DEF 14A of Illinois Tool Works Inc, Mar 25, 2022

DEF 14A of Illinois Tool Works Inc

Filed Mar 25, 2022 · FY20210001193125-22-084670

Open on EDGAR

  1. Composition of Director Nominees

    Composition of Director Nominees Our ten current Board members are the director nominees. See “Proposal No. 1—Election of Directors” for biographical and other information about our director nominees.

  2. Composition of Director Nominees

    | | | | |

  3. Composition of Director Nominees

    | Skills and attributes have been gained from direct, hands-on experience, direct managerial experience or serving on a relevant Board committee at the Company or another public company. These skills and attributes do not represent all the knowledge, skills and experience or attributes of our director nominees.* |

  4. Director Nominees

    Director Nominees

  5. Director Nominees

    | Director Nominee | Age | Director Since | Other Public Boards | Primary Occupation | Committee Memberships | | Daniel J. Brutto Independent | 65 | 2012 | 1 | Retired President of UPS International and Senior Vice President of United Parcel Service, Inc. | Audit, Finance | | Susan Crown Independent | 63 | 1994 | 1 | Chairman and CEO of Owl Creek Partners, LLC | Compensation, Gov/Nom, Executive (Chair) | | Darrell L. Ford Independent | 57 | 2021 | N/A | Executive Vice President, Chief Human Resources Officer of UPS International | Audit, Compensation | | James W. Griffith Independent | 68 | 2012 | N/A | Retired President and CEO of The Timken Company | Compensation, Gov/Nom, Executive | | Jay L. Henderson Independent | 66 | 2016 | 2 | Retired Vice Chairman, Client Service of PricewaterhouseCoopers LLP | Audit, Finance | | Richard H. Lenny Independent Lead Director | 70 | 2014 | 2 | Non-Executive Chairman of Conagra Brands, Inc. | Compensation, Gov/Nom (Chair), Executive | | E. Scott Santi Chairman of the Board and CEO Illinois Tool Works Inc. | 60 | 2012 | 1 | Chairman and CEO of Illinois Tool Works Inc. | Executive | | David B. Smith, Jr. Independent | 55 | 2009 | 1 | Executive Vice President for Policy and Legal Affairs and General Counsel of Mutual Fund Directors Forum | Audit, Finance (Chair) | | Pamela B. Strobel Independent | 69 | 2008 | N/A | Retired Executive Vice President and Chief Administrative Officer of Exelon Corporation and President of Exelon Business Services Company | Audit (Chair), Gov/Nom, Executive | | Anré D. Williams Independent | 56 | 2010 | 1 | Chief Executive Officer, American Express National Bank and Group President, Enterprise Services of American Express Company | Compensation (Chair), Finance |

  6. Proposal 1 - Election of Directors

    Proposal 1 - Election of Directors Stockholders are being asked to elect the ten director nominees named in this proxy statement at our Annual Meeting. The individuals listed below have been nominated by the Board of Directors as recommended by the Corporate Governance and Nominating Committee. See “Corporate Governance Policies and Practices” for more information regarding our candidate selection process. If elected, each director nominee will serve until the 2023 Annual Meeting, until a qualified successor director has been elected, or until he or she resigns or is removed. We will vote your shares as you specify on the proxy card, by telephone, by Internet or by mail. If you do not specify how you want your shares voted, we will vote them “FOR” the election of all the nominees listed below. If unforeseen circumstances (such as death or disability) make it necessary for the Board of Directors to substitute another person for any of the nominees, we will vote your shares “FOR” that other person. The Board of Directors does not anticipate that any nominee will be unable to serve. Each nominee for director brings a strong and unique background and set of skills to the Board, giving the Board as a whole competence and experience in a variety of areas. Set forth below is biographical information provided by the nominees, as well as a description of the experiences, qualifications, skills and attributes that led the Corporate Governance and Nominating Committee and the Board to conclude that each nominee should serve as a director of the Company.

  7. Proposal 1 - Election of Directors

    | Daniel J. Brutto Retired President of UPS International and Senior Vice President of United Parcel Service, Inc. Director since 2012 Age: 65 | Mr. Brutto retired as President of UPS International and Senior Vice President of United Parcel Service, Inc., a global package delivery, supply chain management and freight forwarding company, having served in these capacities from 2008 to 2013. From 2016 to 2017, he served as Executive Chairman of Radial, Inc., a global fulfillment, customer care and omnichannel technology company; from 2015 to 2016 he served as Vice Chairman of eBay Enterprise/Innotrac, the predecessor business to Radial, and prior to 2015 he served as a director of Innotrac. Mr. Brutto had over 38 years of experience at UPS, serving in various areas with increasing levels of responsibility, including global operations, finance, accounting, information systems, mergers and acquisitions, marketing and business development. His service at UPS included President, Global Freight Forwarding and corporate controller. He has served as a director of ITW since 2012 and currently serves as a director of Sysco Corporation, where he serves as Chairman of the Corporate Social Responsibility Committee and a member of the Corporate Governance and Nominating and Executive Committees. He has not served as a director of any other publicly traded company in the last five years. In the past, he has served on the board of the US China Business Council, the Guangdong Economic Council and the Turkey Economic Advisory Council. He was also a delegate to the World Economic Forum, Davos Switzerland, from 2009 to 2013. Skills and Qualifications: Mr. Brutto’s significant strategic, operational, and financial leadership experience with a major global company, including the establishment of operations in 35 countries, along with his significant international business experience and board leadership role in the area of Corporate Social Responsibility, bring valuable perspectives to our Board. |

  8. Proposal 1 - Election of Directors

    | Susan Crown Executive Committee Chair Chairman and CEO of Owl Creek Partners, LLC Director since 1994 Age: 63 | Ms. Crown has served as Chairman and CEO of Owl Creek Partners, LLC, a private equity firm, since 2010. She is also the founder of Susan Crown Exchange Inc., a social investment organization. She served two terms as a Fellow of the Yale Corporation, and is currently Chairperson of Rush University Medical Center, the Rush System for Health, and a director of The Brookings Institution as well as several other civic and not-for-profit organizations. From 1984 to 2015, Ms. Crown served as Vice President of Henry Crown and Company, a business with diversified investments. She has served as a director of ITW since 1994 and currently serves as a director of Northern Trust Corporation, where she serves as a member of the Business Risk and Compensation and Benefits Committees. She has not served as a director of any other publicly traded company in the last five years. Ms. Crown’s experience includes executive experience in diversified manufacturing, management, corporate governance and strategy. Skills and Qualifications: Ms. Crown’s long-standing board service at a global banking and financial institution and her extensive board service and leadership roles with many civic and not-for-profit organizations bring valuable perspectives to our Board. | | Darrell L. Ford Executive Vice President and Chief Human Resources Officer, UPS International Director since 2021 Age: 57 | Mr. Ford has been Executive Vice President, Chief Human Resources Officer of UPS International, a global package delivery, supply chain management and freight forwarding company, since January 2021. In this role, Mr. Ford is responsible for human resources strategy and operations. Prior to joining UPS International, he served as Chief Human Resources Officer and Senior Vice President, Communications, Occupational Health and Aviation, DuPont de Nemours, Inc. from 2018 to 2020, and as Chief Human Resources Officer for Xerox Corporation from 2015 to 2018. Prior to Xerox Corporation, Mr. Ford served in various human capital management leadership roles at Advanced Micro Devices (AMD), Shell Oil and Honeywell International. Throughout his professional career, Mr. Ford has focused on building successful company cultures. Mr. Ford has served as a director of ITW since 2021 and has not served as a director of any other publicly traded company in the last five years. Mr. Ford also serves as a director of a number of professional, civic and not-for-profit organizations. Skills and Qualifications: Mr. Ford’s extensive experience and senior leadership roles with large public global companies in the areas of talent management, compensation and human capital strategy will bring valuable perspectives to our Board. |

  9. Proposal 1 - Election of Directors

    | James W. Griffith Retired President and Chief Executive Officer of The Timken Company Director since 2012 Age: 68 | Mr. Griffith retired as President and Chief Executive Officer of The Timken Company, a manufacturer of bearings, alloy and specialty steels and components, having served in that capacity from 2002 to 2014. From 1999 to 2002, he served as Timken’s President and Chief Operating Officer. Mr. Griffith joined Timken in 1984 and held positions in various functional areas of Timken with increasing levels of responsibility, including purchasing and logistics, manufacturing and international operations. From 1996 to 1999, he led Timken’s automotive business in North America and Timken’s bearing business activities in Asia and Latin America. Mr. Griffith has served as a director of ITW since 2012, and previously served as a director of AB Volvo, The Timken Company and Goodrich Corporation. He has not served as a director of any other publicly traded company in the last five years. He also previously served as a director of the US China Business Council and a number of other industry and not-for-profit organization boards. Skills and Qualifications: Mr. Griffith’s extensive experience as Chief Executive Officer of a global industrial manufacturer, along with his international business and engineering experience, bring valuable perspectives to our Board. | | Jay L. Henderson Retired Vice Chairman, Client Service PricewaterhouseCoopers LLP Director since 2016 Age: 66 | Mr. Henderson retired as Vice Chairman, Client Service of PricewaterhouseCoopers LLP (PwC), a global professional services firm, in June 2016, having served in that capacity since 2007. He also served as PwC’s Greater Chicago Market Managing Partner from 2003 to 2013 and, prior thereto, Managing Partner of the Cleveland Office. During his career at PwC, Mr. Henderson gained significant broad-based experience working with boards and audit committees of Fortune 500 global organizations across multiple markets and industry sectors. Mr. Henderson has been a Certified Public Accountant since 1977. He has served as a director of ITW since 2016 and currently serves as a director of The J.M. Smucker Company, where he serves as Chairman of the Audit Committee, and Northern Trust Corporation, where he serves as Lead Director, Chairman of the Audit Committee, and a member of the Capital Governance, Compensation and Benefits, Corporate Governance and Executive Committees. He has not served as a director of any other publicly traded company in the last five years. Mr. Henderson also has significant expertise as a participating board member of a number of professional, civic and not-for-profit organizations. Skills and Qualifications: Mr. Henderson’s extensive experience in managing and overseeing businesses and working with the boards and audit committees of complex global companies, his other board leadership roles and leadership roles at a major professional services firm, as well as his experience with risk oversight, bring valuable perspectives to our Board. |

