UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

SCHEDULE 14A

Proxy Statement Pursuant to Section 14(a) of the Securities Exchange Act of 1934

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FEDERAL SIGNAL CORPORATION

(Name of Registrant as Specified In Its Charter)

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

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1415 West 22nd Street

Oak Brook, Illinois 60523

 

Notice of Annual Meeting of Stockholders

To Be Held on April 22, 2008

 

To the Stockholders of

Federal Signal Corporation:

 

The Annual Meeting of Stockholders of Federal Signal Corporation for the year 2008 will be held at the Regency Towers Conference Center, 1515 West 22nd Street, Oak Brook, Illinois on Tuesday, April 22, 2008, at 3:30 p.m., local time, for the following purposes:

 

 

The Board of Directors has fixed the close of business on February 26, 2008 as the record date for the meeting. This means that if you owned shares of our common stock on that date, you are entitled to receive this notice, and to vote at the meeting or any adjournment(s) of the meeting.

 

A copy of our Annual Report to our stockholders for the year ended December 31, 2007, a proxy statement and proxy card accompany this notice.

 

Your Board of Directors recommends that you vote FOR all nominees for director, FOR the approval of the independent registered public accounting firm, and AGAINST the stockholder proposal.

 

Important Notice Regarding the Availability of Proxy Materials for the Annual Meeting of Stockholders to be Held on April 22, 2008
The following materials, also included with this Notice, are available to be viewed, downloaded, and printed, at no charge, by accessing the following Internet address: http://www.federalsignal.com
1. Proxy Statement for the Annual Meeting of Stockholders, and
2. 2007 Annual Report to Stockholders
If you have any questions about accessing these materials via the Internet, please contact the Corporate Secretary at (630) 954-2008 or email us at info@federalsignal.com

 

YOUR VOTE IS IMPORTANT! You are urged to vote as promptly as possible in one of the following ways:

 

 

Instructions for voting are contained on the enclosed proxy card.

 

By order of the Board of Directors,

 

Jennifer L. Sherman
Corporate Secretary

 

March 19, 2008

TABLE OF CONTENTS

 

 

1415 West 22nd Street

Oak Brook, Illinois 60523

 

Proxy Statement for Annual Meeting of Stockholders
To Be Held on April 22, 2008

 

The Board of Directors of Federal Signal Corporation is furnishing this proxy statement to you in order to solicit your proxy for use at the Annual Meeting of Stockholders to be held at the Regency Towers Conference Center, 1515 West 22nd Street, Oak Brook, Illinois on Tuesday, April 22, 2008 at 3:30 p.m., local time, and any adjournment(s) of such meeting. The purpose of the Annual Meeting of Stockholders is:

 

 

This proxy statement and the accompanying proxy card were first mailed to stockholders on or about March 19, 2008.

 

By completing the enclosed proxy card, you can direct how your shares are to be voted at the Annual Meeting (for example, you can direct that your shares are to be voted “for” or “withheld” from the vote for each nominee for director). Each proxy will be voted as you direct on the proxy card. If you do not complete the voting directions on the proxy card (or with respect to any particular proposal), the persons named in the proxy card will vote your shares “for” proposals 1 and 2 and “against” proposal 3 (or the undirected proposal, as the case may be).

 

We will bear the costs of solicitation of proxies for the Annual Meeting. Following the original solicitation of proxies by mail, certain of our directors, officers and employees may solicit proxies by correspondence, telephone, e-mail, or in person, but will not receive any extra compensation for such solicitation work. We will reimburse brokers and other nominee holders for their reasonable expenses incurred in forwarding the proxy materials to the beneficial owners.

 

You will be entitled to vote at the meeting only if you held shares of our common stock of record at the close of business on February 26, 2008. You will be entitled to one vote for each share of common stock that you held in your name as of the record date. On the record date, there were 48,017,417 shares of common stock issued and outstanding.

 

A majority of the outstanding shares, present in person or by proxy, will constitute a quorum at the meeting. For purposes of determining if a quorum is present, we will count all proxies designated as “withholding authority” to vote for a nominee or nominees or “abstaining” from any proposal as shares represented at the meeting, as well as “broker non-votes”, which will be counted toward establishing the presence of a quorum. A “broker non-vote” occurs when a nominee (such as a broker) holding shares for a beneficial owner does not vote on a particular proposal because the nominee does not have discretionary voting power with respect to that item and has not received instructions from the beneficial owner. We will count abstentions as votes cast, but we will disregard broker non-votes for the purpose of determining whether a proposition has been approved.

 

Our By-Laws require a plurality of the votes cast for the election of directors, which means that in the election of directors the nominees with the largest number of votes cast will be elected as directors up to the maximum number of directors to be chosen at the meeting. As a result, designations on your proxy card that you are “withholding authority” for a nominee or nominees, and “broker non-votes” with respect to shares held for your

benefit will not have an effect on the results of the vote for the election of directors. The proposal to ratify the appointment of Ernst & Young LLP as our independent registered public accounting firm for 2008 and the stockholder proposal will each require the affirmative vote of a majority of the votes cast at the Annual Meeting for approval. Because these proposals require a majority of the votes cast for approval, an abstention will have the effect of a vote cast against these matters.

 

On February 26, 2008, our 401(k) Plan, which is called the Federal Signal Corporation Retirement Savings Plan, held 2,063,835 shares of our common stock in the name of Vanguard Fiduciary Trust Company, as trustee of the 401(k) Plan. If you are a participant in the 401(k) Plan, you may instruct Vanguard how to vote shares of common stock credited to your 401(k) Plan account by indicating your instructions on your proxy card and returning it to us by April 17, 2008. A properly executed proxy card will be voted as directed. If no proper voting direction is received, Vanguard, in its capacity as the 401(k) Plan Trustee, will vote your shares held in the 401(k) Plan in the same proportion as votes received from other participants in the 401(k) Plan.

 

You may revoke your proxy at any time before it is voted by filing a written notice of revocation or a later-dated proxy card with our Corporate Secretary, or by attending the Annual Meeting and voting your shares in person. Attendance alone at the Annual Meeting will not revoke a proxy.

 

The Securities and Exchange Commission has adopted rules that permit companies and intermediaries such as brokers to satisfy delivery requirements for annual reports and proxy statements with respect to two or more stockholders sharing the same address by delivering a single annual report and/or proxy statement addressed to those stockholders. This process, which is commonly referred to as “householding,” potentially provides extra convenience for stockholders and cost savings for companies. We and some brokers household annual reports and proxy materials, delivering a single annual report and/or proxy statement to multiple stockholders sharing an address unless contrary instructions have been received from the affected stockholders.

 

Once you have received notice from your broker or us that they or we will be householding materials to your address, householding will continue until you are notified otherwise or until you revoke your consent. You may request to receive at any time a separate copy of our annual report or proxy statement, by sending a written request to Federal Signal Corporation, 1415 West 22^nd Street, Suite 1100, Oak Brook, IL 60523, Attn: Corporate Secretary, or call 630-954-2008.

 

If, at any time, you no longer wish to participate in householding and would prefer to receive a separate annual report and/or proxy statement in the future, please notify your broker if your shares are held in a brokerage account or us if you hold registered shares. You can notify us by sending a written request to Federal Signal Corporation, 1415 W. 22^nd Street, Suite 1100, Oak Brook, IL 60523, Attn: Corporate Secretary, or call 630-954-2008. If, at any time, you and another stockholder sharing the same address wish to participate in householding and prefer to receive a single copy of our Annual Report and/or proxy statement, please notify your broker if your shares are held in a brokerage account or us if you hold registered shares. You can notify us by sending a written request to Federal Signal Corporation, 1415 West 22^nd Street, Suite 1100, Oak Brook, IL 60523, Attn: Corporate Secretary, or call 630-954-2008.

 

The following table sets forth information as of February 26, 2008 with respect to beneficial ownership of our common stock by:

 

 

 

 

 

 

Our Company’s Board of Directors consists of nine directors divided into three classes. However, pursuant to the terms of a settlement agreement (the “Settlement Agreement”) reached with Ramius, L.L.C. and certain individuals and entities affiliated with it (collectively, “Ramius Group”), effective as of the date of our Annual Meeting, the Board of Directors will be increased to ten directors (see page 7 of this proxy statement for a description of the Settlement Agreement) such that Class I will consist of 3 members, Class II will consist of 3 members and Class III will consist of 4 members. Each class is elected for a term of three years, and the classes together are staggered so that one class term expires each year.

 

Charles R. Campbell, Paul W. Jones, and Brenda L. Reichelderfer are each currently directors standing for re-election and nominated as a Class III director for election at this Annual Meeting for a term of three years to expire at the 2011 Annual Meeting or until his or her successor is elected and qualified. Dennis J. Martin, recommended to the Board of Directors by Ramius Group, was appointed to fill the Class I director vacancy on March 12, 2008. Mr. Martin has been nominated as a Class III director for election at this Annual Meeting, which Class III directorship resulted from the increase in the size of our Board from nine to ten members. As a Class III director, Mr. Martin would also serve for a term of three years to expire at the 2011 Annual Meeting or until his successor is elected and qualified. All of the nominees have been recommended for nomination by the Board of Directors acting on the recommendation of the Corporate Governance Committee of the Board of Directors, which consists solely of independent members of the Board of Directors.

 

If Mr. Martin is elected as a Class III director at the Annual Meeting, there will be one vacancy on the Board of Directors in Class I. Generally, existing directors are granted the power to fill a vacancy that occurs on the Board, and any director so elected is entitled to serve until the next regularly scheduled annual meeting of stockholders. Under the Settlement Agreement, Ramius Group has certain rights to recommend a qualified director to fill the Class I vacancy as further described below under “The Ramius Group Settlement Agreement.”

 

If on account of death or unforeseen contingencies a nominee is not available for election, the persons named in the proxy will vote the proxy for such other person(s) as the Corporate Governance Committee may nominate as directors so as to provide a full board. In the election of the directors, the nominees receiving the largest number of votes cast will be elected as directors up to the maximum number of directors to be chosen at the meeting.

 

The Board of Directors recommends a vote FOR the election of Ms. Reichelderfer and Messrs. Campbell, Jones and Martin as Class III directors.

 

Information regarding the nominees for election and the directors continuing in office is set forth below:

 

 

 

 

In December 2007, Ramius Group filed a Schedule 13D reporting a 7.4% ownership interest in our common stock. Thereafter, Ramius Group advised us that it may nominate a slate of nominees for election to our Board of Directors at our 2008 Annual Meeting and solicit proxies for the election of its slate of nominees at such meeting. On March 12, 2008, the Company and Ramius Group entered into a Settlement Agreement settling the potential election contest.

 

Pursuant to the terms of the Settlement Agreement, Mr. Martin was appointed to fill the Class I vacancy on our Board of Directors upon a determination that Mr. Martin was qualified to serve as a member of the Board and that he was “independent” as defined by the applicable New York Stock Exchange listing rules. Further, effective as of the date of our Annual Meeting, the Board of Directors will be increased from nine directors to ten directors with the new directorship being a Class III position. The Company agreed to nominate Mr. Martin for election as a Class III director to fill the new position resulting from the increase in the size of the Board. Following our Annual Meeting, Ramius Group has the right to recommend to the Board of Directors a person who meets the qualifications of an independent director to fill the Class I vacancy on the Board resulting from the increase in the size of the Board, and nomination of Mr. Martin to serve as a Class III director. Until the Class I vacancy is filled, Ramius Group has the right to appoint an observer to our Board of Directors. The Settlement Agreement requires Ramius Group to vote its holdings in favor of the election to the Board of the nominees contained in this proxy statement and in favor of ratification of the appointment of the Company’s independent registered public accounting firm. Ramius Group further agreed that it will not bring any other business before our 2008 Annual Meeting.

 

The Company has also agreed to appoint Mr. Martin to any special committees that may be established during his term as a director on the Board, provided that Mr. Martin meets applicable qualification requirements for service on such committee. In addition, the Board has agreed that, once appointed to the Board, the Ramius Group nominee for the Class I directorship will be appointed to serve on the Board’s Chief Executive Officer Search Committee.

 

We filed a complete copy of the Settlement Agreement as Exhibit 10 to our Current Report on Form 8-K filed with the Securities and Exchange Commission on March 13, 2008.

 

 

 

The Board of Directors has determined that all of our directors, except James E. Goodwin while serving as an interim officer of our Company, qualify as independent directors. In making this determination, the Board of Directors considered the rules of the New York Stock Exchange and the Securities and Exchange Commission, and reviewed information provided by the directors in questionnaires and other certifications concerning the relationships that we may have with each director (including each director’s immediate family members and other

associates), including any charitable contributions that we may have made in the past and/or continue to make to organizations with which such director is affiliated.

 

During 2007, our Board of Directors held a total of seventeen meetings. The Compensation and Benefits Committee held seven meetings; the Corporate Governance Committee held five meetings; the Audit Committee held five meetings; and the Executive Committee held one meeting. Our By-Laws require each director to regularly attend meetings of the Board of Directors and of all Board Committees upon which the director serves. Each director attended at least 75% of the meetings of the Board and of each Committee of which he or she was a member. In addition, all of our directors attended our 2007 Annual Meeting of Stockholders.

 

Pursuant to our By-Laws, we have established standing Audit, Corporate Governance, Compensation and Benefits, and Executive Committees. The Board has also established a Chief Executive Officer Search Committee to conduct and oversee the search for our new Chief Executive Officer. The members of this Committee are Messrs. Goodwin, Campbell, Janning and McCartney. The Committee members will be paid a $5,000 retainer for their services. A description of our standing committees follow.

 

Audit Committee   The Audit Committee of the Board of Directors is responsible for monitoring:

 

 

In fulfilling its role, the Audit Committee reviews the design and operation of internal control processes and the manner in which we control our major financial risk exposures. The Audit Committee has direct and regular access to our financial executives, including the internal auditor, the Chief Financial Officer, and the independent registered public accounting firm. The Audit Committee has the sole authority to appoint or replace our independent registered public accounting firm, and is directly responsible for overseeing the work of and determining the appropriate compensation for our independent registered public accounting firm. In addition, the Audit Committee considers and approves the performance of non-audit services by our independent registered public accounting firm, taking into consideration the effect that the performance of these services may have upon the independence of the independent registered public accounting firm.

 

Our By-Laws prohibit a director who is also an employee of our Company from serving on the Audit Committee. The Board of Directors has determined that all of the members of the Audit Committee are independent as defined under the applicable New York Stock Exchange and Securities and Exchange Commission rules. The members of the Audit Committee are Charles R. Campbell (Chairman), Robert M. Gerrity, Robert S. Hamada and James C. Janning. James E. Goodwin was a member of the Audit Committee until December 11, 2007, when he was appointed the interim President and Chief Executive Officer of our Company. The Board of Directors has determined that Mr. Campbell qualifies as an “audit committee financial expert” as defined by the Securities and Exchange Commission. None of the Audit Committee members serves on more than three public companies’ audit committees (including our Company).

 

The Board of Directors has adopted a revised Charter for the Audit Committee to comply with the requirements of the New York Stock Exchange and the Sarbanes-Oxley Act of 2002, a copy of which is available on our website at http://www.federalsignal.com.

 

Corporate Governance Committee  The Corporate Governance Committee is responsible for recommending guidelines to the Board of Directors for corporate governance, including the structure and function of our Board of Directors, its Committees and the management of our Company, as well as identification and recommendation to the Board of Directors of candidates to be elected as directors. The Committee also determines the appropriate compensation for serving as a member of our Board of Directors.

 

Stockholders may recommend individuals to the Corporate Governance Committee for consideration as potential directors by giving written notice to our Corporate Secretary at least 30 days prior to the stockholders’ meeting along with the following information with respect to the nominee: name, age, business and residence addresses, principal occupation or employment; the number of shares of our common stock beneficially owned by the stockholder(s) nominating such nominee; and a consent by the nominee to serve as a director if elected that would be required for a nominee under the Securities and Exchange Commission rules. The Committee has not

adopted any specific procedures for considering the recommendation of director nominees by stockholders, but will consider stockholder nominees for new directorship on the same basis as other nominees.

 

The Committee has set no specific minimum qualification for a nominee to the Board of Directors although under our Corporate Governance Guidelines, no person may stand for election as a director after attaining age 68 without a waiver from the Board. Generally, in evaluating a director candidate, the Committee considers the current make-up of the Board of Directors, the skills and business experience of the particular nominee, and the potential value the nominee would add to the Board of Directors. The Board of Directors has determined that all of the members of our Corporate Governance Committee are independent as defined under the applicable New York Stock Exchange rules. The members of the Corporate Governance Committee are Robert S. Hamada (Chairman), James C. Janning, Robert M. Gerrity, and Brenda L. Reichelderfer.

 

The Board of Directors has adopted a Charter for the Corporate Governance Committee to comply with the requirements of the New York Stock Exchange and the Sarbanes-Oxley Act of 2002, a copy of which is available on our website at http://www.federalsignal.com.

 

Compensation and Benefits Committee  The Compensation and Benefits Committee is responsible for the establishment and oversight of our Company’s compensation and benefits philosophy. With respect to our executive officers, the Committee has the authority to establish the objectives of compensation, to determine the components of compensation, and to establish and evaluate performance goals. The functions of the Committee are further described in this proxy statement under the heading “Compensation Discussion and Analysis” beginning at page 13. The Board of Directors has determined that all of the members of our Compensation and Benefits Committee are independent as defined under the applicable New York Stock Exchange rules. The members of the Compensation and Benefits Committee are John F. McCartney (Chairman), Charles R. Campbell, Paul W. Jones and Brenda L. Reichelderfer.

 

The Board of Directors has adopted a Charter for the Compensation and Benefits Committee to comply with the requirements of the New York Stock Exchange and the Sarbanes-Oxley Act of 2002, a copy of which is available on our website at http://www.federalsignal.com.

 

Executive Committee  The Executive Committee generally exercises the power and authority of the Board in the intervals between full Board meetings. The members of the Executive Committee are James E. Goodwin (Chairman), Robert S. Hamada, John F. McCartney, Charles R. Campbell and James C. Janning. Mr. Goodwin joined the Executive Committee on December 11, 2007.

 

The following table sets forth information concerning compensation earned by our non-employee directors in fiscal year 2007. Mr. Welding, our former President and Chief Executive Officer, served as a director of our Company until December 11, 2007 and retired from our employment on January 1, 2008. His 2007 compensation is disclosed in the Summary Compensation Table for executive officers because he was a named executive officer for purposes of this proxy statement until his resignation and did not receive additional compensation for his service as a director. Mr. Goodwin served as a director through 2007 and his 2007 director compensation is set forth in the table below. On December 11, 2007, Mr. Goodwin was appointed the interim President and Chief Executive Officer of our Company, at which time he stopped receiving compensation as an independent director. His compensation as an executive officer for 2007 is disclosed in the Summary Compensation Table for executive officers.

 

Non-Employee Director Compensation in Fiscal Year 2007

 

 

 

The Corporate Governance Committee of our Board of Directors establishes the annual compensation packages for our non-employee directors. In order to set competitive compensation for our non-employee directors, our Corporate Governance Committee may consult third party advisors, generally available source material, proxy statements and data from peer companies.

 

Our non-employee directors receive both cash and equity compensation as detailed below. In July 2007, the Corporate Governance Committee, based upon research provided by Hewitt Associates, an outside global human resources consulting firm, revised certain elements of the cash and equity compensation components for our non-employee directors to increase the competitiveness of the program. Our Chairman, based on his key role, receives additional compensation in cash and equity, based in part on time spent on Board matters.

 

Pursuant to our director stock ownership program, each non-employee director who does not own shares of our common stock equal in value to at least three times the annual retainer paid to non-employee directors is required to receive at least 50% of annual fees earned in any given year in stock.

 

Cash Compensation of Our Non-Employee Directors(1)

 

 

 

 

Upon election, each non-employee director receives an initial stock option grant to purchase 5,000 shares of our common stock, subject to a three year pro-rata vesting schedule. Additionally, each non-employee director receives an annual equity award. Initially in 2007, the total equity compensation provided to each non-employee director, including our Chairman, was comprised of equity awards equivalent to approximately $40,000, which amount was split equally between restricted stock awards and stock options. The restricted stock awards and stock options have a three year pro-rata vesting schedule. The restricted stock award portion of the equity award was awarded on the date of our 2007 Annual Meeting of Stockholders, April 24, 2007, and the award value of $16.27 per share was determined based on the closing price of our common stock on such date. Accordingly, for 2007, the restricted stock award portion of the equity award to each non-employee director was 1,229 shares of common stock. The stock option portion of the equity award was comprised of a stock option grant of 3,337 shares of common stock having a value of approximately $20,000 based on a Black-Scholes calculated value, in accordance with the requirements of SFAS 123(R).

 

The Chairman also received an additional $10,000 of equity compensation, which amount was split equally between stock awards and stock options, also subject to a three year pro-rata vesting schedule. This equity award was also made on April 24, 2007 and was comprised of a stock option grant for the number of shares of common stock having a value of approximately $5,000, based on a Black-Scholes calculated value, with an exercise price

equal to the closing market price of the common stock on April 24, 2007 and a restricted stock grant having an award value of $5,000 based on the closing stock price of our common stock on that date (i.e., $16.27). This amounted to a stock award of 308 shares of common stock, and a stock option grant of 809 shares of common stock with an exercise price of $16.27 per share.

 

On July 31, 2007, the equity compensation payable to each non-employee director (other than the Chairman of the Board) was revised to also include an annual grant of our common stock on the date of each annual stockholders’ meeting. The number of shares of the annual award is determined by dividing $60,000 by the closing market price of our common stock on the date of grant. Similarly, the equity compensation payable to the Chairman of the Board was revised to also provide for an annual grant of our common stock on the date of each annual stockholders’ meeting. The number of shares of this award is obtained by dividing $75,000 by the closing market price of our common stock on the date of grant.

 

As the July 31, 2007 increase in equity compensation was effective immediately, the non-employee directors received a pro-rata distribution of the newly approved annual grant as compensation for director services for the remainder of 2007. The grant occurred on July 31, 2007 and resulted in a stock award to each non-employee director (other than the Chairman of the Board) of 1,240 shares of common stock and a stock award of 1,561 shares to the Chairman of the Board. The closing share price of our common stock on the date of grant was $13.45.

 

We are committed to good corporate governance. We believe that the foundation of our corporate governance is the independence of our directors, responsible corporate citizenship, and a commitment to the interests of our stockholders. In accordance with the requirements of the New York Stock Exchange and the Sarbanes-Oxley Act of 2002, our Board of Directors has adopted Corporate Governance Guidelines as well as charters for the Corporate Governance Committee, the Compensation and Benefits Committee and the Audit Committee. These guidelines and charters, as well as our Business Conduct Policies and a Code of Ethics applicable to our Chief Executive Officer and our senior financial officers, are available for review on our website at http://www.federalsignal.com. In addition, these guidelines, charters and polices (including the Code of Ethics) are available in print to any stockholder who requests them in writing from our Corporate Secretary at the address provided below. We timely submitted our annual certification by the Chief Executive Officer to the New York Stock Exchange within 30 days of our Annual Meeting of Stockholders in 2007. The certification stated our compliance with the New York Stock Exchange’s corporate governance listing standards without qualification.

 

The non-employee directors of the Board meet regularly in executive session without management. The Chairman of the Board of Directors presides over executive sessions. Directors may be contacted as a group, by Committee or individually, and the presiding director or the non-employee directors as a group may be contacted on an anonymous and/or confidential basis by addressing a letter to Federal Signal Corporation, 1415 West 22^nd Street, Suite 1100, Oak Brook, IL 60523, Attn: Corporate Secretary. All such letters will be forwarded to the directors. We encourage our directors to attend the 2008 Annual Meeting of Stockholders. All of our directors attended the 2007 Annual Meeting of Stockholders.

 

There were no compensation committee interlocks or insider participation on the part of the members of our Compensation and Benefits Committee. The members and functions of our Compensation and Benefits Committee are set forth above under “Committees of the Board of Directors.”

 

During the year ended December 31, 2007, it was determined that none of our directors, nominees for director, or executive officers engaged in a transaction with us in which such director, nominee for director or executive officer had a direct or indirect material interest which required disclosure under applicable Securities and Exchange Commission rules.

 

We maintain various policies and procedures relating to the review, approval or ratification of transactions in which our Company is a participant and in which any of our directors, executive officers, 10% stockholders (if any) or their family members have a direct or indirect material interest. Our Company Policies for Business Conduct, which are available on our website at http://www.federalsignal.com, prohibit our directors and employees, including our executive officers, and in some cases, their family members, from engaging in specified activities

without prior written consent. These activities typically relate to situations where a director, executive officer or employee, and in some cases, an immediate family member, may have significant financial or business interests in another company competing with or doing business with our Company, or who stands to benefit in some way from such a relationship or activity.

 

Pursuant to our Company Policy for Business Conduct and the Audit Committee Charter, the Chairman, Chief Financial Officer and General Counsel implement the Company Policy for Business Conduct and the Audit Committee reviews, approves, ratifies and makes recommendations to our Board of Directors regarding related person transactions.

 

Additionally, each year, we require our directors and executive officers to complete a questionnaire which identifies, among other things, any transactions or potential transactions with our Company in which a director or an executive officer or one of their family members or associated entities has an interest. We also require that directors and executive officers notify our Corporate Secretary of any changes during the course of the year to the information provided in the annual questionnaire as soon as possible.

 

We believe that the foregoing policies and procedures collectively ensure that all related person transactions requiring disclosure under applicable Securities and Exchange Commission rules are appropriately reviewed.

 

Our executive compensation and benefits programs are designed to drive and reinforce our business goals and strategies for success in the marketplace and to enable growth. As a key component of our executive compensation system, we have adopted a value-based management philosophy designed to develop a culture that emphasizes entrepreneurship, innovation and creativity, and rewards managers and employees who think and act like owners. This program also encourages collaboration and the maximization of long-term shareholder value, which in turn supports the attraction, motivation, and retention of the best global talent. Our executive compensation philosophy can be summarized as follows:

 

 

Our Compensation and Benefits Committee establishes and oversees our general compensation and benefits program, and approves compensation and benefits for our executive officers. Specifically, our Compensation and Benefits Committee is charged in its charter with the authority and responsibility to:

 

 

The Chief Executive Officer annually reviews the performance of each executive officer. Recommendations based on these reviews, including those with respect to base salary adjustments, annual incentives and long-term incentives, are presented to the Committee. The Committee can exercise its discretion in modifying any recommended adjustments or awards to these executive officers. The compensation of the Chief Executive Officer is determined by the Committee, meeting in executive session without the Chief Executive Officer present.

 

Compensation levels for our executives are compared to the compensation paid to executives at the peer companies specified below. The market for experienced talent is highly competitive. We aim to attract and retain the most highly qualified executives to manage our business functions. In doing so, we draw upon a pool of talent that is highly sought after by large and established companies. We draw upon a market that is global in scope. We recognize that we must satisfy the financial requirements of our candidates through competitive compensation practices. We also compete for talent on the basis of our vision of future growth and success, our culture and our Company values. In order to succeed in attracting the best global talent, the Committee has engaged Hewitt Associates, an outside global human resources consulting firm, to conduct regular reviews of our total compensation programs for our Chief Executive Officer and other key executives. Hewitt Associates provides the Committee with relevant market data and alternatives to consider when making compensation decisions for our Chief Executive Officer as well as other executive officers. In making compensation decisions, the Committee compares each element of compensation against a peer group of publicly traded and privately held manufacturing companies. The comparator group, which is periodically updated by the Committee, consists of companies against which we believe we compete for talent. The companies currently comprising the comparator group are:

 

 

Because of the large variance in size among the companies comprising the comparator group, regression analysis is used to adjust the compensation data for differences in revenues. This adjusted data is used as the basis of comparison between our Company and the companies in the comparator group.

 

We may also use published survey data to supplement the determination of competitive levels of compensation in the marketplace.

 

Our compensation program consists of five components: base salary, annual cash incentives, long-term equity incentives, retirement and health and welfare benefits, and perquisites. Our programs balance individual, business unit and Company-wide goals and achievements.

 

Base salary levels for our executive officers, including our Chief Executive Officer, are based primarily on external market data and on the individual performance of each executive officer during the previous year. Base salaries are targeted to be at the 50th percentile of competitive market data. Effective April 2008, actual base salaries for named executive officers range from 96% to 111% of individual targets. In addition to the executive’s individual performance, the Committee also considers the following factors in setting base salaries and in recommending annual base salary adjustments: the executive’s current base salary relative to the targeted level, the executive’s level of responsibility, the executive’s prior experience and the executive’s breadth of knowledge.

 

 

Since the beginning of 2005, annual cash incentive payments have been based exclusively on objective measures of financial performance that relate to the year-over-year increase in Economic Value. Annual cash bonuses to the named executive officers are paid under our management incentive plan. The threshold, target and maximum levels of bonus payable are determined based on the Economic Value of our Company. We believe that Economic Value is the best single financial measure that is directly tied to the creation of shareholder value because it encompasses both earnings growth and efficient use of capital. Economic Value is the net amount of value earned or lost on an investment after deducting the cost of holding that investment. The underlying rationale for adopting an Economic Value system for annual cash incentive compensation is to align management and employee interests with the interests of our stockholders. Annual cash incentive payments are typically approved in February of each year following the fiscal year of performance and paid in a lump sum in March.

 

Economic Value is calculated by using three key inputs:

 

 

Economic Value is calculated by subtracting a Capital Charge from Net Operating Profit after Tax. The Capital Charge is derived by multiplying the Cost of Capital by the Average Capital Employed.

 

Our annual incentive program focuses our executives on maximizing long-term shareholder value and encourages decision making that supports year-over-year growth in the Economic Value of the particular unit in which an executive works and the Company as a whole. The Company retained Shareholder Value Advisors, a financial and compensation consulting firm, to assist in developing Economic Value improvement goals for the Company and for each of the key operating units of the Company.

 

The targeted Economic Value improvement goals were established based on the estimated improvement needed to give investors a cost of capital return on the market value of the Company or business unit. The Economic Value improvement “value multiples” (the estimated investor wealth gains per $1 of Economic Value improvement) used in deriving the improvement goals were based on statistical models of peer company data. For 2007, the target incentive compensation awards for all executive officers were set at 100% of the Economic Value improvement goal for the business unit or the Company, with threshold set at 50% of the target goals and maximum set at 200% of the target goals.

 

The incentive compensation for our Chief Executive Officer and Chief Financial Officer is based on the achievement of Economic Value goals which have been set for our Company as a whole. The incentive compensation for our business group presidents have threshold, target and maximum Economic Value goals for their

respective business groups and for our Company as a whole, with their aggregate annual incentive award weighted at 80% for achievement of their individual business group goals and 20% for our Company goals. This weighting encourages executives to collaborate across business groups and functions in order to achieve business objectives at the enterprise level as well as in their own business group.

 

The achievement of the threshold, target and maximum Economic Value goals result in a cash incentive award equal to a pre-set percentage of the executive’s base salary or the salary mid-point (50th percentile of market) of similar positions at our comparator group companies. The target percentages of base salary or salary mid-point to be paid out upon the achievement of various levels of Economic Value are determined based on competitive market data for each executive position. Economic Value results that fall in between the threshold, target and maximum goals are extrapolated from those points to determine the actual cash incentive award for the executive. In 2006, the target annual cash incentive percentage for the Chief Executive Officer was 75%, and the target annual cash incentive for all other named officers was 50%. In 2007, based on market data collected from our comparator group, the Chief Executive Officer’s target annual cash incentive percentage was increased to 85% and for all other named officers the target annual cash incentive percentage was increased to 55%. In 2008, the target annual cash incentive percentage for the interim Chief Executive Officer was set at 95%. The target annual cash incentive for other executive officers ranges from 35% to 60%.

 

In order to support the achievement of long-term goals, executives are given the opportunity to carry forward the unmet portion of their maximum annual incentive opportunity. One-half of the difference between the maximum opportunity and the actual incentive earned for a particular year can be re-earned over each of the next two years if the related operating unit achieves an Economic Value amount for the subsequent year that is at or above target for that year and the result is above the relative level of Economic Value attained by the operating unit during the initial year. Any carry forward opportunity that is not earned in either of the two immediately subsequent years is forfeited by the executive officer.

 

 

Equity ownership plays a key role in aligning the interests of executives with our stockholders. A further purpose of our long-term incentive plan is to provide a means through which our Company may attract the best talent to become our employees, to encourage our employees to engage in the business strategy and success of our Company, and to provide a retention tool through vesting obligations for executives. In accordance with our continuing commitment to meet these objectives, the Compensation and Benefits Committee has granted equity awards to our executives on an annual basis under our long-term incentive plans. Equity grants are also periodically made to new employees and to existing employees in connection with promotions. In order to ensure continued ownership of the equity granted under the long-term incentive grants, we have instituted stock ownership guidelines for our executive officers as discussed below under the caption “Stock Ownership Guidelines for Executive Officers.”

 

In 2007, the grant date value of the equity awards (based upon Black-Scholes or other widely accepted valuation models) under the long-term equity incentive program was targeted at the 50th percentile of the intrinsic value of long-term incentives paid to comparable executives at companies in the comparator group. In addition to competitive market practices, we considered the executive’s level of responsibility, prior experience, historical award data and individual performance. As with the other components of compensation paid by us, these actual values of long-term incentives may be more or less than the targeted levels for a particular executive in a particular year.

 

Equity grants made in 2007 to executive officers were granted so that 50% of the grant date value of the long-term incentive award was in the form of stock options to motivate long-term decision making and to reward future business performance, and 50% of the grant date value was in the form of restricted stock shares to facilitate the desired levels of stock ownership and to promote executive retention.

 

Prior to 2007, the exercise price for each option grant was the lowest sale price of our common stock on the date of grant. We changed our methodology for determining the exercise price for stock options during 2006, and now set the exercise price of the option at the closing price for our common stock, as reported by the New York Stock Exchange, on the date of the grant of the option. The options granted to executive officers in 2006 and 2007 were granted under our long-term incentive plans, and vest in three equal annual installments on the first three anniversaries of the date of the grant. Restricted shares were also granted under our long-term incentive plans, and vest fully on the third anniversary of the date of the grant. These awards are subject to forfeiture and cancellation if the named executive officer terminates his or her employment with our Company and its subsidiaries prior to that time.

Based upon market research provided by Hewitt Associates, the Compensation and Benefits Committee revised the structure of the long-term equity incentive program beginning with the 2008 annual awards. The long-term equity incentive award consists of three components in 2008: an option to purchase shares of our common stock; a restricted stock award; and a performance-based restricted stock award. The overall value of the long-term incentive award has been allocated one-third to each of the three components. The Committee believes that this mix of equity awards will further align each executive’s goals with the intermediate and long-term goals of our stockholders. The award provides an incentive to the executive to drive long-term performance over the vesting and payment periods embedded in the award.

 

Additionally, on a case-by-case basis, the Committee may grant other equity incentives as deemed appropriate. For example, the Committee may award restricted stock units to our employees, international executives in particular, in substitution for one or more components of the standard grant described above to promote long-term performance and employee retention. Award value and type of grant will take into account applicable law, administrative issues and competitive market data for the specific country at issue.

 

For 2008, the overall value of the 2008 equity incentive awards was targeted at the 35th percentile of the intrinsic value of long-term incentives paid to comparable executives at companies in the comparator group. The decision to lower the target to the 35th percentile versus the 50th percentile prior policy was made in view of the relatively weak financial performance of the Company during the prior year. The 2008 equity incentive awards were granted under a long-term incentive plan which was approved by our stockholders in 2005. For this grant, options vest over a three-year period using an exercise price for each option equal to the closing price of our common stock on the date of grant. Restricted stock awards and restricted stock units vest in full on the third anniversary of the date of grant and are valued using the closing price of our common stock on the date of grant.

 

The performance-based restricted stock award is tied to the achievement of a pre-determined three year relative performance metric approved by the Committee based upon relative Total Shareholder Return, TSR. The formula to determine TSR is set forth below.

 

     Change in Stock Price plus dividends paid over the performance period

 

                     Beginning Stock Price

 

 

At the conclusion of the performance period, the Company’s TSR is calculated for that period and compared to the TSR achieved by the publicly-traded companies included in our comparator group. The Company’s percentile rank is then assigned based on its relative TSR achievement. At the end of the three year performance period, each executive officer will be awarded shares, if any, as a percentage of the pre-determined target shares for that executive ranging from 0% to 200% determined by our percentile rank.

 

Unvested options, restricted stock and restricted stock unit awards are subject to forfeiture and cancellation if the executive officer terminates his or her employment with our Company and its subsidiaries prior to vesting other than by reason of death, disability or change in control. Upon a change in control, unvested options, shares of restricted stock and restricted stock units fully vest. Any unearned shares subject to performance — based restricted stock awards shall be forfeited by the executive officer upon termination of employment prior to the completion of the performance period other than by death, disability, or retirement. Upon a change in control, unearned shares are paid out on a pro rata basis at the target level.

 

 

We recognize that our employees are the driving force behind the profitable growth of our Company and that our ability to sustain our success is dependent on each individual’s well being. To that end we offer a competitive package of Company-sponsored health and welfare benefits to all eligible employees including our executive officers.

 

plan, executives receive a Company-paid retirement contribution based on their years of service, age and employee status paid as a percentage between 1% and 4% of their eligible compensation. Executives are also eligible to receive a Company matching contribution of up to 50% of the first 6% of the participant’s compensation that the participant voluntarily determines to contribute to the plan.

 

For 2007 through 2009, executives who participated in our Federal Signal Corporation 401(k) Retirement Plan — Elgin Sweeper Company or in our now frozen defined benefit plan are eligible to receive a supplemental transitional contribution to our new Retirement Savings Plan and Savings Restoration Plan equal to 1% to 2% of their salary.

 

Upon a voluntary employee deferral, the non-qualified Savings Restoration Plan restores Company contributions limited under the Internal Revenue Code through a notional Company contribution and notional earnings from investments. Certain executives also continue to participate in defined benefit plans that have been frozen for age and service effective December 31, 2006, and will be frozen for wage increases effective December 31, 2016. Effective December 31, 2006, the profit sharing component of the Federal Signal Corporation 401(k) Retirement Plan — Elgin Sweeper Company was terminated. Under both the Savings Restoration Plan and the Retirement Savings Plan, based upon their age and years of service as of December 31, 2006, each of Mr. Welding, Ms. Kushner, Mr. Guile and Mr. Weber received a supplemental transitional contribution equal to 2% of their salary in 2007. Ms. Kushner, Mr. Guile and Mr. Weber are also entitled to receive a supplemental transitional contribution equal to 2% of their salary in 2008 and 2009.

 

 

Perquisites and Other Personal Benefits

 

We provide executives with perquisites and other personal benefits that the Committee feels are reasonable and consistent with its overall compensation program to better enable us to attract and retain the best talent for key executive positions. The Committee periodically reviews the levels of perquisites provided. Perquisites provided may include:

 

 

The specific compensation decisions made for each of the named executives for 2007 and year-to-date in 2008 reflect our management’s and our Committee’s assessments of performance relative to Company and business group financial and operational measurements and individual performance objectives and comparisons against market benchmarks. Our compensation actions for our former Chief Executive Officer, interim Chief Executive Officer and other named executive officers are summarized below.

 

 

In January 2007, the Committee set the base salary of our former President and Chief Executive Officer, Mr. Robert D. Welding, at $686,700. This base salary represents no increase from the prior year’s salary which the Committee believed to be appropriate based on the Company’s performance and current market data. Mr. Welding

resigned from his positions with our Company on December 11, 2007 and retired from Company employment on January 1, 2008.

 

On December 11, 2007, our Board of Directors appointed Mr. James E. Goodwin, a Company director since 2005, as interim President and Chief Executive Officer of our Company effective immediately. Mr. Goodwin will also continue to serve as a director of our Company. Mr. Goodwin will be paid an annual base salary of $700,000 for services in 2007 and 2008. This amount was determined appropriate by the Board considering the Board’s expectations with regard to his duties during the interim period and current market compensation data.

 

In January 2007, the Committee set the base salary of our Chief Financial Officer, Ms. Stephanie K. Kushner, at $330,460, which represents a 4% increase from her prior year’s base salary of $317,750, and our Environmental Solutions Group President, Mr. Mark D. Weber, at $288,475, a 10% increase from his prior year’s base salary of $262,260. These increases were awarded to recognize these executives’ accomplishments in 2006 and the low relative position of their individual 2006 base salaries versus competitive market benchmarks. Mr. Marc F. Gustafson, our former Fire Rescue Group President, received a 2007 base salary of $321,360, a 3% increase from the prior year’s base salary of $312,000. The base salary of Mr. David R. McConnaughey, our Safety and Securities Systems Group President, was set at $320,000 for 2007 service. As Mr. McConnaughey was hired in 2006, the Committee believed that his base salary amount was appropriate for 2007 service. Mr. Peter R. Guile, formerly a division president of the industrial systems business within the Safety and Security Systems Group, was promoted to President of the Company’s subsidiary, E-One, Inc., in July 2007. Pursuant to Mr. Guile’s employment offer letter, his annual base salary was set at $240,000.

 

In February 2008, the Committee approved base salary increases for our named executive officers with a delayed effective date in April, as opposed to a January effective date. The Committee increased Ms. Kushner’s base salary by 2.5% to $338,700. Mr. McConnaughey’s base salary was also increased 2.5% to $328,000. Mr. Guile received a 3% increase in base salary to $247,200. Mr. Weber’s base salary was set at $305,784, a 6% increase from his 2007 base salary. Salary changes were reflective of market competition, individual accomplishment and overall Company performance. Mr. Welding retired in January 2008 and Mr. Gustafson resigned from his position in July 2007.

 

 

For 2006 and 2007, 100% of the target bonuses for Mr. Welding and Ms. Kushner were based on the performance of our Company as a whole. For each of Messrs. McConnaughey, Gustafson and Weber, 20% of the target bonus was based on the performance of our Company as a whole, and the remaining 80% was based on the performance of the group under their direct supervision.

 

In February 2007, based on the improvement of Economic Value of our Company of $9 million in 2006, the Committee awarded Mr. Welding an incentive cash payment of $611,291 for 2006. This award represented 89.0% of Mr. Welding’s annual base salary for 2006, representing an above target achievement of Economic Value for our Company for 2006. Likewise, the Committee awarded Ms. Kushner an incentive cash payment of $188,996 for 2006 based upon the Economic Value of our Company, which represents an above target payout equal to 59.5% of her annual base salary for the prior year.

 

Based on the improvement of the Economic Value of the Safety and Security Systems Group of $3 million in 2006, and the improvement of Economic Value of our Company of $9 million in 2006, the Committee awarded Mr. McConnaughey an incentive cash payment of $242,301 in February 2007. This cash incentive award was equal to 75.7% of Mr. McConnaughey’s base salary for 2006 and was prorated for the period from his employment with our Company on March 6, 2006 through the end of the year. Mr. McConnaughey’s threshold annual incentive award as a percentage of his annual base salary was 25%, his target incentive award was 50% of his annual base salary and his maximum incentive award was 100% of his annual base salary. Mr. McConnaughey’s annual incentive award for 2006 represents achievement above maximum Economic Value for the Safety and Security Systems Group and above target Economic Value of our Company as a whole.

 

Based on the improvement of Economic Value of the Fire Rescue Group of $3 million in 2006, and the improvement in Economic Value of our Company of $9 million in 2006, the Committee awarded Mr. Gustafson an incentive cash payment of $141,771 for 2006. This represented 45.4% of Mr. Gustafson’s annual base salary for 2006, which means that the Fire Rescue Group achieved between threshold and target Economic Value for 2006 while our Company as a whole achieved Economic Value that was above target.

 

Based on the growth of Economic Value of the Environmental Solutions Group of $10 million in 2006, and the growth in Economic Value of our Company of $9 million in 2006, the Committee awarded Mr. Weber an incentive

cash payment of $291,170 for 2006. This represented 111.0% of Mr. Weber’s annual base salary for 2006, representing an above target achievement of Economic Value for the Environmental Solutions Group and our Company as a whole. Mr. Weber was the only one of the named executive officers who also earned a 2005 carry forward amount for performance of his business group during 2006.

 

In connection with Mr. Welding’s resignation and retirement, his final compensation for services is described on page 26 of this proxy statement in the section titled “Additional Information About the Compensation Paid to Named Executive Officers.”

 

Pursuant to the employment arrangement between Mr. Goodwin and the Company, Mr. Goodwin was not eligible for an annual incentive bonus related to 2007 performance. However, Mr. Goodwin will be eligible for an incentive bonus in relation to 2008 performance and will not be required to be employed during the entire 2008 calendar year in order to be eligible for payment of this bonus. Mr. Goodwin’s 2008 target annual incentive bonus is $665,000, or 95% of his annual base salary. If Mr. Goodwin’s employment with the Company is less than the full 2008 calendar year, Mr. Goodwin’s bonus, as approved, will be prorated based upon the number of days that Mr. Goodwin served as interim President and Chief Executive Officer of our Company during 2008.

 

In 2007, consolidated Economic Value of the Company was $9 million below the targeted performance level due primarily to the weak financial performance of E-One, Inc., which was only partially offset by year-over-year improvements for certain other business units. Consequently, the portion of incentive bonuses linked to the total Company performance was below target and reduced from the prior year. Accordingly, for Ms. Kushner, whose incentive bonus is based solely on the Company’s consolidated performance, the Committee awarded an incentive cash payment of $146,159 for 2007, which represents a below target payout equal to 44% of her annual base salary for last year (target was 55% of annual base salary).

 

The Economic Value of the Safety and Security Systems Group was unchanged from the prior year as the beneficial impact of higher operating earnings was offset by the impact of higher capital employed. However, the level of Economic Value achieved by this business unit remained above the targeted level set by the Committee. In February 2008, the Committee awarded Mr. McConnaughey an incentive cash payment of $247,889. This cash incentive award was equal to 77% of Mr. McConnaughey’s base salary for 2007, and reflects an above target payout for the results of this business, and a below target payout for the consolidated results of our Company. Mr. McConnaughey’s target incentive award was 55% of his annual base salary.

 

Economic Value of the Environmental Solutions Group exceeded target by $6 million in 2007 and increased from the prior year. The Committee awarded Mr. Weber an incentive cash payment of $337,358 for 2007, which was based 80% on the results for the Environmental Solutions Group and 20% on the consolidated results for the Company. This represented 117% of Mr. Weber’s annual base salary for 2007, and included amounts carried forward from 2005 and 2006 totaling $77,394.

 

Mr. Guile was promoted from division president of the industrial systems business within the Company’s Safety and Security Systems Group to President of E-One, Inc., a Company subsidiary, in July 2007. In connection with his promotion, the Company paid Mr. Guile a one-time cash promotional payment of $133,335 and agreed that his cash incentive bonus for services following his promotion would be paid based upon the better of the financial performance of his former division and E-One, Inc. Because of the weak operating performance of E-One, Inc., Mr. Guile’s 2007 incentive payment was earned in total based upon his performance as division president which resulted in a total incentive payment of $135,651. Due to his promotion, Mr. Guile’s target incentive award was increased from 35% to 55% of his annual base.

 

Mr. Gustafson resigned from our Company in July 2007 and his final compensation for services rendered in 2007 is described on page 26 of this proxy statement in the section titled “Additional Information About the Compensation Paid to Named Executive Officers.”

 

 

In connection with his appointment as interim President and Chief Executive Officer, Mr. Goodwin received an option to purchase 50,000 shares of our common stock at an exercise price of $11.84 per share, the closing price of our common stock on December 11, 2007, the date of grant. Mr. Goodwin also received an award of 20,000 shares of restricted stock of the Company. These options and restricted shares will become fully vested and exercisable on Mr. Goodwin’s last day as our interim President and Chief Executive Officer.

 

In February 2007, the Committee granted Mr. Welding, Ms. Kushner, Mr. McConnaughey, Mr. Gustafson and Mr. Weber stock options to purchase 79,900, 21,600, 18,600, 20,700 and 18,600 shares of our common stock, respectively. Each of these options has an exercise price of $16.10, the closing share price on the date of grant. The

options vest in three equal annual installments on the first three anniversaries of the date of the grant. At the same meeting, the Committee granted Mr. Welding, Ms. Kushner, Mr. McConnaughey, Mr. Gustafson and Mr. Weber 38,000, 10,200, 8,200, 9,800 and 8,800 shares of restricted stock, respectively. The restricted shares vest fully on the third anniversary of the date of the grant and are subject to forfeiture and cancellation if the executive officer terminates his or her employment with our Company and its subsidiaries prior to that time.

 

As division president of the industrial systems business within our Company’s Safety and Security Systems Group, in February, 2007, Mr. Guile received an option to purchase 6,100 shares of our common stock at an exercise price of $16.10, the closing share price on the date of grant. The options vest in three equal annual installments on the first three anniversaries of the date of the grant. Additionally, Mr. Guile also received 3,000 shares of restricted stock. The restricted shares vest fully on the third anniversary of the date of the grant and are subject to forfeiture and cancellation if Mr. Guile terminates his employment with our Company and its subsidiaries prior to that time. In connection with Mr. Guile’s promotion, the Committee granted him a one-time option to purchase 5,000 shares of our common stock at an exercise price of $16.09 per share, the closing price on the date of grant. These options vest in three equal annual installments on the first three anniversaries of the date of the grant. Mr. Guile also received an award of 2,400 shares of restricted stock of the Company which vest fully on the third anniversary of the date of the grant and are subject to forfeiture and cancellation if Mr. Guile terminates his employment with our Company and its subsidiaries prior to that time.

 

In February 2008, the Committee granted equity incentive awards consistent with its recently adopted incentive program such that:

 

 

As Mr. Goodwin recently received equity grants in December 2007 in connection with his appointment as interim President and Chief Executive Officer, he did not receive any additional equity awards in February 2008.

 

 

Vehicle Allowances:  In 2007, Mr. Welding received a vehicle allowance in the aggregate amount of $13,800. Ms. Kushner, Mr. McConnaughey and Mr. Weber each received a vehicle allowance totaling $11,400. Mr. Gustafson received a vehicle allowance totaling $6,175 and Mr. Guile received a vehicle allowance totaling $10,100.

 

Health Medical Exam Reimbursement:  In 2007, we paid for executive health exams for each of the following named executive officers as indicated: Ms. Kushner — $2,500, Mr. McConnaughey — $2,500 and Mr. Weber — $2,075. The other named executives, while eligible, did not take advantage of the program.

 

Relocation Assistance:  In connection with Mr. Guile’s promotion, Mr. Guile received $214,703 in relocation assistance under the Executive Relocation Reimbursement Program. Similarly, Mr. Gustafson received relocation assistance in 2007 in the amount of $131,650 related to a final sale of his home in connection with his 2005 relocation.

 

Additional Survivor Benefit:  In connection with Mr. Welding’s retirement from the Company, the additional survivor benefit provided to him in connection with his hiring in the amount of one times annual base salary at death was terminated. None of the other executive officers are provided an additional survivor benefit.

 

Country Club Initiation and Membership Fees Reimbursement:  During 2007, Mr. Welding continued his 2006 membership to a country club and received reimbursement in the aggregate amount of $6,812 for certain country club fees and dues.

Supplemental Savings and Investment Plan:  In years prior to 2005, executives were eligible to participate in the Supplemental Savings and Investment Plan, a non-qualified deferred compensation benefit that supplemented our defined benefit plans. During 2007, balances remaining in this plan were transferred into the new Savings Restoration Plan.

 

Our executive officers are required to acquire substantial holdings of our common stock while employed by us. Individual stock ownership targets are based on a multiple of between two and five times the executive’s base salary and executives generally have between three and five years from the date they become subject to the stock ownership guidelines to comply with the guidelines. We recognize both direct and indirect forms of ownership in achieving the requirements. As an interim officer, Mr. Goodwin is exempt from this policy although he remains subject to the director stock ownership program described on page 10 of this proxy statement. Mr. Guile has not met his requirement for stock ownership and has three years to comply. Mr. McConnaughey has not met his requirements for stock ownership and has two years to comply. Ms. Kushner and Mr. Weber have also not met their requirements for stock ownership and have one year to comply.

 

Section 162(m) of the Internal Revenue Code provides that compensation in excess of $1 million paid to the chief executive officer and the other most highly compensated executive officers of a public company will generally be nondeductible for federal income tax purposes, subject to certain exceptions. The Committee intends to structure compensation arrangements in a manner that will avoid the deduction limitations imposed by Section 162(m) in appropriate circumstances. However, the Committee believes that it is important and necessary that the Committee retain the right and flexibility to provide and revise compensation arrangements, such as base salary and cash bonus incentive opportunities, that may not qualify under Section 162(m) if, in the Committee’s view, such arrangements are in the best interests of our Company and our shareholders.

 

The responsibilities of the Compensation and Benefits Committee are provided in its Charter, which has been approved by our Board of Directors.

 

In fulfilling its oversight responsibilities with respect to the Compensation Disclosure and Analysis included in this Report, the Compensation and Benefits Committee, among other things, has:

 

 

SUBMITTED BY THE COMPENSATION AND BENEFITS COMMITTEE

 

JOHN F. MCCARTNEY, CHAIRMAN

 

CHARLES R. CAMPBELL      PAUL W. JONES      BRENDA L. REICHELDERFER

 

Notwithstanding anything set forth in any of our previous filings under the Securities Act of 1933 or the Securities Exchange Act of 1934 that might incorporate future filings, including this proxy statement, in whole or in part, the preceding report shall not be deemed incorporated by reference in any such filings.

 

The following table sets forth information concerning compensation earned during the fiscal years ended December 31, 2006 and December 31, 2007 for our interim Chief Executive Officer, our Chief Financial Officer, and the three other most highly compensated executive officers of our Company. Additionally, the table also sets forth compensation information for the stated periods for Mr. Welding (former President and Chief Executive Officer) and Mr. Gustafson (who would have been among the highly compensated executive officers in 2007 had he continued to serve as President of the Fire Rescue Group through year end) who were no longer serving as executives of our Company at December 31, 2007. For compensation provided to Mr. Goodwin for service as a director of our Company, please see the section titled “Director Compensation in the Last Fiscal Year” beginning on page 9 of this proxy statement.

 

Summary Compensation Table for Fiscal Years 2006 and 2007

 

 

 

 

 

 

 

 

 

The following table sets forth information concerning grants of plan-based awards earned for the fiscal year ended December 31, 2007 for the named executive officers except with respect to Mr. Gustafson who resigned from our Company effective July 17, 2007, and had no awards outstanding at fiscal year end.

 

Grants of Plan-Based Awards in 2007

 

 

 

 

 

On December 11, 2007, our Chief Executive Officer and President, Mr. Robert D. Welding, resigned from all of his officer, director and other positions (except as an employee). On January 1, 2008, Mr. Welding retired from employment with our Company. Pursuant to an agreement entered into on January 21, 2008 with our Company, Mr. Welding will receive $1,271,994, which approximated the sum of his annual salary for 2008 (i.e., $686,700), his target annual bonus for 2008 (i.e., 85% of his base salary, or $583,695) and $1,599 representing a portion of his 2008 targeted annual bonus based on his January 1, 2008 retirement date. This amount will be paid in an initial one-time payment of $636,000 on July 2, 2008 and six monthly payments of approximately $106,000 commencing in July 2008. Mr. Welding was also provided subsidized COBRA coverage until the earlier of July 1, 2009, the date he becomes eligible to receive other insurance coverage, or the date on which he becomes eligible to receive Medicare benefits. Pursuant to the terms of the 2005 Executive Incentive Compensation Plan Non-qualified Stock Option Award Agreement, Mr. Welding will have a period of three years from his date of retirement, January 1, 2008, to exercise previously vested stock options. Unvested stock options totaling 203,500 and stock awards totaling 147,700 were forfeited. In connection with Mr. Welding’s departure, his employment agreement with the Company was terminated without further liability to the Company. With the termination of Mr. Welding’s employment agreement, we have no formal written employment agreements with any named executive officers.

 

On December 11, 2007, our Board of Directors appointed Mr. James E. Goodwin, a current Company director since 2005, as interim Chief Executive Officer and President of our Company effective immediately. Mr. Goodwin will also continue to serve as a director of our Company. Mr. Goodwin will be paid an annual base salary of $700,000 for 2007 and 2008. Pursuant to the employment arrangement between Mr. Goodwin and the Company, Mr. Goodwin will not be eligible for an annual incentive bonus in 2007. However, Mr. Goodwin will be eligible for an incentive bonus in 2008 and is not required to be employed during the entire 2008 calendar year in order to be eligible for payment of this bonus. Mr. Goodwin’s 2008 target annual incentive bonus is $665,000, or 95% of his annual base salary. If Mr. Goodwin’s employment with our Company is less than the full 2008 calendar year, Mr. Goodwin’s bonus, as approved, will be prorated based upon the number of days that Mr. Goodwin serves as interim President and Chief Executive Officer of our Company during 2008. In connection with his appointment, Mr. Goodwin received an option to purchase 50,000 shares of our common stock at an exercise price of $11.84 per share, the closing price of our stock on December 11, 2007, the date of grant. Mr. Goodwin also received an award of 20,000 shares of restricted stock of the Company. These options and restricted shares will become fully vested and exercisable on Mr. Goodwin’s last day as our interim President and Chief Executive Officer.

 

Mr. Marc F. Gustafson resigned from our Company, effective July 17, 2007. Pursuant to an agreement entered into with our Company, Mr. Gustafson was entitled to receive a severance of $593,988 which approximated the sum of his annual base salary ($321,360) and annual target bonus ($176,748) and a portion of his targeted annual bonus based on the number of days worked in 2007 prior to his termination in the amount of $95,880. This amount is being paid in twelve equal monthly amounts. Mr. Gustafson was also provided subsidized COBRA coverage until the earlier of a) January 17, 2009 or b) the date he becomes eligible to receive other insurance coverage. Beginning July 17, 2007, the Company and Mr. Gustafson also agreed, based on his expertise, that he shall provide legal and business consulting services to the Company for a period of one year. In exchange for his services, the Company has agreed to pay Mr. Gustafson an initial retainer of $10,000 and a fee of $200 per hour for his services with a guaranteed payment of at least $20,000 during the term of the agreement.

 

Outstanding Equity Awards at Fiscal Year-End  The following table sets forth information concerning outstanding equity awards, as of the completed 2007 fiscal year, held by the named executive officers:

 

Outstanding Equity Awards at Fiscal Year-End