SCHEDULE 14A
(Rule 14a-101)

INFORMATION REQUIRED IN PROXY STATEMENT

SCHEDULE 14A INFORMATION

Proxy Statement Pursuant to Section 14(a) of the Securities

Exchange Act of 1934

 

Filed by the Registrant  x

 

Filed by a Party other than the Registrant  o

 

 

NORDSON CORPORATION

(Name of Registrant as Specified in Its Charter)

 

                                                               

(Name of Person(s) Filing Proxy Statement, if other than the Registrant)

 

Payment of Filing Fee (Check the appropriate box):

 

               Not Applicable

 

               Not Applicable

 

               Not Applicable

 

               Not Applicable

 

(5) Total fee paid:

               Not Applicable

 

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.

 

               Not Applicable

 

               Not Applicable

 

               Not Applicable

 

(4) Date Filed:

               Not Applicable

 

NORDSON CORPORATION

 

Notice of 2011

Annual Meeting

and Proxy Statement

 

 

 

 

Nordson Corporation
28601 Clemens Road
Westlake, Ohio 44145

 

January 21, 2011

 

Dear Shareholder:

 

It is my pleasure, on behalf of your Board of Directors, to invite you to attend our Annual Meeting of Shareholders, which will be held this year at the Spitzer Conference Center of the Lorain County Community College campus at 1005 North Abbe Road, Elyria, Ohio 44035 at 9:30 a.m. on Tuesday, March 1, 2011.

 

The accompanying Notice of Annual Meeting of Shareholders and Proxy Statement describe the items of business that will be discussed and voted upon during the meeting. It is important that you vote your shares whether or not you plan to attend the meeting. To be sure your vote is counted, we urge you to review carefully the Proxy Statement and to vote as soon as possible. You have a choice of voting over the Internet, by telephone or by returning the enclosed proxy/voting instruction card by mail. You may also vote in person at the meeting. Please refer to the instructions in the enclosed materials. If you attend the meeting and wish to vote in person, the ballot you submit at the meeting will supersede your proxy.

 

We look forward to providing you a report on Fiscal Year 2010 and the first quarter of Fiscal Year 2011 which ends January 31, 2011. On behalf of management and our Board of Directors, I want to thank you for your continued support and confidence in 2011.

 

Sincerely,

 

JOSEPH P. KEITHLEY

Chairman of the Board of Directors

NORDSON CORPORATION

 

NOTICE OF ANNUAL MEETING
OF SHAREHOLDERS
To Be Held Tuesday, March 1, 2011

 

The Annual Meeting of Shareholders of Nordson Corporation will be held this year at the Spitzer Conference Center at Lorain County Community College, 1005 North Abbe Road, Elyria, Ohio 44035, on Tuesday, March 1, 2011, at 9:30 a.m. for the following purposes:

 

 

A Proxy Statement, Proxy/Voting Instruction Card, and Annual Report to Shareholders, which includes our Annual Report on Form 10-K for the Fiscal Year ended October 31, 2010, accompany this Notice. The Board of Directors has determined that our shareholders of record at the close of business on January 3, 2011 are entitled to notice of, and to vote at, the Annual Meeting of Shareholders.

 

By Order of the Board of Directors,

 

ROBERT E. VEILLETTE

Vice President, General Counsel

and Secretary

 

Westlake, Ohio

January 21, 2011

 

NORDSON CORPORATION

 

PROXY STATEMENT
FOR THE ANNUAL MEETING OF SHAREHOLDERS
MARCH 1, 2011

 

The accompanying proxy is solicited on behalf of the Board of Directors (“Board”) of Nordson Corporation for use at the 2011 Annual Meeting of Shareholders (“Annual Meeting”). The Annual Meeting will be held at the Spitzer Conference Center at Lorain County Community College, 1005 North Abbe Road, Elyria, Ohio 44035, on Tuesday, March 1, 2011, at 9:30 a.m. for the following purposes:

 

 

This Proxy Statement and the accompanying proxy/voting instruction card were first mailed to shareholders on or about January 21, 2011. Our 2010 Annual Report to Shareholders is enclosed with this Proxy Statement.

 

This Proxy Statement contains important information regarding our Annual Meeting, the proposals on which you are being asked to vote, information you may find useful in determining how to vote, and information about voting procedures. As used herein, “we,” “us,” “our,” “Nordson” or the “Company” refers to Nordson Corporation.

 

Important Notice Regarding the Availability of Proxy Materials for the Annual
Meeting of Shareholders to be held on March 1, 2011:

 

The Proxy Statement, proxy/voting instruction card and the Annual Report to Shareholders which includes our Annual Report on Form 10-K for the Fiscal Year ended October 31, 2010 are available at the “Investors” Quicklink menu item of our website: www.nordson.com.

 

QUESTIONS AND ANSWERS ABOUT THE ANNUAL MEETING AND THESE PROXY MATERIALS

 

What is a Proxy?

 

A proxy is your legal appointment of another person to vote the shares that you own in accordance with your instructions. The person you appoint to vote your shares is also called a proxy.

 

On the proxy/voting instruction card, you will find the names of the persons designated by the Company to act as proxies to vote your shares at the Annual Meeting. The proxies are required to vote your shares in the manner you instruct.

 

What is the Record Date for Voting at the Annual Meeting?

 

The record date for the 2011 Annual Meeting of Shareholders is January 3, 2011.

 

What Matters will be Voted on at the Annual Meeting?

 

The following matters will be voted on at the Annual Meeting:

 

Proposal 1: Election of the three directors nominated by our Board of Directors and named in this Proxy Statement to serve for a three year term: Joseph P. Keithley, Mary G. Puma, and William L. Robinson;

 

Proposal 2: Ratification of the appointment of Ernst & Young LLP as our independent registered public accounting firm for Fiscal Year 2011;

 

Proposal 3: An advisory vote on executive compensation;

 

Proposal 4: An advisory vote on the frequency of holding an advisory vote on executive compensation; and

 

Such other business as may properly come before the Annual Meeting or any adjournment or postponement of the Annual Meeting.

 

How does the Board of Directors Recommend that I Vote?

 

The Board recommends that you vote:

 

 

Will any Other Matters be Voted on?

 

We are not aware of any other matters on which you will be asked to vote at the Annual Meeting. If other matters are properly brought before the Annual Meeting, the proxy holders will use their discretion to vote on these matters as they may arise. Furthermore, if a nominee cannot or will not serve as director, then the proxy holders will vote for a person whom they believe will carry out our present policies. We do not expect any nominee to be unwilling to serve.

 

Who may Vote?

 

If you were a shareholder of record at the close of business on January 3, 2011, you may vote. At the close of business on the record date, there were 34,117,936 shares of our common stock outstanding and entitled to vote. Each shareholder is entitled to one vote per share.

Voting for directors will be cumulative if any shareholder provides notice in writing to the President, a Vice President or the Secretary of Nordson of a desire to have cumulative voting. The notice must be received at least 48 hours before the time set for the Annual Meeting and an announcement of the notice is made at the beginning of the meeting by the Chairman or the Secretary, or by or on behalf of the shareholder giving the notice. If cumulative voting is in effect, our shareholders will be entitled to cast, in the election of directors, a number of votes equal to the product of the number of directors to be elected (three) multiplied by the number of shares that each of our shareholders is voting. Our shareholders may cast all of these votes for one nominee or distribute them among several nominees, as they see fit. If cumulative voting is in effect, shares represented by each properly submitted proxy will also be voted on a cumulative basis, with the votes distributed among the nominees in accordance with the judgment of the persons named on the proxy/voting instruction card.

 

What is the Difference Between Holding Shares as a Shareholder of Record and as a Beneficial Owner?

 

 

How do I Vote and what are the Voting Deadlines?

 

Shareholders of Record.  If you are a shareholder of record, there are several ways for you to vote your shares:

 

By Mail.  You may submit your vote by completing, signing and dating each proxy/voting instruction card received and returning it in the prepaid envelope. Sign your name exactly as it appears on the proxy/voting instruction card. Proxy/voting instruction cards submitted by mail must be received no later than 11:59 p.m. Eastern Time, February 28, 2011 to be voted at the Annual Meeting.

 

By telephone or over the Internet.  You may vote your shares by telephone or via the Internet by following the instructions provided on the proxy/voting instruction card. If you vote by telephone or via the Internet, you do not need to return a proxy/voting instruction card by mail. Internet and telephone voting are available 24 hours a day. Votes submitted by telephone or through the Internet must be received by 11:59 p.m. Eastern Time, February 28, 2011.

In person at the Annual Meeting.  You may vote your shares in person at the Annual Meeting. Even if you plan to attend the Annual Meeting in person, we recommend that you also submit your proxy card or voting instructions or vote by telephone or via the Internet by the applicable deadline so that your vote will be counted if you later decide not to attend the meeting.

 

Beneficial Owners.  If you are a beneficial owner of your shares, you should have received voting instructions from the broker, trustee or other nominee holding your shares. You should follow the instructions in the notice or voting instructions provided by your broker, trustee or nominee in order to instruct your broker, trustee or other nominee on how to vote your shares. The availability of telephone and Internet voting will depend on the voting process of the broker, trustee or nominee. Shares held beneficially may be voted in person at the Annual Meeting only if you obtain a legal proxy from the broker or nominee giving you the right to vote the shares.

 

All Owners.  If you receive more than one proxy card and/or voting instruction card, it is important that you vote all shares represented by the multiple cards. Each card represents different shares.

 

May I Change my Vote?

 

Yes. You may change your vote or revoke your proxy any time before the Annual Meeting.

 

Shareholders of Record.  If you are a shareholder of record, you may revoke your vote at any time before the final vote at the Annual Meeting by:

 

 

Beneficial Owners.  If you are a beneficial owner of your shares, you must contact the broker or other nominee holding your shares and follow their instructions for changing your vote. For 401(k) plan and the ESOP shares, you may revoke previously given voting instructions on or before February 24, 2011 by filing either a written notice of revocation or a properly completed and signed voting instruction card bearing a later date with the trustee.

 

What will Happen if I do not Vote my Shares?

 

Shareholders of Record.  If you are the shareholder of record of your shares and you do not vote by proxy card, by telephone, via the Internet or in person at the Annual Meeting, your shares will not be voted at the Annual Meeting.

 

Beneficial Owners.  If you are the beneficial owner of your shares, your broker, trustee or nominee may vote your shares only on those proposals on which it has discretion to vote. Under the rules of the Securities and Exchange Commission, your broker, trustee or nominee does not have discretion to vote your shares on non-routine matters such as Proposals 1, 3, and 4. Therefore, if you do not provide voting instructions to your broker, trustee or other nominee, your broker or other nominee may only vote your shares on Proposal 2 and any other routine matters properly presented for a vote at the Annual Meeting.

What if I do not Specify How my Shares are to be Voted?

 

If you are a shareholder of record and you submit a proxy, but you do not provide voting instructions, your shares will be voted as indicated in the following table:

 

 

What Constitutes a Quorum, and Why is a Quorum Required?

 

We need a quorum of shareholders to hold our Annual Meeting. A quorum exists when at least a majority of the outstanding shares entitled to vote at the close of business on the record date (January 3, 2011) are represented at the Annual Meeting either in person or by proxy. Your shares will be counted towards the quorum if you submit a proxy or vote at the Annual Meeting. Abstentions and broker non-votes (described below) will also count towards the quorum requirement. If there is not a quorum, a majority of the shares present at the Annual Meeting may adjourn the meeting to a later date.

