UNITED
STATES
SECURITIES
AND EXCHANGE COMMISSION
Washington,
D.C. 20549
SCHEDULE
14A
PROXY
STATEMENT PURSUANT TO SECTION 14(A) OF
THE
SECURITIES EXCHANGE ACT OF 1934 (Amendment
No. )
Filed by
the Registrant x
Filed by
a Party other than the Registrant ¨
Check the
appropriate box:
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Preliminary
Proxy Statement
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Confidential,
for Use of the Commission Only (as permitted by Rule
14a-6(e)(2))
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x
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Definitive
Proxy Statement
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Definitive
Additional Materials
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¨
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Soliciting
Material Pursuant to §240.14a-12
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Franklin
Electric Co., Inc.
(Name
of Registrant as Specified In Its Charter)
(Name
of Person(s) Filing Proxy Statement, if Other Than the Registrant)
PAYMENT
OF FILING FEE (CHECK THE APPROPRIATE BOX):
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x
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No
fee required.
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Fee
computed on table below per Exchange Act Rules 14a-6(i)(1) and
0-11.
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previously. Identify the previous filing by registration statement number,
or the Form or Schedule and the date of its
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Franklin
Electric Co., Inc.
400 East
Spring Street
Bluffton,
Indiana 46714
NOTICE
OF ANNUAL MEETING OF SHAREHOLDERS
To Be
Held
April 30,
2010, at 9:00 a.m., Eastern Time
To the
Shareholders of
Franklin
Electric Co., Inc.
The Annual Meeting of Shareholders of
Franklin Electric Co., Inc. (the “Company”), an Indiana corporation,
will be held at the Hilton Fort Wayne, 1020 South Calhoun Street, Fort Wayne,
Indiana on Friday, April 30, 2010, at 9:00 a.m., Eastern Time. The purposes of
the meeting are to:
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1.
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Elect
R. Scott Trumbull and Thomas L. Young as directors for terms expiring at
the 2013 Annual Meeting of
Shareholders;
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2.
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Approve
the Franklin Electric Co., Inc. Management Incentive
Plan;
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3.
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Ratify
the appointment of Deloitte & Touche LLP as the Company’s independent
registered public accounting firm for the 2010 fiscal year;
and
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4.
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Transact
any other business that may properly come before the Annual Meeting or any
adjournment or postponement
thereof.
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Only shareholders of record at the
close of business on February 26, 2010, will be entitled to notice of and to
vote at the Annual Meeting.
You are urged to vote your proxy
whether or not you plan to attend the Annual Meeting. If you do attend, you may
nevertheless vote in person which will revoke any previously executed
proxy.
By order
of the Board of Directors.
John J.
Haines
Vice
President, Chief Financial
Officer
and Secretary
Bluffton,
Indiana
March 16,
2010
- 1
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FRANKLIN
ELECTRIC CO., INC.
400
East Spring Street, Bluffton, Indiana 46714
______________________________
PROXY
STATEMENT
______________________________
Annual
Meeting of Shareholders to be Held on April 30, 2010
GENERAL
INFORMATION
This Proxy Statement and the enclosed
proxy are furnished to shareholders in connection with the solicitation of
proxies by the Board of Directors of Franklin Electric Co., Inc. (the
“Company”), 400 East Spring Street, Bluffton, Indiana, 46714 for use at the
Annual Meeting of Shareholders to be held on April 30, 2010, or any adjournment
or postponement thereof. Shareholders were sent Notice of the Annual Meeting, as
well as information regarding how to access this Proxy Statement and the
Company’s 2009 Annual Report, including the financial statements contained
therein, beginning on or about March 16, 2010.
The expenses of solicitation, including
the cost of printing and mailing, will be paid by the Company. Officers and
employees of the Company, without additional compensation, may solicit proxies
personally, by telephone, email, or by facsimile. Arrangements will also be made
with brokerage firms and other custodians, nominees and fiduciaries to forward
proxy solicitation materials to the beneficial owners of shares held of record
by such persons, and the Company will reimburse such entities for reasonable
out-of-pocket expenses incurred by them in connection therewith.
- 2
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NOTICE
AND VOTING INSTRUCTIONS
Shareholders will receive a Notice Card
with overview information regarding the availability of proxy materials over the
internet. Shareholders who wish to receive a paper or email copy of the proxy
materials must request one. There is no charge for requesting a copy. Requests
can be made at the voting website, via telephone, or via email.
Voting by Internet: Use the
internet link and control number provided to you on your Notice Card. You may
vote until 11:59 p.m., Eastern Time on April 29, 2010. You will need the control
number provided on your Notice Card to access the website.
Voting by Telephone: Call the
toll-free telephone number provided on your Notice Card. Telephone voting will
be available until 11:59 p.m., Eastern Time on April 29, 2010. Detailed
instructions will be provided during the call. The procedures are designed to
authenticate votes cast by using the last 4 digits of a shareholder’s social
security/taxpayer I.D. number.
Voting by Mail: Request a
hardcopy of the proxy materials. Then complete the Proxy Card, date and sign it,
and return it in the envelope provided. Shareholders may also vote their shares
in person at the Annual Meeting.
Employees who are participants in the
Company’s Employee Stock Ownership Plan and/or Directed Investment Salary Plan
will receive a notice and instructions by email or other method that cover the
shares credited to their plan accounts.
If a shareholder does not specify the
manner in which the proxy shall be voted, the shares represented thereby will be
voted:
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·
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FOR
the election of the nominees for director as set forth in this Proxy
Statement;
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·
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FOR
the approval of Franklin Electric Co., Inc. Management Incentive
Plan;
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·
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FOR
the ratification of the appointment of Deloitte & Touche LLP as the
Company’s independent registered public accounting firm for the 2010
fiscal year; and
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·
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In
accordance with the recommendations of management with respect to other
matters that may properly come before the Annual
Meeting.
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A shareholder who has executed a proxy
has the power to revoke it at any time before it is voted by (i) delivering
written notice of such revocation to Mr. John J. Haines, Vice President, Chief
Financial Officer and Secretary, 400 East Spring Street, Bluffton, Indiana
46714, (ii) executing and delivering a subsequently dated proxy by mail, or
voting by telephone or through the internet at a later date, or (iii) attending
the Annual Meeting and voting in person.
SHAREHOLDERS
ENTITLED TO VOTE AND SHARES OUTSTANDING
The Board of Directors of the Company
fixed the close of business on February 26, 2010, as the record date (the
“Record Date”) for determining shareholders entitled to notice of and to vote at
the Annual Meeting. As of the Record Date, there were 65,000,000 shares of
Common Stock, $.10 par value (the “Common Stock”), authorized, of which
23,130,308 shares of Common Stock were outstanding. Each share of
Common Stock is entitled to one vote on each matter submitted to a vote of the
shareholders of the Company. Votes cast by proxy or in person at the Annual
Meeting will be tabulated by the inspectors of election appointed for the Annual
Meeting and will be counted as present for purposes of determining whether a
quorum is present. A majority of the outstanding shares of Common Stock, present
in person or represented by proxy, will constitute a quorum for the transaction
of business at the Annual Meeting. Abstentions and broker non-votes will be
counted for purposes of determining the presence or absence of a quorum but will
not be counted as votes cast on any matter submitted to shareholders. As a
result, abstentions and broker non-votes will not have any effect on the voting
results with respect to any of the matters scheduled to be submitted to
shareholders at the Annual Meeting.
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SECURITY
OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
The following table shows the persons
known by the Company to be the beneficial owners of more than five percent of
the Company’s Common Stock as of February 26, 2010, unless otherwise noted. The
nature of beneficial ownership is sole voting and investment power, unless
otherwise noted.
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Name
and address of beneficial owner
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Amount
and
nature
of beneficial ownership
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Percent
of class
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Patricia
Schaefer
5400
Deer Run Court
Muncie,
IN 47304
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2,000,084(1)
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8.65
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Select
Equity Group, Inc., jointly with George S. Loening (and related entities)
380 Lafayette Street, 6th Floor
New
York, NY 10003
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1,913,967(2)
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8.27
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Diane
D. Humphrey
2279
East 250 North Road
Bluffton,
IN 46714
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1,838,657(3)
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7.95
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Invesco,
Ltd.
301
West Roosevelt Road
Wheaton,
IL 60187-5053
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1,426,219(4)
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6.17
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Snyder
Capital Management, LP
1
Market Plaza Suite 1200
San
Francisco, CA 94105-1012
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1,260,027(5)
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5.45
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BlackRock
Inc.
40
East 52nd Street
New
York, NY 10022
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1,183,789(6)
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5.12
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(1) Pursuant
to agreements with Ms. Schaefer, the Company has a right of first refusal
with respect to 1,708,040 shares owned by Ms. Schaefer.
(2) According
to a Schedule 13G jointly filed with the Securities and Exchange
Commission (“SEC”), as of December 31, 2009, Select Equity Group, Inc.,
Select Offshore Advisors, LLC and George S. Loening have sole investment
and voting power with respect to all shares.
(3) Pursuant
to agreements with Ms. Humphrey, the Company has a right of first refusal
with respect to 1,665,307 shares owned by Ms. Humphrey.
(4) According
to a Schedule 13G filed with the SEC, as of December 31, 2009,
subsidiaries of Invesco, Ltd. have sole investment and voting power with
respect to all shares.
(5) According
to a Schedule 13G filed with the SEC, as of December 31, 2009, Snyder
Capital Management, LP, and Snyder Capital Management, Inc., filing
jointly, have shared investment power with respect to 1,260,027 shares and
shared voting power with respect to 1,084,177 shares.
(6) According
to a Schedule 13G filed with the SEC, as of December 31, 2009, BlackRock
Inc., has sole investment and voting power with respect to all
shares.
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SECURITY
OWNERSHIP OF MANAGEMENT
The following table shows the number of
shares of Common Stock beneficially owned by directors, nominees, each of the
executive officers named in the “Summary Compensation Table” below, and all
executive officers and directors as a group, as of February 26, 2010. The nature
of beneficial ownership is sole voting and investment power, unless otherwise
noted.
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Name
of beneficial owner
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Amount
and nature of beneficial ownership
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Percent
of class
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Jerome
D. Brady
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87,890(1)(2)
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*
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David
T. Brown
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0(2)
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*
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David
A. Roberts
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19,267(1)(2)
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*
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David
M. Wathen
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2,249(2)
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*
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Howard
B. Witt
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45,652(1)
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*
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Thomas
L. Young
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14,067
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*
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John
J. Haines
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20,808
(1)(3)(4)(6)(9)
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*
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Peter-Christian
Maske
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131,514(1)(3)(4)(6)(7)
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*
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Gregg
C. Sengstack
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279,024(1)(3)(4)(5)(6)(7)
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1.21
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Robert
J. Stone
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110,925(1)(3)(4)(6)(7)
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*
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R.
Scott Trumbull
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467,053(1)(2)(3)(4)(6)(7)(8)
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2.02
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Gary
D. Ward
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46,207(1)(3)(4)(7)
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*
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All
directors and executive officers as a group
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1,391,323(1)(2)(3)(4)(5)(6)(7)(8)(9)
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6.02
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*
Less than 1 percent of class
(1) Includes
shares issuable pursuant to stock options exercisable within 60 days after
February 26, 2010 as follows: Mr. Trumbull, 274,456; Mr. Sengstack,
144,182; Mr. Maske, 38,532; Mr. Brady, 56,000; Mr. Stone, 74,832; Mr.
Witt, 36,000; Mr. Roberts, 8,000; Mr. Haines; 7,623; and Mr. Ward, 26,575.
All directors and executive officers as a group, 789,504.
(2) Does
not include stock units credited to: Mr. Trumbull, 1,930; Mr. Brady,
5,413; Mr. Roberts, 1,162; Mr. Wathen, 14,233; and Mr. Brown, 10,018;
pursuant to the terms of the Non-employee Directors’ Deferred Compensation
Plan described under “Director Compensation.”
(3) Includes
shares held by the ESOP Trustee as of December 31, 2009: Mr. Trumbull,
1,032; Mr. Sengstack, 7,506; Mr. Maske, 1,906; Mr. Haines, 39; Mr. Stone,
5,255; and Mr. Ward, 6,054. All executive officers as a group,
22,010.
(4) Includes
shares held by the 401(k) Plan Trustee as of December 31, 2009: Mr.
Trumbull, 1,345; Mr. Sengstack, 6,501; Mr. Maske, 552; Mr. Haines, 1,146;
Mr. Stone 6,474; and Mr. Ward 369. All executive officers as a group,
18,657.
(5) Includes
restricted shares which vest three years after the grant date as follows:
Mr. Sengstack, 4,000. All executive officers as a group,
8,000.
(6) Includes
restricted shares which vest at the end of four years as follows: Mr.
Haines, 4,000; Mr. Maske, 1,500; Mr. Sengstack, 4,000; Mr. Stone, 4,000;
and Mr. Trumbull, 12,500. All executive officers as a group,
32,300.
(7) Includes
restricted shares which vest four years after the grant date, subject to
the attainment of certain performance goals. If these goals are not
attained, the shares will be forfeited, as described in this proxy
statement. These restricted shares are as follows: Mr. Trumbull, 16,100;
Mr. Sengstack, 3,700; Mr. Maske, 3,700; Mr. Stone 13,700; and Mr. Ward,
2,450. All executive officers as a group, 55,250.
(8) Includes
2,720 restricted shares awarded to Mr. Trumbull, which vest evenly over
the next three years.
(9) Includes
8,000 restricted shares awarded to Mr. Haines, which vest four years after
the grant date.
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SECTION
16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section 16(a) of the Securities
Exchange Act of 1934 requires the Company’s directors, officers, and greater
than 10 percent shareholders to file with the SEC initial reports of ownership
and reports of changes in ownership of Common Stock of the Company and to
furnish the Company with copies of all Section 16(a) reports they file. Based
solely on a review of the copies of these reports furnished to the Company and
written representations that no other reports were required to be filed, the
Company believes that its directors, officers and greater than 10 percent
shareholders complied with all Section 16(a) filing requirements applicable to
them during 2009, except that in May 2009, Messrs. Brady, Brown, Roberts,
Trumbull and Wathen filed late Forms 4 with respect to a dividend payment within
their respective deferred compensation accounts.
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PROPOSAL
1: ELECTION OF DIRECTORS
The Company’s Amended and Restated
By-laws provide that the Board of Directors shall consist of seven directors,
divided into three classes of two or three directors each. Each year, the
directors of one of the three classes are elected to serve terms of three years
and until their successors have been elected and qualified. Two directors will
be elected at the Annual Meeting this year. Directors are elected by the
affirmative vote of a plurality of the shares voted (i.e., the two nominees who
receive the most votes will be elected).
R. Scott Trumbull and Thomas L. Young
have been nominated to serve as directors of the Company for terms expiring in
2013. Messrs. Trumbull and Young are currently directors of the Company. The
nominees have indicated their willingness to serve as directors if elected. If,
however, any nominee is unwilling or unable to serve as a director, shares
represented by the proxies will be voted for the election of another nominee
proposed by the Board of Directors or the Board may reduce the number of
directors to be elected at the Annual Meeting.
THE
BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS
THAT
YOU VOTE FOR
THE ELECTION OF EACH NOMINEE.
- 6
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INFORMATION
CONCERNING NOMINEES AND CONTINUING DIRECTORS
Set forth below for the director
nominees and continuing directors are their ages, year they first became a
director, principal occupations and directorships for the past five years, and
legal proceedings, if any, for the past ten years. With respect to each nominee
or continuing director, we describe under the heading “Relevant Experience” the
particular experience and other attributes that have led to the conclusion that
the individual should serve on the Board of Directors of the
Company.
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Nominees
for terms expiring in 2013
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R.
Scott Trumbull,
Chairman
of the Board and Chief Executive Officer of the Company
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Age: 61
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Director Since: 1998
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Principal Occupation:
Chairman of the Board and Chief Executive Officer of the Company since
2003.
Formerly: Executive Vice
President and Chief Financial Officer of Owens-Illinois, Inc., a global
manufacturer of glass and plastic packaging products from October 2001 to
December 2002, prior thereto, Executive Vice President of International
Operations & Corporate Development of Owens-Illinois, Inc. from 1993
to 2001.
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Directorships – Public
Companies: Health Care REIT
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Relevant Experience: Mr.
Trumbull received his bachelors of economics from Denison University and
his MBA from Harvard Business School. His positions at Owens-Illinois gave
him significant experience in leading both domestic and global
manufacturing businesses. Prior to joining Franklin Electric’s board, Mr.
Trumbull served as a board member of Calphelon and presently serves on the
board of another public company. His experience as a director of the
Company since 1998, and as CEO since 2003, means that he brings a unique
understanding of the Company’s markets and businesses to the Board’s
deliberations.
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Thomas
L. Young,
Director
of the Company
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Age: 65
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Director Since: 2005
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Principal Occupation:
President, Titus Holdings Ltd., a private investment company.
Formerly: Executive Vice
President and Chief Financial Officer, Owens-Illinois, Inc., a global
manufacturer of glass and plastic packaging, from 2003 until retirement in
2005, Co-Chief Executive Officer from January 2004 to April 2004. Prior
thereto, Executive Vice President, Administration and General Counsel from
1993 through 2003.
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Directorships – Public
Companies: Owens-Illinois, Inc.
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Relevant Experience: Mr.
Young received his bachelors degree from St. John’s College and his JD
with honors from Notre Dame Law School. Mr. Young’s background qualifies
him to serve as an “audit committee financial expert” on the Audit
Committee. He also brings to the Board extensive experience as an
executive officer of a publicly traded manufacturing company, as well as
experience from present and prior
directorships.
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- 7
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Directors
with terms expiring in 2011
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David
T. Brown,
Director
of the Company
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Age: 62
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Director Since: 2008
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Principal Occupation:
Retired in 2007.
Formerly: President and
Chief Executive Officer of Owens Corning, a world leader in building
materials systems and glass fiber composites, from April 2002 until 2007;
prior thereto, Executive Vice President and Chief Operating Officer from
2001 through 2002; prior thereto, Vice President and President, Insulating
Systems Business from 1997 through 2000.
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Directorships – Public
Companies: BorgWarner, Inc.
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Relevant Experience: Mr.
Brown earned his bachelors degree in economics from Purdue University. Mr.
Brown adds to the Board his experience in a long career at Owens Corning,
where he moved through the ranks from salesman to regional sales manager
to chief operating officer and ultimately chief executive officer, where
he led the company out of an asbestos related bankruptcy. In addition to
his perspective as a successful CEO of a global manufacturer, he brings
his experience on the Board of Borg Warner, Inc.
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David
A. Roberts,
Director
of the Company
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Age: 63
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Director Since: 2003
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Principal Occupation:
Chairman, President and Chief Executive Officer, Carlisle Companies
Incorporated, a diversified global manufacturing company, since June
2007.
Formerly: Chairman,
President and Chief Executive Officer, Graco, Inc., a manufacturer of
fluid-handling equipment and systems, from June 2001 to June
2007.
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Directorships – Public
Companies: Arctic Cat, Carlisle Companies, Inc.; Graco Inc.
(2001-2007)
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Relevant Experience: Mr.
Roberts received his bachelors degree in technology from Purdue University
and his MBA from Indiana University. He brings to the Board his experience
as CEO of two substantial publicly-held manufacturing companies, as well
as other relevant board experience. His experience on the Board of the
Company also helps give the Board a historical perspective in its
deliberations.
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Howard
B. Witt,
Director
of the Company
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Age: 69
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Director Since: 1994
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Principal Occupation:
Retired in 2005.
Formerly: Chairman of
the Board, President, and Chief Executive Officer, Littelfuse, Inc., a
manufacturer of electronic, electrical and automotive fuses, from 1990 to
2004.
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Directorships – Public
Companies: Artisan Funds, Inc.
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Relevant Experience: Mr.
Witt received his bachelors degree from Purdue University. He received his
MBA from Northwestern University Business School. Mr. Witt adds to the
Board his long experience as CEO of Littlefuse, Inc., a publicly-held
manufacturer with U.S. and international operations, as well as other
relevant board experience. His experience on the Board of the Company also
helps give the Board a historical perspective in its
deliberations.
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- 8
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Directors
with terms expiring in 2012
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Jerome
D. Brady,
Director
of the Company
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Age: 66
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Director Since: 1998
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Principal Occupation:
Retired in 2000.
Formerly: President and
Chief Executive Officer of C&K Components from 1997-2000, a
manufacturer of electro-mechanical switches; prior thereto, President, CEO
and Chairman of AM International, Inc., a manufacturer of printing
equipment, from 1995-1997.
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Directorships – Public
Companies: Circor International, Inc.
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Relevant Experience: Mr.
Brady received his bachelors of economics from the University of
Pennsylvania, Wharton School. He received his MBA in finance from the
University of California at Los Angeles, Anderson School. Mr. Brady brings
to the Board experience as CEO of two publicly-held, global manufacturing
companies, as well as other relevant board experience. His background
enables him to serve as an “audit committee financial expert.” His
experience on the Board of the Company also helps give the Board a
historical perspective in its deliberations.
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David
M. Wathen,
Director
of the Company
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Age: 57
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Director Since: 2005
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Principal Occupation:
President and Chief Executive Officer of TriMas Corporation, a
manufacturer of engineered products since January 2009.
Formerly: President and
Chief Executive Officer, Balfour Beatty, Inc. (U.S. Operations), an
engineering, construction and building management services company, from
2002-2006; prior thereto, Operating partner, Questor Management Company
from 2000-2002; prior thereto, Group Executive/Corporate Officer, Eaton
Corporation from 1997-2000.
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Relevant Experience: Mr.
Wathen received his bachelors degree from Purdue University and his MBA
from Saint Francis College. Mr. Wathen brings to the Board his experience
as CEO of two companies and leadership positions in others, including over
twenty years direct technical and general management experience in the
same industry as the Company and direct experience managing electrical
businesses serving pump OEMs and distributor channels similar to those
served by the Company. His background enables him to serve as an “audit
committee financial expert.”
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- 9
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INFORMATION
ABOUT THE BOARD AND ITS COMMITTEES
Director
Independence
The Board of Directors of the Company
has determined that each of the current directors, except for R. Scott Trumbull,
Chairman of the Board and Chief Executive Officer of the Company, is an
“independent director” in compliance with the independence standards set forth
in the Company’s Corporate Governance Guidelines and under the applicable rules
adopted by The NASDAQ Stock Market, Inc. (“NASDAQ”). In making its independence
determinations, the Board concluded that no director, other than Mr. Trumbull,
has any relationship in the Company, except as a director and
shareholder.
Board
Leadership Structure and Risk Oversight
The Company is led by R. Scott
Trumbull, who has served as Chairman of the Board and Chief Executive Officer
since 2003. The Board consists of Mr. Trumbull and six independent directors.
The Board has three standing committees – Audit, Management Organization and
Compensation, and Corporate Governance. The Audit Committee is primarily
responsible for risk oversight and the full board receives regularly reports
from the Audit Committee, management and officers regarding risk management.
Each of the other two committees also considers risk as it falls within its area
of responsibility. The Company does not have a lead director but the
non-management directors meet in executive session at each board meeting with a
rotating chair.
The Company has employed the same basic
leadership structure of a combined chairman and CEO role for over ten years and
believes this leadership structure has been and is effective for the Company.
Having a combined chairman/CEO role provides the Company with a unified
leadership structure that allows it to carry out strategic initiatives. The
chairman/CEO is a single individual who is seen by the Company’s customers,
business partners, investors and shareholders as someone who provides strong
leadership for the Company and is viewed as such in the industries in which the
Company competes. The Company believes that the board committees, all of which
are chaired by and consist of independent directors, and the full board of
directors, provide effective oversight.
Meetings
The Board held five regularly scheduled
meetings during 2009. Each director attended at least 75 percent of the
aggregate meetings of the Board and Board committees of which he was a member
during the period that each served as a director. All directors who were members
of the Board at that time attended the 2009 Annual Meeting of
Shareholders.
Committees
Audit Committee. The current
members of the Audit Committee are Jerome D. Brady (Chairman), David M. Wathen,
and Thomas L. Young. The Board of Directors has determined that each member of
the Audit Committee is an “independent director” in compliance with the
independence standards set forth in the Company’s Corporate Governance
Guidelines and under the applicable NASDAQ rules. The Board of Directors has
adopted an Audit Committee charter, a copy of which is available on the
Company’s website at www.franklin-electric.com
under “Corporate Governance,” that sets forth the duties and responsibilities of
the Audit Committee. Under its charter, the Audit Committee appoints the
Company’s independent registered public accounting firm and assists the Board of
Directors in fulfilling its oversight responsibilities by reviewing the
Company’s financial information, the Company’s system of internal control, the
Company’s processes for monitoring compliance with laws and regulations, and the
Company’s audit process. It is the general responsibility of the Audit Committee
to advise and make recommendations to the Board of Directors in all matters
regarding the Company’s accounting methods and internal control procedures. The
Audit Committee is also responsible for the review, approval, or ratification of
transactions between the Company and “related persons.” The Audit Committee
reviews information compiled in response to the Directors’ and Officers’
Questionnaires or otherwise developed by the Company with respect to any
transactions with the Company in which any director, executive officer, or any
member of his or her immediate family, has a direct or indirect material
interest that would require disclosure under applicable SEC regulations. In
2009, there were no such transactions. The Audit Committee held five meetings in
2009.
The
Company’s board of directors has determined that Jerome D. Brady, Thomas L.
Young, and David M. Wathen, the Audit Committee members, are “audit committee
financial experts” as defined by Item 407(d)(5)(ii) of Regulation’s S-K of the
Exchange Act, and are “independent” under the applicable NASDAQ
rules.
- 10
-
Management Organization and
Compensation Committee. The current members of the Management
Organization and Compensation Committee (the “Compensation Committee”) are David
A. Roberts (Chairman), David T. Brown and Howard B. Witt. The Board of Directors
has determined that each member of the Compensation Committee is an “independent
director” in compliance with the independence standards set forth in the
Company’s Corporate Governance Guidelines and under applicable NASDAQ rules. The
Board of Directors has adopted a Compensation Committee charter, a copy of which
is available on the Company’s website at www.franklin-electric.com
under “Corporate Governance,” that sets forth the duties and responsibilities of
the Compensation Committee. Under its charter, the Compensation Committee
recommends to the Board of Directors the annual salary and bonus for the chief
executive officer, determines and approves the equity awards for the chief
executive officer and the annual salary, bonus and equity awards of the other
executive officers of the Company; reviews and submits to the Board of Directors
recommendations concerning stock plans; periodically reviews the Company's
policies in the area of management benefits; and oversees the Company’s
management development and organization structure. The Compensation
Committee held six meetings in 2009.
In
accordance with the authority under its charter to engage outside consultants,
the Committee has used Hewitt Associates, LLC to advise the Committee with
respect to the executive compensation program. Hewitt’s fees related to
providing advice to the Committee during 2009 were approximately $145,000.
Hewitt’s fees related to other services provided to the Company’s management
during 2009 were approximately $243,000. The decision to retain Hewitt for these
other services has been made by management. In February 2010 Hewitt spun off a
portion of its executive compensation practice into a separate, independent
entity named Meridian Compensation Partners, LLC (“Meridian”). The Committee has
determined that it will make future decisions concerning its engagement of a
compensation consultant, and has continued to work with individuals now with
Meridian to make early 2010 compensation decisions.
Corporate Governance
Committee. The current members of the Corporate Governance Committee (the
“Governance Committee”) are David M. Wathen (Chairman), David T. Brown, David A.
Roberts, and Thomas L. Young. The Board of Directors has determined that each
member of the Governance Committee is an “independent director” in compliance
with the independence standards set forth in the Company’s Corporate Governance
Guidelines and under applicable NASDAQ rules. The Board of Directors has adopted
a Governance Committee charter, a copy of which is available on the Company’s
website at www.franklin-electric.com
under “Corporate Governance,” that sets forth the duties and
responsibilities of the Governance Committee. Under its charter, the Governance
Committee reviews the size of the Company’s Board of Directors and committee
structure and recommends appointments to the Board and the Board Committees;
reviews and recommends to the Board of Directors the compensation of
non-employee directors, including awards to non-employee directors under the
Company’s equity based and compensation plans; and develops and recommends to
the Board corporate governance guidelines deemed necessary for the Company. The
Governance Committee held two meetings in 2009.
Director
Nomination Process
The Governance Committee is also
responsible for identifying and recommending to the Board candidates for
director. The Governance Committee considers diversity when identifying
candidates for directorships. Although the Company does not have a written
policy regarding diversity, the Governance Committee seeks to identify persons
from various backgrounds and with a variety of life experiences who have a
reputation for and a record of integrity and good business judgment and the
willingness to make an appropriate time commitment. The Governance Committee
also considers whether a person has experience in a highly responsible position
in a profession or industry relevant to the conduct of the Company’s business.
The Governance Committee takes into account the current composition of the Board
and the extent to which a person’s particular expertise, experience and ability
will complement the expertise and experience of other directors. Candidates for
director should also be free of conflicts of interest or relationships that may
interfere with the performance of their duties. Based on its evaluation and
consideration, the Governance Committee submits its recommendation for director
candidates to the full Board of Directors, which is then responsible for
selecting the candidates to be elected by the shareholders. The Governance
Committee evaluates its success in achieving these goals for Board composition
from time to time, particularly when considering Board succession and candidates
to fill vacancies.
The Governance Committee will consider
as candidates for director persons recommended or nominated by shareholders.
Shareholders may recommend candidates for director by writing to the Secretary
of the Company at the address listed below under “Other Corporate Governance
Matters.” Nominations of directors may be made by any shareholder entitled to
vote in the election of directors, provided that written notice of intent to
make a nomination is given to the Secretary of the Company not later than 90
days prior to the anniversary date of the immediately preceding annual meeting
of shareholders. The notice must set forth (i) information regarding the
proposed nominee as would be required to be included in a proxy statement filed
pursuant to the proxy rules of the SEC, and (ii) the consent of such nominee to
serve as a director of the Company if so elected.
- 11
-
Other
Corporate Governance Matters
The Board of Directors has adopted
Corporate Governance Guidelines, a copy of which is available on the Company’s
website at www.franklin-electric.com
under “Corporate Governance,” that provide, among other things that the
Company’s independent directors will meet in executive session, outside the
presence of the non-independent directors and management, at least twice a year.
In 2009, the independent directors met in executive session five
times.
Anyone may contact the Board of
Directors, any Board Committee, any independent director or any other director
by writing to the Secretary of the Company as follows:
Franklin Electric Co.,
Inc.
Attention: [Board of
Directors], [Board Committee], [Board Member]
c/o Corporate Secretary
Franklin Electric Co.,
Inc.
400 E. Spring Street
Bluffton,
IN 46714
The
independent directors of the Board have approved a process for collecting,
organizing and responding to written shareholder communications addressed to the
Board, Board Committees or individual directors.
Copies of the Company’s corporate
governance documents, including the Board Committee charters and the Corporate
Governance Guidelines are available upon written request to the Secretary of the
Company at the address listed above.
In
compliance with Section 406 of the Sarbanes-Oxley Act of 2002, the Company has
adopted a code of business conduct and ethics for its directors, principal
financial officer, controller, principal executive officer, and other employees.
The Company has posted its code of ethics on the Company’s website at www.franklin-electric.com.
The Company will disclose any amendments to the Code and any waivers from the
Code for directors and executive officers by posting such information on its
website.
- 12
-
MANAGEMENT
ORGANIZATION AND
COMPENSATION
COMMITTEE REPORT
The
Management Organization and Compensation Committee of the Board of Directors
hereby furnishes the following report to the shareholders of the Company in
accordance with rules adopted by the Securities and Exchange
Commission.
The
Management Organization and Compensation Committee states that it has reviewed
and discussed with management the Company’s Compensation Discussion and Analysis
contained in this proxy statement.
Based
upon this review and discussion, the Management Organization and Compensation
Committee recommended to the Board of Directors that the Compensation Discussion
and Analysis be included in this proxy statement.
This
report is submitted on behalf of the members of the Management Organization and
Compensation Committee.
David A. Roberts
(Chairman)
David T. Brown
Howard B. Witt
- 13
-
COMPENSATION
DISCUSSION AND ANALYSIS
Management
Organization and Compensation Committee
The
Management Organization and Compensation Committee of the Board of Directors
(the “Committee”), consisting entirely of independent directors, has
responsibility for establishing, implementing and monitoring adherence with the
Company’s compensation program and providing input to the Board with respect to
management development and succession planning. The role of the Committee is to
oversee, on behalf of the Board and for the benefit of the Company and its
shareholders, the Company’s compensation and benefit plans and policies,
administer its stock plans (including reviewing and approving equity grants to
all executive officers, including the CEO) and review all other compensation
decisions relating to the other executive officers of the Company, and approve
these decisions for all executive officers (other than the CEO, whose non equity
compensation is approved by the Board). In addition, the Committee reviews the
organization structure, the recruitment of key employees and management’s
development plans for key employees, and makes recommendations to the Board with
respect to the CEO succession plan. The Committee meets a minimum of three times
annually to review executive compensation programs, approve compensation levels
and performance targets, approve final executive bonus distributions and review
management performance, development and succession.
Compensation
Philosophy and Pay Objectives
The
Company and the Committee believe that compensation paid to executive officers,
including the executive officers named in the Summary Compensation Table of this
Proxy Statement (the “named executive officers”), should be closely aligned with
the performance of the Company on both a short-term and long-term basis, and
that such compensation should assist the Company in attracting and retaining key
executives critical to the Company’s long-term success. Compensation should be
structured to ensure that a significant portion of the executive’s compensation
opportunities will be directly related to Company performance and other factors
that directly and indirectly influence shareholder value. The Committee
encourages superior short-term performance through the use of annual cash
incentive awards and superior longer-term performance through stock incentive
awards designed to closely align an executive’s reward to that of the
shareholders. For the Company’s CEO, the cash incentive compensation is designed
to reward Company-wide performance by tying his cash incentive awards to goals
such as return on net assets or net invested capital and earnings per share. For
other executive officers, the cash incentive compensation is designed to also
reward the achievement of specific operational goals within areas under their
control, although Company-wide performance is still an important factor.
Stock-based compensation has generally been in the form of stock options and
restricted stock, to create a strong link to shareholder value creation. The
Company also provides retirement benefits for its executive officers and, under
certain circumstances described below, severance benefits.
Historically,
the Committee generally has set executive pay opportunities based on a number of
factors including individual performance, market competitive pay data,
experience level of the executive, and other factors deemed appropriate by the
Committee. Subject to the factors set forth above, the Committee has used the
following pay objectives as a guide, based on an analysis of compensation
opportunities of executives in comparable positions at a peer group of
companies:
|
Pay
Component
|
Targeted
Pay Objectives
|
|
Base
Salary
|
At
or above the median
|
|
Annual
Bonus Opportunity
|
Between
the 60th and 65th percentiles
|
|
Long-Term
Incentives
|
Between
the 50th and 60th percentiles
|
Significant
2009 Compensation Actions
In light
of the financial conditions that existed at the beginning of fiscal 2009 and as
part of its regular review of the executive compensation plans and programs at
the Company, the Committee concluded that it would not increase compensation
generally for 2009. Accordingly, the Committee did not undertake an analysis of
any peer group compensation and did not make any material changes for 2009 to
the 2008 compensation opportunities for the named executive officers, other than
Mr. Sengstack. Based on its assessment, the Committee took the following
actions in 2009:
- 14
-
|
Action
|
Considerations
|
Reason
for Action
|
|
Postponed
2009 base salary increases for executives, other than Mr.
Sengstack
|
Annual
salary increases based on performance and market competitive data will be
reinstated in 2010
|
Cost-cutting
initiative due to the economic turbulence at the beginning of the fiscal
year
|
|
In
February, Mr. Sengstack’s base salary was increased by approximately 5% to
$312,000
|
Mr.
Sengstack’s role changed in early 2009 to include oversight responsibility
for all international Water Systems businesses outside of the Americas in
addition to his continuing responsibility for Fueling Systems
|
Recognition
of increased responsibilities
|
|
For
business unit leaders, inventory turns was introduced as a metric under
the annual bonus plan
|
To
provide an incentive for business unit leaders to control inventory and
focus on cash generation through working capital improvements
|
To
better align the goals of the executive with the strategic goals of the
Company
|
Role
of Management in Compensation Decisions
The
Committee makes equity compensation decisions with respect to the CEO and all
compensation decisions with respect to all other executive officers of the
Company. The Committee recommends to the Board of Directors, for its review and
approval, the annual salary and annual incentive compensation for the
CEO.
The CEO
reviews the performance of executive officers and makes recommendations to the
Committee with respect to the compensation, including annual salary adjustments,
short-term incentive opportunities and payments, and grants of long-term
incentive awards, of the executives other than the CEO, including the named
executive officers. The Committee approves the compensation of these officers
taking into consideration the CEO’s input and recommendations.
The
Committee and the CEO also discuss the financial metrics to be used to measure
the performance of the business units and the Company, taking into account the
strategic goals of the Company and input from the CFO. The CEO also describes
the individual personal goals and strategic initiatives set by him for each
executive, to determine the extent to which these individual performance targets
for the previous year have been achieved.
