UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

SCHEDULE 14A

INFORMATION REQUIRED IN PROXY STATEMENT

SCHEDULE 14A INFORMATION

Proxy Statement Pursuant to Section 14(a) of the Securities
Exchange Act of 1934 (Amendment No.  )

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o		Soliciting Material Pursuant to §240.14a-12

 

THERMO FISHER SCIENTIFIC INC.

(Name of Registrant as Specified In Its Charter)

 

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

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 81 Wyman Street

 Waltham, MA 02451

 

April 8, 2010

 

Dear Stockholder:

 

You are cordially invited to attend the 2010 Annual Meeting of Stockholders of Thermo Fisher Scientific Inc., which will be held on Wednesday, May 26, 2010, at 1:30 p.m. (Eastern time) at the Mandarin Oriental New York, 80 Columbus Circle at 60th Street, New York, New York.

 

The notice of meeting and proxy statement accompanying this letter describe the specific business to be acted upon at the meeting. The Company’s 2009 Annual Report to Stockholders also accompanies this letter.

 

It is important that your shares of the Company’s common stock be represented and voted at the meeting regardless of the number of shares you may hold. Whether or not you plan to attend the meeting in person, you can ensure your shares of the Company’s common stock are voted at the meeting by submitting your instructions by telephone, the Internet, or in writing by returning the Company’s proxy card (if one has been provided to you). Please review the instructions in the enclosed proxy statement and proxy card regarding each of these voting options.

 

We are pleased this year to again take advantage of the Securities and Exchange Commission rule allowing companies to furnish proxy materials to their stockholders over the Internet. We believe that this e-proxy process expedites stockholders’ receipt of proxy materials, while lowering the costs and reducing the environmental impact of our annual meeting. Stockholders receiving e-proxy materials have been sent a notice containing instructions on how to access the proxy statement and annual report over the Internet and how to vote.

 

Thank you for your continued support of the Company.

 

Yours very truly,

 

MARC N. CASPER
President and Chief Executive Officer

 

 81 Wyman Street

 Waltham, MA 02451

 

NOTICE OF 2010 ANNUAL MEETING OF STOCKHOLDERS

 

To be held on May 26, 2010

 

Important Notice Regarding the Availability of Proxy Materials for the
Annual Meeting of Stockholders to be Held on May 26, 2010.
The Proxy Statement and 2009 Annual Report are available at www.proxyvote.com.

 

April 8, 2010

 

To the Holders of the Common Stock of

THERMO FISHER SCIENTIFIC INC.

 

Notice is hereby given that the 2010 Annual Meeting of Stockholders of Thermo Fisher Scientific (“Thermo Fisher” or the “Company”) will be held on Wednesday, May 26, 2010, at 1:30 p.m. (Eastern time) at the Mandarin Oriental New York, 80 Columbus Circle at 60th Street, New York, New York.

 

The purpose of the meeting is to consider and take action upon the following matters:

 

 

Stockholders of record at the close of business on March 29, 2010, are the only stockholders entitled to notice of and to vote at the 2010 Annual Meeting of Stockholders.

 

This notice, the proxy statement and the proxy card enclosed herewith are sent to you by order of the Board of Directors of the Company.

 

By Order of the Board of Directors,

 

SETH H. HOOGASIAN
Senior Vice President, General Counsel and Secretary

 

IMPORTANT

 

Whether or not you intend to attend the meeting in person, please ensure that your shares of the Company’s common stock are present and voted at the meeting by submitting your instructions by telephone, the Internet, or in writing by completing, signing, dating and returning the enclosed proxy card to our tabulation agent in the enclosed, self-addressed envelope, which requires no postage if mailed in the United States.

 

Directions to the Annual Meeting are available by calling Investor Relations at (781) 622-1111.

 

Table of Contents

 

 

 81 Wyman Street

 Waltham, MA 02451

 

This proxy statement is furnished in connection with the solicitation of proxies by Thermo Fisher Scientific Inc. (“Thermo Fisher” or the “Company”) on behalf of the Board of Directors of the Company (the “Board”) for use at the 2010 Annual Meeting of Stockholders to be held on Wednesday, May 26, 2010, at 1:30 p.m. (Eastern time) at the Mandarin Oriental New York, 80 Columbus Circle at 60th Street, New York, New York, and any adjournments thereof. The mailing address of the principal executive office of the Company is 81 Wyman Street, Waltham, Massachusetts 02451. This proxy statement and enclosed proxy card are being first furnished to stockholders of the Company on or about April 12, 2010.

 

At the 2010 Annual Meeting of Stockholders, stockholders entitled to vote at the meeting will consider and act upon the matters outlined in the notice of meeting accompanying this proxy statement, including the election of two directors for a three-year term expiring in 2013, and the ratification of the selection of PricewaterhouseCoopers LLP as the Company’s independent auditors for 2010.

 

Only stockholders of record at the close of business on March 29, 2010, the record date for the meeting, are entitled to vote at the meeting or any adjournments thereof. At the close of business on March 29, 2010, the outstanding voting securities of the Company consisted of 410,364,690 shares of the Company’s common stock, par value $1.00 per share (“Common Stock”). Each share of Common Stock outstanding at the close of business on the record date is entitled to one vote on each matter that is voted.

 

The presence at the meeting, in person or by proxy, of a majority of the outstanding shares of Common Stock entitled to vote at the meeting will constitute a quorum for the transaction of business at the meeting. Votes of stockholders of record present at the meeting in person or by proxy, abstentions, and “broker non-votes” (as defined below) are counted as present or represented at the meeting for the purpose of determining whether a quorum exists. A “broker non-vote” occurs when a broker or representative does not vote on a particular matter because it either does not have discretionary voting authority on that matter or it does not exercise its discretionary voting authority on that matter.

 

Stockholders of Record

 

Shares entitled to be voted at the meeting can only be voted if the stockholder of record of such shares is present at the meeting, returns a signed proxy card, or authorizes proxies to vote his or her shares by telephone or over the Internet. Shares represented by valid proxy will be voted in accordance with your instructions. If you choose to vote your shares by telephone or over the Internet, which you may do until 11:59 p.m. Eastern time on Tuesday, May 25, 2010, you should follow the instructions provided on the proxy card. In voting by telephone or over the Internet, you will be allowed to confirm that your instructions have been properly recorded.

 

A stockholder of record who votes his or her shares by telephone or Internet, or who returns a proxy card, may revoke the proxy at any time before the stockholder’s shares are voted at the meeting by entering new votes by telephone or over the Internet by 11:59 p.m. Eastern time on May 25, 2010, by written notice to

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the Secretary of the Company received prior to the meeting, by executing and returning a later dated proxy card prior to the meeting, or by voting by ballot at the meeting.

 

Participants in the Thermo Fisher Scientific 401(k) Retirement Plan and the Fisher Hamilton L.L.C. Retirement Savings Plan

 

If you hold your shares through the Thermo Fisher Scientific 401(k) Retirement Plan or the Fisher Hamilton L.L.C. Retirement Savings Plan (each, a “401(k) Plan”), your proxy represents the number of shares in your 401(k) Plan account as of the record date. For those shares in your 401(k) Plan account, your proxy will serve as voting instructions for the trustee of the 401(k) Plan. You may submit your voting instructions by returning a signed and dated proxy card to the Company’s tabulation agent in the enclosed, self-addressed envelope for its receipt by 11:59 p.m. Eastern time on Friday, May 21, 2010, or by telephone or over the Internet by 11:59 p.m. Eastern time on Sunday, May 23, 2010, in accordance with the instructions provided on the proxy card.

 

You may revoke your instructions by executing and returning a later dated proxy card to the Company’s tabulation agent for its receipt by 11:59 p.m. Eastern time on May 21, 2010, or by entering new instructions by telephone or over the Internet by 11:59 p.m. Eastern time on May 23, 2010.

 

Beneficial Stockholders

 

If you hold your shares through a broker, bank or other representative (“broker or representative”), you can only vote your shares in the manner prescribed by the broker or representative. Detailed instructions from your broker or representative will generally be included with your proxy material. These instructions may also include information on whether your shares can be voted by telephone or over the Internet or the manner in which you may revoke your votes. If you choose to vote your shares by telephone or over the Internet, you should follow the instructions provided by the broker or representative.

 

Shares represented by proxy will be voted in accordance with your specific choices. If you sign and return your proxy card or vote by telephone or over the Internet without indicating specific choices, your shares will be voted FOR the nominees for director and FOR the ratification of the selection of independent auditors for 2010. Should any other matter be properly presented at the meeting, the persons named in the proxy card will vote on such matter in accordance with their judgment.

 

If you sign and return your proxy card marked “abstain” on the proposal regarding the election of directors or the proposal to ratify the selection of independent auditors for 2010 or choose the same option when voting by telephone or over the Internet, your shares will not be voted affirmatively or negatively on those proposals and will not be counted as votes cast with regard to those proposals.

 

If you hold your shares as a beneficial owner rather than a stockholder of record, your broker or representative will vote the shares that it holds for you in accordance with your instructions (if timely received) or, in the absence of such instructions, your broker or representative may vote on certain matters for which it has discretionary voting authority, including the proposal to ratify the selection of independent auditors for 2010. Please note that as a result of recent amendments to stock exchange rules, brokers or representatives subject to those rules no longer have discretionary voting authority with respect to uncontested elections of directors. Therefore, if you do not instruct your broker or representative regarding how you would like your shares to be voted, your broker or representative will not be able to vote on your behalf with respect to the election of directors.

 

If you hold your shares through the 401(k) Plan, the trustee will vote the shares in your 401(k) Plan account in accordance with your instructions (if timely received) or, in the absence of such instructions, the Company will vote your shares FOR the nominees for director and FOR the ratification of the selection of independent auditors for 2010.

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Under the Company’s bylaws, in an uncontested election, a nominee for director will be required to obtain a majority of the votes cast in person or by proxy at the annual meeting in order to be elected, such that the number of votes cast “for” a director must exceed the number of votes cast “against” that director. Abstentions and broker non-votes will not have an effect on the determination of whether a nominee for director has been elected.

 

Under the Company’s bylaws, approval of the proposal to ratify the selection of independent auditors for 2010 will require the affirmative vote of a majority of the shares present or represented and entitled to vote at the annual meeting and voting affirmatively or negatively on the matter. Abstentions and broker non-votes will not have an effect on the determination of whether stockholder approval of the matter has been obtained.

 

The number of directors constituting the full Board is currently fixed at twelve. Effective as of the date of this year’s Annual Meeting of Stockholders, the number of directors will be fixed at eleven. The Board is divided into three classes, and each class is elected for a three-year term at successive Annual Meetings of Stockholders. In all cases, directors hold office until their successors have been elected and qualified, or until their earlier resignation, death or removal.

 

The terms for Marc N. Casper, Michael A. Bell, Stephen P. Kaufman and Tyler Jacks expire at the 2010 Annual Meeting of Stockholders. Each of Messrs. Kaufman and Bell has informed the Company of his decision to not stand for re-election as director at the meeting. The Nominating and Corporate Governance Committee of the Board has recommended to the Board, and the Board has nominated, Messrs. Casper and Jacks for a three-year term expiring at the 2013 Annual Meeting of Stockholders. Proxies may not be voted for a greater number of persons than the two nominees named. The Board has commenced a search to fill the vacancy that will exist following the 2010 Annual Meeting of Stockholders. The Board intends to fill that vacancy by Board action once a new director candidate is identified.

 

Set forth below are the names of the persons nominated as directors and directors whose terms do not expire this year, their ages, their offices in the Company, if any, their principal occupations or employment for the past five years, the length of their tenure as directors and the names of other public companies in which they currently hold directorships or have held directorships during the past five years. We have also presented information below regarding each director’s specific experience, qualifications, attributes and skills that led our Board to the conclusion that he or she should serve as a director. Information regarding their beneficial ownership of Common Stock is reported under the heading “SECURITY OWNERSHIP.”

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Nominees for Director Whose Term of Office Will Expire in 2013

 

 

Incumbent Directors Whose Term of Office Will Expire in 2011

 

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Incumbent Directors Whose Term of Office Will Expire in 2012

 

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The Board of Directors recommends a vote FOR the nominees for director. Proxies solicited by the Board of Directors will be voted FOR the nominees unless stockholders specify to the contrary on their proxy.

 

Directors Whose Terms will Expire at the 2010 Annual Meeting

 

Michael A. Bell

 

Mr. Bell, age 54, has been a director of the Company since July 2007 and has been Managing Partner of Monitor Clipper Partners, a private equity firm, since January 1998. He also served as Senior Executive Vice President of John Hancock Financial Services from October 2001 to April 2004.

 

Stephen P. Kaufman

 

Mr. Kaufman, age 68, has been a director of the Company since July 2007 and a Senior Lecturer of Business Administration at the Harvard Business School since January 2001. He is retired Chairman and Chief Executive Officer of Arrow Electronics, Inc., a distributor of semiconductors, peripherals and components. He became President and Chief Operating Officer of Arrow in 1985, Chief Executive Officer in 1986, and Chairman in 1994. He retired as Chief Executive Officer in June 2000 and reassumed that position in June 2002 on an interim basis until September 2002. Mr. Kaufman is also a director of Harris Corporation and KLA-Tencor Corporation.

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The Board has adopted governance principles and guidelines of the Company (“Corporate Governance Guidelines”) to assist the Board in exercising its duties and to best serve the interests of the Company and its stockholders. In addition, the Company has adopted a code of business conduct and ethics (“Code of Business Conduct and Ethics”) that encompasses the requirements of the rules and regulations of the Securities and Exchange Commission (“SEC”) for a “code of ethics” applicable to principal executive officers, principal financial officers, principal accounting officers or controllers, or persons performing similar functions. The Code of Business Conduct and Ethics applies to all of the Company’s officers, directors and employees. The Company intends to satisfy SEC and New York Stock Exchange (“NYSE”) disclosure requirements regarding amendments to, or waivers of, the Code of Business Conduct and Ethics by posting such information on the Company’s website. The Company’s Corporate Governance Guidelines and Code of Business Conduct and Ethics are available on its website at www.thermofisher.com. We may also use our website to make certain disclosures required by the rules of the NYSE, including the following:

 

•     the identity of the presiding director at meetings of non-management or independent directors;

 

 

The Nominating and Corporate Governance Committee considers recommendations for director nominees suggested by its members, other directors, management and other interested parties. It will consider stockholder recommendations for director nominees that are sent to the Nominating and Corporate Governance Committee to the attention of the Company’s Secretary at the principal executive office of the Company. In addition, the bylaws of the Company set forth the process for stockholders to nominate directors for election at an annual meeting of stockholders.

 

The process for evaluating prospective nominees for director, including candidates recommended by stockholders, includes meetings from time to time to evaluate biographical information and background material relating to prospective nominees, interviews of selected candidates by members of the Nominating and Corporate Governance Committee and other members of the Board, and application of the Company’s general criteria for director nominees set forth in the Company’s Corporate Governance Guidelines. These criteria include the prospective nominee’s integrity, business acumen, age, experience, commitment, and diligence. Our Corporate Governance Guidelines specify that the value of diversity on the Board should be considered by the Nominating and Corporate Governance Committee in the director identification and nomination process. The Nominating and Corporate Governance Committee does not assign specific weights to particular criteria and no particular criterion is necessarily applicable to all prospective nominees. The Committee believes that the backgrounds and qualifications of the directors considered as a group should provide a significant breadth of experience, knowledge and abilities to assist the Board in fulfilling its responsibilities. The Nominating and Corporate Governance Committee also considers such other relevant factors as it deems appropriate, including the current composition of the Board, the balance of management and independent directors, and, with respect to members of the Audit Committee, financial expertise.

 

After completing its evaluation, the Nominating and Corporate Governance Committee makes a recommendation to the full Board as to the persons who should be nominated by the Board, and the Board

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determines the nominees after considering the recommendation and report of the Nominating and Corporate Governance Committee.

 

Since 2008, the Nominating and Corporate Governance Committee has engaged Egon Zehnder International, a search firm, to facilitate the identification, screening and evaluation of qualified, independent candidates for director to serve on the Board. Dr. Jacks, who is a nominee for election by the Company’s stockholders for the first time, and Mr. Lynch, both of whom were elected to the Board in 2009, were recommended to the Board by Egon Zehnder.

 

The Company’s Corporate Governance Guidelines require a majority of our Board to be “independent” within the meaning of the NYSE listing requirements including, in the judgment of the Board, the requirement that such directors have no material relationship with the Company (either directly or as a partner, shareholder or officer of an organization that has a relationship with the Company). The Board has adopted the following standards to assist it in determining whether a director has a material relationship with the Company. Under these standards, a director will not be considered to have a material relationship with the Company if he or she is not:

 

•     A director who is a current employee, or whose immediate family member is a current executive officer, of a company that has made payments to, or received payments from, the Company for property or services in an amount which, in any of the last three fiscal years, exceeds the greater of $1 million, or 2% of such other company’s consolidated gross revenues;

 

•     A director who is (or was within the last three years) an employee, or whose immediate family member is (or was within the last three years) an executive officer, of the Company;

 

•     A director who has received, or whose immediate family member has received, during any twelve-month period within the last three years, more than $120,000 in direct compensation from the Company, other than director and committee fees and pension or other forms of deferred compensation for prior service (provided such compensation is not contingent in any way on continued service);

 

•     (A) A director who is, or whose immediate family member is, a current partner of a firm that is the Company’s internal or external auditor; (B) a director who is a current employee of a firm that is the Company’s internal or external auditor; (C) a director whose immediate family member is a current employee of a firm that is the Company’s internal or external auditor and personally works on the Company’s audit; or (D) a director who was, or whose immediate family member was, within the last three years (but is no longer) a partner or employee of a firm that is the Company’s internal or external auditor and personally worked on the Company’s audit within that time;

 

•     A director who is (or was within the last three years), or whose immediate family member is (or was within the last three years), an executive officer of another company where any of the Company’s current executive officers at the same time serve or served on the other company’s compensation committee;

 

•     A director who is (or was within the last three years) an executive officer of another company that is indebted to the Company, or to which the Company is indebted, in an amount that exceeds one percent (1%) of the total consolidated assets of the other company; and

 

•     A director who is a current executive officer of a tax exempt organization that, within the last three years, received discretionary contributions from the Company in an amount that, in any single fiscal year, exceeded the greater of $1 million or 2% of such tax exempt organization’s consolidated gross revenues. (Any automatic matching by the Company of employee charitable contributions will not be included in the amount of the Company’s contributions for this purpose.)

 

Ownership of a significant amount of the Company’s stock, by itself, does not constitute a material relationship. For relationships not covered by these standards, the determination of whether a material relationship exists shall be made by the other members of the Board who are independent (as defined above).

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The Board has determined that each of Mses. Lewent and Ullian, Messrs. Bell, Kaufman, Lynch, Manning, Manzi, Parrett and Sperling, and Drs. Jacks and Porter is “independent” in accordance with the Company’s Corporate Governance Guidelines and Section 303A.02 of the listing standards of the NYSE. Each of Mses. Lewent and Ullian, Messrs. Kaufman, Lynch, Manning, Manzi, Parrett and Sperling, and Dr. Porter has no relationship with the Company, other than any relationship that is categorically not material under the guidelines shown above and other than compensation for services as a director as disclosed in this proxy statement under “DIRECTOR COMPENSATION.” Dr. Jacks is a professor at the Massachusetts Institute of Technology (“MIT”), and is the director of the David H. Koch Institute for Integrative Cancer Research at MIT. He is also an employee of and investigator for the Howard Hughes Medical Institute (“HHMI”). MIT and HHMI purchase certain products and services from the Company in the ordinary course of business. Dr. Jacks is not a partner of, controlling shareholder in, or executive officer of either MIT or HHMI. The independent directors (other than Dr. Jacks) determined that neither Dr. Jacks’ position at MIT, nor his employment by HHMI, is material to his independence as a director of the Company. The independent directors (other than Mr. Bell) also determined that Mr. Bell’s relationship with Monitor Clipper Partners, a private equity firm that manages two funds in which a Company pension plan is an investor, is not material to his independence as a director of the Company (see “Transactions with Related Persons” on page 49).

 

The Board met nine times during 2009. During 2009, each of our directors attended at least 75% of the total number of meetings of the Board and the committees of which such director was a member. The Board has a standing Audit Committee, Compensation Committee and Nominating and Corporate Governance Committee. The Company encourages, but does not require, the members of its Board to attend the annual meeting of stockholders. Last year, five of our directors attended the 2009 Annual Meeting of Stockholders.

 

Audit Committee

 

The Audit Committee is responsible for assisting the Board in its oversight of the integrity of the Company’s financial statements, the Company’s compliance with legal and regulatory requirements, the independent auditor’s qualifications and independence, and the performance of the Company’s internal audit function and independent auditors. Certain responsibilities of our Audit Committee and its activities during fiscal 2009 are described with more specificity in the Report of the Audit Committee in this proxy statement under the heading “REPORT OF THE AUDIT COMMITTEE.” The charter of the Audit Committee is available on the Company’s website at www.thermofisher.com.

 

The current members of our Audit Committee are Messrs. Parrett (Chairman), Lynch and Manning. The Board has determined that each of the members of the Audit Committee is “independent” within the meaning of SEC rules and regulations, the listing standards of the NYSE, and the Company’s Corporate Governance Guidelines, and that each is “financially literate” as is required by the listing standards of the NYSE. The Board has also determined that each of Messrs. Parrett and Manning qualifies as an “audit committee financial expert” within the meaning of SEC rules and regulations, and that they each have accounting and related financial management expertise as is required by the listing standards of the NYSE. The Board has determined that Mr. Parrett’s membership on four audit committees does not impair his ability to effectively serve on the Company’s Audit Committee. The Audit Committee met 12 times during 2009.

 

Compensation Committee

 

The Compensation Committee is responsible for reviewing and approving compensation matters with respect to the Company’s chief executive officer and its other officers, reviewing and recommending to the Board management succession plans, and administering equity-based plans. Certain responsibilities of our Compensation Committee and its activities during 2009 are described in this proxy statement under the heading “Compensation Discussion and Analysis.” The Compensation Committee also periodically reviews our director compensation, and makes recommendations on this topic to the Board as it deems appropriate, as described under the heading “DIRECTOR COMPENSATION.” The charter of the Compensation Committee is available on the Company’s website at www.thermofisher.com.

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The current members of our Compensation Committee are Messrs. Sperling (Chairman), Jacks and Lynch and Ms. Ullian. The Board has determined that each of the members of the Compensation Committee is “independent” within the meaning of the listing standards of the NYSE and the Company’s Corporate Governance Guidelines. The Compensation Committee met 13 times during 2009.

 

Role of Consultant

 

The Compensation Committee has sole authority to retain and terminate a compensation consultant to assist in the evaluation of CEO or senior executive compensation. Since October 2007, the Committee has retained Pearl Meyer & Partners (“PM&P”) as its independent compensation consultant. PM&P does not provide any other services to the Company.

 

The consultant compiles information regarding the components and mix (short-term/long-term; fixed/variable; cash/equity) of the executive compensation programs of the Company and its peer groups (see page 13 of this proxy statement for further detail regarding the peer groups), analyzes the relative performance of the Company and the peer groups with respect to the financial metrics used in the programs, and provides advice to the Compensation Committee regarding the Company’s programs. The consultant also provides information regarding emerging trends and best practices in executive compensation.

 

The consultant retained by the Compensation Committee reports to the Compensation Committee Chair and has direct access to Committee members. The consultant periodically attends Committee meetings either in person or by telephone, and meets with the Committee in executive session without management present.

 

Nominating and Corporate Governance Committee

 

The Nominating and Corporate Governance Committee is responsible for identifying persons qualified to serve as members of the Board, recommending to the Board persons to be nominated by the Board for election as directors at the annual meeting of stockholders and persons to be elected by the Board to fill any vacancies, and recommending to the Board the directors to be appointed to each of its committees. In addition, the Nominating and Corporate Governance Committee is responsible for developing and recommending to the Board a set of corporate governance guidelines applicable to the Company (as well as reviewing and reassessing the adequacy of such guidelines as it deems appropriate from time to time) and overseeing the annual self-evaluation of the Board. The charter of the Nominating and Corporate Governance Committee is available on the Company’s website at www.thermofisher.com.

 

The current members of our Nominating and Corporate Governance Committee are Dr. Porter (Chairman) and Messrs. Bell, Lynch and Sperling. The Board has determined that each of the members of the Nominating and Corporate Governance Committee is “independent” within the meaning of the listing standards of the NYSE and the Company’s Corporate Governance Guidelines. The Nominating and Corporate Governance Committee met six times during 2009.

 

We separate the roles of Chief Executive Officer and Chairman of the Board in recognition of the differences between the two roles. The CEO is responsible for setting the strategic direction for the Company and the day to day leadership and performance of the Company, while the Chairman of the Board provides guidance to the CEO and sets the agenda for Board meetings and presides over meetings of the Board.

 

Our Board oversees our risk management processes directly and through its committees. Our management is responsible for risk management on a day-to-day basis. The role of our Board and its committees is to oversee the risk management activities of management. The Audit Committee assists the board in fulfilling its oversight responsibilities with respect to risk management in the areas of financial reporting, internal controls and compliance with legal and regulatory requirements, and, in accordance with NYSE requirements, discusses policies with respect to risk assessment and risk management, including guidelines and policies to govern the

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process by which the Company’s exposure to risk is handled. Risk assessment reports are periodically provided by management to the Audit Committee. The Compensation Committee assists the Board in fulfilling its oversight responsibilities with respect to the management of risks arising from our compensation policies and programs. The Nominating and Corporate Governance Committee assists the Board in fulfilling its oversight responsibilities with respect to the management of risks associated with board organization, membership and structure, succession planning for our directors, and corporate governance.

 

In accordance with the listing standards of the NYSE and the Company’s Corporate Governance Guidelines, independent directors meet at least twice a year in an executive session without management and at such other times as may be requested by any independent director. Through February 2009, Ms. Ullian served as presiding director at the meetings of the Company’s independent directors held in executive session without management. Effective February 26, 2009, Jim P. Manzi, as the Chairman of the Board, was chosen to preside at the meetings of the Company’s independent directors held in executive session without management.

 

The Board has established a process for stockholders and other interested parties to send communications to the Board or any individual director or groups of directors, including the Chairman of the Board and the independent directors. Stockholders and other interested parties who desire to send communications to the Board or any individual director or groups of directors should write to the Board or such individual director or group of directors care of the Company’s Corporate Secretary, Thermo Fisher Scientific Inc., 81 Wyman Street, Waltham, Massachusetts 02451. The Corporate Secretary will relay all such communications to the Board, or individual director or group of directors, as the case may be.

 

The Compensation Committee oversees our executive compensation program for officers. In this role, the Compensation Committee reviews and approves annually all compensation decisions relating to our named executive officers. Our named executive officers for the year ended December 31, 2009 are Marc N. Casper, President and Chief Executive Officer, Peter M. Wilver, Senior Vice President and Chief Financial Officer, Gregory J. Herrema, Senior Vice President, Alan J. Malus, Senior Vice President, Edward A. Pesicka, Senior Vice President, and Marijn E. Dekkers, Former President and Chief Executive Officer.

 

Objectives and Philosophy of Our Executive Compensation Program

 

The primary objectives of our executive compensation program are to:

 

•     attract and retain the best possible executive talent;

 

•     ensure executive compensation is aligned with our corporate strategies and business objectives;

 

•     promote the achievement of key strategic and financial performance measures by linking annual cash incentives to the achievement of corporate performance goals;

 

•     motivate the Company’s officers in creating long-term value for the Company’s stockholders and achieving other business objectives of the Company; and

 

•     encourage stock ownership by the Company’s officers in order to align their financial interests with the long-term interests of the Company’s stockholders.

 

To achieve these objectives, the Compensation Committee evaluates our compensation program for officers with the goal of setting compensation at levels the Committee believes are competitive with those of

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other peer companies that compete with us for executive talent. In addition, our executive compensation program ties a substantial portion of each executive’s overall cash compensation to key strategic, financial and operational goals such as revenue growth, margin expansion, and new product introductions. We also provide a portion of our executive compensation in the form of stock options, restricted stock and restricted stock unit grants (both time-based and performance-based), which we believe helps to retain our executives and aligns their interests with those of our stockholders by allowing them to participate in the longer term success of the Company as reflected in stock price.

 

The Compensation Committee uses market surveys and analyses prepared by outside consulting firms to stay informed of developments in the design of compensation packages generally and to benchmark our officer compensation program against those of companies with whom we compete for executive talent to ensure our compensation program is in line with current marketplace standards. The Compensation Committee generally targets compensation for executives near (e.g., within 10%) the median of the pay levels derived from the compensation consultants’ studies. Variations to this general target may occur as dictated by individual circumstances.

 

Typically, during the first calendar quarter of each year, the chief executive officer makes a recommendation to the Compensation Committee with respect to annual salary increases and bonuses, and annual stock option and restricted stock awards, if any, for executive officers other than himself, which is then reviewed and approved by the Compensation Committee. The Compensation Committee annually reviews the individual performance evaluations for the named executive officers, and, usually in February, determines their compensation changes and awards after receiving input from the independent directors of the Board. As part of this process, the Compensation Committee also reviews, with respect to each named executive officer, the current value of prior equity grants, the balances in deferred compensation accounts, and the amount of compensation the executive officer would receive if he left the Company under a variety of circumstances.

 

Components of our Executive Compensation Program

 

The primary elements of our executive compensation program are:

 

 

We do not have any formal or informal policy or target for allocating compensation between cash and non-cash compensation or among the different forms of non-cash compensation. Instead, the Compensation Committee, after reviewing information provided by compensation consultants, determines what it believes in its business judgment to be the appropriate level of each of the various compensation components.

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The Committee believes that the Company’s executive compensation program supports the executive compensation objectives described above without encouraging management to take unreasonable risk with respect to Thermo Fisher’s business. The Committee believes that the program’s use of long-term, equity based compensation, the use of both options and restricted stock awards, and our stock ownership guidelines all encourage management to take a long-term view of Thermo Fisher’s performance and discourage unreasonable risk-taking. The Committee has reviewed our key compensation policies and practices and concluded that any risks arising from our policies and programs are not reasonably likely to have a material adverse effect on the Company.

 

In late 2007, the Committee directly engaged Pearl Meyer & Partners (“PM&P”), a compensation consulting firm, to assist the Committee in its review and evaluation of the compensation for the executive officers. PM&P provides no services to the Company other than to the Compensation Committee, and is therefore entirely independent of the management of the Company. In making decisions on 2009 salary changes, the setting of 2009 target annual cash incentive bonuses as a percentage of salary, and equity award decisions in February 2009, the Committee considered the market study prepared by PM&P in late 2007, which included data from three peer groups (the core peer group, the broader industry peer group, and the small competitors peer group) of publicly-traded companies as well as industry survey data for other companies that were deemed relevant by PM&P. PM&P did not consult with management in developing its peer groups or in providing its analysis to the Compensation Committee. The core peer group represents companies most similar to Thermo Fisher in terms of size and industry. The companies included in the core peer group at that time were:

 

 

The broader industry peer group represented companies that were of similar size as compared to Thermo Fisher and that compete in broader, but related, industries. The broader industry peer group consisted of:

 

 

The small competitors peer group represented companies that were similar to Thermo Fisher in product or service offerings, but had annual revenues less than one-third that of Thermo Fisher. The small competitors peer group consisted of:

 

 

PM&P employed regression analysis techniques in order to examine the relationship between company revenue size and pay, and used that relationship to calculate predicted pay values for a company of Thermo Fisher’s size. For Messrs. Wilver and Dekkers, PM&P used a blend of size-regressed peer group data and size-regressed industry survey data. For Mr. Casper (in the Chief Operating Officer position), PM&P used size-regressed broader industry peer group data only, due to an inadequate sample size in core peer companies. For

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Mr. Malus, and the positions currently held by Messrs. Herrema and Pesicka, PM&P used size-regressed peer group data only, because for these operational positions, PM&P deemed the core peer group data more relevant than broader industry survey data that would represent a wider range of businesses.

 

Base Salary

 

Base salary is used to recognize the experience, skills, knowledge and responsibilities required of all our employees, including our executive officers. Generally, we believe that executive base salaries should be near (e.g., within 10%) the median of the range of salaries for executives in similar positions at comparable companies determined in a manner consistent with the PM&P report, but with variations as dictated by individual circumstances. Base salaries are generally reviewed annually by our Compensation Committee in February and changes are effective in late March/early April of that year. In making base salary decisions, the Committee takes into account a variety of factors, including the level of the individual’s responsibility, the length of time the individual has been in that position, the ability to replace the individual and the current base salary of the individual. In late February 2009, the Compensation Committee increased the salaries of our executive officers for 2009 (effective March 2009) in accordance with our standard annual compensation review with reference to the PM&P study conducted in late 2007. The 2009 base salaries for the named executive officers were set consistent with our philosophy of keeping salaries near the median derived from the PM&P study. Increases were in the range of 2.8% to 3.0%, with the exception of Mr. Pesicka, who received an 8.8% increase, in light of his strong performance, a review of the market data developed by PM&P as described above, and an internal comparison to the salaries for Messrs. Herrema and Malus.

 

Base salaries were increased as reflected in the table below.

 

 

In connection with his appointment as President and Chief Executive Officer of the Company, Mr. Casper received a base salary increase effective September 15, 2009, to $930,000. (See “Chief Executive Officer Promotion” below.)

 

Annual Cash Incentive Bonus

 

Annual cash incentive awards for the Company’s executive officers for 2009 were granted under the Company’s 2008 Annual Incentive Award Plan (the “162(m) Plan”), which was approved by the stockholders of the Company at its 2008 Annual Meeting of Stockholders. The 162(m) Plan was adopted to preserve the tax deductibility of the annual bonus that may be earned by executive officers of the Company. The actual amounts paid are subject to the application by the Compensation Committee of negative discretion under the 162(m) Plan, as described below.

 

Under the 162(m) Plan, in the first quarter of a calendar year the Compensation Committee selects a performance goal for the year. For 2009, the Committee selected the financial measure of earnings before interest, taxes and amortization, excluding the impact of restructurings, discontinued operations, extraordinary items, cost of revenues charges associated with acquisitions or restructurings, gains/losses from the sale of a business or real estate, the early retirement of debt and debt facilities and other unusual or nonrecurring items, the cumulative effects of accounting changes, tax provisions/benefits related to the previous items, benefits from tax credit carryforwards, the impact of significant tax audits or events, and certain other items (“Adjusted Operating Income”). The Committee selected this financial measure, as opposed to an income measure computed

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under generally accepted accounting principles (GAAP), because this measure is consistent with how management measures and forecasts the Company’s performance, especially when comparing such results to previous periods or forecasts. The maximum award payable in any year under the 162(m) Plan to an executive officer is $5,000,000. Each executive officer was awarded a percentage of Adjusted Operating Income for the year, subject to the right of the Committee to lower, but not raise, the actual bonuses paid. In February 2010, the Compensation Committee elected to lower the 2009 bonuses payable under the 162(m) Plan to the amounts computed in accordance with the process described below for the Company’s annual incentive program for the year based on the Compensation Committee’s determinations as to the level of achievement of the supplemental performance measures under the Company’s annual incentive program for 2009.

 

Typically, in the first quarter of a calendar year, the Compensation Committee also establishes a target incentive cash award amount under the Company’s annual incentive program for each officer of the Company, including executive officers. This amount, which is a percentage of base salary, is determined by the Compensation Committee based on the salary level of the officer, the position of the officer within the Company and input from the compensation consultant. The amount actually awarded to an officer, which can range from 0 to 200% of target, varies primarily based on performance of the Company as a whole with respect to financial and non-financial measures, but is subject to adjustment based on the Committee’s subjective evaluation of an officer’s contributions to those results. The Committee generally sets the goals such that the target payout (100% of target bonus) represents attractive financial performance within our industry and can be reasonably expected to be achieved; and payouts above 150% of this target require outstanding performance.

 

Because of the uncertainty regarding the duration and extent of the recent global recession, the Compensation Committee elected to split 2009 into two six-month periods for purposes of selecting annual incentive compensation financial criteria, in order to provide an opportunity to reassess mid-year the appropriateness of the goals for the second six months of 2009. For the first six months of 2009, the financial measures established by the Compensation Committee under the Company’s annual incentive program were (i) revenue (adjusted for the impact of acquisitions and divestitures and for foreign currency changes) and (ii) earnings (adjusted for restructuring charges and certain other items of income or expense) before interest, taxes and amortization as a percentage of revenue. For both of the financial measures, the Company’s actual performance was measured relative to the Company’s internal operating goals for the first six months of 2009. In July, the Committee established different revenue and earnings as a percentage of revenue performance metrics for the second half of 2009 for assessing the performance of the executives under the Company’s annual cash incentive program for that period. The weighting of the financial measures for the first six months of 2009 was as follows: 35% for the revenue growth goal and 35% for the earnings as a percentage of revenue goal. The remaining 30% was based on company-wide, non-financial measures, which would be measured at the end of the year for all of 2009, and were as follows: the achievement of employee and customer allegiance goals, increased new product introduction, organic revenue growth relative to the Company’s peer group, the completion of certain information technology investments, and the continuation of building a diverse workforce. For the revenue growth element for the first half of 2009, the baseline target (for 100% payout) was -5.77% growth and actual results were -6.23%, yielding a payout of 88% of target. For the earnings as a percentage of revenue element, the baseline target was 16.23% of revenue at an assumed revenue decline of 5.77%. The actual results were 16.20% at the actual revenue decline of 6.23%, which translated to a payout of 106% of target, reflecting the difficulty in maintaining the earnings margin in light of decreasing revenue. The weighting of the financial measures for the second six months of 2009 was also 35% for the revenue growth goal and 35% for the adjusted earnings as a percentage of revenue goal. For the revenue growth element for the second half of 2009, the baseline target (for 100% payout) was -1.78% growth and actual results were -0.27%, yielding a payout of 138% of target. For the earnings as a percentage of revenue element, the baseline target was 17.20% of revenue at an assumed revenue decline of 1.78% and the actual results were 17.64% at the actual revenue decline of 0.27%, which translated to a payout of 140% of target. For the revenue growth element, combined first and second half results yielded a payout of 113% of target for the full year. For the earnings as a percentage of revenue element, combined first and second half results yielded a payout of 123% of target. The Committee concluded that actual achievement against the non-financial measures was at a 100% payout level.

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The process described above resulted in a preliminary overall achievement calculation of 113% of target bonus for each of the named executive officers. In light of unprecedented economic conditions that existed in 2009, Mr. Casper recommended and the Committee agreed that Messrs. Casper and Wilver (as corporate executives) would receive bonuses at 100% of target, rather than at 113% of target. Messrs. Herrema, Malus and Pesicka (as operating executives) were awarded 90%, 120% and 120% of target bonus, respectively, to reflect the performances of the operating businesses which they manage.

 

The target bonus awards and actual bonus awards for 2009 for the named executive officers were as follows:

 

 

 

Stock Option and Restricted Stock Awards

 

Our equity award program is the primary vehicle for offering long-term incentives to our executives. We believe that equity grants provide our executives with a strong link to our long-term performance, create an ownership culture and help to align the interests of our executives and our stockholders. In addition, the vesting feature of our equity grants should further our goal of executive retention because this feature provides an incentive to our executives to remain in our employ during the vesting period. In determining the size of equity grants to our executives, our Compensation Committee considers the recommendations of the chief executive officer with respect to awards to our executives other than the chief executive officer, and input from the independent directors of the Board with respect to awards to our chief executive officer. The Committee then decides how much of these values should be delivered by each of the long-term incentive vehicles utilized by the Company, such as stock options, restricted stock units or restricted stock awards.

 

We typically make an initial equity award of stock options to new executives when they become executives and to newly promoted executives to reflect their new responsibilities, and annual equity grants in late February as part of our overall compensation program. Our equity awards have typically taken the form of stock options and restricted stock grants, both performance-based and time-based. In February 2009 the Committee decided to grant restricted stock units rather than shares of restricted stock, as described below. Because restricted shares and restricted stock units have a built-in value at the time the grants are made, we generally grant significantly fewer shares of restricted stock than the number of stock options we would grant for a similar purpose. All grants of options, restricted stock and restricted stock units to our officers are approved by the Compensation Committee. The timing of the Compensation Committee meeting in late February is such that the meeting occurs after we have publicly released earnings for the just-completed year. We generally intend that the annualized value of equity awards to our named executive officers at the time of grant will approximate the median market consensus of companies in our compensation peer groups as determined in a manner consistent with the PM&P report.

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Typically, the stock options we grant to our named executive officers vest over the first three to five years of a seven-year option term, and time-based restricted stock awards vest equally over three years. Vesting normally ceases upon termination of employment, except for acceleration upon certain qualifying retirements, death, disability, and in the case of certain terminations for Mr. Casper (see “Agreements with Named Executive Officers; Potential Payments upon Termination or Change in Control” on page 33). Stock option exercise rights normally cease for officers other than Mr. Casper shortly after termination, except for in the cases of death, disability and qualifying retirement. Prior to the exercise of an option, the holder has no rights as a stockholder with respect to the shares subject to such option, including voting rights and the right to receive dividends or dividend equivalents. Prior to the vesting of restricted stock, the holder has no right to transfer the shares but has voting rights and the right to receive dividends (if being paid) with respect to the shares. In February 2009 we began granting restricted stock units to our named executive officers instead of restricted stock. The decision to grant restricted stock units was intended to minimize potential unintended tax consequences for those employees approaching retirement eligibility. Prior to the vesting of restricted stock units (which represent a right in the future to receive shares), the holder has no right to transfer, vote, or receive dividends with respect to the underlying shares.

 

Our practice is to set the exercise price of stock options to officers to equal the closing price of our Common Stock on the New York Stock Exchange on the date the grant is approved by the Compensation Committee or the Employee Equity Committee. Newly hired or promoted employees, other than officers, normally are granted stock options by the Employee Equity Committee, which consists of Mr. Casper. These grants are made once per quarter, after we have publicly released earnings for the previous quarter. Grants over 25,000 shares to any individual, and all grants to officers, may only be approved by the Compensation Committee.

 

On February 26, 2009, in connection with the normal compensation cycle, the Committee granted stock options, and time-based and performance-based restricted stock units to Messrs. Wilver, Herrema, Malus and Pesicka. PM&P provided the Committee with a market consensus median grant level (in dollars) for each of Messrs. Wilver, Herrema, Malus and Pesicka. The Committee adjusted these amounts to reflect its judgment on matters of internal fairness, the impact of broader economic conditions on the Company’s stock price, and the retentive and incentive value of prior grants to these individuals. The adjusted amounts were then converted to numbers of stock options and restricted stock units, with 40% of the value being delivered through stock options, 30% through time-based restricted stock units, and 30% through performance-based restricted stock units. The Committee adopted this allocation because it supports our strategy of providing executives with a balanced portfolio of equity vehicles and is reflective of market practice for our peer companies. With respect to the performance-based restricted stock units, the executives would have the ability to earn up to 160% of the target number of shares based on the Company’s achievement of the maximum performance metric.

 

The 2009 stock options and time-based restricted stock units vest in equal annual installments over the three-year period commencing on the date of grant (i.e., the first 1/3 of a stock option or restricted stock unit would vest on the first anniversary of the date of grant) so long as the executive officer is employed by the Company on each such date (subject to certain exceptions).

 

In connection with the awards of performance-based restricted stock units, the Compensation Committee adopted as a performance goal a range of improvement in modified earnings per share (which we define as adjusted earnings per share excluding the impact of share buybacks effected in 2009). If the Company’s 2009 modified EPS were equal to or greater than $2.59, then the executives would be entitled to a number of shares ranging from 60% to 160% of the target number of shares granted. Modified EPS of $3.01 for 2009 led to an actual payout of 94.29% of the target number of units for each executive. One-third of the total number of units earned vested in February 2010, and the same number of restricted shares will vest on both the first anniversary and the second anniversary of this vesting date so long as the executive officer is employed by the Company on each such date (subject to certain exceptions).

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Chief Executive Officer Promotion

 

On October 15, 2009, Marc N. Casper, then Executive Vice President and Chief Operating Officer of the Company, became President and Chief Executive Officer of the Company. In connection with this promotion, the Committee engaged PM&P to assist it in selecting an appropriate compensation level for Mr. Casper. PM&P’s report and recommendations were based on research involving eight large company internal CEO promotions over the 18 months prior to Mr. Casper’s promotion. These eight companies were: Advanced Micro Devices, Inc., Alcoa, Inc., Anixter Inc., Arrow Electronics, Inc., Dover Corporation, Eastman Chemical Company, W. W. Grainger, Inc. and Xerox Corporation. The $2 million target cash compensation approved for Mr. Casper by the Committee (a base salary of $930,000 and a bonus target of 115% of base salary) was in line with the data presented in the PM&P study and amounted to a 38% increase in total target cash compensation. These compensation changes were retroactive to September 15, 2009, the day the Board voted to promote him to Chief Executive Officer.

 

PM&P also provided market research to the Committee relating to equity grants for Mr. Casper in connection with his promotion. The PM&P report concluded that there were wide variations in promotional equity grants for the eight large companies studied. PM&P also recommended updates to the Company’s peer groups (from the December 2007 PM&P report) in connection with this report, in order to take into consideration recent business combinations and other factors, such as changes in peer company profiles (including size and business model) since the earlier report. Based on these recommendations, the Committee used the following peer group rosters.

 

The updated core peer group represents companies most similar to Thermo Fisher in terms of size and industry. The companies included in the core peer group are:

 

 

The updated small competitors peer group represents companies that are similar to Thermo Fisher in product or service offerings, but have significantly lower revenues than Thermo Fisher. The small competitors peer group consists of:

 

 

PM&P also provided research relating to the size of annual equity grants to CEOs for the companies in the Company’s core peer group and small competitors peer group (adjusting to $10 billion in sales), and isolated grants to new CEOs with less than four years of tenure (at Agilent, Becton Dickinson, Medtronic, PerkinElmer, Sigma-Aldrich and Zimmer Holdings). After adjusting to $10 billion in sales, the annual grant value for this subset of companies approximated $6 million. The Committee added 30% to this median annual grant award value to balance the extended vesting schedules, the one year delay in delivery of the restricted stock units after vesting, the required holding periods for shares issued upon vesting of restricted stock units, the greater risk from having a significant portion of the grant value in performance-based vehicles, and the removal of the Section 280G excise tax gross-up that was included in Mr. Casper’s previous change in control agreement. The equity grants approved by the Committee for Mr. Casper represent the equivalent of 3.5 years of annual grants at this level, in order to maximize the retention value of the grants. The terms of these grants are described in greater detail below.

 

In November 2009, Mr. Casper was granted options to purchase 600,000 shares of the Company’s Common Stock. These options (a) vest in equal annual installments over the five-year period commencing on the second anniversary of the date of grant (i.e., the first 1/5 of the stock option grant would vest on the second anniversary of the date of grant) so long as Mr. Casper is employed by the Company on each such date

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(subject to certain exceptions), (b) have an exercise price equal to $46.56, and (c) have a term of 10 years from the grant date.

 

Mr. Casper was also granted performance-based options to purchase 100,000 shares of the Company’s Common Stock. The options vest in one installment on the day the performance goal related to the Company’s stock price for any 20 consecutive trading days ending during the period October 15, 2009 through November 21, 2019 has been achieved, and the performance goal related to the Company’s total shareholder return between October 15, 2009 and the date the performance goal related to the Company’s stock price, or later (but no later than November 21, 2019), is achieved, relative to the performance of the S&P 500 Industrials Index for the same period, so long as Mr. Casper is employed by the Company on each such date (subject to certain exceptions). The options have an exercise price equal to $46.56, and a term of 10 years from the grant date. Because the level of achievement required to vest is a function of external market factors, the likelihood of any particular outcome is not ascertainable; however, for financial reporting purposes the grant date fair value of the award has been estimated based on a Monte Carlo simulation of a variety of outcomes. See footnotes to the Summary Compensation Table on page 22.

 

Mr. Casper was granted 200,000 time-based restricted stock units of the Company. The time-based restricted stock units vest in equal annual installments over the four-year period commencing on February 15, 2012 (i.e., the first 1/4 of the restricted stock unit grant would vest on February 15, 2012) so long as Mr. Casper is employed by the Company on each such date (subject to certain exceptions).

 

Mr. Casper was granted up to 400,000 performance-based restricted stock units of the Company. The number of performance-based restricted stock units to be earned (from 0 to 400,000) is based on the Company’s total shareholder return for each of the applicable measurement periods, relative to the performance of the S&P 500 Industrials Index for the same period, assuming continued employment (subject to certain exceptions). From 0 to 100,000 performance-based restricted stock units will vest after each of the following four measurement periods: (1) October 15, 2009 through February 15, 2012, (2) October 15, 2009 through February 15, 2013, (3) October 15, 2009 through February 15, 2014, and (4) October 15, 2009 through February 15, 2015. Because the level of achievement required to vest is a function of external market factors, the likelihood of any particular outcome is not ascertainable; however, for financial reporting purposes the grant date fair value of the award has been estimated based on a Monte Carlo simulation of a variety of outcomes. See footnotes to the Summary Compensation Table on page 22.

 

Shares issuable upon vesting of the 2009 restricted stock units would be delivered to Mr. Casper on the first anniversary of the applicable vesting date, subject to certain exceptions. Mr. Casper is required to hold 50% of the shares delivered (net of shares withheld for taxes) for a period of two years after delivery, subject to certain exceptions.

 

Stock Ownership Policy

 

The Compensation Committee has established a stock holding policy that the chief executive officer holds shares of Common Stock equal in value to at least four times his annual base salary and that each other executive officer hold shares of Common Stock equal in value to at least two times his or her annual base salary. For purposes of this policy, shares of time-based restricted Common Stock are counted towards the target. All of our named executive officers are currently in compliance with this policy.

 

Benefits and Other Compensation

 

We maintain broad-based benefits that are provided to all employees, including health and dental insurance, life and disability insurance and a 401(k) plan. Executives are eligible to participate in all of our employee benefit plans, in each case on the same basis as other employees. The 401(k) plan is a tax-qualified retirement savings plan pursuant to which all U.S. based employees, including officers, are able to contribute a percentage of their annual salary up to the limit prescribed by the Internal Revenue Service (the “IRS”) to the 401(k) plan on a before-tax basis. The Company matches contributions made by employees to the 401(k) plan, dollar for dollar, up to the first 6 percent of compensation deferred by the employee to the plan. Employees

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were capped at contributing 6% of $245,000 for 2009 in accordance with the IRS annual compensation limit. All contributions to the 401(k) plan as well as any matching contributions are fully-vested upon contribution.

 

The named executive officers, in addition to certain other U.S.-based eligible executives, are entitled to participate in the Company’s Deferred Compensation Plan. Pursuant to the Deferred Compensation Plan, an eligible employee can defer receipt of his or her annual base salary and/or bonus until he or she ceases to serve as an employee of the Company or until a future date while the participant continues to be an employee of the Company. The Deferred Compensation Plan is discussed in further detail under the heading “Nonqualified Deferred Compensation For 2009” on page 30. Amounts deferred under this plan can be invested in an array of mutual funds and vehicles administered by The Newport Group. The Company does not guarantee any above-market interest rates or rates of return on these deferred amounts. On January 1, 2009, the Company began matching 100% of the first 6% of pay that is deferred into the Deferred Compensation Plan over the IRS annual compensation limit for 401(k) purposes. In connection with the introduction of this new match benefit, the Committee approved a one-time credit in the deferred compensation accounts of eligible Plan participants who had not previously elected to defer 6% of their 2008 bonus, payable in March 2009. (Internal Revenue Code Section 409A effectively prohibited these eligible participants from making deferrals of the 2008 bonus in 2008 after the new match feature was approved.) In order to receive this one-time credit, eligible plan participants who did not elect to defer a portion of their 2008 bonus and who are officers of the Company were also required to defer at least 6% of their 2009 salary to the plan.

 

The Company provides officers with perquisites and other personal benefits that the Company and the Compensation Committee believe are reasonable and consistent with its overall compensation program to better enable the Company to attract and retain superior employees for key positions. Each named executive officer receives supplemental long-term disability and life insurance, and access to emergency medical service through Massachusetts General Hospital’s global hospital network. Additionally, the Company provides a $3 million term life insurance policy to Marc Casper. Attributed costs of the personal benefits described above for the named executive officers for 2009 are described in the “Summary Compensation Table” on page 22.

 

Severance and Change in Control Benefits

 

Pursuant to our equity plans and agreements we have entered into with our executives, in the event of the termination of their employment under certain circumstances or a change in control, they are entitled to specified benefits. We have provided more detailed information about these benefits, along with estimates of their value under various circumstances, under the caption “Agreements with Named Executive Officers; Potential Payments Upon Termination or Change in Control” on page 33. We believe providing these benefits helps us compete for executive talent and that our severance and change in control benefits are generally in line with severance packages offered to comparable executives at other companies.

 

We have executive change in control retention agreements with our executives that provide cash and other severance benefits if there is a change in control of the Company and their employment is terminated by the Company without “cause” or by the individual for “good reason,” as those terms are defined therein, in each case within 18 months thereafter. We also have an executive severance policy that provides severance benefits to our executives (other than Mr. Casper) in the event their employment is terminated by the Company without “cause” (as such term is defined therein) in the absence of a change in control. Mr. Casper’s severance arrangements are provided in a separate agreement between him and the Company. The change in control retention agreements and executive severance arrangements are described in greater detail under the caption “Agreements with Named Executive Officers; Potential Payments Upon Termination or Change in Control” on page 33.

 

In February 2009, the Committee approved a new form of executive change in control agreements for executives joining the Company after February 2009. The new form of change in control agreement eliminates any tax gross-up provision, as the Company does not intend to extend tax gross-ups in future compensation arrangements.

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Tax and Accounting Considerations

 

Deductibility of Executive Compensation

 

The Compensation Committee considers the potential effect of Section 162(m) of the Internal Revenue Code of 1986 as amended (the “Code”), in designing its compensation program, but reserves the right to use its independent judgment to approve nondeductible compensation, while taking into account the financial effects such action may have on the Company. Section 162(m) limits the tax deduction available to public companies for annual compensation that is paid to the Company’s chief executive officer and three other most highly paid executive officers (other than the chief financial officer) in excess of $1,000,000, unless the compensation qualifies as “performance-based” or is otherwise exempt from Section 162(m). Stock options, performance-based restricted stock and restricted stock unit awards and annual incentive cash bonuses for the executive officers are intended to qualify for the deduction. However, the portion of the compensation for Messrs. Casper and Malus that was in excess of $1,000,000 individually and that does not qualify as performance-based compensation was approximately $485,000 and $266,452 for Messrs. Casper and Malus, respectively, which will not be deductible for 2009.

 

Accounting Considerations

 

Accounting considerations also play an important role in the design of our executive compensation programs and policies. ASC 718 requires us to expense the cost of stock-based compensation awards. We consider the relative impact in terms of accounting cost in addition to other factors such as stockholder dilution, retentive impact, and motivational impact when selecting long-term equity incentive instruments.

 

The Compensation Committee of the Company has reviewed and discussed the Compensation Discussion and Analysis required by Item 402(b) of Regulation S-K with management and, based on such review and discussions, the Compensation Committee recommended to the Board that the Compensation Discussion and Analysis be included in this proxy statement.

 

THE COMPENSATION COMMITTEE

 

Tyler Jacks
Stephen P. Kaufman
Thomas J. Lynch
Scott M. Sperling
Elaine S. Ullian

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The following table summarizes compensation for services to the Company earned during the last three fiscal years by the Company’s chief executive officer, chief financial officer, the three other most highly compensated executive officers of the Company during 2009, and the former chief executive officer. The executive officers listed below are collectively referred to in this proxy statement as the “named executive officers.”

 

 

(1)     These amounts represent the aggregate grant date fair value of restricted stock and restricted stock unit awards made during 2009, 2008 and 2007, respectively, calculated in accordance with the Company’s financial reporting practices. For information on the valuation assumptions with respect to these awards, refer to note 5 of the Thermo Fisher financial statements in the Form 10-K for the year ended December 31, 2009, as filed with the SEC. For the November 21, 2009 performance-based restricted stock unit granted to Mr. Casper, this amount reflects the grant date fair value of such award using a Monte Carlo simulation model. The value of this award at the grant date assuming that the highest level of performance conditions was achieved is $18,624,000. For performance-based restricted stock unit awards made in February 2009 to Messrs. Wilver, Herrema, Malus and Pesicka, these amounts reflect the grant date fair value of such awards based upon the probable outcome at the time of grant. The value of these awards at the grant date assuming that the highest level of performance conditions was achieved was $901,056, $1,039,680, $1,039,680 and $1,039,680 for Messrs. Wilver, Herrema, Malus and Pesicka, respectively. For performance-based restricted stock unit awards made in February 2008 to Messrs. Casper, Wilver and Malus, these amounts reflect the grant date fair value of such awards based upon the probable outcome at the time of grant. The value of these awards at the grant date assuming that the highest level of performance conditions was achieved was $974,136, $807,392, and $763,512 for Messrs. Casper, Wilver and Malus, respectively. The amounts reflected in this column do not represent the actual amounts paid to or realized by the named executive officer for these awards during fiscal years 2009, 2008 or 2007.

 

(2)     These amounts represent the aggregate grant date fair value of stock option awards made during 2009, 2008 and 2007, respectively, calculated in accordance with the Company’s financial reporting practices. For

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information on the valuation assumptions with respect to these awards, refer to note 5 of the Thermo Fisher financial statements in the Form 10-K for the year ended December 31, 2009, as filed with the SEC. For the November 21, 2009 performance-based stock option granted to Mr. Casper, this amount reflects the grant date fair value of such award using a Monte Carlo simulation model. The value of this award at the grant date assuming that the highest level of performance conditions was achieved is $2,215,605. These amounts do not represent the actual amounts paid to or realized by the named executive officer for these awards during fiscal years 2009, 2008 or 2007. No stock options were granted to the named executive officers in 2007.

 

(3)     Reflects compensation earned for the year but paid early in the subsequent year.

 

(4)     For Messrs. Casper, Wilver, Herrema, Pesicka, and Dekkers (and Mr. Malus in 2008 and 2009), the amounts presented in this column include the entire amount of earnings (if any) for the year under investment alternatives on deferred compensation balances. For Messrs. Malus and Pesicka, the amounts presented in this column also include the actuarial increase in the present value of their benefits under the Thermo Fisher Retirement Plan during the year ($2,808 for Mr. Malus in 2008, and $2,808 and $2,104 for Messrs. Malus and Pesicka, respectively, for 2009).

 

(5)     Under SEC rules and regulations, if the total value of all perquisites and personal benefits is $10,000 or more for any named executive officer, then each perquisite or personal benefit, regardless of its amount, must be identified by type. If perquisites and personal benefits are required to be reported for a named executive officer, then each perquisite or personal benefit that exceeds the greater of $25,000 or 10% of the total amount of perquisites and personal benefits for that officer must be quantified and disclosed in a footnote. The amounts presented in this column include (a) matching contributions made on behalf of the named executive officers by the Company pursuant to the Company’s 401(k) Plan, (b) premiums paid by the Company with respect to long-term disability insurance for the benefit of the named executive officers, (c) with respect to Messrs. Casper and Dekkers, premiums paid by the Company for a term life insurance policy for the benefit of Messrs. Casper and Dekkers, respectively, (d) premiums paid by the Company with respect to supplemental group term life insurance, (e) access to emergency medical service through Massachusetts General Hospital’s global hospital network, and (f) matching contributions made on behalf of the named executive officers by the Company pursuant to the Company’s Non-Qualified Deferred Compensation Plan. For 2009, the dollar value of the principal components of these benefits was (1) $14,700 each for Messrs. Casper, Wilver, Herrema, Malus, Pesicka and Dekkers for matching 401(k) contributions, (2) $2,244, $3,010, $2,444, $3,784, $2,720 and $2,657 for Messrs. Casper, Wilver, Herrema, Malus, Pesicka and Dekkers, respectively, for long-term disability insurance premiums, (3) $11,875 and $3,260 for a term life insurance policy for Messrs. Casper and Dekkers, respectively, and (4) $77,770, $48,710, $29,157, $46,173, $36,020 and $39,537 for Messrs. Casper, Wilver, Herrema, Malus, Pesicka and Dekkers, respectively, for matching deferred compensation plan contributions.

 

(6)     Mr. Herrema became an executive officer of the Company on May 15, 2008, but was not a named executive officer for the year ended December 31, 2008.

 

(7)     Mr. Pesicka became an executive officer of the Company on July 10, 2008, but was not a named executive officer for the year ended December 31, 2008.

 

(8)     Mr. Dekkers resigned from the Company on September 15, 2009, effective October 15, 2009.

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*     All awards made during 2009 were granted under the Company’s 2008 Stock Incentive Plan.

 

(1)     Target awards are based on a percentage of the named executive officer’s salary.

 

(2)     These amounts represent the aggregate grant date fair value of stock option and restricted stock unit awards made during 2009, calculated in accordance with the Company’s financial reporting practices. For information on the valuation assumptions with respect to these awards, refer to note 5 of the Thermo Fisher financial statements in the Form 10-K for the year ended December 31, 2009, as filed with the SEC. For performance-based awards for Mr. Casper, these amounts reflect the grant date fair value of each award using a Monte Carlo simulation model. For performance-based awards for Messrs. Wilver, Herrema, Malus and Pesicka, these amounts reflect the grant date fair value of each award based upon the probable outcome at the time of grant. Please see the footnotes to the Summary Compensation Table on page 22 for the grant date fair value of each award assuming that the highest level of performance conditions was achieved. The amounts reflected in this column do not represent the actual amounts paid to or realized by the named executive officer for these awards during fiscal year 2009.

 

(3)     Represents the threshold, target and maximum number of achievable shares pursuant to a performance-based restricted stock unit award. The number of performance-based restricted stock units to be earned (from 0 to 400,000) is based on the Company’s total shareholder return for each of the applicable measurement periods, relative to the performance of the S&P 500 Industrials Index for the same period, assuming continued employment, subject to certain exceptions. From 0 to 100,000 performance-based restricted stock units will vest after each of the following four measurement periods: (1) October 15, 2009 through February 15, 2012, (2) October 15, 2009 through February 15, 2013, (3) October 15, 2009 through February 15, 2014, and (4) October 15, 2009 through February 15, 2015, assuming continued employment, subject to certain exceptions.

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(4)     Represents a time-based restricted stock unit award which vests in equal annual installments on February 15, 2012, February 15, 2013, February 15, 2014 and February 15, 2015, so long as Mr. Casper is employed by the Company on each such date (subject to certain exceptions).

 

(5)     Options vest in equal annual installments on November 21, 2011, November 21, 2012, November 21, 2013, November 21, 2014 and November 21, 2015, so long as Mr. Casper is employed by the Company on each such date (subject to certain exceptions).

 

(6)     Represents a performance-based option grant which vests in one installment on the day the performance goal related to the Company’s stock price for any 20 consecutive trading days ending during the period October 15, 2009 through November 21, 2019 has been achieved, and the performance goal related to the Company’s total shareholder return between October 15, 2009 and the date the performance goal related to the Company’s stock price, or later (but no later than November 21, 2019), is achieved, relative to the performance of the S&P 500 Industrials Index for the same period, so long as Mr. Casper is employed by the Company on each such date (subject to certain exceptions).

 

(7)     Represents the threshold, target and maximum number of achievable shares pursuant to a performance-based restricted stock unit award. In connection with the awards of performance-based restricted stock units, the Compensation Committee adopted as a performance goal a range of improvement in modified earnings per share. If the Company’s 2009 modified EPS were equal to or greater than $2.59, then the executives would be entitled to a number of units ranging from 60% to 160% of the target number of units granted. Modified EPS of $3.01 for 2009 led to an actual payout of 94.29% of the target number of units for each executive. One-third of the total number of units earned vested in February 2010, and the same number of restricted units will vest on both the first anniversary and the second anniversary of this vesting date so long as the executive officer is employed by the Company on each such date (subject to certain exceptions).

 

(8)     Represents a time-based restricted stock unit award which vests in equal annual installments over a three-year period commencing on the date of grant (i.e., the first 1/3 of the restricted stock unit grant would vest on the first anniversary of the date of grant) so long as the executive officer is employed by the Company on each such date (subject to certain exceptions).

 

(9)     Options vest in equal annual installments over the three-year period commencing on the date of grant (i.e., the first 1/3 of the stock option grant would vest on the first anniversary of the date of grant) so long as the executive officer is employed by the Company on each such date (subject to certain exceptions).

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