 

What is the Effect of a Broker Non-Vote?

 

Brokers or other nominees who hold Nordson common shares for a beneficial owner have the discretion to vote on routine proposals when they have not received voting instructions from the beneficial owner at least ten days prior to the Annual Meeting. Your broker is not permitted to vote on your behalf on the election of directors and other non-routine matters unless you provide specific instructions by completing and returning the proxy card or following the instructions provided to you by your broker, trustee or nominee to vote your shares via telephone or the Internet. For your vote to be counted, you need to communicate your voting instructions to your broker, trustee or nominee.

 

A broker non-vote occurs when a broker or other nominee does not receive voting instructions from the beneficial owner and does not have the discretion to direct the voting of the shares. Broker non-votes will be counted for purposes of calculating whether a quorum is present at the Annual Meeting, but will not be counted for purposes of determining the number of votes present in person or represented by proxy and entitled to vote with respect to a particular proposal. Thus, a broker non-vote will not impact our ability to obtain a quorum and will not otherwise affect the outcome of the vote on a proposal that requires a plurality of votes cast (Proposals 1 and 4) or the approval of Proposal 2 since brokers have discretion to vote uninstructed shares on that proposal. Broker non-votes will affect the outcome of the vote on Proposal 3 and therefore it is important that you provide voting instructions for all shares you own beneficially.

What is the Vote Required for Each Proposal?

 

 

With respect to Proposal 1, you may vote FOR all nominees, WITHHOLD your vote as to all nominees, or FOR all nominees except those specific nominees from whom you WITHHOLD your vote. Nominees receiving the most FOR votes will be elected. A properly executed proxy marked WITHHOLD with respect to the election of one or more directors will not be voted with respect to the director or directors indicated. Proxies may not be voted for more than three directors.

 

With respect to Proposals 2 and 3, you may vote FOR, AGAINST or ABSTAIN. If you ABSTAIN from voting on Proposals 2 and 3 the abstention will have the same effect as an AGAINST vote.

 

With respect to Proposal 4, you may vote FOR a frequency of: One Year, Two Years, or Three Years, or you may ABSTAIN. If you abstain from voting on Proposal 4, the abstention will not have an effect on the outcome of the vote.

 

Who will Count the Votes?

 

Broadridge Financial Solutions, Inc. has been engaged as our independent agent to receive and tabulate shareholder votes. Broadridge will separately tabulate FOR, AGAINST and WITHHOLD votes, votes on the frequency of holding an advisory vote on executive compensation, abstentions, and broker non-votes. The Inspectors of Election will certify the election results and perform any other acts required by Ohio Corporation Law.

 

What Happens if the Annual Meeting is Adjourned or Postponed?

 

Your proxy will still be effective and will be voted at the rescheduled Annual Meeting. You will still be able to change or revoke your proxy until it is voted.

 

Who is Paying for the Costs of this Proxy Solicitation?

 

We will bear the expense of soliciting proxies. Proxies may also be solicited in person, by telephone or electronically by Nordson personnel who will not receive additional compensation for such solicitation. Copies of proxy materials and the Annual Report to Shareholders will be supplied to brokers and other nominees for the purpose of soliciting proxies from beneficial owners, and we will reimburse such brokers or other nominees for their reasonable expenses.

 

How can I Find the Results of the Annual Meeting?

 

The final voting results will be tallied by our Inspectors of Elections and published in a Current Report on Form 8-K that we expect to file within four business days of the Annual Meeting. If final voting results are not available to us in time to file a Form 8-K within four business days after the Annual Meeting, we intend to file a Form 8-K to disclose preliminary voting results and, within four business days after the final results are known, we will file an additional Form 8-K to disclose the final voting results.

Delivery of Voting Materials to Shareholders Sharing an Address

 

To reduce the expense of delivering duplicate materials to shareholders sharing the same address, we have adopted a procedure approved by the Securities and Exchange Commission called “householding.” Under this procedure, certain shareholders of record who have the same address and last name will receive only one copy of the Annual Report to Shareholders and proxy materials until such time as one or more of these shareholders notifies us that they wish to receive individual copies. Shareholders of record in the same household continue to receive separate proxy cards.

 

We will mail materials that you request at no cost. You may contact us with your request by writing to or calling Corporate Communications, Nordson Corporation, 28601 Clemens Road, Westlake, Ohio, 44145 or 440-414-5606. You can also access the Proxy Statement and Annual Report online at the “Investors” Quicklink menu item of our website: www.nordson.com.

 

Who can Attend the Annual Meeting?

 

All shareholders of record as of the close of business on January 3, 2011 may attend the meeting.

 

How do I Submit Director Nominations or Shareholder Proposals for the 2012 Annual Meeting?

 

Shareholder Proposals Submitted Under Rule 14a-8

 

Assuming that our 2012 Annual Meeting is held within thirty days of the anniversary of the 2011 Annual Meeting, any shareholder who wishes to submit a proposal for consideration at next year’s meeting and for inclusion in next year’s proxy statement under Rule 14a-8 of the Securities Exchange Act of 1934 should send the proposal c/o Secretary, Nordson Corporation, 28601 Clemens Road, Westlake, Ohio 44145 for receipt on or before September 23, 2011.

 

Proposals and Director Nominations Submitted Pursuant to our Regulations

 

Additionally, under our Regulations, a shareholder may submit a proposal for consideration at next year’s Annual Meeting of Shareholders, but not for inclusion in the Proxy Statement, if the shareholder provides written notice no earlier than 90 days and no later than 60 days prior to the 2012 Annual Meeting. Assuming that the 2012 Annual Meeting will be held on February 28, 2012, that means notice of such proposals must be received no earlier than November 30, 2011 and no later than December 30, 2011. The Company will publicly announce the date of the 2012 Annual Meeting in a timely manner. Our Regulations are available at the “Investors” Quicklink menu item of our website: www.nordson.com.

 

A shareholder may nominate a candidate for election as a director at the 2012 Annual Meeting of the Shareholders provided the shareholder (i) is a shareholder of record at the time the shareholder gives notice of the nomination, (ii) is entitled to vote at the meeting in the election of directors, and (iii) has given timely written notice of the nomination to the Secretary. Similar to the timeliness requirements under our Regulations described above, the notice of the nomination must be received no earlier than 90 days and no later than 60 days prior to the meeting. Assuming the 2012 Annual Meeting is held on February 28, 2012, the deadlines would be no earlier than November 30, 2011 and no later than December 30, 2011. The Governance and Nominating Committee will assess the qualifications of the candidate according to criteria set out in Nordson Corporation’s Governance Guidelines, which are available at the “Investors” Quicklink menu item of our website: www.nordson.com. For a candidate to be considered for election as a director or for business to be properly requested by a shareholder to be brought before an annual meeting of shareholders, the shareholder must comply with all of the requirements of our Regulations, not just the timeliness requirements described above. All proposals for inclusion in the proxy materials, notices of proposals, suggestions for nominees for election to our Board should be sent to c/o Secretary, Nordson Corporation, 28601 Clemens Road, Westlake, Ohio 44145.

 

If the notices delivered pursuant to the Regulations are not timely received, then we will not be required to present such proposals or nominations, as applicable, at the 2012 Annual Meeting. If the Board of Directors

chooses to present any information submitted after the deadlines set forth in the Regulations (other than pursuant to Rule 14a-8 of the Securities Exchange Act of 1934) at the 2012 Annual Meeting, then the persons named in proxies solicited by the Board for the 2012 Annual Meeting may exercise discretionary voting power with respect to such information.

 

YOUR VOTE IS VERY IMPORTANT, SO PLEASE VOTE.

 

Promptly return your proxy card or choose to vote via telephone or the Internet,
which will help to reduce the cost of this solicitation.

 

This Proxy Statement and the enclosed proxy card are being mailed to shareholders on or about January 21, 2011. Nordson’s executive offices are located at 28601 Clemens Road, Westlake, Ohio 44145, telephone number (440) 892-1580.

 

PROPOSAL 1: ELECTION OF DIRECTORS WHOSE TERMS EXPIRE IN 2014

 

NOMINEES AND OTHER DIRECTORS

 

Our Regulations require us to have at least nine directors with not less than three directors in each of three classes. The terms of these classes as of the 2011 Annual Meeting will expire at our Annual Meeting of Shareholders in 2012, 2013, and 2014. Each of the directors serves for a term of three years and until a qualified successor is elected. The Board currently has eleven directors.

 

The Governance and Nominating Committee is responsible for identifying and evaluating nominees for director and for recommending to the Board a slate of nominees for election at the Annual Meeting of Shareholders. The Governance and Nominating Committee has recommended to the Board, and the Board has approved, the persons named as nominees for terms expiring in 2014 and, unless otherwise marked, a proxy will be voted for such nominees. Ms. Puma and Messrs. Keithley and Robinson currently serve as directors, were last elected by the shareholders at the 2008 Annual Meeting and have agreed to stand for election to a three-year term.

 

Each nominee for director brings a strong and unique background and set of skills to the Board, giving the Board as a whole competence and experience in a variety of areas. Set forth below is biographical information of the nominees as well as a description of the experiences, qualifications, skills and attributes that led the Governance and Nominating Committee and the Board to conclude that each nominee should serve as a director of the Company.

 

It is intended that proxies with respect to the 2011 Annual Meeting which do not withhold the authority to vote for any or all of the nominees will be voted for the election as directors of all of the persons named below. At this time, the Board knows of no reason why any nominee might not be a candidate at the 2011 Meeting.

 

The name and age of each of the three nominees for election as directors for terms expiring in 2014, as well as present directors whose terms will continue after the meeting, appear below together with his or her principal occupation for at least the past five years, the year each became a director of the Company and certain other information. The information is as of January 18, 2011.

Nominees For Terms Expiring in 2014

 

 

Present Directors Whose Terms Expire in 2012

 

Present Directors Whose Terms Expire in 2013

 

 

Edward P. Campbell retired as Chairman of the Board and as a director at the 2010 Annual Meeting of Shareholders. Mr. Keithley succeeded Mr. Campbell as Chairman of the Board. Directors William Colville, William Ginn and Stephen Hardis retired from our Board in Fiscal Year 2010. No shareholder or group that beneficially owns 1% or more of our outstanding common shares has recommended a candidate for election as a director at the 2011 Annual Meeting of Shareholders.

 

Required Vote

 

The election of directors requires the affirmative vote of the holders of a plurality of the shares of common stock voting at the meeting. Under the plurality voting standard, the nominees receiving the most “for” votes will be elected, regardless of whether any nominee received a majority of the votes. Only shares that are voted in favor of a particular nominee will be counted toward such nominee’s achievement of a plurality. Shares present at the meeting that are not voted for a particular nominee or shares present by proxy where the shareholder properly withheld authority to vote for such nominee (including broker non-votes) will not be counted toward such nominee’s achievement of a plurality, but will be counted for quorum purposes.

 

RECOMMENDATION REGARDING PROPOSAL 1:

 

THE BOARD OF DIRECTORS RECOMMENDS THAT YOU VOTE “FOR”
THE DIRECTORS NOMINATED BY THE BOARD.

 

PROXIES RECEIVED BY THE BOARD WILL BE VOTED FOR ALL NOMINEES UNLESS
SHAREHOLDERS SPECIFY A CONTRARY VOTE.

 

CORPORATE GOVERNANCE

 

Corporate Governance Guidelines

 

Nordson has adopted Corporate Governance Guidelines (the “Governance Guidelines”), which are available at the “Investors” Quicklink menu item of our website: www.nordson.com. The Governance Guidelines contain general principles regarding the functions of Nordson’s Board of Directors (the “Board”) and Board Committees.