Although
the CEO regularly attends Committee meetings, he is present only by invitation
of the Committee and has no independent right to attend such meetings. In fiscal
2009, the CEO attended all of the Committee meetings, but he did not participate
in the executive sessions of the Committee in which his own compensation was
determined.
Role
of Compensation Consultant in Compensation Decisions
The
Committee utilizes the Human Resource Department and also has the authority
under its charter to engage the services of outside consultants to assist the
Committee. In accordance with this authority, the Committee in 2009 continued to
engage the services of Hewitt Associates, LLC (“Hewitt”), an independent outside
global human resources consulting firm, to conduct reviews of its total
compensation program for the CEO and other executive officers and to provide
advice to the Committee in the design and implementation of its executive
compensation program.
Hewitt is
typically invited by the Committee to attend its meetings. During 2009, Hewitt
attended three of the Committee’s meetings in person or by telephone. In the
course of fulfilling its consulting responsibilities, representatives of Hewitt
regularly communicate with the Chairman of the Committee outside of regular
committee meetings. Representatives of Hewitt meet with the Committee in
executive sessions at most meetings. Hewitt also meets with management from time
to time to gather information and to review proposals that management may make
to the Committee.
- 15
-
Peer
Group Benchmarking
As noted
previously, the Committee did not review or use benchmarking data in making
compensation decisions for 2009, since no general adjustments to executive
compensation were planned for 2009. In late 2009, however, the Committee
commissioned Hewitt to provide a current pay study to be used for decisions
related to 2010 compensation. As part of this process, the Committee reviewed
the peer groups used historically and determined to utilize one custom peer
group (the “Fiscal 2010 Peer Group”) for all executive officers. Hewitt provided
a list of potential peer group companies for the Committee to consider. Based on
a review of these companies, the Committee approved the 33-company peer group
listed below. The peer group companies are primarily engaged in manufacturing,
are publicly traded, and have annual revenue between $280 million and $2.6
billion. Due to the differences in size among the companies in the Fiscal 2010
Peer Group, a form of regression analysis was used in the study to adjust the
survey results based on Company revenue as compared to revenue of other
companies in the peer group and each executive’s level of responsibility as
compared to executives in comparable positions in the Fiscal 2010 Peer
Group.
The
companies in the new Fiscal 2010 Peer Group are:
|
AMCOL
International Corporation
|
Ameron
International Corporation
|
Badger
Meter, Inc.
|
|
Baldor
Electric Company
|
Ceradyne,
Inc.
|
Clean
Harbors, Inc.
|
|
Crane
Co.
|
Curtiss-Wright
Corporation
|
Eagle
Materials Inc.
|
|
ESCO
Technologies Inc.
|
Esterline
Technologies Corporation
|
Global
Industries, Ltd.
|
|
Graco
Inc.
|
GrafTech
International Ltd.
|
H&E
Equipment Services, Inc.
|
|
IDEX
Corporation
|
Kaman
Corporation
|
Matthews
International Corporation
|
|
Mueller
Water Products, Inc.
|
Neenah
Paper, Inc.
|
Nordson
Corporation
|
|
Orbital
Sciences Corporation
|
Otter
Tail Corporation
|
Pike
Electric Corporation
|
|
Robbins
& Myers, Inc.
|
Sauer-Danfoss
Inc.
|
Simpson
Manufacturing Co., Inc.
|
|
Tecumseh
Products Company
|
Valmont
Industries, Inc.
|
Waste
Connections, Inc.
|
|
Walters
Corporation
|
Watts
Water Technologies, Inc.
|
Woodward
Governor Company
|
Setting
Executive Compensation
The
Company compensates its executives through programs that emphasize performance
based compensation. For the executive officers, including the named executive
officers, the compensation package for 2009 included base salary, an annual cash
incentive opportunity, stock options and, in limited situations, restricted
stock. Base salary is intended to provide a certain level of fixed compensation
commensurate with an executive’s position, responsibilities, and contributions
to the Company. The Company has structured annual and long-term incentive
compensation to motivate executives to achieve the business goals set by the
Company, to reward the executives for achieving such goals, and to tie
executives’ long-term interests to those of the Company’s
shareholders.
In
allocating compensation among these components, the Committee believes that the
compensation of those senior management members having the greatest ability to
influence the Company’s performance should be predominately performance based.
The mix of compensation among base salary, annual bonus opportunity, and
long-term incentives is a result of the compensation philosophy and, more
specifically, the targeted pay objective for each component of pay.
Additionally, after setting each separate component the Committee reviews the
total compensation package of each named executive officer to ensure that it is
within a competitive range of market practice. Other than the base salary and
target bonus opportunity for Mr. Sengstack, the total compensation opportunity
approved by the Committee for 2009 (consisting of base salary, annual cash
incentives, and equity awards) for the named executive officers remained
unchanged from 2008, principally reflecting a cost savings measure undertaken in
light of the economic environment the Company operated in during
2009.
The
following sections discuss the individual elements of the Company’s compensation
program.
Base
Salary
The
Company pays its executives fixed annual salaries, which provide a degree of
financial stability and are intended to reflect the competitive marketplace and
help attract and retain quality executives. In determining base salary for each
executive, the Committee takes into account the targeted annual salary objective
for the position and assesses the responsibilities associated with the position,
individual contribution and performance, skill set, prior experience, and
external pressures to attract and retain talent. However, in response to
economic conditions, the Committee implemented a salary freeze for certain
executive officers of the Company, including the named executive officers.
Therefore, the Committee did not review competitive market data in setting base
salaries for 2009.
- 16
-
As a
result, the Committee kept the base salary for each named executive officer
(except Mr. Sengstack) unchanged from 2008 levels as follows: Mr. Trumbull:
$637,500; Mr. Haines: $250,000; Mr. Maske: 271,724 Euros; Mr. Stone: $286,500;
and Mr. Ward: $208,000. In February 2009, the Committee increased the base
salary rate of Mr. Sengstack by 5% to $312,000 to reflect increased
responsibilities assigned to him, which included all of the Water Systems
businesses outside of the Americas in addition to Franklin Fueling
Systems.
In
connection with considering 2010 compensation, the Committee reviewed 2009
market data provided by Hewitt, which showed that 2009 base salaries, on an
aggregate basis, for the five continuing named executive officers, were 1.6%
above the 50th percentile of salaries paid to executives in comparable positions
at the companies in the Fiscal 2010 Peer Group. Mr. Trumbull’s base salary
was 1.4% below the 50th percentile.
Annual Cash Incentive
Award
The
executive officers of the Company are eligible to participate in the Executive
Officer Annual Incentive Cash Bonus Program. Historically, the target annual
cash incentive opportunity for the CEO has been set at 100% of base salary, and
the target annual incentive opportunity for each named executive officer other
than the CEO has been established at a common percentage of base salary (67.5%
of base salary for 2009), with consideration given to the competitive market
data provided by Hewitt. The Committee has purposely set the target bonus
opportunities at a common percentage of base salary for each named executive
officer (other than the CEO) to provide an added element of flexibility so that
the executives at this level can be moved into different roles as necessary and
if such a move takes place, compensation disparity between roles would not be an
issue. In its year end review of annual cash incentive awards for 2009, however,
the Committee concluded that Mr. Sengstack’s target bonus opportunity
should be increased to 75% of base salary in light of the additional
responsibilities he assumed early in the year. The additional compensation paid
to him as a result of this adjustment is included for 2009 in the amount in the
column titled “Bonus” in the Summary Compensation Table.
The
maximum bonus opportunity is set at 150% of base salary for the CEO and at 110%
of base salary for the other named executive officers. A threshold level of
performance is also established, below which no bonus is earned. For the 2009
bonus awards, the performance threshold was set at 70% of target performance
level. Payouts for threshold level performance were set at 25% of target. For
every one percent that performance exceeds the threshold level, the actual
payout level increased 2.5 percent up to the target level and for every
1.0 percent that performance exceeds the target level, the actual payout
increased 1.1 percent up to the maximum performance level.
Under the
program, the Committee at the beginning of each year approves an annual
incentive cash bonus opportunity for the executive officers taking into account
certain financial performance targets for the Company, and, for executive
officers other than the CEO, the individual’s strategic objectives. The overall
corporate financial performance targets applicable to the CEO, CFO and Vice
President – Human Resources in 2009 were corporate return on net assets and
earnings per share. For business unit leaders, performance targets for 2009
included corporate earnings per share and operating income before restructuring
expenses (Operating Income or OI) for the relevant business units. Also, for
business unit leaders, inventory turns was introduced as an additional metric,
replacing overall corporate return on net assets as a performance target, in
order to provide an incentive to control inventory and focus on cash generation
through working capital improvements.
For
executive officers other than the CEO, a portion of the annual bonus award is
linked to individual strategic business objectives agreed to between the
executive and the CEO. A significant portion of the 2009 individual goals for
the named executive officers was related to fixed cost reductions due to the
severe economic environment the Company operated in during 2009. Other strategic
initiatives that may be included in these goals relate to acquisition
integrations, new product development, expansion of new market and distribution
opportunities, and other change efforts inside the Company. These measures were
aligned with the goals of the overall corporate short-term and long-term
strategies. Focusing on and achieving these goals would help drive the Company’s
overall success. The goals, when set, were thought to be achievable but would
require considerable effort on the part of each executive to
achieve.
Although
no benchmarking was performed in setting bonus opportunities for 2009, based on
the 2009 market data provided by Hewitt, the target level of annual bonus
opportunity (in dollars) for the five continuing named executive officers,
collectively, for 2009 was 11.6% above the 65th percentile of the annual bonus
opportunity for executives in comparable positions at companies in the Fiscal
2010 Peer Group. This principally resulted from all named executive officers
(below the CEO) having a common target bonus opportunity of 67.5% (75% for
Mr. Sengstack) of base salary. Mr. Trumbull’s target bonus opportunity
was 5.3% above the 65th percentile.
- 17
-
The
performance goals, and the relative percentage of salary assigned to each
performance goal, were as follows:
|
Performance
Measure
|
R.
Scott Trumbull
|
John
J. Haines
|
Peter-Christian
Maske
|
Gregg
C. Sengstack
|
Robert
J. Stone
|
Gary
D. Ward
|
||||||||||||||||||
|
Return
on Net Assets
|
50 | % | 23.6 | % | --- | --- | --- | 23.6 | % | |||||||||||||||
|
Earnings
Per Share
|
50 | % | 33.8 | % | 23.6 | % | 26.3 | % | 23.6 | % | 33.8 | % | ||||||||||||
|
Business
Unit Operating Income
|
--- | --- | 23.6 | % | 26.3 | % | 23.6 | % | --- | |||||||||||||||
|
Inventory
Turns
|
--- | --- | 10.1 | % | 11.2 | % | 10.1 | % | --- | |||||||||||||||
|
Strategic
Objectives
|
--- | 10.1 | % | 10.1 | % | 11.2 | % | 10.1 | % | 10.1 | % | |||||||||||||
|
Target
Bonus Level
|
100 | % | 67.5 | % | 67.5 | % | 75.0 | % | 67.5 | % | 67.5 | % | ||||||||||||
The chart
below sets forth (i) the threshold, target and maximum levels for 2009, and the
actual level of attainment, for the return on net assets and earnings per share
goals; and (ii) for all four performance goals, the percentage at which target
was attained. The performance goals were established before the impact of
restructuring charges and acquisitions, and attainment of the goals was
accordingly determined excluding these factors. The Company does not publicly
report operating income by business units below the operating segment level
given the size of the business units as compared to its competitors and given
the potential for competitive harm. The operating income goals were set at the
beginning of 2009 at “stretch” levels, and the Committee believed at the time
that it would require a high degree of execution of the 2009 business plan in
order to attain these goals.
|
Threshold
|
Target
|
Maximum
|
Actual
|
%
of Attainment of Target
|
||||||||||||||||
|
Return
on Net Assets
|
12.9 | % | 18.4 | % | 20.2 | % | 13. 7 | % | 74.5 | % | ||||||||||
|
Earnings
Per Share
|
$ | 1.42 | $ | 2.03 | $ | 2.24 | $ | 1.26 | 62.1 | % | ||||||||||
|
Business
Unit OI
|
--- | --- | --- | --- | 46% - 150 | % | ||||||||||||||
|
Inventory
Turns
|
2.5 | 3.6 | 4.0 | 2.9 | 80.6 | % | ||||||||||||||
A
prorated percentage is paid for performance between the threshold and target
levels and the target and maximum levels. The percentage of attainment of target
results for the business unit OI goals represents the range of results for the
various business units.
The CEO
determined the extent to which the other named executive officers attained their
individual strategic goals, which were reviewed and approved by the Committee.
In 2009, each executive (other than the CEO, whose incentive is based entirely
on Company-wide performance targets) achieved his individual objective
goals at the following percentage of target: Mr. Haines: 100%; Mr. Maske: 100%; Mr. Sengstack: 100%; Mr. Stone: 100%; and Mr. Ward: 100%.
Based on
the results summarized above, the following table sets forth the actual bonus
payouts for each named executive officer as a percentage of their target
opportunity.
- 18
-
|
Executive
|
Payout
Percentage
(%
of Target)
|
|||
|
R.
Scott Trumbull
|
18 | % | ||
|
John
J. Haines
|
28 | % | ||
|
Peter-Christian
Maske
|
55 | % | ||
|
Gregg
C. Sengstack
|
33 | % | ||
|
Robert
J. Stone
|
40 | % | ||
|
Gary
D. Ward
|
16 | % | ||
Mr.
Ward’s award represents a portion of a full-year award, prorated for the seven
months he was with the Company in 2009. For additional information about the
specific awards made to the named executive officers for 2009 pursuant to the
above criteria, see the “Non-Equity Incentive Plan Compensation” column of the
Summary Compensation Table.
At the
beginning of the year, the Board reviewed a corporate financial plan that
included at the corporate level a contingency factor reflecting uncertain market
conditions. At the end of the year, the Committee determined that the Operating
Income goals for certain business units were not met at a level that would
result in the payment of any incentive compensation with respect to that goal,
principally because of market factors largely outside the control of the
executive officers in those units. The CEO recommended that achievement of the
OI goal for specific business units be adjusted for purposes of incentive
compensation determinations in light of the contingency factor in the financial
plan for the year. The Committee accepted this recommendation, and the resulting
amounts paid to these executives are shown in the column of the Summary
Compensation Table headed “Bonus.” They are included in the payout percentages
shown in the table above.
Long-Term Incentive
Compensation
The
Committee grants equity incentives to its executive officers to more closely
align the executives’ compensation with the return received by the Company’s
shareholders, to offer an incentive for long-term performance, and to encourage
stock ownership. For 2009, targeted economic value delivered through long-term
incentive compensation remained unchanged as a result of the Committee’s
decision not to make general changes in executive compensation for
2009.
The
following table summarizes the 2009 targeted and actual economic values for the
named executive officers:
|
Executive
|
Base
Salary
|
Target
Economic Value
(%
of Base Salary)
|
Target
Economic Value
|
Actual
Economic Value Granted(3)
|
||||||||||||
|
R.
Scott Trumbull
|
$ | 637,500 | 95 | % | $ | 605,625 | $ | 549,000 | ||||||||
|
John
J. Haines
|
$ | 250,000 | 45 | % | $ | 112,500 | $ | 112,500 | ||||||||
|
Peter-Christian
Maske
|
$ | 366,500 | (1) | 55 | % | $ | 201,575 | $ | 174,165 | |||||||
|
Gregg
C. Sengstack
|
$ | 297,000 | (2) | 55 | % | $ | 163,350 | $ | 174,165 | |||||||
|
Robert
J. Stone
|
$ | 286,500 | 55 | % | $ | 157,575 | $ | 174,165 | ||||||||
|
Gary
D. Ward
|
$ | 208,000 | 45 | % | $ | 93,600 | $ | 93,600 | ||||||||
|
1) Based on monthly average Euro exchange rate.
(
2) Salary in effect when long-term incentive awards were
determined.
3)
These amounts represent the economic value to the executive and are
different than the cost recognized by the Company.
|
||||||||||||||||
The
economic value of the actual long-term incentive grants for Messrs. Maske,
Sengstack, and Stone were slightly different from the targeted amounts
principally due to the Committee’s determination to treat these three executives
in a consistent manner relative to long-term incentive opportunity.
Although
no benchmarking was done for purposes of compensation decisions for 2009, based
on the 2009 pay study prepared by Hewitt, the long-term incentive grant, in
terms of aggregate economic value delivered to the five continuing named
executive officers for 2009 on the date of grant, was 33.6% below the
60th percentile of the long-term incentive compensation opportunity for
executives in comparable positions at the companies in the Fiscal 2010 Peer
Group.
- 19
-
Similar
to 2008, in 2009 the Committee granted equity awards to the named executive
officers (as well as all other eligible employees) generally in the form of
stock options. Based on the Company’s objectives of increasing shareholder
value, the Committee chose again to grant the entire 2009 long-term incentive
award in stock options to focus executives on increasing shareholder value. With
stock options, the executive will only realize value if the stock price
increases.
The
Committee made stock option grants under its shareholder approved plan to the
named executive officers ranging from 17,049 options to 100,000 options for the
CEO. Under the formula used above, the CEO should have been awarded options on
110,314 shares. The award was reduced because the terms of the Franklin Electric
Co., Inc. Stock Plan (the “Stock Plan”) limit the number of stock options that
may be granted to any one participant in any calendar year to 100,000 options.
In connection with Mr. Sengstack’s increased responsibilities and as an
additional retention incentive, he was awarded 4,000 shares of restricted stock
on April 28, 2009.
Equity
grants are typically made on an annual basis at the Committee’s meeting
following the public release of the Company’s fiscal year-end results. Stock
options are valued as of the date of grant using a modified Black-Scholes
methodology. They have an exercise price equal to 100% of the fair market value
of the Company’s common stock on the date of grant and vest over four years, at
25% per year. Mr. Sengstack’s restricted stock vests entirely at the end of
three years. For
additional information about the material terms of these awards, see the
narrative disclosure under the Summary Compensation Table.
Stock
Ownership Guidelines
In
December 2006, the Board of Directors approved stock ownership guidelines for
the executives of the Company, pursuant to which executives are required to
maintain direct ownership in the Company’s common stock in amounts as
follows:
|
·
|
CEO:
five times annual base salary.
|
|
·
|
Senior
Vice Presidents: three times annual base
salary.
|
|
·
|
Corporate
Vice Presidents: one times annual base
salary.
|
An
individual has five years to comply with these guidelines. Stock options do not
count toward these guidelines. All shares held directly or beneficially,
including shares of restricted stock, shares of stock acquired upon exercise of
stock options, and shares credited under the Company’s Directed Investment
Salary Plan and Employee Stock Ownership Plan, count toward these guidelines.
All executive officers either meet or exceed these stock ownership guidelines,
or are on track to meet them within the five-year period.
Retirement
Plans
The
Company has defined benefit pension plans and defined contribution retirement
plans in which certain of the named executive officers currently
participate.
Basic Retirement
Plan
The Basic
Retirement Plan is a tax-qualified plan that generally covers employees in the
U.S. Under the Basic Retirement Plan, a participant retiring at age 65 is
eligible to receive a monthly single life annuity equal to his credited service
times a flat dollar amount ($25 for most U.S. salaried employees). Participants
age 55 or older with 10 years of vesting service may retire prior to age 65 with
a reduced benefit. All named executive officers except Mr. Haines and Mr. Maske
currently participate in the Basic Retirement Plan. Mr. Haines is ineligible
because he was hired after February 21, 2006 when the plan was discontinued for
all new salaried employees. Mr. Maske, who is a resident of Germany, currently
participates in a pension plan sponsored by the Company’s German
subsidiary.
Cash Balance Pension
Plan
The Cash
Balance Pension Plan is a tax-qualified plan that covers most salaried employees
in the U.S. Under the Cash Balance Pension Plan, a participant is eligible to
receive the amount credited to his account or a monthly single life annuity
based on the amount credited to his account. The Plan benefits consist
of:
- 20
-
|
·
|
An
opening balance for participants in the Plan at December 31, 1999, equal
to the present value of the participant’s accrued benefit earned at
December 31, 1999 under the applicable prior pension
plan;
|
|
·
|
Annual
contributions made by the Company as of the end of each calendar year that
range from 3% to 12% of the participant’s
compensation;
|
|
·
|
Pay
credits equal to a percentage of eligible compensation based on credited
service and transition credits from 2000-2004 equal to 6% of eligible
compensation for participants with 45 points (age plus service) at
December 31, 1999; and
|
|
·
|
Interest
credits based on the 30-year Treasury rate for the November preceding each
plan year.
|
All named
executive officers other than Mr. Maske currently participate in the Cash
Balance Pension Plan.
Franklin Electric Europa
GmbH Pension Plan
Mr. Maske
currently participates in a pension plan sponsored by the Company’s German
subsidiary, which provides a monthly annuity at age 65 equal to 1/12 of (i) his
five-year average compensation, less the amount of his compensation taken into
account under the German governmental pension plan in which he participates,
times (ii) 1.5%, times (iii) his years
of
credited service.
Pension Restoration
Plan
In order
to provide eligible employees, including named executive officers other than Mr.
Maske, with the portion of their retirement benefits that cannot be paid under
the tax-qualified pension plans, the Company maintains the Pension Restoration
Plan. The Plan, which is non-qualified, provides retirement benefits to eligible
executives based on all eligible compensation including compensation in excess
of Internal Revenue Code limits. The benefit for Messrs. Trumbull, Sengstack and
Ward is determined by applying a formula based on credited service and final
average compensation, with an offset for benefits provided by the Basic
Retirement Plan, Cash Balance Pension Plan, and Social Security. The benefit for
Messrs. Haines and Stone is determined by applying the Cash Balance Pension Plan
formula for all eligible compensation, offset for benefits provided by the Cash
Balance Pension Plan.
Directed Investment Salary
Plan (DISP)
The DISP
is a tax qualified 401(k) plan that covers all U.S. employees, including the
named executive officers other than Mr. Maske. An employee can elect to defer
1-50% of his compensation on a pre-tax basis, up to a maximum in 2009 of
$16,500, or $22,000 if age 50 or over, and the Company will make a matching
contribution of up to 3.5% of the employee’s first 5% of deferral contributions
(table listed below), taking into consideration Internal Revenue Code
compensation limits. (The compensation limit was $245,000 in 2009.)
|
Employee
Contribution
|
Company
Match
|
|||||
| 1 | % | 1.0 | % | |||
| 2 | % | 2.0 | % | |||
| 3 | % | 2.5 | % | |||
| 4 | % | 3.0 | % | |||
| 5 | % | 3.5 | % | |||
Due to
economic conditions, on May 1, 2009 the Company suspended the matching
contribution for the rest of 2009. The contribution has been reinstated
beginning January 1, 2010.
Employee Stock Ownership
Plan (ESOP)
The ESOP
is a tax qualified retirement plan that covers most U.S. employees. All eligible
employees, including the named executive officers other than Mr. Maske, are
participants. Beginning January 1, 2009, Company contributions, which were
equal to ½% of annual compensation, taking into consideration the Internal
Revenue Code compensation limits, ceased for almost all employees, including the
named executive officers who participated. The contribution was eliminated in
connection with the increase to the matching contribution under the DISP of ½%
as reflected in the above table. The Plan invests contributions primarily in
Company stock.
- 21
-
Perquisites,
Other Personal Benefits, and Other Compensation
The
Company does not provide the named executive officers with perquisites or other
personal benefits such as Company vehicles, club memberships, financial planning
assistance or tax preparation. The Company provides use of a vehicle to Mr.
Maske as part of his employment agreement described below. The value of this
benefit is disclosed in the “All Other Compensation” column of the Summary
Compensation Table.
Deferred Compensation
Plan
The
Company maintains the Deferred Compensation Plan, which provides an additional
benefit to attract and retain key executives at a minimal cost to the Company.
The Deferred Compensation Plan permits executive officers of the Company to
elect each year to defer up to 90% of their bonus awards and up to 50% of their
salary. The Company does not contribute any amounts to the Deferred Compensation
Plan. Deferred amounts are credited to a notional account maintained on behalf
of the participant, which is adjusted for earnings and losses based on
investment funds made available under the DISP, as elected by the participant. A
participant’s account under the Deferred Compensation Plan will be distributed
to him as soon as practicable after the first of the month following termination
of employment (provided that distribution to a “key employee” as defined in
Section 409A of the Internal Revenue Code will be deferred for six months). Mr.
Trumbull is the only named executive officer who participated in the Deferred
Compensation Plan during the fiscal year.
Employment
Agreements
During
2009, the Company had employment agreements with Messrs. Trumbull, Haines,
Sengstack, and Maske.
All
agreements except Mr. Maske’s are three-year agreements, which automatically
extend for an additional year unless either party gives notice not to renew. If
the agreement is not renewed by the Company, and the executive terminates his
employment, the executive is entitled to a payment equal to 12 months of salary
and the bonus paid for the preceding year, a bonus pro-rated for the time of
employment in the current year, continued participation in the Company’s benefit
plans for 12 months, and immediate vesting of all stock options. If the
executive’s employment is terminated prior to a change in control without cause
by the Company or for good reason by the executive (as defined in the
agreements), the executive is entitled to these same benefits, except that
Messrs. Trumbull and Sengstack are entitled to 18 months of continued salary, 1½
times the bonus paid for the preceding year and 18 months of benefits
continuation. If the executive’s employment is terminated without cause by the
Company or for good reason by the executive following a change in control of the
Company, the executive is entitled to receive a payment equal to 36 months of
continued salary, three times the bonus paid for the preceding year (24 months
of salary and two times bonus for Mr. Haines), a bonus pro-rated for the time of
employment in the current year, continued participation in the Company’s benefit
plans for 36 months (24 months for Mr. Haines), and immediate vesting and
cashout of outstanding options. In addition, in order to provide these
executives an additional element of security in a change in control, these
amounts are payable if the executive terminates employment for any reason in the
13th month following a change in control. Any pro-rata bonus is determined by
using the executive’s actual bonus for the past year, except that any pro-rata
bonus payable to Mr. Trumbull because of a termination prior to a change in
control would be determined with reference to the bonus otherwise payable to him
had he continued to be employed for the full year in which employment
terminated. In addition, the executive will receive a gross-up payment to cover
any liability arising under Internal Revenue Code Section 280G as a result of
the payments. Under his agreement, Mr. Trumbull is deemed to have five years of
full-time service with the Company as of January 1, 2003 for purposes of
vesting and benefit accrual under the Company’s
Pension Restoration Plan.
The
employment agreement with Mr. Maske continues until attainment of age 65 (or
state pension eligibility, if earlier), subject to the earlier termination by
either party upon six months prior written notice. If the agreement is
terminated, the Company is required to provide continued compensation and health
benefits for six months following the termination notice. If termination is
effected in connection with a change in control of the Company, the Company is
required to provide continued compensation and health benefits for two years
from the earlier of the date of termination or the change in
control.
Messrs.
Trumbull, Haines, Sengstack, Stone, and Ward have each signed a confidentiality
and non-compete agreement with the Company. Under this agreement, they agree to
maintain all confidential information of the Company, and for a period of 18
months after termination of employment from the Company they agree not to,
directly or indirectly, participate in the design, development, manufacture, or
distribution of electrical submersible motors or related products in competition
with the Company.
- 22
-
Employment Security
Agreements
The
Company has entered into employment security agreements (“ESAs”) with Mr. Stone
and other certain executives that provide benefits upon a change in control of
the Company. Mr. Ward was also party to an ESA prior to the termination of his
employment with the Company.
Each ESA
provides that if within two years after a change in control (as defined in the
ESA) the Company terminates the executive’s employment for any reason other than
cause, or the executive terminates his employment with the Company for good
reason (as defined in the ESA), the executive is entitled to the
following:
|
·
|
A
lump sum payment equal to the sum of two times the executive’s base
salary, a prorated portion of the executive’s target bonus for the current
year (based on the termination date), and two times the executive’s target
bonus for the current year;
|
|
·
|
A
lump sum payment equal to the increase in benefits under the Company’s
tax-qualified and supplemental retirement plans that results from
crediting the executive with additional service for 24 months (or, if
earlier, until age 65);
|
|
·
|
Immediate
vesting of all stock-based awards and deemed satisfaction of all
performance-based awards;
|
|
·
|
Continued
coverage under the Company’s health and welfare plans for 24 months
following termination (or, if earlier, until age
65);
|
|
·
|
12
months of executive outplacement services (not to exceed $50,000) with a
professional outplacement firm selected by the Company;
and
|
|
·
|
A
gross-up payment to cover any excise and related income tax liability
under Section 280G of the Internal Revenue Code as a result of payments
made or benefits provided under the ESA (except that if the payments and
benefits subject to Section 280G are less than 110% of the amount that
could be paid without incurring Section 280G liability, the payments under
the ESA will be reduced so that no such liability will be
incurred).
|
The ESAs
contain a restrictive covenant that prohibits the executive from soliciting
employees of the Company for 18 months following termination. The
confidentiality and noncompete agreement of Mr. Stone also applies for 18 months
following a termination of employment under the ESAs.
The
Company determined that these agreements directly fulfill the Company’s
objective to attract and retain key executives. By providing these agreements
the executives are able to remain focused on the best interests of the
shareholders in the event of a potential change-in-control situation.
Additionally, these agreements provide benefits which strive to retain the
executives during a transitional period.
Separation
Agreement
As a
result of the elimination of his position, Mr. Ward’s employment with the
Company terminated on July 31, 2009. The Company and Mr. Ward entered into a
Separation Agreement providing for a lump sum payment equal to one year of
continued salary, a prorata payment of the bonus that would have been paid to
him had he remained employed through December 31, 2009, continued vesting in
outstanding stock options and restricted stock awards until June 27, 2010 at
which time he will be deemed to have retired, continued coverage under the
Company’s health plan pursuant to COBRA with premiums for the first year of
coverage at active employee rates, and six months of executive placement
services. The Separation Agreement also contained a release of claims. Mr.
Ward’s existing confidentiality and non-compete agreement with the Company
continues in effect.
- 23
-
Deductibility
of Executive Compensation
Section
162(m) of the Internal Revenue Code limits the deductibility for federal income
tax purposes of executive compensation paid to the CEO and the three other most
highly compensated officers other than the chief financial officer of a public
company to $1,000,000 per year, but contains an exception for certain
performance-based compensation. Base salary, by its nature, does not qualify as
performance-based compensation under Section 162(m) and the Company’s incentive
cash bonus payments do not qualify as performance-based compensation under
Section 162(m). The Company’s grants of stock options and performance-based
restricted stock under its stock award plans qualify as performance-based
compensation under Section 162(m). A portion of Mr. Trumbull’s compensation for
2009 is considered non-deductible under Section 162(m). The Board of
Directors has adopted and submitted for shareholder approval at the Annual
Meeting scheduled for April 30, 2010, a Management Incentive Plan that
would permit incentive cash awards granted in 2010 and future years to qualify
as performance-based compensation under Section 162(m).
Subsequent
Compensation Decisions
The
Committee has decided to administer the 2010 cash bonus compensation program
according to the same general terms and conditions as discussed above, but with
the following revisions:
At its
October 2009 meeting, the Committee reviewed the compensation philosophy and pay
objectives of the Company in light of the business objectives of the Company and
the competitive market. Based on this review, the Committee determined to modify
the targeted pay objectives for the executive officers to provide a greater
focus on performance-based pay and long-term shareholder value
creation.
For pay
decisions beginning in 2010, the Company and the Committee will, in general, use
the following pay objectives as a guide (based on the Fiscal 2010 Peer Group),
with individual pay levels and opportunities adjusted based on the factors
discussed above:
|
Pay
Component
|
Targeted
Pay Objectives
|
|
Base
Salary
|
Approximately
the 50th percentile
|
|
Annual
Bonus Opportunity
|
Between
the 60th and 65th percentiles
|
|
Long-Term
Incentives
|
Between
the 60th and 65th percentiles
|
With
respect to annual cash incentives:
|
·
|
All
executives will be rewarded on return on net invested capital in addition
to earnings per share. The Committee replaced the return on net assets
with return on net invested capital due to the belief that it is a primary
and consistent measure many of the Company’s shareholders use to evaluate
performance and compare the Company to its
peers.
|
|
·
|
Mr.
Trumbull’s bonus opportunity for 2010 will include individual strategic
goals that will represent 10% of his annual bonus
opportunity.
|
|
·
|
Messrs.
Haines, Sengstack, and Stone will also be rewarded on fixed costs
management.
|
|
·
|
Mr.
Stone’s bonus target as a percent of base salary will increase to 75% to
reflect the additional responsibilities he acquired in 2009. All other
executives will have the same target bonus levels used to make annual cash
incentive payments for 2009.
|
|
·
|
The
maximum bonus opportunity for each named executive officer will be
increased to 200% of the target level bonus opportunity for performance
attainment of 120% or more of target level
performance.
|
|
·
|
To
earn any portion of his bonus, each executive must achieve a threshold of
at least 80% of the performance measure target, rather than the 70%
threshold used for 2009. Payouts at threshold level performance will be
approximately 33% of the target level
payout.
|
- 24
-
For the
long-term incentive awards in 2010, the Committee has decided to grant a
combination of stock options and restricted stock to the named executive
officers with 60% of the economic value of the awards delivered through stock
options and the remaining 40% through time-vesting restricted stock. The
rationale for this change from 100% of the economic value delivered through
stock options is to add an element of retention to long-term incentive awards
when the Company’s stock price is not increasing in value and to help manage and
extend the life of the remaining shareholder approved share pool.
Due to
the Stock Plan limit of 100,000 options to any one participant in a single year,
management recommended and the Committee approved a special one time restricted
stock award to Mr. Trumbull of 3,627 shares to compensate him for the 10,314
options that were not awarded in 2009 due to the plan limit. One quarter of
these shares vested immediately, with the balance to vest evenly over the next
three years.
- 25
-
EXECUTIVE
COMPENSATION
Summary
Compensation Table
The
following tables set forth compensation information for the Company’s Chief
Executive Officer, Chief Financial Officer, and the three other most highly
compensated executive officers for the fiscal years ended January 2, 2010,
January 3, 2009, and December 29, 2007.
|
Name
and Principal Position
(a)
|
Year
(b)
|
Salary
($)(c)
|
Bonus
($)(d)
|
Stock
Awards
($)(e)(4)
|
Option
Awards
($)(f)(4)
|
Non-Equity
Incentive Plan Compensation ($)(g)
|
Change
in Pension Value & Nonqualified Deferred Compensation
Earnings
($)(h)(6)
|
All
Other Compensation ($)(i)(8)
|
Total
($)(j)
|
||||||||||||||||||||||||
|
R.
Scott Trumbull, Chairman of the Board & CEO
|
2009
|
637,513 | 0 | 249,759 | 581,861 | 115,390 | 863,245 | 69,487 | 2,517,255 | ||||||||||||||||||||||||
|
2008
|
631,888 | 0 | 0 | 672,129 | 1,039,625 | 360,584 | 8,107 | 2,712,333 | |||||||||||||||||||||||||
|
2007
|
600,010 | 150,000 | 459,378 | 288,405 | 0 | 423,673 | 7,929 | 1,929,395 | |||||||||||||||||||||||||
|
John
J. Haines,
VP,
CFO, Secretary
|
2009
|
250,005 | 0 | 0 | 119,235 | 46,501 | 9,896 | 8,562 | 434,199 | ||||||||||||||||||||||||
|
2008
|
179,171 | 15,000 | (3) | 264,000 | 70,663 | 160,000 | 4,846 | 210,347 | 904,027 | ||||||||||||||||||||||||
|
2007
|
0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | |||||||||||||||||||||||||
|
Peter-Christian
Maske, Sr. VP, President-Europa Water Systems
|
2009
|
379,952 | (2) | 0 | 162,618 | 184,589 | 133,072 | 309,371 | (7) | 17,400 | 1,187,002 | ||||||||||||||||||||||
|
2008
|
400,739 | (2) | 0 | 0 | 158,202 | 451,829 | 51,429 | (7) | 17,400 | 1,079,599 | |||||||||||||||||||||||
|
2007
|
373,403 | (2) | 63,140 | 112,401 | 68,220 | 84,726 | 164,872 | (7) | 16,200 | 882,962 | |||||||||||||||||||||||
|
Gregg
C. Sengstack, Sr. VP, President Int’l Water Systems & Fueling
Group
|
2009
|
308,257 | 11,714 | 212,426 | 184,589 | 65,967 | 441,747 | 26,606 | 1,251,306 | ||||||||||||||||||||||||
|
2008
|
294,387 | 0 | 0 | 179,469 | 405,127 | 87,388 | 8,107 | 974,478 | |||||||||||||||||||||||||
|
2007
|
283,770 | 47,889 | 112,401 | 71,604 | 70,443 | 61,649 | 7,929 | 655,685 | |||||||||||||||||||||||||
|
Robert
J. Stone,
Sr.
VP, President Americas Water Systems
|
2009
|
286,507 | 33,234 | 115,875 | 184,589 | 43,836 | 29,798 | 8,842 | 702,681 | ||||||||||||||||||||||||
|
2008
|
284,014 | 0 | 0 | 179,469 | 334,632 | 16,856 | 8,178 | 823,149 | |||||||||||||||||||||||||
|
2007
|
271,774 | 45,930 | 112,401 | 71,604 | 21,742 | 17,521 | 8,374 | 549,346 | |||||||||||||||||||||||||
|
Gary
D. Ward,(1)
VP,
Director of Human Resources
|
2009
|
146,636 | 0 | 83,553 | (5) | 99,201 | (5) | 22,568 | 0 | 229,685 | (9) | 581,643 | |||||||||||||||||||||
|
2008
|
206,143 | 0 | 0 | 104,397 | 257,804 | 75,668 | 8,107 | 652,119 | |||||||||||||||||||||||||
|
2007
|
196,846 | 0 | 73,305 | 45,747 | 53,150 | 69,290 | 7,929 | 446,267 | |||||||||||||||||||||||||
|
(1) Mr.
Ward’s position with the Company was eliminated on July 31,
2009.
(2) Mr.
Maske’s salary in 2009, 2008 and 2007 was 271,724 Euros. This amount was
converted to USD using an average monthly exchange rate of 1.3983 for
2009, 1.4748 for 2008 and 1.3742 for fiscal 2007.
(3) This
amount represents an employment acceptance payment made to Mr. Haines in
connection with his employment beginning April 14, 2008.
(4) The
amounts in columns (e) and (f) are the grant date fair values of the
restricted stock and option awards computed in accordance with FASB
Codification Topic 718 and represent the Company’s total projected expense
of grants made to the named executive officers in each of 2009, 2008, and
2007. See Note 16 of the Company’s Annual Report to Shareholders for the
fiscal years ended January 2, 2010, January 3, 2009 and December 29, 2007,
respectively, for a complete description of the assumptions used for these
valuations.
(5) These
amounts represent the grant date fair value of the restricted stock and
options awarded to Mr. Ward in March 2009. The additional grant date fair
value of the awards as modified pursuant to the terms of Mr. Ward’s
separation agreement were $71,280 for the restricted stock awards and
$360,482 for the stock options.
(6) The
amounts in column (h) represent the annual change in the present value of
each named executive officer’s benefits under the Company’s defined
benefit pension plans.
(7) This
amount represents the annual change in present pension value of Mr.
Maske’s pension benefits under both the domestic defined benefit plans and
the defined benefit plan maintained by the Company’s German subsidiary.
Regarding the German plan, the annual change was calculated based on the
value in USD of this Euro-denominated benefit at December 31 in each
of the years 2009 (1.433), 2008 (1.392), 2007 (1.4603) and 2006 (1.3197),
using the exchange rate on each of those dates noted in
parentheses.
(8) For
the named executive officers other than Mr. Maske (and other than Mr. Ward
for 2009 and Mr. Haines for 2008 and 2009), these amounts represent the
Company’s life insurance contributions for 2009, 2008 and 2007 of $46, $57
and $54 respectively, the Company’s matching contributions under its
401(k) plan for 2009 of $8,575 and $8,516 for Mr. Haines, and the
Company’s matching contributions under its 401(k) plan and contributions
under its ESOP for 2008 and 2007 of $8,050 and $7,875 respectively. Mr.
Maske’s use of a Company vehicle is valued at $17,400 for 2009 and 2008
and $16,200 for 2007. In 2009 Messrs. Trumbull and Sengstack received a
Medicare tax reimbursement related to the Pension Restoration Plan
covering 1998 thru 2009 for Mr. Trumbull of $60,866 and 1988 thru 2009 for
Mr. Sengstack of $17,985. Mr. Stone received a Medicare tax reimbursement
related to the Pension Restoration Plan in each year listed of $445, $71,
$221, respectively. In 2008, Mr. Haines received a life insurance
contribution of $43, a 401(k) and ESOP contribution of $6,107, and a
reimbursement for relocation costs of $204,197 (which includes
tax-gross-ups of $80,146).
(9) This
amount includes the Company’s life insurance contribution of $27, the
Company’s matching contributions under its 401(k) plan and contributions
under its ESOP of $8,575, a Medicare tax reimbursement related to the
Pension Restoration Plan of $13,079 and a cash lump-sum severance payment
of $208,004.
|
|||||||||||||||||||||||||||||||||
- 26
-
Salary
Except
for 2009, salary adjustments have been made in February of each year, effective
as of April 1st of each year. No salary adjustments were made in 2009, other
than for Mr. Sengstack who received an increase in February 2009.
Restricted Stock
Awards
In
connection with his increased responsibilities, Mr. Sengstack received a
restricted stock award for 4,000 shares; the award will vest on April 28, 2012.
There were no other restricted stock awards granted in 2009.
Mr.
Haines received a restricted stock award for 8,000 shares when he was appointed
Vice President, Chief Financial Officer and Secretary on April 14, 2008. Mr.
Haines’ award vests on April 14, 2012, and is not subject to any performance
thresholds. There were no other restricted stock awards granted in
2008.
The 2007
restricted stock awards consisted of 9,400 shares awarded to Mr. Trumbull and
2,300 shares awarded to each of the continuing named executive officers. Mr.
Ward received 1,500 shares of restricted stock.
Except
for the awards granted in 2008 and 2009, noted above, restricted stock awards
vest on the fourth anniversary of the grant date, provided that the Company’s
return on invested capital at the end of the four-year vesting period exceeds
the average return on invested capital of a peer group of companies
(Flowserve Corporation; ITT Corporation; Pentair, Inc.; Regal Beloit
Corporation; A.O. Smith Corporation; The Gorman Rupp Company; The KSB Group;
Ebara Corporation; and Grundfos Group) over the same four-year
period.
Long Term Bonus
Program
On March
5, 2009, the named executive officers other than Mr. Haines received awards of
cash and unrestricted stock as part of the incentive payments made under the
Long Term Bonus Program resulting from the attainment of certain Company-wide
performance goals measured over a five-year period from 2004 to 2008. One-half
of the payments were made in cash and one-half was made in awards of
unrestricted stock. The number of shares of stock awarded, the grant date value
of which is reflected in the “Stock Awards” column for 2009, was as
follows: Mr. Trumbull: 14,016; Mr. Maske: 9,127; Mr. Sengstack:
6,959; Mr. Stone: 6,504; and Mr. Ward: 4,690. The cash payments are reflected in
the Summary Compensation Table for 2008 in the “Non-Equity Incentive Plan
Compensation” column. The cash payments were as follows: Mr. Trumbull: $249,750;
Mr. Maske: $162,625; Mr. Sengstack: $123,975; Mr. Stone: $115,875; and Mr. Ward:
$83,565. Mr. Haines did not participate in the Program because his employment
did not commence until April 14, 2008.
- 27
-
Option
Awards
The 2009
grants to the named executive officers consisted of options for 100,000 shares
to Mr. Trumbull; 20,492 shares to Mr. Haines and 31,724 shares to each of the
other continuing named executive officers. Mr. Ward received options for 17,049
shares. These grants had an exercise price of $17.34.
Mr.
Haines received an option grant for 10,000 shares on May 1, 2008, with an
exercise price of $40.45. The 2008 grants to the other named executive officers
consisted of 57,300 shares to Mr. Trumbull and 15,300 shares to each of the
other continuing named executive officers. Mr. Ward received an option grant for
8,900 shares. These grants had an exercise price of $32.19.
The 2007
stock option grants consisted of 14,500 shares to Mr. Trumbull and 3,600 shares
to each of the other continuing named executive officers. Mr. Ward received an
option grant for 2,300 shares. These grants had an exercise price of
$48.87.
All of
the stock options granted in 2009, 2008 and 2007 vest over four years, at 25%
per year, and expire after ten years.
Bonus and Non-Equity
Incentive Plan Compensation
The
amounts in columns (d) and (g) of the Summary Compensation Table reflect the
bonuses paid in 2009, 2008 and 2007 to the named executive officers under the
Company’s performance-based Executive Officer Annual Incentive Cash Bonus
Program. A description of this program can be found in the “Compensation
Discussion and Analysis” section of this proxy statement.
Change in Pension Value and
Nonqualified Deferred Compensation Earnings
Messrs.
Trumbull, Sengstack, and Stone participate in two tax-qualified defined benefit
retirement plans and one non-qualified defined benefit retirement plan. Mr.
Haines participates in one tax-qualified defined benefit retirement plan and one
non-qualified defined benefit retirement plan. Mr. Maske participates in one
defined benefit retirement plan sponsored by the Company’s German subsidiary.
Descriptions of these retirement plans can be found in the 2009 Pension Benefits
Table and accompanying narrative included in this proxy statement.
Separation
Agreement
Pursuant
to the terms of Mr. Ward’s separation agreement, he received the bonus and cash
severance payments shown in the Summary Compensation Table. Mr. Ward also
continues to vest in his outstanding options and restricted stock awards until
June 27, 2010, at which time he will be deemed to have retired, which will
result in full vesting of his then unvested stock options (with 36 months to
exercise them) and a pro-rata vesting of his then unvested restricted stock
awards. Details of these awards are reflected in the 2009 Outstanding Equity
Awards at Fiscal Year End Table of this proxy statement.
2009
Grant of Plan Based Awards Table
The
following table sets forth the plan-based grants made during the fiscal year
ended January 2, 2010.
|
Name
(a)
|
Grant
Date
(b)
|
Estimated
Possible Payouts Under Non-Equity Incentive Plan Awards(1)
|
Estimated
Possible Payouts Under Equity Incentive Plan Awards(2)
|
All
Other Stock Awards: Number of Shares of Stock
(#)(i)(3)
|
All
Other Option Awards: Number of Securities Underlying Options
(#)(j)(4)
|
Exercise
or Base Price of Option Awards
($/sh)(k)
|
Grant
Date Fair Value of Options and Awards
($)(l)(5)
|
||||
|
Threshold
($)(c)
|
Target
($)(d)
|
Maximum
($)(e)
|
Threshold
($)(f)
|
Target
($)(g)
|
Maximum
($)(h)
|
||||||
|
R.
Scott Trumbull
|
03-05-09
|
159,378
|
637,513
|
956,270
|
138,750
|
277,500
|
277,500
|
0
|
100,000
|
17.34
|
581,861
|
|
John
J. Haines
|
03-05-09
|
42,188
|
168,753
|
275,005
|
N/A
|
N/A
|
N/A
|
0
|
20,492
|
17.34
|
119,235
|
|
Peter
C. Maske
|
03-05-09
|
61,022
|
244,087
|
397,771
|
90,350
|
180,700
|
180,700
|
0
|
31,724
|
17.34
|
184,589
|
|
Gregg
C. Sengstack
|
03-05-09
|
57,798
|
231,192
|
393,082
|
68,875
|
137,750
|
137,750
|
4,000
|
31,724
|
17.34
|
273,029
|
|
Robert
J. Stone
|
03-05-09
|
48,348
|
193,392
|
315,158
|
64,375
|
128,750
|
128,750
|
0
|
31,724
|
17.34
|
184,589
|
|
Gary
D. Ward
|
03-05-09
|
35,101
|
140,403
|
228,804
|
46,425
|
92,850
|
92,850
|
0
|
17,049
|
17.34
|
99,201
|
|
(1) The
amounts reflected in the non-equity incentive compensation estimate for
2009 were established under the Executive Officer Annual Incentive Bonus
Program. The estimated payouts shown in the Table were based on
performance in 2009, which has now occurred. Thus, the amounts shown in
“threshold”, “target”, and “maximum” columns reflect the range of
potential payouts when the performance goals were set in early 2009.
Actual amounts paid for 2009 are reflected in the Summary Compensation
Table. A description of this program can be found in the “Compensation
Discussion and Analysis” section of this proxy statement.
(2) The
amounts reflected in the equity incentive compensation estimate for 2009
were established under the Long-Term Bonus Program. Payouts under this
program occurred in 2009 based on the level of attainment of performance
goals set for 2004-2008. A description of this program, including the
number of shares of stock that were awarded, can be found in the narrative
discussion following the Summary Compensation Table.
(3) Mr.
Sengstack received a restricted stock award for 4,000 shares. The award
vests on April 28, 2012 if he is still employed on such date.
(4) The
exercise price for grants of stock options is determined using the closing
price of the Company’s Common Stock on the date of grant. The option
grants expire after ten years and are vested over four years, at 25% per
year. Vesting is accelerated upon a change in control of the Company,
death, disability or retirement.
(5) The
grant date fair value of the stock options and stock awards shown in the
above table was computed in accordance with FASB Codification Topic 718
and represents the grant date fair value of the grants made in
2009.
|
|||||||||||
- 28
-
2009
Outstanding Equity Awards at Fiscal Year-End Table
The
following table sets forth the outstanding equity awards as of January 2,
2010.
|
Name
(a)
|
Option
Awards(1)
|
Stock
Awards
|
||||||
|
Number
of Securities Underlying Unexercised Options (#) Exercisable
(b)
|
Number
of Securities Underlying Unexercised Options (#)
Unexercisable
(c)
|
Option
Exercise price
($/sh)(d)
|
Option
Expiration Date
(e)
|
Number
of Shares or Units of Stock That Have Not Vested
(#)(f)
|
Market
Value of Shares or Units of Stock That Have Not Vested
($)(g)(4)
|
Equity
Incentive Plan Awards: Number of Unearned Shares, Units, or Other Rights
That Have Not Vested
(#)(h)(5)
|
Equity
Incentive Plan Awards: Market or Payout Value of Unearned Shares, Units,
or Other Rights That Have Not Vested
($)(i)
(4)
|
|
|
R.
Scott Trumbull
|
20,000
80,430
60,800
30,200
13.875
7,250
14,325
0
|
0
0
0
0
4.625
7,250
42,975
100,000
|
24.9755
24.005
29.95
40.93
45.90
48.87
32.19
17.34
|
04-19-2012
01-01-2013
02-12-2014
02-10-2015
02-17-2016
02-09-2017
02-28-2018
03-05-2019
|
N/A
|
N/A
|
16,100
|
467,705
|
|
John
J. Haines
|
2,500
0
|
7,500
20,492
|
40.45
17.34
|
05-01-2018
03-05-2019
|
8,000(2)
|
232,400
|
N/A
|
N/A
|
|
Peter-Christian
Maske
|
9,600
6,750
2,925
1,800
3,825
0
|
0
0
975
1,800
11,475
31,724
|
29.95
40.93
45.90
48.87
32.19
17.34
|
02-12-2014
02-10-2015
02-17-2016
02-09-2017
02-28-2018
03-05-2019
|
N/A
|
N/A
|
3,700
|
107,485
|
|
Gregg
C. Sengstack
|
55,000
26,000
16,000
16,000
9,000
2,925
1,800
3,825
0
|
0
0
0
0
0
975
1,800
11,475
31,724
|
16.125
19.6375
24.075
29.95
40.93
45.90
48.87
32.19
17.34
|
07-28-2010
12-13-2011
12-13-2012
02-12-2014
02-10-2015
02-17-2016
02-09-2017
02-28-2018
03-05-2019
|
4,000(3)
|
116,200
|
3,700
|
107,485
|
|
Robert
J. Stone
|
40,000
7,200
5,450
2,925
1,800
3,825
0
|
0
0
0
975
1,800
11,475
31,724
|
16.125
29.95
40.93
45.90
48.87
32.19
17.34
|
07-28-2010
02-12-2014
02-10-2015
02-17-2016
02-09-2017
02-28-2018
03-05-2019
|
N/A
|
N/A
|
13,700
|
397,985
|
|
Gary
D. Ward
|
10,000
5,800
5,450
1,950
1,150
2,225
0
|
0
0
0
650
1,150
6,675
17,049
|
24.075
29.95
40.93
45.90
48.87
32.19
17.34
|
12-13-2012
02-12-2014
02-10-2015
02-17-2016
02-09-2017
02-28-2018
03-05-2019
|
N/A
|
N/A
|
2,450
|
71,172
|
|
(1) Each
option grant has a ten-year term and vests pro rata over four or five
years beginning on the first anniversary of the grant date. Options with
grant dates prior to January 1, 2005 vest over five years, and options
with grant dates after January 1, 2005 vest over four years. Vesting is
accelerated upon a change in control of the Company. Pursuant to his
separation agreement, Mr. Ward’s options will vest on June 27, 2010.
Exercise prices are determined using the closing price of the Company’s
Common Stock on the date of grant.
(2) Mr.
Haines received a restricted stock award for 8,000 shares on April 14,
2008. The award vests on April 14, 2012.
(3) Mr.
Sengstack received a restricted stock award for 4,000 shares on April 28,
2009. The award vests on April 28, 2012.
(4) The
market value of the stock awards was determined using the closing price of
the Company’s common stock on January 2, 2010 ($29.05 per
share).
(5) These
restricted stock awards generally vest on the fourth anniversary of the
grant date, provided that the Company’s return on invested capital at the
end of the four-year vesting period exceeds the average return on invested
capital of a peer group of companies (Flowserve Corporation; ITT
Corporation; Pentair, Inc.; Regal Beloit Corporation; A.O. Smith
Corporation; The Gorman Rupp Company; The KSB Group; Ebara Corporation;
and Grundfos Group), over the same four-year period. Vesting is
accelerated upon a change in control of the Company. The awards vest as
follows for each name executive officer:
· Mr.
Trumbull: February
11, 2011 (9,400 shares); February 17, 2010 (6,700 shares)
· Mr.
Maske:
February 11, 2011 (2,300 shares); February 17, 2010 (1,400
shares)
· Mr.
Sengstack: February
11, 2011 (2,300 shares); February 17, 2010 (1,400 shares)
· Mr.
Stone:
February 11, 2011 (2,300 shares); February 17, 2010 (1,400 shares); March
3, 2010 (10,000 shares)
· Mr.
Ward: February
11, 2011 (1,500 shares) (pursuant to his separation agreement, Mr. Ward
will vest in 1,250 of these shares on June
27, 2010 and the remaining shares will be forfeited); February 17, 2010
(950)
|
||||||||
- 29
-
2009
Option Exercises and Stock Vested Table
The
following table sets forth the exercised options and vested awards for the
fiscal year ended January 2, 2010.
|
Option
Awards
|
Stock
Awards
|
|||||||||||||||
|
Name
(a)
|
Number
of Shares Acquired on Exercise
(#)(b)
|
Value
Realized on Exercise
($)(c)(1)
|
Number
of Shares Acquired on Vesting (#)(d)
|
Value
Realized on Vesting
($)(e)
|
||||||||||||
|
Gary
D. Ward
|
12,000 | 158,175 | 0 | 0 | ||||||||||||
|
(1) Represents
the difference between the closing price of the stock on the date of
exercise and the exercise price, multiplied by the number of shares
covered by the options.
|
||||||||||||||||
2009
Pension Benefits Table
The
following table sets forth (i) the years of service currently credited to each
named executive officer under the Company’s pension plans and (ii) the present
value of the accumulated benefit payable under each pension plan to each of the
named executive officers upon retirement.
|
Named
Executive Officer
(a)
|
Plan
(b)
|
Number
of Years of Credited Service
(c)
|
Present
Value of Accumulated Benefit
($)(d)(2)
|
Payments
During Last Fiscal Year
($)(e)
|
|
R.
Scott Trumbull
|
Basic
Retirement Plan
Cash
Balance Pension Plan
Pension
Restoration Plan
|
7.0
7.0
12.0(1)
|
18,833
57,367
4,137,731
|
0
0
0
|
|
John
J. Haines
|
Basic
Retirement Plan
Cash
Balance Pension Plan
Pension
Restoration Plan
|
N/A
2.0
2.0
|
N/A(4)
10,773
3,969
|
0
0
0
|
|
Peter-Christian
Maske
|
Basic
Retirement Plan
Cash
Balance Pension Plan
F.E.
Europa GmbH Pension Plan
|
4.0
4.0
30.0
|
10,835
102,715
1,235,466(3)
|
0
0
0
|
|
Gregg
C. Sengstack
|
Basic
Retirement Plan
Cash
Balance Pension Plan
Pension
Restoration Plan
|
21.0
21.1
21.1
|
41,603
296,720
1,203,343
|
0
0
0
|
|
Robert
J. Stone
|
Basic
Retirement Plan
Cash
Balance Pension Plan
Pension
Restoration Plan
|
17.3
9.5
9.5
|
24,851
67,880
43,850
|
0
0
0
|
|
Gary
D. Ward
|
Basic
Retirement Plan
Cash
Balance Pension Plan
Pension
Restoration Plan
|
22.3
22.3
22.3
|
41,136
291,196
465,123
|
0
0
0
|
|
(1) In
the Pension Restoration Plan, Mr. Trumbull is credited with his years of
service on the Board for purposes of vesting and benefit accruals.
$558,643 of column (d) is attributable to this additional credited
service.
(2) The
amounts in this column are based on a retirement age of 65 for Messrs.
Trumbull, Haines, Maske and Ward, and a retirement age of 62 for Messrs.
Sengstack and Stone, since these are the ages at which each executive can
retire and receive benefits without any reduction due to age.
(3) This
amount was converted to USD at the December 31, 2009, Euro exchange rate
of 1.433.
(4) Mr.
Haines is ineligible for the Basic Retirement
Plan.
|
||||
Basic Retirement
Plan
The Basic
Retirement Plan is a tax-qualified pension plan that covers U.S. employees of
the Company and its affiliates, including the named executive officers who were
hired before February 21, 2006. The Basic Retirement Plan provides each eligible
named executive officer with a monthly single life annuity commencing at normal
retirement age (age 65) equal to the number of years of credited service times
$25. Participants are eligible to receive benefits after completing five years
of vesting service. Participants who terminate employment after age 55 with
10 years of vesting service are eligible to receive early retirement benefits
that are reduced to reflect commencement prior to age 65. Participants who
terminate employment on or after age 62 with 25 years of vesting service are
eligible to receive early retirement benefits that are unreduced for
commencement prior to age 65. Participants with five years of vesting
service who terminate employment and are not eligible to receive early
retirement benefits are eligible for benefits commencing at age 65. No
named executive officer is currently eligible for early retirement
benefits.
The
benefit formula calculates the benefit payable in a single life annuity form,
which is the normal form of benefit for unmarried participants. The normal form
of benefit payment for married participants is a 50% joint and survivor annuity.
Participants, with spousal consent if applicable, can waive the normal form
and elect to have benefits paid in various annuity forms, which are the
actuarially equivalent of the single life annuity form.
Mr. Maske
has an accrued benefit under the Basic Retirement Plan based on his
prior service as a U.S. employee. As a current employee of the Company’s
German subsidiary, he no longer accrues benefits under the Basic Retirement
Plan, but is covered by the pension plan maintained by the German subsidiary.
Mr. Haines is not eligible to participate in the Plan because he was hired after
February 21, 2006.
- 30
-
Cash Balance Pension
Plan
The Cash
Balance Pension Plan is a tax-qualified pension plan that covers all U.S.
employees of the Company and its affiliates who are classified as “exempt” and
who are not covered by a collective bargaining agreement, which includes each
named executive officer. An account is maintained for each participant under the
Plan, which consists of (i) an opening account balance equal to the then present
value of the participant's accrued benefit, if any, earned as of December 31,
1999 under one of the Company’s prior pension plans, (ii) annual contributions
made by the Company as of the end of each calendar year that range from 3%
to 12% of the participant’s compensation (based on the participant’s credited
service); (iii) annual transitional credits made by the Company from 2000-2004
equal to 6% of compensation of each participant whose age and years
of vesting service as of December 31, 1999 totaled 45 or more; and (iv)
annual interest credits made by the Company as of the end of each calendar year,
based on the 30-year Treasury securities rate for the November
preceding each such year (subject to a minimum interest rate of
4.5%). Compensation includes wages subject to withholding, excluding
income recognized in connection with the Company’s stock based plans,
reimbursements or other expense allowances, fringe benefits, moving expenses,
deferred compensation and welfare benefits (in accordance with Internal Revenue
Code limits, the maximum compensation taken into account in determining
benefits was limited to $245,000 in 2009).
Participants
are eligible to receive benefits after completing five years of
service. They can elect to receive their benefits upon termination of
employment or they can defer receipt of benefits until age 65. Any
accounts remaining in the Cash Balance Plan will continue to be credited
with interest until the account is paid. The normal form of benefit payment
for unmarried participants is a single life annuity, and the normal form of
benefit payment for married participants is a 50% joint and survivor
annuity. Participants, with spousal consent if applicable, can waive the normal
form and elect to have benefits paid in various annuity forms, which are the
actuarially equivalent of the normal form, or in a lump sum.
Mr. Maske
has an accrued benefit under the Cash Balance Pension Plan based on his
prior service as a U.S. employee. He currently accrues pension benefits under
the pension plan maintained by the Company’s German subsidiary.
Pension Restoration
Plan
The
Pension Restoration Plan is an unfunded, non-qualified pension plan that is
intended to provide an employee with the portion of his benefits that cannot be
paid under the Cash Balance Pension Plan or the Contributory Retirement
Plan (the predecessor to the Cash Balance Pension Plan) due to Internal Revenue
Code limitations on the amount of compensation that can be taken into account in
determining benefits under, and the amount of benefits that can be paid from,
tax-qualified pension plans. The Plan covers U.S. employees who are
selected by the Employee Benefits Committee to participate, which includes all
of the named executive officers except Mr. Maske.
The
benefits of Mr. Trumbull, Mr. Sengstack and Mr. Ward are based on the formula in
effect under the Contributory Retirement Plan on December 31, 1999, but without
regard to the Internal Revenue Code limits. This formula is based on the
employee’s credited service and final three-year average compensation, with an
offset for benefits provided by the Cash Balance Pension Plan. There is a
minimum benefit whereby if the monthly benefit amount paid to the employee under
the Basic Retirement Plan, Cash Balance Pension Plan, Pension
Restoration Plan and Social Security is less than a designated
percentage of the employee’s three-year final average compensation,
the difference is paid from the Pension Restoration Plan. The current designated
percentage (which is based on years of service at retirement) for Mr. Trumbull
is 40% (assuming retirement at age 65), Mr. Sengstack is 50% (assuming
retirement at age 62) and Mr. Ward is 45% (based on his July 31, 2009,
termination date).
- 31
-
The
benefits of Mr. Haines and Mr. Stone are determined by applying the Cash Balance
Pension Plan formula for all eligible compensation (including compensation in
excess of the Code limits), offset for the benefits provided by the Cash Balance
Pension Plan.
The
benefit accrued under the Pension Restoration Plan is paid upon termination of
employment as follows: (i) if the lump sum value is less than $1,000,000,
it will be paid in a lump sum within 90 days following termination; (ii) if
the lump sum value is more than $1,000,000 but less than $2,000,000, one-half of
the benefit will be paid within 90 days following termination, the remaining
benefit will be paid as a single life annuity over the first 12 months
following termination, and the benefit remaining at the end of the 12-month
period will be paid in a lump sum on the first anniversary of termination; (iii)
if the lump sum value is $2,000,000 or more, one-third will be paid within 90
days following termination, the remaining benefit will be paid as a single life
annuity over the first 12 months following termination, one-half of the benefit
remaining at the end of the 12-month period will be paid in a lump sum on the
first anniversary of termination, the remaining benefit will be paid as a single
life annuity over the second 12-month period following termination and the
benefit remaining at the end of the second 12-month period will be paid in a
lump sum on the second anniversary of termination. If the participant is deemed
to be a “key employee” as defined by the Internal Revenue Code, any distribution
that is payable due to termination of employment will be delayed for six months
following the date of such termination. Notwithstanding the foregoing, upon a
change in control of the Company, all participants become fully vested in
their benefits, all benefits will be paid in a lump sum within 60 days after the
change in control and active participants will have three years of additional
age and service credits in determining benefits.
Franklin Electric Europa
GmbH Pension Plan
Mr. Maske
is covered by a pension plan sponsored by the Company’s German subsidiary, which
provides benefits in addition to those provided under a German government
sponsored pension plan. The governmental plan provides benefits based on a
participant’s compensation up to a certain limit (Euros 63,600 in 2009).
The pension plan of Franklin Electric Europa GmbH provides a monthly annuity
benefit payable at normal retirement (age 65) equal to 1/12 of (i) the
participant’s five-year average compensation less the compensation taken into
account under the governmental plan, times (ii) 1.5%, times (iii) the
participant’s years of credited service. Participants age 60 or older with five
years of vesting service may retire and commence receiving a reduced
benefit.
Pension Plan
Assumptions
The
assumptions used in calculating the present value of the accumulated pension
benefits are set forth in Footnote 8 to the Company’s Annual Report to
Shareholders for the year ended January 2, 2010. The Company does not grant
additional years of credited service under its pension plans, other than the
additional years of service credited to Mr. Trumbull (as described in Footnote 1
of the 2009 Pension Benefits Table), which was intended to ensure full vesting
and benefits in the first years of his employment.
2009
Nonqualified Deferred Compensation
The following table sets forth (i) the
contributions made by each named executive officer and the Company in 2009, (ii)
the earnings on the account balances as of January 2, 2010 and (iii) the account
balances as of January 2, 2010 under the Company’s Deferred Compensation
Plan.
|
Name
(a)
|
Executive
Contribution in Last Fiscal Year
(b)(1)
|
Company
Contribution in Last Fiscal Year
(c)
|
Aggregate Earnings
in Last Fiscal Year
(d)
(2)
|
Aggregate
Withdrawals/
Distributions
(e)
|
Aggregate
Balance at Last Fiscal Year End
(f)
|
|||||||||||||||
|
R.
Scott Trumbull
|
$ | 300,000 | $ | 0 | $ | 67,158 | $ | 0 | $ | 367,158 | ||||||||||
|
(1)
The amount of the executive contributions reported in this column is
included in the “Non-Equity Incentive Plan Compensation” column of the
Summary Compensation Table for 2008.
(2) The earnings reported in this
column are not included in the Summary Compensation
Table.
|
||||||||||||||||||||
On
December 12, 2008, the Company adopted the Deferred Compensation Plan. The Plan
permits executive officers of the Company to elect each year to defer up to 90%
of their bonus awards and up to 50% of their salary. The Company does not
contribute any amounts to the Plan. Deferred amounts are credited to a notional
account maintained on behalf of the participant, which is adjusted for earnings
and losses based on investment funds made available under the Company’s 401(k)
plan, as elected by the participant. A participant’s Plan account will be
distributed to him as soon as practicable after the first of the month following
termination of employment (provided that distribution to a “key employee” as
defined in Section 409A of the Internal Revenue Code will be deferred for six
months).
- 32
-
Mr.
Trumbull is the only named executive officer who has elected to participate in
the Plan and he has elected to defer $300,000 of the bonus payable to him in
February 2009 under the Company’s Executive Officer Annual Incentive Cash Bonus
Plan. This deferred amount is included in the “Non-Equity Incentive Plan
Compensation” column of the Summary Compensation Table.
Potential
Payments upon Termination or Change in Control of the Company
The
Company provides benefits to certain of the named executive officers upon
certain terminations of employment from the Company. These benefits are in
addition to the benefits to which the executives would be entitled upon a
termination of employment generally (i.e., vested retirement
benefits accrued as of the date of termination, stock awards that are vested as
of the date of termination and the right to elect continued health coverage
pursuant to COBRA). The incremental benefits payable to the executives are
described as follows:
Employment
Agreements
The
employment agreements of Messrs. Trumbull, Haines and Sengstack are three-year
agreements, which automatically renew for an additional year unless either party
provides advance written notice of an election not to extend the
term.
The
agreements provide the following severance benefits under the described
termination scenarios:
|
·
|
Termination – Nonrenewal of
Employment Agreement. If the executive terminates his employment at
any time during the term of the agreement after receipt of notice from the
Company of its decision to not extend the term, he is entitled to an
immediate payment equal to a pro-rata portion of the bonus paid for the
preceding year (or, in the case of Mr. Trumbull, later payment of a
pro-rata portion of the bonus payable for the year of termination), an
immediate payment equal to 12 months of his then current salary and one
times the bonus paid for the preceding year, immediate vesting of all
outstanding stock options, and continued participation in all of the
Company’s employee benefit plans for the applicable severance
period.
|
|
·
|
Termination – Prior to a
Change in Control. If a Change in Control of the Company (as
defined in the agreements) has not occurred and the executive’s employment
is terminated by the Company for other than “Cause” or the executive
terminates his employment for “Good Reason,” he is entitled to an
immediate payment equal to a pro-rata portion of the bonus paid for the
preceding year (or, in the case of Mr. Trumbull, later payment of pro-rata
portion of the bonus payable for the year of termination), an immediate
payment equal to 18 months of his then current salary and one and one-half
times the bonus paid for the preceding year (12 months and one times the
bonus paid for the preceding year for Mr. Haines), immediate vesting of
all outstanding stock options, and continued participation in all of the
Company’s employee benefit plans for the applicable severance
period.
|
|
·
|
Termination – Following a
Change in Control. If following a Change in Control of the Company
(as defined in the agreements) the executive’s employment is terminated
within two years of the Change in Control by the Company for other than
Cause or by the executive for Good Reason, or the executive terminates his
employment at any time during the 13th month following the Change in
Control, he is entitled to an immediate payment equal to a pro-rata
portion of the bonus paid for the preceding year, an immediate payment
equal to 36 months of his then-current salary and three times the bonus
paid for the preceding year (24 months and two times the bonus paid for
the preceding year for Mr. Haines), immediate vesting and cash out of all
outstanding stock options, and continued participation in all of the
Company’s employee benefit plans for the applicable severance period, and
a gross-up payment to cover any excise and related income tax liability
arising under Section 280G of the Internal Revenue Code as a result of any
payment or benefit under the
agreement.
|
- 33
-
For
purposes of the employment agreements:
|
·
|
“Good
Cause” means the executive’s death or disability, his fraud,
misappropriation of, or intentional material damage to, the property or
business of the Company, his commission of a felony likely to result in
material harm or injury to the Company, or his willful and continued
material failure to perform his
obligations.
|
|
·
|
“Good
Reason” exists if (a) there is a change in the executive’s title or a
significant change in the nature or the scope of his authority, (b) there
is a reduction in the executive’s salary or retirement benefits or a
material reduction in the executive’s compensation and benefits in the
aggregate, (c) the Company changes the principal location in which the
executive is required to perform services to more than fifty miles away,
(d) the executive reasonably determines that, as a result of a change in
circumstances significantly affecting his position, he is unable to
exercise the authority or duties attached to his positions, or (e) any
purchaser of substantially all of the assets of the Company declines to
assume the obligations under the employment
agreement.
|
The
employment agreement of Mr. Maske continues until he attains the age of 65 or is
entitled to receive state pension benefits. If Mr. Maske is unable to perform
his duties due to illness not caused by him, he is entitled to receive continued
salary for six months. In addition, upon his death, his spouse or other
beneficiary is entitled to receive Mr. Maske’s continued salary for three
months. The Company or Mr. Maske can terminate the agreement early, by giving
six months prior notice. In such case, the Company will continue to pay his
then-annual compensation and continue to provide health benefits for six months
from the termination notice (or in the event of a termination in connection with
a change in control of the Company, for 24 months following the earlier of the
termination or change in control).
Employment Security
Agreements
Certain
executives, including Mr. Stone, are party to an employment security agreement
(ESA) with the Company. Each ESA provides that if within two years after a
change in control (as defined in the ESA) the Company terminates the executive’s
employment for any reason other than cause, or the executive terminates his
employment with the Company for good reason (as defined in the ESA), the
executive is entitled to the following:
|
(i)
|
a
lump sum payment equal to the sum of two times the executive’s base
salary, a pro-rata portion of the executive’s target bonus for the current
year (based on the termination date), and two times the executive’s target
bonus for the current year;
|
|
(ii)
|
a
lump sum payment equal to the increase in benefits under the Company’s
tax-qualified and supplemental retirement plans that results from
crediting the executive with additional service for 24 months (or, if
earlier, until age 65);
|
|
(iii)
|
immediate
vesting of all stock-based awards and deemed satisfaction of all
performance-based awards;
|
|
(iv)
|
continued
coverage under the Company’s health and welfare plans for 24 months
following termination (or, if earlier, until age
65);
|
|
(v)
|
12
months of executive outplacement services (not to exceed $50,000) with a
professional outplacement firm selected by the Company;
and
|
|
(vi)
|
a
gross-up payment to cover any excise and related income tax liability
under Section 280G of the Internal Revenue Code as a result of payments
made or benefits provided under the ESA (except that if the payments and
benefits subject to Section 280G are less than 110% of the amount that
could be paid without incurring Section 280G liability, the payments under
the ESA will be reduced so that no such liability will be
incurred).
|
For
purposes of the ESAs:
|
·
|
“Good
Cause” means the executive’s intentional and material misappropriation of,
or damage to, the property or business of the Company, his conviction of a
criminal violation involving fraud or dishonesty or of a felony that
causes material harm or injury to the Company, or his willful and
continuous failure to perform his obligations under the ESA that is not
cured.
|
|
·
|
“Good
Reason” means a material reduction in the executive’s salary or retirement
benefits or a material reduction in his compensation and benefits in the
aggregate, or any purchaser of substantially all of the assets of the
Company declines to assume all of the Company’s obligations under the
ESA.
|
Mr. Ward
was party to an ESA prior to the termination of his employment with the Company.
The terms of his separation from the Company are described in “Compensation
Discussion and Analysis – Separation Agreement”.
- 34
-
Pension Restoration
Plan
The
Pension Restoration Plan, in which all named executive officers other than Mr.
Maske participate, provides that upon a Change in Control of the Company (as
defined in the Plan), (i) all participants will become 100% vested in their
benefits, which will be paid in an immediate lump sum within 60 days, and (ii)
active participants will have three years of additional credit for age and
service in determining their benefits under the Plan.
Stock
Plan
The
Company’s Stock Plan provides that upon a Change in Control of the Company all
outstanding awards become fully vested, all restrictions on any awards terminate
or lapse and performance goals applicable to stock awards will be deemed
satisfied at the highest level.
The
tables set forth below quantify the additional benefits described above that
would be paid to each named executive officer pursuant to the arrangements
described above under the following termination scenarios, assuming a
non-renewal on the employment agreement, termination of employment and/or change
in control occurred on January 2, 2010.
Termination
– Nonrenewal of Employment Agreement
|
Name
(a)
|
Salary
($)(b)
|
Non-Equity
Incentive Plan Compensation
($)(c)
|
Accelerated
Vesting of Options
($)(d)
|
Additional
Retirement Benefits
($)(e)(1)
|
Continued
Benefit Plan Coverage
($)(f)
|
|||||||||||||||
|
R.
Scott Trumbull
|
637,500 | 905,265 | 1,171,000 | 305,724 | 11,877 | |||||||||||||||
|
John
J. Haines
|
250,000 | 320,000 | 239,960 | 18,416 | 11,207 | |||||||||||||||
|
Peter-Christian
Maske
|
0 | 0 | 371,489 | 0 | 0 | |||||||||||||||
|
Gregg
C. Sengstack
|
312,000 | 562,304 | 371,489 | 278,102 | 8,159 | |||||||||||||||
|
Robert
J. Stone
|
0 | 0 | 371,489 | 0 | 0 | |||||||||||||||
|
(1) Represents
additional accruals under defined benefit pension plans and employer
contributions under the 401(k) plan.
|
||||||||||||||||||||
Termination
– Prior to a Change in Control
|
Name
(a)
|
Salary
($)(b)
|
Non-Equity
Incentive Plan Compensation
($)(c)
|
Accelerated
Vesting of Options
($)(d)
|
Additional
Retirement Benefits
($)(e)(1)
|
Continued
Benefit Plan Coverage
($)(f)
|
|||||||||||||||
|
R.
Scott Trumbull
|
956,250 | 1,300,203 | 1,171,000 | 715,767 | 17,816 | |||||||||||||||
|
John
J. Haines
|
250,000 | 320,000 | 239,960 | 18,416 | 11,207 | |||||||||||||||
|
Peter-Christian
Maske
|
194,690 | (2) | 0 | 371,489 | 0 | 4,278 | ||||||||||||||
|
Gregg
C. Sengstack
|
468,000 | 702,880 | 371,489 | 389,333 | 12,238 | |||||||||||||||
|
Robert
J. Stone
|
0 | 0 | 371,489 | 0 | 0 | |||||||||||||||
|
(1) Represents
additional accruals under defined benefit pension plans and employer
contributions under the 401(k) plan.
(2) Mr.
Maske’s salary was converted to USD at the December 31, 2009 Euro exchange
rate of 1.433.
|
||||||||||||||||||||
Termination
– Following a Change in Control
|
Name
(a)
|
Salary
($)(b)
|
Non-Equity
Incentive Plan Compensation
($)(c)
|
Vesting
of Restricted Stock
($)(d)
|
Accelerated
Vesting and Cash Out of Options
($)(e)
|
Additional
Retirement Benefits Credits
($)(f)(1)
|
Continued
Benefit Plan Coverage
($)(g)
|
Outplace-ment
Services
($)(h)
|
Gross
Up
($)(i)
|
||||||||||||||||||||||||
|
R.
Scott Trumbull
|
1,912,500 | 3,159,500 | 273,070 | 1,171,000 | 1,636,878 | 35,632 | 0 | 0 | ||||||||||||||||||||||||
|
John
J. Haines
|
500,000 | 480,000 | 232,400 | 239,960 | 36,833 | 22,413 | 0 | 0 | ||||||||||||||||||||||||
|
Peter-Christian
Maske
|
778,761 | (2) | 631,411 | 66,815 | 371,489 | 0 | 17,113 | 0 | 0 | |||||||||||||||||||||||
|
Gregg
C. Sengstack
|
936,000 | 1,124,608 | 183,015 | 371,489 | 374,714 | 22,930 | 0 | 978,931 | ||||||||||||||||||||||||
|
Robert
J. Stone
|
573,000 | 580,163 | 66,815 | 371,489 | 62,286 | 0 | 50,000 | 0 | ||||||||||||||||||||||||
|
(1) Represents
additional accruals under defined benefit pension plans and employer
contributions under the 401(k) plan.
(2) Mr.
Maske’s salary was converted to USD at the December 31, 2009, Euro
exchange rate of 1.433.
|
||||||||||||||||||||||||||||||||
- 35
-
DIRECTOR
COMPENSATION
The following table sets forth the
compensation received by the Company’s non-employee directors for the year ended
January 2, 2010.
|
Name
(a)
|
Fees
Earned or Paid in Cash
($)(b)
|
Stock
Awards
($)(c)(2)
|
Option
Awards
($)(d)(3)
|
Non-Equity
Incentive Plan Compensation
($)(e)
|
Change
in Pension Value and Nonqualified Deferred Compensation
Earnings
($)(f)(4)
|
All
Other Compensation
($)(g)
|
Total
($)(h)
|
|||||||||||||||||||||
|
Jerome
Brady
|
56,000 | 80,000 | 0 | N/A | 2,664 | 0 | 138,664 | |||||||||||||||||||||
|
David
T. Brown
|
54,500 | (1) | 80,000 | 0 | N/A | 949 | 0 | 135,449 | ||||||||||||||||||||
|
David
Roberts
|
54,500 | 80,000 | 0 | N/A | 572 | 0 | 135,072 | |||||||||||||||||||||
|
David
Wathen
|
56,500 | (1) | 80,000 | 0 | N/A | 6,358 | 0 | 142,858 | ||||||||||||||||||||
|
Howard
Witt
|
55,000 | 80,000 | 0 | N/A | 0 | 0 | 135,000 | |||||||||||||||||||||
|
Thomas
Young
|
53,000 | 80,000 | 0 | N/A | 0 | 0 | 133,000 | |||||||||||||||||||||
|
(1) Mr.
Brown deferred $54,500 and Mr. Wathen deferred $35,000 of fees into the
Directors’ Deferred Compensation Plan.
(2) The
amounts in column (c) are the grant date fair value, of the stock awards
granted to the non-employee directors, computed in accordance with FASB
Codification Topic 718 and represent the Company’s total expense of grants
made in 2009. Messrs. Brady, Roberts, Witt, and Young received an award of
3,618 shares. Messrs. Brown and Wathen elected to defer their stock award
into the Directors’ Deferred Compensation Plan.
(3) No
options were granted to non-employee directors in 2009. As of January 2,
2010, the non-employee directors held the following options: Mr. Brady:
56,000; Mr. Roberts: 8,000; and Mr. Witt: 36,000.
(4) The
amounts in column (f) represent 2009 earnings credited under the
Non-Employee Directors’ Deferred Compensation Plan.
|
||||||||||||||||||||||||||||
Retainer and
Fees
Non-employee
directors are paid an annual retainer of $35,000, payable in either cash or
stock, plus a fee of $1,500 for each Board and Board committee meeting attended.
The Audit Committee chairman receives an additional fee of $6,000 and the
Management Organization and Compensation and the Corporate Governance Committee
chairmen receive an additional fee of $3,500. Directors who are employees of the
Company receive no additional compensation for serving on the Board or Board
committees.
Stock
Awards
Non-employee
directors participate in the Franklin Electric Co., Inc. Stock Plan. In 2009,
each non-employee director received an award of 3,618 shares of the Company’s
Common Stock, which vested immediately upon grant and had a market value of
$80,000 on the April 28, 2009 date of grant.
Deferred
Compensation
Non-employee
directors may participate in the Non-Employee Directors’ Deferred Compensation
Plan (the “Deferred Compensation Plan”). Under the Deferred Compensation Plan,
each non-employee director may elect to defer, for each calendar year, all of
his or her annual retainer, fees and stock award until his or her service on the
Board terminates. At the time the director makes the deferral election, he must
elect to have the deferred retainer and fees either (i) credited with interest
on a monthly basis at the rate in effect for the Wells Fargo Stable Return Fund
or (ii) converted into stock units, with credits equal to the cash that would
have been paid had the units been actual shares of Common Stock owned by the
director. Deferred stock awards will also be converted into stock units and
credited with dividends.
Consulting Directors’
Plan
The
Company maintained a Consulting Directors’ Plan for non-employee directors who
retire from Board service at age 70 or older. Under this Plan, each director was
eligible to enter into a consulting agreement with the Company pursuant to which
the consulting director agrees to be available for consultation from time to
time and is entitled to receive an annual fee for such services equal to the
director’s fee in effect at retirement. The consulting director can receive this
fee for up to the same number of years that he served as director. The Company
amended the Consulting Directors’ Plan to (i) limit future participation to the
Company’s non-employee directors first elected before 2003 (Messrs. Brady and
Witt), and (ii) base the consulting fees on the retainer amount in effect as of
June 1, 2006 and years of service as a director as of June 1, 2006.
- 36
-
Stock Ownership
Guidelines
In 2006,
the Board of Directors approved stock ownership guidelines for the non-employee
directors, pursuant to which they are required to maintain direct ownership in
the Company’s common stock with a value equal to four times their annual
retainer. An individual has five years to comply with these guidelines. All
shares held directly or beneficially, including stock awards, shares acquired
upon exercise of stock options and shares credited under the Non-Employee
Directors’ Compensation Plan, count toward these guidelines. Stock options do
not count toward these guidelines. All non-employee directors either meet or
exceed these guidelines, or are on track to meet them within the five-year
period.
SECURITIES
AUTHORIZED FOR ISSUANCE UNDER
EQUITY
COMPENSATION PLANS
The following table sets forth
information about the Company’s equity compensation plans as of February 26,
2010.
|
Plan
Category
(a)
|
Number
of Securities to be Issued Upon Exercise of Outstanding Options, Warrants
& Rights
(b)
|
Weighted-Average
Exercise Price of Outstanding Options, Warrants & Rights
($)(c)
|
Number
of Securities Remaining Available for Future Issuance Under Equity
Compensation Plans (Excluding Securities Reflected in Column
[b])
(d)
|
|||||||||
|
Equity
Compensation Plans Approved by Securities Holders(1)
|
1,993,897 | $ | 26.79 | 649,720 | ||||||||
|
Equity
Compensation Plans Not Approved by Security Holders(2)
|
32,757 | n/a | 67,243 | |||||||||
|
(1) This
Plan category includes the following plans: Franklin Electric Co., Inc.
Stock Option Plan (0 shares remain available for issuance) and Franklin
Electric 2009 Amended & Restated Stock Plan (649,720 shares remain
available for issuance).
(2) This
Plan category includes the Non-Employee Directors’ Deferred Compensation
Plan, adopted in 2000 and described above under the caption Director
Compensation. The information included in column (a) represents shares
underlying stock units, payable on a one-for-one basis, credited to the
directors’ respective stock unit accounts as of February 26, 2010.
Non-employee directors may elect to receive the distribution of stock
units in cash or in shares of the Company’s Common Stock.
|
||||||||||||
- 37
-
PROPOSAL
2: APPROVAL OF
FRANKLIN
ELECTRIC CO., INC. MANAGEMENT INCENTIVE PLAN
The Board
of Directors of the Company has approved, subject to the approval of the
Company’s shareholders, the Franklin Electric Co., Inc. Management Incentive
Plan (the “MIP”).
Shareholders
are being asked to approve the MIP to ensure that bonuses paid under the MIP
will qualify as “performance-based” compensation under Section 162(m) of the
Code and thus be fully deductible by the Company for federal income tax
purposes. Section 162(m) and related guidance generally preclude a publicly
traded company from taking a tax deduction for compensation in excess of $1
million paid to certain executives. These executives are the Company’s chief
executive officer and three other highest paid executives, other than the chief
financial officer, who are the named executive officers listed in the Summary
Compensation Table of the Company’s annual proxy statement. This restriction is
subject to an exception for “performance-based” compensation that meets certain
requirements, including a requirement that the “material terms of the
performance goals” applicable to these named executive officers must be
disclosed to and approved by shareholders before any compensation is paid to
them. Shareholder approval of the MIP will constitute approval of the MIP’s
“material terms of the performance goals” within the meaning of the regulations
under Section 162(m). If the MIP is approved by shareholders, it will be
effective beginning with the Company’s 2010 fiscal year and will remain in
effect thereafter until terminated by the Board, provided that the material
terms of the performance goals must be reapproved by shareholders every five
years in order to retain qualification under Section 162(m). No compensation
will be paid under the MIP to the named executive officers covered by the MIP
unless and until the MIP is approved by shareholders.
The
following is a summary of the MIP. It is qualified in its entirety by
reference to the full text of the MIP, which is attached as Exhibit A to this
proxy statement.
Description of the
MIP
In
General. The MIP is intended to work in connection with other incentive
compensation arrangements of the Company, including the Executive Officer Annual
Incentive Cash Bonus Plan (the “Bonus Plan”), pursuant to which bonuses are paid
to eligible employees upon the attainment of performance goals. Its effect is to
allow the Committee (defined below) to set a performance-based ceiling on such
bonuses so that they will meet the deductibility requirements of Section
162(m).
Administration.
The MIP is administered by the Management Organization and Compensation
Committee, or such other committee appointed by the Board that is comprised of
at least two “outside directors” as defined in Section 162(m) (the “Committee”).
The Committee has full authority to select the employees eligible for bonus
awards under the MIP, determine when the employee’s participation in the MIP
will begin, establish the period over which performance will be measured and the
performance goals pursuant to which bonus amounts will be determined, determine
the amounts payable upon the attainment of the performance goals, and make all
other decisions necessary for the proper administration of the MIP.
Eligibility.
The MIP covers the Chief Executive Officer and the three other highest paid
employees (other than the Chief Financial Officer) who are listed as named
executive officers in the Company’s proxy statement and who are employed at the
time the MIP criteria are established for the applicable year. The Committee
also has the discretion to designate other employees as covered under the MIP.
For 2010, only the four named executive officers currently employed by the
Company (other than the Chief Financial Officer) will be covered by the MIP.
These executives are Messrs. Trumbull, Maske, Sengstack and Stone.
Business
Criteria. The MIP provides that on or before the 90th day of each fiscal
year of the Company (or before 25% of the performance period has expired, if
shorter than a fiscal year), the Committee will establish one or more
performance goals to be attained for a performance period and the maximum bonus
that may be paid to each participant if the performance goals are attained. The
performance goals may be based on one or more of the following business
criteria: cash flow; cash flow from operations; total earnings; earnings per
share or earnings per share growth, diluted or basic; earnings per share from
continuing operations, diluted or basic; earnings before interest and taxes;
earnings before interest, taxes, depreciation and/or amortization; earnings from
operations; net contribution; net asset turnover; inventory turnover; capital
expenditures; net earnings; operating earnings or income; gross or operating
margin; debt; working capital; return on equity; return on net assets; return on
total assets; return on capital; return on invested capital; return on
investment; return on sales; net or gross sales; market share; economic value
added; cost of capital; change in assets; expense reduction levels; fixed costs;
debt reduction; productivity; delivery performance; safety record; stock price;
and total stockholder return. Performance goals may be determined on
an absolute basis or relative to internal goals or relative to levels attained
in prior years or related to other companies or indices or as ratios expressing
relationships between two or more performance goals. The Committee shall provide
how any performance goal shall be adjusted to the extent necessary to prevent
dilution or enlargement of any award as a result of extraordinary events or
circumstances, as determined by the Committee, or to exclude the effects of
extraordinary, unusual, or non recurring items, including: restructuring
charges; changes in applicable laws, regulations or accounting principles;
currency fluctuations; discontinued operations; non cash items, such as
amortization, depreciation or reserves; asset impairment; or any
recapitalization, restructuring, reorganization, merger, acquisition,
divestiture, consolidation, spin off, split up, combination, liquidation,
dissolution, sale of assets, or other similar corporation
transaction.
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After the
end of a performance period, the Committee must approve final bonus awards and
may not increase the amount of bonus opportunity, but has the discretionary
authority to reduce the amount, in the aggregate or with respect to one or more
individual components, taking into account individual and/or corporate
performance. The Committee expects to exercise that discretion and thus does not
anticipate that the maximum bonus opportunity will be paid to any participant.
In no event, however, will a participant receive a bonus of more than $3,000,000
under the MIP for any fiscal year in a performance period. No award will be paid
under the MIP for any performance period or portion thereof to a participant
whose employment with the Company terminates during the year for a reason other
than retirement, disability, death. In the event of a participant’s retirement,
disability or death, the Committee may in its discretion approve a prorata bonus
payment based on the bonus the participant would have received had he remained
employed through the last day of the performance period.
Payment of
Awards. Bonuses will be paid in cash to participants (or their
beneficiaries in the event of death) prior to March 15 following the performance
period for which the bonus was earned. In lieu of receiving the bonus payment
directly, a participant can make an advance election to defer the bonus payment
in accordance with the Company’s Deferred Compensation Plan.
For 2010,
the Committee established Company operating income before restructuring
(“Operating Income”) as the performance goal under the MIP, and established a
bonus pool equal to 15% of Operating Income, with Mr. Trumbull eligible for a
bonus opportunity equal to 40% of the bonus pool and each of the other three
participants eligible for a bonus opportunity equal to 20% of the bonus pool.
The Committee also established performance criteria for each participant
pursuant to the parameters of the Bonus Plan, and expects to exercise its
discretion to adjust the bonus pool amounts downward on the basis of the
achievement of these criteria.
Bonuses
payable under the MIP for the 2010 fiscal year and future years cannot currently
be determined because they will depend on the attainment of specified
performance goals and any exercise of discretion by the Committee to limit or
reduce a participant’s award. If the MIP had been in effect for the 2009 fiscal
year, then assuming the same performance criterion and the use of discretion to
adjust the amounts as used in 2009 under the Bonus Pool, the bonuses that would
have been paid to the participants under the MIP are the same amounts that were
paid to them under the Bonus Plan for 2009. These amounts are set forth in the
Summary Compensation Table in this proxy statement, in the “Bonus” and
“Non-Equity Incentive Plan Compensation” columns.
Amendment or
Termination. The Board may amend or terminate the MIP at any time,
without the consent of participants and without the approval of the shareholders
of the Company, provided that no amendment or termination shall affect the
Company’s obligation to pay any bonus amount after it has been earned by a
participant.
Vote Required for
Approval
Approval
of the Plan requires the affirmative vote of the holders of a majority of the
shares present in person or represented by proxy and entitled to vote at the
annual meeting.
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THE
BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS A VOTE FOR APPROVAL OF
THE
FRANKLIN
ELECTRIC CO., INC. MANAGEMENT INCENTIVE PLAN
AUDIT
COMMITTEE REPORT
The Audit
Committee of the Board of Directors, which is composed solely of independent
directors, is responsible, under guidelines established in the Audit Committee
Charter (a copy of which is available on the Company’s website at www.franklin-electric.com
under “Corporate Governance”), for overseeing the risk management of the
Company, accounting and financial reporting processes of the Company and the
audits of the financial statements by reviewing: (i) the quality and integrity
of the consolidated financial statements prepared by management; (ii) the
performance of the internal audit function; and (iii) the qualifications,
independence and performance of the Company’s independent registered public
accounting firm.
In accordance with SEC rules the Audit
Committee of the Company states that:
|
·
|
The
Audit Committee has reviewed and discussed with management and Deloitte
& Touche LLP, the Company’s independent registered public accounting
firm, the Company’s audited financial statements for the fiscal year ended
January 2, 2010.
|
|
·
|
The
Audit Committee has reviewed and discussed with Deloitte & Touche LLP,
the matters required to be discussed by the Statement on Auditing
Standards No. 114, Communication with Audit
Committees, as adopted by the Public Company Accounting Oversight
Board (PCAOB) in Rule 3526T.
|
|
·
|
The
Audit Committee has received the written disclosures and the letter from
Deloitte & Touche LLP required by the applicable independence rules of
the PCAOB, and has discussed with Deloitte & Touche LLP the
independent registered public accounting firm’s
independence.
|
Based upon the reviews and discussions
referred to above, the Audit Committee recommended to the Board of Directors
that the Company’s audited financial statements be included in the Company’s
Annual Report on Form 10-K for the fiscal year ended January 2, 2010 for filing
with the SEC.
This report is submitted on behalf of
all of the members of the Audit Committee:
Jerome D. Brady
(Chairman)
David M. Wathen
Thomas L. Young
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PROPOSAL
3: RATIFICATION OF THE APPOINTMENT OF DELOITTE & TOUCHE LLP
AS
THE COMPANY’S INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
FOR
THE 2010 FISCAL YEAR
The Audit Committee has appointed the
firm of Deloitte & Touche LLP as the Company’s independent registered public
accounting firm for the 2010 fiscal year. Although shareholder ratification is
not legally required, the Audit Committee believes it advisable to submit its
decision to the shareholders. If the shareholders fail to ratify Deloitte &
Touche LLP as the Company’s independent registered public accounting firm, the
Audit Committee will reassess its appointment. Deloitte & Touche LLP has
acted as independent auditors for the Company since 1988.
Representatives of Deloitte &
Touche LLP are expected to be present at the Annual Meeting with the opportunity
to make a statement if they desire to do so, and to be available to respond to
questions relating to their examination of the Company’s financial
statements.
The affirmative vote of the holders of
a majority of the votes cast at the Annual Meeting is required to approve the
ratification of the appointment of Deloitte & Touche LLP as the Company’s
independent registered public accounting firm for the 2010 fiscal
year.
Audit
Fees
The aggregate fees for professional
services rendered by Deloitte & Touche LLP, the member firms of Deloitte
Touche Tohmatsu, and their respective affiliates (collectively, “Deloitte”) for
the audit of the Company’s annual financial statements and the reviews of the
financial statements included in the Company’s Quarterly Reports on Form 10-Q
were $1,093,022 and $1,221,092, respectively, for the fiscal years ended January
2, 2010 and January 3, 2009.
Audit-Related
Fees
The fees for professional services
rendered by Deloitte for audits of the Company’s employee benefit plans and due
diligence related to acquisitions were $21,044 and $375,928, respectively, for
the fiscal years ended January 2, 2010 and January 3, 2009.
Tax
Fees
The fees for tax services rendered by
Deloitte were $18,022 and $82,650, respectively, for the fiscal years ended
January 2, 2010 and January 3, 2009.
Audit
Committee Pre-Approval Policy
The Audit
Committee has adopted a Pre-Approval Policy for Audit, Audit-Related, and
Non-Audit Services. The Audit Committee has delegated to the Audit Committee
Chairman the authority to pre-approve services not prohibited by law up to a
maximum of $10,000 individually or $50,000 in the aggregate, provided that the
Audit Committee Chairman shall report any decisions to pre-approve services to
the full Audit Committee at its next meeting. For the fiscal year ended January
2, 2010 the Company did not pay any fees for services pursuant to the exceptions
to the pre-approval requirements set forth in 17 CFR
210.2-01(c)(7)(i)(C).
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THE
BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS A VOTE FOR APPROVAL OF
RATIFICATION OF THE APPOINTMENT OF DELOITTE & TOUCHE LLP AS THE COMPANY’S
INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM FOR THE 2010 FISCAL
YEAR.
STOCKHOLDER
PROPOSALS
November 10, 2010 is the date by which
proposals of shareholders intended to be presented at the next annual meeting
must be received by the Company to be considered for the inclusion in the
Company’s proxy statement for the 2011 Annual Meeting. Also, other proposals
intended to be presented at the next Annual Meeting but not included in the
Company’s proxy statement must be received by the Company no later than February
1, 2011 to be considered for presentation at that meeting. Such shareholder’s
notice shall set forth (A) as to each person whom the shareholder proposes to
nominate for election or reelection as a director all information relating to
such person that is required to be disclosed in solicitations of proxies for
election of directors, or is otherwise required, in each case pursuant to
Regulation 14A under the Exchange Act (including such person’s written consent
to being named in the proxy statement as a nominee and to serving as a director
if elected); (B) as to any other business that the shareholder proposes to bring
before the meeting, a brief description of the business desired to be brought
before the meeting, the reasons for conducting such business at the meeting and
any material interest in such business of such shareholder and the beneficial
owner, if any, on whose behalf the proposal is made; and (C) as to the
shareholder giving the notice and the beneficial owner, if any, on whose behalf
the nomination or proposal is made (i) the name and address of such shareholder,
as they appear on the Company’s books, and of such beneficial owner and (ii) the
class and number of shares of the Company which are owned beneficially and of
record by such shareholder and such beneficial owner.
OTHER
BUSINESS
Management has no knowledge of any
other matters to be presented for action by the shareholders at the 2010 Annual
Meeting. The enclosed proxy gives discretionary authority to the persons
designated as proxies therein to vote on any additional matters that should
properly and lawfully be presented.
By order
of the Board of Directors
Dated: March
16, 2010
John J.
Haines
Vice
President, Chief Financial
Officer
and Secretary
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Exhibit
A
Franklin Electric Co., Inc.
Management Incentive Plan
I.
PURPOSE
The
purpose of the Franklin Electric Co., Inc. Management Incentive Plan (the
“Plan”) is to advance the interests of Franklin Electric Co., Inc. (the
“Company”) and its stockholders by providing certain of its key executives with
incentive compensation, including annual compensation under the Executive
Officer Annual Incentive Cash Bonus Program (the “Program”), that is tied to the
achievement of preestablished performance goals. The Plan is intended to ensure
that payments made under the Program or other incentive arrangements that may be
established qualify as “performance-based” compensation under Section 162(m) of
the Internal Revenue Code.
II.
DEFINITIONS
As used
in this Plan, the terms below shall have the following meanings ascribed to
them:
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2.1
|
“Board”
shall mean the Board of Directors of the
Company.
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|
2.2
|
“Code”
shall mean the Internal Revenue Code of 1986, as amended, or the
corresponding provisions of any subsequent federal internal revenue
law.
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2.3
|
“Committee”
shall mean the Management Organization and Compensation Committee of the
Board or such other committee appointed by the Board to administer the
Plan that is comprised of not less than two directors of the Company, each
of whom shall qualify in all respects as an “outside director” within the
meaning of Section 162(m) of the
Code.
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2.4
|
“Company”
shall mean Franklin Electric Co., Inc., an Indiana
corporation.
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2.5
|
“Covered
Employee” shall mean an employee of the Company or its affiliates who is a
“covered employee,” as defined in Section 162(m) of the Code and the
Regulations, or other guidance promulgated by the Internal Revenue Service
under Section 162(m) of the Code, or any successor statute, and such other
key executives as the Committee shall
determine.
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|
2.6
|
“Disability”
shall mean disability as defined under the Company’s long-term disability
insurance plan under which the Participant is then covered or, if the
Participant is not covered under such a plan, shall have the meaning set
forth in Code Section 22(e)(3).
|
|
2.7
|
“Incentive
Bonus” shall mean, for each Participant, an annual bonus to be paid under
the Program, or if applicable, a bonus to be paid under another
arrangement approved by the Committee, in each case in the amount
determined by the Committee pursuant to Article V
below.
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|
2.8
|
“Maximum
Potential Incentive Bonus” shall mean, with respect to any Participant for
any fiscal year, $3,000,000.
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|
2.9
|
“Participant”
means, with respect to any Performance Period, a Covered Employee who has
been designated as eligible to participate in the Plan for such
Performance Period in accordance with
Section 4.
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|
2.10
|
“Performance
Goal(s)” means a measurement established with respect to one or more
Performance Measures.
|
|
2.11
|
“Performance
Measures” means, with respect to any Performance Period, one or more of
the following, which may be expressed with respect to the Company or one
or more operating units or groups, as the Committee may determine: cash
flow; cash flow from operations; total earnings; earnings per share or
earnings per share growth, diluted or basic; earnings per share from
continuing operations, diluted or basic; earnings before interest and
taxes; earnings before interest, taxes, depreciation and/or amortization;
earnings from operations; net contribution; net asset turnover; inventory
turnover; capital expenditures; net earnings; operating earnings or
income; gross or operating margin; debt; working capital; return on
equity; return on net assets; return on total assets; return on capital;
return on invested capital; return on investment; return on sales; net or
gross sales; market share; economic value added; cost of capital; change
in assets; expense reduction levels; fixed costs; debt reduction;
productivity; delivery performance; safety record; stock price; and total
stockholder return. Performance Goals may be determined on an absolute
basis or relative to internal goals or relative to levels attained in
prior years or related to other companies or indices or as ratios
expressing relationships between two or more performance goals. The
Committee shall provide how any Performance Measure shall be adjusted to
the extent necessary to prevent dilution or enlargement of any award as a
result of extraordinary events or circumstances, as determined by the
Committee, or to exclude the effects of extraordinary, unusual, or
non-recurring items, including: restructuring charges; changes in
applicable laws, regulations, or accounting principles; currency
fluctuations; discontinued operations; non-cash items, such as
amortization, depreciation or reserves; asset impairment; or any
recapitalization, restructuring, reorganization, merger, acquisition,
divestiture, consolidation, spin-off, split-up, combination, liquidation,
dissolution, sale of assets, or other similar corporation transaction;
provided, however, that no such adjustment will be made if the effect of
such adjustment would cause an award to fail to qualify as performance
based compensation within the meaning of Code Section 162(m) with respect
to a Covered Employee.
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|
2.12
|
“Performance
Period” means the Company’s fiscal year, or such other period as
determined by the Committee.
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|
2.13
|
“Regulations”
shall mean the Treasury Regulations promulgated under the Code, as amended
from time to time.
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|
2.14
|
“Retirement”
shall mean termination of employment with the Company and its affiliates
which occurs (i) pursuant to a voluntary early retirement program approved
by the Board or the Committee, (ii) after attaining age 65, or (iii) after
attaining age 55 or older with 10 or more years of service with the
Company and its affiliates. For this purpose, a year of service shall be a
completed 12-month period of service beginning on the first day of the
Participant’s service with the Company or an affiliate or an anniversary
of such date.
|
III.
ADMINISTRATION
The Plan
shall be administered by the Committee, which shall have full power and
authority to construe, interpret and administer the Plan and shall have the
exclusive right to establish, adjust, pay or decline to pay an Incentive Bonus
for each Participant. Such power and authority shall include the right to
exercise discretion to reduce but not to increase the Incentive Bonus payable to
a Participant; provided, however, that the exercise of such discretion with
respect to any Participant shall not have the effect of increasing the Incentive
Bonus that is payable to any other Participant. Decisions of the Committee shall
be final, conclusive and binding on all persons or entities, including the
Company, its subsidiaries, any Participant and any person claiming any benefit
or right under the Plan. The Committee, in its discretion, may delegate its
authority under the Plan to any senior executive officer of the Company with
respect to Participants who are not senior executive officers or Covered
Employees.
IV.
ELIGIBILITY AND PARTICIPATION
The
Committee shall designate the employees or classes of employees of the Company
and its affiliates who shall be eligible “Participants” in the Plan for a
Performance Period.
V.
OPERATION OF THE PLAN
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5.1
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Awards. Not later than
the 90th day of each fiscal year of the Company (or before 25% of the
Performance Period has expired, if such Performance Period is shorter in
duration than a fiscal year), the Committee shall designate, in writing,
(i) the Performance Goal(s) to be attained for such Performance Period,
the attainment of which will result in Participant’s eligibility for an
Incentive Bonus, and (ii) the maximum amount of Incentive Bonus which
may be available for payout to each Participant based upon the attainment
of the Performance Goal(s).
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5.2
|
Committee Certification.
As soon as reasonably practicable after the end of each Performance
Period, but in no event later than two and one-half months following the
end of the fiscal year that includes the Performance Period, the Committee
shall certify, in writing, (i) whether and to what extent the Performance
Goal(s) described in Section 5.1 were satisfied, and (ii) the amount
available for each Participant’s Incentive Bonus for such Performance
Period based upon the level of attainment of such Performance Goal(s). The
Committee may in its discretion authorize payment to a Participant of less
than the amount available and may provide that a Participant will not
receive any payment with respect to an Incentive Bonus opportunity. In
exercising its discretion, the Committee may consider such factors as it
deems appropriate.
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5.3
|
Termination of
Employment. If a Participant’s employment terminates prior to the
last day of a Performance Period, no Incentive Bonus will be payable to
such Participant with respect to such Performance Period, provided that
the Committee may determine that if a Participant’s employment with the
Company and subsidiaries terminates during the Performance Period due to
Retirement, death, or Disability, the Participant shall be entitled to
receive a pro rata portion of the Incentive Bonus for such Performance
Period in an amount equal to the Incentive Bonus the Participant would
have received had he remained employed until the end of the Performance
Period, prorated based on the number of days in the Performance Period
prior to the Participant’s termination of
employment.
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5.4
|
Payment of Incentive
Bonuses. The amount of the Incentive Bonus actually paid to a
Participant for a Performance Period shall not exceed the lesser of (i)
the amount determined as payable by the Committee under Section 5.1 for
the Performance Period or (ii) the Maximum Potential Incentive Bonus.
Incentive Bonuses shall be paid in cash at such times and on such terms as
are determined by the Committee in its sole and absolute discretion, but
in no event later than two and one-half months following the fiscal year
that includes the Performance
Period.
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VI.
GENERAL PROVISIONS
|
6.1
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No Right to Continued
Employment. Neither the establishment of the Plan, the provision
for or payment of any amounts hereunder, nor any action of the Company,
the Board or the Committee with respect to the Plan shall be held or
construed to confer upon any person any legal right to continue to serve
as an officer or employee of the Company or any affiliate of the Company.
The Company expressly reserves any and all rights to discharge any
Participant without incurring liability to any person under the Plan or
otherwise.
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6.2
|
Withholding. The Company
shall have the right to withhold, or require a Participant to remit to the
Company, an amount sufficient to satisfy any applicable federal, state,
local or foreign withholding tax requirements imposed with respect to the
payment of any Incentive Bonus.
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6.3
|
Nontransferability.
Except as expressly provided by the Committee, the rights and benefits
under the Plan are personal to the Participant and shall not be subject to
any voluntary or involuntary alienation, assignment, pledge, transfer or
other disposition.
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|
6.4
|
Unfunded Plan. The
Company shall have no obligation to reserve or otherwise fund in advance
any amounts that are or may in the future become payable under the Plan.
Any funds that the Company, acting in its sole and absolute discretion,
determines to reserve for future payments under the Plan may be commingled
with other funds of the Company and need not in any way be segregated from
other assets or funds held by the Company. A Participant’s rights to
payment under the Plan shall be limited to those of a general creditor of
the Company.
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6.5
|
Repayment/Forfeiture of
Incentive Bonus. If the Company, as a result of misconduct, is
required to prepare an accounting restatement due to material
noncompliance with any financial reporting requirement under the
securities laws, then (a) any Participant whose Incentive Bonus is subject
to automatic forfeiture due to such misconduct and restatement under
Section 304 of the Sarbanes-Oxley Act of 2002, and (b) any Participant who
the Committee determines either knowingly engaged in or failed to prevent
the misconduct, or whose actions or inactions with respect to the
misconduct and restatement constituted gross negligence, shall be required
to reimburse the Company the amount of any payment of any Incentive Bonus
earned or accrued during the twelve month period following the first
public issuance or filing with the SEC (whichever first occurred) of the
financial document embodying such financial reporting requirement. To the
extent such Incentive Bonus was deferred under a nonqualified deferred
compensation plan maintained by the Company rather than paid to the
Participant, the amount of bonus deferred (and any earnings thereon) shall
be forfeited.
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6.6
|
Adoption,
Amendment, Suspension and Termination of the
Plan.
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|
6.6.1
|
The
Plan shall be effective for the fiscal year of the Company commencing
January 1, 2010 and shall continue in effect until terminated as
provided below; provided, however, any Award to a Covered Employee shall
be contingent on stockholder approval of the Plan at the Company’s 2010
Annual Meeting of Stockholders. If the Plan is not approved by
stockholders at the Company’s 2010 Annual Meeting of Stockholders, any
awards granted under the Plan to Covered Employees shall be null and void
and of no effect.
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6.6.2
|
Subject
to the limitations set forth in Section 6.6.3 below, the Board may at any
time suspend or terminate the Plan and may amend it from time to time in
such respects as the Board may deem advisable, subject to any requirement
for stockholder approval imposed by applicable law, including Section
162(m) of the Code.
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6.6.3
|
No
amendment, suspension or termination of the Plan shall, without the
consent of the person affected thereby, materially, adversely alter or
impair any rights or obligations under any Incentive Bonus previously
earned and awarded under the Plan.
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|
6.7
|
Governing Law. The
validity, interpretation and effect of the Plan, and the rights of all
persons hereunder, shall be governed by and determined in accordance with
the laws of the State of Indiana, other than the choice of law rules
thereof.
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