to rebalance the classes.

Pursuant to the Company’s Bylaws, a Director may not stand for election after age 72 without Board review and assessment. If our Board determines that continued service beyond this period is in the best interests of Emerson and our shareholders, our Board may amend the Bylaws to waive this requirement and allow election to an additional term, subject to our classified Board structure and key business issues. In light of their extensive experience and key roles with the Company at this time, we have amended our Bylaws to permit Mr. Golden and Dr. Kendle to stand for election to the Board for an additional term at the 2021 Annual Meeting and to allow Mr. Easter to stand for election at the 2022 Annual Meeting.

BOARD AND COMMITTEE OPERATIONS

We are committed to reviewing our Board’s composition to ensure that we continue to have the right mix of skills, diversity, background and tenure. The diversity and tenure composition of our Board is as follows:

Our Board’s membership represents a balanced approach to Director tenure, allowing our Board to benefit from the experience of longer-serving Directors as well as the fresh perspectives of newer Directors. The Board is continually seeking out highly-qualified, diverse candidates to add to the range of skills and experiences represented on our Board.

Our Directors have a wide range of skills and experience in a variety of professions and industries, including:

The specific background, skills and experience of each of our Directors is detailed under Proposal 1 – Election of Directors.

The Corporate Governance and Nominating Committee has the primary responsibility for developing a Director succession plan. The Committee periodically reviews our Board composition and, as discussed above, identifies the appropriate mix of experiences, skills, attributes and tenure for our Board in light of our Company’s current and future business environment and strategic direction, all with the objective of recommending a group of Directors that can best continue our success and represent our shareholders’ interests. The Committee and our Board are committed to developing a diverse pool of potential candidates for future Board service. As part of this process, the Board recently added William H. Easter III, former Chairman, President and Chief Executive Officer of DCP Midstream. Among other attributes, Mr. Easter brings deep knowledge in the energy sector and has extensive people and organizational leadership experience.

Other Key Governance Policies

We have adopted corporate governance policies which encourage significant long-term stock ownership and align the interests of our executives with our shareholders. These policies include:

BOARD AND COMMITTEE OPERATIONS

Review, Approval or Ratification of Transactions with Related Persons

We have developed and implemented processes to obtain and review all transactions and relationships in which the Company and any of our Directors, Director nominees or executive officers, or any of their immediate family members, are participants, and to determine whether any of these individuals have a direct or indirect material interest in any such transaction. Transactions that are determined to be material to a related person are disclosed as required. Pursuant to these processes, all Directors and executive officers annually complete a Director and Executive Officer Questionnaire and a Conflict of Interest Questionnaire that are designed to identify related person transactions and both actual and potential conflicts of interest. We also review the nature and extent of business between the Company and other companies affiliated with our Directors or executive officers. Under the Company’s ethics program, an executive officer is required to immediately disclose all the relevant facts and circumstances of any actual or potential conflict of interest to the Company’s Ethics Committee. If the Ethics Committee determines that there is a conflict, it will refer the matter to the Board of Directors. A Director is required to immediately disclose all the relevant facts and circumstances of any actual or potential conflict of interest to the Board. In each case, the Board will review the matter to make a final determination as to whether a conflict exists, and, if so, the appropriate resolution.

The Company has a written ethics program applicable to all Directors and executive officers of the Company that prohibits Directors and executive officers from entering into transactions, or having any relationships, that would result in a conflict of interest with the Company. Waivers of the ethics program requirements for Directors and executive officers may only be granted by the Board of Directors. The Company’s ethics program documents can be found on the Company’s website at www.Emerson.com, Investors, Corporate Governance, Business Ethics.

Certain Business Relationships and Related Party Transactions

Based on the review described above, there were no transactions from October 1, 2019 through the date of this proxy statement, and there are no currently proposed transactions, in which the Company was or is to be a participant, in which the amount involved exceeded $120,000 and in which any of the Company’s Directors, nominees or executive officers or any of their immediate family members, or any beneficial holder of more than 5% of our common stock, either had or will have a direct or indirect material interest.

Director Independence

The Board has determined that all current Directors, other than Mr. Farr, are independent, as defined under the general independence standards of the New York Stock Exchange (“NYSE”). All Directors identified as independent meet the Board adopted independence standards. These standards are included in Appendix A and are available on the Company’s website at www.Emerson.com, Investors, Corporate Governance, Principles & Practices.

In the course of the Board’s independence determinations, it considered any transactions, relationships and arrangements as required by the Company’s independence standards. In particular, with respect to each of the three most recently completed fiscal years, the Board considered for:

Committees of Our Board of Directors

Our Board of Directors has delegated certain of its responsibilities to committees to provide for more efficient Board operations and allow Directors to engage in deeper analysis and oversight in specific areas of importance. The members and Committee Chairs are

BOARD AND COMMITTEE OPERATIONS

designated by the Board based on recommendations from the Corporate Governance and Nominating Committee. The Chair of each Committee helps develop the agenda for that Committee and provides a report to our Board on Committee activities. Each Committee annually reviews the adequacy of its Charter and conducts an evaluation of its performance.

Our Board has adopted written Committee charters which are available on our website, www.Emerson.com, Investors, Corporate Governance, Committee Charters. The primary responsibilities and membership of each Committee are below:

BOARD AND COMMITTEE OPERATIONS

Board and Committee Evaluations

Our Board assesses annually its effectiveness and that of its Committees. All Directors complete an evaluation form for the Board and for each Committee on which they serve. These forms include numerical ratings for certain key metrics, as well as the opportunity for written comments. The comments provide key insights into the areas Directors believe the Board can improve or in which its performance is strong. The evaluation results are reported to the full Board, and each Committee is provided with its Committee evaluation results. The Corporate Governance and Nominating Committee oversees the process. Evaluation topics include number and length of meetings, topics covered and materials provided, Committee structure and activities, Board composition, including any comments on other members of the Board and their expertise, succession planning, Director participation and interaction with management and promotion of ethical behavior. Our Board discusses the results of each annual evaluation and, as appropriate, implements enhancements and other modifications identified during the evaluation.