 

Director Independence

 

Our Governance Guidelines require that a majority of the Board be comprised of independent directors. The Board has adopted categorical standards to assist it in making determinations regarding independence. These standards are contained in our Governance Guidelines and conform to and exceed the independence criteria specified by the NASDAQ Stock Market LLC (“NASDAQ”). These categorical standards specify the criteria by which the independence of Nordson’s directors will be determined, including whether a director or any member of the director’s immediate family has any current or past employment or affiliation with Nordson or Nordson’s independent registered public accountants.

 

For a director to be considered independent under the listing standards of NASDAQ, the Board must affirmatively determine that a director has no direct or indirect material relationship with Nordson. A director is independent if he/she has no material relationship with us or our affiliates either directly or indirectly as a partner, shareholder or officer of an organization that has a relationship with our Company and meets the standards for independence as defined by the rules of NASDAQ. Such relationships can include commercial, industrial, banking, consulting, legal, accounting, charitable and familial relationships, among others.

 

More specifically, a director is not considered independent if:

 

 

In addition, on an annual basis, each member of the Board is required to complete a questionnaire designed in part to provide information to assist the Board in determining whether the director is independent.

Our Board has affirmatively determined that Messrs. Banks, Carson, Madar, Merriman, Richey, Rosen, Dr. Ignat and nominees Ms. Puma and Messrs. Keithley and Robinson are independent directors. Michael F. Hilton is not an independent director as he serves as the Company’s President and Chief Executive Officer.

 

Director Qualifications

 

Our directors play a critical role in guiding Nordson’s strategic direction and overseeing the management of the Company. The Board believes that diversity along multiple dimensions, including opinions, skills, perspectives, personal and professional experiences and other differentiating characteristics, is an important element of its director nomination recommendations. To that end, the Board has adopted Director Recruitment and Performance Guidelines (the “Recruitment Guidelines”) to assist the Board and the Governance and Nominating Committee in identifying and recruiting directors to serve on the Board. The Recruitment Guidelines are available at the “Investors” Quicklink menu item of our website: www.nordson.com as Attachment A to the Governance Guidelines. The Board considers each nominee in the context of the Board as a whole, with the objective of assembling a Board that can best maintain the success of our business. The Board seeks to include an array of skills and experience in its overall composition rather than requiring every director to possess the same skills, perspective, and interests. The Recruitment Guidelines are implemented by seeking to identify candidates that bring diverse skills sets, backgrounds, and experiences, including ethnic and gender diversity, to the Board when director candidates are needed.

 

An example of the process engaged in by the Board to identify qualified candidates for director was the search that culminated in the election of the most recently added directors — Messrs. Banks and Richey. The Board of Directors retained a search firm to assist the Board in identifying candidates that not only met the Recruitment Guidelines but also a set of specific criteria deemed appropriate given the skills and experiences of the directors that had recently retired or were about to retire from the Board. Included in the search criteria were skills and experiences such as leading a company or division of a sophisticated, business-to-business industrial enterprise similar in size to Nordson that has a material percentage of sales (at least 25 percent-plus) derived from non-US customers; having substantive global experience with a company composed of multiple business units in an innovative and research and development-based environment; and prior exposure to corporate governance as the result of public company board service or the experience of working with the board of directors and governance process. The effectiveness of the process is evident by the contributions made to the Board by Messrs. Banks and Richey since their election in 2010.

 

The Governance and Nominating Committee periodically reviews the Board’s membership in light of our business model and strategic objectives, considers whether the directors possess the requisite skills, experience and perspectives to oversee the Company in achieving these objectives, and may seek additional directors from time to time as a result of its considerations. Qualified candidates are considered without regard to race, color, religion, sex, ancestry, national origin or disability.

 

Code of Business and Ethical Conduct

 

We have a Code of Business and Ethical Conduct (the “Code”) that addresses our commitment to honesty and integrity and the ethical behavior of our directors, officers and employees with current and potential customers, fellow employees, competitors, government and self-regulatory agencies, investors, the public, the media and anyone else with whom we have or may have contact. Violations of any of the standards of the Code will be met with appropriate disciplinary action, up to and including termination of employment. Retaliation against any director, officer or employee who files a report concerning what he or she reasonably believes to be conduct that violates the Code is strictly prohibited. The Code of Business and Ethical Conduct is available at the “Investors” Quicklink menu item of our website: www.nordson.com.

 

Communications with the Board of Directors

 

Shareholders may communicate with the Board, the Chairman of the Board, a Board committee, the non-employee directors as a group, or individual directors by sending written communications addressed to

the Board of Directors, a Board committee or such individual director or directors, c/o Secretary, Nordson Corporation, 28601 Clemens Road, Westlake, Ohio 44145.

 

Each communication should specify the applicable addressee or addressees to be contacted as well as the general topic of the communication. Our Secretary will initially receive and process communications before forwarding them to members of the Board to whom the communication is directed, or if the communication is not directed to any specific member(s) of the Board, to the Chairperson of the Governance and Nominating Committee. We generally will not forward a shareholder communication that is primarily commercial in nature, relates to an improper or irrelevant topic, or requests general information about us. Concerns about accounting or auditing matters or possible violations of our Code of Business and Ethical Conduct should be reported pursuant to the procedures outlined in the Code.

 

Board Leadership Structure

 

Our Governance Guidelines require us to have either an independent Chairman of the Board or a presiding independent director if the positions of Chairman and Chief Executive Officer are held by the same person. The Guidelines set forth the responsibilities of the Chairman of the Board and the Presiding Director when the Chairman of the Board and Chief Executive Officer positions are combined.

 

The Board recognizes that one of its key responsibilities is to evaluate and determine leadership structure that best serves our shareholders and to provide independent oversight of management. During Fiscal Year 2010, the Board separated the roles of Chief Executive Officer and Chairman of the Board as the Board believes presently that separation of the roles best supports the transition of Michael Hilton as our Chief Executive Officer. This structure provides independent oversight of management while permitting Mr. Hilton to focus his time and energy on setting the strategic direction for the Company, overseeing daily operations, engaging with external constituents, developing our future leaders, and promoting employee engagement at all levels of the organization. Meanwhile, our independent Chairman Joseph Keithley leads the Board in the performance of its duties by establishing agendas and ensuring appropriate meeting content (in collaboration with Mr. Hilton), presiding during regularly held executive sessions with our independent directors, actively engaging with all independent directors and Mr. Hilton between Board meetings and providing overall guidance to Mr. Hilton as to the Board’s views and perspectives, particularly on the strategic direction of the Company.

 

Executive Sessions

 

Pursuant to our Governance Guidelines, non-management directors meet in regularly scheduled executive sessions without management. The Chairman (or, when our Chairman is an executive officer, the Lead Independent Director) chairs all regularly scheduled executive sessions of the Board, and also has authority to convene meetings of the non-management directors at any time with appropriate notice. Following his election as Chairman of the Board, for Fiscal Year 2010, Chairman Keithley presided at executive sessions of our independent directors at every Board of Directors meeting.

 

Oversight of Risk Management

 

The Board as a whole exercises its oversight responsibilities with respect to material risks we face in a global market, including operational, financial, strategic, competitive, reputational, legal and regulatory risks. The Board has delegated responsibility for the oversight of specific risks to Board committees. With the oversight of our Board, our officers are responsible for the day-to-day management of the material risks we face. In its oversight role, our Board has the responsibility to satisfy itself that the risk management processes designed and implemented by management are adequate and functioning as designed. The involvement of the Board in setting our business strategy at least annually is a key part of its oversight of risk management, its assessment of management’s appetite for risk and its determination of what constitutes an appropriate level of risk for Nordson Corporation. The Board regularly receives updates from management and outside advisors regarding certain risks we face, including litigation and various operating risks.

In addition, our Board committees each oversee certain aspects of risk management. For example, our Audit Committee is responsible for overseeing risk management of financial matters, financial reporting, the adequacy of our risk-related internal controls, and internal investigations. Our Compensation Committee oversees risks related to the executive officer compensation program such as that attendant to incentive-driven compensation plans. Our Governance and Nominating Committee oversees governance related risks, such as Board independence and director succession planning.

 

Senior management attends Board and Board committee meetings at the invitation of the Board or its committees and is available to address any questions or concerns raised by the Board on risk management and any other matters. Annually, the Board holds strategic planning sessions with senior management to discuss strategies, key challenges, and risks and opportunities for the Company.

 

Both the Audit Committee and the Compensation Committee of the Board also rely on the advice and counsel of our independent auditors and independent compensation consultant, respectively, to raise awareness of any risk issues that may arise during their regular reviews of our financial statements, audit work and executive compensation policies and practices, as applicable. The Board is kept abreast of its Committees’ risk oversight and other activities via reports of the Committee Chairperson to the full Board.

 

Attendance at the Annual Meeting of Shareholders

 

Directors are expected to attend the Annual Meeting of Shareholders and all Board meetings and meetings of committees on which a director serves. During the last fiscal year, each incumbent director attended at least seventy-five percent of the meetings of the Board and of the committees on which he or she served. All incumbent directors attended the 2010 Annual Meeting of Shareholders, except Mr. Carson and Mr. Robinson, who were excused due to family illness.

 

Review of Transactions with Related Persons

 

The Board has adopted a written policy regarding the review and pre-approval of transactions, involving certain persons that are required to be disclosed in proxy statements, which are commonly referred to as “related person transactions.” A “related person” is defined under the applicable Securities and Exchange Commission regulation and includes our directors, executive officers and beneficial owners of 5% or more of our common shares. Under the written policy, Nordson’s Audit Committee is responsible for reviewing and approving any related person transactions and will consider factors it deems appropriate, including:

 

 

There are no related person transactions to report in this Proxy Statement. Mr. Keithley, our Chairman, was formerly Chairman, President and Chief Executive Officer of Keithley Instruments, Inc. Mr. Banks, a director, serves as Executive Vice President and Operating Officer of Parker Hannifin Corporation. Keithley Instruments, Inc. and Parker Hannifin Corporation are suppliers of components to a number of our business units in volumes that are materially insignificant when compared to the Keithley Instruments, Inc.’s, Parker Hannifin Corporation’s and Nordson’s annual revenue for 2010. All purchases were conducted at arms-length. We have a monitoring and reporting program with respect to purchases of products supplied by a company which may employ a director to ensure the avoidance of any conflicts of interest resulting from our relationship.

 

Self-Assessments

 

On a regular basis, the Board conducts a self-assessment to determine, among other matters, whether the Board and the Committees are functioning effectively. The independent directors also undertake a peer assessment of other independent directors as part of this self-assessment process. The Audit, Compensation, and Governance and Nominating Committees are also required to each conduct a self-assessment. The Governance and Nominating Committee is responsible for overseeing this self-assessment process.

 

Governance Documents

 

Our current corporate governance documents and policies, including our Governance Guidelines, Director Recruitment and Performance Guidelines, committee charters, Code of Business and Ethical Conduct and Related Persons Transaction Policy are available at the “Investors” Quicklink menu item of our website: www.nordson.com and in print to any shareholder who requests them. The Annual Report to Shareholders, which includes our Annual Report on Form 10-K for the Fiscal Year ended October 31, 2010 and this Proxy Statement are also available at the “Investors” Quicklink menu item of our website: www.nordson.com. Upon request, copies of the Annual Report to Shareholders will be mailed to you (at no charge) by contacting Corporate Communications, 28601 Clemens Road, Westlake, Ohio 44145.

 

MEETINGS AND COMMITTEES OF THE BOARD OF DIRECTORS

 

Board of Directors.  Our Board of Directors has five regularly scheduled meetings each year. Special meetings are held as necessary. In addition, management and the directors communicate informally on a variety of topics, including suggestions for Board or committee agenda items, recent developments and other matters of interest to the directors. In Fiscal Year 2010, our Board of Directors met five times in regular session. An executive session of independent directors occurred at each regular meeting.

 

The Board has three committees which meet on a regular basis: an Audit Committee, a Compensation Committee, and a Governance and Nominating Committee. The table below provides current committee membership and Fiscal Year 2010 committee meeting information:

 

 

 

* Committee Chairperson

 

Audit Committee.  The Audit Committee conducted eight meetings in Fiscal Year 2010. The Board has designated Mr. Madar and Mr. Merriman as “audit committee financial experts” pursuant to the Securities and Exchange Commission’s final rules implementing Section 407 of the Sarbanes-Oxley Act. The Audit Committee is responsible for:

 

 

 

All members of the Audit Committee meet the NASDAQ independence standards and the Securities and Exchange Commission’s heightened audit committee independence standards.

 

A more detailed discussion of the purposes, duties, and responsibilities of the Audit Committee is found in the Committee’s charter, which is available at the “Investors” Quicklink menu item of our website: www.nordson.com. The Committee has discussed with the independent auditors the auditors’ independence from management and the Company and considered the compatibility of non-audit services with the auditors’ independence. The Audit Committee Report to the Board is at Appendix A of this Proxy Statement.

 

Compensation Committee.  The Compensation Committee met eight times in Fiscal Year 2010. The Compensation Committee is responsible for setting and approving compensation for our executive officers and for administering the incentive and equity participation plans under which we pay variable compensation to our executive officers. A more detailed discussion of the purposes, duties, and responsibilities of the Committee is found in the Committee’s charter which is available at the “Investors” Quicklink menu item of our website: www.nordson.com. All members of the Compensation Committee meet the NASDAQ independence standards.

 

The Compensation Committee takes significant steps to ensure that we maintain strong links between executive compensation and performance. Examples of these steps are:

 

 

Each fiscal year the Committee:

 

 

A discussion of the role of executive management in setting compensation may be found in Part II of the Compensation Discussion and Analysis section of this Proxy Statement under the caption “Role of Executive Management.”

 

The Committee also has the authority to engage outside executive compensation consultants, to determine the scope of the consultant’s services and to terminate the consultant’s engagement. The compensation consultant reports directly to the Chairperson of the Committee and provides the Committee with information

and analysis related to executive compensation. A discussion of the engagement of Mercer as our independent compensation consultant for Fiscal Year 2010 is found in Part II of the Compensation Discussion & Analysis under the caption, “Role of the Compensation Consultant.”

 

Governance and Nominating Committee.  The Governance and Nominating Committee met three times during Fiscal Year 2010. All members of the Governance and Nominating Committee meet the NASDAQ independence standards. The purposes of the Governance and Nominating Committee are to:

 

 

The Governance and Nominating Committee assesses the qualifications of the candidates nominated to be a director according to criteria set out in Nordson Corporation’s Governance Guidelines, which are available at the “Investors” Quicklink menu item of our website: www.nordson.com. A current copy of the Governance and Nominating Committee charter is also available at the “Investors” Quicklink menu item of our website: www.nordson.com.

 

Executive Committee.  The Executive Committee exercises the authority of the Board on such matters as are delegated to it by the Board from time to time and exercises the powers of the Board between meetings of the Board. The Executive Committee meets on a periodic basis, as needed, and did not meet in Fiscal Year 2010.

 

Director Compensation

 

We structure director compensation to attract and retain qualified non-employee directors and to further align the interests of directors with the interests of our long-term shareholders by linking a substantial portion of their compensation to the performance of our common shares. Following is a description of our compensation program for non-employee directors for Fiscal Year 2010. Directors who are also our employees do not receive compensation for their services as directors.

 

Determining Director Compensation.  The Governance and Nominating Committee reviews compensation of our directors, as well as our compensation practices for directors, and makes recommendations to the Board regarding these matters. The Committee typically conducts its review and makes its recommendations in September of each year prior to the commencement of a fiscal year.

 

To assist the Committee in performing these duties, the Governance and Nominating Committee periodically reviews a competitive analysis of non-employee director compensation, including cash retainers and annual equity grants, prepared by an outside consultant. The components and respective amounts of director compensation for Fiscal Year 2010 was:

 

 

 

 

Annual Cash Retainer.  The annual cash retainer is paid in equal quarterly installments. For directors who retire or who are elected by the Board or shareholders during the fiscal year, the annual retainer is prorated based on the number of months served in the fiscal year prior to the date of retirement for retiring directors and number of months remaining in the fiscal year for directors elected after the commencement of a fiscal year.

 

Restricted Share Grant.  Restricted shares are granted early in the fiscal year or at the time a director is elected to the Board if the election occurs other than at the Annual Meeting of Shareholders. The grants carry a two-year restriction on transfer. All directors may elect to defer receipt of the restricted shares under the terms of the Directors Deferred Compensation Plan. The election to defer must be made prior to the effective date of the grant and deferral is in the form of restricted share units.

 

For directors who retire or who are elected by the Board or shareholders during the fiscal year, the restricted share grants are prorated based on the number of months served in the fiscal year prior to the date of retirement for retiring directors and number of months remaining in the fiscal year for directors elected after the commencement of a fiscal year.

 

Deferred Compensation Program.  Under the Directors Deferred Compensation Plan, non-employee directors may elect to defer all or a portion of their annual cash retainer and restricted share grant into a non-qualified, unfunded deferred compensation program. Amounts deferred under the Directors Deferred Compensation Plan will earn a return equivalent to the return on an investment in (i) an interest-bearing account, earning interest based on the 10-year Treasury bill constant maturity rate or (ii) a share equivalent account, earning a return based on our common share price and accruing dividend equivalents. Any restricted share grant that a non-employee director elects to defer is invested into a restricted stock unit account with dividends credited to the directors’ share equivalent unit account. The amounts deferred, dividend equivalents and any appreciation or accrued interest are paid in cash or in our common shares, as applicable, upon a director’s retirement from the Board. We do not pay above market rates or preferential rates under this deferred compensation plan.

 

Share Ownership Guidelines.  The Board strongly believes that our non-employee directors should have a meaningful ownership interest in the Company and has implemented share ownership guidelines for our non-employee directors. The ownership guidelines require non-employee directors to own a minimum of five times their annual cash retainer in common shares (shares held in the form of stock equivalent units or restricted share units qualify as shares owned under the guidelines). Newly elected directors have five years within which to achieve the share ownership requirement. Our share ownership guidelines are available at the “Investors” Quicklink menu item of our website: www.nordson.com.

 

Charitable Gifts Matching Program.  Non-employee directors may participate in our employee matching gift program involving contributions of cash or publicly-traded stock made to cultural, educational, social, medical or health-related charitable organizations that are exempt from federal income tax. Ms. Puma and Messrs. Colville, Ginn, Hardis, Ignat, Madar, Merriman, Robinson and Rosen participated in this program. We made contributions totaling $62,343 during Fiscal Year 2010.

 

Indemnity Agreements.  We have indemnification agreements for directors in order to attract and retain the most capable persons reasonably available to serve as our directors. The indemnification agreements are intended to secure the protection for our directors contemplated by our Regulations and Ohio law.

 

Each indemnification agreement provides, among other things, that we will, subject to the agreement terms, indemnify a director if by reason of their corporate status as a director the person incurs losses, liabilities, judgments, fines, penalties, or amounts paid in settlement in connection with any threatened, pending, or completed proceeding, whether of a civil, criminal, administrative, or investigative nature. A director will not be indemnified where a director is adjudicated to have brought about or materially contributed to a claim as a consequence of an act of deliberate dishonesty committed by the director. In addition, each indemnification agreement provides for the advancement of expenses incurred by a director, subject to certain exceptions, in connection with proceedings covered by the indemnification agreement.

This description of the director indemnification agreements is not complete and is qualified in its entirety by reference to the full text of the Form of Director Indemnification Agreement between us and each director, filed as Exhibit 10-c to our Form 10-K for the year ended October 31, 2010.

 

Director Compensation Table for Fiscal Year 2010

 

The following table sets forth the total compensation paid to each non-employee director for services provided as a director for Fiscal Year 2010.

 

 

 

 

 

 

 

 

 

 

PROPOSAL 2: RATIFY THE APPOINTMENT OF INDEPENDENT
REGISTERED PUBLIC ACCOUNTING FIRM

 

Appointment of Independent Registered Public Accounting Firm for Fiscal Year 2011

 

Ernst & Young LLP (“Ernst & Young”) served as our independent registered public accounting firm for the Fiscal Year ended October 31, 2010. The Audit Committee has appointed Ernst & Young to serve as our auditors for the Fiscal Year ending October 31, 2011. Although shareholder ratification of the appointment of Ernst & Young is not required, the Board of Directors believes that submitting the appointment to our shareholders for ratification is a matter of good corporate governance. If our shareholders do not ratify the appointment of Ernst & Young, the Audit Committee will reconsider the appointment. We expect that a representative of Ernst & Young will be present at the 2011 Annual Meeting to respond to appropriate questions from shareholders and to make a statement if he or she desires to do so.

 

As provided in the Audit Committee’s Charter, the Audit Committee is responsible for directly appointing, retaining, terminating and overseeing our independent registered public accounting firm. While we have a long-standing relationship with Ernst & Young, the Audit Committee continuously evaluates the independence and effectiveness of Ernst & Young and its personnel, and the cost and quality of its audit and audit-related services.

 

Pre-Approval of Audit and Non-Audit Services

 

At the start of each fiscal year, our Audit Committee pre-approves the audit services, audit-related services and tax services, if any, together with specific details regarding such services anticipated to be required for such fiscal year including, as available, estimated fees. The Audit Committee reviews and, if it deems them appropriate, pre-approves those services. The Audit Committee reviews the services provided to date and actual fees against the estimates, and such fee amounts may be updated for presentation at the regularly scheduled meetings of the Audit Committee. Additional pre-approval is required before actual fees for any service can exceed the originally pre-approved amount. The Audit Committee may also revise the list of pre-approved services and related fees from time to time. All of the services described below under the captions “Audit Fees” and “Audit-Related Fees” with respect to Fiscal Years 2009 and 2010 were pre-approved in accordance with this policy.

 

If we seek to engage our independent registered public accounting firm for other services that are not considered subject to general pre-approval as described above, then the Audit Committee must approve such specific engagement as well as the estimated fees. Such engagement will be presented to the Audit Committee for pre-approval at its next regularly scheduled meeting. If the timing of the project requires an expedited decision, then we may ask the chairperson of the Audit Committee to pre-approve such engagement. Any such pre-approval by the chairperson is then reported to the full Audit Committee for ratification at the next Audit Committee meeting. In any event, pre-approval of any engagement by the Audit Committee or the chairperson of the Audit Committee is required before our independent registered public accounting firm may commence any engagement. Additional pre-approval is required before any fees can exceed approved fees for any such specifically-approved services.

 

Fees Paid to Ernst & Young

 

The following table shows the fees we paid or accrued for audit and other services provided by Ernst & Young for the Fiscal Years ended October 31, 2010 and October 31, 2009:

 

 

 

 

Required Vote

 

The affirmative vote of a majority of the shares represented at the 2011 Annual Meeting of Shareholders and entitled to vote on this proposal will be required to ratify the Audit Committee’s appointment of our independent registered public accounting firm. A proxy/voting instruction card marked as abstaining with respect to this proposal will have the effect of a vote against ratification of the appointment of the independent registered public accounting firm.

 

RECOMMENDATION REGARDING PROPOSAL 2:

 

THE BOARD OF DIRECTORS RECOMMENDS THAT YOU VOTE
“FOR” RATIFICATION OF THE
AUDIT COMMITTEE’S APPOINTMENT OF ERNST & YOUNG LLP AS OUR INDEPENDENT
REGISTERED PUBLIC ACCOUNTING FIRM FOR THE FISCAL YEAR ENDING OCTOBER 31, 2011.

 

SECURITY OWNERSHIP OF NORDSON COMMON SHARES BY DIRECTORS, EXECUTIVE OFFICERS AND LARGE BENEFICIAL OWNERS

 

The following table shows the number of Nordson common shares beneficially owned as of January 3, 2011 by each person who was a director as of October 31, 2010, each executive officer named in this Proxy Statement and by all officers and directors as a group. Each person has sole voting and investment power for all shares shown, unless otherwise noted. No executive officer or director owns more than 4.4% of outstanding Nordson common shares. All executive officers and directors as a group own approximately 5.4% of outstanding Nordson common shares.

 

This beneficial ownership information is based on information furnished by the directors and executive officers. Beneficial ownership is determined in accordance with Rule 13d-3 under the Securities Exchange Act of 1934 for purposes of this Proxy Statement and is not necessarily to be construed as beneficial ownership for other purposes.

 

 

 

 

Five Percent Beneficial Owners

 

The following table lists each person we know to be an owner of more than 5% of our shares as of January 3, 2011.

 

 

 

 

As of January 3, 2011, approximately 9.6 million Nordson common shares are beneficially owned by other than institutional shareholders. These non-institutional beneficial shareholders include our present and former directors, officers and employees and their families, including the Nord and Ignat families and the Nord Family Foundation, representing approximately 28% of the outstanding shares. We are party to an agreement that, with some exceptions, gives us a right of first refusal with respect to proposed sales of our common shares by certain members of the Nord family and The Nord Family Foundation.

 

Section 16(a) Beneficial Ownership Reporting Compliance

 

Section 16(a) of the Securities Exchange Act of 1934 requires our directors and executive officers and persons who own more than ten percent of our common shares to file reports of ownership and changes in ownership of our common shares held by them with the Securities and Exchange Commission. Copies of these reports must also be provided to us.

 

Based on our review of these reports, we believe that, during the Fiscal Year ended October 31, 2010, all reports were filed on a timely basis by reporting persons.

 

PROPOSAL 3 — ADVISORY VOTE ON EXECUTIVE COMPENSATION

 

The recently enacted Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010, or the Dodd-Frank Act, enables our shareholders to vote to approve, on an advisory (nonbinding) basis, the compensation of our executive officers as disclosed in this Proxy Statement in accordance with the Securities and Exchange Commission’s rules.

 

As described in detail under the heading “Executive Compensation — Compensation Discussion and Analysis,” our executive compensation program is designed to attract, motivate, and retain our executive officers, who are critical to our success. Under this program our executive officers are rewarded for the achievement of specific short-term, long-term and strategic goals, and increased shareholder value. Please read the “Compensation Discussion and Analysis” in this Proxy Statement for additional details about our executive compensation program, including information about the Fiscal Year 2010 compensation of our named executive officers.

 

Nordson’s long and consistent shareholder value creation over time is attributed to a rigorously-applied management process implemented over the years by successive teams of talented and committed executives. Our executive compensation program underpins and reinforces this process and the performance it generates. We believe the program strikes the appropriate balance between utilizing responsible, measured pay practices and effectively incentivizing our executives to dedicate themselves fully to value creation for our shareholders.

 

In support of this belief and reflective of the Compensation Committee’s diligent oversight of the executive compensation program, the Compensation Committee has adopted the following practices:

 

 

The Compensation Committee continually reviews the compensation programs for our executive officers to ensure they achieve the desired goals of aligning our executive compensation structure with our shareholders’ interests and current market practices.

 

We are asking our shareholders to indicate their support for our executive officer compensation program as described in this Proxy Statement. This proposal, commonly known as a “say-on-pay” proposal, gives our

shareholders the opportunity to express their views on our executive officers’ compensation. This vote is not intended to address any specific item of compensation or any single compensation philosophy, policy or practice, but rather the overall compensation of our executive officers as described in this Proxy Statement. Accordingly, we are asking our shareholders to vote “FOR” the following resolution at the Annual Meeting:

 

“RESOLVED, that the Company’s shareholders approve the compensation of the executive officers, as disclosed in the Company’s Proxy Statement for the 2011 Annual Meeting of Shareholders pursuant to the compensation disclosure rules of the Securities and Exchange Commission, including the Compensation Discussion and Analysis, the 2010 Summary Compensation Table and the other related tables and disclosure.”

 

While our Board of Directors and our Compensation Committee strongly value the opinions of our shareholders, the say-on-pay vote is advisory, and therefore not binding on the Company, the Compensation Committee or our Board of Directors. However, the Compensation Committee will consider the outcome of the vote when evaluating the effectiveness of our compensation program. In addition, to the extent there is a significant vote against the executive officer compensation program as disclosed in this Proxy Statement, particularly in the Compensation Discussion and Analysis which immediately follows Proposal 4, we will carefully consider our shareholders’ concerns and the Compensation Committee will evaluate whether any future actions will be necessary to address those concerns.

 

RECOMMENDATION REGARDING PROPOSAL 3:

 

THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS THAT YOU VOTE

“FOR” EXECUTIVE COMPENSATION.

 

PROPOSAL 4 — ADVISORY VOTE ON THE FREQUENCY OF
AN ADVISORY VOTE ON EXECUTIVE COMPENSATION

 

The Dodd-Frank Act also enables our shareholders to indicate how frequently we should seek an advisory vote on executive compensation similar to Proposal 3 included in this Proxy Statement. By voting on this Proposal 4, shareholders may indicate whether they would prefer an advisory vote on executive officer compensation every year, every two years, or every three years.

 

After careful consideration, our Board of Directors has determined that an advisory vote on executive compensation that occurs every year is the most appropriate alternative for Nordson, and therefore our Board of Directors recommends that you vote for a ONE-YEAR frequency for the advisory vote on executive compensation.

 

In formulating its recommendation, our Board of Directors considered that an annual advisory vote on executive compensation will allow our shareholders to provide us with direct input on our compensation philosophy, policies and practices as disclosed in the Proxy Statement every year. Additionally, an annual advisory vote on executive compensation is consistent with our policy of regularly seeking input from, and engaging in discussions with, our shareholders on corporate governance matters and our executive compensation philosophy, policies and practices. We understand that our shareholders may have different views as to what is the best approach for Nordson, and we look forward to hearing from our shareholders on this agenda item.

 

You may cast your vote on your preferred voting frequency by choosing the option of one year, two years, three years or abstain from voting when you vote in response to the resolution set forth below. Your vote is not considered a vote “FOR” or “AGAINST” the Board of Directors’ recommendation of an annual vote, but rather a vote for your preferred frequency.

 

“RESOLVED, that the option of one year, two years, or three years that receives the highest number of votes cast for this resolution will be determined to be the preferred frequency with which the Company is to hold a shareholder vote to approve the compensation of the executive officers, as disclosed pursuant to the Securities and Exchange Commission’s compensation disclosure rules (which disclosure shall include the Compensation Discussion and Analysis, the Summary Compensation Table, and the other related tables and disclosure).”

 

The choice among the three options included in the resolution which receives the highest number of votes will be deemed the choice of the shareholders. While our Board of Directors strongly values the opinions of our shareholders, the votes cast on Proposal 4 are advisory in nature and not binding on the Company or the Board of Directors. The Board of Directors will carefully consider the results of the votes on this Proposal, but it may decide that it is in the best interests of our shareholders and the Company to hold an advisory vote on executive compensation more or less frequently than the option approved by our shareholders.

 

RECOMMENDATION REGARDING PROPOSAL 4:

THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS THAT YOU VOTE
FOR THE OPTION OF ONCE EVERY YEAR AS THE FREQUENCY WITH WHICH SHAREHOLDERS
ARE PROVIDED AN ADVISORY VOTE ON EXECUTIVE COMPENSATION.

 

EXECUTIVE COMPENSATION

 

COMPENSATION DISCUSSION AND ANALYSIS

 

This Compensation Discussion and Analysis is presented in four parts:

 

Part I:  Introduction and Executive Summary.  In this section we highlight practices that support our “pay-for-performance” philosophy, actions taken by the Compensation Committee with respect to our executive compensation program for 2010 and financial performance that supported compensation awarded to our executive officers for 2010.

 

Part II:  Compensation Philosophy, Components of Our Executive Compensation Program and Analysis of Compensation Decisions for Fiscal Year 2010.  In this section we explain our compensation philosophy, compensation process and procedures, and components and elements of the compensation we provide to our executive officers. We also discuss and analyze the reasons why compensation was paid, the types of compensation paid and the amount paid.

 

Part III:  Compensation Committee Actions Related to Fiscal Year 2011 Executive Compensation.  In this section we discuss actions taken with respect to compensation of our executive officers for Fiscal Year 2011.

 

Part IV:  Policies Related to Executive Compensation.  In this section we review the policies we have adopted that relate to our executive compensation program — equity grant practices (including forfeiture and “clawbacks” of equity grants), shareholder ownership guidelines for executive officers and tax and accounting considerations.

 

We use the terms the “Committee,” “we,” “us,” and “our” interchangeably in reference to the Compensation Committee, or in the proper context, Nordson Corporation. In this Compensation Discussion and Analysis, all references to a year is intended to mean “fiscal year” unless otherwise indicated.

 

This Compensation Discussion and Analysis discloses future Company performance targets and goals. You should read and understand these targets and goals only as they relate to our executive compensation program. We are not providing these targets and goals as guidance or as statements of management’s expectations or estimates of our current or future results. We refer you to our Annual Report on Form 10-K for the year ended October 31, 2010 for additional information regarding 2010 financial results discussed in this Compensation Discussion and Analysis.

 

PART I: INTRODUCTION AND EXECUTIVE SUMMARY

 

In this Compensation Discussion and Analysis, we discuss and analyze the compensation we paid to our executive officers and in particular, our named executive officers, during 2010. Our named executive officers during 2010 were:

 

 

Mr. Campbell retired as our President and Chief Executive Officer effective January 15, 2010, and as an employee effective January 31, 2010. He retired as Chairman of the Board at our 2010 Annual Meeting of Shareholders. Mr. Hilton was elected as our President and Chief Executive Officer effective January 16, 2010.

 

Nordson is a performance-driven, financially and operationally focused company that has a long track record of consistently delivering increased value to our shareholders. Continuity, stability, and rigorous execution of our business plans — combined with a continuous drive to develop innovative solutions for our customers —

are hallmarks of our management team and management process. The foundation of our success and resulting value created for our shareholders are the stable, long-term relationships we have with our customers and focused capital investments that reap returns over the long term through technological superiority, cost control, and operational efficiencies. We have designed our executive officer compensation program to reward performance that creates long-term shareholder value; e.g., performance that results in sustainable growth, superior returns through disciplined capital investment, sustainable cost reduction, and consistent operational excellence. These values are reflected in our use of constant performance goals which are marked to specific growth measures each year; the long-term orientation of the compensation mix; the substantial linkage of executive officer compensation to long-term share performance; median pay positioning for average performance; and the consistency with which we administer our plans.

 

Executive Summary

 

Reflective of the Compensation Committee practices highlighted and discussed in Proposal 3 — Advisory Vote on Executive Compensation, summarized below is an overview of actions taken by the Compensation Committee with respect to executive compensation for 2010 and 2010 financial performance related to compensation paid to our executive officers:

 

Compensation Committee Actions

 

The following actions taken by the Committee for 2010 relate to the compensation of our executive officers:

 

 

Financial Performance Related to Fiscal Year 2010 Executive Compensation

 

Our performance in 2010 was fueled by the recovery from the global recession of 2009 and our ability to execute on all facets of our 2010 operating plan, as reflected in our earnings per share, return on capital, revenue growth, share price appreciation and total shareholder return performance:

 

 

 

 

 

Set forth in the table below is a comparison of Total Shareholder Return for the five years ended October 31, 2010 for the Company’s common shares, the S&P 500 Industrial Machinery Index, the S&P MidCap 400 Index and the S&P MidCap 400 Industrial Machinery Index.

 

Total Shareholder Return (%)*

 

 

 

 

PART II: COMPENSATION PHILOSOPHY, COMPONENTS OF OUR EXECUTIVE COMPENSATION PROGRAM AND ANALYSIS OF COMPENSATION DECISIONS FOR FISCAL YEAR 2010

 

Philosophy and Objectives of our Executive Compensation Program

 

We believe the executive officers should be paid and incented in ways that align their personal financial interests with the interests of our long-term shareholders, with a specific focus of aligning incentive opportunities with performance — a “pay-for-performance” philosophy. “Paying for performance” means that we pay our executive officers different types and amounts of compensation based on their successful implementation of the Company’s strategic objectives and the degree to which annual operational and financial goals are achieved.

 

The following strategic objectives provide the framework supporting our philosophy:

 

 

 

Processes and Procedures for Determining Executive Compensation

 

Role of the Compensation Committee

 

The Compensation Committee has primary responsibility for designing our executive compensation program and for making compensation decisions under the program. In fulfilling our duties and responsibilities for 2010, we sought input, advice and recommendations from an executive compensation consultant as well as recommendations from our Chief Executive Officer on the compensation and performance of our executive officers.

 

The compensation consultant (Mercer) provides us with peer proxy and survey benchmark data with respect to all elements of an executive officer’s total direct compensation: base salary, short-term cash incentive compensation, and long-term equity-based compensation. Included in the consultant’s review are longer-term analysis of our performance, including return on capital, earnings and revenue growth and total shareholder return, and how compensation paid to our executive officers compares to that of our peer and survey groups. It is our practice to set relative performance that will be retained through a full ten-year business cycle, not just for periods of one or three years. It is expected that positioning of target performance levels relative to actual peer company performance will vary through the ten-year business cycle.

 

Notably, we are not bound by the input, advice or recommendations we received from the executive compensation consultant or from our Chief Executive Officer. Instead, we at all times exercised independent judgment in making executive compensation decisions for 2010.

 

We met eight times in Fiscal Year 2010. We met in executive session to determine all elements of Mr. Hilton’s total compensation — base salary, short-term incentive compensation, and long term equity-based compensation. We reviewed the summary of compensation of chief executive officers of the peer group and considered Mercer’s recommendations in arriving at a base salary for Mr. Hilton and awarded short and long term incentive payouts based on Fiscal Year 2010 performance. Mr. Hilton did not offer any recommendations for his compensation.

 

Role of the Compensation Consultant

 

Mercer is a subsidiary of Marsh & McLennan Companies, Inc., a global professional services firm providing advice in the areas of risk, strategy and human capital. The lead consultant from Mercer reported directly and exclusively to our Committee Chairperson and provided objective support based on his expertise regarding current and emerging best practices with regard to executive compensation. Specifically, we asked Mercer to:

 

 

 

During 2010, Mercer received $147,764 for these services which also included providing survey data and advice regarding directors’ compensation. In addition, management engaged Mercer and its affiliate organizations to provide the following services which are unrelated to executive or director compensation:

 

 

Mercer and its affiliates received $171,473 for these additional services.

 

We have reviewed these additional services in the context of Mercer’s engagement to provide advice regarding our executive compensation program and determined that these services do not constitute a conflict of interest or prevent Mercer from being objective in the work Mercer performs for the Committee.

 

Role of Executive Management

 

Our Chief Executive Officer and Vice President, Human Resources reviewed Mercer’s analyses and assessments, developed initial recommendations for base salary adjustments and incentive compensation for our executive officers (other than our Chief Executive Officer) for 2010, and presented management’s initial recommendations. More specifically, our Chief Executive Officer and Vice President, Human Resources had the following roles in preparing management’s initial recommendations for 2010:

 

 

We reviewed Mr. Hilton’s recommendations regarding payouts under the short-term incentive compensation program and discussed them with Mercer. We believe that this review helped ensure that Mr. Hilton’s compensation recommendations were in line with the executive compensation program’s stated philosophy and objectives, and were reasonable when compared to the competitive market.

 

Benchmarking

 

Each year we establish our compensation peer group by selecting companies with revenues ranging in size from approximately twenty-five percent to slightly above two times our revenue, which have a significant portion of their business located or transacted internationally and which have a business focus on precision industrial manufacturing. For Fiscal Year 2010, our compensation peer group consisted of 15 publicly-traded companies listed below. Based on the most recent public reports available at the time we set Fiscal Year 2010 compensation (in December 2009), the median peer group revenues were $1,034.2 million compared to our 2009 revenues of $819.2 million. We are positioned below the median of the peer group in terms of revenue size.

 

 

Primary Compensation Allocation

 

Overall, the Committee seeks to provide a total direct compensation opportunity (base salary, short-term incentive awards, and long-term incentive and equity awards) for our executive officers that approximates the median value our peer group. Within the total direct compensation opportunity for any executive officer, individual components of compensation may be greater or lesser than the median, because the Committee is primarily concerned with the competitiveness of the entire program versus any one element of compensation. Actual compensation realized can vary significantly from the target opportunity for any component of compensation or for total direct compensation based on Company or individual performance and Company stock price fluctuation. Consistent with market practice, Mr. Hilton’s compensation is substantially more than that of other executive officers based on his level of responsibility. As part of the process for determining total direct compensation, we also review tally sheets which detail the value, earnings, and accumulated potential payout of each element of an executive officer’s compensation. The tally sheets help us in considering the retention value of an executive officer’s accumulated compensation package and compare executive officers’ accumulated compensation.

 

For 2010, the total target direct compensation for each named executive officer was set such that if we performed at the median of our peer group, each named executive officer’s total direct compensation would equal approximately the median of our peer group’s total target direct compensation for executive officers with comparable responsibilities. We chose this benchmark because the Company’s historical total shareholder return performance is slightly above the median of the peer group total shareholder return performance over a comparable business cycle. We believe that this methodology enables us to remain competitive in our markets without incurring unnecessary costs.

For 2010, the allocation among the elements of compensation supported our principles that: (i) a significant amount of pay should be variable, (ii) realized compensation should be significantly tied to performance, (iii) the portion of an executive officer’s total compensation that varies with performance should be a function of an executive officer’s responsibilities and ability to influence results and (iv) the economic interests of our executives should be aligned with our shareholders.

 

The following table depicts the allocation by compensation element as a percentage of total direct compensation (at target payout) among the primary elements of compensation for each of our named executive officers at the time we set compensation for 2010:

 

 

As the table reflects, Mr. Hilton’s target total direct compensation mix has a greater percentage of variable performance-based compensation than the target mix of the other named executive officers because of his greater influence on Company performance. Mr. Campbell’s allocation reflects an annualized allocation though he was employed for only three months of the fiscal year.

 

Summary Table — Components of Our Executive Compensation Program

 

Compensation of our named executive officers for 2010 consists principally of the elements identified in the following summary

table:

 

 

Components of Executive Compensation — Base Salary, Short- and Long-Term Incentives, Perquisites, Welfare and Retirement Benefits, and Change-in-Control Benefits

 

Base Salary

 

We pay base salaries to our executive officers to recognize and reward their experience, expertise, level of responsibility, seniority, leadership qualities, advancement, individual accomplishment and other significant contributions to the enhancement of shareholder value and our success. We review annually, but do not necessarily adjust the base salaries of our executive officers. Adjustments to salaries are used to reward individual performance of our executive officers on a day-to-day basis during the year and to encourage them to perform at their highest levels. We also use base salary to attract and retain top quality executives.

 

We set base salaries for each executive officer based upon his/her comparable position within the executive officer positions within our peer group as disclosed in proxy information or, if there are no comparable proxy position, for similar positions at similarly-sized companies using salary survey data. We typically consider the responsibilities, performance and experience of the executive officer; base salaries of comparable officers at peer companies; and the recommendations of our Chief Executive Officer for all executive officers other than himself.

 

2010 Actions and Analysis

 

In 2009, we accepted management’s recommendation that base salaries of our executive officers be frozen for Fiscal Year 2009. The recommendation, made at the time we set compensation for 2009, reflected our executive officers’ recognition of the impact the global recession was having on our employees and performance. For Fiscal Year 2010, we reinstated base salary increases in response to the upturn in performance we experienced in the last quarter of Fiscal Year 2009 and the prospects for recovery in Fiscal Year 2010.

Based on Mercer’s assessment and analysis of our performance and that of our peer group over a ten-year business cycle and consistent with Mercer’s recommendation, we revised our approach to setting target total direct compensation for each executive officer. We moved from target total direct compensation at the 65th percentile of the peer group to target total direct compensation at approximately the median of the peer group. Considering Mercer’s recommendation, and that of our Chief Executive Officer, we set individual base salaries of our named executive officers for Fiscal Year 2010 at a level both reflective of peer group base salary compensation and supportive of our objective of paying total direct compensation at the median for median performance. The base salary levels were determined by considering each officer’s seniority in position, experience, expertise, overall performance and contribution to the Company and market competitiveness.

 

We also eliminated the country club membership reimbursement perquisite and the car allowance afforded all U.S.-based executive officers. In lieu of the car allowance, we provided a one-time only supplement ($8,000) to increases in 2010 base salaries of our U.S.-based executive officers.

 

The following table illustrates the annualized base salaries of our named executive officers for 2010:

 

 

 

 

Short-Term Incentive Compensation

 

Our short-term incentive compensation is cash-based and designed to reward annual achievement of specific pre-established performance goals. In our judgment, these pre-established annual performance goals are sufficiently demanding to produce performance above the peer group median level with the intent of providing our long-term shareholders with an above-average return on their investment. We must certify that performance thresholds and any other material terms were met or exceeded prior to any payout being made.

 

Under our shareholder-approved short-term Management Incentive Compensation Plan, each executive officer is eligible to receive for any fiscal year a maximum incentive award equal to 1.5% of our operating cash flow for that fiscal year, but in no event shall such incentive award exceed $2,000,000.

 

In setting payout opportunities, we consider Mercer’s analysis of peer group short-term incentive payout levels and set quantitative measures for the incentive compensation opportunity for our executive officers as a percentage of their annualized base salaries. These payout values have been historically set such that the maximum payout will be significantly below that permitted under the Management Incentive Compensation Plan.

 

2010 Actions and Analysis

 

As with base salaries, we reinstated the short-term incentive opportunity for our executive officers based on the upturn in performance we experienced in the last quarter of Fiscal Year 2009 and the prospects for recovery in Fiscal Year 2010. We recognized the impact of setting 2010 targets and performance goals based

on negative earnings per share results in 2009 would render meaningless our historical absolute metrics of setting performance measures based on growth over actual results from the prior fiscal year. Consequently, we exercised our authority under the shareholder approved Long-Term Performance Plan to exclude the negative and distorting effect of the $7.08 per share charge recognized in 2009 for impairment of goodwill and other long-lived assets from targets and performance goals set for the 2010 annual plan.

 

We revised our method for calculating return on capital for 2010 to motivate management to pursue acquisitions that may pay lower returns initially while maintaining high returns on existing capital. Under this revised method, a capital charge is applied to unamortized goodwill associated with acquisitions occurring subsequent to 2009, and capital is net of cash, marketable securities and such post-2009 unamortized goodwill.

 

The performance payout opportunities for the named executive officers as a percentage of their annualized base salaries were:

 

 

For comparison purposes, Mr. Campbell’s allocation percentages reflect those in place for 2009, the last full fiscal year he served as our Chief Executive Officer.

 

We established two performance measures by which to measure short-term incentive compensation performance levels and payouts: diluted earnings per share growth and return on capital. We consider earnings per share growth and return on capital to be performance measures critical to our financial performance and profitable growth because each of these measures offers the proper balance between growth and profitability. As a result, we have weighted each performance measure evenly in terms of determining short-term cash incentive compensation payouts. More specifically:

 

 

The choice of these performance measures aligns the interests of our executive officers with those of our long-term shareholders because we believe achieving greater return on capital and earnings per share growth over time will drive improved shareholder return and foster maximum value for our assets.

 

Threshold, target and maximum quantitative performance levels and performance actually achieved for each measure for 2010 were:

 

 

 

 

For 2010, the Company’s operating cash flow was $301,519,000, yielding a maximum opportunity of $4,523,000 for each participant if the $2,000,000 maximum award cap was not in place. Based on our

achieving performance that exceeded the maximum performance level established for each performance measure, and after considering Mercer’s analysis and assessment and Mr. Hilton’s recommendation, we determined individual payouts under the short-term incentive compensation plan for Messrs. Thaxton, Keane, Lambert and Bloomfield would be at the maximum amount, which is significantly below the $2,000,000 permissible maximum payout under the Management Incentive Compensation Plan.

 

Mr. Hilton’s Compensation

 

In determining Mr. Hilton’s short-term incentive plan payout, we first considered the Company’s extraordinary financial performance under his leadership when compared to Fiscal Year 2009. In addition to financial performance, the Committee evaluated Mr. Hilton’s day-to-day performance in his first year as our Chief Executive Officer. Mr. Hilton provided exceptional, consistent leadership of his executive team resulting in achieving the following non-exhaustive list of accomplishments:

 

 

These accomplishments contributed to our decision to make a short-term incentive payment to Mr. Hilton equal to the maximum payout value.

 

The following table sets forth information for 2010 short-term cash incentive compensation for each of our named executive officers: payout opportunity at threshold, target and maximum performance levels; actual aggregate payout and actual aggregate payout as a percentage of aggregate target:

 

 

 

 

Long-Term Incentive Compensation

 

We use equity compensation to align our named executive officers’ interests with those of our shareholders and to attract and retain high-caliber executives through recognition of anticipated future performance. Under our Long-Term Performance Plan we can grant a variety of share-based awards, including performance share units and stock options. Our Chief Executive Officer makes annual recommendations to the

Compensation Committee of the type and amount of equity awards for the executive officers. Because all components of the long-term incentive opportunity are delivered in Company shares, they all become more or less valuable with changes in shareholder value. In recent years the Committee has selected two balanced components for the executive officer’s long-term incentives: stock options to directly reward executives for increases in stock price and performance share units which are conditioned on performance over a three-year period to provide focus on our longer-term goals — cumulative revenue growth and cumulative earnings per share growth.

 

We set the target dollar values of long-term incentives such that total direct compensation is at the median of similar compensation awarded by the peer group. The three-year performance period measures we use and the goals we set for the performance share opportunity are based on our long-term strategic objectives in effect at the time the measures and goals are set. We set the total long-term incentive opportunity and then allocate approximately 50% of the total target value of each executive officer’s long-term incentive compensation to stock options and approximately 50% to the performance share opportunity. This allocation balances the opportunity between performance shares, which are earned based on long-term financial, operational and strategic measures, and stock options, the value of which is based on long-term performance of our common shares.

 

We do not allocate an unbalanced percentage to stock options to avoid any appearance that the executive compensation program is a positive or negative indicator of current common share value or anticipated common share performance. We fix the exercise price of an option (the price at which the shares may be purchased) at the fair market value on the grant date. Thus, an option becomes more valuable as the price of our common shares increases. Alternatively, an executive officer will not receive any value from a stock option if the price of our common shares decreases below the exercise price of the option. Stock options are also a valuable retention tool because our option grants vest over a period of time and, with a few limited exceptions, unvested options are forfeited if an executive officer’s employment terminates.

 

Performance share units entitle the recipient to receive one share of Nordson common stock for each performance share unit upon the satisfaction of performance objectives and other conditions to earning the award. Performance share units are granted each year with three-year performance cycles. The awards are paid out at the end of the three-year period based on performance, if threshold performance levels are achieved.

 

Under our Long-Term Incentive Plan, each executive officer is eligible to receive for any fiscal year a maximum aggregate payout value equal to 1.0% of our operating cash flow during a performance period, but in no event shall such payout have a value greater than $4,000,000.

 

2010 Actions and Analysis

 

We considered Mercer’s annual analysis and assessment in setting the level of long-term incentive compensation for Fiscal Year 2010 at the beginning of the fiscal year. We established an intended long-term incentive value for each named executive officer with reference to the total direct compensation opportunity targets for the named executive officers. The actual value realized may differ significantly (up or down) from the intended value due to our share price performance over the life of the awards, and the extent to which performance targets are met. When setting these intended values, we considered the peer group competitive data, individual performance, relative experience, and target total direct compensation opportunities for each named executive officer. As noted above, the expected value of the total combined long-term incentive compensation awards to executive officers, when performance meets targets, is generally intended to approximate the median of the peer group, although specific positioning may differ by individual.

 

Performance Shares

 

2010-2012 Performance Period.  At the beginning of the fiscal year, we set performance goals for the 2010-2012 long-term incentive opportunity. Performance share units were granted conditioned upon the Company’s three-year performance towards the cumulative earnings per share and cumulative revenue for the three-year performance period. We exercised our discretion under the Long-Term Incentive Plan and set

the quantitative measures for the long-term incentive compensation opportunity for our executive officers such that the maximum payout would be significantly below that permitted under the Long-Term Incentive Plan. The number of performance share units granted for each of the named executive officers at the threshold, target and maximum performance levels are as follows:

 

 

 

 

The 2010-2012 performance period threshold, target, and maximum cumulative earnings per share growth and cumulative revenue growth performance measures are:

 

 

These measures were chosen because they offer a balance between growth in the size of the Company, as measured by revenue, and profitable growth. As a result, we weighted each performance measure evenly in terms of determining opportunity payouts. More specifically,

 

 

We believe these two measures together align the interests of our executive officers with those of our shareholders because achieving sustained earnings per share growth and revenue growth over time will drive improved shareholder return and foster maximum value for our assets.

2008-2010 Performance Period.  In December 2007, we established the following threshold, target, and maximum cumulative earnings per share growth and cumulative revenue growth performance measures for the 2008-2010 performance period:

 

 

These measures were chosen for the same reasons expressed above with respect to the 2010-21012 Performance Period.

 

For the 2008-2010 performance period, the Company’s operating cash flow was $301,519,000, yielding a maximum award opportunity of $3,015,000 for each participant. Reflecting the impact that the global recession had upon our business in 2009, the second year of the 2008-2010 performance period, the Committee confirmed performance for the period at 80.5% of the plan’s aggregate target. For the cumulative earnings per share growth measure, performance was at 80.5% of target; for the cumulative revenue growth measure, performance was below threshold. Cumulative earnings per share for the three-year period were $10.34, which is equivalent to a constant annual growth rate of 11.56% over the three-year performance period. Cumulative revenue for the three-year period was $2,986,000,000, which is equivalent to a .08% constant annual growth rate over the three-year performance period. In addition and consistent with our authority to exclude certain one-time charges or benefits in determining performance results and payouts, in determining payouts for the 2008-2010 Long-Term Incentive Plan we excluded the negative and distorting effect of the $7.08 per share charge recognized in 2009 for impairment of goodwill and other long-lived assets and also the tax benefit in the amount of $.31 per share associated with the write-off of our tax basis in UV graphics arts product lines which were sold in 2010.

 

The following table sets forth information for the 2008-2010 long-term incentive opportunity for each of our named executive officers: potential payout (in number of share units) at threshold, target and maximum levels; and actual payouts (rounded to the nearest whole share) and value of the payout determined using the closing share price on December 7, 2010 — $86.63

 

 

 

 

The payout was significantly below the maximum amount permitted under the Long-Term Incentive Plan and well below the maximum payout opportunity we set for the performance period.

 

Stock Options

 

We granted stock options for 2010 to our executive officers at our December 3, 2009 meeting, at the same time we granted options to other key employees under our Key Employee Stock Option Program. We chose to grant stock options at our early December meeting because we have historically granted stock options during this meeting, which is scheduled annually at this time to certify prior fiscal year performance results, determine incentive plan payouts and set compensation and performance goals for the next fiscal year.

The options granted to our named executive officers in 2010 represent 50% of the target long-term incentive; expire in ten years; have an exercise price equal to the closing price of our common shares on the grant date; and vest in 25% increments in each of the four years following the grant date.

 

The following table provides the number of stock options granted to our named executive officers for Fiscal Year 2010:

 

 

 

 

Restricted Shares

 

As discussed earlier in this Compensation Discussion and Analysis, executive officer base salaries were frozen for Fiscal Year 2009. In addition, our executive officers agreed at the beginning of the fiscal year to forgo any payouts under the short-term cash incentive opportunity, regardless of whether 2009 fiscal year performance eventually justified a payout for the opportunity. In recognition of management’s efforts in 2009 in implementing programs to address the global recession’s impact that resulted in strong operating results, share price appreciation in 2009 and total shareholder return of nearly 46%, and as a senior management retention tool, we made a special grant of restricted shares to our executive officers. Shares were granted July 7, 2010 and restrictions on transfer expire on a pro-rata basis each year for three years. While restrictions are in place, the executive officer is the beneficial owner of the shares and possesses all voting and dividend rights. Dividends are payable at the same rate as is paid on the Company’s common shares generally. These grants were in addition to customary 2010 compensation for these executives.

 

The special grant was made after receiving advice from Mercer, and we chose to grant time-vested restricted shares instead of a discretionary cash bonus consistent with the purpose of awarding performance shares under the Long-Term Incentive Plan — aligning executive officers’ interest with that of our long-term shareholders — and to retain the long-term element focus of the long-term incentive opportunity. The value of the grant was determined by reference to the approximate value of the long-term incentive performance share opportunity in 2009 and intended to support achievement of the share ownership requirements.

 

The following table provides information regarding the restricted share grant:

 

 

 

 

 

Executive Perquisites

 

We provide various perquisites to each of our executive officers to promote the business objectives facilitated by each perquisite described below. We also use these perquisites to help ensure that our executive compensation program remains competitive to allow us to attract and retain top executive talent.

 

Business Clubs.  We reimburse Mr. Hilton for a single private business club membership to encourage entertainment of business colleagues and customers, engaging in social interaction with peers from other companies, local leadership in the community and holding business meetings at a convenient offsite location. In addition, we provide all executive officers with memberships to airline travel clubs that allow them to be more productive when traveling on commercial airlines. The country club membership expense reimbursement perquisite ended effective with Mr. Campbell’s retirement. We do not reimburse any executive officer for personal expenses associated with the executive officer’s personal country club membership.

 

Financial, Estate, and Tax Planning and Preparation.  We pay or reimburse our executive officers for financial, estate and tax planning and preparation fees and expenses. The maximum reimbursement is $5,000 per calendar year. We provide this perquisite to assist our executive officers in obtaining high-quality financial counseling enabling them to concentrate on business matters rather than on personal financial planning.

 

Executive Physicals.  We pay for annual physicals for U.S.-based executive officers. We provide this perquisite as part of the overall preventive medicine program to help promptly identify and address medical issues and to preserve our investment in our executive officers by encouraging them to maintain healthy lifestyles and be proactive in addressing actual or potential health issues.

 

Automobiles.  We eliminated the car allowance perquisite for U.S.-based executive officers effective with the 2010 compensation program. In lieu thereof, we added a one-time base salary supplement for each U.S.-based executive officer of $8,000.

 

Relocation Expense Reimbursement.  We reimburse executive officers for expenses incurred in relocating at our request under a standard relocation policy for all employees which permits certain expenses to be grossed up in accordance with Internal Revenue Service guidelines. As part of the employment agreement we have with Mr. Hilton, we also agreed to reimburse Mr. Hilton for actual loss on the sale of his home up to $500,000. Mr. Hilton was reimbursed $422,200 under this obligation. This payment was not grossed-up for income tax purposes.

 

Attributed costs of these perquisites for our named executive officers during 2010 are included in the “All Other Compensation” column of the Summary Compensation Table for Fiscal Year 2010.

 

Welfare and Retirement Benefits

 

Medical, Disability and Life Insurance Benefits

 

Our U.S.-based executive officers participate in a Company-sponsored health care plan for U.S.-based employees that provides medical, vision and dental insurance and prescription drug coverage. We also offer group life insurance and short-and long-term disability plans that cover all U.S. salaried employees.

 

Retirement Benefits

 

401(k) Plan.  Our executive officers are eligible to participate in a Company-sponsored 401(k) tax-qualified retirement savings plan for all U.S.-based employees. We match employee contributions $0.50 on the dollar for the first 6% of contributed compensation. Employee contributions to the 401(k) plan vest immediately, while matching contributions vest in increments based on years of service, with participants being fully vested after three years of service.

The amounts of our matching contributions to the 401(k) plan accounts of our named executive officers are included in the “All Other Compensation” column of the Summary Compensation Table for Fiscal Year 2010 in this Proxy Statement.

 

Deferred Compensation Plan.  We sponsor a non-qualified, unfunded and unsecured deferred compensation plan for U.S.-based executive officers. We believe this type of plan helps us compete effectively for executive talent because many other companies offer this type of benefit. A detailed description of our deferred compensation plan and information regarding contributions to those plans is provided in the “Non-Qualified Deferred Compensation for Fiscal Year 2010” table and the accompanying narrative and footnotes in this Proxy Statement.

 

Defined Benefit Pension Plan.  Our executive officers participate in a Company-sponsored tax-qualified pension plan for U.S.-based salaried employees. The pension plan is designed to work together with social security benefits to provide employees with 30 years of service retirement income that is approximately 55% of eligible compensation, subject to the Internal Revenue Service maximum monthly benefit. A detailed description of our pension plans for U.S.-based employees is provided in the narrative and footnotes to the “Pension Benefits for Fiscal Year 2010” table in this Proxy Statement.

 

Excess Defined Benefit Pension Plan.  This benefit restoration plan is an unfunded, non-qualified plan that provides benefits similar to the qualified defined benefit pension plan, but without the Internal Revenue Code earnings limitations. The plan is designed to provide retirement benefits to U.S.-based eligible participants as a replacement for those retirement benefits reduced by regulations under the Internal Revenue Code. Together, the defined benefit pension plan and excess defined benefit pension plan are intended to provide executive officers with retirement income at a level equivalent to that provided to all other employees under the defined benefit pension plan.

 

Mr. Hilton is not eligible for a benefit under the Company-sponsored defined benefit pension plan until he has five years of service. As a negotiated element of his employment agreement, we agreed to provide Mr. Hilton a supplemental non-qualified pension benefit in order to provide Mr. Hilton a retirement benefit until he becomes vested in the defined benefit pension plan. Under this supplemental benefit plan, Mr. Hilton is treated as if he were fully vested in the pension plan, solely in the event that Mr. Hilton experiences a termination due to death, disability, or without cause, or resignation with good reason (whether or not in connection with a change-in-control), as those terms are defined in the agreement, prior to becoming one hundred percent (100%) vested in the defined benefit pension plan. Once Mr. Hilton has accrued sufficient service to be fully vested, we have no obligation to provide the supplemental pension benefit.

 

Severance and Change-in-Control Retention Agreements

 

The only obligation we have to provide an executive officer with severance pay other than following a change-in-control is with Mr. Hilton. As part of the negotiated employment agreement with Mr. Hilton to become our President and Chief Executive Officer, we agreed to provide Mr. Hilton with a cash severance benefit in the event his employment is terminated by the Company without cause. “Cause” for this purpose is defined as committing an act of fraud, embezzlement, theft or other similar criminal act constituting a felony and involving Company business. We provided this benefit based on the benefit afforded Mr. Hilton’s predecessor and for purposes of securing and retaining Mr. Hilton’s services.

 

Upon a termination by us without cause, in addition to payment of any accrued and unpaid compensation and benefits, Mr. Hilton is entitled to post-termination payments and benefits as follows:

 

(a) an amount equal to (i) two (2) times his annual base salary at the rate in effect on the date of termination, plus (ii) an amount equal to two (2) times the greater of: (x) ninety percent (90%) of his annual base salary, or (y) his target bonus payable in the fiscal year in which a termination occurs;

 

(b) a pro-rated amount of his annual bonus for such fiscal year based upon actual performance in such fiscal year, as determined at the end of the applicable performance period;

(c) a pro-rata payout of awards granted Mr. Hilton under the Long-Term Performance Plan for any performance period(s) not completed on the date of termination, based upon actual performance in each such applicable performance period, as determined at the end of the applicable performance period;

 

(d) full vesting in his benefit under the supplemental pension benefit described above and expiration of any restrictions on transfer of the initial equity grant or subsequent restricted common share grants; and

 

(e) continuation of health care and welfare benefits for a period of twenty four (24) months following the date of termination.

 

We will not gross-up any tax imposed upon any payment received by Mr. Hilton under his employment agreement.

 

We believe that the occurrence, or potential occurrence, of a change-in-control transaction in which we are the target could create substantial uncertainty regarding the continued employment of our executive officers. Therefore we have entered into change-in-control retention agreements with our executive officers in order to (i) retain these key executives during periods of uncertainty; (ii) enable these executives to evaluate, negotiate and execute a change-in-control transaction more objectively; (iii) encourage these executives to remain focused on running the business rather than seeking other employment in the event of a possible change-in-control; and (iv) preserve shareholder value by providing continuity of management during a transition period.

 

Upon the occurrence of a change-in-control, outstanding stock option grants to executive officers vest immediately, and any restrictions on share grants in effect on the date of a change-in-control lapse immediately. We believe that the acceleration of vesting for outstanding stock options and restricted shares is appropriate because, depending on the structure of a change-in-control transaction, continuing such awards may unnecessarily complicate a potentially beneficial transaction and it may not be possible to replace such awards with comparable awards of the acquiring company’s stock. The accelerated vesting also provides our executive officers and employee option holders with the same opportunities as our other shareholders who are free to realize the value created at the time of the transaction by selling their shares. We believe that accelerating these equity awards upon a change-in-control is appropriate to (i) minimize the risk that executive officers might favor a transaction based on the likely impact on the executive officer’s equity awards, (ii) increase the likelihood that executive officers will remain with us after becoming aware of a pending or threatened change-in-control, and (iii) address the increased likelihood that executives may be terminated by a successor through no fault of their own.

 

We believe that a termination by the executive for good reason in connection with a change-in-control transaction may be conceptually the same as a termination by us without cause in certain circumstances. Recognizing that, in the context of a change-in-control, potential acquirers would otherwise have an incentive to constructively terminate our named executive officers’ employment to avoid paying severance, we believe it is appropriate to provide severance benefits in these circumstances as well. In the event of a change-in-control, executive officers are entitled to a gross-up for any excise taxes imposed on the change-in-control benefits by federal income tax laws. We believe that the mitigation of the cost of excise taxes for our executive officers is necessary to preserve the benefits they are entitled to. This approach protects the value of compensation already awarded to the executive officers, and eliminates any potential personal bias against a change-in-control transaction.

 

We believe our change-in-control policy allows us to be competitive in this aspect of our compensation program. We consider the benefits offered under the retention agreements to be reasonable and appropriate for executive officers who may not be in a position to obtain readily comparable employment. We do not believe that named executive officers should be entitled to receive cash severance benefits merely because a change-in-control transaction occurs. The payment of cash severance benefits is only realized only upon the occurrence of a “double trigger” — an actual or constructive termination of employment within two years following a change-in-control.

Our change-in-control agreements and the associated potential payments and benefits are discussed in detail under the “Potential Payments Upon Termination or Change-in-Control” section of this Proxy Statement.

 

PART III: COMPENSATION COMMITTEE ACTIONS RELATED TO FISCAL YEAR 2011
EXECUTIVE COMPENSATION

 

At our December 7, 2010 meeting, we set 2011 base salaries and incentive compensation opportunities and performance measures. The base salary increases for the named executive officers range from 3.8% to 7.1%.

 

Performance measures for the short-term incentive plan are:

 

 

For the diluted earnings per share performance measure, the corresponding diluted earnings per share levels are: threshold — $4.60 per share; target — $5.06 per share; and maximum — $5.52 per share.

 

We also established the following threshold, target, and maximum cumulative earnings per share growth and cumulative revenue growth performance measures for the 2011-2013 Long-Term Incentive Plan:

 

 

For the cumulative earnings per share growth measure, the corresponding cumulative earnings per share levels are: threshold — $14.93 per share; target — $16.13 per share; and maximum — $18.04 per share. For the cumulative revenue growth measure, the corresponding revenue levels are: threshold — $3,448,000; target — $3,583,000 and maximum — $3,864,000.

 

Acting with the advice of and upon input received from Mercer, we incorporated a restricted share grant as an element of our executive officer’s long-term compensation. We view the restricted share grant program as an important management succession planning, retention and recognition tool. Restricted shares, along with share options, supplement performance shares to achieve the target of long-term compensation in approximately the median range of our peer group. Restricted shares represent 20% of our named executive officers’ total long-term compensation with stock options and performance shares accounting for 40% each of executive officers’ long-term compensation. Restricted shares provide participants with dividends and voting rights beginning on the award date.

 

We granted stock options, performance share units for the 2011-2013 Long-Term Incentive Plan, and restricted shares to our executive officers consistent with our equity grant policy in the following amounts: