Christopher A. O'Herlihy
ILLINOIS TOOL WORKSAbout Christopher A. O'Herlihy
Christopher A. O’Herlihy is President & CEO of Illinois Tool Works (ITW) and a non‑independent director (joined the Board in 2024; age 61). He previously served as ITW Vice Chairman (2015–2023) and EVP, Food Equipment (2010–2015) before being appointed CEO effective January 1, 2024 . Under his first year as CEO (2024), ITW delivered record EPS ($11.71, +20%), record operating margin (26.8%, +170 bps), record after‑tax ROIC (31.2%, +80 bps), $15.9B revenue, and returned $3.2B to shareholders; dividends were raised for the 61st straight year . Over the 2012–2024 Enterprise Strategy period, ITW’s operating margin rose from 15.9% to 26.8%, after‑tax ROIC from 14.5% to 31.2%, EPS compounded ~11% annually, market cap more than tripled, and TSR was 449% vs. 433% for proxy peers and 415% for the S&P 500 .
Past Roles
| Organization | Role | Years | Strategic impact |
|---|---|---|---|
| Illinois Tool Works | President & Chief Executive Officer | 2024–Present | Leads Next Phase strategy (2024–2030) with focus on above‑market organic growth via Customer‑Back Innovation (CBI) while sustaining best‑in‑class margins/ROIC . |
| Illinois Tool Works | Vice Chairman | 2015–2023 | Senior enterprise leadership and operating oversight across portfolio; deep expertise in application of ITW Business Model . |
| Illinois Tool Works | EVP, Food Equipment | 2010–2015 | Drove execution of ITW Business Model and portfolio leadership in Food Equipment segment . |
| Illinois Tool Works | Group President (Food Equipment; Polymers & Fluids – worldwide) | Prior to 2010 | Global segment leadership; customer‑back innovation and 80/20 execution foundation . |
External Roles
| Organization | Role | Years | Notes |
|---|---|---|---|
| Masco Corporation | Director; Chair, Compensation & Talent Committee | Current | Additional public company governance experience; committee leadership in executive pay . |
| Civic/Non‑profit boards | Director | Current | Serves on numerous civic and not‑for‑profit boards (not enumerated) . |
Fixed Compensation
| Component | 2024 Detail | Notes |
|---|---|---|
| Base salary | $1,300,000 | Set upon appointment as CEO effective Jan 1, 2024 . |
| Target annual incentive (EIP) | 150% of salary (Target $1,950,000) | EIP metrics: 60% Operating Income Growth; 40% Organic Revenue Growth . |
| Actual 2024 annual incentive | $1,102,140 (56.5% of target) | Company results: OI growth 103.6% (94.2% payout); Organic revenue −0.7% (0% payout) → 56.5% total . |
| Retirement/benefit accruals | Pension PV change $156,627; “All other comp” $399,472 | Pension change and perqs; retirement plan contributions and perquisites included in “All Other Compensation” . |
Performance Compensation
- Plan design: In 2024, long‑term incentive (LTI) target mix for NEOs was 50% stock options, 25% PSUs, 25% Performance Cash; no time‑vested RSUs for NEOs . From 2025, performance cash is eliminated; LTI becomes 50% PSUs, 50% options and adds CBI Yield as a fourth equally weighted performance metric (with Operating Margin, After‑tax ROIC, EPS growth) for 2025–2027 PSUs .
| 2024 Incentive | Metric | Weight | Target | Actual (2024) | Payout result |
|---|---|---|---|---|---|
| Executive Incentive Plan (annual) | Operating Income Growth | 60% | 106% | 103.6% | 94.2% of metric target . |
| Executive Incentive Plan (annual) | Organic Revenue Growth | 40% | 2.0% | −0.7% | 0% of metric target . |
| PSUs & Performance Cash (2024–2026) | Operating Margin (3‑yr avg) | 33.33% | Target 25% (50% payout at 20%; 200% at 27%) | In progress (3‑yr period) | Cliff‑vest at 3 years based on certified results . |
| PSUs & Performance Cash (2024–2026) | After‑tax ROIC (3‑yr avg) | 33.33% | Target 25% (50% at 20%; 200% at 27%) | In progress | As above . |
| PSUs & Performance Cash (2024–2026) | EPS Growth (3‑yr avg) | 33.33% | Target 9% (50% at 4%; 200% at 12%) | In progress | As above . |
| Prior LTI cycle payout (Company‑wide 2022–2024) | OM/ROIC/EPS (equal) | — | — | 25.0% OM; 29.9% ROIC; 8.0% EPS 3‑yr avgs | 146.7% of target . |
Grant‑level detail (2024 awards to CEO):
- PSUs: 8,553 target units granted Feb 9, 2024 (threshold 4,277; max 17,106), fair value $2,187,430; vests cliff after 3 years subject to performance .
- Stock options: 63,424 options granted Feb 9, 2024 at $255.75 strike, fair value $4,374,988; vest 25% per year through 2028; 10‑year term .
Equity Ownership & Alignment
| Item | Detail |
|---|---|
| Total beneficial ownership | 342,489 shares (<1% of class), incl. 1,917 SIP shares . |
| Exercisable within 60 days | 282,951 shares via options . |
| PSUs vesting within 60 days | 6,962 units . |
| Unexercisable options (12/31/24) | By grant: 63,424 (2024); 22,893 (2023); 21,318 (2022); 10,697 (2021) unexercisable; total 118,332 . |
| Unvested PSUs (target) | 8,699 (2024 grant incl. dividend equivalents); 4,527 (2023); 4,717 (2022) = 17,943 units . |
| Insider transactions 2024 | No option exercises; 13,209 shares vested from stock awards ($3,387,052 realized value) . |
| Ownership guidelines | CEO 6x salary; if unmet within 5 years, must retain 100% of net after‑tax vested/exercised shares until compliant . |
| Hedging/pledging | Prohibited for executives and directors; pledged shares excluded from guideline counting . |
| Insider trading controls | Pre‑clearance plus blackout periods; policy reasonably designed for compliance . |
| Director/Officer alignment | Company highlights that NEO pay is ~80% performance‑based; no time‑vesting RSUs for NEOs . |
Employment Terms
| Topic | Terms |
|---|---|
| Employment agreement | None for U.S. executives (at‑will employment) . |
| Clawback | SEC/NYSE‑compliant 2023 policy mandates reimbursement upon financial restatements regardless of misconduct; additional forfeiture for restrictive covenant breaches/misconduct . |
| Non‑compete/forfeiture | Equity may be canceled for competition, misconduct, or divulging confidential information . |
| Change‑in‑Control (CIC) | Double‑trigger for equity; if not replaced at CIC, equity vests per plan; severance = 2x annual cash comp (salary + 3‑yr avg bonus) plus prorated current‑year bonus and prorated performance cash at ≥target or actual . |
| Termination economics (as of 12/31/24) | Retirement: $6.84M; Involuntary w/o cause: $2.01M; Death/Disability: $11.57M; CIC termination: $13.84M (component detail includes EIP, accelerated equity, severance) . |
| Pension/SERP | U.S. Retirement Accumulation Plan PV $95,709; ITW Irish Pension Plan PV $1,977,988 (12/31/24) . |
| Deferred comp (ECRIP) | 2024 aggregate balance $18,073,547; 2024 executive contributions $951,727; company contributions $354,401; aggregate 2024 earnings $940,801 . |
| Tax gross‑ups | None on CIC benefits . |
Board Governance
- Role and independence: O’Herlihy is a non‑independent director; serves on the Executive Committee. Board determined all other directors except the CEO and Non‑Executive Chairman are independent under NYSE and Company standards .
- Leadership structure: Roles of Chairman and CEO separated in 2024; E. Scott Santi is Non‑Executive Chairman; Richard H. Lenny is Independent Lead Director with defined authorities (agendas, executive sessions, stakeholder access) .
- Committee structure: Audit, Compensation, Corporate Governance & Nominating, Finance, and Executive; Audit/Comp/Gov committees fully independent .
- Meetings/attendance: In 2024, Board met 5 times; independent directors held 5 executive sessions; 100% attendance by all directors at Board/committee meetings and the Annual Meeting .
Board service snapshot (for O’Herlihy):
- ITW Director since 2024; Executive Committee member; non‑independent .
- Other public board: Masco Corporation; Chair of Compensation & Talent Committee .
- Dual‑role implications: While CEO and director roles are combined for O’Herlihy, independence safeguards include a separated Chair role and a strong Lead Independent Director, plus 10 of 12 nominees being independent .
Compensation Structure Analysis
- High at‑risk alignment: 2024 CEO target pay weighted to performance (no time‑vested RSUs), with half of LTI in options (direct linkage to TSR) and half in performance awards tied to OM, ROIC, EPS growth; 2025 adds CBI Yield metric, increasing emphasis on organic growth quality .
- Annual bonus rigor: 2024 EIP paid 56.5% of target (below target) due to flat organic revenue, despite OI growth near target—evidence of a balanced plan that can pay down when growth underperforms .
- Governance controls: Robust clawback, anti‑hedging/pledging, ownership guidelines with mandatory holding if not in compliance, independent consultant (Meridian), and strong say‑on‑pay support (93.4% in 2022; 93.1% in 2023; 93.9% in 2024) .
- Option grant practices: Options granted post‑earnings in open window; 2024 grants on Feb 9 at FMV with 10‑year term; no repricing permitted .
Risk Indicators & Red Flags
- Pledging/hedging: Prohibited, reducing misalignment risk .
- Retirement eligibility: As of 12/31/24, O’Herlihy meets retirement criteria for 2022–2024 awards; upon retirement, certain options continue vesting and PSUs/performance cash vest pro‑rata—this can increase optionality and modestly elevate retention risk despite ongoing performance‑based payout conditioning .
- Related‑party transactions: Governance provides oversight via Audit Committee and categorical independence standards; no specific related‑party issues disclosed for O’Herlihy .
- Say‑on‑pay: Strong support mitigates pay controversy risk .
Director Compensation (context)
- Non‑employee directors receive $140,000 cash retainer and ~$185,000 annual stock grant (additional retainers for leadership roles); immediate vesting of director stock; directors may defer fees; O’Herlihy is an employee director and thus not in the non‑employee director pay program .
Performance & Track Record
| Metric | 2012 | 2024 |
|---|---|---|
| Revenue | $17.9B | $15.9B . |
| Operating Income | $2.8B | $4.3B . |
| Operating Margin | 15.9% | 26.8% . |
| EPS (diluted) | $3.21 (adj.) | $11.71 . |
| After‑tax ROIC | 14.5% | 31.2% . |
| Market Cap | $23B | $75B . |
| TSR (2012–2024) | — | 449% (Peers 433%; S&P 500 415%) . |
2024 highlights (during O’Herlihy’s first year as CEO):
- EPS $11.71 (+20%); OI $4.3B (+6%); operating margin 26.8% (+170 bps); ROIC 31.2% (+80 bps); revenue $15.9B; $3.2B capital returned; dividend +7% (61st consecutive annual increase) .
Employment, Severance, and Change‑in‑Control Economics
| Scenario (as of 12/31/24) | Key terms | Estimated value |
|---|---|---|
| Retirement | Equity: options continue vesting (subject to proximity to retirement date); PSUs/performance cash pro‑rated and paid post‑performance; EIP pro‑rated if eligible | $6,836,179 . |
| Involuntary (w/o cause) | Company severance plus benefits; no equity acceleration absent death/disability/CIC; EIP/benefits per plan | $2,009,445 . |
| Death/Disability | 100% vesting of equity; EIP pro‑rated | $11,566,285 . |
| CIC termination (double trigger) | 2x annual cash comp; prorated EIP; equity double‑trigger; no tax gross‑ups | $13,836,456 . |
Investment Implications
- Alignment and incentives: Heavy performance orientation (no time‑vested RSUs; 50% options) plus 2025 addition of CBI Yield aligns pay with durable organic growth and TSR; strong guardrails (clawback, anti‑pledging, ownership rules) support shareholder alignment .
- Execution track record: 2024 delivered record profitability/ROIC and shareholder returns continuity, while annual cash incentive paid below target—evidence of incentive rigor and discipline in weaker top‑line environments .
- Retention/overhang: CEO meets retirement eligibility for recent awards, which can modestly elevate optionality/retirement risk; however, pro‑rata and performance‑conditioned vesting plus multi‑year option schedules maintain retention hooks. Large ECRIP balance and pension value can also factor into retention calculus .
- Governance: Separation of Chair/CEO, independent Lead Director, and majority‑independent Board mitigate dual‑role concerns; robust committee oversight and consistent 93%+ say‑on‑pay support reduce governance and pay‑risk premiums .
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