  10. Proposal 1 - Election of Directors

    | Richard H. Lenny Independent Lead Director Corporate Governance and Nominating Committee Chair Non-Executive Chairman of Conagra Brands, Inc. Director since 2014 Age: 70 | Mr. Lenny has served as non-executive Chairman of Conagra Brands, Inc. since May 2018. Previously, he served as Chairman of Information Resources, Inc., a privately held producer of market and shopper information, from 2013 to 2018, and senior advisor of Friedman Fleischer & Lowe LLC, a private equity firm, from 2014 to 2016, after serving as an operating partner of that firm. From 2001 through 2007, he served as Chairman, President and Chief Executive Officer of The Hershey Company, a manufacturer, distributor and marketer of candy, snacks and candy-related grocery products. Prior thereto, he served as President, Nabisco Biscuit Company, and President of Pillsbury, North America. He has served as a director of ITW since 2014 and currently serves as a director of Conagra Brands, Inc., where, in addition to being the non-executive Chairman, he is a member of the Human Resources and Nominating and Corporate Governance Committees and Chairman of the Executive Committee, and McDonald’s Corporation, where he is the Chairman of the Compensation Committee and a member of the Sustainability and Corporate Responsibility Committee. He previously served as a director of Discover Financial Services. He has not served as a director of any other publicly traded company in the last five years. Skills and Qualifications: Mr. Lenny’s experience as Chief Executive Officer of a global Fortune 500 company and diverse board experience, including board leadership roles and board experience in human resources, sustainability and Corporate Social Responsibility, bring valuable perspectives to our Board. | | E. Scott Santi Chairman and CEO of Illinois Tool Works Inc. Director since 2012 Age: 60 | Mr. Santi has served as Chairman of ITW since May 2015 and as Chief Executive Officer since November 2012. He served as President and Chief Executive Officer of ITW from November 2012 to May 2015 and as President and Chief Operating Officer from October to November 2012. Prior thereto, he served as Vice Chairman from December 2008 to October 2012 and Executive Vice President from October 2004 to December 2008. Mr. Santi also serves on the boards of numerous civic and not-for-profit organizations. He has served as a director of ITW since November 2012 and currently serves as a director of W.W. Grainger, Inc., where he is a member of the Audit and Board Affairs and Nominating Committees. He has not served as a director of any other publicly traded company in the last five years. Skills and Qualifications: Mr. Santi’s deep understanding of the Company’s business operations, operating philosophy and culture, his expertise in the application of ITW’s business model, as well as his demonstrated success and proven quality of leadership, bring indispensable perspectives to our Board and strong leadership as Chairman. |

  11. Proposal 1 - Election of Directors

    | David B. Smith, Jr. Finance Committee Chair Executive Vice President for Policy and Legal Affairs and General Counsel of Mutual Fund Directors Forum Director since 2009 Age: 55 | Mr. Smith has served as Executive Vice President for Policy and Legal Affairs and General Counsel of Mutual Fund Directors Forum, a not-for-profit membership organization for independent investment company directors and an advocate on important policy matters, since 2005. From 1996 to 2005, Mr. Smith held several positions with increasing levels of responsibility at the Securities and Exchange Commission, serving as Associate Director, Division of Investment Management, from 2001 to 2005. He has served as a director of ITW since 2009 and currently serves as a director of Northern Trust Corporation, where he serves as a member of the Audit and Executive Committees and the Chairman of the Capital Governance Committee. He has not served as a director of any other publicly traded company in the last five years. Mr. Smith is a nephew of Mr. Harold B. Smith, an emeritus director of ITW. Skills and Qualifications: Mr. Smith’s extensive leadership experience in the finance industry and executive experience with a mutual fund industry organization, along with his legal and regulatory experience, bring valuable perspectives to our Board. | | Pamela B. Strobel Audit Committee Chair Retired Executive Vice President and Chief Administrative Officer of Exelon Corporation and President of Exelon Business Services Company Director since 2008 Age: 69 | Ms. Strobel retired as Executive Vice President and Chief Administrative Officer of Exelon Corporation and President of Exelon Business Services Company, an electric and gas utility company, in October 2005, a position she had held since 2003, previously serving as Chairman and Chief Executive Officer of Exelon Energy Delivery from 2000 to 2003. Prior thereto, she served as Executive Vice President of Unicom and its chief subsidiary, ComEd, having joined ComEd as General Counsel in 1993, where her experience included supervision and oversight of legal matters and risk management. Ms. Strobel has served as a director of ITW since 2008 and currently serves as a director of State Farm Mutual Automobile Insurance Company, where she serves as a member of the Compensation, Executive and Corporate Governance Committees. Ms. Strobel previously served as a director of Domtar Corporation and has not served as a director of any other publicly traded company in the last five years. Skills and Qualifications: Ms. Strobel’s executive and legal experience with a leading energy provider, experience with risk oversight and human capital management, and board leadership roles bring valuable perspectives to our Board. |

  12. Proposal 1 - Election of Directors

    | Anré D. Williams Compensation Committee Chair Chief Executive Officer, American Express National Bank and Group President, Enterprise Services of American Express Company Director since 2010 Age: 56 | Mr. Williams has been Chief Executive Officer, American Express National Bank and Group President, Enterprise Services of American Express Company, a global services company, since April 2021. He is a member of American Express’ Executive Committee, which is responsible for developing the company’s strategic direction and determining key policies. He was Group President, Global Merchant & Network Services, of American Express Company, from 2018 to 2021; President, Global Merchant Services & Loyalty Group, from 2015 to 2018; and he was President, Global Merchant Services from 2011 to 2015. Mr. Williams has over 30 years of experience at American Express, serving in various capacities with increasing levels of responsibility, including President, Global Commercial Card; Executive Vice President, U.S. Commercial Card; Senior Vice President, U.S. Middle Market; Vice President and General Manager, Western Region, Corporate Services, and Vice President, Acquisition and Advertising. Mr. Williams has served as a director of ITW since 2010 and currently serves as a director of Infinite Acquisition Corp., where he is a member of the Audit Committee. Mr. Williams previously served as a director of Ryerson Inc. and has not served as a director of any other publicly traded company in the last five years. Mr. Williams also serves as a board member on a number of professional, civic and not-for-profit organizations. Skills and Qualifications: Mr. Williams’ significant strategic and operational leadership experience with a major global financial services company, along with his global business experience, bring valuable perspectives to our Board. |

  13. Proposal 1 - Election of Directors

    The Board of Directors recommends a vote “FOR” the election of each of the nominees.

  14. Director Compensation

    Director Compensation Our non-employee directors receive retainer-only compensation with no fees for attending meetings, which is an expected part of Board service. Our committee chairs and Lead Director receive additional retainers for their service in these capacities, and all Board members receive an annual equity grant based on a fixed-value amount with immediate vesting that avoids entrenchment. Our directors’ compensation is compared to that of the same peer group of companies used for executive compensation comparisons. The Corporate Governance and Nominating Committee oversees and makes recommendations to the Board regarding non-employee director compensation based on comparisons of financial performance and median compensation levels of our peer group. Our 2021 peer group directors’ compensation data was prepared by Cook.

  15. Director Compensation in Fiscal Year 2021

    Director Compensation in Fiscal Year 2021 The following table summarizes the compensation for our non-employee directors who served during 2021.

  16. Director Compensation in Fiscal Year 2021

    | Name | Cash Fees Paid or Deferred ($)(1) | Stock Awards Issued or Deferred ($)(3) | All Other Compensation ($)(5) | Total ($) | | Daniel J. Brutto | 135,000 | 169,894 | | 304,894 | | Susan Crown | 140,000 | 169,894(4) | 15,000 | 324,894 | | Darrell L. Ford | 87,527(2) | 169,894(4) | 3,000 | 260,421 | | James W. Griffith | 135,000(2) | 169,894(4) | | 304,894 | | Jay L. Henderson | 135,000 | 169,894 | | 304,894 | | Richard H. Lenny | 188,750 | 169,894(4) | | 358,644 | | David B. Smith, Jr. | 150,000 | 169,894 | | 319,894 | | Pamela B. Strobel | 160,000 | 169,894(4) | 400 | 330,294 | | Kevin M. Warren | 47,472(2) | N/A | | 47,472 | | Anré D. Williams | 158,750 | 169,894 | | 328,644 |

  17. Director Compensation in Fiscal Year 2021

    | Cash fees include the $135,000 annual retainer, Lead Director fee and committee chair fees, as applicable.(1) |

  18. Director Compensation in Fiscal Year 2021

    | The table below reflects directors who elected to convert some or all cash fees earned in 2021 into shares of ITW common stock and to defer receipt of those shares. Mr. Warren retired from the Board on May 7, 2021.(2) |

  19. Directors and Executive Officers

    Directors and Executive Officers The following table shows the number of shares of ITW common stock beneficially owned by ITW’s executive officers and Board of Directors as of December 31, 2021, except as otherwise noted. The “percent of class” calculation is based on 312,905,310 shares of ITW common stock outstanding as of December 31, 2021. In general, beneficial ownership includes any shares a director or executive officer can vote or dispose and stock options, restricted stock units and performance share units (including accrued dividends thereon) that are currently vested or that become vested within 60 days. Except as otherwise noted, the stockholders named in this table have sole voting and investment power for all shares shown as beneficially owned by them. The number of the directors’ phantom stock units disclosed in the table represents an equivalent number of shares of ITW common stock as of December 31, 2021. Because the granting of phantom stock units was discontinued in May 2012, Messrs. Ford, Henderson and Lenny, who joined the Board after that date, were not awarded phantom stock units upon joining the Board. Phantom stock units are not transferable and have no voting rights. The units are payable in cash and are not included in the “percent of class” calculation.