Corporate Governance and Nominating Committee

Nomination Process

The Corporate Governance and Nominating Committee is primarily responsible for identifying and evaluating director candidates and for recommending re-nomination of incumbent directors. The Committee, which consists entirely of independent directors under applicable SEC rules and NYSE listing standards, regularly reviews the appropriate size and composition of the Board and anticipates vacancies and required expertise. The Committee reviews potential nominees from several sources, including Directors, management, shareholders or others. The Committee is also authorized to retain search firms to identify potential director candidates, as well as other external advisors, including for purposes of performing background reviews of potential candidates. Mr. Blinn, who is standing for election for the first time, was recommended by a shareholder.

In evaluating potential nominees, the Committee considers the knowledge, reputation, experience, integrity and judgment of the candidates, their contribution to the diversity of backgrounds, experience and skills on the Board and their ability to devote sufficient time and effort to their duties as Directors. The Board considers the following experience particularly relevant: manufacturing, global business, in particular in emerging markets and China, business development, technology and innovation, legal, investment banking, acquisitions and finance, government, corporate governance and information technology, as well as experience on the boards of other major organizations. The Company’s Corporate Governance Principles set forth the minimum qualifications for nominees. Candidates are interviewed multiple times by the Chairman and CEO, Lead Independent Director, and other members of the Board to ensure that candidates not only possess the requisites skills and characteristics, but also the personality, leadership traits, work ethic, and independence of thought to effectively contribute as a member of the Board. The best candidates are then recommended by the Committee to the Board.

To ensure that the Board continues to evolve and be refreshed in a manner that serves the Company’s changing business and strategic needs, before recommending for re-nomination a slate of incumbent directors for an additional term, the Committee also evaluates whether incumbent directors possess the requisite skills and perspective, both individually and collectively. This evaluation is based primarily on the results of the periodic review the Committee performs of the requisite skills and characteristics of Board members, as well as the composition of the Board as a whole, and the results of the Board’s annual evaluation.

The Board’s policy is to seek qualified candidates. In evaluating candidates the Committee will consider diversity criteria such as race, ethnicity, gender, cultural background, national origin, religion, disability, age or sexual orientation. The Board seeks to maintain a balance of perspectives, qualities and skills on the Board to obtain a diversity of viewpoints to better understand the technical, economic, political and social environments in which the Company operates. The Board is committed to using refreshment opportunities to strengthen its cognitive diversity. To accomplish this, existing Board members and outside agencies are required to recommend candidates to further these objectives. The Board’s success on these objectives is measured by the range of viewpoints represented on the Board.

The Committee will consider candidates recommended by shareholders if required biographical information is properly submitted as described in “Other Matters – Future Shareholder Proposals and Nominations” at page 64 below. Properly submitted shareholder recommendations are sent to the Committee and will receive the same consideration as others identified to the Committee.

The Company’s Bylaws permit shareholders to nominate Directors at an annual meeting of shareholders or at a special meeting at which Directors are to be elected. The procedures for making such nominations are discussed in “Other Matters – Future Shareholder Proposals and Nominations” beginning on page 64.

BOARD AND COMMITTEE OPERATIONS

Proxy Access

In 2017, the Board amended the Company’s Bylaws to permit up to 20 shareholders owning in the aggregate at least 3% of the Company’s outstanding common stock continuously for at least three years to nominate and include in the Company’s proxy materials director nominees constituting up to the greater of two individuals or 20% of the Board, provided that the nominating holders and the nominees satisfy the requirements specified in the Bylaws, including providing the Company with advance notice of the nomination. For more information on how to submit a nominee for inclusion in Company proxy materials pursuant to these provisions, see “Other Matters – Future Shareholder Proposals and Nominations” on page 64 below.

In November 2020, the Board amended our proxy access bylaw to remove a limitation relating to our classified board structure. The limitation provided that as long as we maintained a classified Board, the maximum number of proxy access nominees in a year could not exceed one-half of the number of Directors to be elected at that annual meeting.

Director Compensation

Processes and Procedures for Determination of Director Compensation

The Corporate Governance and Nominating Committee annually reviews compensation practices for the Company’s Directors and makes recommendations to the Board regarding the form and amount of compensation for determination by the Board. To assist the Committee in performing these duties, management engages an outside consultant to prepare a director compensation analysis and to make recommendations. Based on this analysis, management makes recommendations regarding Director compensation for the Committee’s consideration. Frederic W. Cook & Co. prepared this analysis for fiscal 2020. For fiscal 2021, no changes were recommended by management and the Committee and no changes were made by the Board.

Director Compensation Program

Each non-management Director is paid an annual retainer in cash and/or restricted stock or restricted stock units (“RSUs”), as well as meeting fees and reimbursement of expenses. The Lead Independent Director and each Committee Chair receive an additional cash retainer. Mr. Farr does not receive any additional compensation for service on the Board. In fiscal 2020, the Director compensation program provided for the following payments:

Effective April 1, 2020 through September 30, 2020, the cash portion of the annual retainer, the lead independent director retainer, the committee chair retainers and meeting fees were reduced by 15% in light of the Company’s cost cutting efforts during the height of the COVID-19 pandemic.

Emerson’s Director Stock Ownership Policy generally requires non-management Directors to hold stock equal to five times annual cash compensation, subject to a phase-in policy for new Directors. Our non-management Directors generally are required to hold all restricted stock and RSUs until retirement from our Board. The awards generally do not vest until the last day of a Director’s term after the age of 72, or earlier death, disability or a change of control of the Company. If a Director’s tenure on the Board ends for any other reason, the vesting of the award is at the discretion of the Committee. If the restrictions on the awards do not lapse, the awards are forfeited to the Company. Restricted stock includes both dividend and voting rights. Dividend equivalents are paid on RSUs, which do not have voting rights.

Directors may defer all or a part of their cash compensation under the Company’s Deferred Compensation Plan for Non-Employee Directors. Directors may also defer payment of the dividend equivalents on RSUs. Deferred amounts are credited with interest quarterly at the Bank of America prime rate. Under SEC rules, interest on deferred amounts is considered above-market if the rate of interest exceeds 120% of the applicable federal long-term rate. During fiscal 2020, the applicable prime rate ranged from 3.25% to 5.00%, while 120% of the applicable federal long-term rate ranged from 1.20% to 2.49%. A. F. Golden participated in this deferral program during fiscal 2020 and above-market earnings on his deferred amounts are set forth in the Director Compensation Table. All deferred amounts are payable in cash.

BOARD AND COMMITTEE OPERATIONS

As part of the Company’s charitable contributions practice, the Company may, in the Board’s discretion, make a charitable contribution in the names of Emerson and a Director (including management Directors) upon retirement from the Board (as determined by the Board), taking into account the Director’s Board tenure, accomplishments, and other relevant factors.

The table below sets forth non-management Director compensation for fiscal 2020.

Director Compensation

Audit Committee

Report of the Audit Committee

The Audit Committee assists the Board in providing oversight of the systems and procedures relating to the integrity of the Company’s financial statements, the Company’s financial reporting process, its systems of internal accounting, financial and reporting controls, the performance of the internal audit function, risk management, the independent audit process of the Company’s annual financial statements and the Company’s compliance with legal and regulatory requirements. Management is responsible for these processes.

The Audit Committee reviews with management the Company’s major financial risk exposures and the steps management has taken to monitor, mitigate and control such exposures. Management has the responsibility for the implementation of these activities. In fulfilling its oversight responsibilities, the Committee reviewed and discussed with management the audited financial statements in the Company’s Annual Report on Form 10-K for the fiscal year ended September 30, 2020, including a discussion of the quality and the acceptability of

BOARD AND COMMITTEE OPERATIONS

the Company’s financial reporting and controls. The Committee also reviews the Company’s quarterly earnings press releases and reports on Form 10-Q prior to distribution and filing.

The Company’s independent registered public accounting firm is responsible for expressing an opinion on the conformity of those audited financial statements with U.S. generally accepted accounting principles and on the effectiveness of the Company’s internal control over financial reporting. The Committee reviewed with the independent registered public accounting firm the firm’s judgments as to the quality and the acceptability of the Company’s financial reporting and such other matters as are required to be discussed with the Committee by the applicable requirements of the Public Company Accounting Oversight Board (“PCAOB”) and the Securities and Exchange Commission. In addition, the Committee has discussed with the independent registered public accounting firm the firm’s independence from management and the Company, including the impact of non-audit related services provided to the Company and the matters in the independent registered public accounting firm’s written disclosures required by the applicable requirements of the PCAOB.

The Committee also discussed with the Company’s internal auditors and the independent registered public accounting firm in advance the overall scope and plans for their respective audits, including timing, risk assessments, locations and coverage, and any reliance by the external auditors on work performed by the internal auditors. The Committee meets at least quarterly with the internal auditor and the independent registered public accounting firm, with and without management present, to discuss the results of their examinations, their evaluations of the Company’s internal controls, and the overall quality of the Company’s accounting and financial reporting.

The Committee is directly responsible for the appointment, oversight, qualification, independence, performance, compensation and retention of the Company’s independent registered public accounting firm, including audit fee negotiations and approval. The Committee has evaluated whether retaining KPMG as the Company’s independent auditor for the year is in the best interest of Emerson and its shareholders. The Committee considers whether KPMG’s known legal risks include involvement in proceedings that could impair their ability to perform the annual audit, and reviews historical and proposed KPMG fees charged to the Company.

In performing its review, the Committee also considers the quality, candor and effectiveness of KPMG’s communications with the Committee and management; how effectively KPMG maintained its independence as demonstrated by exercising judgment, objectivity and professional skepticism; reports of the PCAOB and other available data regarding the quality of work performed by KPMG; KPMG’s long tenure and experience as the Company’s auditor, and the geographic reach and expertise of KPMG to address the demands placed on an auditor by the global breadth and complexity of Emerson’s business in terms of quantity, quality and location of staff.

The Committee also considers whether, to assure continuing auditor independence, there should be rotation of the independent registered public accounting firm.

The Committee is responsible for the selection of the lead engagement partner, and as required by law, assures rotation of the lead partner every five years. When appropriate, KPMG provides a list of candidates for the role of lead engagement partner, who are then interviewed by members of senior management. The Committee considers their recommendations and those of KPMG leadership, evaluates the candidate’s qualifications, strengths and weaknesses and selects the lead engagement partner.

In reliance on the reviews and discussions referred to above, the Committee recommended to the Board of Directors that the audited financial statements be included in the Company’s Annual Report on Form 10-K for the fiscal year ended September 30, 2020 for filing with the Securities and Exchange Commission. In accordance with its Charter, the Committee has reappointed KPMG LLP as the Company’s independent registered public accounting firm to audit the Company’s consolidated financial statements for fiscal 2021, based on their overall qualifications, objectivity, significant experience and understanding of the Company’s operations, and their ability to deploy resources to match Emerson’s global operations.

Fees Paid to KPMG LLP

Fees paid to KPMG LLP, the Company’s independent registered public accounting firm:

BOARD AND COMMITTEE OPERATIONS

Audit Fees primarily represent the cost for the audit of the Company’s annual financial statements, reviews of quarterly SEC filings and statutory audits at non-U.S. locations.

Audit-Related Fees are primarily attributable to other acquisition and divestiture due diligence, audits of employee benefit plans and statutory filings.

Tax Fees are related to tax compliance services.

The Audit Committee approved in advance all services provided by KPMG LLP. The Audit Committee’s pre-approval policies and procedures are included within the Audit Committee Charter, which can be found on the Company’s website at www.Emerson.com, Investors, Corporate Governance.

Compensation Committee

The Compensation Committee operates under a written charter that details the Committee’s authority, composition and procedures. The Committee may delegate authority with respect to specific matters to one or more members, provided that all decisions of any such members are presented to the full Committee at its next meeting. For a discussion of delegations of authority to the CEO, see “Equity Compensation Grant Practices” at page 35 below.

For fiscal 2020, the Compensation Committee reviewed management’s process for assessing risk in the Company’s compensation programs, policies and practices for its employees, including the Company’s executive compensation program and practices. The Committee accepted the result of these reviews that our compensation programs, policies and practices do not create risks that are reasonably likely to have a material adverse effect on our business. Please see “Our Compensation Best Practices” on page 23 and “Policies Supporting our Fundamental Principles” on page 32 for additional information.

Role of Executive Officers and the Compensation Consultant

Executive Officers

As described in “Compensation Discussion and Analysis – Setting Annual Total Compensation” on page 25, our CEO makes recommendations to the Compensation Committee based on management input regarding total compensation of the other executive officers. Management also develops and presents to the Committee design recommendations for compensation programs.

The Compensation Committee has unrestricted access to management and may request the participation of management or the Committee’s independent consultant at any meeting or executive session. Committee meetings are regularly attended by the CEO, except for executive sessions and discussions of his own compensation, by the Vice President-Executive Compensation, who leads some of the discussions regarding the Company’s compensation programs, and the Committee’s independent consultant. The Committee regularly reports to the Board on compensation matters and annually reviews the CEO’s compensation with the Board in executive sessions of non-management Directors only.

Compensation Consultant

The Compensation Committee has sole discretion, at Company expense, to retain and terminate compensation consultants, independent legal counsel or other advisors, including sole authority to approve their fees and retention terms. Any Committee member may request the participation of independent advisors at any meeting. The Committee has engaged Exequity LLP as its independent consultant. Exequity reports directly to the Committee and performs services as directed by the Committee. In 2020, Exequity reviewed our comparator group companies, the compensation of our CEO and the other NEOs and a pay for performance analysis. Management engages Frederic W. Cook & Co. from time to time to assist with executive compensation program design and competitive pay analysis. The Committee reviews this information in determining compensation for the NEOs. Neither Exequity nor Frederic W. Cook & Co. provides any other services to the Company. See also “Competitive Market Information” on page 24.

Compensation Committee Report

The Compensation Committee of the Board of Directors acts on behalf of the Board to establish and oversee the Company’s executive compensation program in the interests of the Company and its shareholders. For a discussion of the Compensation Committee’s policies and procedures, see “Compensation” on page 12, “Compensation Committee” on page 17 and “Role of Our Compensation Committee” on page 21.

Management of the Company has prepared the Compensation Discussion and Analysis describing the Company’s compensation program for senior executives, including the NEOs. See “Compensation Discussion and Analysis” beginning on page 19. The

BOARD AND COMMITTEE OPERATIONS

Compensation Committee has reviewed and discussed the Compensation Discussion and Analysis for fiscal 2020 with the Company’s management. Based on this review and discussion, the Compensation Committee recommended to the Board of Directors that the Compensation Discussion and Analysis be included in the Company’s proxy statement for its 2021 Annual Meeting of Shareholders.

Compensation Committee Interlocks and Insider Participation

The functions and members of the Compensation Committee are set forth above under “Compensation” on page 12. All Committee members are independent and none of the Committee members has served as an officer or employee of the Company or a subsidiary of the Company. During fiscal 2020, no member of the Committee and no other Director was an executive officer of another company on whose compensation committee or board any of our executive officers served.

Executive Compensation

Compensation Discussion and Analysis

This Compensation Discussion and Analysis describes the compensation programs and practices regarding our Named Executive Officers (“NEOs”) for the 2020 fiscal year. Our NEOs for fiscal 2020 included our Chief Executive Officer, Chief Financial Officer and the next three most highly compensated officers, as well as our former Executive President Commercial & Residential Solutions who stepped down from this role on August 12, 2020 and left the Company effective September 30, 2020, listed below:

Executive Summary

At Emerson, our goal is to attract and retain talented executives who deliver value to our shareholders through the achievement of the Company’s specific business objectives, such as consistent, sustained growth in earnings per share, cash flow and premium return on investments. Our executive compensation program and overall pay for performance philosophy align with that goal and our results.

Fiscal 2020 Performance Highlights

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Focus on Purpose and Values

At Emerson, our ability to quickly adapt to changing market dynamics and uncertainties and still rise to the call for innovative solutions from our customers reflects not only our core Values, but our Purpose-focused mindset. These foundational Values and Purpose-mindset inform our strategy and decisions as an organization and reinforce our core dedication to our employees, shareholders, customers and suppliers and our drive to deliver results. This mindset and the outcomes achieved through our disciplined management processes was tested this year through obstacles and challenges that were impossible to foresee but allowed us to maintain strong and consistent financial performance.

In January 2020, we were inspired to define our Purpose and reimagine the causes we work toward every day. As we did when we set out to define our core Values in 2018, we gained the input of over 17,000 employees worldwide to align on our Purpose: To drive innovation that makes the world healthier, safer, smarter and more sustainable. Our Purpose builds on and is strengthened by our foundational Values of Integrity, Collaboration, Safety & Quality, Continuous Improvement, Customer Focus, Innovation and Support Our People.

The focus on our Purpose and the demonstration of our Values starts at the highest level of our organization. Our CEO and NEOs work to reinforce our Purpose and Values with our businesses and global workforce in their actions and decisions. With the onset of the global pandemic, our Values of Safety & Quality, Customer Focus and Support Our People were front and center in our response to the COVID-19 crisis and our Purpose was recognized in our responsibility to support critical industries around the world, including life sciences, water, food and beverage, power and energy, the cold chain and indoor air comfort and quality.

Pay for Performance Fundamental Principles

Our executive compensation program is based on a consistent set of key principles that directs compensation decisions and communicates to participants the Company’s Purpose, core Values, critical business strategies and performance objectives. These principles guide the performance objectives that drive strong results to maximize shareholder value, make Emerson a good global citizen, enhance critical capabilities for us and our customers and encourage career-long commitments to the Company.

These fundamental compensation principles include:

Our executive compensation program mirrors our rigorous and disciplined management process – a hallmark of Emerson since our founding in 1890 – by ensuring that these principles are reflected in our compensation decisions.

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Shareholder Engagement and Compensation Program Benchmarking

We engage with and value the feedback of our shareholders on the components of our executive compensation program. We also regularly dialogue with our independent compensation consultants and other industry groups to work to ensure that we are continually reviewing and evolving our compensation programs with competitive market standards. We share feedback received on our compensation programs and market practices with our Compensation Committee. Our Compensation Committee carefully considers the long-term interests of the Company and our shareholders when making decisions regarding our compensation programs.

		In fiscal 2020, we engaged with holders of over 40% of outstanding shares (none of whom were our employees or directors) to specifically discuss our compensation philosophy and programs and to listen to their feedback.
		Emerson’s shareholders again expressed strong support for our executive compensation program at our 2020 Annual Meeting, with a vote of 92.8% in support.
		We engaged our independent compensation consultants to benchmark our performance-based compensation program against market practices for other manufacturing companies and our compensation comparator group. Results showed our program to be generally consistent with or superior to market, and no changes for fiscal 2021 were recommended by the Committee’s independent consultant.
		We determined our program would be improved with the addition of a relative total shareholder return modifier on top of our existing operating metrics for our Fiscal 2021 – 2023 Performance Shares Program.

Role of Our Compensation Committee

Our Compensation Committee acts on behalf of our Board to establish our compensation philosophy and oversee our executive compensation program. The current members of our Compensation Committee are Clemens A. H. Boersig (Chairman), Mark A. Blinn, Martin S. Craighead, William H. Easter III and Gloria A. Flach. Pursuant to its Charter, which can be found on our website at www.Emerson.com, our Committee is responsible for:

EXECUTIVE COMPENSATION

Compensation Mix

In determining the total compensation of each of our NEOs, the Compensation Committee balances the compensation mix considering the executive’s level of responsibilities, leadership and career potential, individual performance and service with the Company, with the objective of achieving a high and sustainable level of Company and individual performance. At-risk compensation (annual cash bonus and performance shares) increases as responsibilities increase and generally makes up 75% or more of the total compensation mix for our NEOs. Total compensation is targeted to the median market range of our compensation comparator group.

Key Compensation Decisions in Fiscal 2020

EXECUTIVE COMPENSATION

Our Compensation Best Practices

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Competitive Market Information

How We Determine Our Compensation Comparator Group

The Compensation Committee annually reviews and approves the compensation comparator group that it uses to conduct market analysis and determine competitive pay ranges for our NEOs at its June meeting. As in prior years, the Committee reviewed a special study and screening prepared by Frederic W. Cook & Co. and selected compensation comparator companies for fiscal 2020 compensation based upon one or more of the following criteria (which are not assigned any specific weight):

2020 Compensation Comparator Group Companies

For fiscal 2020, no changes were made to our existing 22-company compensation comparator group listed below:

The current global economic conditions, organizational restructurings and merger and acquisition activities and other market dynamics may have affected these companies and their appropriateness for inclusion in our compensation comparator group for future periods based on the criteria noted above. The Compensation Committee will undertake a full review of our compensation comparator group companies in June 2021.

Emerson vs. Compensation Comparator Group

EXECUTIVE COMPENSATION

Elements of Compensation

Setting Annual Total Compensation

The Compensation Committee targets annual total compensation (cash and annual long-term stock compensation) for our NEOs in the median market range of our compensation comparator group. To determine the median range, the Committee uses a competitive pay analysis of total compensation for the proxy reported officer positions at the compensation comparator group companies prepared by Frederic W. Cook & Co. The Committee also reviews and confirms the competitive market pay analysis with Exequity, its independent compensation consultant. The competitive pay analysis is not used to establish performance goals in the Company’s compensation programs.

The Committee does not set specific financial targets related to annual cash compensation and pay determinations are not based on any formula. Actual pay is dependent on Company and individual performance and based on the Committee’s informed judgment. The Committee does monitor the relative internal compensation relationships between the CEO and the other NEOs, however, no specific pay ratio is targeted.

The Committee meets in executive session to review and set the CEO’s compensation. The Committee considers a number of factors in making its decision, including: market data; compensation elements; Company performance; tenure and experience; retention; and the CEO’s individual performance, leadership, contributions to the Company and impact on results. The Committee also discusses the CEO’s compensation annually with the non-management Directors in executive session.

For the NEOs and other key executives, our CEO reviews with the Committee the individual performance and leadership potential of these key executives, along with the Company’s financial results, and makes individual pay recommendations to the Committee. The CEO’s recommendations are informed by our robust annual organizational review, compensation planning and performance review processes.

EXECUTIVE COMPENSATION

Fiscal 2020 CEO and NEO Performance

CEO Performance. In determining the appropriate level of total compensation for the CEO, the Committee evaluated the Company’s strong and consistent financial performance in fiscal 2020 (summarized on page 19) despite unprecedented rapid downturn of global markets due to the COVID-19 pandemic; the disciplined management of the Company’s business and operations and mobilization of our global leadership during the COVID-19 pandemic and other geopolitical challenges; his actions upholding the Value of Support Our People in ensuring employees had a safe working environment while continuing operations to support critical industries; the continued aggressive execution of cost containment actions announced prior to global pandemic; our strategic acquisition activity; his critical succession planning leadership; his actions to bring renewed focus to the Company’s Purpose and Values; his individual leadership, performance and contributions; his tenure as CEO; and the retention of Mr. Farr. Considering these factors, the Committee determined that Mr. Farr’s 2020 total compensation, while down compared to 2019, remains in the median market range. The Committee noted that Mr. Farr successfully led the Company through a challenging 2020 fiscal year and highlighted the following significant accomplishments.

EXECUTIVE COMPENSATION

Other Named Executive Officer Performance. In setting compensation for the other NEOs, the Committee considered the Company’s strong and consistent fiscal 2020 financial performance; the adept reaction to the global pandemic and the mobilization of our global operations leaders and workforce to continue to safely service customers during the unprecedented COVID-19 pandemic; the mitigation of supply risks, tariffs and other geopolitical challenges; the restructuring actions taken to weather the down market and prepare for future growth; and the continued focus on safety and wellbeing of our employees; as well as Mr. Farr’s evaluation of each NEO’s individual performance, leadership and accomplishments. The Committee also evaluated the NEOs based on their interactions with and presentations to the Board.

EXECUTIVE COMPENSATION

Fiscal 2020 Annual Total Compensation Mix

We believe that our practice of setting a majority of our NEOs compensation as “at-risk” pay underscores our commitment to our fundamental pay-for-performance principles. By tying a significant percentage of NEO annual total compensation (cash and long-term stock) to performance-based pay that is dependent on achievement of the Company’s performance goals as well as the consistent attainment of strong individual performance, we maximize the value we can deliver to shareholders. In fiscal 2020, 91% of our CEO’s pay and an average of 85% of the other NEOs’ annual pay was comprised of “at-risk” compensation (calculated on base salary paid as shown in Summary Compensation Table; amounts do not include other forms of compensation shown in the Summary Compensation Table).

Annual Cash Compensation

The Committee targets total annual cash compensation in the median market range of total cash compensation, while placing more emphasis on performance-based annual cash bonus than on base salary. Base salary generally represents 10-20% of total NEO compensation and bonus generally represents 15-25%.

Base Salary. Fiscal 2020 base salary increases were based on the Committee’s review of the Company’s solid fiscal 2019 performance, individual performance and potential and competitive market compensation. The Committee also considered market survey data that indicated that the predicted merit increase, without promotions, for comparable executive positions averaged approximately 3%. Beginning in April 2020, each NEO’s base salary shown below was decreased by 15% through September 2020 as part of cost-containment actions necessitated by the COVID-19 pandemic.

As shown above, for fiscal 2020, base salary (the only guaranteed portion of NEO compensation) comprised only 9% of our CEO’s and an average of 14.5% of our other NEOs’ annual total compensation.

EXECUTIVE COMPENSATION

Bonus. In determining fiscal 2020 bonuses, the Compensation Committee reviewed the Company’s strong and consistent financial performance, the NEOs actions in leading the Company’s response to the COVID-19 pandemic, the continued aggressive execution of cost-containment actions announced prior to global pandemic, and continued investment and preparation for future growth, as well as the individual performance and leadership of each NEO. The Committee used discretion and based its decisions on its informed judgment considering these factors collectively. No individual weightings were assigned to any of these factors.

As shown above, for fiscal 2020, cash bonus comprised only 14% of our CEO’s and an average of 18% for our other NEOs’ annual total compensation.

Annual Long-Term Stock Compensation

The Committee targets total annual compensation for our NEOs in the median market range of our compensation comparator group, with performance-based stock compensation being the largest component of our NEOs annual total compensation. We value our long-term stock compensation awards based on the fair value at grant; however, an executive may realize more or less than his or her targeted long-term compensation depending on Company and stock performance over the performance period.

Performance Shares. Performance shares awards are the primary long-term compensation element and the cornerstone of our pay-for-performance philosophy. The Committee may increase or decrease the amount of an award based on individual performance and targets the median market range for total annual compensation. We believe that performance shares align the interests of our executives and shareholders and support the achievement of long-term strategic operating goals such as premium, sustained growth in earnings and cash flow. Given our global reach, our G7 GDP performance benchmark also reflects the importance of measuring our growth against the growth of the global economy.

Each annual Performance Shares Program has a three-year performance period with defined operating performance targets set by the Committee at the beginning of the period from the various measures set forth in the Company’s Incentive Shares Plans. An award of performance shares under the program represents the right to receive shares of our common stock to the extent the identified performance objectives are met. Dividend equivalents may be paid, but only on earned awards at the end of the performance period. Payouts are made primarily in common stock, with a portion paid in cash to cover tax obligations. Awards include confidentiality, non-competition and non-solicitation obligations and expanded clawback rights and are subject to a double-trigger change of control provision.

At the end of a performance period, the Committee reviews the Company’s financial results against the operating performance targets and certifies the level of achievement for payout of the awards. The Committee may include or exclude from both targets and actual results specified items of an unusual, non-recurring or extraordinary nature as allowed by the plans. Pursuant to our Incentive Shares Plans, the Committee also has the discretion to adjust a payout percentage where results and/or business climate warrant.

At Emerson, we pride ourselves on our disciplined management processes that drive strong results to maximize shareholder value. While we continue to meet the challenges presented by the global economic and geopolitical climate and measure ourselves against the growth of the global economy, we also believe that it is important to measure value creation for our shareholders in relation to the performance of a similarly-correlated industry group. Beginning with our Fiscal 2021 – 2023 Performance Shares Program, therefore, we are adding a relative total shareholder return modifier metric to our Performance Shares Program to measure our total shareholder return performance relative to the S&P 500 Capital Goods Index group of companies (the “CGI Group”). We will continue to determine payout percentage by reviewing our financial performance against our operating metrics, with the calculated payout against those metrics continuing to be capped at 125% of target. We will then measure our three-year total shareholder return relative to the CGI Group performance for the same period. If our total shareholder return is at or above the 80^th percentile of the CGI Group, the payout percentage from operating results will be increased by 20 percentage points. If our total shareholder return is at or below the 20^th percentile of the CGI Group, the payout percentage will be decreased by 20 percentage points. No adjustment will be made for relative performance between the 20^th and 80^th percentile of the CGI Group.

EXECUTIVE COMPENSATION

Early in fiscal 2020, we also engaged our independent compensation consultants to benchmark our Performance Shares Program against market practices for performance-based compensation at other manufacturing companies and our compensation comparator group. Results showed our program to be consistent with or superior to market in most all criteria. Our independent consultant noted for the Committee that our Program does not contain a threshold level achievement of performance targets prior to payout, whereas most other programs reviewed contain a performance threshold prior to payout. Our independent consultant cautioned, however, that our maximum payout of 125% of target was significantly lower than other programs reviewed; therefore, if a threshold were to be considered, the Committee should also increase the maximum payout opportunity. The consultant also noted the potential wide swings in payouts from year-to-year that may occur with a threshold and higher maximum payout design. The Committee determined that a higher payout opportunity and wide payout swings was not in the spirit of our compensation philosophy and no threshold was added for the Fiscal 2021 – 2023 Performance Shares Program. No changes for fiscal 2021 were recommended by the Committee’s independent consultant.

Fiscal 2020 – 2022 Performance Metrics

(Period from October 1, 2019 – September 30, 2022)

What do we consider when we make performance shares awards?

In making an individual annual award, the Committee considers the NEO’s: (1) ability to make a significant contribution to the Company’s financial results, (2) level of responsibility, (3) individual performance and (4) leadership potential. The annual performance shares award generally represents more than half of the NEO’s total compensation, depending on the NEO’s role and responsibilities.

In fiscal 2020,100% of our NEOs annual long-term incentive awards were performance-based awards.

Why these performance metrics?

Each year, the Compensation Committee works with executive management and its independent executive compensation consultant to review and establish financial and operational performance metrics that are consistent with our long-term strategic objectives and in line with market practices. The Committee sets targets for the three-year performance period that will challenge our business leaders to drive operating results that generate shareholder returns. At the end of the performance period, our NEOs earned awards are based on the level of achievement against these targets.

For the Fiscal 2020 – 2022 Performance Shares Program, the Committee determined that earnings per share and free cash flow (operating cash flow less capital expenditures) were again the metrics most appropriate to drive premium growth.

EXECUTIVE COMPENSATION

The Committee will continue to examine our performance metrics through the changing business environment in future award years to ensure continued focus on delivering shareholder value.

How do we benchmark our performance?

The Committee also sets an appropriate benchmark each year that reflects the global reach and focus of our Company. We believe that measuring our financial and operating results against a global benchmark is appropriate in our position as a global leader in the industries we serve.

Beginning with the Fiscal 2021 – 2023 Performance Shares Program, the Committee has also added a relative total shareholder return modifier metric to measure our shareholder return performance against the CGI Group of companies, as discussed above.

How do we calculate results against our performance metrics?

At the end of the Fiscal 2020 – 2022 Performance Period, the Committee will review our financial results against the performance targets set at the beginning of the performance period. The Committee will consider whether there are any adjustments that should be made to account for unusual, non-recurring or extraordinary items. The Committee will then certify the level of achievement against the targets for payout of the awards.

For the Fiscal 2021 – 2023 Performance Shares Program, the Committee will also review our total shareholder return for the three-year period relative to the CGI Group. If our total shareholder return is above the 80^th percentile or below the 20^th percentile of the CGI Group, the payout percentage will be adjusted as discussed above. Pursuant to our Incentive Shares Plans, the Committee also has the discretion to adjust a payout percentage where results and/or business climate warrant.

Fiscal 2020 – 2022 Performance Shares Program Awards. In fiscal 2020, 100% of our NEOs’ annual long-term stock compensation was comprised of performance shares awards. The following individual performance shares awards were made to the NEOs:

EXECUTIVE COMPENSATION

For fiscal 2020, performance shares represented 77% of our CEO’s annual total compensation and an average of 67.5% for our other NEOs.

Fiscal 2018 – 2020 Performance Shares Program. The performance period for the Fiscal 2018 – 2020 Performance Shares Program ended on September 30, 2020. The targets and weightings were calculated in the same manner as described above. The Committee determined that the target earnings per share was $2.96 and target cumulative free cash flow was $7.543 billion. In determining the results for the performance period, the Committee determined that it was appropriate to adjust for certain discrete items, including previously approved adjustments primarily related to acquisition and divestiture activity as well as other restructuring fees and tax items.

The Committee determined that the fiscal 2020 EPS, after a downward adjustment of $0.18 (from $3.24), was $3.06, and cumulative free cash flow over the performance period, after downward adjustment of $97 million (from $7.232 billion), was $7.135 billion. The impact from the adjustments resulted in a reduced payment under the formula.

This performance resulted in a 100% payout of the awarded performance shares. This is only the second time in the last decade that the Company has had a performance shares program payout at 100% or more, which correlates to the difficulty of achieving the targets set. The payouts are reflected in the Option Exercises and Stock Vested table on page 41.

Other Stock Awards

Restricted Stock. Restricted stock is also available for award under our long-term stock-based compensation program. In limited circumstances, such as special retention, recognition and succession planning needs, the Committee may make a separate award of restricted stock. Awards of restricted stock are highly selective. Restricted stock awards are not considered as a portion of an NEOs annual total compensation and may, therefore, result in compensation above the median range in the year of award. The Committee views this program as an important management succession planning and retention tool. The objective is to lock in top executives and their potential replacements identified through the succession planning process. Restricted stock provides participants with dividends and voting rights beginning on the award date. There is no set frequency of restricted stock awards, and they are granted with long-term cliff vesting periods of up to 10 years and no less than 3 years.

Stock Options. Our 2011 Stock Option Plan expired on November 2, 2020. Although our NEOs have stock options outstanding, no stock option awards have been made to any of the NEOs since 2016. All stock options previously awarded were issued at no less than fair market value on the date of the award with vesting over a period of three years with a ten-year term. We do not pay dividend equivalents on stock options and do not “reprice” awards.

Policies Supporting Our Fundamental Principles

To support our pay-for-performance philosophy and underlying fundamental principles of our compensation programs, we have implemented certain policies regarding NEO ownership of and actions in connection with stock and other incentive compensation. In

EXECUTIVE COMPENSATION

addition to our compensation programs, we believe that appropriate stock ownership guidelines and our stock trading, clawback and pledging and anti-hedging policies further align the interests of our executives with shareholders by encouraging long-term superior performance without encouraging excessive or unnecessary risk taking.

Severance, Executive Termination and Retirement

Emerson does not have employment agreements, severance agreements or golden parachute agreements with the NEOs. The terms of all executive terminations and retirements are determined by the Committee individually based on specific facts and circumstances and not on formulaic rules. We follow these general principles:

The Committee has adopted an Executive Officer Severance Policy which provides that the Company shall not implement individual severance or change of control agreements providing certain benefits (as described in the Policy) to any NEO in excess of 2.99 times the sum of the NEO’s then current base salary and most recent cash bonus without shareholder ratification. The policy is located at www.Emerson.com, Investors, Corporate Governance, Executive Officer Severance Policy. R. T. Sharp, our former Executive President Commercial & Residential Solutions, left the Company effective September 30, 2020. We entered into a letter agreement with Mr. Sharp which, among other things, reaffirmed and extended his restrictive covenants. Please see “Description of R. T. Sharp Letter Agreement” at page 46 below for a description of his separation arrangement.

Change of Control

If a change of control occurs, we protect all employees who participate in long-term stock plans, the Savings Investment Restoration Plans and the Pension Restoration Plan as described under “Potential Payments Upon Termination or Change of Control” at page 44 below. Our 2011 Stock Option Plan and 2015 Incentive Shares Plan include a “double trigger” for vesting following a change of control, although stock awards under our prior incentive shares plan vest upon a change of control. When triggered, we would expect to

EXECUTIVE COMPENSATION

accelerate vesting of stock awards and pay accrued benefits under the Savings Investment Restoration Plans and the Pension Restoration Plan. We do not credit additional years of service under any plans or continue medical or other benefits. We do not make additional cash payments related to stock compensation plans. We do not increase payouts to cover payment of taxes and do not provide tax gross-ups.

Security and Perquisites

Due to increased security risks inherent in senior executive positions, we provide NEOs with residential security monitoring and personal security as needed. The Company’s security policy and the Board of Directors require that the Chairman and CEO use Company aircraft for all travel to promote business efficiency and safety given our global footprint. The Company provides limited personal use of Company aircraft to the other NEOs. All NEOs reimburse the Company at first class rates for personal use, calculated at the maximum rate prescribed under U.S. Treasury regulations. The Company also provides NEOs with cars, club memberships, financial planning and an annual physical. We believe these perquisites assist in retaining and attracting executives and are similar to those often provided at other similarly-sized companies. NEOs and other employees may receive Company tickets for sporting or other events. The Committee reviews these perquisites annually. Total perquisite costs and related information appear in the Summary Compensation Table on page 36. The Company does not provide any reimbursement for taxes on perquisites, except as may be prescribed in our relocation policies applicable to all employees.

Other Benefits

The NEOs are eligible for Company-provided benefits that are generally available to all other employees, including qualified 401(k) savings plans, a qualified defined-benefit pension plan, medical, life and disability insurance and a charitable matching gifts program, among others. The defined-benefit pension is being phased out, but a majority of U.S. employees, including the NEOs, continue to participate. The following additional benefits are also available to the NEOs:

Regulatory Considerations

Internal Revenue Code Section 162(m) imposes a $1 million limit on the Company’s deductions for compensation paid to specified executive officers (“Covered Employees”). For taxable years beginning before January 1, 2018, the Covered Employees consisted of a corporation’s chief executive officer and up to three other highly compensated executive officers (other than the chief financial officer), and qualifying “performance-based compensation” was not subject to this limitation if specified requirements were met (i.e., compensation paid only if performance meets pre-established objective goals based on performance criteria approved by shareholders).

Pursuant to the Tax Cuts and Jobs Act of 2017, for taxable years beginning after December 31, 2017, (i) the remuneration of a public corporation’s chief financial officer is now also subject to the deduction limit, (ii) once an individual is considered a Covered Employee with respect to a taxable year, he or she will be considered a Covered Employee for all future years, including after termination of employment or death, and (iii) the exemption from the deduction limit for “performance-based compensation” is no longer available. These changes do not apply to remuneration provided under a binding written contract in effect on November 2, 2017, which is not materially modified after that date. Consequently, for fiscal years beginning after December 31, 2017, no remuneration in excess of $1 million paid to a Covered Employee will be deductible unless such compensation is granted pursuant to a written binding contract that was in effect prior to November 2, 2017.

While the Committee considers the impact of the tax treatment of executive compensation, the primary factor influencing program design is the support of business objectives, and the Committee retains the flexibility to design and administer compensation programs that are in the best interests of Emerson and its shareholders. The Committee does not communicate annual bonus targets to the NEOs. Our compensation plans also comply with IRC Section 409A for nonqualified deferred compensation arrangements.

In accordance with FASB ASC Topic 718, for financial statement purposes we expense all equity-based awards over the period earned, or subsequently, based upon their estimated grant date fair value, depending on the terms of the award. FASB ASC Topic 718 has not resulted in any significant changes in our compensation program design.

EXECUTIVE COMPENSATION

Equity Compensation Grant Practices

The Committee approves all grants of equity compensation to executive officers, as defined in Section 16 of the Exchange Act. All elements of executive officer compensation are reviewed by the Committee annually at its October or November meetings. Generally, equity awards are made at those meetings, but may be made at other meetings. The Committee meeting date, or the next business day if the meeting is on a non-business day, is the grant date for equity awards.

Summary Compensation Table Analysis

Mr. Farr’s total annual compensation for 2020 decreased compared to 2019, resulting from a 15% salary reduction from April through September 2020 and a decreased bonus amount, offset by a slight increase in performance shares awarded in November 2019 prior to the COVID-19 pandemic and resulting cost-containment actions and other factors discussed above. Mr. Farr’s total compensation as shown in the Summary Compensation Table also includes an amount for the actuarial change in his pension value. Although the fiscal 2020 amount was lower than fiscal 2019, these amounts were significantly higher than prior years as a result of a lower applicable discount rate which increased actuarial present values, over which the Committee has no control.

The other NEOs also received a 15% base salary reduction from April through September 2020 and decreased bonus amounts as a result of the COVID-19 pandemic. The increased performance shares awards for fiscal 2020 were made in November 2019, prior to the downturn caused by the COVID-19 pandemic.

No changes were made in the method of calculating any NEO benefits.

Compensation Tables

Summary Compensation Table

The following information relates to compensation received or earned by our Chief Executive Officer, our Chief Financial Officer, and each of our next three most highly compensated executive officers for the last fiscal year, as well as our former Executive President Commercial and Residential Solutions who left the Company at the end of fiscal 2020 (the “named executive officers” or “NEOs”).