HILLENBRAND, INC.
10-Qs and 10-Ks
PROXIES
Table of Contents
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
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. __)
Exchange Act of 1934 (Amendment No. __)
Filed by the Registrant þ
Filed by a Party other than the Registrant o
Filed by a Party other than the Registrant o
Check the appropriate box:
| o | Preliminary Proxy Statement | |
| o | Confidential, for Use of the Commission Only (as permitted by Rule 14a-6(e)(2)) | |
| þ | Definitive Proxy Statement | |
| o | Definitive Additional Materials | |
| o | Soliciting Material Pursuant to §240.14a-12 |
HILLENBRAND, INC.
Payment of Filing Fee (Check the appropriate box):
| þ | No fee required. | |
| o | Fee computed on table below per Exchange Act Rules 14a-6(i)(1) and 0-11. |
| (1) | Title of each class of securities to which transaction applies: | ||
| (2) | Aggregate number of securities to which transaction applies: | ||
| (3) | Per unit price or other underlying value of transaction computed pursuant to Exchange Act Rule 0-11 (set forth the amount on which the filing fee is calculated and state how it was determined): | ||
| (4) | Proposed maximum aggregate value of transaction: | ||
| (5) | Total fee paid: | ||
| o | Fee paid previously with preliminary materials. | |
| o | Check box if any part of the fee is offset as provided by Exchange Act Rule 0-11(a)(2) and identify the filing for which the offsetting fee was paid previously. Identify the previous filing by registration statement number, or the Form or Schedule and the date of its filing. |
| (1) | Amount Previously Paid: | ||
| (2) | Form, Schedule or Registration Statement No.: | ||
| (3) | Filing Party: | ||
| (4) | Date Filed: | ||
Table of Contents
HILLENBRAND, INC.
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
To Be Held February 23, 2011
The Annual Meeting of the shareholders of Hillenbrand, Inc. (the “Company”) will be held at
the Company’s headquarters at One Batesville Boulevard, Batesville, Indiana 47006, on Wednesday,
February 23, 2011, at 10:00 a.m. Eastern Standard Time, for the following purposes:
| (1) | to elect five members to the Board of Directors; |
| (2) | to approve, by a non-binding advisory vote, the compensation paid by
the Company to its Named Executive Officers; |
| (3) | to select, by a non-binding advisory vote, the frequency at which the
shareholders of the Company will be asked to approve, by a non-binding advisory
vote, the compensation paid by the Company to its Named Executive Officers; |
| (4) | to ratify the appointment of PricewaterhouseCoopers LLP as the
Company’s independent registered public accounting firm; and |
| (5) | to transact such other business as may properly come before the meeting
and any postponement or adjournment of the meeting. |
| By Order of the Board of Directors, | ||
 |
||
| John R. Zerkle | ||
| Secretary |
January 6, 2011
TABLE OF CONTENTS
| Page | ||||
| 1 | ||||
| 8 | ||||
| 15 | ||||
| 23 | ||||
| 25 | ||||
| 26 | ||||
| 28 | ||||
| 53 | ||||
| 54 | ||||
| 68 | ||||
| 69 | ||||
| 70 | ||||
| 71 | ||||
| 72 | ||||
| 75 | ||||
| 76 | ||||
| 78 | ||||
| 79 | ||||
Table of Contents
HILLENBRAND, INC.
PROXY STATEMENT
PROXY STATEMENT
This proxy statement relates to the solicitation by the Board of Directors
of Hillenbrand, Inc. (the “Company” or “Hillenbrand”) of proxies for use at the Annual
Meeting of the Company’s shareholders to be held at the Company’s headquarters, One
Batesville Boulevard, Batesville, Indiana 47006, telephone (812) 934-7500, on
Wednesday, February 23, 2011, at 10:00 a.m. Eastern Standard Time, and at any
postponements or adjournments of the meeting.
Important Notice Regarding the Availability of Proxy Materials for the Shareholders
Meeting to Be Held on February 23, 2011.
| • | This proxy statement and our 2010 Annual Report to Shareholders are
available on the Internet at www.hillenbrandinc.com. |
QUESTIONS AND ANSWERS ABOUT THE ANNUAL MEETING AND VOTING
The following questions and answers will explain the purpose of this proxy
statement and what you need to know in order to vote your shares. Throughout these
questions and answers and the proxy statement, we sometimes refer to Hillenbrand and
the Company in terms of “we,” “us,” or “our.”
| Q: | What is the purpose of this proxy statement? |
| A: | The Board of Directors of Hillenbrand is soliciting your proxy to vote at
the 2011 Annual Meeting of the shareholders of Hillenbrand because you were a
shareholder at the close of business on December 15, 2010, the record date for
the 2011 Annual Meeting, and are entitled to vote at the Annual Meeting. The
record date for the 2011 Annual Meeting was established by the Board of Directors
as required by our By-laws and Indiana law. |
This proxy statement contains the matters that must be set out in a proxy
statement according to the rules of the U.S. Securities and Exchange Commission
(the “SEC”) and provides the information you need to know to vote at the Annual
Meeting. You do not need to attend the Annual Meeting to vote your shares. |
| Q: | What is the difference between holding shares as a “shareholder of record”
and as a “beneficial owner”? |
| A: | If your shares are registered directly in your name with Hillenbrand’s
transfer agent, Computershare Investor Services, you are the “shareholder of
record” with respect to those shares, and you tell us directly how your shares
are to be voted. |
If your shares are held in a stock brokerage account or by a bank or other
nominee, then your nominee is the shareholder of record for your shares and you
are considered the “beneficial owner” of shares held in street name. As the
beneficial owner, you have the right to direct your broker, bank, or nominee how
to vote your shares. |
1
Table of Contents
| Q: | What am I being asked to vote on? |
A:
|
• | Election of five directors: Kenneth A. Camp, Edward B. Cloues, II, W August Hillenbrand, Thomas H. Johnson, and Neil S. Novich; |
| • | Approval, by a non-binding advisory vote, of the compensation paid to
the Company’s Named Executive Officers1, as disclosed pursuant
to SEC compensation disclosure rules in the Compensation Discussion and
Analysis and Executive Compensation Tables sections of this proxy statement
and in any related material herein (as required by legislation passed by
the U.S. Congress, the “Say on Pay Vote”); |
| • | Selection, by a non-binding advisory vote, of the frequency — every
year, every other year, or every third year — at which the shareholders of
the Company will be asked to approve, by a non-binding advisory vote, the
compensation paid to the Named Executive Officers of the Company by a Say
on Pay Vote; and |
| • | Ratification of the appointment of PricewaterhouseCoopers LLP as the
Company’s independent registered public accounting firm for 2011. |
The Board recommends a vote FOR each of the nominees to the Board of Directors,
FOR approval of the compensation paid to the Named Executive Officers of the
Company pursuant to the Say on Pay Vote, FOR the selection of one year as the
frequency at which a Say on Pay Vote opportunity will be presented to the
Company’s shareholders, and FOR the ratification of the appointment of
PricewaterhouseCoopers LLP as the independent registered public accounting firm
for 2011. |
| Q: | What are the voting requirements to elect the directors and to approve the
other proposals being voted on? |
| A: | Under Indiana law, corporate directors are elected by a “plurality” of the
votes cast for the election of directors. A plurality means, in this case, that
the five nominees receiving the most votes in their favor at the Annual Meeting
will be elected to the Board. Likewise, the selection of the frequency of the
submission of a Say on Pay Vote to the shareholders will also be decided by a
plurality of the votes cast for the frequency periods available under that
proposal. |
The adoption of the proposals to approve the compensation paid to the Named
Executive Officers and to ratify the appointment of PricewaterhouseCoopers LLP
as the independent registered public accounting firm each require the
affirmative vote of a majority of the votes cast for or against approval. |
If you are present or represented by proxy at the Annual Meeting and you
affirmatively elect to abstain, your abstention, as well as withheld votes for
directors and broker non-votes, will not be counted as votes cast on any matter
to which they relate. |
| 1 | Our Named Executive Officers are those
officers specified by Item 402(a)(3) of the SEC’s Regulation S-K. |
2
Table of Contents
| Q: | How many votes do I have? |
| A: | You are entitled to one vote for each share of Hillenbrand common stock
that you held as of the record date. |
| Q: | How do I vote? |
| A: | The different ways that you (if you are a shareholder of record) or your
nominee (if you are a beneficial owner) can tell us how to vote your shares
depend on how you received your proxy statement this year. |
For shareholders of record, many of you were not mailed a hard copy of the Proxy
Materials (this proxy statement and our 2010 Annual Report to Shareholders) and
a proxy card. Instead, commencing on or about January 6, 2011, we sent you a
Notice of Internet Availability of Proxy Materials (“Notice”) telling you that
the Proxy Materials are available at the web site indicated in that Notice,
www.proxyvote.com, and giving you instructions for voting your shares at that
web site. We also told you in that Notice (and on the web site) how you could
request us to mail the Proxy Materials to you. If you subsequently do receive
the Proxy Materials by mail, you can vote in any of the ways described below.
If not, you must vote via the Internet (and we encourage you to do so) at
www.proxyvote.com or in person at the Annual Meeting as explained below. |
With respect to shareholders of record who received the Proxy Materials by mail,
we commenced mailing the Proxy Materials to you on or about January 6, 2011.
You can vote using any of the following methods: |
| • | Proxy card or voting instruction card. Be sure to complete, sign, and
date the card and return it in the prepaid envelope. If you are a
shareholder of record and you return your signed proxy card but do not
indicate your voting preferences, the persons named in the proxy card will
vote FOR the election of each of the five nominees named above as directors
of the Company, FOR the approval of the compensation paid to the Named
Executive Officers, FOR the selection of one year as the frequency at which
the Say on Pay Vote opportunity will be presented to the Company’s
shareholders, and FOR the ratification of the appointment of
PricewaterhouseCoopers LLP as the Company’s independent registered public
accounting firm for 2011. |
| • | By telephone or the Internet. The telephone and Internet voting
procedures established by Hillenbrand for shareholders of record are
explained in detail on your proxy card and are designed to authenticate
your identity, to allow you to give your voting instructions, and to
confirm that these instructions have been properly recorded. |
| • | In person at the Annual Meeting. You may vote in person at the Annual
Meeting. You may also be represented by another person at the meeting by
executing a proper proxy designating that person. If you are a beneficial
owner of shares and want to attend the meeting and vote in person, you must
obtain a legal proxy from your broker, bank, or
nominee and present it to the inspectors of election with your ballot when
you vote at the meeting. |
3
Table of Contents
With respect to the beneficial owners of shares held by nominees, the methods
by which they can access the Proxy Materials and give the voting instructions
to the nominee may vary, depending on the nominee. Accordingly, beneficial
owners should follow the instructions provided by their nominees. |
| Q: | How will my shares be voted? |
| A: | For shareholders of record, all shares represented by the proxies mailed
to shareholders will be voted at the Annual Meeting in accordance with
instructions given by the shareholders. Where no instructions are given, the
shares will be voted: (1) in favor of the election of the Board of Directors’
nominees for five directors; (2) for approval of the compensation paid to the
Named Executive Officers pursuant to the Say on Pay Vote; (3) in favor of the
ratification of the appointment of PricewaterhouseCoopers LLP as the independent
registered public accounting firm of the Company; and (4) in the discretion of
the proxy holders upon such other business as may properly come before the Annual
Meeting. If you do not provide voting instructions as to the desired frequency
of a Say on Pay Vote by the shareholders, we will treat your shares as though you
abstained from voting on that proposal. |
For beneficial owners, the brokers, banks, or nominees holding shares for
beneficial owners must vote those shares as instructed. If the broker, bank, or
nominee has not received instructions from the beneficial owner, the broker,
bank, or nominee generally has discretionary voting power only with respect to
the ratification of the appointment of the independent registered public
accounting firm, or may elect not to vote the shares on that proposal (referred
to as a “broker non-vote”). A broker, bank, or nominee does not have discretion
to vote for or against the election of directors, to approve the compensation of
the Named Executive Officers pursuant to the Say on Pay Vote, or to select the
preferred frequency for a Say on Pay Vote. In order to avoid a broker non-vote
of your shares on the election of directors or the Say on Pay Vote proposals,
you must send voting instructions to your bank, broker, or nominee. |
| Q: | What can I do if I change my mind after I vote my shares prior to the
Annual Meeting? |
| A: | If you are a shareholder of record, you may revoke your proxy at any time
before it is voted at the Annual Meeting by: |
| • | sending written notice of revocation to the Secretary of Hillenbrand at
One Batesville Boulevard, Batesville, Indiana 47006; |
| • | submitting a revised proxy by telephone, Internet, or paper ballot after
the date of the revoked proxy; or |
| • | attending the Annual Meeting and voting in person. |
If you are a beneficial owner of shares, you may submit new voting instructions
by contacting your broker, bank, or nominee. You may also vote in person at the
Annual Meeting if you obtain a legal proxy as described under “How do I vote?”
above. |
4
Table of Contents
| Q: | Who will count the votes? |
| A: | Representatives of Broadridge Investor Communication Solutions, Inc.
(“Broadridge”) will tabulate the votes and act as inspectors of election. |
| Q: | What constitutes a quorum at the Annual Meeting? |
| A: | As of the record date, 62,295,002 shares of Hillenbrand common stock were
outstanding. A majority of the outstanding shares present or represented by
proxy at the Annual Meeting constitutes a quorum for the purpose of adopting
proposals at the Annual Meeting. If you submit a properly executed proxy, then
your shares will be considered part of the quorum. |
| Q: | Who can attend the Annual Meeting in person? |
| A: | All shareholders as of the record date may attend the Annual Meeting in
person but must have an admission ticket. If you are a shareholder of record,
the ticket attached to the proxy card or a copy of your Notice (whichever you
receive) will admit you and one guest. If you are a beneficial owner, you may
request a ticket by writing to the Office of the Secretary, One Batesville
Boulevard, Batesville, Indiana 47006 or by faxing your request to (812) 931-5185.
You must provide evidence of your ownership of shares with your ticket request,
which you can obtain from your broker, bank, or nominee. We encourage you or
your broker to fax your ticket request and proof of ownership in order to avoid
any mail delays. |
| Q: | When are shareholder proposals due for the 2012 Annual Meeting? |
| A: | For shareholder proposals or director nominees to be presented at the
Company’s 2012 Annual Meeting of shareholders and to be considered for possible
inclusion in the Company’s proxy statement and form of proxy relating to that
meeting, such proposals or nominations must be submitted to and received by the
Secretary of Hillenbrand, at its principal offices at One Batesville Boulevard,
Batesville, Indiana 47006, not later than September 8, 2011. |
In addition, with respect to proposals or nominations that will not be included
in our proxy statement for the 2012 Annual Meeting, Hillenbrand’s Amended and
Restated Code of By-laws provides that for business to be brought before a
shareholders meeting by a shareholder, or for nominations to the Board of
Directors to be made by a shareholder for consideration at a shareholders’
meeting, written notice thereof must be received by the Secretary of Hillenbrand
at its principal offices not later than 100 days prior to the anniversary of the
immediately preceding Annual Meeting, or not later than November 15, 2011, for
the 2012 Annual Meeting of shareholders. This notice must also provide certain
information set forth in the Amended and Restated Code of By-laws. |
5
Table of Contents
| Q: | What happens if a nominee for director is unable to serve as a director? |
| A: | If any of the nominees becomes unavailable for election, which we do not
expect to happen, votes will be cast for such substitute nominee or nominees as
may be designated by the Board of Directors, unless the Board of Directors
reduces the number of directors. |
| Q: | Can I view the shareholder list? If so, how? |
| A: | A complete list of the shareholders entitled to vote at the Annual Meeting
will be available to view during the Annual Meeting. The list will also be
available to view at the Company’s principal offices during regular business
hours during the five business days preceding the Annual Meeting. |
| Q: | Who pays for the proxy solicitation related to the Annual Meeting? |
| A: | We do. In addition to sending you these materials, some of our directors
and officers, as well as management and non-management employees, may contact you
by telephone, mail, email, or in person. You may also be solicited by means of
press releases issued by Hillenbrand and postings on our web site,
www.hillenbrandinc.com. None of our officers or employees will receive any
additional compensation for soliciting your proxy. We have retained Broadridge
to assist us in soliciting proxies for an estimated fee of $36,000, plus
reasonable out-of-pocket expenses. Broadridge will ask brokers, banks, and other
custodians and nominees whether they hold shares for which other persons are
beneficial owners. If so, we will supply them with additional copies of the
Proxy Materials for distribution to the beneficial owners. We will also
reimburse banks, nominees, fiduciaries, brokers, and other custodians for their
costs of sending the Proxy Materials to the beneficial owners of Hillenbrand
common stock. |
| Q: | How can I obtain a copy of the Annual Report on Form 10-K? |
| A: | A copy of Hillenbrand’s 2010 Annual Report on Form 10-K may be obtained
free of charge by writing or calling the Investor Relations Department of
Hillenbrand at its principal offices at One Batesville Boulevard, Batesville,
Indiana, 47006, telephone (812) 931-6000 and facsimile (812) 931-5184. The 2010
Annual Report on Form 10-K, as well as Quarterly Reports on Form 10-Q and Current
Reports on Form 8-K, are also available at Hillenbrand’s
web site, www.hillenbrandinc.com. |
6
Table of Contents
| Q: | How can I obtain the Company’s corporate governance information? |
| A: | The documents listed below are available on the Internet at the Company’s
web site which is www.hillenbrandinc.com. You may also go directly to
www.hillenbrandinc.com/CorpGov_overview.htm for those documents. The documents
are also available in print to any shareholder who requests copies through our
Investor Relations Department at our principal offices, One Batesville Boulevard,
Batesville, Indiana 47006, telephone (812) 931-6000 and facsimile (812) 931-5184.
The available documents are: |
| • | Hillenbrand, Inc. Corporate Governance Standards |
| • | Hillenbrand, Inc. Committee Charters — Audit Committee,
Nominating/Corporate Governance Committee, and Compensation and Management
Development Committee |
| • | Position Descriptions for Chairperson of the Board, Vice Chairperson of
the Board, Members of the Board of Directors, Committee Chairpersons, and
Committee Vice Chairpersons |
| • | Hillenbrand, Inc. Code of Ethical Business Conduct |
| • | Restated and Amended Articles of Incorporation of Hillenbrand, Inc. |
| • | Amended and Restated Code of By-laws of Hillenbrand, Inc. |
7
Table of Contents
PROPOSAL NO. 1 — ELECTION OF DIRECTORS
This section of the proxy statement introduces the members of our Board of
Directors, including four directors in Class III who have been nominated for election
to additional three-year terms, and one director who has been added as a director
subsequent to the 2010 Annual Meeting and who is nominated for election as a director
in Class I for a one-year term so that his term will expire at the same time as the
other directors in Class I (at the 2012 Annual Meeting).
Nominees
The Restated and Amended Articles of Incorporation and the Amended and Restated
Code of By-laws of Hillenbrand provide that members of the Board of Directors are
classified with respect to the terms that they serve by dividing them into three equal
(or near-equal) classes. Directors in each class are elected to serve three-year
terms or until their successors have been duly elected and qualified.
The Board of Directors currently consists of twelve members, with four directors
in each class. The terms of the directors expire as follows:
| Class | Term Expires at: | |
Class III
|
2011 Annual Meeting | |
Class I
|
2012 Annual Meeting | |
Class II
|
2013 Annual Meeting |
The four directors in Class III, who are each nominated for election to the Board
at the 2011 Annual Meeting to serve a three-year term ending at the 2014 Annual
Meeting, each of whom has agreed to serve as a director if elected, are Kenneth A.
Camp, W August Hillenbrand, Thomas H. Johnson, and Neil S. Novich. One director,
Edward B. Cloues, II, was elected by the Board of Directors as a director subsequent
to the 2010 Annual Meeting to serve for an interim term ending at the 2011 Annual
Meeting. Mr. Cloues is nominated for election to the Board as a Class I director at
the 2011 Annual Meeting to serve a one-year term ending at the 2012 Annual Meeting
(when the terms of the Class I directors expire), and he has agreed to serve as a
director if elected.
The Board of Directors recommends that shareholders vote FOR the election to the
Board of Directors of each of the five nominees.
8
Table of Contents
Set forth below is information about all of our directors, including the
five nominees to be elected at the 2011 Annual Meeting of shareholders. The
biographical information provided for each director includes all directorships held by
such director at any time during the past five years. The directors are listed
alphabetically within each class.
Class I (Terms expire in 2012 for all directors in Class I, including Edward
B. Cloues, II who is nominated for election as a Class I director at the 2011 Annual
Meeting)
| Name, Age, and Year First Elected | ||
| as a Director | Other Information | |
 William J. Cernugel Age — 68 Director since 2008 |
William J. Cernugel has
served as a director of the
Company since March 31, 2008. Mr.
Cernugel was Senior Vice President
and Chief Financial Officer of
Alberto-Culver Company from May
2000 until his retirement in March
2007. Prior to that, he served in
various other financial capacities
for Alberto-Culver Company
including Senior Vice President,
Finance. Mr. Cernugel also serves
on several not-for-profit boards.
He is currently a board member and
chairman of the Audit and Finance
Committee of the Rehabilitation
Institute of Chicago. Mr.
Cernugel is also a board member
and Secretary-Treasurer of
Gottlieb Memorial Foundation and
from 1973 until June 2008 was a
board member of Gottlieb Health
Resources, Inc. and chairman of
its Audit and Finance Committee.
Mr. Cernugel was on the Board of
Directors and a member of the
Audit Committee of the Illinois
CPA Society from 2007 to 2009.
Mr. Cernugel is a Certified Public
Accountant. The Board of Directors concluded that Mr. Cernugel should serve as a director based on his experience and expertise in the areas of accounting and finance, including experience as a chief financial officer of a major corporation and his current role as Chairperson of the Audit and Finance committees of several non-profit organizations. |
|
 Edward B. Cloues, II Age — 63 Director since 2010 |
Edward B. Cloues, II has
served as a director of the
Company since April 2, 2010. He
previously served as Chairman of
the Board of Directors and Chief
Executive Officer of K-Tron
International, Inc. (“K-Tron”)
from January 5, 1998 until the
Company acquired K-Tron on April
1, 2010. He had also served as a
director of K-Tron from 1985 and
was Vice Chairman of the Board of
Directors of that company for
several years. Prior to joining
K-Tron, Mr. Cloues was a senior
partner of Morgan, Lewis & Bockius
LLP, which is one of the world’s
largest law firms. Mr. Cloues is
a director and non-executive
Chairman of the Board of AMREP
Corporation, a New York Stock
Exchange-listed company, a
director of Penn Virginia
Corporation, a New York Stock
Exchange-listed company, and a
director of Penn Virginia Resource
GP, LLC, which is the general
partner of Penn Virginia Resource
Partners, L.P., a New York Stock
Exchange-listed master limited
partnership. He has been a member
of and chaired audit, compensation
and nominating committees and has
substantial experience with
corporate governance issues. He
also serves on the Board of
Trustees of Virtua Health, Inc., a
non-profit hospital and healthcare
system. Mr. Cloues holds a
Bachelor of Arts degree from
Harvard College and a Juris Doctor
degree from the New York
University School of Law where he
was a Root-Tilden Scholar. The Board of Directors concluded that Mr. Cloues should serve as a director based on his past extensive legal experience as a law firm partner specializing in business law matters, particularly in the area of mergers and acquisitions, and his experience as CEO of K-Tron International, Inc. prior to its acquisition by the Company on April 1, 2010. |
9
Table of Contents
| Name, Age, and Year First Elected | ||
| as a Director | Other Information | |
 Eduardo R. Menascé Age — 65 Director since 2008 |
Eduardo R. Menascé has served
as a director of the Company since
February 8, 2008. Mr. Menascé
also is a director of Hill-Rom
Holdings, Inc. (formerly
Hillenbrand Industries, Inc.), the
former parent corporation of the
Company, having served on that
board since 2004. He is also a
member of the New York Chapter of
the NACD (National Association of
Corporate Directors). He is the
retired President of the
Enterprise Solutions Group for
Verizon Communications, Inc., New
York City, New York. Prior to the
merger of Bell Atlantic and GTE
Corporation, which created Verizon
Communications, he was the
Chairman, President and Chief
Executive Officer of CTI MOVIL
S.A. (Argentina), a business unit
of GTE Corporation, from 1996 to
2000. Mr. Menascé has also held
senior positions at CANTV in
Venezuela and Wagner Lockheed and
Alcatel in Brazil, and from 1981
to 1992 served as Chairman of the
Board and Chief Executive Officer
of GTE Lighting in France. He
earned a Bachelor’s degree in
Industrial Engineering from
Universidad Pontificia Catolica de
Rio de Janeiro and a Master’s
degree in Business Administration
from Columbia University. Mr.
Menascé currently serves on the
boards of directors of Pitney
Bowes Inc., a global provider of
integrated mail and document
management solutions, John Wiley &
Sons, Inc., a developer, publisher
and seller of products in print
and electronic media for
educational, professional,
scientific, technical, medical,
and consumer markets, and KeyCorp,
one of the nation’s leading
bank-based financial service
companies. The Board of Directors concluded that Mr. Menascé should serve as a director based on his prior service as a director of Hillenbrand Industries, Inc. and his broad experience as a corporate executive of a major public corporation and experience as a member of several boards of directors, including service on the Audit Committees of several of those boards. |
|
 Stuart A. Taylor, II Age — 50 Director since 2008 |
Stuart A. Taylor, II has
served as a director of the
Company since September 26, 2008.
Mr. Taylor is the Chief Executive
Officer of The Taylor Group LLC in
Chicago, a private equity firm
focused on creating and acquiring
businesses in partnership with
women and minority entrepreneurs.
He has previously held positions
as Senior Managing Director at
Bear, Stearns & Co. Inc. and
Managing Director and head of CIBC
World Market’s Global Automotive
Group and Capital Goods Group. He
also served as Managing Director
of the Automotive Industry Group
at Bankers Trust following a 10
year position at Morgan Stanley &
Co. Incorporated in Corporate
Finance. Mr. Taylor has been a
member of the board of directors
for Ball Corporation since 1999,
where he currently serves as
Chairman of the Human Resources
Committee. The Board of Directors concluded that Mr. Taylor should serve as a director based on his experience with several leading investment firms, his ongoing experience as a member of another public company board, and his broad merger and acquisition experience. |
10
Table of Contents
Class II (Terms expire in 2013)
| Name, Age, and Year First | ||
| Elected as a Director | Other Information | |
 Mark C. DeLuzio Age — 54 Director since 2008 |
Mark C. DeLuzio has served as
a director of the Company since
March 31, 2008. He is President
and Chief Executive Officer of Lean
Horizons Consulting, LLC, a global
management consulting business
which he founded in 2001. Prior to
founding Lean Horizons, he served
as Vice President, Danaher Business
Systems for Danaher Corporation.
Mr. DeLuzio serves as an advisory
board member for Central
Connecticut State University’s
School of Engineering and
Technology and the School of
Business. The Board of Directors concluded that Mr. DeLuzio should serve as a director based on his years of service as Vice President of Danaher Business Systems for Danaher Corporation, and his continuing leadership of Lean Horizons Consulting, LLC, where he continues to provide expertise in lean business concepts. |
|
 James A. Henderson Age — 76 Director since 2008 |
James A. Henderson has served
as the Vice Chairperson of the
Board of the Company since March
31, 2008. Mr. Henderson was
Chairman of the Board and Chief
Executive Officer of Cummins Inc.
prior to his retirement in December
1999. Mr. Henderson is a director
of Nanophase Technologies
Corporation. Mr. Henderson also
currently serves as Chairman
Emeritus of The Culver Educational
Foundation Board of Trustees and
was a member of the Princeton
University Board of Trustees and
served as Chairman of the Executive
Committee for the university. He
has previously served as a director
of AT&T Inc. (1978 — mid 2007),
International Paper Company
(1999-2006), Rohm and Haas Company,
and Ryerson, Inc. (1999-2007). The Board of Directors concluded that Mr. Henderson should serve as a director based on his long experience as Chairman of the Board and Chief Executive Officer of a major public corporation and his continuing role on the boards of major corporations and educational organizations. |
|
 Ray J. Hillenbrand Age — 76 Director since 2008 |
Ray J. Hillenbrand has been
Chairperson of the Board of the
Company since February 8, 2008. He
previously served as a director of
Hillenbrand Industries, Inc., the
former parent corporation of the
Company, from 1970 until March 31,
2008. He served as that company’s
Chairman of the Board from January
17, 2001 until March 31, 2006. Mr.
Hillenbrand was employed by and
active for 19 years in the
management of Hillenbrand
Industries prior to his resignation
as Senior Vice President and member
of the Office of the President in
1977. Mr. Hillenbrand is President
of Dakota Charitable Foundation.
He is the Manager of the Dakota
Partnership and the RJH
Partnership, family investment
partnerships, and Prairie Edge
Inc., a family retail company. He
is the Chairman of the Board of the
downtown Rapid City, South Dakota
Economic Development Corporation.
He is also the Chairman of the
Investment Committee and on the
Finance Committee of the Catholic
Diocese of Rapid City, South
Dakota. Mr. Hillenbrand is a
cousin of both W August Hillenbrand
and Thomas H. Johnson. The Board of Directors concluded that Mr. Hillenbrand should serve as a director based on his deep experience as an executive with Hillenbrand Industries, Inc. and his years of service on the Board of Directors of Hillenbrand Industries. |
11
Table of Contents
| Name, Age, and Year First | ||
| Elected as a Director | Other Information | |
 F. Joseph Loughrey Age — 61 Director since 2009 |
F. Joseph Loughrey has served
as a director of the Company since
February 11, 2009. On April 1,
2009, he retired from Cummins Inc.
after serving in a variety of roles
for 35 years, most recently as Vice
Chairman of the Board of Directors
and the company’s President and
Chief Operating Officer. Mr.
Loughrey served on the board of
Cummins from July 2005 until May
2009. He also served on the boards
of Tower Automotive, Inc.
(1994-2007) and Sauer-Danfoss, Inc.
(June 2000 through September 2010).
Mr. Loughrey currently serves on a
number of boards, including as
Chairman for Conexus Indiana, and
as a member of the boards of AB
SKF, Vanguard Group, Lumina
Foundation for Education, and Oxfam
America. He is Chairman of the
Advisory Council to the College of
Arts & Letters at The University of
Notre Dame, where he also serves on
the Advisory Board to the Kellogg
Institute for International
Studies. The Board of Directors concluded that Mr. Loughrey should serve as a director based on his service as President and Chief Operating Officer of a major public corporation and his continuing service on several public company and educational boards of directors. |
12
Table of Contents
Class III (Nominated for re-election this year)
| Name, Age, and Year First Elected | ||
| as a Director | Other Information | |
 Kenneth A. Camp Age — 65 Director since 2008 |
Kenneth A. Camp has served as
a director and as President and
Chief Executive Officer of the
Company since February 8, 2008.
Mr. Camp previously served as
President of Batesville Casket
Company, Inc. (“Batesville”) from
May 1, 2001 until June 16, 2008.
Mr. Camp previously held various
positions with our former parent
corporation, Hillenbrand
Industries, Inc., commencing
October 8, 2001. He served as
Senior Vice President of that
company from October 1, 2006 until
his resignation from that position
on March 31, 2008. Mr. Camp has
also held various positions at
Batesville since beginning his
business career with that company
in 1981, including Senior Vice
President/General Manager of
Operations from 1995 to 2000; Vice
President, Sales and Service; Vice
President, Marketing; and Vice
President, Strategic Planning.
Mr. Camp also serves on the boards
of the Manufacturers Alliance/MAPI
and the National Association of
Manufacturers. The Board of Directors concluded that Mr. Camp should serve as a director based on his years of experience as an executive of Batesville Casket Company, Inc., Hillenbrand Industries, Inc., and Hillenbrand, Inc. and his deep knowledge of the funeral industry. |
|
 W August Hillenbrand Age — 70 Director since 2008 |
W August Hillenbrand has
served as a director of the
Company since February 8, 2008.
Mr. Hillenbrand also is a director
of Hill-Rom Holdings, Inc., our
former parent company (previously
named Hillenbrand Industries,
Inc.), having served on that board
since 1972. He served as that
company’s Chief Executive Officer
from 1989 until 2000 and as
President from 1981 until 1999.
Prior to his retirement in
December 2000, Hillenbrand
Industries, Inc. had employed Mr.
Hillenbrand throughout his
business career. Mr. Hillenbrand
is a board member of the Ocean
Reef Medical Center, the Ocean
Reef Medical Center Foundation and
of the Ocean Reef Cultural Center.
He previously served on the
boards of DPL, Inc. (1992-2008),
and Pella Corporation (2001-2008).
Mr. Hillenbrand is the Chief
Executive Officer of Hillenbrand
Capital Partners, an unaffiliated
family investment partnership.
Mr. Hillenbrand is a cousin of Ray
J. Hillenbrand. The Board of Directors concluded that Mr. Hillenbrand should serve as a director based on his years of experience as the CEO of Hillenbrand Industries, Inc. and service on the Board of Hillenbrand Industries and several other organizations. |
|
 Thomas H. Johnson Age — 60 Director since 2008 |
Thomas H. Johnson has served
as a director of the Company since
March 31, 2008. Mr. Johnson
founded and currently serves as
Chairman of Johnson Consulting
Group, a consulting firm focused
on the death care industry. Prior
to founding Johnson Consulting, he
founded and served as Chairman of
Prime Succession. Before Prime
Succession, he served in a variety
of other capacities in the death
care profession including as an
executive of Batesville. Mr.
Johnson is the sole owner of
Johnson Investment Group, LLC,
which owns and operates two
funeral homes in the Phoenix,
Arizona vicinity. Mr. Johnson is
also a 25% owner, and the managing
member, of Fire and Stone Group,
LLC which owns and operates a
funeral home in Batesville,
Indiana. Mr. Johnson currently
serves on the board of Great
Western Life Insurance. He
previously served on the board of
the Funeral Service Foundation,
serving on that board from 2004
until October 2010. Mr. Johnson
is a cousin of Ray J. Hillenbrand. The Board of Directors concluded that Mr. Johnson should serve as a director based on his long service in the death care industry and resultant expertise in funeral services, including his prior service on the Board of the Funeral Service Foundation. |
13
Table of Contents
| Name, Age, and Year First Elected | ||
| as a Director | Other Information | |
 Neil S. Novich Age — 56 Director Since 2010 |
Neil S. Novich has served as a
director of the company since
February 24, 2010. He is the
former Chairman, President and
Chief Executive Officer of
Ryerson, Inc., a global metals
distributor and fabricator. Mr.
Novich joined Ryerson is 1994 as
Chief Operating Officer and was
named President and CEO in 1995.
He served on the board of Ryerson
from 1994 until 2007, adding
Chairman to his title in 1999. He
remained Chairman and CEO until
2007, when the company was sold.
Prior to his time at Ryerson, Mr.
Novich spent 13 years with Bain &
Company, an international
management consulting firm.
During his tenure with Bain, Mr.
Novich spent several years as a
partner with the firm. He serves
on the boards of Analog Devices,
Inc. and W.W. Grainger, Inc.,
where he chairs the Compensation
Committees of both companies. Mr.
Novich is also a trustee of both
the Field Museum of National
History and of Children’s Home &
Aid in Chicago and is a member of
the Visiting Committee to the
Physical Sciences Division of the
University of Chicago. The Board of Directors concluded that Mr. Novich should serve as a director based on his several years of experience as a partner with a major consulting firm and later his service as President and CEO of a major public corporation, together with his continuing service on the boards of several public companies and non-profit organizations. |
14
Table of Contents
THE BOARD OF DIRECTORS AND COMMITTEES
The Board of Directors is charged with overseeing the operations of the
Company. In this section of the proxy statement we describe the overall and certain
specific responsibilities of the Board of Directors and its committees. These pages
provide detailed information about the role of the Board of Directors and its
committees, our corporate governance, and how you can communicate with the Board or
with individual directors.
Board’s Responsibilities
The Board of Directors is the ultimate decision-making body of the Company,
except with respect to those matters reserved to the shareholders. The Board acts as
an advisor and counselor to senior management and oversees and monitors management’s
performance. The Board also oversees the Company’s management of risk involved or
potentially involved in the Company’s operations.
Leadership Structure
The Corporate Governance Standards for our Board of Directors provide that the
Company’s Chief Executive Officer will not also be the Chairperson of the Board unless
the Board specifically approves an exception to that policy (in which case a “Lead
Director” will be elected from among the non-employee directors). Currently, and at
all times since the Company’s formation, the positions of Chief Executive Officer and
Chairperson of our Board are and have been held by separate individuals. Our Board
believes that the separation of these two positions is the most appropriate leadership
structure for the Company at the current time because it enables us to benefit from
the expertise, experience, and strengths of both of the individuals holding those key
leadership positions in the Company. Our Chief Executive Officer, Kenneth A. Camp,
has been employed in our core casket business for nearly 30 years. He has held
numerous management positions in the business over that time span, including the
position of Chief Executive Officer of Batesville Casket Company from 2001 — 2008 and
Chief Executive Officer of Hillenbrand, Inc. since 2008. The Chairperson of our
Board, Ray J. Hillenbrand, has been a director of the Company and its predecessor,
Hillenbrand Industries, Inc., for more than 40 years, including in that time span over
seven years as the Chairperson of the Board.
Risk Oversight
The Board of Directors has direct responsibility for overseeing all material
risks of the Company and also performs its risk oversight responsibilities through the
work of the Compensation and Management Development Committee (the “Compensation
Committee”) and the Audit Committee of the Board. At each meeting of the Board of
Directors, management presents to the entire Board any new material risks to the
Company for the Board’s evaluation and consideration. No less than once each year,
management makes a formal presentation to the entire Board of Directors that describes
all significant risks of the Company to ensure the Board’s awareness of the overall
risk profile of the Company and that the risks are being properly mitigated and/or
managed.
In addition, the Compensation Committee analyzes and manages risks related to our
compensation policies and practices, and the Audit Committee has oversight
responsibility for all financially-related risks facing the Company. The Compensation
Committee’s risk management efforts are discussed under “Executive Compensation —
Part V: Compensation-Related Risk Strategies” in this proxy statement. The Audit
Committee, in accordance with its Charter, performs its risk management oversight by
discussing “with senior management the Company’s guidelines and policies that govern
the
process by which the Company assesses and manages the Company’s exposure to
risks... and the steps management has taken to monitor and control such exposure.”
These Committee roles and the risk oversight process of the Company have not impacted
the Board leadership structure.
15
Table of Contents
Meetings of the Board and Committees
The Board agenda setting process generally involves the Chairperson of the Board,
Vice Chairperson of the Board, Chief Executive Officer, and Secretary, who develop a
proposed agenda for Board meetings. Proposed agenda items that fall within the scope
of responsibilities of a Board committee are initially developed by the chairperson of
that committee with management assistance. Board and committee materials related to
agenda items are provided to Board members sufficiently in advance of meetings
(typically one week) to allow the directors to prepare for discussion of the items at
the meetings.
At the invitation of the Board and its committees, members of senior management
attend Board and committee meetings or portions thereof for the purpose of reporting
to the Board and participating in discussions. Generally, discussions of matters to
be considered by the Board and its committees are facilitated by the manager
responsible for that function or area of the Company’s operations. In addition, Board
members have free access to all other members of management and employees of the
Company. As necessary and appropriate in their discretion, the Board and its
committees consult with independent legal, financial, human resource, compensation,
and accounting advisors to assist in their duties to the Company and its shareholders.
The chairpersons of the committees of the Board each preside over the portion of
the Board meetings at which the principal items to be considered are within the scope
of the authority of their respective committees. The chairperson of each committee,
working with management, determines the frequency, length, and agenda of meetings of
that committee. Sufficient time to consider the agenda items is provided. Materials
related to agenda items are provided to the committee members sufficiently in advance
of meetings (typically one week) to allow the members to prepare for discussion of the
items at the meeting.
Executive sessions or meetings of non-employee directors without management
present are held after each Board meeting, and after each committee meeting as
scheduled by the chairpersons of the committees. The Chairperson of the Board
generally presides at executive sessions of non-employee directors, except that the
chairpersons of the committees of the Board preside at executive sessions of
non-employee directors held following meetings of their committees or at which the
principal items to be considered are within the scope or authority of their
committees.
Other Corporate Governance Matters
Both the Board of Directors and management of the Company firmly embrace good and
accountable corporate governance and believe that an attentive, performing Board is a
tangible competitive advantage. The composition of our Board was formed with an
emphasis on independence and the mix of characteristics, experiences, and diverse
perspectives and skills most appropriate for the Company. The Board has established
position specifications, including performance criteria, for its members, the
Chairperson of the Board, the Vice Chairperson of the Board, and the chairpersons and
vice chairpersons of each of the standing Board committees discussed below. These
position specifications are available on the Company’s web site at
www.hillenbrandinc.com.
16
Table of Contents
The Board of Directors has also taken other measures to ensure continued high
standards for corporate governance. Specifically, the Board has adopted Corporate
Governance Standards for the Board of Directors of the Company, the current version of
which can be found on the Company’s web site at www.hillenbrandinc.com. The Board has
also adopted a Code of Ethical Business Conduct that is applicable to all employees of
the Company and its subsidiaries, including the Company’s Chief Executive Officer,
Chief Financial Officer, and Principal Accounting Officer. No waivers of the
requirements of our Code of Ethical Business Conduct were granted during fiscal 2010.
Consistent with the Company’s commitment to sound corporate governance, the Board
and management believe that the foregoing measures, and others that have been taken,
place the Company in compliance with listing and corporate governance requirements of
the New York Stock Exchange, the Sarbanes-Oxley Act of 2002, and related rules of the
SEC. Copies of the Company’s Corporate Governance Standards, Code of Ethical Business
Conduct, and Board committee charters are filed or incorporated by reference as
exhibits to the Company’s Annual Report on Form 10-K for the year ended September 30,
2010, and are available on the Company’s web site at www.hillenbrandinc.com or in
print to any shareholder who requests copies through the Company’s Investor Relations
Department at its principal offices at One Batesville Boulevard, Batesville, Indiana,
47006, telephone (812) 931-6000 and facsimile (812) 931-5184.
Determinations with Respect to Independence of Directors
The Corporate Governance Standards of the New York Stock Exchange adopted by the
Board of Directors require the Board of Directors to make an annual determination
regarding the independence of each of the Company’s directors and provide standards
for making those determinations which are prescribed by the New York Stock Exchange.
The Board made those determinations for each member of the Board on December 7, 2010,
based on an annual evaluation performed by and recommendations made by the
Nominating/Corporate Governance Committee.
To assist in the Board’s determinations, each director completed materials
designed to identify any relationships that could affect the director’s independence.
On the basis of these materials and the standards described above, the Board
determined that each of William J. Cernugel, Edward B. Cloues, II, Mark C. DeLuzio,
James A. Henderson, Ray J. Hillenbrand, Thomas H. Johnson, F. Joseph Loughrey, Eduardo
R. Menascé, Neil S. Novich, and Stuart A. Taylor, II is independent.
On the basis of the standards described above and the materials submitted by the
directors, the Board determined that W August Hillenbrand does not meet the standards
for director independence because of an agreement we have with him to provide him with
certain benefits. That agreement was assumed by us from our former corporate parent
in connection with our spin-off in 2008. Details concerning the agreement are
described under the heading “Certain Relationships and Related Person Transactions”
and “Compensation of Directors” below. The Board has also determined that Kenneth A.
Camp does not meet the director independence standards because of his current service
as President and Chief Executive Officer of the Company. Accordingly, neither of
these non-independent directors serves on the Audit, Compensation, or
Nominating/Corporate Governance Committees of the Board of Directors.
17
Table of Contents
Committees of the Board of Directors
It is the general policy of the Company that most significant decisions be
considered by the Board as a whole. As a consequence, the standing (permanent)
committee structure of the Board is limited to those committees considered to be basic
to, or required for, the operation of a publicly owned
company. Currently those committees are the Audit Committee, Compensation
Committee, and Nominating/Corporate Governance Committee, each of which has a written
charter adopted by the Board of Directors. The Nominating/Corporate Governance
Committee recommends the members and chairpersons of those committees to the Board.
The Audit Committee, Compensation Committee, and Nominating/Corporate Governance
Committee are made up of only independent directors. The current charter for each of
the Board’s standing committees is available on the Company’s web site at
www.hillenbrandinc.com and is available in print to any shareholder who requests it
through the Company’s Investor Relations Department at One Batesville Boulevard,
Batesville, Indiana 47006, telephone (812) 931-6000 and facsimile (812) 931-5184.
In furtherance of its policy of having significant decisions made by the Board as
a whole, the Company has an orientation and continuing education process for Board
members that includes the furnishing of extensive materials, meetings with key
management, and visits to Company facilities, and attendance at Company and industry
events. Moreover, the directors’ education includes, among other things, regular
dedicated sessions regarding the Company’s businesses and operations and Audit
Committee sponsored financial literacy and legal and regulatory compliance training.
Audit Committee. The Audit Committee has general oversight
responsibilities with respect to the Company’s financial reporting and financial
controls. It annually reviews the Company’s financial reporting process, its system
of internal controls regarding accounting, legal, and regulatory compliance and ethics
that management or the Board has established, and the internal and external audit
processes of the Company. During fiscal 2010, the Audit Committee consisted of
Eduardo R. Menascé (Chairperson), William J. Cernugel (Vice Chairperson), Thomas H.
Johnson, Stuart A. Taylor, II, and Edward B. Cloues, II (Mr. Cloues was appointed to
the Audit Committee on May 14, 2010). Each member of the Audit Committee is
independent under Rule 10A-3 of the SEC and New York Stock Exchange listing standards
and meets the financial literacy guidelines established by the Board in the Audit
Committee Charter. The Board interprets “financial literacy” to mean the ability to
read and understand audited and unaudited consolidated financial statements (including
the related notes) and monthly operating statements of the sort released or prepared
by the Company, as the case may be, in the normal course of its business. The Board
of Directors has determined that each member of the Audit Committee is an “audit
committee financial expert” as that term is defined in Item 407(d) of Regulation S-K
of the SEC.
Mr. Menascé also serves on the audit committees of two other public companies.
In accordance with our Audit Committee Charter, the Board of Directors has made a
determination that his service on those other public company audit committees does not
impair his ability to serve on our Audit Committee.
Compensation and Management Development Committee. The Compensation and
Management Development Committee (the “Compensation Committee”) assists the Board in
ensuring that the officers and key management of the Company are effectively
compensated in terms of salaries, incentive compensation, and other benefits that are
internally equitable and externally competitive and, as previously noted, analyzes and
determines the risks, if any, created by our compensation policies and practices. The
Compensation Committee is also responsible for reviewing and assessing the talent
development and succession management actions concerning the officers and key
employees of the Company. For fiscal 2010, the Compensation Committee consisted of
James A. Henderson (Chairperson), Mark C. DeLuzio, Ray J. Hillenbrand, F. Joseph
Loughrey, and Neil S. Novich (Vice Chairperson) (Mr. Novich was appointed to the
Compensation Committee on February 24, 2010). Each member of the Compensation
Committee is independent as defined by the New York Stock Exchange listing standards.
18
Table of Contents
Nominating/Corporate Governance Committee. For fiscal 2010, the
Nominating/Corporate Governance Committee consisted of all of the independent
directors of the Company (being all directors except W August Hillenbrand and Kenneth
A. Camp). Neil S. Novich was appointed to the Nominating/Corporate Governance
Committee effective February 24, 2010. Edward B. Cloues, II was appointed to the
Nominating/Corporate Governance Committee effective May 14, 2010. Each member of the
Nominating/Corporate Governance Committee is independent as defined by the New York
Stock Exchange listing standards.
The Charter for the Nominating/Corporate Governance Committee provides that the
primary function of this Committee is to assist the Board of Directors in ensuring
that the Company is operated in accordance with prudent and practical corporate
governance standards, ensuring that the Board achieves its objective of having a
majority of its members be independent in accordance with New York Stock Exchange and
other regulations, and identifying candidates for the Board of Directors.
The Board of Directors has adopted position specifications applicable to members
of the Board of Directors, and nominees for the Board of Directors recommended by the
Nominating/Corporate Governance Committee must meet the qualifications set forth in
those position specifications. The specifications provide that a candidate for
director should not ever have (i) been the subject of an SEC enforcement action in
which he or she consented to the entry of injunctive relief, a cease and desist order,
or a suspension or other limitation on the ability to serve as a corporate officer or
supervisor; (ii) had any license suspended or revoked due to misconduct of any type;
or (iii) violated any fiduciary duty to the Company or its Code of Ethical Business
Conduct. Additionally, each candidate for director should exhibit the following
characteristics:
| • | Have a reputation for industry, integrity, honesty, candor, fairness, and discretion; | ||
| • | Be an acknowledged expert in his or her chosen field of endeavor, which area of expertise should have some relevance to the Company’s businesses or operations; | ||
| • | Be knowledgeable, or willing and able to become so quickly, in the critical aspects of the Company’s businesses and operations; and | ||
| • | Be experienced and skillful in serving as a competent overseer of, and trusted advisor to, senior management of a substantial publicly held corporation. |
The Nominating/Corporate Governance Committee reviews incumbent directors against
the position specifications applicable to members of the Board of Directors and
independence standards set forth in the New York Stock Exchange listing standards.
The Board as a whole, the Board committees, and the individual directors nominated by
the Board for election at the next Annual Meeting of the Company’s shareholders are
formally evaluated annually by the Nominating/Corporate Governance Committee, whose
findings are reviewed with the Board.
The Company does not have a formal policy regarding diversity of the Board of
Directors. However, the Charter of the Nominating/Corporate Governance Committee
requires the Committee annually to “assess the Board’s effectiveness as a whole as
well as the effectiveness of the individual directors and the Board’s various
committees, including a review of the mix of skills, core competencies and
qualifications...” of the members of the Board and its committees.
19
Table of Contents
The Nominating/Corporate Governance Committee’s policy with respect to the
consideration of director candidates recommended by shareholders is that it will
consider such candidates. Any such recommendations should be communicated to the
Chairperson of the Nominating/Corporate Governance Committee in the manner described
below in “How You Can Communicate with Directors” and should be accompanied by
substantially the same types of information as are required under the Company’s Code
of By-laws for shareholder nominees.
The Company’s Amended and Restated Code of By-laws provides that nominations of
persons for election to the Board of Directors of the Company may be made for any
meeting of shareholders at which directors are to be elected by or at the direction of
the Board of Directors or by any shareholder entitled to vote for the election of
members of the Board of Directors at the meeting. For nominations to be made by a
shareholder, the shareholder must have given timely notice thereof in writing to the
Secretary of the Company, and any nominee must satisfy the qualifications established
by the Board of Directors of the Company from time-to-time as contained in the proxy
statement of the Company for the immediately-preceding Annual Meeting of shareholders
or posted on the web site of the Company at www.hillenbrandinc.com.
To be timely, a shareholder’s nomination must be delivered to or mailed and
received by the Secretary not later than (i) in the case of the Annual Meeting, 100
days prior to the anniversary of the date of the immediately preceding Annual Meeting
which was specified in the initial formal notice of such meeting (but if the date of
the forthcoming Annual Meeting is more than 30 days after such anniversary date, such
written notice will also be timely if received by the Secretary by the later of (a)
100 days prior to the forthcoming meeting date, or (b) the close of business 10 days
following the date on which the Company first makes public disclosure of the meeting
date); and (ii) in the case of a special meeting, the close of business on the tenth
day following the date on which the Company first makes public disclosure of the
meeting date. The notice given by a shareholder must set forth: (i) the name and
address of the shareholder who intends to make the nomination and of the person or
persons to be nominated; (ii) a representation that the shareholder is a holder of
record, setting forth the shares so held, and intends to appear in person or by proxy
as a holder of record at the meeting to nominate the person or persons specified in
the notice; (iii) a description of all arrangements or understandings between such
shareholder and each nominee proposed by the shareholder and any other person or
persons (identifying such person or persons) pursuant to which the nomination or
nominations are to be made by the shareholders; (iv) such other information regarding
each nominee proposed by such shareholder as would be required to be included in a
proxy statement filed pursuant to the proxy rules of the SEC; (v) the consent in
writing of each nominee to serve as a director of the Company if so elected; and (vi)
a description of the qualifications of such nominee to serve as a director of the
Company.