  20. Directors and Executive Officers

    | Beneficial Owner | Shares of Common Stock Beneficially Owned | Phantom Stock Units | Percent of Class | | Directors (other than Executive Officers) | | | | | Daniel J. Brutto | 18,882(1) | 1,251 | * | | Susan Crown | 61,059(2) | 6,546 | * | | Darrell L. Ford | 1,098(3) | — | * | | James W. Griffith | 18,765(4) | 1,251 | * | | Jay L. Henderson | 18,862 | — | * | | Richard H. Lenny | 16,493(5) | — | * | | David B. Smith, Jr. | 388,906(6) | 1,329 | * | | Pamela B. Strobel | 36,681(7) | 1,402 | * | | Anré D. Williams | 12,028 | 1,303 | * | | Named Executive Officers | | | | | E. Scott Santi | 1,013,427(8) | — | * | | Michael M. Larsen | 180,954(9) | — | * | | Christopher A. O’Herlihy | 258,141(10) | — | * | | Mary K. Lawler | 90,342(11) | — | * | | John R. Hartnett | 70,386(12) | — | * | | Directors and Executive Officers as a Group (21 individuals) | 2,434,110(13) | 13,082 | * |

  21. Directors and Executive Officers

    *Less than 1%

  22. Directors and Executive Officers

    | Includes 5,065 deferred shares.(1) |

  23. Directors and Executive Officers

    | Includes (a) 4,000 shares owned by Ms. Crown’s spouse, which were pledged to secure bank borrowings prior to April 1, 2013 (the date of adoption of the Company’s Hedging/Anti-Pledging Policy), and as to which she disclaims beneficial ownership; (b) 4,000 shares held in trusts of which Ms. Crown’s children are beneficiaries, as to which she disclaims beneficial ownership; and (c) 15,432 deferred shares.(2) |

  24. Directors and Executive Officers

    | Includes 1,098 deferred shares.(3) |

  25. Directors and Executive Officers

    | Includes 11,154 deferred shares.(4) |

  26. Directors and Executive Officers

    | Includes (a) 12,132 deferred shares; (b) 8 shares owned jointly with Mr. Lenny’s spouse; and (c) 2,575 shares as to which Mr. Lenny has shared voting and investment power, which shares are held as tenants in common with his spouse through trusts.(5) |

  27. Directors and Executive Officers

    | Includes (a) 94,000 shares owned jointly with Mr. Smith’s spouse, all of which were pledged to secure lines of credit prior to April 1, 2013 (the date of adoption of the Company’s Hedging/Anti-Pledging Policy); (b) 15,517 shares held in trusts of which Mr. Smith’s children are beneficiaries, as to which he disclaims beneficial ownership; and (c) 255,900 shares held in a trust with respect to which Mr. Smith shares voting and investment power.(6) |

  28. Directors and Executive Officers

    | Includes 27,676 deferred shares.(7) |

  29. Directors and Executive Officers

    | Includes (a) 4,053 shares allocated to Mr. Santi’s account in the ITW Savings and Investment Plan; (b) 785,044 shares covered by options exercisable within 60 days; and (c) 21,298 performance share units which vest within 60 days.(8) |

  30. Directors and Executive Officers

    | Includes (a) 142,250 shares covered by options exercisable within 60 days; and (b) 5,277 performance share units which vest within 60 days.(9) |

  31. Directors and Executive Officers

    | Includes (a) 1,787 shares allocated to Mr. O’Herlihy’s account in the ITW Savings and Investment Plan; (b) 214,069 shares covered by options exercisable within 60 days; and (c) 5,555 performance share units which vest within 60 days.(10) |

  32. Directors and Executive Officers

    | Includes (a) 352 shares allocated to Ms. Lawler’s account in the ITW Savings and Investment Plan; (b) 69,160 shares covered by options exercisable within 60 days; and (c) 2,453 performance share units which vest within 60 days.(11) |

  33. Directors and Executive Officers

    | Includes (a) 46,495 shares covered by options exercisable within 60 days; and (b) 2,499 performance share units which vest within 60 days.(12) |

  34. Directors and Executive Officers

    | Includes (a) 1,462,161 shares covered by options exercisable within 60 days; (b) an aggregate of 44,253 restricted stock units and performance share units which vest within 60 days; and (c) 98,000 shares which were pledged as security prior to April 1, 2013 (the date of adoption of the Company’s Hedging/Anti-Pledging Policy).(13) |

  35. Executive Compensation Table of Contents

    | Executive Compensation Tables | | | Summary Compensation Table | 39 | | Grants of Plan-Based Awards | 41 | | Outstanding Equity Awards at Fiscal Year-End 2021 | 42 | | Option Exercises and Stock Vested | 43 | | Pension Benefits | 43 | | ITW Retirement Plans | 44 | | Potential Payments upon Termination | 47 | | Summary of Termination and Change-in-Control Provisions | 49 | | Termination and Change-in-Control Payments and Benefits | 50 |

  36. Our Long-term Enterprise Strategy

    Our Long-term Enterprise Strategy In launching our long-term Enterprise Strategy ten years ago, we began the Company’s transition to fully leverage the compelling performance potential of the ITW Business Model. The Company undertook a complete review of our performance and began executing a multi-step approach to shift our primary growth engine to organic revenue growth, while delivering best-in-class margins and returns. Key initiatives of our Enterprise Strategy included a portfolio realignment, business structure simplification, strategic sourcing, and diligent re-application of ITW’s proprietary 80/20 Front-to-Back Process to optimize our segments for growth. Since implementing our Enterprise Strategy in 2012, ITW’s operating margin has increased from 15.9 percent to 24.1 percent and After-tax Return on Average Invested Capital (After-tax ROIC)** has increased from 14.5 percent to 29.5 percent. Over this same period, we have grown Earnings Per Share (EPS) by a compound annual growth rate of 11 percent, and the Company’s market capitalization has more than tripled.

  37. Our Long-term Enterprise Strategy

    | | | | | |

  38. Our Long-term Enterprise Strategy

    | As reported in the Company’s 2012 Form 10-K.* |

  39. Our Long-term Enterprise Strategy

    | After-tax ROIC and 2012 adjusted EPS are non-GAAP measures. See Appendix B for information regarding these and other non-GAAP measures.** |

  40. Our Long-term Enterprise Strategy

    | As reported in the Company’s 2013 Form 10-K.*** |

  41. Our Long-term Enterprise Strategy

    | As of January 1, 2012 and December 31, 2021.**** |

  42. How We Align Executive Compensation with the Enterprise Strategy

    How We Align Executive Compensation with the Enterprise Strategy The independent members of our Board of Directors and Compensation Committee are responsible for aligning executive incentives with the Company’s strategy and the best interests of our stockholders. The Board believes that the Company has a strong track record of thoughtful and diligent governance and execution with respect to aligning executive incentives, as evidenced by our stockholders’ overwhelming support for our annual advisory vote on executive compensation. The Compensation Committee uses our long-term Enterprise Strategy as a framework to guide our executive compensation decisions. Our programs are designed to be highly performance-oriented, with rigorous financial goals to reward our executives for best-in-class performance. We regularly review our annual and long-term incentive plan metrics to ensure ongoing alignment with the strategy’s initiatives and performance objectives. We generally link 50 percent of our executives’ target long-term incentive opportunity to performance awards consisting of share-based units and cash, with three performance goals: three-year average (i) Operating Margin, (ii) After-tax ROIC, and (iii) EPS growth. The remaining 50 percent of our target long-term incentive opportunity consists of stock option awards that only provide compensation value as our stock price increases. Notably, we do not provide any time-vested full value equity awards (i.e. restricted stock units) to our NEOs.

  43. ITW’s Focus on Performance-Based Compensation in 2021

    Note: The charts above reflect total compensation awarded to the CEO and other NEOs in 2021, which is the sum of base salary, target EIP and the grant date fair value of long-term cash and equity incentives. The metrics in our annual and long-term incentive plans are designed to reward superior Company and business segment performance. The following table shows the financial performance metrics for the NEOs used in the Company’s 2021 Executive Incentive Plan (EIP) and 2021-2023 Performance Share Units (PSUs) and Performance Cash awards granted under the long-term incentive plan.