Certain Relationships and Related Person Transactions
The Corporate Governance Standards for the Board require that all new proposed
related party transactions involving executive officers or directors must be reviewed
and approved by the Nominating/Corporate Governance Committee in advance. The
Corporate Governance Standards do not specify the standards to be applied by the
Nominating/Corporate Governance Committee in reviewing transactions with related
persons. However, we expect that in general the Nominating/Corporate Governance
Committee will consider all of the relevant facts and circumstances, including, if
applicable, but not limited to: the benefits to us; the impact on a director’s
independence in the event the related person is a director, an immediate family member
of a director, or an entity in which a director is a partner, shareholder, or
executive officer; the availability of other sources for comparable products or
services; the terms of the transaction; and the terms available for similar
transactions with unrelated third parties.
20
Table of Contents
In 2003, Batesville Casket Company entered into a contract with Nambé Mills,
Inc., pursuant to which Batesville Casket purchases urn products from Nambé Mills.
Purchases during the fiscal year ended September 30, 2010, were approximately
$131,369, and purchases during fiscal 2011 are projected to remain consistent with
prior years. John A. Hillenbrand, II, a director of Hillenbrand Industries, Inc.
until February 8, 2008, serves as Chairman Emeritus of Nambé Mills. Mr. Hillenbrand’s
children own substantially all of the equity of Nambé Mills. John A. Hillenbrand, II
is the brother of our Board Chairperson, Ray J. Hillenbrand. We believe these
purchases were made, and will continue to be made, on terms similar to those
Batesville Casket, one of our operating subsidiaries, could obtain from an unrelated
third party for these products.
Thomas H. Johnson, a director of the Company, through various companies owned by
him or in which he owns an interest, owns (a) 100% of the Menke Funeral Home in Sun
City, Arizona, and the Whitney & Murphy Funeral Home in Scottsdale, Arizona, and (b) a
25% interest in the Weigel Funeral Home in Batesville, Indiana. Those funeral homes
purchase products from the Company’s subsidiary, Batesville Casket Company, at market
prices. In fiscal 2010, the total amount of purchases made from Batesville Casket by
those three funeral homes was $347,525.
In connection with the spin-off of our Company in April of 2008, we were required
to assume a binding contract between our former parent corporation, Hillenbrand
Industries, Inc. and W August Hillenbrand, who had served as CEO of that corporation
from 1989 until 2000. Pursuant to that contract, which is not subject to modification
without the consent of both parties, Mr. Hillenbrand is contractually entitled to
receive the following: lifetime annual supplemental pension fund payments that
totaled $411,171 in fiscal 2010 directly related to his time as an executive of
Hillenbrand Industries; reimbursement for premium payments over a ten-year period for
a life insurance policy, including tax gross-ups, which totaled $294,129 in fiscal
2010 (which was year seven of the ten-year period); and reimbursement of medical
expenses not covered by insurance and certain other miscellaneous benefits and
expenses, all related to his service as CEO of Hillenbrand Industries, totaling
$87,067 in fiscal 2010. Pursuant to the contract, Mr. Hillenbrand had limited use of
the Company’s corporate aircraft through fiscal 2010, which created imputed income to
him of $12,806 in 2010. He has since agreed not to use the aircraft for any such
personal use. The Company no longer permits personal use of the Company’s corporate
aircraft for any of its directors or officers. During the fiscal year ended September
30, 2010, the aggregate value of these items totaled $805,173. Additionally, during
fiscal 2010 the Company paid $227 for term life insurance for Mr. Hillenbrand because
of his service as a director of the Company — the same as it does for all of its
directors.
How You Can Communicate with Directors
Shareholders of the Company and other interested persons may communicate with the
Chairperson of the Board, the chairpersons of the Company’s Nominating/Corporate
Governance Committee, Audit Committee, or Compensation Committee, or the
non-management directors of the Company as a group, by sending an email to our
Investor Relations Department at investors@hillenbrandinc.com. The email should
specify which of the foregoing is the intended recipient so that it can be forwarded
accordingly.
Attendance at Meetings
The upcoming Annual Meeting will be the third Annual Meeting of the Company’s
shareholders. The Company’s directors are expected to attend the annual meetings of
the shareholders. The Chairperson of the Board generally presides at the annual
meetings of shareholders, and the Board of
Directors holds one of its regular meetings in conjunction with the annual meetings of
shareholders. All of the directors then serving, with the exception of Stuart Taylor,
attended the 2010 Annual Meeting of the shareholders of the Company in person.
21
Table of Contents
The Board of Directors of the Company held a total of eight meetings during the
fiscal year ended September 30, 2010. During that fiscal year, the Compensation
Committee and the Nominating/Corporate Governance Committee each held four meetings,
and the Audit Committee met eight times. No member of the Board of Directors attended
fewer than 75% of the aggregate of the number of meetings of the full Board of
Directors and the number of meetings of the standing committees on which he served
during the 2010 fiscal year.
Compensation Committee Interlocks and Insider Participation
The Compensation Committee had no interlocks or insider participation during
fiscal 2010. Specifically in that regard, during all or some portion of fiscal 2010,
Messrs. DeLuzio, Henderson, Loughrey, Novich, and Ray J. Hillenbrand were the
directors who served on the Compensation Committee of the Company. None of such
directors:
| • | Is or has at any time been an officer or employee of the Company or any of its subsidiaries; | ||
| • | Has or has had at any time any direct or indirect interest in an existing or proposed transaction involving more than $120,000 in which the Company is, was, or was proposed to be a participant, or that is otherwise required to be disclosed by us under the proxy disclosure rules. |
Also in that regard, during fiscal 2010 none of our executive officers served as
a member of the board of directors or on the compensation committee of another
company, which other company had an executive officer who served on our Board of
Directors or our Compensation Committee.
22
Table of Contents
SECURITY OWNERSHIP OF DIRECTORS AND MANAGEMENT
We believe it is important that our directors and executive officers own stock in
the Company. In that regard, our non-employee directors are required, within four
years after becoming a director, to own and maintain ownership of a minimum of 12,000
shares of our Common Stock (including shares of deferred stock but not including
shares that may be acquired upon the exercise of stock options). Ownership
requirements for our Named Executive Officers are detailed in the Compensation
Discussion and Analysis section of this proxy statement.
The table below shows shares beneficially owned by all directors and executive
officers at December 15, 2010.
Security Ownership of Directors:
| Shares (1) | Percent Of | |||||||
| Beneficially Owned As Of | Total Shares | |||||||
| Name | December 15, 2010 | Outstanding | ||||||
Kenneth A. Camp |
1,088,331 | (2) | 1.7 | % | ||||
William J. Cernugel |
10,714 | (3) | * | |||||
Edward B. Cloues, II |
2,045 | (4) | * | |||||
Mark C. DeLuzio |
19,229 | (5) | * | |||||
James A. Henderson |
20,714 | (3) | * | |||||
W August Hillenbrand |
1,190,617 | (6) | 1.9 | % | ||||
Ray J. Hillenbrand |
763,952 | (7) | 1.2 | % | ||||
Thomas H. Johnson |
15,714 | (3) | * | |||||
F. Joseph Loughrey |
15,855 | (8) | * | |||||
Eduardo R. Menascé |
17,945 | (9) | * | |||||
Neil S. Novich |
4,601 | (10) | * | |||||
Stuart A. Taylor, II |
15,374 | (11) | * | |||||
23
Table of Contents
Security Ownership of Named Executive Officers:
| Shares (1) | Percent Of | |||||||
| Beneficially Owned As Of | Total Shares | |||||||
| Name | December 15, 2010 | Outstanding | ||||||
Joe A. Raver |
204,175 | (12) | * | |||||
Cynthia L. Lucchese |
172,407 | (13) | * | |||||
P. Douglas Wilson |
141,116 | (14) | * | |||||
John R. Zerkle |
181,141 | (15) | * | |||||
All directors and executive
officers of the Company as
a group, consisting of 22
persons |
4,053,120 | 6.4 | % | |||||
| * | Ownership is less than one percent (1%) of the total shares outstanding. | |
| (1) | The Company’s only class of equity securities outstanding is common stock without par value. Except as otherwise indicated in these footnotes, the persons named have sole voting and investment power with respect to all shares shown as beneficially owned by them. None of the shares beneficially owned by directors and executive officers is pledged as security. | |
| (2) | Includes 576,084 shares that may be purchased pursuant to stock options that are exercisable within 60 days of December 15, 2010, 37,271 deferred stock shares, and 419,566 shares of unvested performance-based restricted stock, all held on the books and records of the Company. | |
| (3) | Includes 10,714 deferred stock shares held on the books and records of the Company. | |
| (4) | Includes 2,045 deferred stock shares held on the books and records of the Company. | |
| (5) | Includes 10,714 deferred stock shares held on the books and records of the Company and 8,515 shares acquired with deferred director fees and held on the books and records of the Company under the Directors Deferred Compensation Plan. | |
| (6) | Includes (i) 12,000 shares that may be purchased pursuant to stock options that are exercisable within 60 days of December 15, 2010, (ii) 19,626 deferred stock shares held on the books and records of the Company, and (iii) 2,851 shares acquired with deferred director fees and held on the books and records of the Company under the Directors Deferred Compensation Plan. Also includes: 48,934 shares owned beneficially by W August Hillenbrand’s wife, Nancy K. Hillenbrand; 371,972 shares owned by grantor retained annuity trusts (GRATs); and 643,187 shares owned of record, or which may be acquired within 60 days, by trusts of which W August Hillenbrand is trustee or co-trustee. Mr. Hillenbrand disclaims beneficial ownership of the 643,187 shares owned by trusts of which he is a trustee. | |
| (7) | Includes 41,481 deferred stock shares held on the books and records of the Company. Also includes 314,750 shares held of record by a charitable foundation, of which Ray J. Hillenbrand is a trustee, and 250,000 shares held of record by family partnerships for the benefit of other members of his immediate family. Mr. Hillenbrand disclaims beneficial ownership of the shares held by the charitable foundation and the family partnerships. |
24
Table of Contents
| (8) | Includes 7,855 deferred stock shares held on the books and records of the Company. | |
| (9) | Includes 17,945 deferred stock shares held on the books and records of the Company. | |
| (10) | Includes 2,757 deferred stock shares held on the books and records of the Company and 1,844 shares acquired with deferred director fees and held on the books and records of the Company under the Directors Deferred Compensation Plan. | |
| (11) | Includes 9,724 deferred stock shares held on the books and records of the Company and 5,650 shares acquired with deferred director fees and held on the books and records of the Company under the Directors Deferred Compensation Plan. | |
| (12) | Includes 60,467 shares that may be purchased pursuant to stock options that are exercisable within 60 days of December 15, 2010, 10,961 deferred stock shares, and 128,803 shares of unvested performance-based restricted stock, all held on the books and records of the Company. | |
| (13) | Includes 65,650 shares that may be purchased pursuant to stock options that are exercisable within 60 days of December 15, 2010, 7,982 deferred stock shares, and 97,564 shares of unvested performance-based restricted stock, all held on the books and records of the Company. | |
| (14) | Includes 43,166 shares that may be purchased pursuant to stock options that are exercisable within 60 days of December 15, 2010, 5,763 shares of deferred stock shares, and 87,748 shares of unvested performance-based restricted stock, all held on the books and records of the Company. | |
| (15) | Includes 66,827 shares that may be purchased pursuant to stock options that are exercisable within 60 days of December 15, 2010, 2,664 shares of deferred stock shares, and 99,232 shares of unvested performance-based restricted stock, all held on the books and records of the Company. |
SECURITY OWNERSHIP OF BENEFICIAL OWNERS OF MORE THAN 5% OF THE COMPANY’S COMMON STOCK
The following table provides information regarding all persons or entities known
to us that, as of the date indicated, were beneficial owners of more than 5% of the
Company’s common stock.
| Shares | Percent Of | ||||||
| Beneficially Owned As Of | Total Shares | ||||||
| Name | December 15, 2010 | Outstanding | |||||
Breeden Capital Management 100 Northfield Street Greenwich, CT 06830 |
4,336,934 | (1) | 7.0 | % | |||
Franklin Advisory Services, LLC One Parker Plaza Fort Lee, NJ 07024-2938 |
3,860,914 | (2) | 6.2 | % | |||
| (1) | This information is based on a Schedule 13F-HR filed by Breeden Capital Management, LLC with the Securities and Exchange Commission on November 15, 2010. | |
| (2) | This information is based on a Schedule 13F-HR filed by Franklin Advisory Services, LLC with the Securities and Exchange Commission on November 10, 2010. |
25
Table of Contents
EXECUTIVE COMPENSATION
Letter from the Chairperson of the Compensation and Management Development
Committee:
The Compensation and Management Development Committee deliberated at length at
the time of the “spin” in April 2008 of Hillenbrand, Inc. from Hillenbrand Industries
on the design of a comprehensive executive compensation program for executives of the
new company. We had the advantage of a “clean sheet of paper” to develop our senior
executive compensation programs, considerable experience in executive compensation on
the part of our Committee and the Company’s head of Human Resources, and a
knowledgeable and experienced independent compensation consultant employed by the
Committee.
A principal objective was to align the executive compensation program with the
goal of creating appropriate long-term returns for investors. The Hillenbrand
executive compensation program has the familiar elements of a base salary, a
short-term incentive plan based upon achievement of annual targets, a long-term
incentive plan and retirement and other benefits. This “package” must be competitive
at target for us to attract and retain executive talent, and we devote considerable
time in the course of our meeting schedules to achieving that objective.
The long-term incentive program and short-term incentive program are the main
compensation elements focused on the creation of shareholder value. The stock market
at any one time may not reflect the value of the Company because of factors such as
the state of the economy or stock market, sector favorability, and world events. Over
time, however, the market price for our stock should reflect the long-term cash
generation capabilities of our businesses. We intended to design a long-term plan
that would in part focus management on the quality performance that should be a key
driver of stock price, recognizing that the general state of the stock market will
have an impact.
The Committee concluded that a long-term incentive target for senior executives
would be based 25% on the award of stock options and 75% upon performance-based
restricted stock earned over three years based upon creating shareholder value. Stock
options have no value unless the stock price increases and benefits our shareholders.
The underlying premise of the performance-based stock plan is that executives
create shareholder value when they invest successfully to generate cash flows over the
life of the business that meet or exceed shareholder expectations. The plan
calculations use cash flows generated over the performance period because cash
generated today is worth more than cash generated in the future.
The shareholder expectation, or “hurdle rate,” assumed in the plan is the
weighted average cost of capital of the corporation. If an investment does not
achieve the hurdle rate in returns over time, the investment has earned less than the
investors’ requirements. If the hurdle rate is exceeded, the investment has earned
more than required. Companies consistently earning more than the cost of capital
reward their shareholders with higher returns.
The corporate short-term incentive plan is based 20% on net revenue growth and
80% on income before taxes. These measures reinforce achievement of increased
shareholder value in the long-term plan. The payout is adjusted for achievement of
individual performance goals. Overall, in 2010 Hillenbrand, Inc. performed well
relative to our peers and to targets which is reflected in a higher payout in the
short-term plan than in the two previous years of our existence.
26
Table of Contents
Hillenbrand is and has been a leader among companies its size in cash flow and
return on net assets. We believe the executive compensation plan reinforces the
importance of that performance but also rewards growth.
A significant accomplishment of the CEO, Ken Camp, and his management team this
year was the acquisition of K-Tron which has been immediately accretive to earnings
without the acquisition costs and related accounting effects. We believe this new
company offers considerable potential for future growth in revenues and profits.
The payout of the first three-year performance-based restricted stock is due next
year. At that time, we will have had experience with all elements of our plan. The
Committee views that timing as appropriate to undertake a review of our compensation
programs to assess whether they are meeting our objectives and how they can be
improved. An example of an adjustment already made to performance-based restricted
stock awards beginning with the fiscal 2010 awards was to pro-rate unvested awards (at
target) based on elapsed time in the performance cycle preceding a change of control
rather than fully vesting the awards (at target) in the event of a change of control.
In addition, in connection with a change of control, the Committee modified its
approach to “gross-ups” for excise taxes triggered by a change of control such that
with future executive hires, tax gross-ups will not generally be offered. The
Committee also adopted a clawback policy this year for short- and long-term
incentives. These are examples of the Committee’s actions to reassess and refine our
compensation practices in light of evolving market practices and in furtherance of our
compensation philosophy.
Our Committee has reviewed the Company’s compensation plan for executives and
concluded that it does not encourage excessive risk-taking by the management. In part
that is because the compensation program of Hillenbrand is less than three years old,
dating from the “spin,” and concern about excessive risk-taking has been a part of the
Committee’s thought process from the beginning. The program is significantly
performance-based which we believe is one of its strengths, but it is designed to
reward sustainable performance over time and not generate excessively large one-time
payouts that do not benefit the long-term interests of shareholders.
The Committee has also worked with the Management team to conduct a thorough
review annually of the talent in the Company and to identify needs as to additional
talent. We view this as a vital part of our work to help ensure that the growth
objectives of the Company will be met.
The Compensation Discussion and Analysis which follows has been written by
Management with the intention to present a clear and transparent explanation of our
compensation programs, and we hope you find it helpful.
Thank you for your investment in Hillenbrand. It is our expectation to continue
to demonstrate that the trust you have placed in us is well deserved.
Respectfully,
James A. Henderson
Vice Chairperson, Board of Directors
Chairperson, Compensation and Management
Development Committee
Vice Chairperson, Board of Directors
Chairperson, Compensation and Management
Development Committee
27
Table of Contents
PART I: COMPENSATION DISCUSSION AND ANALYSIS
Introduction
Part I of this section on Executive Compensation presents a thorough discussion
of our executive compensation philosophy, policies, actions, decisions (and the basis
for such decisions), and procedures as they relate to our executive officers included
in the compensation disclosures in this proxy statement (Item 402(a)(3) of the SEC’s
Regulation S-K specifies which officers should be included in that disclosure, and
they are identified as our “Named Executive Officers”). Part II is a report from the
Compensation and Management Development Committee (the “Compensation Committee”).
Following that report, in Part III, we present numerous tables that report in detail
the compensation of, and the potential amounts payable by the Company under certain
contractual agreements with, the Named Executive Officers. Part IV provides
information regarding the various engagements by the Company of Ernst & Young LLP, the
independent compensation consultant engaged by the Compensation Committee. Part V
provides information relating to the compensation-related risk assessment and
management strategies employed by the Company.
We have attempted to assist you in your understanding of the information
presented by the use of tables and charts as much as possible. We encourage you to
keep two basic thoughts in mind as you read this section:
| • | First, the compensation of our Named Executive Officers is set by our Compensation Committee, which is a committee of independent directors. | ||
| • | Second, a significant portion of all Named Executive Officers’ compensation is variable and based on their individual performance and the performance of the Company. This is designed to align their compensation with the interests of the shareholders of the Company. |
Our Named Executive Officers
The five Named Executive Officers of the Company whose compensation information
is required to be discussed and reported in this proxy statement, and their positions
with the Company, are as follows:
Kenneth A. Camp |
President and Chief Executive Officer | |
Joe A. Raver |
Senior Vice President and President of Batesville Casket Company | |
Cynthia L. Lucchese |
Senior Vice President and Chief Financial Officer | |
P. Douglas Wilson |
Senior Vice President, Human Resources | |
John R. Zerkle |
Senior Vice President, General Counsel and Secretary |
28
Table of Contents
Our Executive Compensation Philosophy
Our Compensation Committee has adopted the following Executive Compensation
Philosophy, which describes the objectives and principles of our executive
compensation program and which is used as the guide to our program design and
compensation decisions:
Hillenbrand’s executives should be fairly compensated for creating
appropriate long-term returns for shareholders.
appropriate long-term returns for shareholders.
The executive compensation program is designed to ensure
officers and key management personnel are effectively
compensated in terms of base salary, incentive compensation,
and other benefits that advance the long-term interest of
Hillenbrand’s shareholders.
The compensation program is based on the following principles:
| • | Reinforcing the absolute requirement for ethical behavior in all practices; | ||
| • | Aligning management’s interests with those of shareholders; | ||
| • | Motivating management to achieve superior results by paying for sustainable performance; | ||
| • | Ensuring competitive compensation in order to attract and retain superior talent; | ||
| • | Maintaining a significant portion of at-risk compensation (superior performance is rewarded with commensurate incentives, while little to no incentive is paid for underperformance); | ||
| • | Delineating clear accountabilities; and | ||
| • | Providing clarity and transparency in compensation structure. |
29
Table of Contents
Components of Total Compensation
The components of our executive compensation program are shown in the following
table. A more detailed discussion of these components and the plans under which they
are provided appears later in this Compensation Discussion and Analysis section.
| Component | Description and Purpose | |
Base Salary
|
Fixed compensation intended to provide a base level of income and aid in the attraction and retention of talent in a competitive market. | |
Short-Term Incentive Compensation (“STIC”) |
Variable annual cash bonus designed to motivate and reward individuals based on achieving both company-wide and individual performance goals for a given fiscal year. Also aids in the attraction and retention of talent in a competitive market. | |
Long-Term Incentive Compensation (“LTIC”) |
Variable annual equity grant designed to reward executives for creating shareholder value and for their individual contributions to the Company’s performance, as well as to motivate future contributions and decisions aimed at increasing shareholder value. Also aids in the attraction and retention of talent in a competitive market. Our Named Executive Officers are required to retain a certain amount of Company equity or stock as described in the section below entitled “Stock Ownership Requirement.” | |
Retirement and Other Benefits
|
Fixed component of compensation intended to protect against catastrophic expenses (healthcare, disability, and life insurance) and provide opportunity to save for retirement (pension and 401(k)). | |
Post-Termination Compensation
(Severance and Change in Control)
|
Severance program designed to provide protection that allows executives to focus on acting in the best interests of shareholders regardless of the impact on their own employment. |
Key Point: Focus on Performance-Based Compensation
Referring to the previous chart, the first three elements (base salary, STIC, and
LTIC) make up what is generally referred to as an employee’s “core compensation.” It
is important to note that a key element of the compensation philosophy of Hillenbrand
and our Compensation Committee is that a significant portion of each of the Named
Executive Officers’ core compensation will be “performance-based” and therefore “at
risk.” Stated another way, each of the Named Executive Officers receives a base
salary regardless of the performance of the Company in any individual year. Any
particular officer’s salary can be and is modified from year-to-year based on such
officer’s individual performance and changes in responsibilities, as determined by the
Compensation Committee. Beyond base salary, each of our Named Executive Officers is
eligible to receive STIC and LTIC, but those components of compensation are variable
and at risk, dependent upon the performance of the Company and the individual
performance of each of the officers.
30
Table of Contents
This point is illustrated by the following pie chart, which shows the fixed (base
salary) and variable (STIC and LTIC) compensation at target levels for our President
and CEO, Kenneth A. Camp, for fiscal 2010:
As shown in the above chart, 79% of Mr. Camp’s target core compensation for
the year was performance-based, and at risk, and 21% was fixed. The Compensation
Committee believes that this approach to compensating our Named Executive Officers
aligns their compensation packages appropriately with the interests of the
shareholders of the Company and creates incentives for them to act in the best
interest of the shareholders.
Target Core Compensation Mix
Subject to discretionary deviations deemed by the Committee to be appropriate,
the Compensation Committee generally follows guidelines for the STIC and LTIC target
awards that are tied to the base salaries of the Named Executive Officers. Those
guidelines are discussed in more detail below. The application of those guidelines
produces a core compensation mix of approximately 20% base salary, 20% STIC, and 60%
LTIC for Mr. Camp, and a mix of approximately 30% base salary, 20% STIC, and 50% LTIC
for the other Named Executive Officers.
Process for Determining Compensation
Timing of Compensation Decisions. In December of each year, the
Compensation Committee takes the following actions:
| • | It sets the base salaries of the Named Executive Officers for the coming calendar year. | ||
| • | It adjusts, if deemed appropriate, the STIC target award formula for each Named Executive Officer and establishes the Company performance objectives that are to be used in the award formula for the new fiscal year. | ||
| • | It makes LTIC grants to the Named Executive Officers and determines the Company performance period (usually three years) and Company performance objectives that are to be used in the award formula. | ||
| • | It certifies performance and establishes the actual STIC awards to be paid to the Named Executive Officers for the fiscal year ended on the past September 30. |
31
Table of Contents
| • | It certifies performance and confirms the computation of the award amount to be paid to the Named Executive Officers with respect to performance-based LTIC awards whose performance measurement period ended on the past September 30. |
Factors Considered in Setting Compensation.
In General. In establishing and adjusting our executive
compensation programs and the compensation packages for the Named Executive
Officers, the Compensation Committee considers and analyzes a number of factors,
each of which is informative but none of which is individually determinative of
the outcome of the Committee’s work. The Committee strives to establish
compensation packages for the Named Executive Officers that are appropriate
under all the circumstances and that are designed to enable the Company to
attract, motivate, and retain the executive talent needed to operate the
Company, including the implementation of its announced intention to grow and
diversify through business acquisitions, in a manner that is in the best
interests of the shareholders.
Certain factors the Compensation Committee considers are discussed below.
They are not discussed in any order of priority; no one factor standing alone is
necessarily more important than the others.
Compensation Consultant Expertise. The Compensation Committee
engages an independent compensation consultant to provide various items of
relevant information and to perform various services for the Committee in
connection with the establishment of our executive compensation programs. Ernst
& Young LLP has been the Committee’s independent compensation consultant since
2008. The Compensation Committee seeks and considers the expert advice and
recommendations of the independent compensation consultant in connection with
the administration of our compensation programs and the establishment of
appropriate compensation components and levels with respect to our Named
Executive Officers.
Peer Group Data. As one of several factors in considering approval
of elements of our compensation programs and appropriate levels of compensation
of our Named Executive Officers, the Compensation Committee compares our
compensation programs and levels to those of a selected peer group of companies.