  44. ITW’s Focus on Performance-Based Compensation in 2021

    | Plan | Performance Measure | Weight | | 2021 Executive Incentive Plan (EIP) | Organic Revenue Growth | 40% | | | Operating Income Growth | 60% | | 2021-2023 Performance Share Units & Long-term Performance Cash | Operating Margin | 33.33% | | | After-tax ROIC | 33.33% | | | EPS Growth | 33.33% |

  45. 2021 Compensation Components

    | | Compensation Component | Form | Objective | | FIXED | Base Salary | Cash | Offer competitive pay levels to attract and retain highly qualified leaders Reflective of individual performance, experience and scope of responsibility | | VARIABLE | Annual Executive Incentive Plan (EIP) | Cash | Motivate executives to achieve annual Company and business segment performance goals | | | Stock Options | Equity | Reward executives for delivering on the long-term performance goals aligned with the Company’s strategy and creating long-term stockholder value | | | Performance Share Units (PSUs) | Equity | | | | Performance Cash | Cash | |

  46. Ongoing Best Practices

    | What We Do | | What We Don’t Do | | | ✓ | Pay for Performance Our NEOs’ average total target compensation is 84% performance based. | û | Employment Agreements We do not provide executive officers with employment agreements. | | ✓ | Robust Stock Ownership Guidelines We have stock ownership guidelines for our executive officers of 6 x salary for CEO, 3 x salary for Vice Chairman, Executive Vice Presidents and CFO and 2 x salary for Senior Vice Presidents. Executives must retain the net after tax shares of vested or exercised awards if guidelines are not met within five years. | û | Tax Gross-ups We do not provide tax gross-ups as part of our change-in-control agreements. | | ✓ | Annual “Say on Pay” Vote We hold an annual advisory vote for our stockholders to review and approve our executive compensation programs. | û | Repricing We do not allow share repricing within our stock option plan. | | ✓ | Independent Compensation Consultant The Committee: (1) engages an independent compensation consultant who advises the Committee on regulatory and other current trends and key developments in executive compensation and (2) reassesses its consultant’s independence annually. | û | Hedging/Pledging of Company Equity Securities We prohibit executive officers and directors from engaging in any transaction that is designed to hedge or offset a decrease in the market value of ITW common stock and from pledging ITW equity securities. | | ✓ | Annual CEO and NEO Performance Review The Committee conducts an annual review of the performance of the CEO, as well as the other executive officers. | û | Dividends on Unvested Equity Awards Dividends accrued on unvested equity awards, including restricted stock units and performance share units, are not paid unless awards vest. | | ✓ | Annual Review of Compensation Programs The Committee, with input from its independent compensation consultant, conducts an annual review of our executive compensation programs, considering business strategies, best practices and good governance. | û | Single-Trigger Change-In-Control Vesting/Benefits We do not allow immediate vesting of equity awards that are continued or replaced upon a change-in-control; all such awards allow only double-trigger vesting (change-in- control and termination). | | ✓ | Clawback Policy Our Compensation Recovery Policy provides for the reimbursement of incentives if a material financial restatement is required, whether or not based on misconduct, and equity forfeiture provisions for violations of restrictive covenants and certain misconduct related to restatement. | | | | ✓ | Annual Compensation Risk Assessment Each year we perform an assessment of risks that could result from our executive compensation practices. | | |

  47. Role of the Compensation Committee

    | • | Our incentive plans drive performance aligned with our strategy and the Company’s culture and values. |

  48. Role of the Compensation Committee

    | • | Compensation comparisons from a peer group of diversified multinational industrial companies with similar size, value, and complexity; and |

  49. Role of the Compensation Committee

    | • | Our executive’s contribution to our short- and long-term goals based on profitable growth and strong returns on capital. |

  50. Role of the Compensation Consultant

    Role of the Compensation Consultant The Committee engaged Frederic W. Cook & Co., Inc. (“Cook”) until May 2021 and Meridian Compensation Partners LLC (“Meridian”) beginning in June 2021, both of whom are independent advisors. The Committee’s advisors work directly on its behalf and in cooperation with management to review ITW’s executive compensation programs, confirm appropriateness of our peer companies, and assess our compensation governance process. In 2021, Meridian conducted a marketplace review of the compensation we pay to our executive officers. Meridian provided the Committee with relevant market data, including a review of our pay and performance and that of our peers, reviewed the peer companies we use for comparison purposes, and benchmarked our compensation against our peer companies. Meridian also assisted the Committee with its assessment of compensation-related risk. With respect to CEO compensation, on an annual basis, the Company’s independent compensation consultant provides an independent recommendation to the Committee for its consideration. In developing its recommendation, the consultants rely on their understanding of ITW’s business, strategy and compensation programs, as well as their own independent research and analysis including ITW’s peer group. The consultants do not meet with the CEO with respect to his compensation.

  51. Peer Companies

    Peer Companies

  52. Peer Companies

    | The Committee has identified a group of comparable companies, which we refer to as the peer group, to benchmark executive compensation and provide competitive market data to be used in establishing and recommending each component of compensation. The peer group is reviewed annually by the Committee with assistance from its independent compensation consultant. In 2021, the Committee utilized market data for compensation benchmarking from a custom survey consisting of the peers below, as provided by Aon plc, a global provider of compensation data. In connection with its annual review in 2021, the Committee determined that no changes to the peer group were warranted. | Peer Group Selection Criteria: • U.S. publicly traded companies from ITW’s same and related industries, identified based on Standard & Poor’s Global Industry Classification Standard (GICS) codes; • Companies with one-fourth to four times our revenue and market capitalization with broadly similar businesses and pay models; • Companies that compete for the same customers with similar products and/or services; and • Companies with whom we may compete for executive talent. |

  53. Peer Companies

    | 2021 Peer Group | | | | 3M Company | Ecolab Inc. | Parker-Hannifin Corporation | | Caterpillar Inc. | Emerson Electric Co. | PPG Industries, Inc. | | Cummins Inc. | Fortive Corporation | Rockwell Automation, Inc. | | Deere & Company | General Dynamics Corporation | Stanley Black & Decker, Inc. | | Dover Corporation | Honeywell International Inc. | Trane Technologies plc | | Eaton Corporation plc | Johnson Controls International plc | |

  54. Peer Companies

    The revenue median of the peer group was $17.1 billion based on the twelve-month average of reported financial results through June 15, 2021, and the median market capitalization was $48.2 billion, versus $12.9 billion and $73.3 billion, respectively, for ITW. The nature of our decentralized and diverse lines of business presents challenges in identifying similar organizations for comparison purposes; however, we believe that the selected peer group provides relevant comparisons.

  55. Compensation Decisions and Individual Compensation Levels

    Compensation Decisions and Individual Compensation Levels On an annual basis, the CEO reviews the total compensation of the NEOs and makes recommendations to the Committee based on his assessment of each executive’s individual performance and peer group compensation information. The Committee makes recommendations to the independent directors regarding the CEO’s compensation based on an assessment of the CEO’s performance and peer group compensation information. There are no material differences in the policies and decision processes used in setting compensation for the CEO and the other NEOs. However, the different levels of compensation for the NEOs, as shown in the Summary Compensation Table of this proxy statement, reflect internal factors such as each executive’s scope of responsibility, performance, impact on profitable growth and breadth of experience, as well as compensation data from the peer group.

  56. Annual Executive Incentive Plan

    Annual Executive Incentive Plan We believe that executives generally should be rewarded for their contributions to the overall financial success measured by income and organic growth of the Company as a whole, and, if applicable, the business segment he or she leads. Achieving our annual financial objectives is important to executing on our current strategic objectives and delivering long-term value to stockholders. The Committee determines and approves the performance results and awards for the NEOs and recommends the CEO’s annual incentive award amount for approval by the independent directors of the full Board. The Company provides annual incentive award opportunities to the NEOs through the annual Executive Incentive Plan (EIP). The Committee determined each NEO’s 2021 award target based on responsibilities, experience, performance, market data and the median target incentive opportunity of similar positions at our peer group companies. Based on achieved results against performance goals, an NEO may earn between zero percent and 200% of his or her award target. For 2021, the Committee approved the following performance metrics and weightings:

  57. Annual Executive Incentive Plan

    | • | For Messrs. Santi, O’Herlihy, Larsen, and Ms. Lawler, the performance metrics were the Company’s operating income (weighted 60 percent) and organic revenue growth (weighted 40 percent). |

  58. Annual Executive Incentive Plan

    | • | For Mr. Hartnett, the performance metrics were operating income (weighted 60 percent) and organic revenue growth (weighted 40 percent), with 50 percent of each metric based on Company results and 50 percent on results of his business segment. |

  59. Annual Executive Incentive Plan

    The financial measures were recommended by management and approved by the Committee at the start of the performance year. While the Committee has the discretion to make adjustments in the calculation of financial performance to eliminate factors beyond the control of management and to eliminate possible disincentives to act in the long-term best interests of the Company, the Committee made no adjustments to the EIP payouts in 2021.

  60. 2021 EIP Company Financial Targets

    | | Operating Income Growth vs. Prior Year | Operating Income Growth Payout (as a % of Target)* | Organic Revenue Growth | Organic Revenue Payout (as a % of Target)* | | Maximum | 116% | 200% | 8.5% | 200% | | Target | 106% | 100% | 5.3% | 100% | | Threshold | 85% | 50% | 2.1% | 0% |

  61. 2021 EIP Company Performance Results

    | Operating Income Growth vs. Prior Year (1) | | | | Organic Revenue Growth (1) | | | | | | 2020 | 2021 | Achievement Percent | Payout Percent | 2020 | 2021 | Achievement Percent | Payout Percent | Total Payout Percent | | $2.9B | $3.4B | 117.9% | 200% | $12.6B | $14.1B | 12.3% | 200% | 200% |

  62. 2021 EIP Total Payouts

    2021 EIP Total Payouts The total 2021 payouts to the NEOs were 200% percent of the target award level.

  63. 2021 EIP Total Payouts

    | Named Executive Officer | Award Target (as a % of Base Salary) | Year-End 2021 Salary | Total Payout Percent | Total Payout Amount (2) | | E. Scott Santi | 160% | $1,350,000 | 200% | $4,320,000 | | Christopher A. O’Herlihy | 100% | $858,934 | 200% | $1,717,868 | | Michael M. Larsen | 100% | $849,587 | 200% | $1,699,174 | | John R. Hartnett | 80% | $583,611 | 200%(1) | $933,778 | | Mary K. Lawler | 70% | $533,842 | 200% | $747,380 |

  64. 2021 EIP Total Payouts

    | 50 percent of the total payout percent for Mr. Hartnett is based on his business segment’s results and the other 50 percent is based on total company results.(1) |

  65. 2021 EIP Total Payouts

    | These amounts are included in the Summary Compensation Table under “Non-Equity Incentive Plan Compensation.” The award payout is calculated as a percent of base salary.(2) |

  66. Long-Term Incentives

    Long-Term Incentives

  67. Long-Term Incentives

    | The value of the overall long-term incentive award for the CEO is determined by the Committee, subject to approval by the independent directors of the full Board of Directors. Awards to the other NEOs are recommended by the CEO to the Committee for approval. The key factors in determining the awards are the executive’s position, performance, potential to contribute to the long-term success of the Company, breadth of experience, and prior awards. In addition, although we generally do not establish any specific target or prescribed value in relation to the peer group, comparisons are made to long-term incentive levels in the peer group and market compensation data. | Long-term Incentive Philosophy We believe that ensuring the long-term growth and profitability of the business is a primary management responsibility. Therefore, a significant portion of an executive officer’s compensation should be directly linked to key financial performance measures that consider the long-term perspective, such as operating margin, After-tax ROIC, EPS and ITW’s share price over time. |

  68. Long-Term Incentives

    In 2021, the value of the NEOs’ long-term incentive awards consisted of approximately 44 percent in the form of stock options and 56 percent in the form of PSUs and Performance Cash awards. We believe that stock options are an effective incentive because they directly align the interest of the executives with those of our stockholders. Similarly, we believe PSUs and Performance Cash awards are effective because they incent executive leaders to achieve key long-term financial goals. Stock options are combined with performance-based awards to closely align the realized value of long-term incentives with the financial performance objectives of the Company’s strategy and total shareholder return. The Committee increased the value of PSUs for the 2021-2023 performance cycle (in the range of 14 to 15 percent of the overall LTI opportunity for each NEO) in recognition of their strong performance successfully managing the Company through the unprecedented operational challenges created by the global pandemic during 2020. Importantly, management decided not to initiate any enterprise-wide employment reductions during 2020 in furtherance of its commitment to protect the health and well-being of employees. As a result of the Committee’s decision, the long-term incentive award mix for 2021 is weighted slightly more towards PSUs than in prior years. The adjustments to the weightings of long-term incentive award types in 2021 remain closely aligned to ITW’s pay-for-performance philosophy. The Committee has established specific vesting and expiration provisions associated with termination of employment due to death, disability and retirement, as defined in the applicable awards, and forfeiture provisions upon other termination of employment. The Committee, in its sole discretion, may deem a long-term incentive award, whether vested or unvested, to be immediately forfeited if the recipient competes with the Company, engages in gross misconduct or conduct that is against the business interests of the Company, or divulges confidential information about the Company to others.

  69. 2021 Stock Option Awards

    2021 Stock Option Awards The 2021 stock options vest in equal installments over a four-year period ending in 2025. Stock options are awarded with an exercise price equal to the fair market value of the common stock on the date of grant and normally expire ten years after the award date. The Committee awards non-qualified stock options because it believes that the tax benefits to the Company from non-qualified stock options outweigh the potential tax benefits to the NEOs from incentive stock options.

  70. 2021-2023 Performance Share Units and Performance Cash Awards

    2021-2023 Performance Share Units and Performance Cash Awards The PSUs and Performance Cash awards vest three years from the date of grant, subject to the achievement of the performance goals set at the beginning of the performance period. PSUs are awarded based on the fair market value of one share of ITW common stock on the date of the award. Dividend equivalents are accrued and added in the form of units to the original PSU awards as reinvested dividends. These reinvested dividends are paid only on PSUs earned at the end of the performance period. The goals for the 2021 PSUs and Performance Cash awards are equally weighted and based on three-year average operating margin, After-tax ROIC and EPS growth. The payout range is 50 percent to 200 percent of the target award for threshold to maximum performance. Performance below threshold results in no payout for the weighted portion for that metric. The payout at the end of the performance period will be based on the following payout scale:

  71. 2021-2023 Performance Share Units and Performance Cash Awards

    | | Operating Margin | After-tax ROIC | EPS Growth | Payout (as a % of Target)* | | Maximum | 26% | 27% | 10% | 200% | | Target | 23% | 25% | 7% | 100% | | Threshold | 20% | 20% | 4% | 50% |

  72. 2021-2023 Performance Share Units and Performance Cash Awards

    * Interpolation is used for measuring achievement between threshold and target and between target and maximum.

  73. 2019-2021 Performance Share Units and Performance Cash Awards Payout

    2019-2021 Performance Share Units and Performance Cash Awards Payout In 2019, executives were awarded PSUs and Performance Cash awards with a three-year performance period from January 1, 2019 to December 31, 2021. The awards had the same financial metrics (operating margin, After-tax ROIC, and EPS growth) and weightings as the 2021-2023 performance awards noted above. Consistent with last year’s practice and ITW’s pay-for-performance philosophy, the Committee determined not to exercise its discretion to increase the payouts of those 2019-2021 awards beyond achievement of the pre-established payout targets despite the unforeseeable impact of the COVID pandemic and its impact on 2020 financial performance. The table below details the performance and associated payouts of the 2019-2021 PSU and Performance Cash awards:

  74. 2019-2021 Performance Share Units and Performance Cash Awards Payout

    | Long-Term Performance Results | | | | | Performance Scale and Payout | | | | | Metrics (Weighting) | FY 2019 | FY 2020 | FY 2021 | 3 Year Average | Threshold 50% of Target | Target 100% of Target | Maximum 200% of Target | Payout % of Target | | Operating Margin (1/3rd) | 24.1% | 22.9% | 24.1% | 23.7% | 23.0% | 25.0% | 27.0% | 67.5% | | After-tax ROIC (1/3rd) | 28.7% | 26.2% | 29.5% | 28.1% | 20.0% | 25.0% | 27.0% | 200.0% | | EPS Growth (1/3rd) | 1.8% | (14.3)% | 28.4% | 5.3% | 5.0% | 8.0% | 12.0% | 55.0% |

  75. Total Payout % of Target: 107.5%

    Total Payout % of Target: 107.5%

  76. Timing of Long-Term Incentive Awards

    Timing of Long-Term Incentive Awards The Committee meets in February of each year following the Company’s public release of its earnings results for the most recently completed fiscal year to review and approve long-term incentive awards for the executive officers. Long-term awards are made in compliance with the Long-Term Incentive Plan, including the requirement that stock options may not be awarded at less than 100 percent of the fair market value of ITW’s common stock on the date of grant. The exercise price of the awards is based on the closing price of ITW’s stock on the date of award. We do not time award grant dates for the purpose of enhancing the value of executive compensation.

  77. 2021 Risk Assessment

    | • | A Balanced Mix of Compensation Components — The target compensation mix for our executive officers is composed of base salary, annual cash incentives and long-term cash and equity incentives, representing a mix that is not overly weighted toward short-term cash incentives. |

  78. 2021 Risk Assessment

    | • | Long-Term Incentives — Our long-term incentives are primarily equity-based, and our PSUs and Performance Cash awards are subject to performance goals. These long-term incentives have three-year vesting schedules (PSUs and Performance Cash) or four-year vesting schedules (stock options), in each case to complement our annual cash-based incentives. |

  79. 2021 Risk Assessment

    | • | Capped Incentive Awards — Annual and long-term incentive awards, PSUs and Performance Cash are all capped at 200 percent of target. |

  80. 2021 Risk Assessment

    | • | Independent Compensation Consultant — The Committee retains an outside independent compensation consultant. |

  81. Summary Compensation Table

    Summary Compensation Table The following tables provide information regarding the compensation of our NEOs.

  82. Summary Compensation Table

    | Name and Principal Position | Year | Salary(1) | Bonus | Stock Awards(2) | Option Awards(2) | Non-Equity Incentive Plan Compensation (1)(3) | Change in Pension Value and Nonqualified Deferred Compensation Earnings(4) | All Other Compensation (5) | Total | | E. Scott Santi Chairman & Chief Executive Officer | 2021 | $1,350,000 | - | $4,887,030 | $6,174,959 | $7,410,625 | $766,558 | $198,450 | $20,787,622 | | | 2020 | $1,344,924 | - | $2,937,379 | $5,874,987 | $3,117,342 | $662,892 | $69,832 | $14,007,356 | | | 2019 | $1,315,000 | - | $2,874,971 | $5,749,974 | $4,755,524 | $666,086 | $78,790 | $15,440,345 | | Michael M. Larsen Senior Vice President & CFO | 2021 | $845,080 | - | $1,266,174 | $1,599,967 | $2,465,112 | - | $346,108 | $6,522,441 | | | 2020 | $812,904 | - | $749,937 | $1,499,996 | $885,167 | - | $126,797 | $4,074,801 | | | 2019 | $784,750 | - | $712,397 | $1,424,978 | $1,337,448 | - | $135,810 | $4,395,383 | | Christopher A. O’Herlihy Vice Chairman | 2021 | $854,377 | - | $1,365,659 | $1,749,988 | $2,524,118 | $23,868 | $408,529 | $6,926,539 | | | 2020 | $820,740 | - | $812,495 | $1,624,993 | $921,511 | $408,519 | $165,381 | $4,753,639 | | | 2019 | $785,791 | - | $749,892 | $1,499,986 | $1,283,333 | $378,838 | $175,220 | $4,873,060 | | John R Hartnett Executive Vice President | 2021 | $580,145 | - | $587,465 | $749,983 | $1,296,591 | $228,026 | $52,973 | $3,495,183 | | | 2020 | $555,740 | - | $362,382 | $724,988 | $358,811 | $228,118 | $21,800 | $2,251,839 | | | 2019 | $536,492 | - | $337,451 | $674,968 | $658,525 | $357,837 | $25,908 | $2,591,181 | | Mary K. Lawler Senior Vice President, Human Resources | 2021 | $530,336 | - | $579,023 | $724,993 | $1,103,474 | - | $158,148 | $3,095,974 |

  83. Summary Compensation Table

    Note: Years prior to becoming an NEO are not presented in this table.

  84. Summary Compensation Table

    | The Salary and Non-Equity Incentive Plan Compensation columns for 2021 include amounts deferred by the executive under the Executive Contributory Retirement Income Plan (ECRIP) and the Savings and Investment Plan. The deferral amounts for each year shown for each NEO can be found in the Footnote 1 Table to the table under the “ITW Retirement Plans — Nonqualified Deferred Compensation” section.(1) |

  85. Summary Compensation Table

    | The Stock Awards column represents PSUs awarded in 2021, 2020, and 2019. The amounts shown represent the target amount that may be earned based on the grant date fair value. The Option Awards column represents stock options awarded in the relevant year, and the assumptions applicable to these valuations can be found in Note 15 of the Notes to Financial Statements — Stock-Based Compensation contained in the Company’s Form 10-K for the year ended December 31, 2021.(2) |

  86. Summary Compensation Table

    | These amounts include payouts made under the EIP and 2019-2021 Long-term Performance Cash award payouts made under our Long-Term Incentive Plan. The following table shows the award payouts under each plan for 2021.(3) |

  87. Summary Compensation Table

    | Name | EIP Award | Performance Cash | Non-Equity Incentive Plan Compensation | | E. Scott Santi | $4,320,000 | $3,090,625 | $7,410,625 | | Michael M. Larsen | $1,699,174 | $765,938 | $2,465,112 | | Christopher A. O’Herlihy | $1,717,868 | $806,250 | $2,524,118 | | John R. Hartnett | $933,778 | $362,813 | $1,296,591 | | Mary K. Lawler | $747,380 | $356,094 | $1,103,474 |

  88. Summary Compensation Table

    | These amounts include an amount of interest in the applicable calendar year considered to be in excess of market rates credited to the deferred compensation accounts of the NEOs under the ECRIP, discussed in more detail under “Nonqualified Deferred Compensation” below. When a participant attains retirement eligibility at age 55 with 10 years of service, any amounts in his or her ECRIP account deferred prior to January 1, 2010 are entitled to a return of 130 percent of the monthly Moody’s Corporate Bond Yield Average rate, and the excess interest portion is deemed to be amounts exceeding 100 percent of such rate. This additional interest credit applies to all eligible plan participants, including the eligible NEOs. All amounts deferred after December 31, 2009 accrue interest at 100 percent of the Moody’s Rate. The individual amounts of pension benefits and excess interest credits earned in each year are shown in the table below.(4) |

  89. Summary Compensation Table

    | Name | Year | Accrual in ITW Retirement Accumulation Plan | Accrual in ITW Nonqualified Pension Plan | Excess Interest on Deferred Compensation | Change in Pension Value and NQDC Earnings | | E. Scott Santi | 2021 | $73,876 | $680,057 | $12,625 | $766,558 | | | 2020 | $59,874 | $590,293 | $12,725 | $662,892 | | | 2019 | $58,461 | $591,815 | $15,810 | $666,086 | | Michael M. Larsen* | 2021 | - | - | - | - | | | 2020 | - | - | - | - | | | 2019 | - | - | - | - | | Christopher A. O’Herlihy** | 2021 | $23,868 | - | - | $23,868 | | | 2020 | $408,519 | - | - | $408,519 | | | 2019 | $378,838 | - | - | $378,838 | | John R Hartnett | 2021 | $74,416 | $147,439 | $6,171 | $228,026 | | | 2020 | $72,017 | $149,882 | $6,219 | $228,118 | | | 2019 | $64,278 | $285,832 | $7,727 | $357,837 | | Mary K. Lawler* | 2021 | - | - | - | - |

  90. Summary Compensation Table

    | Mr. Larsen and Ms. Lawler joined the Company in September 2013 and October 2014, respectively. Consequently, their ECRIP deferrals are not eligible for the 130 percent rate. They are not eligible to participate in the Company’s pension plans, which were closed to new entrants effective January 1, 2007.* |

  91. Summary Compensation Table

    | Mr. O’Herlihy participated in the ITW Retirement Accumulation Plan from 1989 through 1999. From 1999 through August 2011, he was employed in Ireland, participated in the ITW Irish Pension Plan and ceased active participation in the U.S. plan. Upon his return to the U.S. in 2011, he was ineligible to actively participate in the U.S. plan due to the plan participation closure effective January 1, 2007. The ITW Irish Pension Plan accrual is included in the “Accrual in ITW Retirement Accumulation Plan” column above because this amount also represents a qualified pension plan present value.** |

  92. Summary Compensation Table

    | These amounts include the Company contributions to the ECRIP and the Savings and Investment Plan, based on plan rules for all eligible participants.(5) |

  93. Grants of Plan-Based Awards

    Grants of Plan-Based Awards The table below provides information regarding plan-based awards granted to our NEOs during fiscal year 2021 under the Executive Incentive Plan (EIP) and the Long-Term Incentive Plan.

  94. Grants of Plan-Based Awards

    | | | | | Estimated Future Payouts Under Non-Equity Incentive Plan Awards (1)(2) | | | Estimated Future Payouts Under Equity Incentive Plan Awards (3) | | | All Other Option Awards: Number of Securities Underlying Options (#) | Exercise or Base Price of Option Awards ($) (4) | Grant Date Fair Value of Stock and Option Awards ($) (5) | | Name | Approval Date | Grant Date | Plan Type | Threshold ($) | Target ($) | Maximum ($) | Threshold (#) | Target (#) | Maximum (#) | | | | | E. Scott Santi | | | EIP | | 2,160,000 | 4,320,000 | | | | | | | | | 2/12/2021 | 2/12/2021 | Perf. Cash | 1,543,750 | 3,087,500 | 6,175,000 | | | | | | | | | 2/12/2021 | 2/12/2021 | PSUs | | | | 12,158 | 24,316 | 48,632 | | | 4,887,030 | | | 2/12/2021 | 2/12/2021 | Stock Options | | | | | | | 150,977 | 200.98 | 6,174,959 | | Michael M. Larsen | | | EIP | | 849,587 | 1,699,174 | | | | | | | | | 2/11/2021 | 2/12/2021 | Perf. Cash | 400,000 | 800,000 | 1,600,000 | | | | | | | | | 2/11/2021 | 2/12/2021 | PSUs | | | | 3,150 | 6,300 | 12,600 | | | 1,266,174 | | | 2/11/2021 | 2/12/2021 | Stock Options | | | | | | | 39,119 | 200.98 | 1,599,967 | | Christopher A. O’Herlihy | | | EIP | | 858,934 | 1,717,868 | | | | | | | | | 2/11/2021 | 2/12/2021 | Perf. Cash | 437,500 | 875,000 | 1,750,000 | | | | | | | | | 2/11/2021 | 2/12/2021 | PSUs | | | | 3,398 | 6,795 | 13,590 | | | 1,365,659 | | | 2/11/2021 | 2/12/2021 | Stock Options | | | | | | | 42,787 | 200.98 | 1,749,988 | | John R. Hartnett | | | EIP | | 466,889 | 933,778 | | | | | | | | | 2/11/2021 | 2/12/2021 | Perf. Cash | 187,500 | 375,000 | 750,000 | | | | | | | | | 2/11/2021 | 2/12/2021 | PSUs | | | | 1,462 | 2,923 | 5,846 | | | 587,465 | | | 2/11/2021 | 2/12/2021 | Stock Options | | | | | | | 18,337 | 200.98 | 749,983 | | Mary K. Lawler | | | EIP | | 373,689 | 747,380 | | | | | | | | | 2/11/2021 | 2/12/2021 | Perf. Cash | 181,250 | 362,500 | 725,000 | | | | | | | | | 2/11/2021 | 2/12/2021 | PSUs | | | | 1,441 | 2,881 | 5,762 | | | 579,023 | | | 2/11/2021 | 2/12/2021 | Stock Options | | | | | | | 17,726 | 200.98 | 724,993 |

  95. Grants of Plan-Based Awards

    | The range of potential payouts under the EIP awards for the NEOs as determined by the Committee in February 2021 for 2021 performance is set forth in these columns. The financial performance components and corresponding payouts as a percent of target are shown under “Components of the 2021 Executive Compensation Program — Annual Executive Incentive Plan.”(1) |

  96. Grants of Plan-Based Awards

    | The range of potential payouts under the Performance Cash awards for the three-year period 2021 through 2023 is set forth in these columns.(2) |

  97. Grants of Plan-Based Awards

    | The range of potential share distributions under the 2021 PSU awards for the NEOs as set by the Committee in February 2021 for performance for the three-year period 2021 through 2023 is set forth in these columns.(3) |

  98. Grants of Plan-Based Awards

    | Exercise price is equal to the closing price on the grant date.(4) |

  99. Grants of Plan-Based Awards

    | Grant date fair values of options awarded to the NEOs on February 12, 2021 were based on an implied value of $40.90 per share as determined using a binomial valuation technique under Accounting Standards Codification Topic 718. Grant date fair value of PSUs was based on the assumption that the performance conditions will be met at target.(5) |

  100. Outstanding Equity Awards at Fiscal Year-End 2021

    Outstanding Equity Awards at Fiscal Year-End 2021 The following table sets forth details, on an award-by-award basis, of the outstanding equity awards held by each NEO as of December 31, 2021.

  101. Outstanding Equity Awards at Fiscal Year-End 2021

    | | Option Awards | | | | | Stock Awards | | | Name | Grant Date (1) | Number of Securities Underlying Unexercised Options Exercisable (#) | Number of Securities Underlying Unexercised Options Unexercisable (#) | Option Exercise Price ($) | Option Expiration Date | Equity Incentive Plan Awards: Number of Unearned Units that Have Not Vested (#) (2) | Equity Incentive Plan Awards: Market or Payout Value of Unearned Units That Have Not Vested ($) | | E. Scott Santi | 02/12/2021 | - | 150,977 | 200.98 | 02/12/2031 | 24,697.823 | 6,095,423 | | | 02/14/2020 | 41,431 | 124,295 | 187.86 | 02/14/2030 | 16,266.800 | 4,014,646 | | | 02/15/2019 | 83,672 | 83,673 | 144.21 | 02/15/2029 | 21,298.597 | 5,256,494 | | | 02/15/2018 | 107,589 | 35,864 | 163.36 | 02/15/2028 | - | - | | | 02/10/2017 | 195,676 | - | 128.00 | 02/10/2027 | - | - | | | 02/12/2016 | 199,800 | - | 91.88 | 02/12/2026 | - | - | | | 02/13/2015 | 184,645 | - | 98.26 | 02/13/2025 | - | - | | Michael M. Larsen | 02/12/2021 | - | 39,119 | 200.98 | 02/12/2031 | 6,398.926 | 1,579,255 | | | 02/14/2020 | 10,578 | 31,735 | 187.86 | 02/14/2030 | 4,153.049 | 1,024,972 | | | 02/15/2019 | 20,736 | 20,736 | 144.21 | 02/15/2029 | 5,277.641 | 1,302,522 | | | 02/15/2018 | 27,875 | 9,292 | 163.36 | 02/15/2028 | - | - | | | 02/10/2017 | 51,248 | - | 128.00 | 02/10/2027 | - | - | | Christopher A. O’Herlihy | 02/12/2021 | - | 42,787 | 200.98 | 02/12/2031 | 6,901.699 | 1,703,339 | | | 02/14/2020 | 11,459 | 34,380 | 187.86 | 02/14/2030 | 4,499.483 | 1,110,472 | | | 02/15/2019 | 21,827 | 21,828 | 144.21 | 02/15/2029 | 5,555.413 | 1,371,076 | | | 02/15/2018 | 29,342 | 9,781 | 163.36 | 02/15/2028 | - | - | | | 02/10/2017 | 48,453 | - | 128.00 | 02/10/2027 | - | - | | | 02/12/2016 | 37,462 | - | 91.88 | 02/12/2026 | - | - | | | 02/13/2015 | 22,675 | - | 98.26 | 02/13/2025 | - | - | | John R. Hartnett | 02/12/2021 | - | 18,337 | 200.98 | 02/12/2031 | 2,968.899 | 732,724 | | | 02/14/2020 | 5,112 | 15,339 | 187.86 | 02/14/2030 | 2,006.820 | 495,283 | | | 02/15/2019 | 9,822 | 9,822 | 144.21 | 02/15/2029 | 2,499.935 | 616,984 | | | 02/15/2018 | 12,714 | 4,239 | 163.36 | 02/15/2028 | - | - | | Mary K. Lawler | 02/12/2021 | - | 17,726 | 200.98 | 02/12/2031 | 2,926.239 | 722,196 | | | 02/14/2020 | 4,848 | 14,545 | 187.86 | 02/14/2030 | 1,902.787 | 469,608 | | | 02/15/2019 | 9,640 | 9,641 | 144.21 | 02/15/2029 | 2,452.928 | 605,383 | | | 02/15/2018 | 12,959 | 4,320 | 163.36 | 02/15/2028 | - | - | | | 02/10/2017 | 23,294 | - | 128.00 | 02/10/2027 | - | - |

  102. Outstanding Equity Awards at Fiscal Year-End 2021

    | Stock options vest in equal installments over a four-year period starting on the anniversary of the grant date, with exceptions for termination upon death, disability, retirement and change-in-control.(1) |

  103. Outstanding Equity Awards at Fiscal Year-End 2021

    | PSUs were granted in 2019, 2020, and 2021 and are subject to three-year vesting, as well as achievement of operating margin, After-tax ROIC and EPS performance goals. The number of PSUs included in this table assumes target performance is met.(2) |

  104. Option Exercises and Stock Vested

    Option Exercises and Stock Vested The following table provides information regarding option exercises and stock vesting for each NEO during 2021. The value realized upon the exercise of options is calculated using the difference between the option exercise price and the market price of ITW’s common stock at the time of exercise multiplied by the number of shares underlying the option. The value realized upon the vesting of stock awards is based on the closing price of ITW’s common stock on the vesting date.

  105. Option Exercises and Stock Vested

    | | Option Awards | | Stock Awards | | | Name | Number of Shares Acquired on Exercise (#) | Value Realized on Exercise ($) | Number of Shares Acquired on Vesting (#) | Value Realized on Vesting ($) | | E. Scott Santi | 224,422 | 28,064,915 | 16,289 | 3,273,763 | | Michael M. Larsen | - | - | 4,220 | 848,136 | | Christopher A. O’Herlihy | - | - | 4,442 | 892,753 | | John R. Hartnett | 23,294 | 2,459,341 | 1,924 | 386,686 | | Mary K. Lawler | 19,436 | 2,623,419 | 1,961 | 394,122 |

  106. Pension Benefits

    Pension Benefits The following table provides pension benefit information through our financial statement measurement date of December 31, 2021 for each NEO serving as of that date.

  107. Pension Benefits

    | Name | Plan Name | Number of Years of Credited Service | Present Value of Accumulated Benefit (1)(2) | | E. Scott Santi | ITW Retirement Accumulation Plan | 39.62 | $1,062,849 | | | ITW Nonqualified Pension Plan | 39.62 | $13,372,135 | | Michael M. Larsen | ITW Retirement Accumulation Plan (3) | - | - | | | ITW Nonqualified Pension Plan (3) | - | - | | Christopher A. O’Herlihy | ITW Retirement Accumulation Plan (4) | 10.46 | $122,125 | | | ITW Nonqualified Pension Plan (4) | - | - | | | ITW Irish Pension Plan (4) | 11.17 | $2,193,100 | | John R. Hartnett | ITW Retirement Accumulation Plan | 35.00 | $1,108,587 | | | ITW Nonqualified Pension Plan | 35.00 | $3,199,120 | | Mary K. Lawler | ITW Retirement Accumulation Plan (5) | - | - | | | ITW Nonqualified Pension Plan (5) | - | - |

  108. Pension Benefits

    | Assuming the individual receives a lump-sum distribution at normal retirement, present values are based on the 2.73 percent discount rate used for financial reporting purposes.(1) |

  109. Pension Benefits

    | In the event of a change-in-control or departure due to death, disability or retirement, the total pension payable is reflected in the total of the above amounts. The allocation between the ITW Retirement Accumulation Plan and the ITW Nonqualified Pension Plan depends on the actual lump sum and annuity values calculated using the actual applicable interest rates and Internal Revenue Service (IRS) limits.(2) |

  110. Pension Benefits

    | Mr. Larsen, who joined the Company in September 2013, is not eligible for the Company’s pension plans, as the plans were closed to employees hired after January 1, 2007.(3) |

  111. Pension Benefits

    | Mr. O’Herlihy participated in the ITW Retirement Accumulation Plan from 1989 through 1999. From 1999 through August 2011, he was employed in Ireland, participated in the ITW Irish Pension Plan and ceased active participation in the U.S. plan. Upon his return to the U.S. in 2011, he ceased active participation in the Irish plan and was ineligible to actively participate in the U.S. plan due to the plan participation closure effective January 1, 2007.(4) |

  112. Pension Benefits

    | Ms. Lawler, who joined the Company in October 2014, is not eligible for the Company’s pension plans, as the plans were closed to employees hired after January 1, 2007.(5) |

  113. ITW Retirement Accumulation Plan

    ITW Retirement Accumulation Plan We maintain the ITW Retirement Accumulation Plan (the Pension Plan) for the benefit of eligible employees to provide a portion of the income necessary for retirement. The Pension Plan was closed to new entrants effective January 1, 2007. The Pension Plan is structured as a “pension equity plan” under which a participant accumulates an age-based percentage for each year of plan participation. The sum of the Accumulation Percentages multiplied by final average annual pay (salary and annual incentive EIP paid in the highest five years out of the last ten complete calendar years of service), plus the sum of the Excess Percentages multiplied by the final average annual pay above the Covered Compensation, produce an amount that can be received as a lump-sum payment or an actuarially equivalent lifetime annuity. For each year of credited service after December 31, 2000, the age-based percentages are as follows:

  114. ITW Retirement Accumulation Plan

    | Age During the Year | Pay Accumulation Percentage | Excess Percentage (1) | | Less than 30 | 2% | 2% | | 30-34 | 3% | 2% | | 35-39 | 4% | 2% | | 40-44 | 5% | 2% | | 45 | 7% | 2% | | 46-49 | 7% | 6% | | 50-54 | 10% | 6% | | 55-59 | 13% | 6% | | 60 or older | 16% | 6% |

  115. ITW Retirement Accumulation Plan

    | Covered Compensation is a 35-year average of the maximum earnings recognized in calculating Social Security benefits. For 2021, the Covered Compensation amount for an individual attaining age 65 was $94,560, while for an employee age 35 or younger it was $142,368.(1) |

  116. ITW Retirement Accumulation Plan

    Prior to 2001, the Pension Plan operated under a traditional annuity formula (a normal retirement benefit equal to 1 percent of final average annual pay and 0.65 percent of such pay in excess of covered compensation for each of the first 30 years of credited service plus 0.75 percent of final average annual pay for any additional years). As part of the transition to the pension equity formula, as of December 31, 2000:

  117. ITW Retirement Accumulation Plan

    | • | Accrued benefits under the traditional annuity formula were converted to an initial pension equity percentage by calculating the lump-sum value of the normal retirement annuity and dividing by the average annual pay at that time. |

  118. ITW Retirement Accumulation Plan

    | • | Participants who had 5 years of participation and whose age plus vesting service equaled at least 50 years were entitled to additional pension equity credits of 4 percent of final average annual pay per year for each year of employment from 2001 through 2015. |

  119. Nonqualified Deferred Compensation

    Nonqualified Deferred Compensation The Company’s ECRIP offers designated executives an opportunity to defer a portion of their salary and earned non-equity incentive to a deferred compensation account to receive the Company contributions they would otherwise receive if such deferrals had been made under our tax-qualified Savings and Investment Plan and IRS limits did not apply. Deferred amounts receive a rate of interest based on the monthly Moody’s Long-Term Corporate Bond Yield Average (Moody’s Rate). All the NEOs are eligible for the ECRIP. An ECRIP participant may defer from 6 percent to 50 percent of his or her salary and from 6 percent to 85 percent of his or her variable cash components (EIP and Performance Cash), with the applicable Company matching contribution on the salary and EIP amounts under the Savings and Investment Plan formula (in lieu of any matching contributions under that plan). Salary and EIP deferrals under the ECRIP reduce the compensation that may be recognized under the Savings and Investment Plan and the tax-qualified Pension Plan. For employees who are not eligible to participate in the pension plan due to the participation freeze on January 1, 2007, the Company contributes a non-elective contribution to the Savings and Investment Plan, up to the IRS Compensation Limits and continues to contribute above the IRS Compensation Limits to this plan. This Savings and Investment Plan contribution is based on the combined age and years of service as of January 1 of each year (“points”). For each year, the points are as follows:

  120. Nonqualified Deferred Compensation

    | Points | Pay Below the Social Security Wage Base (1) | Pay in Excess of the Social Security Wage Base (1) | | Less than 50 | 3.0% | 6.0% | | 50-59 | 4.0% | 8.0% | | 60-69 | 5.0% | 10.0% | | At least 70 | 6.0% | 11.7% |

  121. Nonqualified Deferred Compensation

    | For 2021, the Social Security Wage Base was $142,800.(1) |

  122. Nonqualified Deferred Compensation

    The ECRIP features include a maximum limit on the amount of interest under the Moody’s Rate that would be recognized (12 percent annualized, or 15.6 percent for amounts eligible to receive 130 percent of the Moody’s Rate), a return of deferral feature whereby an individual could elect to receive a return of the principal amount deferred after a period of at least five years, and options for payment following death, disability or retirement as a lump sum or in monthly installments over 2 to 20 years. Retirement under the ECRIP is defined as having attained age 55 with at least 10 years of service, or age 65 with at least 5 years of service. If an ECRIP participant’s employment ends due to retirement, death, or disability, amounts deferred to the ECRIP prior to January 1, 2010 will receive interest crediting of 130 percent of the Moody’s Rate. Amounts deferred to the ECRIP after December 31, 2009 are only eligible to receive 100 percent of the Moody’s Rate. During 2021, the Moody’s Rate applied to ECRIP accounts ranged from 2.80 percent to 3.21 percent for amounts eligible for 100 percent of the Moody’s Rate, and 3.64 percent to 4.18 percent for amounts eligible for 130 percent of Moody’s. If terminated in conjunction with a change-in-control, participants would receive their ECRIP as a lump-sum payment. The following table sets forth ECRIP account information for each NEO during fiscal year 2021.

  123. Nonqualified Deferred Compensation

    | Name | Executive Contributions in 2021 (1) | Registrant Contributions in 2021 (2) | Aggregate Earnings in 2021 | Aggregate Distributions in 2021 | Aggregate Balance at December 31, 2021 (3)(4) | | E. Scott Santi | $567,000 | $198,450 | $192,661 | - | $6,216,885 | | Michael M. Larsen | $152,624 | $323,984 | $110,423 | - | $3,827,256 | | Christopher A. O’Herlihy | $1,845,475 | $367,936 | $282,406 | - | $9,880,436 | | John R. Hartnett | $1,117,379 | $52,973 | $112,218 | - | $3,686,407 | | Mary K. Lawler | $108,314 | $107,482 | $48,441 | - | $1,710,193 |

  124. Nonqualified Deferred Compensation

    | As shown in the Footnote 1 Table below, includes deferrals of (i) 2021 salary reflected in the Salary column of the Summary Compensation Table; (ii) 2021 executive annual incentive amounts deferred in 2022 reflected in the Non-Equity Incentive Plan Compensation column of the Summary Compensation Table for 2021; and (iii) 2019-2021 Performance Cash deferred in 2022 reflected in the Non-Equity Incentive Plan Compensation column of the Summary Compensation Table for 2021.(1) |

  125. Nonqualified Deferred Compensation

    | Name | Salary Deferral in 2021 | Executive Annual Incentive Deferral in 2022 for 2021 Performance | LTI Cash Deferral in 2022 for Performance Period of 2019 - 2021 | Total Executive Deferrals in 2021 | | E. Scott Santi | $135,000 | $432,000 | - | $567,000 | | Michael M. Larsen | $50,674 | $101,950 | - | $152,624 | | Christopher A. O’Herlihy | $341,541 | $858,934 | $645,000 | $1,845,475 | | John R. Hartnett | $144,936 | $700,334 | $272,109 | $1,117,379 | | Mary K. Lawler | $37,095 | - | $71,219 | $108,314 |

  126. Nonqualified Deferred Compensation

    | These amounts are also included in the All Other Compensation column of the Summary Compensation Table for 2021.(2) |

  127. Nonqualified Deferred Compensation

    | Footnote 4 to the Summary Compensation Table sets forth above-market interest for 2021 included in aggregate earnings in this table. Above-market interest was discontinued for amounts deferred after December 31, 2009.(3) |

  128. Nonqualified Deferred Compensation

    | In addition to the Company’s contributions shown in the table above and excess interest as disclosed for 2021 in the Footnote 4 Table to the Summary Compensation Table, the following amounts of NEO and Company contributions to the ECRIP and excess interest are reported as compensation in the Summary Compensation Table for 2020 and 2019:(4) |

  129. Footnote 4 Table

    Footnote 4 Table

  130. Footnote 4 Table

    | Name | Year Ended December 31, 2020 | Year Ended December 31, 2019 | | E. Scott Santi | $320,628 | $383,784 | | Michael M. Larsen | $189,621 | $451,127 | | Christopher A. O’Herlihy | $1,121,317 | $1,323,728 | | John R. Hartnett | $222,652 | $346,371 | | Mary K Lawler* | - | - |

  131. Footnote 4 Table

    * Ms. Lawler was not an NEO in 2020 and 2019.

  132. Potential Payments upon Termination

    Potential Payments upon Termination Our severance and change-in-control protections are designed to be fair and competitive. These protections are intended to retain executives in the event they need to consider actions that may impact job security or ease an executive’s transition at retirement. These benefits help us compete for talent and are fully within the range of competitive practice at similar companies. Further, our NEOs are not covered by employment agreements and are employed “at will.” No payments or benefits are automatically payable to NEOs upon a change-in-control, and if there is a qualifying termination following a change-in-control, there are no tax gross-up payments. Payments and benefits received by NEOs upon termination are governed by the arrangements described below and quantified at the end of this section. We have estimated the amounts involved assuming that the termination became effective as of December 31, 2021. The actual amounts to be paid out can only be determined at the time of the NEOs’ departure from the Company.

  133. Pay Ratio

    Pay Ratio As required by Section 953(b) of the Dodd-Frank Wall Street Reform and Consumer Protection Act, and Item 402(u) of Regulation S-K, we are providing the following information about the ratio of the annual total compensation of the median ITW employee to the annual total compensation of our CEO. The pay ratio reported below, in our view, is a reasonable estimate calculated in a manner consistent with SEC rules, and is based on the methodologies and assumptions described below. SEC rules identifying the median employee and determining the pay ratio permit companies to employ a wide range of methodologies, estimates and assumptions. As a result, the pay ratio reported by other companies, which may have utilized other permitted methodologies or assumptions, and which may have a significantly different workforce structure from ours, are likely not comparable to our CEO pay ratio. The Company has an extensive global footprint in 52 countries and approximately 45,000 employees as of December 31, 2021, of which approximately two-thirds are outside of the U.S. While compensation and benefits practices in these countries vary considerably, we provide market competitive compensation and benefits, maintain fair labor practices and ensure work environments that reflect our core values and culture everywhere we operate. To calculate the pay ratio, we identified the median employee based on our employee population as of October 31, 2020, which was approximately 43,000 employees, before excluding approximately 2,000 employees by applying the exemption noted below. As permitted by the SEC, we have maintained the same median employee we identified in 2020 to calculate the 2021 pay ratio. In many countries, ITW has small employee populations. In 2020, we chose to apply the SEC’s de minimis exemption and excluded countries which, in the aggregate, make up under 5% of our total workforce. The countries excluded are as follows:

  134. Pay Ratio

    | Countries | Excluded Employees (in each country) | | Austria, Estonia, Guatemala, Indonesia, Luxembourg, Malta, Peru | Fewer than 15 employees | | Chile, Colombia, Croatia, Finland, Hong Kong, Norway, Philippines, Portugal, Puerto Rico, Singapore, South Africa, Switzerland, United Arab Emirates | Fewer than 100 employees | | Argentina, Bulgaria, Costa Rica, Hungary, Ireland, Slovenia, Thailand | Fewer than 300 employees |

  135. Pay Ratio

    To identify the median employee, we collected employees’ regular pay (salary or hourly wages), overtime pay and shift differentials/premiums, and pay received for paid time off. We did not include annual incentives or bonuses, sales incentives or commissions, long-term cash or equity incentives, allowances, or any benefits received as part of a company-sponsored defined benefit pension plan. With the information collected, we identified 21 employees whose compensation we believed to be around the median of all employees, and then gathered other elements of compensation (variable pay, health and welfare, and retirement contributions) in order to determine the final median employee. The 2021 compensation for the median employee, who we identified in 2020, was $61,011. Total compensation for our CEO, as set forth in the Summary Compensation Table, plus the Company costs to provide his health and welfare benefits ($19,222) for 2021 was $20,806,844. Accordingly, the pay ratio between our CEO and median employee was 341:1 in 2021.