Our Compensation Committee believes that we have to remain competitive in order
to attract, retain, and motivate our executive talent and believes that our
Named Executive Officers should be rewarded appropriately when the Company
exceeds expected performance targets. We do not, however, rigidly target or
benchmark any of the core compensation components of our Named Executive
Officers to any specific percentile of our peer group compensation levels.
Generally, our Compensation Committee seeks to target the core compensation of
our Named Executive Officers in a range between the 50th and 75th percentiles of
the total core compensation amounts paid by our peer group.
32
Table of Contents
In developing our peer group, our Compensation Committee reviews various
financial metrics and business attributes (i.e., free cash flow, operating
income, return on invested capital, etc.) to assess whether additions or
deletions to the current peer group are appropriate. In 2010, in recognition of
our acquisition of the K-Tron group of companies, American Woodmark Corporation
was removed from our peer group and IDEX Corporation, which has certain
similarities to the K-Tron business structure, was added. In addition, various
members of management provide input relative to understanding the Company’s key
financial metrics, key competitors for talent, key competitors with whom the
Company competes in the market, the
business plan, and other factors. The following qualitative factors are
also considered in developing the peer group:
| • | Non-cyclical versus cyclical companies; | ||
| • | Companies with an internal distribution method and a supply chain management focus versus those with external distribution methods; | ||
| • | Companies focusing on continuous improvement in all aspects of their business versus those that do not apply a continuous improvement model; | ||
| • | Companies that manufacture products with wood and/or metal versus those that manufacture products using other materials; | ||
| • | Companies that are product leaders, manufacturing a quality end product; and | ||
| • | Companies that are primarily domestic versus those that are global. |
The peer group currently consists of the following sixteen companies:
Acuity Brands, Inc.
|
Sealy Corporation | |
Ethan Allen Interiors Inc.
|
Service Corporation International | |
Herman Miller, Inc.
|
Simpson Manufacturing Co., Inc. | |
HNI Corporation
|
Spartech Corporation | |
IDEX Corporation
|
Stewart Enterprises, Inc. | |
Kimball International
|
Tempur-Pedic International Inc. | |
Matthews International Corporation
|
The Middleby Corporation | |
Roper Industries
|
Tredegar Corporation |
Survey Data. In addition to peer group data, the Compensation
Committee considers published compensation survey data provided by its
independent compensation consultant, focusing on compensation data for companies
in the manufacturing industry with revenues within a comparable range of the
Company’s revenue. The survey data provides additional compensation data
targeted to the specific job responsibilities of our Named Executive Officers.
External Market Conditions. The Compensation Committee also takes
into account external market conditions when establishing the total compensation
of each Named Executive Officer. We are located in a relatively small rural
community between Indianapolis, Indiana, and Columbus, Indiana, and Cincinnati,
Ohio, all of which are home to other public companies, and we must compete with
companies in those metropolitan areas for our executive talent.
Individual Factors. Individual factors are also considered by the
Compensation Committee in establishing the compensation packages of our Named
Executive Officers. These factors include the level and breadth of experience
and responsibility of the officer, the complexity of the position, individual
performance and growth potential, and the difficulty of replacement. Individual
performance of our Named Executive Officers is evaluated in large part based
upon the achievement of group and personal goals that are established by
management and approved by the Compensation Committee each year.
33
Table of Contents
2010 Individual Performance Goals. We identified five common
personal objectives for the Named Executive Officers for fiscal 2010. They are
as follows:
| • | Strengthen our company capabilities by ensuring that resources, processes, procedures, and controls necessary to be a successful, compliant, efficient, and well controlled public company are in place. This is accomplished through the application of the principles of Lean Business / Continuous Improvement across the enterprise. | ||
| • | Support the Batesville Casket core business by providing Batesville Casket with necessary and sufficient resources to continue to generate strong, predictable cash flows. This is accomplished through a transparent resource allocation process and a commitment to a lean organization, both at the corporate and operating company levels. | ||
| • | Actively pursue acquisitions by pursuing prudent opportunities that provide revenue and earnings per share growth, meet our strategic criteria, and leverage our core competencies. This is accomplished through an active and effective screening process that engages the senior-most leadership in the identification of targets and the broader organization in evaluation. | ||
| • | Ensure acquisition success by planning and preparing for due diligence and integration with a specific focus on our areas of competency, including Continuous Improvement, logistics, and talent development. This is accomplished through (a) attracting, developing, deploying, and retaining diverse high performance individuals who are resources for today and tomorrow, and (b) training internal resources for due diligence and integration. | ||
| • | Actively engage in the environment in which we compete by ensuring that the Company’s voice on national, state, and local issues is heard. This is accomplished through dialogue between senior management and members of local, state, and national legislative and executive branches of government, civic engagement in our communities, and active participation in business and industry associations. |
The following unique personal objectives were identified for each of the
Named Executive Officers for fiscal 2010:
| • | For Mr. Camp, executing the Company’s strategy and business plan; leading the Company’s growth initiatives; overseeing the Company’s acquisition activities; overseeing efforts designed to strengthen the talent pool, capabilities and competencies of the Company; ensuring that the Company engages in appropriate meaningful and transparent conversations with shareholders; and achieving the Company’s financial objectives; | ||
| • | For Mr. Raver, developing and executing the strategic and the resulting operating plan of Batesville Casket Company; growing core revenue and IBT (Income Before Taxes) through growth in under-penetrated segments; creating strategic acquisitions and alliances, and new product offerings; improving the Company’s cost structure; and strengthening the Company’s core capabilities; |
34
Table of Contents
| • | For Ms. Lucchese, ensuring appropriate processes and procedures for the operation of the Company as a public company are in place and functioning effectively; providing financial leadership with excellence to the Company as a public company; managing financial due diligence efforts with respect to the Company’s acquisition activities; and providing financial support where necessary to the Company’s subsidiaries and their finance staff; | ||
| • | For Mr. Wilson, ensuring appropriate processes and procedures for the operation of the Company as a public company are in place and functioning effectively; providing human resources, communications, and public policy leadership with excellence to the Company; providing support where necessary to the Company’s subsidiaries and their staff; managing human resources, compensation and benefits, communication and public policy due diligence efforts with respect to the Company’s acquisition activities; and building the talent pool to strengthen the capabilities and competencies of the Company; and | ||
| • | For Mr. Zerkle, ensuring appropriate processes and procedures for the operation of the Company as a public company are in place and functioning effectively; providing general legal counsel with excellence to the Company; providing legal support where necessary to the Company’s subsidiaries and their general counsel; managing legal due diligence efforts and transaction documentation with respect to the Company’s acquisition activities; managing all litigation involving the Company; and supervising and coordinating the responsibilities of other attorneys in the Company’s legal department. |
Internal Pay Equity. The Compensation Committee considers the
differentials between the compensation levels of our Named Executive Officers in
light of their respective positions and responsibilities and seeks to maintain
those differentials at equitable levels, considering peer group and survey data
with respect to comparable differentials at other companies.
Aggregate Compensation. For our Named Executive Officers, the
Compensation Committee considers the aggregate value of their core compensation
components of base salary, STIC at target level, and the estimated value of LTIC
at target level. The Compensation Committee compares the aggregate amount of
these elements of core compensation for our Named Executive Officers to the
aggregate amount of the same elements of executive officer compensation at other
companies using peer group and survey data. Generally, the Company aims to
target the aggregate core compensation of our Named Executive Officers in the
range between the 50th and 75th percentiles of the core compensation levels at
such other companies. Additionally, the Compensation Committee reviews “tally
sheets” reflecting all compensation paid to our Named Executive Officers,
including retirement and other benefits, perquisites, and amounts potentially
payable to them upon a “change in control” of the Company. Finally, the
Compensation Committee considers projections as to the potential future value of
long-term equity awards made to the Named Executive Officers.
35
Table of Contents
Fiscal 2010 Compensation Decisions
Base Salaries.
In considering fiscal 2010 compensation, the Compensation Committee received from
and reviewed in detail with the Committee’s independent compensation consultant an
Executive Compensation Analysis reporting, among other things, the median compensation
paid by our then current peer group to its top five executive officers (based on
compensation) and the 25th percentile, median, and 75th percentile compensation levels
of similar executive officers as determined from various published compensation
surveys. By comparison to our peer group, the base salaries of our Named Executive
Officers ranged from a low of 10% below to a high of 20% above the peer group median
base salary level.
Mr. Camp provided to and discussed with the Committee his review of and comments
with respect to the performance of the other Named Executive Officers. Mr. Camp also
recommended to the Committee proposed compensation packages for the other Named
Executive Officers (which, at the request of the Committee, he had developed in
consultation with Ernst & Young and after review of the Executive Compensation
Analysis report provided to the Committee in September). After discussing the
recommendations, reviewing individual performance of the other Named Executive
Officers, and considering Company performance data and competitive benchmark
information, the Committee approved the compensation for this group.
The Compensation Committee, outside of Mr. Camp’s presence, also discussed Mr.
Camp’s performance. This conversation included a review of Mr. Camp’s objectives as
approved by the Committee for 2010 and the level of achievement of each of those
objectives. After assessing Mr. Camp’s performance for the year, the Committee,
considering the impact of all relevant factors and considering the advice and
recommendations of the Committee’s independent compensation consultant, determined Mr.
Camp’s compensation for 2010.
The following adjustments were made to the Named Executive Officers’ base
salaries:
| 2009 | 2010 | % Increase | ||||||||||
Mr. Camp |
$ | 675,000 | $ | 695,000 | 2.96 | |||||||
Mr. Raver |
$ | 415,000 | $ | 427,000 | 2.89 | |||||||
Ms. Lucchese |
$ | 312,000 | $ | 321,000 | 2.88 | |||||||
Mr. Wilson |
$ | 260,000 | $ | 281,000 | 8.08 | |||||||
Mr. Zerkle |
$ | 285,000 | $ | 302,500 | 6.14 | |||||||
The fiscal 2010 base salary increases to Messrs. Wilson and Zerkle include an
adjustment to bring their total core compensation amounts closer to the targeted peer
group levels.
Annual Cash Incentives Awards.
Overview. The payment of annual cash short-term incentive compensation
(“STIC”) to our Named Executive Officers for fiscal 2010 was formula-based, with
adjustments for achievement of common and individual performance goals, and was
governed by our Short-Term Incentive Compensation Plan for Key Executives (“STIC
Plan”). The STIC Plan is designed to motivate our Named Executive Officers to perform
and meet both Company and individual objectives. It is
consistent with our philosophy that employees should share in the Company’s
success when value is created for our shareholders. The potential to be paid
short-term incentive awards plays an important role in the attraction and retention of
our Named Executive Officers.
36
Table of Contents
STIC Formula Design. Our Compensation Committee has approved a formula
for calculating the maximum STIC awards potentially payable to our Named Executive
Officers under the STIC Plan. We have designed our formula to calculate the maximum
possible STIC amounts payable, with the understanding that the Compensation Committee
has discretion to reduce the maximum award amount to arrive at the actual STIC payment
amounts to our Named Executive Officers.
Exercise of Negative Discretion. At the end of each fiscal year, after
the maximum award amounts have been calculated, the Compensation Committee exercises
its discretion to reduce the maximum award amounts to the actual payout levels, if and
to the extent deemed appropriate. The Committee exercises that discretion after
considering the targeted and maximum award amounts and individual performance reviews
relating to the achievement of personal goals established for each of the Named
Executive Officers. The fact that negative discretion is exercised by the
Compensation Committee to reduce the amount of STIC actually paid to a Named Executive
Officer to an amount less than the maximum award amount is not an indication of
substandard performance; instead, it reflects the Compensation Committee’s assessment
of individual performance against its standard of a maximum possible level of
performance. The exercise of that negative discretion to some degree is most often
the rule, not the exception. (For example, for fiscal 2009, none of the Named
Executive Officers received the maximum STIC award amount, and for fiscal 2010, only
one of the Named Executive Officers received the maximum.)
STIC Maximum Award Formula. Our formula for calculating the maximum
STIC awards potentially payable to our Named Executive Officers each year is as
follows:
Base Salary
|
x | Individual Factor |
x | Company Performance Factor |
x | Maximum Award Factor |
= | Maximum Potential STIC Award |
The formula components are described and quantified as follows:
| • | Base salary — the amount of salary paid to the Named Executive Officer during the fiscal year in question. | ||
| • | Individual Factor — a predetermined percentage of base salary (90% for Mr. Camp, 75% for Mr. Raver, and 50% for the other Named Executive Officers). The Committee could adjust those percentages from year to year at the beginning of the fiscal year, if deemed appropriate. | ||
| • | Company Performance Factor — a percentage reflecting the Company’s (or Batesville Casket’s with respect to Mr. Raver) achievement level with respect to the pre-established financial performance targets set by the Committee for each fiscal year. This percentage will be zero (producing a zero formula amount) if the Company (or Batesville Casket, if applicable) does not achieve at least a threshold achievement percentage level established by the Committee (which was 90% for fiscal 2010). The maximum achievement percentage possible is 200%. The pre-established financial performance targets currently used in the formula are designated amounts of “Net Revenues” and “Core IBT” for the Company and Batesville Casket, as applicable, which are calculated as follows: |
37
Table of Contents
| • | Net Revenue — the amount established as the target amount is the same for both the Company and Batesville Casket since the Company itself has no revenue-producing operations. In determining the overall Company or Batesville Casket achievement level each year, the achievement level for Net Revenue is weighted at 20% of the total in determining the Company’s (or Batesville Casket’s) overall performance achievement level. In calculating Net Revenue, the effects of the following items are ignored: |
| • | acquisitions made during the fiscal year; | ||
| • | divestitures made during the fiscal year (corresponding adjustments will be made to the plan targets); and | ||
| • | changes in accounting pronouncements in United States GAAP or applicable international standards that cause an inconsistency in computation as originally designed. |
| • | Core IBT — this is income before taxes, adjusted to eliminate selected extraordinary and non-recurring items as listed below. The adjustment items are determined in advance by the Compensation Committee during the first quarter of each fiscal year. Core IBT achievement is weighted at 80% of the total in determining the Company’s (or Batesville Casket’s) overall performance achievement level. In calculating Core IBT, the following items are excluded or their effects ignored: |
| • | all professional fees, due diligence fees, expenses, and integration costs related to a specific acquisition; | ||
| • | all professional fees, due diligence fees, expenses, and integration costs related to a specific divestiture; | ||
| • | income, losses, or impairments from specific financial instruments transferred to the corporation as part of the spin-off of the Company in 2008 (i.e., auction rate securities, equity limited partnerships, common stock, and promissory notes; | ||
| • | stock compensation expense; | ||
| • | external extraordinary legal costs (e.g., antitrust litigation); | ||
| • | costs related to our spin-off in 2008; | ||
| • | restructuring costs; and | ||
| • | changes in accounting pronouncements in United States GAAP or applicable international standards that cause an inconsistency in computation as originally designed. |
| • | Maximum Award Factor — a multiplier established by the Committee in order to produce the maximum award payout amount. It is currently 1.2. This factor serves two purposes. First, it provides a sufficient potential payout amount to reward above-average individual or Company performance. Second, it provides a cap on the award formula amount. |
38
Table of Contents
Company Performance Factors. The Company’s financial performance
objectives and threshold achievement percentages are established annually at levels
that typically reflect strong financial performance under then existing conditions.
The target objectives are intended to represent stretch goals based on the business
plan of the Company so that management must be diligent, focused, and effective in
order to reach these goals. The objectives are set with the intention that the
relative level of difficulty in achieving the targets is consistent from year to year.
The following table sets forth the Company’s and Batesville Casket’s targeted
financial performance objectives and targeted threshold achievement percentages, and
the actual amounts achieved, for fiscal 2010:
| 2010 | ||||||||||||||||||||
| Batesville | ||||||||||||||||||||
| Company | Casket | |||||||||||||||||||
| Targeted | Targeted | Batesville | ||||||||||||||||||
| Objective | Objective | Company | Casket | |||||||||||||||||
| Financial | Amount | Amount | Threshold | Achievement | Achievement | |||||||||||||||
| Criteria | (millions) | (millions) | Percentage | Percentage | Percentage | |||||||||||||||
Net Revenue |
$ | 660.2 | $ | 660.2 | 90 | % | 97.0 | % | 97.0 | % | ||||||||||
Core IBT |
$ | 154.8 | $ | 178.6 | 90 | % | 102.8 | % | 102.3 | % | ||||||||||
With respect to achievement percentages for the Company Performance Factor not
exceeding 100%, Mr. Raver’s STIC award formula is based on the financial objectives of
Batesville Casket Company rather than those of the Company, while the award formulas
for our other Named Executive Officers are based on the Company’s financial
objectives. With respect to achievement percentages above 100% and up to 200% (which
is the range experienced for fiscal 2010), all Named Executive Officer award formulas,
including Mr. Raver’s, are based on the Company’s financial objectives.
2010 STIC Awards. For fiscal 2010, the maximum STIC awards payable, and the
actual STIC awards paid, to our Named Executive Officers were as follows:
| Fiscal | Company | Maximum | Maximum | Actual | ||||||||||||||||||||||||||||||||||||
| Named Executive | Year Base | Individual | Performance | Award | STIC | STIC | ||||||||||||||||||||||||||||||||||
| Officer | Salary | x | Factor | x | Factor * | x | Factor | = | Award | Award Paid | ||||||||||||||||||||||||||||||
Kenneth A. Camp |
$ | 689,615 | 90 | % | 147.7 | % | 1.2 | $ | 1,100,342 | $ | 1,000,000 | |||||||||||||||||||||||||||||
Joe A. Raver |
$ | 423,769 | 75 | % | 147.7 | % | 1.2 | $ | 563,468 | $ | 450,000 | |||||||||||||||||||||||||||||
Cynthia L. Lucchese |
$ | 318,577 | 50 | % | 147.7 | % | 1.2 | $ | 282,398 | $ | 271,000 | |||||||||||||||||||||||||||||
P. Douglas Wilson |
$ | 275,346 | 50 | % | 147.7 | % | 1.2 | $ | 244,078 | $ | 244,000 | |||||||||||||||||||||||||||||
John R. Zerkle |
$ | 297,789 | 50 | % | 147.7 | % | 1.2 | $ | 263,971 | $ | 220,000 | |||||||||||||||||||||||||||||
| * | In fiscal 2010, the Company exceeded its Core IBT target by an amount that produced a Company Performance Factor of 147.7%. |
39
Table of Contents
Long Term Incentive Compensation (LTIC).
Overview. We provide Long-Term Incentive Compensation to our Named
Executive Officers (and other employees) by awarding them stock options, deferred
stock awards, or restricted stock. Our Stock Incentive Plan (the “Stock Plan”)
enables us to grant such equity-based awards.
The Compensation Committee makes and administers all awards to our Named
Executive Officers under the Stock Plan. As of the end of fiscal 2010, a total of
4,492,956 shares of our common stock are available for equity awards under the Stock
Plan. There are annual limits as to the number of options or shares of deferred or
restricted stock that can be granted to any one employee or director each year.
Although the Company does not have a written policy regarding the timing or
practices related to granting equity awards, neither the Company nor the Compensation
Committee engages in spring-loading, back-dating, or other practices which “time” the
grant of equity awards. Stock options and restricted stock awards are generally
granted at a regularly-scheduled meeting of the Compensation Committee (acting as the
administrative committee under the Company’s Stock Plan (referred to below as the
“Administrator”)) in the first quarter of the fiscal year (usually in December), after
the Company issues a press release announcing the results of the prior fiscal year.
Available Awards. Our Stock Plan enables us to grant several types of
equity awards: stock appreciation rights, restricted stock, bonus stock, stock
options, and deferred stock units. However, only stock options, restricted stock, and
deferred stock awards have been granted and were outstanding under the Stock Plan as
of the end of fiscal 2010.
Stock Options. Incentive (tax-qualified) and non-qualified stock options
may be granted to such employees and (with respect to non-qualified options) directors
and for such number of shares of our common stock as the Administrator determines. A
stock option will be exercisable and vest at such times, over such term, and subject
to such terms and conditions as the Administrator determines, at an exercise price
which may not be less than the fair market value of the common stock on the date the
option is granted.
Deferred Stock. A deferred stock award represents our agreement to
deliver shares of common stock (or their cash equivalent) to the award recipient at a
specified future time or upon a specified future event. Vesting of the award shares
and/or delivery of them may be conditioned upon the completion of a specified period
of service, the attainment of specific performance goals, or such other criteria as
the Administrator may determine, or, alternatively, the Administrator may provide for
the unconditional delivery of shares (or their cash equivalent) on a specified date.
Deferred stock awards carry no voting rights until such time as shares of common stock
are actually issued. The Administrator has the right to determine whether and when
dividend equivalents will be paid with respect to a deferred stock award. Generally,
dividend equivalent amounts are converted into additional deferred stock awards and
are paid when (and only if) the shares have vested and are distributed.
Restricted Stock. A grant of shares of restricted stock involves the
actual issuance of shares of our common stock to the grant recipient. However, the
right to retain the shares of restricted stock is conditioned upon whatever vesting
conditions are specified as part of the grant. Until those vesting conditions are
satisfied, the restricted stock cannot be sold, transferred, pledged, or assigned, and
is subject to forfeiture if the vesting conditions are not satisfied.
40
Table of Contents
Performance-Based Equity Awards. The Administrator may designate and
structure any awards under the Stock Plan as performance-based awards. With respect
to performance-based awards, either the granting or vesting (or both) of the award is
made subject to the achievement of Company performance objectives specified by the
Administrator. The performance objectives specified for a particular award may be
based on one or more of the following criteria, which the Administrator may apply to
our Company as a whole and/or to a subsidiary, and which the Administrator may use
either as an absolute measure, as a measure of improvement relative to prior
performance, or as a measure of comparable performance relative to a peer group of
companies: sales, operating profits, operating profits before taxes, operating
profits before interest expense and taxes, net earnings, earnings per share, return on
equity, return on assets, return on invested capital, total shareholder return, cash
flow, debt to equity ratio, market share, stock price, shareholder value added and
market value added.
LTIC Guidelines. The Compensation Committee, subject to deviations as
appropriate in its discretion, generally follows guidelines it has established for
annual LTIC awards to our Named Executive Officers. Those guidelines provide for an
annual award at target value of 3 times base salary to Mr. Camp, and 1.5 times base
salary to our other Named Executive Officers. Each award consists of approximately
25% of the award value in stock options and approximately 75% in performance-based
restricted stock. Compared to an average of our peer group’s mix of long-term
incentive compensation awards, the pie-charts below reflect our heavy emphasis on
performance-based awards to our Named Executive Officers.
Valuation of Awards. Considering commonly used valuation models and
advice from the Committee’s independent compensation consultant, stock options are
assumed to have a present value equal to 25% of the then current share price for our
Common Stock. The number of option shares to be granted is determined by dividing the
total option portion of the award dollar value by 25% of the then current share price.
For stability in grant methodology, we do not intend to frequently change this 25%
assumption; however, we periodically compare this assumption to the results of the
annual binomial valuations for reasonableness.
Awards for restricted stock are valued at the target share level, which is the
number of shares that will ultimately be earned by the Named Executive Officers at the
100% achievement level of the targeted “Incremental Shareholder Value” established by
the Compensation Committee under the award formula. (The maximum number of shares
potentially issuable as fully earned or vested shares is 150% of the targeted number.)
The number of shares to be awarded at the target level is determined by dividing the
restricted stock value portion of the total award dollar value by the share price for
our stock on the date of the award.
41
Table of Contents
2010 LTIC Awards. Consistent with our compensation philosophy and
historical practices, the Compensation Committee again awarded shares of restricted
stock as performance-based equity awards to our Named Executive Officers for fiscal
2010. Accordingly, the amount of compensation ultimately received by our Named
Executive Officers will be tied to and conditioned on performance objectives for our
Company. As we have stated above in our compensation philosophy, the Company
management team is charged with increasing the long-term economic value of the Company
in excess of the rate investors expect, which is accomplished by growing the amount of
cash generated by the Company over time through execution of the Company’s strategy
and the initiatives that flow from that strategy.
The performance-based restricted stock awards and stock options granted to our
Named Executive Officers during fiscal 2010 were as follows:
| Target | Maximum | |||||||||||
| Restricted | Restricted | |||||||||||
| Name | Option Shares | Stock Award | Stock Award | |||||||||
Kenneth A. Camp |
112,520 | 84,390 | 126,585 | |||||||||
Joe A. Raver |
34,565 | 25,924 | 38,886 | |||||||||
Cynthia L. Lucchese |
25,984 | 19,488 | 29,232 | |||||||||
P. Douglas Wilson |
22,746 | 17,060 | 25,590 | |||||||||
John R. Zerkle |
24,487 | 18,365 | 27,547 | |||||||||
The performance period for vesting of the restricted stock is the three-year
period beginning October 1, 2009. The stock options become exercisable ratably on the
first, second, and third anniversaries of the grant date (1/3 on each grant date
anniversary).
Performance-Based Award Details.
For fiscal 2010, the measurement tool in the performance-based restricted stock
award formula is a shareholder value creation model, which is a discounted cash flow
model that is designed to measure the true economic return to investors. The key
inputs into the model are net operating profit after tax (NOPAT), free cash flow, and
the weighted average cost of capital. Each performance-based restricted stock grant
to our Named Executive Officers will span the performance of three consecutive fiscal
years, and the performance award at the end of the three years will be based upon the
incremental shareholder value created over/under what was expected. The Company must
earn a return that meets the Company’s weighted average cost of capital to earn the
targeted award. The Company’s return must exceed the weighted average cost of capital
to exceed the targeted award.
The long-term incentive plan for the Named Executive Officers is designed to pay
on the basis of the growth in shareholder value over a three-year period. By linking
rewards with the growth in the economic value of the Company, the plan aligns the
interests of the executive management team with those of the Company’s investors.
Also, by using a three-year period, the plan shapes investment strategies that improve
the value of the business over the long term.
42
Table of Contents
The Company performance objectives and the award calculation formula for the
performance-based LTIC awards (per the preceding chart showing their target restricted
stock awards) made to the Named Executive Officers in fiscal 2010 are as follows:
Award Information.
Measurement Period |
October 1, 2009 through September 30, 2012 | |
Base Shareholder Value (at the beginning of Measurement Period) |
$1,162.6 million | |
Incremental Shareholder Value Expected |
$332.6 million | |
Weighted Average Cost of Capital |
8.75% |
Award Formula.
The number of shares of restricted stock that will vest at the end of the
Measurement Period is a function of the amount of Incremental Shareholder Value
Delivered over the Measurement Period as compared to the Incremental Shareholder Value
Expected to be created over the Measurement Period. Except as otherwise provided in
the award agreements in connection with a termination of employment prior to September
30, 2012, at the end of the Measurement Period all restrictions will
lapse on, and the shares will become fully vested with respect to, the number of whole shares
(rounded down) equal to the product of (a) the number of shares comprising the
target restricted stock award, and (b) a multiplier, as provided in the following
table, based on the ratio, expressed as a percentage, of Incremental Shareholder Value
Delivered for the Measurement Period (as determined below) to the Incremental
Shareholder Value Expected for the Measurement Period:
| Incremental Shareholder Value Delivered | ||
| as Percentage of | ||
| Incremental Shareholder Value Expected | Multiplier | |
| (rounded down to nearest whole percent) | (rounded down to two decimal places) | |
Less than 50%
|
zero (no Shares vest) | |
At least 50% but less than 80%
|
.2 plus an additional .01 for each full percentage point realized above minimum for range | |
At least 80% but less than 100%
|
.5 plus an additional .025 for each full percentage point realized above minimum for range | |
At least 100% but less than 110%
|
1.0 plus an additional .025 for each full percentage point realized above minimum for range | |
At least 110% but less than 150%
|
1.25 plus an additional .00625 for each full point realized above minimum for range | |
At least 150%
|
1.5 (all Shares vest) |
43
Table of Contents
Calculation of Incremental Shareholder Value Delivered.
The amount of Incremental Shareholder Value Delivered during the Measurement
Period is calculated by subtracting the Base Shareholder Value from the Shareholder
Value Delivered, and the Shareholder Value Delivered is calculated by adding two
components: the Net Operating Profit After Tax (“NOPAT”) Component and the Cash Flows
Component.
| • | The NOPAT Component of Shareholder Value Delivered is the Company’s Adjusted NOPAT for the last fiscal year of the Measurement Period, divided by the Weighted Average Cost of Capital. | ||
| • | The Cash Flows Component of Shareholder Value Delivered is the sum of the following: |
| • | the Company’s Adjusted Cash Flows for the third fiscal year in the Measurement Period; | ||
| • | the Company’s Adjusted Cash Flows for the second fiscal year in the Measurement Period, multiplied by the sum of 100% and the Weighted Average Cost of Capital; and | ||
| • | the Company’s Adjusted Cash Flows for the first fiscal year in the Measurement Period, multiplied by the square of the sum of 100% and the Weighted Average Cost of Capital. |
Definitions.
| (a) | “Adjusted NOPAT” means the Company’s net operating profit after tax as adjusted (net of tax where applicable) to exclude the effects of the following items: |
| • | Income, losses, or impairments from specific financial instruments held by the Company immediately following its spin-off as a stand-alone company (i.e., auction rate securities, equity limited partnerships, common stock, and promissory notes); | ||
| • | Interest income on corporate investments and interest expense on corporate debt; | ||
| • | Costs related to the Company’s spin-off in 2008; | ||
| • | All professional fees, due diligence fees, expenses, and integration costs related to a specific acquisition; | ||
| • | Amortization expense of intangible long-lived assets where internally generated costs are not customarily capitalized in the normal course of the business (e.g., customer lists, patents, etc.); | ||
| • | All adjustments made to net income related to changes in the fair value of contingent earn-out awards; | ||
| • | External extraordinary, non-recurring, and material legal costs (e.g., antitrust litigation); |
44
Table of Contents
| • | Restructuring charges and other items related to a restructuring plan approved by the CEO; and | ||
| • | Changes in accounting pronouncements in United States GAAP or applicable international standards that cause an inconsistency in computation as originally designed. |
| (b) | “Adjusted Cash Flows” means, with respect to each fiscal year in the Measurement Period, the Company’s net cash provided by operating activities (whether positive or negative) less its capital expenditures net of proceeds on the disposal of property, all as shown on its audited financial statements for the fiscal year, as adjusted (net of tax where applicable) to exclude the effects of the following items: |
| • | Cash receipts or disbursements from financial instruments held by the Company immediately following the Company’s spin-off in 2008 (i.e., auction rate securities, limited partnerships, and promissory notes); | ||
| • | Interest income on corporate investments and interest expense on corporate debt; | ||
| • | Disbursements related to the Company’s spin-off in 2008; | ||
| • | External extraordinary, non-recurring, and material legal disbursements (e.g., antitrust litigation); | ||
| • | Changes in accounting pronouncements in United States GAAP or applicable international standards that cause an inconsistency in computation as originally designed; and | ||
| • | The costs of acquisitions, including all professional fees, due diligence fees, expenses, and integration costs, amortized over a 36 month period beginning the month after closing (payment of contingent earnouts (when made) is treated as a component of the purchase price payment for purposes of the computation and is subject to a separate 36 month amortization period at that time). |
Stock Ownership Requirement
All of our Named Executive Officers are required to own a significant number of
shares of our common stock. Specifically, our Chief Executive Officer and the other
Named Executive Officers, from and after the later of (i) April 1, 2013, or (ii) the
fifth anniversary of the date on which any such individual first became an officer of
the Company or any of its subsidiaries, are required to hold shares of our common
stock or equivalents described below at the following levels (“Required Ownership
Level”):
| Position | Required Ownership Level | |
Chief Executive Officer
|
4 x Base Annual Salary | |
Senior Vice Presidents of the Company
|
2 x Base Annual Salary | |
Vice Presidents of the Company and all subsidiaries
|
1 x Base Annual Salary |
45
Table of Contents
Shares owned outright and deferred or restricted stock shares, whether vested or
unvested, including performance-based shares at the target award level, count as share
equivalents towards the Required Ownership Level. Failure to achieve or maintain the
Required Ownership Level may result in (1) the applicable individual being required to
hold all after-tax vested deferred stock shares and after-tax shares acquired upon
exercise of stock options, or (2) suspension of future restricted stock or deferred
stock awards, until the Required Ownership Level is achieved. The Compensation
Committee (or its designee) may make exceptions, in its sole discretion, in the event
of disability or great financial hardship.
Clawback Provisions
For STIC and performance-based LTIC awards made in fiscal 2010 and beyond, the
Company has adopted a “clawback” policy that authorizes the Compensation Committee, in
its discretion, to require repayment from our Named Executive Officers of all or any
portion of their STIC and LTIC awards paid if the Company is required to restate its
financial statements due to fraud or negligence and if the results reported in such
restated financial statements would have produced a lesser amount of STIC or LTIC
award payable (ignoring Committee negative discretion with respect to STIC awards)
than was calculated per the original financial statements.
Tax Deduction Management
Section 162(m) of the Internal Revenue Code limits the tax deductibility of
certain executive compensation in excess of $1 million per year unless certain
requirements are met. Performance-based compensation is generally not subject to the
deductibility cap under Section 162(m). We generally seek to maximize the tax
deductibility of both our STIC and performance-based LTIC awards under Section 162(m).
Retirement and Savings Plans
Pension Plan. We sponsor a defined benefit pension plan (the “Pension
Plan”). The Pension Plan is closed to new salaried employees. Mr. Camp is the only
Named Executive Officer who is an active participant in the Pension Plan. Mr. Zerkle
has a frozen benefit in the Pension Plan.
The Pension Plan provides monthly retirement benefits based on a formula that
takes into consideration the highest average annual compensation of a participant over
a five consecutive year period and the participant’s years of service to the Company
(including years of service to our former parent). We are required to make annual
contributions that are determined actuarially as the amount needed to adequately fund
future benefits to be paid out to participants.
For information regarding the benefits potentially payable to our Named Executive
Officers under the Pension Plan, see the “Pension Benefits at September 30, 2010”
table in Part III below.
Savings Plan. We maintain a tax-qualified defined contribution savings
plan (the “Savings Plan”) in which substantially all of our employees, including the
Named Executive Officers, are eligible to participate. Employees may contribute up to
40% of their compensation on a pre-tax basis to the Savings Plan. For those salaried
participants who are not active participants in the Pension Plan, the Company matches
their contributions in an amount equal to 50¢ on the dollar for their contributions up
to 6% of their compensation. No matching contributions are made for employees who are
active participants in the Pension Plan. Additionally, whether or not employees
contribute to the Savings Plan,
the Company provides an automatic Company contribution per pay period to the
Savings Plan for all employees eligible to participate in an amount equal to 4% of
their compensation if they are not active participants in the Pension Plan or 3% if
they are active participants in the Pension Plan. All contributions by employees and
the automatic Company contribution are fully vested immediately. The Company matching
contributions do not vest until after three years of credited service; after that
point Company matching contributions vest immediately when made.
46
Table of Contents
For information regarding compensation paid to our Named Executive Officers under
the Savings Plan, see footnote 6 to the Summary Compensation Table in Part III below.
Supplemental Executive Retirement Plan. Through June 30, 2010, we
maintained and agreed to pay future cash benefits under a Supplemental Executive
Retirement Plan (the “SERP”) for certain of our executive officers who were selected
to participate in the plan. All of our Named Executive Officers were participants in
the SERP. The Compensation Committee selected the participants for the SERP and at
any time could choose to “freeze” the accrued benefits of a participant under the SERP
and stop accruing additional benefits under the plan for that participant.
The SERP was an unfunded retirement benefit plan and was not a tax qualified
retirement plan under the Internal Revenue Code. No monies were actually
“contributed” to the SERP by the Company to fund future benefit payouts. Under the
SERP, future payout amounts were simply recorded in “accounts” set up for the
participants to record the amounts the Company was obligated to pay them if and when
they became entitled to payment of their accrued benefits. If a participant were
terminated for “cause” (as such term is defined in the SERP), all benefits under the
SERP were subject to forfeiture.
There were two components of the SERP — a defined contribution component (in
which all Named Executive Officers participated) and a defined benefit component (in
which only Mr. Camp participated). The SERP was designed to supplement the amount of
retirement benefits that participants were entitled to receive from either or both of
our Pension Plan and our Savings Plan. For tax qualified retirement plans, such as
our Pension Plan and our Savings Plan, the Internal Revenue Code establishes various
limitations that must be applied no matter what the terms of the plan might be. For
example, the tax laws limit the maximum amount of annual benefits that can be paid to
a participant under a defined benefit plan, limit the maximum amount that can be
contributed for any particular year by or for a participant under a defined
contribution plan, and limit the maximum amount of compensation that can be counted as
earnings of the participant for purposes of calculating benefits or contributions
under either type of plan. The application of these tax law limitations can result in
a reduction in the amount of retirement benefits that would otherwise be payable to a
participant under the terms of a tax qualified retirement plan. Additionally, our
Pension Plan and Savings Plan both exclude any cash bonus amounts from the definition
of compensation for plan purposes, and focus only on benefits or contributions
relating to base salary in their benefit or contribution formulas.
In general, the SERP was designed to pay benefits to a retiring participant to
“make up” for any reduction in the benefits that would otherwise have been payable to
the retiree under our Pension Plan, or a reduction in the contributions that the
Company would have made for such retiree under the Savings Plan, on account of the
application of tax law limitations and the exclusion of the annual cash bonus from the
benefit and contribution formulas under those plans. This was accomplished by
annually accruing future benefits for the participants equal to the difference between
(a) what benefit amount was actually accrued or contributed for a participant under
the Pension Plan and the Savings Plan, and (b) what amount would have been accrued or
contributed if (i) the tax law limitations were not applied, and (ii) the targeted
amount of their annual cash incentive bonus was included as compensation (in addition
to base salary) in the benefit or contribution formulas under the plans.
47
Table of Contents
The SERP also permitted the Company, in its discretion, to accrue an additional
benefit amount for each participant equal to three percent of compensation (base
salary plus cash bonus) for those participants who were selected to receive such
benefit. Only Mr. Camp was awarded this discretionary accrual amount for fiscal 2010.
Supplemental Retirement Plan. Effective July 1, 2010, the Company (a)
adopted a new Supplemental Retirement Plan administered by Fidelity Employer Services
Company (the “SRP”), which replaced the defined contribution component of the SERP,
and (b) amended the SERP to remove the defined contribution component from that plan.
The SERP, as amended, continues in effect after that date with respect to the defined
benefit component of that plan. All accrued account balances under the defined
contribution component of the SERP were transferred to the SRP as of July 1, 2010.
The SRP provides essentially the same benefits to our Named Executive Officers
that they potentially were entitled to receive under the defined contribution
component of the SERP. However, the SRP changed the investment options for
participants. Under the SERP, defined contribution accruals could be “invested” only
in an interest-bearing “cash” account. Under the SRP, participants are permitted to
direct the investment of their accrued accounts (on a hypothetical basis since the
plan is unfunded) into various Fidelity mutual funds. The Company then actually makes
those designated investments for the Company’s own account with funds contributed by
the Company under a “Rabbi Trust” arrangement so that the Company can actually fund
the earnings or losses experienced by each participant in his or her hypothetical
investments when distributions are made.
The SRP also permits participants to elect to defer a portion of their Short-Term
Incentive Compensation each year for payment at a later time and to “invest” the
deferred amounts in Fidelity mutual funds on a hypothetical basis as described above.
This feature was not available under the SERP.
For information concerning retirement benefits payable to certain of our Named
Executive Officers under the SERP and the SRP, see the table entitled “Pension
Benefits at September 30, 2010” in Part III below.
Executive Deferred Compensation Program. Under our Executive Deferred
Compensation Program, certain executives (who were chosen by the Compensation
Committee), including the Named Executive Officers, were permitted to elect to defer
all or a portion of their base salary, STIC, and certain other benefits and elect to
have them paid in a year or years later than when such amounts would otherwise be
payable. As of September 30, 2010, none of the Named Executive Officers had balances
in the Executive Deferred Compensation Program.
Severance Benefits and Employment Agreements
Employment Agreements. We have entered into employment agreements with
each of the Named Executive Officers. We believe that it is appropriate for our
senior executives to have employment agreements because they provide certain
contractual protections to us that we might not otherwise have, including provisions
relating to not competing with us, not soliciting our employees, and maintaining the
confidentiality of our proprietary information. (The employment agreements we have
with our Named Executive Officers contain non-competition and non-solicitation
agreements of the executive officers, which continue in effect generally for a period
of two years after the termination of the Named Executive Officers’ employment.)
Additionally, we believe that employment agreements are a useful tool in the
recruiting and retention of senior-level executives.
48
Table of Contents
Severance Benefits Under Employment Agreements. The employment
agreements of our Named Executive Officers are terminable by either party without
“cause” on 60 days’ written notice and are also terminable by us at any time (subject
to certain cure rights) for “cause,” as such term is defined in each employment
agreement. The Named Executive Officers may also terminate their employment
agreements for “good reason” as such term is defined in their agreements. If we
terminate the employment of a Named Executive Officer without “cause,” or if a Named
Executive Officer terminates his or her employment with “good reason,” then we are
obligated to provide severance compensation in connection with such termination. No
severance compensation is payable under our employment agreements with our Named
Executive Officers if we terminate with “cause,” if the executive terminates without
“good reason,” or if the employment relationship is terminated on account of death or
disability.
If the employment of a Named Executive Officer is terminated by us without cause
or is terminated by the executive officer upon the occurrence, without the executive
officer’s consent, of a good reason event, we are required under the officer’s
employment agreement to provide severance compensation to the Named Executive Officer
as follows:
| • | continuation of the executive officer’s base salary for twelve months, subject to required withholdings, which payments may need to be delayed for six months under certain provisions of the Internal Revenue Code; | ||
| • | continuation of group life and health coverage until the payment described above has been made; and | ||
| • | limited out-placement counseling. |
Post-Termination Payments of STIC and LTIC. A Named Executive Officer
whose employment terminates may or may not be entitled to the post-termination payment
of a portion of the Short-Term Incentive Compensation (“STIC”) or Long-Term Incentive
Compensation (“LTIC”) that would have been payable to the Named Executive Officer if
his or her employment had continued through the end of the then-current measurement
periods applicable to STIC and LTIC awards. The amount payable, if any, depends on
the Company’s performance throughout the measurement periods in question and the
circumstances under which employment was terminated.
No post-termination STIC or LTIC is potentially payable to a Named Executive
Officer unless and until the performance or measurement period in question has ended
and it is determined under the applicable performance formula, based on the Company’s
financial results, that an amount would have been payable to the former officer had
his or her employment continued through the end of the performance or measurement
period. Once the amount that would have been paid had employment continued (the “Full
Period Award”) is determined, the following rules determine the portion of the Full
Period Award, if any, that will be payable to the former Named Executive Officer:
| 1. | STIC. The Named Executive Officer will be entitled to a pro-rata payment of his or her STIC, based on the pro-rata portion of the fiscal year employed, subject to a reduction of up to one-third of that amount at the discretion of the Compensation Committee, if his or her termination of employment resulted from retirement (after age 55 and 5 years of service), disability, death, involuntary termination without “Cause” or voluntary termination for “Good Reason.” Except as provided above, no pro-rata STIC will be payable upon an involuntary termination with Cause or a voluntary termination without Good Reason. |
49
Table of Contents
| 2. | LTIC. With respect to shares of restricted stock that would have vested in a terminated Named Executive Officer in accordance with the Company performance formula had employment continued through the end of the three year measurement period, there are three possible outcomes: |
| (a) | if employment terminated due to death, disability or retirement (after age 55 and 5 years of service), the former Named Executive Officer would be entitled to one-third of the Full Period Award plus a pro-rata amount equal to the number of weeks employed during the measurement period divided by 104 (up to a maximum of the Full Period Award amount); | ||
| (b) | if employment was terminated by the Company without “Cause” or by the executive for “Good Reason,” a pro-rata amount based solely on the portion of the measurement period he or she was employed will be paid; and | ||
| (c) | in any other circumstances, all shares of restricted stock will be forfeited upon termination of employment. |
For information regarding the severance benefits payable to our Named Executive
Officers under their employment agreements and our STIC and LTIC compensation
programs, see the “Potential Payments Upon Termination” tables under “Compensation of
Named Executive Officers” in Part III below.
Change in Control Agreements
We believe that it is important that management of the Company be in a position
to provide assessment and advice to the Board of Directors regarding any proposed
business transaction without being unduly distracted by the uncertainties and risks
created by such a proposed change in control. Accordingly, we have entered into
personal Change in Control Agreements with each of our Named Executive Officers (as
well as with other key executives) that provide severance compensation to them if
their employment is terminated on account of or under certain circumstances following
a change in the control of the Company. Severance compensation under our Change in
Control Agreements is in lieu of severance compensation provided under the Named
Executive Officers’ employment agreements or our Severance Plan.
The Change in Control Agreements provide for payment of specified benefits upon
the termination of a Named Executive Officer’s employment (other than on account of
death, disability, retirement, or “cause”) in anticipation of or within two years
after the occurrence of a “Change in Control” (three years for Mr. Camp) or upon the
executive’s termination of employment for “good reason” within two years after a
Change in Control (three years for Mr. Camp). Additionally, Mr. Camp is entitled to
severance benefits under his agreement if he voluntarily terminates his employment at
any time within the period of one year plus thirty days after the occurrence of a
Change in Control. The severance benefits to be provided upon a termination of
employment under any of the above circumstances are:
| • | a lump sum payment in cash equal to two times the executive’s annual base salary (three times for Mr. Camp); |
50
Table of Contents
| • | continued health insurance for the executive and his or her dependents and continued life insurance coverage for 24 months (36 months for Mr. Camp), with the right to purchase continued medical insurance (at COBRA rates) from the end of this period until the executive reaches Social Security retirement age; | ||
| • | a lump sum payment equal to twice (three times in the case of Mr. Camp) the amount of the additional amounts accrued during the last 12 months in the executive’s “defined contribution” accounts under the Company’s SERP; and | ||
| • | an increase to the defined benefit pension benefit otherwise payable to the executive under the Pension Plan and the SERP component related to the Pension Plan, calculated by giving the executive credit for two additional years of service. |
In addition, upon a Change in Control, with respect to executives whose
employment is not terminated prior to or at the time of the Change in Control, (a) all
outstanding stock options will become fully vested, (b) restricted stock awards made
during fiscal 2009 will become fully vested, (c) restricted stock awards made during
fiscal 2010 or after will vest proportionately to the portion of the performance
measurement period that expired prior to the Change in Control, and (d) the executives
will be deemed to have earned and will be entitled to payment, within 30 days after
the occurrence of the Change in Control, the current year’s Short-Term Incentive
Compensation to the extent such STIC would have been earned if all performance targets
for the relevant period were achieved at the 100% level.
The Change in Control Agreements also provide that if the executive receives
payments upon a change in control that would be subject to the excise tax on excess
parachute payments imposed by Section 4999 of the Internal Revenue Code, either (a)
the executive will be entitled to receive an additional “gross-up” payment in an
amount necessary to put him or her in the same after-tax position as if such excise
tax had not been imposed, or (b) with respect to all of the Named Executive Officers
other than Mr. Camp, if the value of all “parachute payments” to the executive does
not exceed 120% of the maximum “parachute payment” that could be paid to him or her
without giving rise to the excise tax, then the payments otherwise called for by the
Change in Control Agreement will be reduced (or “cut back”) to the maximum amount that
could be paid without the imposition of that excise tax. In summary, then, Mr. Camp
would always be entitled to the gross-up payment for excise taxes on his excess
parachute payments, but the other Named Executive Officers would be entitled to a tax
gross-up payment only if their parachute payments exceeded 120% of the maximum allowed
to be paid to them without paying any excise tax on the payments, and at the 120%
level or less their parachute payments will be reduced as necessary to avoid the
imposition of the excise tax. (The Compensation Committee has directed that no
additional agreements with tax gross-up provisions shall be entered into by the
Company unless that Committee has specifically authorized the agreements containing
such provisions.)
Under the Change in Control Agreements, a “Change in Control” is defined
generally as: (1) the acquisition of beneficial ownership of 35% or more of the voting
power of all of our voting securities by a person or group other than members of the
Hillenbrand Family; (2) the consummation of certain mergers or consolidations; (3) a
change in the composition of a majority of the members of our Board of Directors; (4)
the consummation of a sale of substantially all of our assets; or (5) the date of
approval by our shareholders of a plan of complete liquidation of our Company.
The amounts potentially payable to our Named Executive Officers in connection
with a Change in Control are set forth in the tables under the heading “Potential
Payments Upon Termination” in Part III: Executive Compensation Tables below.
51
Table of Contents
Other Personal Benefits
In addition to the elements of compensation discussed above, we also provide our
Named Executive Officers with various other benefits as described below. We generally
disfavor providing extensive perquisites but do provide modest benefits to enhance the
highly variable, performance oriented compensation programs we utilize for our Named
Executive Officers. We also provide these benefits in order to remain competitive
with the market and believe that these benefits help us to attract and retain
qualified executives.
Executive Financial Planning, Estate Planning, and Tax Preparation Service
Program. Our Named Executive Officers are eligible for reimbursement of (a)
financial and estate planning services, and (b) income tax preparation services.
Reimbursement is approved for up to $5,000 per calendar year.
Executive Physical. We provide the Named Executive Officers with annual
physicals. We cover 100% of the cost of this program. This program was developed to
promote the physical well-being and health of our senior-level managers. We believe
that this program is in the best long-term interest of our shareholders.
Other Benefits. Named Executive Officers also participate in other
benefit plans that we fully or partially subsidize. Their participation is on the
same terms as our other employees. Some of the more significant of these benefits
include medical, dental, life, disability insurance, and vision insurance, as well as
relocation reimbursement, tuition reimbursement, holiday, and vacation benefits. All
Named Executive Officers participate in our group term life insurance program, which
provides death benefit coverage of up to two times base salary or $500,000, whichever
is less. In addition, our Named Executive Officers are eligible to participate in our
optional supplemental group term life insurance program in which participants may
purchase up to the lesser of five times their base annual salary or $600,000 of
additional term life insurance at their own expense.
52
Table of Contents
PART II: COMPENSATION COMMITTEE REPORT
Each member of the Compensation Committee of the Board of Directors of
Hillenbrand, Inc. is “independent,” as that term is defined under (a) the New York
Stock Exchange listing standards, (b) the non-employee director standards of Rule
16b-3 of the Securities Exchange Act of 1934, as amended, (c) the outside director
requirements of Section 162(m) of the Code, and (d) the Company’s Corporate Governance
Standards. The Compensation Committee currently consists of Mark C. DeLuzio, James A.
Henderson, Ray J. Hillenbrand, F. Joseph Loughrey, and Neil S. Novich.
As a committee, our primary function is to ensure Hillenbrand’s executive
compensation program is competitive so that the Company can attract and retain
executive personnel and also performance-based so that the interests of its management
are aligned with both the short-term and long-term interests of its shareholders. We
engage an independent executive compensation consulting firm to assist us in our
review of the Company’s executive and director compensation programs to ensure these
programs are competitive and consistent with our stated objectives. The executive
compensation consultant is retained by and is directly accountable to us and we
generally approve all related fees paid to the executive compensation consultant. We
have no interlocks or insider participation, and we engage in annual self-evaluations
to determine our effectiveness as a committee. We have adopted a charter, which may
be found on Hillenbrand’s web site at www.hillenbrandinc.com.
Under Section 162(m) of the Internal Revenue Code, the Company is not able to
deduct for federal income tax purposes annual compensation in excess of $1 million
paid to certain employees, generally its Named Executive Officers. However,
compensation that is “performance-based” is not subject to that deduction limitation.
While the Compensation Committee generally intends to structure and administer
executive compensation plans and arrangements so that they will not be subject to the
deduction limit, the Compensation Committee may from time-to-time approve payments
that cannot be deducted in order to maintain flexibility in structuring appropriate
compensation programs in the interest of shareholders.
The Compensation Committee of the Board of Directors of Hillenbrand, Inc. has
reviewed and discussed the Compensation Discussion and Analysis contained in this
proxy statement with management and, based upon this review and discussion,
recommended to the Board of Directors that the preceding Compensation Discussion and
Analysis be included in this proxy statement.
Respectfully submitted,
James A. Henderson (Chairperson)
Mark C. DeLuzio
Ray J. Hillenbrand
F. Joseph Loughrey
Neil S. Novich
Mark C. DeLuzio
Ray J. Hillenbrand
F. Joseph Loughrey
Neil S. Novich
53
Table of Contents
PART III: EXECUTIVE COMPENSATION TABLES
Tabular Compensation Information
In the following pages we present numerous tables that set out various elements
of compensation for our Named Executive Officers. No one table in and of itself
presents the “total picture”; instead, you should review all the information carefully
to understand the manner in which, and the amounts, our Named Executive Officers have
been paid. To understand all the numbers in the tables below, you need to read the
footnotes carefully, which explain the various assumptions and calculations that give
rise to the dollar amounts in the tables.
Compensation of Named Executive Officers
Summary Compensation Table
The following table summarizes the total compensation paid to or earned by each of
the Named Executive Officers for the fiscal years ended September 30, 2010, 2009, and
2008. We have entered into employment agreements with each of the Named Executive
Officers — see the “Severance Benefits and Employment Agreements” section of “Part I:
Compensation Discussion and Analysis” for further information about those agreements.
| (a) | (b) | (c) | (d) | (e) | (f) | (g) | (h) | (i) | (j) | |||||||||||||||||||||||||||
| Change in | ||||||||||||||||||||||||||||||||||||
| Pension Value | ||||||||||||||||||||||||||||||||||||
| and | ||||||||||||||||||||||||||||||||||||
| Nonqualified | ||||||||||||||||||||||||||||||||||||
| Non-Equity | Deferred | |||||||||||||||||||||||||||||||||||
| Name and Principal | Option | Incentive Plan | Compensation | All Other | ||||||||||||||||||||||||||||||||
| Position | Salary | Bonus | Stock Awards | Awards | Compensation | Earnings | Compensation | Total | ||||||||||||||||||||||||||||
| (as of September 30, 2010) | Year | $(1) | $ | $(2) | $(3) | $(4) | $(5) | $(6) | $ | |||||||||||||||||||||||||||
Kenneth A. Camp |
2010 | $ | 690,068 | $ | — | $ | 1,563,747 | $ | 622,089 | $ | 1,000,000 | $ | 1,569,866 | $ | 83,641 | $ | 5,529,411 | |||||||||||||||||||
President and Chief |
2009 | $ | 669,315 | $ | — | $ | 1,518,735 | $ | 539,949 | $ | 440,000 | $ | 1,251,951 | $ | 75,464 | $ | 4,495,414 | |||||||||||||||||||
Executive Officer |
2008 | $ | 543,198 | $ | — | $ | 1,338,149 | $ | 815,234 | $ | 400,000 | $ | 341,329 | $ | 65,735 | $ | 3,503,645 | |||||||||||||||||||
Joe A. Raver |
2010 | $ | 424,041 | $ | — | $ | 480,372 | $ | 191,100 | $ | 450,000 | $ | — | $ | 55,777 | $ | 1,601,290 | |||||||||||||||||||
Senior Vice President |
2009 | $ | 411,589 | $ | — | $ | 466,861 | $ | 165,982 | $ | 215,000 | $ | — | $ | 75,009 | $ | 1,334,441 | |||||||||||||||||||
and President of |
2008 | $ | 115,847 | $ | 100,000 | $ | 274,997 | $ | 182,927 | $ | 70,000 | $ | — | $ | 17,061 | $ | 760,832 | |||||||||||||||||||
Batesville Casket
Company |
||||||||||||||||||||||||||||||||||||
Cynthia L. Lucchese |
2010 | $ | 318,781 | $ | — | $ | 361,113 | $ | 143,658 | $ | 271,000 | $ | — | $ | 34,838 | $ | 1,129,390 | |||||||||||||||||||
Senior Vice President and |
2009 | $ | 309,271 | $ | — | $ | 350,987 | $ | 124,787 | $ | 97,000 | $ | — | $ | 23,862 | $ | 905,907 | |||||||||||||||||||
Chief Financial Officer |
2008 | $ | 218,852 | $ | — | $ | 230,856 | $ | 212,210 | $ | 95,000 | $ | — | $ | 8,308 | $ | 765,226 | |||||||||||||||||||
P. Douglas Wilson |
2010 | $ | 275,822 | $ | — | $ | 316,122 | $ | 125,756 | $ | 244,000 | $ | — | $ | 35,091 | $ | 996,791 | |||||||||||||||||||
Senior Vice President |
2009 | $ | 257,726 | $ | — | $ | 319,048 | $ | 113,428 | $ | 103,000 | $ | — | $ | 28,788 | $ | 821,990 | |||||||||||||||||||
Human Resources |
2008 | $ | 129,781 | $ | — | $ | 146,615 | $ | 127,979 | $ | 55,000 | $ | — | $ | 8,462 | $ | 467,837 | |||||||||||||||||||
John R. Zerkle |
2010 | $ | 298,174 | $ | — | $ | 340,303 | $ | 135,381 | $ | 220,000 | $ | 1,436 | $ | 35,633 | $ | 1,030,927 | |||||||||||||||||||
Senior Vice President, |
2009 | $ | 282,726 | $ | — | $ | 404,368 | $ | 143,761 | $ | 98,500 | $ | 3,179 | $ | 25,407 | $ | 957,941 | |||||||||||||||||||
General Counsel and |
2008 | $ | 244,400 | $ | 25,000 | $ | 108,124 | $ | 56,034 | $ | 100,000 | $ | — | $ | 16,678 | $ | 550,236 | |||||||||||||||||||
Secretary |
||||||||||||||||||||||||||||||||||||
54
Table of Contents
| (1) | The amounts indicated represent the dollar value of base salary earned during fiscal 2010, 2009, and 2008, as applicable. | |
| (2) | The amounts indicated represent the grant date fair value related to time-based and deferred stock awards and performance-based restricted stock awards granted during fiscal 2010, 2009, and 2008 computed in accordance with stock-based accounting rules (FASB ASC Topic 718). The determination of this value is based on the methodology set forth in Note 11 to our audited financial statements included in our Annual Report on Form 10-K, which was filed with the SEC on November 23, 2010. The performance-based award values are shown at the targeted 100% Company performance achievement level. The maximum award amounts, at the highest Company performance achievement level, are 150% of the values shown in the table. | |
| (3) | The amounts indicated represent the grant date fair value related to stock option awards granted during fiscal 2010, 2009, and 2008 computed in accordance with stock-based accounting rules (FASB ASC Topic 718). The determination of this value is based on the methodology set forth in Note 11 to our audited financial statements included in our Annual Report on Form 10-K, which was filed with the SEC on November 23, 2010. Additionally, the amounts for 2008 include the incremental fair value of stock option awards modified during fiscal 2008 in connection with the spin-off of the Company as a separate public company. | |
| (4) | The amounts indicated represent cash awards earned for fiscal 2010, 2009, and 2008 and paid in the first quarter of fiscal 2011, 2010, and 2009 under our STIC Plan. See the “Annual Cash Incentives” section of the Compensation Discussion and Analysis. | |
| (5) | Change in Pension Value and Nonqualified Deferred Compensation earned or allocated during the fiscal year ended September 30, 2010, is as follows: |
| Change in | Above Market | |||||||||||
| Actuarial Present | Nonqualified | |||||||||||
| Value of | Deferred | |||||||||||
| Accumulated | Compensation | |||||||||||
| Name | Pension Benefit (a) | Earnings (b) | Total | |||||||||
Kenneth A. Camp (c) |
$ | 1,569,866 | $ | — | $ | 1,569,866 | ||||||
Joe A. Raver |
$ | — | $ | — | $ | — | ||||||
Cynthia L. Lucchese |
$ | — | $ | — | $ | — | ||||||
P. Douglas Wilson |
$ | — | $ | — | $ | — | ||||||
John R. Zerkle |
$ | 1,436 | $ | — | $ | 1,436 | ||||||
| (a) | See the Pension Benefits Table below for additional information, including present value assumptions used in this calculation. | |
| (b) | SEC rules provide that earnings at a rate in excess of the “Applicable Federal Rate” (a rate that applies for tax purposes under the Internal Revenue Code) are to be identified as “above market” earnings and must be separately disclosed in this table. There were no above market earnings to be reported for fiscal 2010. | |
| (c) | The pension benefit for Mr. Camp includes the effect of the supplemental benefits he has earned under the agreement dated March 15, 2006, and more fully described in footnote 4 to the Pension Benefits Table below. |
55
Table of Contents
| (6) | Consists of Company provided contributions to the Savings Plan, the defined contribution portion of the SERP, and the SRP. Also includes the incremental cost of other personal benefits such as relocation, financial planning, tax preparation, and spousal meals and travel. All Other Compensation earned or allocated during the fiscal year ended September 30, 2010, is as follows: |
| Company Contribution | Other Personal | |||||||||||||||
| 401(K) | Supp 401(K) | Benefits | Total | |||||||||||||
Kenneth A. Camp |
$ | 7,350 | $ | 71,423 | $ | 4,868 | $ | 83,641 | ||||||||
Joe A. Raver |
$ | 18,055 | $ | 35,051 | $ | 2,671 | $ | 55,777 | ||||||||
Cynthia L. Lucchese |
$ | 16,933 | $ | 16,805 | $ | 1,100 | $ | 34,838 | ||||||||
P. Douglas Wilson |
$ | 17,974 | $ | 12,067 | $ | 5,050 | $ | 35,091 | ||||||||
John R. Zerkle |
$ | 18,068 | $ | 14,415 | $ | 3,150 | $ | 35,633 | ||||||||
Grants of Plan-Based Awards for Fiscal Year Ended September 30, 2010
The following table summarizes the grants of plan-based awards to each of the
Named Executive Officers for the fiscal year ended September 30, 2010.
| (a) | (b) | (c) | (d) | (e) | (f) | (g) | (h) | (i) | (j) | (k) | (l) | |||||||||||||||||||||||||||||||||
| All | ||||||||||||||||||||||||||||||||||||||||||||
| Other | ||||||||||||||||||||||||||||||||||||||||||||
| All Other | Option | |||||||||||||||||||||||||||||||||||||||||||
| Stock | Awards: | Grant Date | ||||||||||||||||||||||||||||||||||||||||||
| Estimated Future Payouts Under | Estimated Future Payouts Under | Awards: | Number of | Exercise or | Fair Value | |||||||||||||||||||||||||||||||||||||||
| Non-Equity Incentive Plan Awards (1) | Equity Incentive Plan Awards (2) | Number of | Securities | Base Price | of Stock and | |||||||||||||||||||||||||||||||||||||||
| Initial | Shares or | Underlying | of Option | Option | ||||||||||||||||||||||||||||||||||||||||
| Grant | Threshold | Target | Maximum | Threshold | Target | Maximum | Units | Options | Awards | Awards | ||||||||||||||||||||||||||||||||||
| Name | Date | $ | $ | $ | # | # | # | # | # (3) | ($/Sh) | $ (4) | |||||||||||||||||||||||||||||||||
Kenneth A. Camp |
$ | 62,065 | $ | 620,654 | $ | 1,489,570 | ||||||||||||||||||||||||||||||||||||||
| 12/1/2009 | 16,878 | 84,390 | 126,585 | — | $ | 1,563,747 | ||||||||||||||||||||||||||||||||||||||
| 12/1/2009 | 112,520 | $ | 18.53 | $ | 622,089 | |||||||||||||||||||||||||||||||||||||||
Joe A. Raver |
$ | 31,783 | $ | 317,827 | $ | 762,785 | ||||||||||||||||||||||||||||||||||||||
| 12/1/2009 | 5,184 | 25,924 | 38,886 | — | $ | 480,372 | ||||||||||||||||||||||||||||||||||||||
| 12/1/2009 | 34,565 | $ | 18.53 | $ | 191,100 | |||||||||||||||||||||||||||||||||||||||
Cynthia L. Lucchese |
$ | 15,929 | $ | 159,288 | $ | 382,291 | ||||||||||||||||||||||||||||||||||||||
| 12/1/2009 | 3,897 | 19,488 | 29,232 | — | $ | 361,113 | ||||||||||||||||||||||||||||||||||||||
| 12/1/2009 | 25,984 | $ | 18.53 | $ | 143,658 | |||||||||||||||||||||||||||||||||||||||
P. Douglas Wilson |
$ | 13,767 | $ | 137,673 | $ | 330,415 | ||||||||||||||||||||||||||||||||||||||
| 12/1/2009 | 3,412 | 17,060 | 25,590 | — | $ | 316,122 | ||||||||||||||||||||||||||||||||||||||
| 12/1/2009 | 22,746 | $ | 18.53 | $ | 125,756 | |||||||||||||||||||||||||||||||||||||||
John R. Zerkle |
$ | 14,889 | $ | 148,894 | $ | 357,346 | ||||||||||||||||||||||||||||||||||||||
| 12/1/2009 | 3,673 | 18,365 | 27,547 | — | $ | 340,303 | ||||||||||||||||||||||||||||||||||||||
| 12/1/2009 | 24,487 | $ | 18.53 | $ | 135,381 | |||||||||||||||||||||||||||||||||||||||
| (1) | The amounts indicated represent potential cash awards that could have been paid under Hillenbrand’s STIC Plan. See “Annual Cash Incentives” section of the Compensation Discussion and Analysis for a discussion of this plan. See the “Non-Equity Incentive Plan Compensation” column of the Summary Compensation Table above for the actual amounts earned, which were paid in December 2010. |
56
Table of Contents
| (2) | All restricted stock grants are held in escrow by the Company and are subject to vesting conditions based on the Company’s financial performance during the three fiscal year period 2009-2011. Dividends payable during that period will be accumulated, will be deemed to be reinvested in additional shares of stock as of the dividend payment date, and will be distributed in proportion to the number of underlying shares granted that vest and are distributed to the holder of the shares. The amounts in the table represent grant date fair value of the awards at the threshold, target (100%) and maximum achievement of the targeted increase in shareholder value. The vesting schedules for stock awards granted during the fiscal 2010 are disclosed by individual Named Executive Officer in the footnotes in the following Outstanding Equity Awards table. | |
| (3) | Options expire ten years from date of grant and will vest for exercise purposes in equal increments during the first three years of the option life. Stock awards and options are granted to our Named Executive Officers at the discretion of the Compensation Committee. | |
| (4) | The valuations of stock options, restricted stock, and deferred stock shares are grant date fair values computed in accordance with stock-based accounting rules (FASB ASC Topic 718) and are based on the methodology set forth in Note 11 to our financial statements included in our Annual Report on Form 10-K, which was filed with the SEC on November 23, 2010. The amounts used in column (1) represent 100% achievement of the targeted increase in shareholder value. |
57
Table of Contents
Outstanding Equity Awards at September 30, 2010
The following table summarizes the number and terms of stock option awards,
time-based deferred stock share awards, and performance-based restricted stock awards
outstanding for each of the Named Executive Officers as of September 30, 2010.
| Option Awards | Stock Awards | |||||||||||||||||||||||||||||||||||
| (a) | (b) | (c) | (d) | (e) | (f) | (g) | (h) | (i) | (j) | |||||||||||||||||||||||||||
| Equity | ||||||||||||||||||||||||||||||||||||
| Equity | Incentive | Equity Incentive | ||||||||||||||||||||||||||||||||||
| Incentive | Plan Awards: | Plan Awards: | ||||||||||||||||||||||||||||||||||
| Plan Awards: | Number of | Market or | ||||||||||||||||||||||||||||||||||
| Number of | Number of | Number of | Number of | Unearned | Payout Value of | |||||||||||||||||||||||||||||||
| Securities | Securities | Securities | Shares or | Market Value | Shares, Units | Unearned | ||||||||||||||||||||||||||||||
| Underlying | Underlying | Underlying | Units of | of Shares or | or Other | Shares, Units or | ||||||||||||||||||||||||||||||
| Unexercised | Unexercised | Unexercised | Option | Stock That | Units of Stock | Rights That | Other Rights | |||||||||||||||||||||||||||||
| Options | Options | Unearned | Exercise | Option | Have Not | That Have | Have Not | That Have Not | ||||||||||||||||||||||||||||
| # | # | Options | Price | Expiration | Vested | Not Vested | Vested | Vested | ||||||||||||||||||||||||||||
| Name | Exercisable | Unexercisable | # | $ | Date | # (1) | $ (2) | # (3) | $ (1) (2) | |||||||||||||||||||||||||||
Kenneth A. Camp |
21,760 | $ | 20.84 | 1/15/2011 | ||||||||||||||||||||||||||||||||
| 21,760 | $ | 22.35 | 4/9/2011 | |||||||||||||||||||||||||||||||||
| 32,640 | $ | 23.03 | 11/9/2011 | |||||||||||||||||||||||||||||||||
| 19,584 | $ | 28.26 | 4/9/2012 | |||||||||||||||||||||||||||||||||
| 43,520 | $ | 21.82 | 12/4/2012 | |||||||||||||||||||||||||||||||||
| 43,520 | $ | 26.76 | 12/3/2013 | |||||||||||||||||||||||||||||||||
| 52,224 | $ | 25.54 | 12/15/2014 | |||||||||||||||||||||||||||||||||
| 43,520 | $ | 22.50 | 11/30/2015 | |||||||||||||||||||||||||||||||||
| 43,520 | $ | 26.61 | 11/30/2016 | |||||||||||||||||||||||||||||||||
| 29,014 | 14,506 | (4) | $ | 24.84 | 12/5/2017 | |||||||||||||||||||||||||||||||
| 82,344 | 41,171 | (5) | $ | 21.05 | 4/1/2018 | |||||||||||||||||||||||||||||||
| 45,333 | 90,664 | (6) | $ | 14.89 | 12/18/2018 | |||||||||||||||||||||||||||||||
| 112,520 | (7) | $ | 18.53 | 12/1/2019 | ||||||||||||||||||||||||||||||||
| 39,693 | (8) | $ | 853,796 | 196,612 | (9) | $ | 4,229,124 | |||||||||||||||||||||||||||||
Cynthia L. Lucchese |
24,024 | 12,011 | (10) | $ | 25.63 | 1/7/2018 | ||||||||||||||||||||||||||||||
| 10,477 | 20,953 | (6) | $ | 14.89 | 12/18/2018 | |||||||||||||||||||||||||||||||
| 25,984 | (7) | $ | 18.53 | 12/1/2019 | ||||||||||||||||||||||||||||||||
| 7,982 | (11) | $ | 171,693 | 45,422 | (12) | $ | 977,027 | |||||||||||||||||||||||||||||
Joe A. Raver |
21,074 | 10,536 | (13) | $ | 22.15 | 6/16/2018 | ||||||||||||||||||||||||||||||
| 13,936 | 27,870 | (6) | $ | 14.89 | 12/18/2018 | |||||||||||||||||||||||||||||||
| 34,565 | (7) | $ | 18.53 | 12/1/2019 | ||||||||||||||||||||||||||||||||
| 10,961 | (14) | $ | 235,771 | 60,420 | (15) | $ | 1,299,634 | |||||||||||||||||||||||||||||
P. Douglas Wilson |
16,538 | 8,268 | (16) | $ | 22.46 | 3/24/2018 | ||||||||||||||||||||||||||||||
| 9,523 | 19,046 | (6) | $ | 14.89 | 12/18/2018 | |||||||||||||||||||||||||||||||
| 22,746 | (7) | $ | 18.53 | 12/1/2019 | ||||||||||||||||||||||||||||||||
| 5,763 | (17) | $ | 123,962 | 40,609 | (18) | $ | 873,500 | |||||||||||||||||||||||||||||
John R. Zerkle |
2,901 | $ | 25.54 | 12/15/2014 | ||||||||||||||||||||||||||||||||
| 6,382 | $ | 22.50 | 11/30/2015 | |||||||||||||||||||||||||||||||||
| 10,880 | $ | 26.61 | 11/30/2016 | |||||||||||||||||||||||||||||||||
| 9,575 | 4,787 | (4) | $ | 24.84 | 12/5/2017 | |||||||||||||||||||||||||||||||
| 12,070 | 24,139 | (6) | $ | 14.89 | 12/18/2018 | |||||||||||||||||||||||||||||||
| 24,487 | (7) | $ | 18.53 | 12/1/2019 | ||||||||||||||||||||||||||||||||
| 3,876 | (19) | $ | 83,373 | 48,090 | (20) | $ | 1,034,416 | |||||||||||||||||||||||||||||
| (1) | Dividends paid on Hillenbrand common stock will be deemed to have been paid with regard to the deferred stock shares awarded and deemed to be reinvested in Hillenbrand common stock at the market value on the date of such dividend, and will be paid in additional shares on the distribution date of the underlying award. Generally, vesting is contingent upon continued employment. In the case of retirement, death, or disability, vesting may be accelerated for options and deferred stock awards held over one year from issue date of award. Performance-based deferred stock or restricted stock shares will vest pro-rata in the case of retirement, death, disability, termination without cause, and termination with good reason. | |
| (2) | Value is based on the closing price of Hillenbrand common stock of $21.51 on September 30, 2010, as reported on the New York Stock Exchange. |
58
Table of Contents
| (3) | Performance-based restricted stock shares are held in escrow by the Company and are subject to vesting conditions based on the Company’s financial performance during a three fiscal year period. The amounts in the table represent the award amounts at 100% achievement of the targeted increase in shareholder value. | |
| (4) | The options were granted on December 5, 2007 and became fully vested on December 5, 2010. | |
| (5) | The options were granted on April 1, 2008. Remaining unexercisable options will fully vest on April 1, 2011. | |
| (6) | The options were granted on December 18, 2008. One-half of the remaining unexercisable options vested on December 18, 2010, and the other half will vest on December 18, 2011. | |
| (7) | The options were granted on December 1, 2009. One-third of the options vested on December 1, 2010, and the remaining two-thirds will vest in equal shares on each of December 1, 2011 and 2012. | |
| (8) | Mr. Camp was awarded the following deferred stock shares: |
| Deferred Stock | ||||||
| Award Date | Shares Awarded | Vesting Schedule | ||||
| December 5, 2007 | 8,705 | Award vested 20% on December 6, 2009, 25% on December 6, 2010, and will vest 25% and 30% on December 6, 2011 and 2012, respectively. |
||||
| April 1, 2008 | 7,316 | Award vested 20% on April 2, 2010, and will vest 25%, 25%, and 30% on April 2, 2011, 2012, and 2013, respectively. |
||||
| April 29, 2008 | 30,879 | Award vested 25% on April 30, 2010, and will vest 25% and 50% on April 30, 2011 and 2012, respectively. |
||||
| (9) | Mr. Camp was awarded the following performance-based restricted stock shares (assuming 100% achievement of the targeted increase in shareholder value): |
| Restricted Stock | ||||||
| Award Date | Shares Awarded | Vesting Schedule | ||||
| December 18, 2008 | 101,997 | Award will vest on September 30, 2011, based on achievement of the targeted increase in shareholder value. |
||||
| December 1, 2009 | 84,390 | Award will vest on September 30, 2012, based on achievement of the targeted increase in shareholder value. |
||||
| (10) | The options were granted on January 7, 2008. Remaining unexercisable options will fully vest on January 7, 2011. | |
| (11) | Ms. Lucchese was awarded the following deferred stock shares: |
| Deferred Stock | ||||||
| Award Date | Shares Awarded | Vesting Schedule | ||||
| January 7, 2008 | 9,009 | Award vested 20% on January 8, 2010, and will vest 25%, 25%, and 30% on January 8, 2011, 2012, and 2013, respectively. |
||||
59
Table of Contents
| (12) | Ms. Lucchese was awarded the following performance-based restricted stock shares (assuming 100% achievement of the targeted increase in shareholder value): |
| Restricted Stock | ||||||
| Award Date | Shares Awarded | Vesting Schedule | ||||
| December 18, 2008 | 23,572 | Award will vest on September 30, 2011, based on achievement of the targeted increase in shareholder value. |
||||
| December 1, 2009 | 19,488 | Award will vest on September 30, 2012, based on achievement of the targeted increase in shareholder value. |
||||
| (13) | The options were granted on June 16, 2008. Remaining unexercisable options will fully vest on June 16, 2011. | |
| (14) | Mr. Raver was awarded the following deferred stock shares: |
| Deferred Stock | ||||||
| Award Date | Shares Awarded | Vesting Schedule | ||||
| June 16, 2008 | 12,418 | Award vested 20% on June 17, 2010, and will vest 25%, 25%, and 30% on June 17, 2011, 2012, and 2013, respectively. |
||||
| (15) | Mr. Raver was awarded the following performance-based restricted stock shares (assuming 100% achievement of the targeted increase in shareholder value): |
| Restricted Stock | ||||||
| Award Date | Shares Awarded | Vesting Schedule | ||||
| December 18, 2008 | 31,354 | Award will vest on September 30, 2011, based on achievement of the targeted increase in shareholder value. |
||||
| December 1, 2009 | 25,924 | Award will vest on September 30, 2012, based on achievement of the targeted increase in shareholder value. |
||||
| (16) | The options were granted on March 24, 2008. Remaining unexercisable options will fully vest on March 24, 2011. | |
| (17) | Mr. Wilson was awarded the following deferred stock shares: |
| Deferred Stock | ||||||
| Award Date | Shares Awarded | Vesting Schedule | ||||
| March 24, 2008 | 6,529 | Award vested 20% on March 25, 2010, and will vest 25%, 25%, and 30% on March 25, 2011, 2012, and 2013, respectively. |
||||
60
Table of Contents
| (18) | Mr. Wilson was awarded the following performance-based restricted stock shares (assuming 100% achievement of the targeted increase in shareholder value): |
| Restricted Stock | ||||||
| Award Date | Shares Awarded | Vesting Schedule | ||||
| December 18, 2008 | 21,427 | Award will vest on September 30, 2011, based on achievement of the targeted increase in shareholder value. |
||||
| December 1, 2009 | 17,060 | Award will vest on September 30, 2012, based on achievement of the targeted increase in shareholder value. |
||||
| (19) | Mr. Zerkle was awarded the following deferred stock shares: |
| Deferred Stock | ||||||
| Award Date | Shares Awarded | Vesting Schedule | ||||
| December 5, 2007 | 4,353 | Award vested 20% on December 6, 2009, 25% on December 6, 2010, and will vest 25% and 30% on December 6, 2011, and 2012, respectively. |
||||
| (20) | Mr. Zerkle was awarded the following performance-based restricted stock shares (assuming 100% achievement of the targeted increase in shareholder value): |
| Restricted Stock | ||||||
| Award Date | Shares Awarded | Vesting Schedule | ||||
| December 18, 2008 | 27,157 | Award will vest on September 30, 2011, based on achievement of the targeted increase in shareholder value. |
||||
| December 1, 2009 | 18,365 | Award will vest on September 30, 2012, based on achievement of the targeted increase in shareholder value. |
||||
Option Exercises and Stock Vested For Fiscal Year Ended September 30, 2010
The following table summarizes the value realized upon vesting of stock awards
during the fiscal year ended September 30, 2010, for the Named Executive Officers. No
options were exercised by the Named Executive Officers during this fiscal year.
| Options Awards | Stock Awards | |||||||||||||||
| Number of Shares | Number of Shares | |||||||||||||||
| Acquired on | Value Realized on | Acquired on | Value Realized | |||||||||||||
| Exercise | Exercise | Vesting | on Vesting | |||||||||||||
| Name | # | $ | # | $ (1) | ||||||||||||
Kenneth A. Camp |
1,869 | $ | 35,866 | |||||||||||||
| 1,582 | $ | 35,413 | ||||||||||||||
| 8,349 | $ | 204,843 | ||||||||||||||
Joe A. Raver |
2,685 | $ | 59,768 | |||||||||||||
Cynthia L. Lucchese |
1,943 | $ | 37,451 | |||||||||||||
P. Douglas Wilson |
1,399 | $ | 30,981 | |||||||||||||
John R. Zerkle |
935 | $ | 17,943 | |||||||||||||
| (1) | Based upon the mean between the high and low sales prices of Hillenbrand common stock on the New York Stock Exchange on the vesting date. |
61
Table of Contents
Pension Benefits at September 30, 2010
The following table quantifies the “defined benefit” pension benefits expected to
be paid from the Hillenbrand, Inc. Pension Plan (“Pension Plan”) and the Hillenbrand,
Inc. Supplemental Executive Retirement Plan (“SERP”).
| (a) | (b) | (c) | (d) | (e) | ||||||||||||
| Number of | Present Value | Payments | ||||||||||||||
| Years Credited | of Accumulated | During Last | ||||||||||||||
| Service | Benefit | Fiscal Year | ||||||||||||||
| Name | Plan Name(1)(2) | # | $(3) | $ | ||||||||||||
Kenneth A. Camp (4) |
Pension Plan | 29 | $ | 1,078,089 | $ | — | ||||||||||
| SERP | 33 | $ | 4,372,401 | $ | — | |||||||||||
John R. Zerkle (5) |
Pension Plan | 1 | $ | 10,767 | $ | — | ||||||||||
| (1) | Contributions to the Pension Plan are made on an actuarial basis, and no specific contributions are determined or set aside for any individual. Effective June 30, 2003, the Pension Plan was closed to new participants. Effective January 1, 2004, existing participants were given the choice of remaining in the Pension Plan and continuing to earn credit service or of freezing their accumulated benefit as of January 1, 2004, and of participating in an enhanced defined contribution savings plan. Benefits under the Pension Plan are not subject to deductions for Social Security or other offset amounts. Employees who retire under the Pension Plan receive fixed benefits calculated by means of a formula that takes into account the highest average annual calendar year eligible compensation earned over five consecutive years and the employee’s years of service. | |
| The Pension Plan permits participants with 5 or more years of credited service to retire as early as age 55 but with a reduction in the amount of their monthly benefit. The reduction is one quarter of 1% for each month the actual retirement date precedes the participant’s normal retirement date at age 65 up to a maximum of 30%. | ||
| (2) | The Company maintains the defined benefit portion of the SERP to provide additional retirement benefits to certain employees selected by the Compensation Committee of the Company whose retirement benefits under the Pension Plan are reduced, curtailed, or otherwise limited as a result of certain limitations under the Internal Revenue Code and the exclusion of their annual cash bonuses from the definition of “Compensation under the Pension Plan.” The additional retirement benefits provided by the SERP are for certain Pension Plan participants chosen by the Compensation Committee, in an amount equal to the benefits under the Pension Plan which are so reduced, curtailed, or limited by reason of the application of such limitations. “Compensation” under the SERP means the corresponding definition of compensation under the Pension Plan plus a percentage of a participant’s eligible compensation as determined under the Company’s Short-Term Incentive Compensation Program. The retirement benefit to be paid under the SERP is from the general assets of the Company, and such benefits are generally payable at the time and in the manner benefits are payable under the Pension Plan. | |
| (3) | This column represents the total discounted value of the monthly single life annuity benefit earned as of September 30, 2010, assuming the executive leaves Hillenbrand at this date and retires at age 65. The present value is not the monthly or annual lifetime benefit that would be paid to the executive. Further explanation of the valuation method and assumptions is included in Note 7 to our financial statements included in our Annual Report on Form 10-K, which was filed with the SEC on November 23, 2010. |
62
Table of Contents
| (4) | Mr. Camp has twenty-nine years of credited service in the Pension Plan. Mr. Camp also participates in the defined benefit component of the SERP. Under an employment retention arrangement made in 2006 between our former parent corporation and Mr. Camp which we are obligated to honor, Mr. Camp was credited with an additional four years of service under the SERP effective March 16, 2010, as a result of his continuing to be employed through that date. However, Mr. Camp will forfeit those additional years of service in the event his employment is terminated by us for “Cause.” | |
| (5) | Mr. Zerkle has one year of credited service in the Pension Plan, in which his accumulated benefit was frozen as of January 1, 2004. |
The following table quantifies the “defined contribution” benefits expected
to be paid from the SRP (including accrued benefit balances transferred from the
SERP).
Nonqualified Deferred Compensation for Fiscal Year Ended September 30, 2010
| (a) | (b) | (c) | (d) | (e) | (f) | |||||||||||||||
| Executive | Company | Aggregate | Aggregate | |||||||||||||||||
| Contributions in | Contributions in | Earnings in | Aggregate | Balance at | ||||||||||||||||
| Last Fiscal | Last Fiscal | Last Fiscal | Withdrawals/ | Last Fiscal | ||||||||||||||||
| Year | Year | Year | Distributions | Year End | ||||||||||||||||
| Name | $ | $(1) | $ | $ | $(2) | |||||||||||||||
Kenneth A. Camp |
$ | — | $ | 71,423 | $ | 7,959 | $ | — | $ | 375,799 | ||||||||||
Joe A. Raver |
$ | — | $ | 35,051 | $ | 1,392 | $ | — | $ | 79,851 | ||||||||||
Cynthia L. Lucchese |
$ | — | $ | 16,805 | $ | 362 | $ | — | $ | 25,565 | ||||||||||
P. Douglas Wilson |
$ | — | $ | 12,067 | $ | 1,128 | $ | — | $ | 18,841 | ||||||||||
John R. Zerkle |
$ | — | $ | 14,415 | $ | 878 | $ | — | $ | 22,262 | ||||||||||
| (1) | The Company maintained the defined contribution portion of the SERP through June 30, 2010, and maintains the SRP after that date, to provide additional retirement benefits to certain employees selected by the Compensation Committee of the Company whose retirement benefits under the Savings Plan are reduced, curtailed, or otherwise limited as a result of certain limitations under the Internal Revenue Code and as a result of the excluding of their annual cash bonuses from the definition of “compensation” under the contribution formula in the Savings Plan. The additional retirement benefits provided by the SERP and/or SRP are equal to the benefits under the Savings Plan which are so reduced, curtailed, or limited by reason of the application of such limitation and exclusion. Additionally, certain participants in the SERP and/or SRP who are selected by the Compensation Committee may annually accrue an additional benefit of a certain percentage of such participant’s compensation (as defined below) for such year (the current percentage is three). | |
| “Compensation” under the SERP and/or SRP means the corresponding definition of compensation under the Savings Plan (which is generally equivalent to base salary) plus the participant’s targeted cash bonus as determined under Hillenbrand’s Short-Term Incentive Compensation Program. Amounts reported here are also reported as Supplemental 401(k) and Supplemental Retirement in the Summary Compensation Table under the column entitled “All Other Compensation” and further disclosed in footnote 6 thereto. A lump sum cash payment is available to the participant within one year of retirement or termination of employment. In the alternative a participant may defer receipt by electing a stream of equal annual payments for up to 15 years. |
63
Table of Contents
| Effective July 1, 2010, the Company adopted a new Supplemental Retirement Plan (the “SRP”), which replaced the defined contribution component of the SERP. Under the SRP the executive officers who previously participated under the defined contribution component of the SERP automatically became participants of the SRP. See the more detailed description of the SRP under “Retirement and Savings Plans — Supplemental Retirement Plan” in Part I, the Compensation Discussion and Analysis section of this proxy statement. The Compensation Committee continues to oversee the selection of which executives are permitted to participate in the new plan, and all other parameters described above with respect to the defined contribution component of the SERP continue to apply to the SRP. | ||
| (2) | The following amounts represent employer contributions and above market earnings that have been reported as compensation in the Summary Compensation Table in fiscal 2010 and previous fiscal years. |
| Name | 2010 | 2009 | 2008 | |||||||||
Kenneth A. Camp |
$ | 71,423 | $ | 69,339 | $ | 54,145 | ||||||
Joe A. Raver |
$ | 35,051 | $ | 34,277 | $ | 8,225 | ||||||
Cynthia L. Lucchese |
$ | 16,805 | $ | 8,330 | $ | — | ||||||
P. Douglas Wilson |
$ | 12,067 | $ | 5,600 | $ | — | ||||||
John R. Zerkle |
$ | 14,415 | $ | 6,912 | $ | — | ||||||
Potential Payments Upon Termination
The following tables present the benefits that would be received by each of the
Named Executive Officers in the event of a hypothetical termination as of September 30,
2010. For information regarding definitions of termination events included in the
employment agreements, see “Part I: Compensation Discussion and Analysis — Severance
Benefits and Employment Agreements” above.
Kenneth A. Camp
| Accelerated | ||||||||||||||||
| Vesting of | Continuance of | |||||||||||||||
| Salary & Other | Stock Awards | Health & | ||||||||||||||
| Event | Cash Payments (1) | (2) | Welfare Benefits | Total | ||||||||||||
Permanent Disability |
$ | 1,659,679 | $ | 5,074,814 | $ | 11,604 | $ | 6,746,097 | ||||||||
Death |
$ | 1,470,270 | $ | 5,074,814 | $ | 4,455 | $ | 6,549,539 | ||||||||
Termination without Cause |
$ | 1,665,270 | $ | 2,192,170 | $ | 11,604 | $ | 3,869,044 | ||||||||
Resignation with Good
Reason |
$ | 1,665,270 | $ | 2,192,170 | $ | 11,604 | $ | 3,869,044 | ||||||||
Termination for Cause |
$ | 53,318 | $ | — | $ | — | $ | 53,318 | ||||||||
Resignation without Good
Reason |
$ | 53,318 | $ | — | $ | — | $ | 53,318 | ||||||||
Retirement |
$ | 970,270 | $ | 5,074,814 | $ | — | $ | 6,045,084 | ||||||||
Change in Control (see
table below) |
||||||||||||||||
64
Table of Contents
Joe A. Raver
| Accelerated | ||||||||||||||||
| Vesting of | Continuance of | |||||||||||||||
| Salary & Other | Stock Awards | Health & | ||||||||||||||
| Event | Cash Payments (1) | (2) | Welfare Benefits | Total | ||||||||||||
Permanent Disability |
$ | 3,091,855 | $ | 1,527,232 | $ | 13,189 | $ | 4,632,276 | ||||||||
Death |
$ | 985,936 | $ | 1,527,232 | $ | 7,033 | $ | 2,520,201 | ||||||||
Termination without Cause |
$ | 912,936 | $ | 673,746 | $ | 13,189 | $ | 1,599,871 | ||||||||
Resignation with Good
Reason |
$ | 912,936 | $ | 673,746 | $ | 13,189 | $ | 1,599,871 | ||||||||
Termination for Cause |
$ | 16,379 | $ | — | $ | — | $ | 16,379 | ||||||||
Resignation without Good
Reason |
$ | 16,379 | $ | — | $ | — | $ | 16,379 | ||||||||
Retirement |
$ | 16,379 | $ | — | $ | — | $ | 16,379 | ||||||||
Change in Control (see
table below) |
||||||||||||||||
Cynthia L. Lucchese
| Accelerated | ||||||||||||||||
| Vesting of | Continuance of | |||||||||||||||
| Salary & Other | Stock Awards | Health & | ||||||||||||||
| Event | Cash Payments (1) | (2) | Welfare Benefits | Total | ||||||||||||
Permanent Disability |
$ | 2,406,041 | $ | 1,142,595 | $ | 13,189 | $ | 3,561,825 | ||||||||
Death |
$ | 747,645 | $ | 1,142,595 | $ | 7,033 | $ | 1,897,273 | ||||||||
Termination without Cause |
$ | 568,645 | $ | 506,513 | $ | 13,189 | $ | 1,088,347 | ||||||||
Resignation with Good
Reason |
$ | 568,645 | $ | 506,513 | $ | 13,189 | $ | 1,088.347 | ||||||||
Termination for Cause |
$ | 12,313 | $ | — | $ | — | $ | 12,313 | ||||||||
Resignation without Good
Reason |
$ | 12,313 | $ | — | $ | — | $ | 12,313 | ||||||||
Retirement |
$ | 12,313 | $ | — | $ | — | $ | 12,313 | ||||||||
Change in Control (see
table below) |
||||||||||||||||
P. Douglas Wilson
| Accelerated | ||||||||||||||||
| Vesting of | Continuance of | |||||||||||||||
| Salary & Other | Stock Awards | Health & | ||||||||||||||
| Event | Cash Payments (1) | (2) | Welfare Benefits | Total | ||||||||||||
Permanent Disability |
$ | 1,405,428 | $ | 996,764 | $ | 16,236 | $ | 2,418,428 | ||||||||
Death |
$ | 714,176 | $ | 996,764 | $ | 9,495 | $ | 1,720,435 | ||||||||
Termination without Cause |
$ | 495,176 | $ | 455,544 | $ | 16,236 | $ | 966,956 | ||||||||
Resignation with Good
Reason |
$ | 495,176 | $ | 455,544 | $ | 16,236 | $ | 966,956 | ||||||||
Termination for Cause |
$ | 10,779 | $ | — | $ | — | $ | 10,779 | ||||||||
Resignation without Good
Reason |
$ | 10,779 | $ | — | $ | — | $ | 10,779 | ||||||||
Retirement |
$ | 10,779 | $ | — | $ | — | $ | 10,779 | ||||||||
Change in Control (see
table below) |
||||||||||||||||
65
Table of Contents
John R. Zerkle
| Accelerated | ||||||||||||||||
| Vesting of | Continuance of | |||||||||||||||
| Salary & Other | Stock Awards | Health & | ||||||||||||||
| Event | Cash Payments (1) | (2) | Welfare Benefits | Total | ||||||||||||
Permanent Disability |
$ | 1,756,501 | $ | 1,141,149 | $ | 11,604 | $ | 2,909,254 | ||||||||
Death |
$ | 737,381 | $ | 1,141,149 | $ | 4,455 | $ | 1,882,985 | ||||||||
Termination without Cause |
$ | 539,881 | $ | 553,151 | $ | 11,604 | $ | 1,104,636 | ||||||||
Resignation with Good
Reason |
$ | 539,881 | $ | 553,151 | $ | 11,604 | $ | 1,104,636 | ||||||||
Termination for Cause |
$ | 17,405 | $ | — | $ | — | $ | 17,405 | ||||||||
Resignation without Good
Reason |
$ | 17,405 | $ | — | $ | — | $ | 17,405 | ||||||||
Retirement |
$ | 237,381 | $ | 1,141,149 | $ | — | $ | 1,378,530 | ||||||||
Change in Control (see
table below) |
||||||||||||||||
| (1) | Includes, as applicable in each scenario, severance compensation, pro-rated Short-Term Incentive Compensation, and insurance proceeds. | |
| (2) | The accelerated vesting value of the performance-based restricted stock shares is based on 100% achievement of the targeted shareholder value increase and the closing stock price on September 30, 2010. However, the actual value that would be realized would be based on the actual Company achievement of the targeted shareholder value increase at the end of the measurement period and the stock price on September 30, 2011, which are unknown at this time. |
Change in Control Benefits
We have change in control agreements with the Named Executive Officers in the
following table. For a discussion of their change in control agreements generally, see
“Change in Control Agreements” under “Part I: Compensation Discussion and Analysis.”
The benefits potentially payable under those agreements are set forth in the following
table.
| Continuance of | Accelerated Vesting of | |||||||||||||||||||||||||||||||||||||||
| Health & | Stock-Based Awards (1) | |||||||||||||||||||||||||||||||||||||||
| Incentive | Welfare and | Retirement | Restricted | Tax | ||||||||||||||||||||||||||||||||||||
| Compensation | Vacation | Pension | Savings Plan | Stock | Stock | Performance- | Gross-Up / | |||||||||||||||||||||||||||||||||
| Name | Salary | (1) | Benefits | Benefits | Benefit | Options | Awards | Based Awards | Cutback (2) | Total | ||||||||||||||||||||||||||||||
Kenneth A. Camp (3) |
$ | 2,085,000 | $ | 620,654 | $ | 88,130 | $ | 2,313,121 | $ | 238,074 | $ | 954,444 | $ | 853,796 | $ | 2,974,627 | $ | 3,642,619 | $ | 13,770,465 | ||||||||||||||||||||
Joe A. Raver (4) |
$ | 854,000 | $ | 317,827 | $ | 42,757 | $ | — | $ | 107,262 | $ | 287,503 | $ | 235,771 | $ | 914,275 | $ | 944,413 | $ | 3,703,808 | ||||||||||||||||||||
Cynthia L. Lucchese |
$ | 642,000 | $ | 159,288 | $ | 38,691 | $ | — | $ | 45,441 | $ | 216,141 | $ | 171,693 | $ | 687,345 | $ | 609,405 | $ | 2,570,004 | ||||||||||||||||||||
P. Douglas Wilson |
$ | 562,000 | $ | 137,673 | $ | 43,250 | $ | — | $ | 32,339 | $ | 193,868 | $ | 123,962 | $ | 619,913 | $ | 549,890 | $ | 2,262,895 | ||||||||||||||||||||
John R. Zerkle |
$ | 605,000 | $ | 148,894 | $ | 40,613 | $ | — | $ | 29,434 | $ | 232,771 | $ | 83,373 | $ | 761,478 | $ | 608,075 | $ | 2,509,638 | ||||||||||||||||||||
66
Table of Contents
| (1) | Generally, benefits payable upon a Change in Control of the Company are payable under a “double trigger” provision to our Named Executive Officers (a) whose employment is terminated under certain specified circumstances (such as by the Company without “cause” for doing so), and (b) either in anticipation of, or within a set period of time after the occurrence of, the Change in Control transaction. However, there are two benefits that are payable under a “single trigger” provision to our Named Executive Officers who remain employed for any period of time after the Change in Control, regardless of whether or not they are later terminated. For those Named Executive Officers, all of their unvested equity awards become fully vested upon the occurrence of the transaction. In addition, they become entitled to payment of their STIC bonus for the fiscal year in which the Change in Control occurred within 30 days after the transaction resulting in the Change in Control is consummated, payable in an amount based on the assumed 100% achievement by the Company of its financial performance objectives for that year under the STIC Plan. | |
| (2) | Amounts reflected assume a termination of employment (the “double trigger” scenario). | |
| (3) | As noted under the Change in Control Agreements section, Mr. Camp is entitled to the same severance benefits under his agreement if he voluntarily terminates his employment at any time within the period of one year plus thirty days after the occurrence of a Change in Control. | |
| (4) | Amount shown is applicable if Mr. Raver’s employment is terminated in connection with a Change in Control. In the event of a Change in Control without termination of employment, a $132,928 “cut-back” in benefits would be made under Mr. Raver’s Change in Control agreement under the “single trigger” scenario in order to avoid the application of the “golden parachute” excise tax provisions of the federal tax code to Mr. Raver’s benefits as provided under that agreement. |
67
Table of Contents
PART IV: COMPENSATION CONSULTANT ENGAGEMENTS
Ernst & Young LLP (“E&Y”) has been engaged as an independent compensation
consultant by the Compensation Committee to assist the Committee in determining the
form and amount of compensation paid to our Named Executive Officers for fiscal 2010.
Fees for those services totaled $157,671. Management of the Company also engaged E&Y
for other services during that fiscal year as follows:
| 1. | Financial and tax due diligence in connection with the Company’s acquisition on April 1, 2010, of K-Tron International, Inc. The fees paid to E&Y in connection with that engagement totaled $640,117. The Board was aware of the engagement of E&Y from the outset of such engagement, and made no objection thereto, but did not take any action to formally approve the engagement. |
| 2. | Tax advice and general consulting services to the Company. The Board was not asked to approve these engagements. Fees paid to E&Y for those engagements totaled $5,107. |
68
Table of Contents
PART V: COMPENSATION-RELATED RISK STRATEGIES
The Compensation Committee analyzes on an annual basis the actual or anticipated
effect (including, as appropriate, a deterrent effect) that our compensation policies
and practices have had or may have on our employees with respect to creating any
excessive and undesirable risk-taking in the performance of their duties for the
Company. The Compensation Committee then makes a determination, on an annual basis,
as to whether any of our compensation policies and practices create risks that are
reasonably likely to have a material adverse effect on the Company. At its regularly
scheduled meeting held on December 6, 2010, the Compensation Committee determined that
the Company’s current compensation policies and practices do not create any such
risks.
The Compensation Committee seeks to discourage and deter inappropriate risk
taking through the compensation programs it adopts and implements for our Named
Executive Officers and our employees generally. We believe that the
compensation-related programs employed by the Company are consistent with those
objectives and align our employees’ incentives for risk taking with the best long-term
best interests of our shareholders. These programs provide a holistic approach to
compensation that provides a mix of fixed and variable compensation, with the variable
component impacting both short-term cash compensation and long-term equity
compensation. Program features, such as stock ownership guidelines, limits on the
payout of variable compensation, and clawback policies, provide additional balance
between risk and reward.
69
Table of Contents
PROPOSAL NO. 2 — ADVISORY VOTE ON COMPENSATION
OF NAMED EXECUTIVE OFFICERS
Introduction
The core of Hillenbrand’s executive compensation policies and practices continues
to be to pay for performance. Our executive officers are compensated in a manner
consistent with our strategy, competitive practice, sound corporate governance
principles, and shareholder interests and concerns. We believe our compensation
program is strongly aligned with the long-term interests of our shareholders. We urge
you to read the Compensation Discussion and Analysis section of this proxy statement
for additional details on our executive compensation, including our compensation
philosophy and objectives and the 2010 compensation of our Named Executive Officers.
The U.S. Congress has enacted requirements commonly referred to as the “Say on
Pay” rules. As required by those rules, we are asking you to vote on the adoption of
the following resolution:
BE IT RESOLVED by the shareholders of Hillenbrand, Inc., that the shareholders
approve the compensation of Hillenbrand’s Named Executive Officers as disclosed
in the proxy statement pursuant to the SEC’s compensation disclosure rules.
As an advisory vote, this Proposal is non-binding. Although the vote is
non-binding, the Board of Directors and the Compensation Committee value the opinions
of our shareholders, and will consider the outcome of the vote when making future
compensation decisions for our Named Executive Officers.
Vote Required
The affirmative vote of a majority of the shares of Hillenbrand common stock
present or represented by proxy and voting on this Proposal No. 2 at the Annual
Meeting is required for approval of this Proposal. If you own shares through a bank,
broker, or other holder of record, you must instruct your bank, broker, or other
holder of record how to vote in order for them to vote your shares so that your vote
can be counted on this Proposal.
Recommendation of the Board of Directors
The Board of Directors recommends that the shareholders vote FOR Proposal No. 2.
70
Table of Contents
PROPOSAL NO. 3 — ADVISORY VOTE ON SELECTION OF FREQUENCY FOR ADVISORY VOTE ON EXECUTIVE COMPENSATION
As part of the “Say on Pay” rules adopted by Congress, the Hillenbrand
shareholders may indicate, by a non-binding advisory vote, the frequency desired at
which they will have an advisory vote on the compensation paid to Hillenbrand’s Named
Executive Officers. (In other words, how often a proposal similar to this year’s
Proposal No. 2 will be included in the matters to be voted on at the Annual Meeting.)
The choices available under the Say on Pay rules are every year, every other year, or
every third year.
Please mark your proxy card to indicate your preference on this Proposal or your
abstention if you wish to abstain. If you fail to indicate your preference or
abstention, your shares will be treated as though you chose to abstain on this
proposal. A plurality of the votes cast on this Proposal will determine the frequency
selected by the shareholders. The Board of Directors recommends that you select one
year as the desired frequency for a shareholder vote on executive compensation under
the Say on Pay rules.
If you own shares through a bank, broker, or other holder of record, you must
instruct your bank, broker, or other holder of record how to vote in order for them to
vote your shares so that your vote can be counted on this Proposal.
The frequency selected by the shareholders for conducting Say on Pay voting at
the Annual Meetings of the shareholders of the Company is not a binding determination.
However, the frequency selected will be given due consideration by the Company in its
discretion.
71
Table of Contents
COMPENSATION OF DIRECTORS
The following table sets forth the compensation paid to our non-employee
directors in the fiscal year ended September 30, 2010. The Company uses a combination
of cash and stock-based compensation to attract and retain qualified candidates to
serve on its Board. In setting director compensation, the Company considers the
significant amount of time that directors expend in fulfilling their duties to the
Company as well as the skill-level required for members of the Board. Directors who
are also employees of the Company receive no additional remuneration for services as a
director. Of the Company’s current Board members, only Mr. Camp is a salaried
employee of the Company. All other directors receive separate compensation for Board
service.
Director Compensation for the Fiscal Year Ended September 30, 2010
| (a) | (b) | (c) | (d) | (e) | (f) | (g) | (h) | |||||||||||||||||||||
| Change in | ||||||||||||||||||||||||||||
| Pension Value | ||||||||||||||||||||||||||||
| and | ||||||||||||||||||||||||||||
| Fees | Nonqualified | |||||||||||||||||||||||||||
| Earned | Non-Equity | Deferred | ||||||||||||||||||||||||||
| or Paid | Stock | Option | Incentive Plan | Compensation | All Other | |||||||||||||||||||||||
| in Cash | Awards | Awards | Compensation | Earnings | Compensation | |||||||||||||||||||||||
| Name | $(1) | $(2) (3) (7) | $(3) | $ | $(4) | $(5) | Total | |||||||||||||||||||||
Ray J. Hillenbrand
— Chairperson |
$ | 122,500 | $ | 89,988 | $ | — | $ | — | $ | — | $ | 106 | $ | 212,594 | ||||||||||||||
William J. Cernugel |
$ | 50,000 | $ | 89,988 | $ | — | $ | — | $ | — | $ | 234 | $ | 140,222 | ||||||||||||||
Edward B. Cloues, II |
$ | 27,500 | $ | 50,642 | $ | — | $ | — | $ | — | $ | — | $ | 78,142 | ||||||||||||||
Mark C. DeLuzio |
$ | 54,947 | $ | 89,988 | $ | — | $ | — | $ | — | $ | 234 | $ | 145,169 | ||||||||||||||
James A. Henderson |
$ | 60,000 | $ | 89,988 | $ | — | $ | — | $ | — | $ | 106 | $ | 150,094 | ||||||||||||||
W August Hillenbrand |
$ | 49,990 | $ | 89,988 | $ | — | $ | — | $ | — | $ | 805,400 | (6) | $ | 945,378 | |||||||||||||
Thomas H. Johnson |
$ | 50,000 | $ | 89,988 | $ | — | $ | — | $ | — | $ | 234 | $ | 140,222 | ||||||||||||||
F. Joseph Loughrey |
$ | 62,500 | $ | 89,988 | $ | — | $ | — | $ | — | $ | 234 | $ | 152,722 | ||||||||||||||
Eduardo R. Menascé |
$ | 60,000 | $ | 89,988 | $ | — | $ | — | $ | — | $ | 234 | $ | 150,222 | ||||||||||||||
Neil S. Novich |
$ | 40,478 | $ | 53,989 | $ | — | $ | — | $ | — | $ | 56,137 | (8) | $ | 150,604 | |||||||||||||
Stuart A. Taylor, II |
$ | 59,971 | $ | 89,988 | $ | — | $ | — | $ | — | $ | 234 | $ | 150,193 | ||||||||||||||
| (1) | Directors receive an annual retainer of $50,000 for their service as directors. The Chairperson of the Board receives an annual retainer of $120,000. Chairpersons of the Audit, Nominating/ Corporate Governance, and Compensation Committees receive an annual retainer of $10,000. Additionally, members of certain non-permanent committees may receive additional retainers as determined by the Board. Directors receive no additional per meeting fee for Board or committee meeting attendance. |
72
Table of Contents
| (2) | Each director is awarded on the first trading day following the close of each Annual Meeting of the Company’s shareholders deferred stock shares (otherwise known as restricted stock units) under the Company’s Stock Incentive Plan based on a value on that date of approximately $90,000 (rounded down to whole shares). The stock is valued using the average of the high and low sales prices on the date of grant. A new director receives a pro-rata portion of the annual award representing the time served during the fiscal year of joining the Board of Directors. Delivery of shares underlying such deferred stock shares occurs on the later to occur of one year and one day from the date of the grant or the six-month anniversary of the date that the applicable director ceases to be a member of the Board of Directors of the Company. Dividends paid on the Company common stock will be deemed to have been paid with regard to the deferred stock shares awarded and deemed to be reinvested in Company common stock at the market value on the date of such dividend, and will be actually paid in additional shares on the distribution date of the underlying award. | |
| (3) | As of September 30, 2010, the aggregate numbers of directors’ deferred stock awards and option awards outstanding were as follows: |
| Vested | ||||||||
| Deferred Stock | Exercisable | |||||||
| Awards | Option Awards | |||||||
| Name | # | # | ||||||
Ray J. Hillenbrand — Chairperson |
41,481 | — | ||||||
William J. Cernugel |
10,714 | — | ||||||
Edward B. Cloues, II |
2,045 | — | ||||||
Mark C. DeLuzio |
18,597 | — | ||||||
James A. Henderson |
10,714 | — | ||||||
W August Hillenbrand |
22,477 | 12,000 | ||||||
Thomas H. Johnson |
10,714 | — | ||||||
F. Joseph Loughrey |
7,855 | — | ||||||
Eduardo R. Menascé |
17,945 | — | ||||||
Neil S. Novich |
3,969 | — | ||||||
Stuart A. Taylor, II |
14,684 | — | ||||||
| (4) | Consists of above market nonqualified deferred compensation earnings, which are defined under applicable disclosure rules as earnings that exceed the “Applicable Federal Rate” under the federal tax laws (there were none for fiscal 2010). Members of the Board of Directors who are not employees may participate in the Hillenbrand, Inc. Board of Directors Deferred Compensation Plan in which members may elect to defer receipt of fees earned. Upon election, the participant may invest fees earned in either a cash investment which bears interest at a prime rate in effect from time-to-time or at other rates determined by the Company, or common stock to be paid at the end of the deferral period. In addition, on or after July 1, 2010, non-employee directors may elect to defer their fees earned under the Company’s Supplemental Retirement Plan and direct the investment of the deferred amounts into a variety of Fidelity mutual funds. |
73
Table of Contents
| (5) | Consists of pension benefits, incremental cost of aircraft usage, security expenses, Company paid life insurance, and other personal benefits provided by the Company. All Other Compensation earned or allocated during the fiscal year ended September 30, 2010, is as follows: |
| Company | ||||||||||||||||||||||||
| Paid | Pers. Asst. | |||||||||||||||||||||||
| Aircraft | Life | Supp DB | Sal. & | |||||||||||||||||||||
| Name | Usage (a) | Insurance (b) | Pension | Benefits | Misc. Benefits | Total | ||||||||||||||||||
Ray J. Hillenbrand —
Chairperson |
$ | — | $ | 106 | $ | — | $ | — | $ | — | $ | 106 | ||||||||||||
William J. Cernugel |
$ | — | $ | 234 | $ | — | $ | — | $ | — | $ | 234 | ||||||||||||
Edward B. Cloues, II |
$ | — | $ | — | $ | — | $ | — | $ | — | $ | — | ||||||||||||
Mark C. DeLuzio |
$ | — | $ | 234 | $ | — | $ | — | $ | — | $ | 234 | ||||||||||||
James A. Henderson |
$ | — | $ | 106 | $ | — | $ | — | $ | — | $ | 106 | ||||||||||||
W August Hillenbrand (6) |
$ | 12,806 | $ | 294,356 | $ | 411,171 | $ | 79,483 | $ | 7,584 | $ | 805,400 | ||||||||||||
Thomas H. Johnson |
$ | — | $ | 234 | $ | — | $ | — | $ | — | $ | 234 | ||||||||||||
F. Joseph Loughrey |
$ | — | $ | 234 | $ | — | $ | — | $ | — | $ | 234 | ||||||||||||
Eduardo R. Menascé |
$ | — | $ | 234 | $ | — | $ | — | $ | — | $ | 234 | ||||||||||||
Neil S. Novich (8) |
$ | — | $ | 137 | $ | — | $ | — | $ | 56,000 | $ | 56,137 | ||||||||||||
Stuart A. Taylor, II |
$ | — | $ | 234 | $ | — | $ | — | $ | — | $ | 234 | ||||||||||||
| (a) | The Company does not charge for the personal use of its aircraft, but it does report amounts related to such use as taxable income to the Internal Revenue Service. The value of the use of Company aircraft disclosed in the Director Compensation Table is based upon the incremental cost per flight hour to the Company and not the values reported to the Internal Revenue Service. | ||
| (b) | The value of Company provided term life insurance is the value of net premiums paid and not the values reported to the Internal Revenue Service. Participation in the life insurance program is voluntary and may be declined. |
| (6) | Under an agreement made by our former parent corporation that we were required to assume in the course of our spin-off in 2008, W August Hillenbrand is entitled to receive a package of benefits from the Company for his lifetime. See details in the section entitled “Certain Relationships and Related Party Transactions” under “THE BOARD OF DIRECTORS AND COMMITTEES.” | |
| (7) | On February 24, 2010, 4,477 deferred stock shares with a fair value of $89,987.70 were granted to all directors as of that date. Pro rata awards were made to Messrs. Cloues and Novich upon their election to the Board. | |
| (8) | Prior to Mr. Novich’s election to the Board of Directors, Mr. Novich provided consulting services to the Board on an ongoing basis. During fiscal 2010, Mr. Novich was paid $56,000 for his consulting services to the Board of Directors, which amount is included in this total. Mr. Novich’s consultancy relationship to the Board was terminated upon his appointment as a director. |
74
Table of Contents
EQUITY COMPENSATION PLAN INFORMATION
The following table sets forth information concerning the Company’s equity
compensation plans as of September 30, 2010:
| Number of securities | ||||||||||||
| remaining available for | ||||||||||||
| Number of securities to | Weighted-average | issuance under equity | ||||||||||
| be issued upon exercise | exercise price of | compensation plans | ||||||||||
| of outstanding options, | outstanding options, | (excluding securities | ||||||||||
| warrants and rights | warrants and rights ($) | reflected in column (a)) | ||||||||||
| Plan Category | (a) | (b) | (c) | |||||||||
Equity
compensation plans
approved by
security holders |
3,817,863 | $ | 13.296 | 4,492,956 | ||||||||
75
Table of Contents
AUDIT COMMITTEE REPORT
The Audit Committee of the Board of Directors (the “Committee”) is composed
of five directors, each of whom is independent under SEC Rule 10A-3 and the New York
Stock Exchange listing standards. The Committee operates under a written charter
adopted by the Board of Directors, a copy of which can be accessed at
www.hillenbrandinc.com/CorpGov_overview.htm.
Management is responsible for the Company’s internal controls, financial
reporting process, and compliance with laws and regulations and ethical business
standards. The independent registered public accounting firm is responsible for
performing an integrated audit of the Company’s consolidated financial statements and
its internal control over financial reporting in accordance with standards of the
Public Company Accounting Oversight Board (PCAOB) and the issuance of a report
thereon. The Audit Committee’s responsibility is to monitor and oversee these
processes.
In this regard, the Committee meets separately at most regular committee meetings
with management and with the Company’s outside independent registered public
accounting firm. The Committee has the authority to conduct or authorize
investigations into any matters within the scope of its responsibilities and the
authority to retain such outside counsel, experts, and other advisors as it determines
appropriate to assist it in the conduct of any such investigation. In addition, the
Committee approves, subject to shareholder ratification, the appointment of the
Company’s outside independent registered public accounting firm and pre-approves all
audit and non-audit services to be performed by the firm.
In this context, the Committee has reviewed and discussed the fiscal 2010
consolidated financial statements with management and PricewaterhouseCoopers LLP
(“PwC”), the Company’s current independent registered accounting firm. Management
represented to the Committee that the Company’s consolidated financial statements were
prepared in accordance with generally accepted accounting principles. PwC discussed
with the Committee matters required to be discussed by Statement on Auditing Standards
No. 61, as amended (AICPA, Professional Standards, Vol. 1, AU section 380), as adopted
by the PCAOB in Rule 3200T. Management and the independent registered public
accounting firm also made presentations to the Committee throughout the year on
specific topics of interest, including: (i) current developments and best practices
for audit committees; (ii) updates on the substantive requirements of the
Sarbanes-Oxley Act of 2002, including management’s responsibility for assessing the
effectiveness of internal control over financial reporting; (iii) key elements of
anti-fraud programs and controls; (iv) transparency of corporate financial reporting;
(v) the Company’s critical accounting policies; (vi) the applicability of several new
and proposed accounting releases; and (vii) numerous SEC accounting developments.
PwC also provided to the Committee the written disclosures and the letter
required by applicable requirements of the PCAOB regarding the independent
accountants’ communications with the Audit Committee regarding independence. PwC
informed the Audit Committee that it was independent with respect to the Company
within the meaning of the securities acts administered by the SEC and the requirements
of the Independence Standards Board, and PwC discussed with the Committee that firm’s
independence with respect to the Company. In addition, the Committee considered
whether non-audit consulting services provided by the auditors’ firm could impair the
auditors’ independence and concluded that such services have not impaired the
auditors’ independence.
76
Table of Contents
Based upon the Committee’s discussions with management and PwC and the
Committee’s review of the representations of management and the report of PwC to the
Committee, the Committee recommended to the Board of Directors that the audited
consolidated financial statements be included in the Company’s Annual Report on Form
10-K for the year ended September 30, 2010.
In addition, the Committee has discussed with the Chief Executive Officer and the
Chief Financial Officer of the Company the certifications required to be given by such
officers in connection with the Company’s Annual Report on Form 10-K pursuant to the
Sarbanes-Oxley Act of 2002 and SEC rules adopted thereunder, including the subject
matter of such certifications and the procedures followed by such officers and other
management in connection with the giving of such certifications.
Submitted by the Audit Committee,
Eduardo R. Menascé (Chairperson)
William J. Cernugel
Edward B. Cloues, II
Thomas H. Johnson
Stuart A. Taylor, II
William J. Cernugel
Edward B. Cloues, II
Thomas H. Johnson
Stuart A. Taylor, II
77
Table of Contents
PROPOSAL NO. 4 — RATIFICATION OF APPOINTMENT OF THE INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
Subject to shareholder ratification, the Audit Committee of the Board of
Directors of the Company has appointed the firm of PricewaterhouseCoopers LLP (“PwC”),
certified public accountants, as the independent registered public accounting firm to
make an examination of the consolidated financial statements of the Company for its
fiscal year ending September 30, 2011. PwC served as the independent registered
public accounting firm of the Company for the fiscal year ended September 30, 2010. A
representative of PwC will be present at the Annual Meeting with an opportunity to
make a statement if they desire to do so and will be available to respond to
appropriate questions.
The Board of Directors, at the request of the Audit Committee, is recommending
the ratification of the appointment of PwC as our independent registered public
accounting firm for fiscal 2011.
The affirmative vote of a majority in voting power of the votes cast on the
proposal is required for approval of this proposal. Abstentions and broker non-votes
are not counted as votes cast, and therefore do not affect the outcome of the
proposal.
If the appointment is not ratified by a majority of the votes cast, the adverse
vote will be considered as an indication to the Audit Committee that it should
consider selecting another independent registered public accounting firm for the
following fiscal year. Given the difficulty and expense of making any substitution of
independent registered public accounting firms after the beginning of the current
fiscal year, it is contemplated that the appointment for fiscal 2011 will stand unless
the Audit Committee finds other good reason to make a change.
Principal Accountant Fees and Services
The Audit Committee has adopted a policy requiring that all services from the
outside independent registered public accounting firm must be pre-approved by the
Audit Committee or its delegate (Chairperson) and has adopted guidelines that
non-audit related services, including tax consulting, tax compliance, and tax
preparation fees, should not exceed the total of audit and audit-related fees. During
the fiscal year ended September 30, 2010, PwC’s fees for non-audit related services
fell within these guidelines.
| 2010 | 2009 | 2008 | ||||||||||
Audit Fees (1) |
$ | 1,282,295 | $ | 755,800 | $ | 1,869,650 | ||||||
Audit-Related Fees (2) |
$ | 335,624 | $ | 157,700 | $ | 265,200 | ||||||
Tax Fees (3) |
$ | 523,704 | $ | 15,980 | $ | 25,000 | ||||||
All Other Fees (4) |
$ | 1,500 | $ | 1,500 | $ | 1,500 | ||||||
Total |
$ | 2,143,123 | $ | 930,980 | $ | 2,161,350 | ||||||
| (1) | Audit Fees services include: (i) the audit of the financial statements included in our Form 10-K annual report and Form 10; (ii) reviews of the interim financial statements included in our quarterly reports on Form 10-Q; (iii) statutory audits of certain subsidiary operations; and (iv) our allocation of audit fees paid by our former parent corporation for fiscal 2008. |
78
Table of Contents
| (2) | Audit-Related Fees services include: (i) consultations on the application of accounting standards; (ii) accounting services in connection with our acquisition of K-Tron in fiscal 2010; (iii) acquisition readiness consultation in fiscal 2009; and (iv) out-of-pocket expenses. | |
| (3) | Tax fees include income tax consultations regarding Treasury Regulation Section 1.1502-13 in fiscal 2008. | |
| (4) | All Other Fees includes a subscription to PwC’s accounting research tool. |
The Board of Directors recommends that the shareholders vote FOR the ratification
of the appointment of PricewaterhouseCoopers LLP as the independent registered public
accounting firm of the Company.
SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Under Section 16(a) of the Securities Exchange Act of 1934, the Company’s
directors, certain of its officers, and any person holding more than 10% of the
Company’s common stock are required to file with the SEC initial reports of ownership
and reports of changes in ownership of common stock of the Company. The Company is
required to report in this proxy statement any failure to file or late filing
occurring during the fiscal year ended September 30, 2010. Based solely on a review
of filings furnished to the Company and other information from reporting persons, the
Company believes that all of these filing requirements were satisfied by its
directors, officers, and 10% beneficial owners, except that Hinesh Patel filed one
late report with respect to one restricted stock award payout.
January 6, 2011
79
Table of Contents
|
|
|||
|
HILLENBRAND, INC. ONE BATESVILLE BOULEVARD BATESVILLE, IN 47006 |
VOTE BY INTERNET - www.proxyvote.com Use the Internet to transmit your voting instructions and for electronic delivery of information up until 11:59 P.M. Eastern Time the day before the cut-off date or meeting date. Have your proxy card in hand when you access the web site and follow the instructions to obtain your records and to create an electronic voting instruction form.
Electronic Delivery of Future PROXY MATERIALS
If you would like to reduce the costs incurred by our company in mailing proxy materials, you can consent to receiving all future proxy statements, proxy cards and annual reports electronically via e-mail or the Internet. To sign up for electronic delivery, please follow the instructions above to vote using the Internet and, when prompted, indicate that you agree to receive or access proxy materials electronically in future years. VOTE BY PHONE - 1-800-690-6903 Use any touch-tone telephone to transmit your voting instructions up until 11:59 P.M. Eastern Time the day before the cut-off date or meeting date. Have your proxy card in hand when you call and then follow the instructions. VOTE BY MAIL Mark, sign and date your proxy card and return it in the postage-paid envelope we have provided or return it to Vote Processing, c/o Broadridge, 51 Mercedes Way, Edgewood, NY 11717. |
| TO VOTE, MARK BLOCKS BELOW IN BLUE OR BLACK INK AS FOLLOWS: |
||||
| KEEP THIS PORTION FOR YOUR RECORDS | ||||
| DETACH AND RETURN THIS PORTION ONLY |
THIS PROXY CARD IS VALID ONLY WHEN SIGNED AND DATED.
| For All |
Withhold All |
For All Except |
To withhold authority to vote for any individual
nominee(s), mark “For All Except”
and write the
number(s) of the nominee(s) on the line below. |
||||||||||
| The Board of Directors recommends you vote FOR the following. |
o |
o |
o |
||||||||||
| 1. | Election of Directors Nominees |
||||||||||||
01 Kenneth A. Camp*
|
02 Edward B. Cloues, II** | 03 W August Hillenbrand* | 04 Thomas H. Johnson* | 05 Neil S. Novich* |
| The Board of Directors recommends you vote | ||||||||||
| FOR the following proposal: | For | Against | Abstain | |||||||
2.
|
To approve, by a non-binding advisory vote, | o | o | o | ||||||
| the compensation paid by the Company to its Named Executive Officers. | ||||||||||
| The Board of Directors recommends you | ||||||||||
| vote 1 YEAR on the following proposal: | 1 year | 2 years | 3 years | Abstain | ||||||
3.
|
To recommend, by a non-binding advisory | o | o | o | o | |||||
| vote, the frequency of voting by the shareholders on compensation paid by the Company to its Named Executive Officers. | ||||||||||
| The Board of Directors recommends you vote FOR | ||||||||
| the following proposals: | For | Against | Abstain | |||||
4.
|
Ratification of the appointment of PricewaterhouseCoopers LLP as the Company’s independent registered public accounting firm for 2011. | o | o | o | ||||
5.
|
Authority, to the proxies in their discretion, to transact such other business as may properly come before the meeting and any postponement or adjournment of the meeting. | o | o | o | ||||
| NOTE: *Election of these Directors is for three-year terms expiring in 2014. | ||||||||
| **Election of this Director is for a one-year term expiring in 2012. | ||||||||
Please indicate if you plan to attend this meeting |
Yes o |
No o |
|||||||||||||||
| Please sign exactly as your name(s) appear(s) hereon. When signing as attorney, executor, administrator, or other fiduciary, please give full title as such. Joint owners should each sign personally. All holders must sign. If a corporation or partnership, please sign in full corporate or partnership name, by authorized officer. | |||||||||||||||||
| Signature [PLEASE SIGN WITHIN BOX] | Date | Signature (Joint Owners) | Date | ||||||||||
Table of Contents
|
2011 ANNUAL MEETING OF SHAREHOLDERS ADMISSION TICKET |
You are cordially invited to attend the Annual Meeting of Shareholders on Wednesday, February 23,
2011.
The Meeting will be held at the Company’s headquarters at One Batesville Boulevard,
Batesville, Indiana 47006, on Wednesday, February 23, 2011, at 10:00 a.m. Eastern Standard
Time.
(Please detach this ticket from your proxy card and bring it with you as identification.
Directions to the meeting site are inscribed on this ticket for your convenience. The use of
an Admission Ticket is for our mutual convenience; however, your right to attend without an
Admission Ticket, upon proper identification, is not affected.)
John R. Zerkle
Secretary
Secretary
(FOR THE PERSONAL USE OF THE NAMED SHAREHOLDER(S) ON THE BACK — NOT TRANSFERABLE.)
Directions to Hillenbrand, Inc.
Hillenbrand, Inc. is located between Cincinnati, Ohio and Indianapolis, Indiana. Shareholders
traveling from the Cincinnati area should take I-74 West toward Indianapolis to Exit 149
(Batesville). and turn left off the exit ramp. Go straight through the 1st stop
light to the next light, and turn left at the intersection of State Road 229 and Highway 46.
Shareholders traveling from the Indianapolis area should take I-74 East toward Cincinnati to
Exit 149 (Batesville), and turn right off the exit ramp. Go to the 1st stop light and turn left
at the intersection of State Road 229 and Highway 46.
To reach Hillenbrand, Inc.’s headquarters, travel on Highway 46, go through three stop lights
and turn left onto One Batesville Blvd. Hillenbrand, Inc. is the 2nd office
building on One Batesville Blvd.
Important Notice Regarding the Availability of Proxy Materials for the Annual Meeting: The Annual
Report, Notice & Proxy Statement is/ are available at www.proxyvote.com.
This Proxy and Voting Instruction is solicited on
behalf of the Board of Directors for the Annual Meeting of
Shareholders on February 23, 2011
behalf of the Board of Directors for the Annual Meeting of
Shareholders on February 23, 2011
The undersigned appoints Ray J. Hillenbrand and Kenneth A. Camp, or either of them, with full power
of substitution, as proxies to vote all the shares of the undersigned of Hillenbrand, Inc. (the
“Company”) at the Annual Meeting of Shareholders to be held at the Company’s headquarters, One
Batesville Boulevard, Batesville, Indiana 47006-7798, on February 23, 2011, at 10:00 a.m., local
time (Eastern Standard Time), and any adjournments of the meeting, on the matters listed on the
reverse.
SIGNED PROXIES RETURNED WITHOUT SPECIFIC VOTING DIRECTIONS WILL BE VOTED: (1) in favor of the
election of the Board of Directors’ nominees for five directors; (2) for approval of the
compensation paid by the Company to its Named Executive Officers; (3) in favor of the ratification
of the appointment of PricewaterhouseCoopers LLP as the independent registered public accounting
firm of the Company; and (4) in the discretion of the proxy holders upon such other business as may
properly come before the Annual Meeting. If you do not provide voting instructions as to the
desired frequency of a vote by the shareholders to approve the compensation paid by the Company to
its Named Executive Officers, we will treat your shares as though you abstained from voting on that
proposal.
This proxy may be revoked at any time before it is exercised.
(Continued and to be signed on reverse side)
TABLE OF CONTENTS
QUESTIONS AND ANSWERS ABOUT THE ANNUAL MEETING AND VOTINGPROPOSAL NO. 1 ELECTION OF DIRECTORSTHE BOARD OF DIRECTORS AND COMMITTEESSECURITY OWNERSHIP OF DIRECTORS AND MANAGEMENTSECURITY OWNERSHIP OF BENEFICIAL OWNERS OF MORE THAN 5% OF THE COMPANYS COMMON STOCKEXECUTIVE COMPENSATIONPART I: COMPENSATION DISCUSSION AND ANALYSISPART II: COMPENSATION COMMITTEE REPORTPART III: EXECUTIVE COMPENSATION TABLESPART IV: COMPENSATION CONSULTANT ENGAGEMENTSPART V: COMPENSATION-RELATED RISK STRATEGIESPROPOSAL NO. 2 ADVISORY VOTE ON COMPENSATION OF NAMED EXECUTIVE OFFICERSPROPOSAL NO. 3 ADVISORY VOTE ON SELECTION OF FREQUENCY FOR ADVISORY VOTE ON EXECUTIVE COMPENSATIONCOMPENSATION OF DIRECTORSEQUITY COMPENSATION PLAN INFORMATIONAUDIT COMMITTEE REPORTPROPOSAL NO. 4 RATIFICATION OF APPOINTMENT OF THE INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRMSECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCEprint