UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

SCHEDULE 14A

 

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

Exchange Act of 1934 (Amendment No. )

 

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 Filed by a Party other than the Registrant  o

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o  Preliminary Proxy Statement

o  Confidential, for Use of the Commission Only (as permitted by Rule 14a-6(e)(2))

þ  Definitive Proxy Statement

o  Definitive Additional Materials

o  Soliciting Material Pursuant to §240.14a-12

 

Rockwell Automation, 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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December 10, 2010

 

Dear Shareowner:

 

 

You are cordially invited to attend our 2011 Annual Meeting of Shareowners.

 

 

We will hold the annual meeting in Bradley Hall at the Rockwell Automation Global Headquarters, 1201 South Second Street, Milwaukee, Wisconsin, USA on Tuesday, February 1, 2011, at 5:30 p.m. (Central Standard Time). At the meeting I will report on the Corporation’s activities and performance during the past fiscal year, and we will discuss and act on the matters described in the accompanying Proxy Statement. You will then have an opportunity to comment on or inquire about the Corporation’s affairs.

 

 

At this year’s meeting, you will have an opportunity to vote on whether to:

 

 

 

 

Your vote is important to us. Whether or not you plan to attend the meeting, please return your proxy card or vote via the Internet or by telephone so that your shares will be voted and represented at the meeting.

 

 

If you plan to attend the meeting, please request an admittance card in one of the ways described on the last page of the Proxy Statement.

 

 

We sincerely hope that as many shareowners as can conveniently attend will do so.

 

 

We have enclosed the Proxy Statement for our 2011 Annual Meeting of Shareowners and our 2010 Annual Report. I hope you find them interesting and useful in understanding your company.

 

 

This meeting marks the retirement of two exceptional, long-serving directors — Bruce M. Rockwell and Joseph F. Toot, Jr. Bruce has served on our Board since 1969 and chaired the Technology and Corporate Responsibility Committee for many years. Joe has served on our Board since 1977 and has chaired the Audit Committee and the Compensation and Management Development Committee. We thank them for their dedication and wise counsel over the years during several transformations of Rockwell International and Rockwell Automation.

 

Sincerely yours,

 

 

Keith D. Nosbusch

 

Chairman and Chief Executive Officer

 

 

 

Rockwell Automation, Inc.

1201 South Second Street, Milwaukee, Wisconsin 53204, USA

 

Notice of 2011 Annual Meeting of Shareowners

 

To the Shareowners of
ROCKWELL AUTOMATION, INC.:

 

The 2011 Annual Meeting of Shareowners of Rockwell Automation, Inc. will be held in Bradley Hall at the Rockwell Automation Global Headquarters, 1201 South Second Street, Milwaukee, Wisconsin, USA on Tuesday, February 1, 2011, at 5:30 p.m. (Central Standard Time) for the following purposes:

 

 

 

 

 

 

Only shareowners of record at the close of business on December 6, 2010 will be entitled to notice of, and to vote at, the meeting.

 

 

By order of the Board of Directors.

 

 

Douglas M. Hagerman

Secretary

 

 

December 10, 2010

 

 

Note: The Board of Directors solicits votes by the execution and prompt return of the

accompanying proxy in the enclosed return envelope or by use of the

Corporation’s telephone or Internet voting procedures.

 

Rockwell Automation, Inc.
Proxy Statement for 2011 Annual Meeting

INDEX

 

Rockwell Automation, Inc.

Proxy Statement

 

2011 ANNUAL MEETING

 

The 2011 Annual Meeting of Shareowners of Rockwell Automation, Inc. will be held at 5:30 p.m. (Central Standard Time) on February 1, 2011, for the purposes set forth in the accompanying Notice of 2011 Annual Meeting of Shareowners. This proxy statement and the accompanying proxy are furnished in connection with the solicitation by our Board of Directors of proxies to be used at the meeting and at any adjournment of the meeting. We will refer to your company in this proxy statement as “we,” “us,” “our,” the “Corporation” or “Rockwell Automation.”

 

GENERAL INFORMATION ABOUT THIS PROXY STATEMENT AND THE ANNUAL MEETING

 

Distribution and Electronic Availability of Proxy Materials

 

Again this year we are taking advantage of Securities and Exchange Commission (SEC) rules that allow companies to furnish proxy materials to shareowners via the Internet. If you received a Notice of Internet Availability of Proxy Materials (Notice) by mail, you will not receive a printed copy of the proxy materials, unless you specifically request one. The Notice instructs you on how to access and review this proxy statement and our 2010 annual report as well as how to vote by Internet. If you received the Notice and would still like to receive a printed copy of our proxy materials, you should follow the instructions for requesting these materials included in the Notice.

 

We will mail the Notice to certain shareowners by December 23, 2010. We will continue to mail a printed copy of this proxy statement and form of proxy to certain shareowners and we expect that mailing to begin on December 17, 2010.

 

Shareowners Sharing the Same Address

 

SEC rules permit us to deliver only one copy of our annual report and this proxy statement or the Notice to multiple shareowners who share the same address and have the same last name, unless we received contrary instructions from a shareowner. This delivery method, called “householding,” reduces our printing and mailing costs. Shareowners who participate in householding will continue to receive separate proxy cards.

 

We will deliver promptly upon written or oral request a separate copy of our annual report and proxy statement or Notice to any shareowner who received these materials at a shared address. To receive a separate copy, please write or call Rockwell Automation Shareowner Relations, 1201 South Second Street, Milwaukee, Wisconsin 53204, USA, telephone: +1-414-382-8410.

 

If you are a holder of record and would like to revoke your householding consent and receive a separate copy of our annual report and proxy statement or Notice in the future, please contact Broadridge Financial Solutions, Inc. (Broadridge), either by calling +1-800-542-1061 (toll free in the United States and Canada only) or by writing to Broadridge, Householding Department, 51 Mercedes Way, Edgewood, New York 11717, USA. You will be removed from the householding program within 30 days.

 

Any shareowners of record who share the same address and wish to receive only one copy of future Notices, proxy statements and annual reports for your household should contact Rockwell Automation Shareowner Relations at the address or telephone number listed above.

 

If you hold your shares in street name with a broker or other nominee, please contact them for information about householding.

 

Location and Date of Annual Meeting

 

Last year we changed the location of our annual meeting to our Global Headquarters. Again this year, we are holding the Annual Meeting at our Global Headquarters, 1201 South Second Street, Milwaukee, Wisconsin, USA on Tuesday, February 1 at 5:30 p.m. (Central Standard Time). You will find directions and instructions for parking and entering the building on your admittance card.

What am I voting on?

 

You will be voting on whether to:

 

 

Who is entitled to vote at the Annual Meeting?

 

Only holders of record of our common stock at the close of business on December 6, 2010, the record date for the meeting, may vote at the Annual Meeting. Each shareowner of record is entitled to one vote for each share of our common stock held on the record date. On December 6, 2010, we had outstanding 142,202,434 shares of our common stock.

 

Who may attend the Annual Meeting?

 

Shareowners as of the record date, or individuals holding their duly appointed proxies, may attend the Annual Meeting. Please note that if you hold your shares in street name through a broker or other nominee, you will need to provide a copy of a brokerage statement reflecting your stock ownership as of the record date to be admitted to the Annual Meeting.

 

How do I vote my shares?

 

We encourage shareowners to vote their shares in advance of the Annual Meeting even if they plan to attend. Shareowners may vote in person at the Annual Meeting. If you are a record holder and wish to vote in person at the meeting, you may vote by obtaining a ballot at the meeting. If you hold your shares in street name and wish to vote in person at the meeting, you should contact your broker or other nominee to obtain a broker’s proxy card and bring it, together with proper identification and your brokerage statement reflecting your stock ownership as of the record date, with you to the meeting.

 

In addition you may vote by proxy:

 

 

 

How will my proxy be voted?

 

If you properly complete, sign and return a proxy or use our telephone or Internet voting procedures to authorize the named proxies to vote your shares, your shares will be voted as specified. If your proxy card is signed but does not contain specific instructions, your shares will be voted as recommended by our Board of Directors, subject to applicable New York Stock Exchange (NYSE) regulations.

 

For shareowners participating in our savings plans or in the BNY Mellon Shareowner Services Program (dividend reinvestment and stock purchase plan), the trustee or administering bank will vote the shares that it holds for a participant’s account only in accordance with instructions given in a signed, completed and returned

proxy card or direction card, or in accordance with instructions given pursuant to our Internet or telephone voting procedures. If they do not receive instructions, the shares will not be voted. To allow sufficient time for voting by the trustees of the savings plans, your voting instructions for shares held in the plans must be received by January 27, 2011.

 

May I revoke or change my proxy?

 

For shareowners of record, you may revoke or change your proxy at any time before it is voted by:

 

 

If your shares are held in street name, you must contact your broker or other nominee to revoke or change your proxy. Your proxy is not revoked simply because you attend the Annual Meeting.

 

Will my vote be confidential?

 

It is our policy to keep confidential all proxy cards, ballots and voting tabulations that identify individual shareowners, except (i) as may be necessary to meet any applicable legal requirements, (ii) in the case of any contested proxy solicitation, as may be necessary to permit proper parties to verify the propriety of proxies presented by any person and the results of the voting, and (iii) if a shareowner writes comments on the proxy card directed to our Board of Directors or management. Representatives of Broadridge will tabulate votes and act as the independent inspector of election at this year’s meeting. The independent inspector of election and any employees involved in processing proxy cards or ballots and tabulating the vote are required to comply with this policy of confidentiality.

 

What is required for there to be a quorum at the Annual Meeting?

 

Holders of at least a majority of the shares of our common stock issued and outstanding on the record date for the Annual Meeting must be present, in person or by proxy, for there to be a quorum in order to conduct business at the meeting.

 

How many votes are needed to approve each of the proposals?

 

Election of Directors.  Directors are elected by a plurality of votes cast. This means that the three nominees for election as directors who receive the greatest number of votes cast by the holders of our common stock entitled to vote at the meeting will become directors. The election of directors, however, is subject to our majority vote policy.

 

Our Guidelines on Corporate Governance set forth our policy if a director is elected by a plurality of votes cast but receives a greater number of votes “withheld” from his or her election than votes “for” such election. In an uncontested election, any nominee for director who receives more votes “withheld” than votes “for” his or her election must promptly tender his or her resignation to the Board. The Board Composition and Governance Committee will consider the resignation offer and make a recommendation to the Board of Directors. The Board will act on the tendered resignation within 90 days following certification of the election results. The Board Composition and Governance Committee, in making its recommendation, and the Board of Directors, in making its decision, may consider any factors or other information that it considers appropriate and relevant, including any stated reasons why the shareowners withheld votes from the director, the director’s tenure, the director’s qualifications, the director’s past and expected contributions to the Board, and the overall composition of the Board. We will promptly disclose the Board’s decision regarding whether to accept or reject the director’s resignation offer in a Form 8-K furnished to the SEC. If the Board rejects the tendered resignation or pursues any additional action, the disclosure will include the rationale behind the decision. Any director who tenders his or her resignation may not participate in the Board Composition and Governance Committee deliberations and recommendation or in the Board’s decision whether to accept or reject the resignation offer.

D&T Appointment.  An affirmative vote of the holders of a majority of the voting power of our common stock present in person or represented by proxy and entitled to vote on the matter is necessary to approve the D&T appointment.

 

Compensation of Named Executive Officers.  An affirmative vote of the holders of a majority of the voting power of our common stock present in person or represented by proxy and entitled to vote on the matter is necessary to approve on an advisory basis the compensation of our named executive officers, although such vote will not be binding on us.

 

Frequency of Shareowner Vote on Compensation of Named Executive Officers.  You may vote to approve the frequency of the shareowner vote on the compensation of our named executive officers every one, two or three years or you may abstain from voting. We have determined to view the frequency vote that receives the greatest number of votes cast by the holders of our common stock entitled to vote at the meeting as the advisory vote of shareowners on the frequency of approval of the compensation of our named executive officers, although such vote will not be binding on us.

 

How are votes counted?

 

Under Delaware law and our Restated Certificate of Incorporation and By-Laws, all votes entitled to be cast by shareowners present in person or represented by proxy at the meeting and entitled to vote on the subject matter, whether those shareowners vote “for,” “against” or abstain from voting, will be counted for purposes of determining the minimum number of affirmative votes required to approve the D&T appointment and approve on an advisory basis the compensation of our named executive officers.

 

What is the effect of an abstention?

 

The shares of a shareowner who abstains from voting on a matter will be counted for purposes of determining whether a quorum is present at the meeting so long as the shareowner is present in person or represented by proxy. An abstention from voting on a matter by a shareowner present in person or represented by proxy at the meeting has no effect in the election of directors or vote on the frequency of the shareowner vote on the compensation of our named executive officers, but has the same legal effect as a vote “against” the proposals to approve the D&T appointment and the compensation of our named executive officers.

 

How will votes be counted on shares held through brokers?

 

Brokers are not entitled to vote on the election of directors or the advisory proposals to approve the compensation of our named executive officers and the frequency of the shareowner vote on the compensation of our named executive officers unless they receive voting instructions from the beneficial owner. If a broker does not receive voting instructions, the broker may return a proxy card with no vote on the election of directors or the advisory proposals to approve the compensation of our named executive officers and the frequency of the shareowner vote on the compensation of our named executive officers, which is usually referred to as a broker non-vote. The shares of a shareowner whose shares are not voted because of a broker non-vote on a particular matter will be counted for purposes of determining whether a quorum is present at the meeting so long as the shareowner is represented by proxy. A broker non-vote on a matter has no effect in the election of directors or the proposals to approve the D&T appointment, the compensation of our named executive officers and the frequency of the shareowner vote on the compensation of our named executive officers.

 

Can I receive electronic access to shareowner materials?

 

As noted above, under SEC rules we are permitted to furnish proxy materials to shareowners via the Internet. However, we may choose to continue to provide printed copies to certain shareowners. If we send you printed copies, you can save us printing and mailing costs by electing to access proxy statements, annual reports and related materials electronically instead of receiving these documents in print. You must have an e-mail account and access to the Internet and expect to have such access in the future to be eligible for electronic access to these materials. To enroll for these services, please go to https://enroll1.icsdelivery.com/rok_/Default.aspx or visit our website at www.rockwellautomation.com, click on the heading: “About Us,” then the heading: “Investor Relations,” then the heading “Shareowner Information,” then the heading “Transfer Agent & Dividends.” If you own your shares through a broker or other nominee, you may contact them directly to request electronic access.

Your consent to electronic access will be effective until you revoke it. You may cancel your consent at no cost to you at any time by going to https://enroll1.icsdelivery.com/rok_/Default.aspx and following the instructions or by contacting your broker or other nominee.

 

We are a leading global provider of industrial automation power, control, and information solutions that help manufacturers achieve a competitive advantage for their businesses. We were incorporated in 1996 in connection with a tax-free reorganization completed on December 6, 1996, pursuant to which we divested our former aerospace and defense business (the A&D Business) to The Boeing Company. In the reorganization, the former Rockwell International Corporation (RIC) contributed all of its businesses, other than the A&D Business, to us and distributed all of our capital stock to RIC’s shareowners. Boeing then acquired RIC. RIC was incorporated in 1928. Our principal executive office is located at 1201 South Second Street, Milwaukee, Wisconsin 53204, USA. Our telephone number is +1-414-382-2000 and our website is located at www.rockwellautomation.com. Our common stock trades on the New York Stock Exchange (NYSE) under the symbol ROK.

 

The following table lists persons who we believe beneficially owned more than 5% of our common stock as of the December 6, 2010 record date based on reports filed with the SEC.

 

 

 

 

Guidelines on Corporate Governance.  The Board of Directors has adopted Guidelines on Corporate Governance, which are available at www.rockwellautomation.com under the “Investor Relations” page under the link “About Us,” then the heading “Corporate Governance.” They are also available in print to any shareowner upon request. The Guidelines contain general principles regarding the responsibilities and function of our Board and Board Committees.

 

Related Person Transactions.  The Board of Directors adopted a written policy regarding how it will review and approve of related person transactions (as defined below), which is available at www.rockwellautomation.com under the “Investor Relations” page under the link “About Us,” then the heading “Corporate Governance.” The Board Composition and Governance Committee is responsible for administering this policy.

The policy defines a related person transaction as any transaction in which we are or will be a participant, in which the amount involved exceeds $120,000, and in which any director, director nominee, executive officer or more than 5% shareowner or any of their immediate family members has or will have a direct or indirect material interest. The policy sets forth certain transactions, arrangements and relationships not reportable under SEC rules that do not constitute related person transactions.

 

Under this policy, each director, director nominee and executive officer must report each proposed or existing transaction between us and that individual or any of that individual’s immediate family members to our general counsel. Our general counsel will assess and determine whether any transaction reported to him or of which he learns constitutes a related person transaction. If our general counsel determines that a transaction constitutes a related person transaction, he will refer it to the Board Composition and Governance Committee. The Committee will approve or ratify a related person transaction only if it determines that the transaction is in, or is not inconsistent with, the best interests of the Corporation and its shareowners. In determining whether to approve or ratify a related person transaction, the Committee will consider factors it deems appropriate, including:

 

 

There are no related person transactions to report in this proxy statement.

 

Potential Director Candidates.  The Board Composition and Governance Committee is responsible for screening potential director candidates and recommending qualified candidates to the full Board.

 

The Committee will consider candidates for director recommended by shareowners. Shareowners can recommend director candidates by writing to the Secretary at 1201 South Second Street, Milwaukee, Wisconsin 53204, USA. The recommendation must include the candidate’s name, biographical data and qualifications and any other information required by the SEC to be included in a proxy statement with respect to a director nominee. Any shareowner recommendation must be accompanied by a written statement from the candidate indicating his or her willingness to serve if nominated and elected. The recommending shareowner also must provide evidence of being a shareowner of record of our common stock at that time.

 

The Committee, the Chairman and Chief Executive Officer or other members of the Board may identify a need to add new members to the Board or fill a vacancy on the Board. In that case, the Committee will initiate a search for qualified director candidates, seeking input from senior management and Board members, and to the extent it deems it appropriate, outside search firms. The Committee will evaluate qualified candidates and then make its recommendation to the Board.

 

In making its recommendations to the Board with respect to director candidates, the Committee considers various criteria set forth in our Board Membership Criteria (see Exhibit A to the Committee’s Charter), including experience, professional background, specialized expertise, diversity and concern for the best interests of shareowners as a whole. In addition, directors must be of the highest character and integrity, be free of conflicts of interest with the Corporation, and have sufficient time available to devote to the affairs of the Corporation. The Committee from time to time reviews with the Board our Board Membership Criteria.

 

The Committee will evaluate properly submitted shareowner recommendations under substantially the same criteria and in substantially the same manner as other potential candidates.

 

In addition to recommending director candidates to the Committee, shareowners may also nominate candidates for election to the Board at annual shareowner meetings by following the procedures set forth in our By-Laws. See “Shareowner Proposals for 2012 Annual Meeting” set forth later in this proxy statement.

The Board nominated two new independent director candidates, Steven R. Kalmanson and James P. Keane, to fill the vacancies on the Board that will be created when two current directors retire immediately before the annual meeting. The Board Composition and Governance Committee led the search process. The Committee retained an independent, third-party search firm to assist in identifying and evaluating potential candidates. In addition, the Committee sought recommendations from Board members. Messrs. Kalmanson and Keane were among the potential candidates recommended by non-management directors.

 

Diversity.  The Board does not have a formal policy with respect to diversity, but recognizes the value of a diverse Board and thus has included diversity as a factor that is taken into consideration in its Board Membership Criteria.

 

When it considers the composition of the Board, especially when adding new directors, the Board Composition and Governance Committee assesses the skills and experience of Board members and compares them to the skills that might benefit the Corporation, in light of the current Board membership. The Committee seeks people with a variety of occupational and personal backgrounds to ensure that the Board benefits from a range of perspectives and to enhance the diversity of the Board in such areas as experience, geography, race, gender and ethnicity. When selecting director candidates, the Committee may establish specific skills, experiences or backgrounds that it believes the Board should seek in order to achieve balance and effectiveness.

 

The Board believes that it is important that its members reflect diverse viewpoints so that, as a group, the Board includes a sufficient mix of perspectives to allow the Board best to fulfill its responsibilities to shareowners.

 

Communications to the Board and Ombudsman.  Shareowners and other interested parties may send communications to the Board, an individual director, the non-management directors as a group, or a Board Committee at the following address:

 

Rockwell Automation, Inc.
c/o Corporate Secretary
1201 South Second Street
Milwaukee, Wisconsin 53204, USA
Attn: Board of Directors

 

The Secretary will receive and process all communications before forwarding them to the addressee. The Secretary will forward all communications unless the Secretary determines that a communication is a business solicitation or advertisement, or requests general information about us.

 

In accordance with procedures approved by the Audit Committee of our Board of Directors, concerns about accounting, internal controls or auditing matters should be reported to the Ombudsman as outlined in our Standards of Business Conduct and Code of Conduct, which are available on our website at www.rockwellautomation.com; please click on the heading “About Us,” then the heading “Who We Are,” then the heading “Ethics,” and then the links to “ethics program” and “code of conduct.” These standards are also available in print to any shareowner upon request. The Ombudsman is required to report promptly to the Audit Committee all reports of questionable accounting or auditing matters that the Ombudsman receives. You may contact the Ombudsman by addressing a letter to:

 

Ombudsman
Rockwell Automation, Inc.
1201 South Second Street
Milwaukee, Wisconsin 53204, USA

 

You may also contact the Ombudsman by telephone at 1-800-552-3589 (US only) or +1-414-382-8484, e-mail at ombudsman@rockwell.com or fax at +1-414-382-8485.

 

Board Leadership Structure.  Our Board of Directors adheres to a flexible approach to the question of whether to separate or combine the roles of Chairman and CEO. The Board believes that these are matters that should be discussed and determined by the Board from time to time and that they depend upon the current performance of the Corporation and the experience, knowledge and temperament of the CEO. Currently the Board has combined the roles of Chairman and CEO in Mr. Nosbusch. It has done so because the Board

believes that at this time it strengthens the leadership of the Corporation and does not impair its independence, its ability to control its agenda and its oversight of management.

 

The Board further has concluded that this structure improves the efficiency of decision-making by the Board, in light of Mr. Nosbusch’s long experience and extensive knowledge of the Corporation’s operations, its customers and the major business issues that it faces. For similar reasons, we have not appointed a lead director at this time. However, in order to ensure the effectiveness of the independent directors, the Board has established a practice of holding independent director sessions at each Board meeting, with a presiding director and a clear process for communicating with Mr. Nosbusch about the matters discussed in these sessions.

 

Board’s Role in Risk Oversight.  The responsibility for managing risk rests with executive management. The Board has primary responsibility for oversight of management’s program of enterprise risk management for the Corporation. The standing committees of the Board address the risks related to their respective areas of oversight, and the Audit Committee is responsible for reviewing the overall guidelines and policies that govern our process for risk assessment and management.

 

Management periodically reports to the Board regarding the system that management has implemented to assess, manage and monitor risks. Management also reports to the Board on which risks it has assessed as the most significant, together with management’s plans to mitigate those risks.

 

Our risk management system seeks to ensure that the Board is informed of major risks facing the Corporation. The Audit Committee provides oversight regarding financial risks, including the cost of pensions and retirement benefits. The Audit Committee receives regular reports on management policies and practices relating to the Corporation’s financial statements, and the effectiveness of internal controls over financial reporting. The Audit Committee also receives regular reports from the Corporation’s independent auditors and internal auditor as well as the general counsel regarding legal and compliance risks. The Compensation and Management Development Committee considers the risk implications of the incentives created by our compensation programs as well as risk issues related to talent management and succession planning. The Technology and Corporate Responsibility Committee provides oversight regarding risks related to technology, safety, and environmental protection, among other corporate responsibility matters. The Board Composition and Governance Committee provides oversight regarding governance-related risks including conflicts of interest, director independence, and board and committee structure and performance.

 

Our risk oversight is aligned with the Board’s oversight of the Corporation’s strategies and plans. Thus, the Board ordinarily receives reports on the risks implicated by the Corporation’s strategic decisions concurrent with the deliberations leading to those decisions. From time to time, the Board will receive reports from management on enterprise risks that are not specifically assigned to the standing committees.

 

We believe we have an effective risk management system that fosters an appropriate culture of risk-taking. We have strong internal processes and a strong control environment to identify and manage risks. We also believe that our leadership structure, with Mr. Nosbusch serving as both Chairman and CEO, enhances the Board’s effectiveness in overseeing risk. Mr. Nosbusch’s extensive knowledge of the Corporation’s business and operations helps the Board to identify and address key risks facing the Corporation. Executive officers are assigned responsibility for managing the risks deemed most significant. These officers periodically report to the full Board or the applicable Committee on efforts to address the risks for which they are responsible.

 

Our annual report on Form 10-K for the year ended September 30, 2010 contains an extensive description of the most significant enterprise risks that we face.

 

Independent Director Sessions.  The independent directors meet in executive session without any officer or member of management present in conjunction with regular meetings of the Board. The independent directors designate the chair of one of the Board Committees as chair of the executive session, in part depending upon whether the principal items to be considered at the session are within the scope of the applicable Committee. The Board has adopted an annual schedule designating the presumptive chair for executive sessions from among the chairs of the Board Committees, which the Board may override as appropriate by designating the chair of another Board Committee.

 

Our Restated Certificate of Incorporation provides that the Board of Directors will consist of three classes of directors serving staggered three-year terms that are as nearly equal in number as possible. One class of directors is elected each year with terms extending to the third succeeding Annual Meeting after election.

 

The terms of three directors expire at the 2011 Annual Meeting, including Bruce M. Rockwell and Joseph F. Toot, Jr., who will retire as directors immediately before the 2011 Annual Meeting under the Board’s retirement policy. The Board has nominated Donald R. Parfet, the other current director whose term expires at the 2011 Annual Meeting, upon the recommendation of the Board Composition and Governance Committee for election as a director with a term expiring at the 2014 Annual Meeting. The Board has also nominated Steven R. Kalmanson and James P. Keane upon the recommendation of the Board Composition and Governance Committee for election as directors with terms expiring at the 2014 Annual Meeting.

 

Proxies properly submitted will be voted at the meeting, unless authority to do so is withheld, for the election of the three nominees specified in Nominees for Election as Directors below, subject to applicable NYSE regulations. If for any reason any of these nominees is not a candidate when the election occurs (which is not expected), proxies and shares properly authorized to be voted will be voted at the meeting for the election of a substitute nominee. Alternatively, the Board of Directors may reduce the number of directors.

 

For each director nominee and continuing director, we have stated the person’s name, age (as of December 10, 2010) and principal occupation; the position, if any, with the Corporation; the period of service as a director of the Corporation (or a predecessor corporation); and other directorships held.

 

NOMINEES FOR ELECTION AS DIRECTORS WITH TERMS EXPIRING IN 2014

 

 

The Board of Directors recommends that you vote “FOR” the election as directors of the three nominees described above, which is presented as item (a).

 

Our business is managed under the direction of the Board of Directors. The Board has established the Audit Committee, the Board Composition and Governance Committee, the Compensation and Management Development Committee and the Technology and Corporate Responsibility Committee, whose principal functions are briefly described below. The duties and responsibilities of each committee are set forth in committee charters that are available on our website at www.rockwellautomation.com; click on the heading “About Us,” then the heading “Investor Relations,” then the heading “Corporate Governance.” The committee charters are also available in print to any shareowner upon request. The committees review and assess the adequacy of their charters each year and recommend any proposed changes to the Board for approval. The committees revised their charters during fiscal 2010 to address their roles with respect to enterprise risk management and to make certain clarifying changes. In fiscal 2010, the Board held seven meetings and on one occasion acted by written consent in lieu of a meeting. Average attendance by incumbent directors at Board and Committee meetings was 98%, and all of the directors attended at least 76% of the meetings of the Board and the committees on which they served. Directors are expected to attend the Annual Meeting of Shareowners. All directors attended the 2010 Annual Meeting.

 

Director Independence.  Our Guidelines on Corporate Governance require that a substantial majority of the members of the Board be independent directors. For a director to be independent, the Board must affirmatively determine that the director has no direct or indirect material relationship with the Corporation. The Board has established guidelines, which are contained in our Guidelines on Corporate Governance, to assist it in determining director independence in conformity with the NYSE listing requirements. These guidelines are available on our website at www.rockwellautomation.com under the “Investor Relations” page under the link “About Us,” then the heading “Corporate Governance.”

 

After considering these guidelines and the independence criteria of the NYSE, the Board has determined that none of the current directors or director nominees, other than Mr. Nosbusch (who is a current employee of the Corporation), has a material relationship with the Corporation and each of our current directors and director nominees (other than Mr. Nosbusch) meets the independence requirements of the NYSE. There were no transactions, relationships or arrangements that required review by the Board for purposes of determining director independence.

 

Director Qualifications.  We believe that our directors should possess the highest character and integrity and be committed to working constructively with others to oversee the management of the business and affairs of the Corporation. Our Board Membership Criteria provide that our directors should (i) have a variety of experience and backgrounds, (ii) have high level managerial experience or be accustomed to dealing with

complex problems, and (iii) represent the balanced best interests of all shareowners, considering the overall composition and needs of the Board factors such as diversity, age, international background, experience and specialized expertise. The Criteria attach importance to directors’ experience, ability to collaborate, integrity, ability to provide constructive and direct feedback, lack of bias, and independence. Our Board seeks to maintain members with strong collective abilities that allow it to fulfill its responsibilities.

 

 

The Board has determined that each director and nominee is financially literate and possesses the skills, judgment, experience, reputation and commitment to make a constructive contribution to the Board.

 

 

We have provided certain information about the skills and experience of our continuing directors in their biographies set forth above. In addition, the Board considered other qualifications in concluding that each current director and director nominee is qualified to serve as a director of the Corporation, including the following experience, qualifications, attributes and skills.

 

 

Betty Alewine.  Ms. Alewine has significant leadership experience having served as the CEO of COMSAT Corporation and executive-level experience with international business operations, strategic business development, technology and sales and marketing. She brings valuable experience and knowledge through her service on the boards of other public companies in finance, risk oversight, audit and corporate governance matters. She serves as chair of the Audit Committee of New York Life Insurance Company and chair of the Finance and Strategy Committee of The Brink’s Company. She also has global industrial knowledge having served as the United States representative to the Board of Governors of the International Telecommunications Satellite Organization (INTELSAT) and Chairman and Vice Chairman of the INTELSAT Board, as well as on the President’s National Security Telecommunications Advisory Council.

 

 

Verne Istock.  Mr. Istock has extensive executive-level finance experience having served as CEO of a bank and bank holding company for five years, with responsibility for overseeing risk management, including financial risks. His comprehensive understanding of finance and banking assists the Board in evaluating and understanding the impact of business decisions on our financial statements and capital structure. He has experience relevant to our industry having served as a commercial bank lender to many businesses including manufacturing companies with both domestic and international operations. He also has extensive knowledge of board procedures and practices and audit, finance and corporate governance matters through his service on the boards of other public companies. He serves as Presiding Director of Masco Corp., where he also chairs the Governance and Nominating Committee and serves on the Audit and Compensation Committees. He was a director of Kelly Services Co., where he served as chair of the Audit Committee, Lead Director, and also as interim non-executive Chairman. He is a former director of the Federal Reserve Bank of Chicago. Mr. Istock holds an M.B.A. from University of Michigan.

 

 

Barry Johnson.  Dr. Johnson brings specialized experience in science and technology to the Board. During his 17 years at Motorola and Honeywell, he utilized risk management methods as an integral part of research and product development programs. He employed such processes as project management, six sigma and roadmapping to manage technology development risks at Motorola, and expanded their use to risk management in Honeywell’s business and technology strategies and programs. From 1991 to 2000 at Motorola, he was involved in the global development and manufacturing of analog and digital devices, integrated circuits and modules for use in the automation and related industries. From 2000 to 2002 at Honeywell, he participated in the development of business and technology strategies and products for the automation components, systems, software and solutions markets. Dr. Johnson has been inducted into the National Academy of Engineering (USA) and the Fraunhofer Society (Germany) in recognition of his experience in global technology development. He also serves on the boards of other public companies, which gives him experience in technology, finance, audit, risk oversight and corporate governance matters. He earned a Ph.D. in metallurgical engineering and materials science from Carnegie-Mellon University.

 

 

Steven Kalmanson.  Mr. Kalmanson will bring extensive business and executive management experience to the Board having served in various officer management positions for Kimberly-Clark Corporation, a global publicly traded company. Throughout his career, he successfully initiated and managed change to assist in the transformation of Kimberly-Clark Corporation from a pulp and paper company to a globally recognized consumer package goods conglomerate marketing some of the most recognized brands in the world. His

business vision, strategic insight and specific knowledge and experience will add value and a diverse perspective to the Corporation. In addition to his US experience, he has international management experience through his responsibilities for Kimberly-Clark’s European and Canadian businesses and sales organizations, global procurement and supply chain organizations and marketing research and services organizations. He successfully innovated, restaged and grew Kimberly-Clark’s global consumer brands and businesses. He has experience leading mergers and acquisitions, organizational restructurings and facility closures and divestitures. In addition, he owns and operates his own aviation services business, which gives him insights into economic, operational, regulatory and other challenges beneficial to the Corporation. Mr. Kalmanson holds an M.B.A. from the University of Witwatersrand, Johannesburg, South Africa.

 

Jim Keane.  As a current executive of a global company, Mr. Keane will bring current business experience and knowledge to the Board. Through his executive roles at Steelcase Inc., he has extensive leadership experience and a comprehensive understanding of business operations, processes and strategy as well as sales, marketing and product development. In addition, he has a high level of financial literacy and accounting experience having served as CFO of Steelcase. His understanding of financial statements, accounting principles, internal controls and audit committee functions will provide the Board with expertise in addressing the complex issues that can be raised by the Corporation’s financial reporting and matters related to the Corporation’s financial position. Mr. Keane holds a masters degree in management from the Kellogg Graduate School of Management at Northwestern University.

 

Bill McCormick.  Mr. McCormick brings significant leadership and executive experience to the Board having served as Chairman and CEO of CMS Energy Corporation, a publicly-traded Fortune 500 company, for 17 years. CMS was involved in large energy technology development projects in oil and gas, pipeline, power generation, and electric and gas distribution. As Chairman and CEO, he was regularly exposed to issues facing leadership of a large global company, including risk management, strategic planning, corporate governance, human resources and executive compensation. He previously chaired the Nominating and Governance Committee and the Compensation Committee at Schlumberger Ltd. He also chaired the Risk Management Committee of the Board of First Chicago NBD Bank for two years. He holds a Ph.D. in nuclear engineering from the Massachusetts Institute of Technology.

 

Keith Nosbusch.  As our Chairman and CEO, Mr. Nosbusch has significant experience with and knowledge of the Corporation. He rose through management having served in various positions including president of our control systems business. His long experience and extensive knowledge of the Corporation’s operations, its customers, and the major business issues that it faces enhances overall board effectiveness and interaction with management. He also serves on the board of another public company, where he has gained experience with corporate governance, audit and risk oversight and overall board procedures and functioning. Mr. Nosbusch earned an M.B.A. from the University of Wisconsin — Milwaukee.

 

Don Parfet.  Mr. Parfet brings extensive finance and industry experience to the Board. He has served as General Partner of Apjohn Ventures Fund, a venture capital fund, since 2003. During his years at The Upjohn Company and its successor Pharmacia & Upjohn he had extensive financial and corporate staff management responsibilities and ultimately senior operational responsibilities for multiple global business units. He is experienced in leading strategic planning, risk assessment, human resource planning and financial planning and control as well as the manufacturing of pharmaceuticals, chemicals and research instruments. He is currently the Lead Director on the Board of Directors of Kelly Services, Inc. and previously chaired its Audit Committee. In his current role at Apjohn, he is an active investor in early stage pharmaceutical companies and as such actively evaluates financial and development risk associated with emerging medicines. Mr. Parfet holds an M.B.A. from the University of Michigan.

 

Bruce Rockwell.  Mr. Rockwell has executive-level experience having served as an executive vice president of Fahnestock & Co. Inc., an investment banking company. He worked as an investment banker for 42 years during which time he managed the municipal bond department of First of Michigan for 16 years, served as senior vice president in charge of financial services for 14 years and vice chairman, First of Michigan for four years, with responsibility for all operations in Michigan. He was involved in or managed assessment of risk relating to securities underwritten, purchased or traded for clients during his career in investment banking.

David Speer.  As current Chairman and CEO of Illinois Tool Works Inc. (ITW), a Fortune 500 company, Mr. Speer brings extensive leadership and board experience to our Board. He is knowledgeable of the multitude of issues facing boards and management of global public companies. His current leadership and operational experience give him a comprehensive understanding of organizations, processes, strategy, risk management and how to drive change and growth. As Chairman and CEO of ITW, which serves a number of end markets such as automotive, energy and pharmaceuticals that overlap with the Corporation’s markets, he has detailed insights into the major trends and issues in these industries. He also has finance experience having served on the audit committee of another public company for two years and currently serves on the Board of another Fortune 500 company. Mr. Speer holds an M.B.A. from The Kellogg School of Business, Northwestern University.

 

Joe Toot.  Mr. Toot served as CEO, a Board member and in other senior management positions of The Timken Company, a publicly-traded manufacturing company, for 32 years. Through his experience leading a global company, he has a practical understanding of organizations, business development, risk oversight, executive compensation and corporate governance matters. His extensive experience enhances our Board’s effectiveness in fulfilling its role as business and strategic advisor to management. He also has experience serving on the boards of other public companies, with extensive knowledge of board functions and procedures. He is a member of the Supervisory Board of PSA Peugeot Citroën.

 

Committees of the Board

 

 

 

Audit Committee.  The Audit Committee assists the Board in overseeing and monitoring the integrity of our financial reporting processes, our internal control and disclosure control systems, the integrity and audits of our financial statements, our compliance with legal and regulatory requirements, the qualifications and independence of our independent registered public accounting firm and the performance of our internal audit function and independent registered public accounting firm. The main duties of the Committee are to appoint our independent registered public accounting firm, subject to shareowner approval; approve all audit and audit-related fees and services and permitted non-audit fees and services of our independent registered public accounting firm; review with our independent registered public accounting firm and management our annual audited and quarterly financial statements; discuss periodically with management our quarterly earnings releases; and review with our independent registered public accounting firm and management the quality and adequacy of our internal controls. All members of the Audit Committee meet the independence and financial literacy standards and requirements of the NYSE and the SEC. The Board has determined that Messrs. Istock, Parfet and Speer qualify as “audit committee financial experts” as defined by the SEC.

 

Board Composition and Governance Committee.  The principal functions of the Board Composition and Governance Committee are to consider and recommend to the Board qualified candidates for election as directors of the Corporation, to consider matters of corporate governance, and administer the Corporation’s related person transactions policy. The Committee annually assesses and reports to the Board on the performance of the Board of Directors as a whole and of the individual directors. The Committee also recommends to the Board the members of the committees of the Board and the terms of our Guidelines on Corporate Governance. All members of the Committee are independent directors as defined by the NYSE.

 

Compensation and Management Development Committee.  The principal functions of the Compensation and Management Development Committee are to evaluate the performance of our senior executives, review management succession and development plans for the CEO and other senior executives, review the design

and competitiveness of our compensation plans, review and approve salaries, incentive compensation, equity awards and other compensation of officers and review the salary plan for other executives who are direct reports to the CEO, review and approve corporate goals and objectives and administer our incentive, deferred compensation and long-term incentives plans. The Committee also conducts an annual review of director compensation and makes recommendations to the Board regarding any changes. See “Director Compensation” below. All members of the Committee are independent directors as defined by the NYSE and are not eligible to participate in any of our plans or programs administered by the Committee, except our 2003 and 1995 Directors Stock Plans and Directors Deferred Compensation Plan.

 

 

Towers Perrin has for seven years served as the Committee’s advisor, was directly engaged by and accountable to the Committee, and was not engaged by management for any significant other services. In January 2010, Towers Perrin merged with Watson Wyatt — the Corporation’s long-time actuary — to create Towers Watson. During fiscal 2010, Towers Watson and its predecessor Towers Perrin were paid $155,000 for executive compensation advice and other services to the Committee. During fiscal 2010, Towers Watson and its predecessor Watson Wyatt were paid $2,847,000 for actuarial and other services to the Corporation and its benefit plans.

 

Based on the following facts, the Compensation Committee has concluded that it is receiving objective, unbiased and independent advice from Towers Watson:

 

 

The Committee intends to continue to oversee all relationships between the Corporation and Towers Watson to ensure that the Committee continues to receive unbiased compensation advice from Towers Watson. In addition, the Committee will review and approve the type and scope of all services provided by Towers Watson and the amounts paid by the Corporation for such services.

 

Technology and Corporate Responsibility Committee.  The Technology and Corporate Responsibility Committee reviews and assesses our technological activities as well as our policies and practices in the following areas: employee relations, with emphasis on diversity and inclusion; the protection and enhancement of the environment and energy resources; product integrity and safety; employee health and safety; and community and civic relations, including programs for and contributions to educational, cultural and other social institutions. All members of the Committee are independent directors as defined by the NYSE.

 

Our director compensation program is designed to attract and retain qualified directors, fairly compensate directors for the time they must spend in fulfilling their duties and align their compensation directly with the interests of shareowners. The Compensation and Management Development Committee determines the form and amount of director compensation, with discussion and approval by the full Board. The Board believes that a meaningful portion of director compensation should be in our common stock to further align the economic interests of directors and shareowners. Employees who serve as directors do not receive any compensation for their director service.

 

There are three elements of our director compensation program: an annual retainer, equity awards and committee fees. The following table describes each element of director compensation for fiscal 2010.

 

 

Annual Retainer.  Directors receive an annual retainer that consists of cash and shares of common stock. The total annual retainer, excluding committee fees, is $132,000, of which $70,000 is paid in cash and $62,000 in shares of common stock under the 2003 Directors Stock Plan. The $62,000 equated to 1,508 shares granted on October 1, 2009.

 

Equity Awards.  Directors receive an annual grant of 500 shares of common stock under the 2003 Directors Stock Plan immediately after our Annual Meeting of Shareowners (and for directors elected after the Annual Meeting, a pro-rated number of shares are awarded upon election).

 

Committee Fees.  Directors receive additional annual compensation for serving on committees of the Board. The fees for the Chair and for serving on certain committees are higher than others due to the greater work-load and responsibilities.

 

During fiscal 2010, annual committee fees were as follows:

 

 

Deferral Election.  Under the terms of our Directors Deferred Compensation Plan, directors may elect to defer all or part of the cash payment of Board retainer or committee fees until such time as the director specifies, with interest on deferred amounts accruing quarterly at 120% of the federal long-term rate set each month by the Secretary of the Treasury. In addition, under the 2003 Directors Stock Plan, each director has the opportunity each year to defer all or any portion of the annual grant of common stock, cash retainer, common stock retainer and committee fees by electing to instead receive restricted stock units valued, in the case of cash deferrals, at the closing price of our common stock on the NYSE on the date each payment would otherwise be made in cash.

Other Benefits.  We reimburse directors for transportation, lodging and other expenses actually incurred in attending Board and committee meetings. We also reimburse directors for similar travel, lodging and other expenses for their spouses to accompany them to a limited number of Board meetings held as retreats to which we invite spouses for business purposes. Spouses were not invited to meetings in fiscal 2010. The directors’ spouses are generally expected to attend Board meetings held as retreats. From time to time and when available, directors and their spouses are permitted to use our corporate aircraft for travel to Board meetings. During fiscal 2010, two of Mr. Rockwell’s family members accompanied him to one meeting at the Corporation’s headquarters.

 

Directors are eligible to participate in a matching gift program under which we match donations made to eligible educational, arts or cultural institutions. Gifts are matched up to an annual calendar year maximum of $10,000. This same program is available to all of our U.S. salaried employees.

 

Stock Ownership Requirement.  Non-management directors are subject to stock ownership guidelines. To further align directors’ and shareowners’ economic interests, our Guidelines on Corporate Governance provide that non-management directors are required to own, within five years after joining the Board, shares of our common stock (including restricted stock units) equal in value to five times the portion of the annual retainer that is payable in cash. The guideline was changed during the fiscal year from three times to five times the portion of the annual retainer that is payable in cash to match the most common market practice from our review of practices and trends of Fortune 250 companies. All directors meet the guidelines as of September 30, 2010.

 

Changes to Directors Compensation for Fiscal 2011.  Effective October 1, 2010, we changed our director compensation. The total annual retainer, excluding committee fees, was changed to $140,000, of which $70,000 will be paid in cash and $70,000 in shares of common stock under the 2003 Directors Stock Plan. The amount of the stock portion was increased by $8,000 to bring board fees closer to the market median based on a review of companies with revenues of $4 to $8 billion that had filed proxy statements as of April 30, 2010. Directors will continue to receive an annual grant of 500 common shares on the date of the Annual Meeting. In addition, the annual fee for the Chair of the Technology and Corporate Responsibility Committee was increased from $10,000 to $12,000 to bring the fee closer to the market median.

 

The following table shows the total compensation earned by each of our directors during fiscal 2010.

 

 

 

 

 

 

^(a) Based on the closing price of our common stock on the NYSE on the vesting date.

 

 

 

 

The Audit Committee assists the Board in overseeing and monitoring the integrity of the Corporation’s financial reporting processes, its internal control and disclosure control systems, the integrity and audits of its financial statements, the Corporation’s compliance with legal and regulatory requirements, the qualifications and independence of its independent registered public accounting firm and the performance of its internal audit function and independent registered public accounting firm.

 

Our Committee’s roles and responsibilities are set forth in a written Charter adopted by the Board, which is available on the Corporation’s website at www.rockwellautomation.com under the heading “About Us”, then the heading “Investor Relations”. We review and reassess the Charter annually, and more frequently as necessary to address any changes in NYSE corporate governance and SEC rules regarding audit committees, and recommend any changes to the Board for approval.

 

Management is responsible for the Corporation’s financial statements and the reporting processes, including the system of internal control. Deloitte & Touche LLP (D&T), the Corporation’s independent registered public accounting firm, is responsible for expressing an opinion on the conformity of those audited financial statements with U.S. generally accepted accounting principles, and on the Corporation’s internal control over financial reporting.

 

Our Committee is responsible for overseeing the Corporation’s overall financial reporting processes. In fulfilling our responsibilities for the financial statements for fiscal year 2010, we:

 

 

We reviewed and approved all audit and audit-related fees and services. For information on fees paid to D&T for each of the last two years, see “Proposal to Approve the Selection of Independent Registered Public Accounting Firm” on page 49 of this proxy statement.

 

We considered the non-audit services provided by D&T in fiscal year 2010 and determined that engaging D&T to provide those services is compatible with and does not impair D&T’s independence.

 

In fulfilling our responsibilities, we met with the Corporation’s General Auditor and D&T, with and without management present, to discuss the results of their examinations, the evaluations of the Corporation’s internal control over financial reporting and the overall quality of the Corporation’s financial reporting. We considered the status of pending litigation, taxation matters and other areas of oversight relating to the financial reporting and audit processes that we determined appropriate. We also met separately with the Corporation’s Chief Executive Officer, Chief Financial Officer, Controller, General Counsel and Ombudsman.

 

Based on our review of the audited financial statements and the discussions and reports referred to above, we recommended to the Board that the audited financial statements be included in the Corporation’s Annual Report on Form 10-K for the fiscal year ended September 30, 2010 for filing with the SEC.

 

The Audit Committee has selected D&T as the independent registered public accounting firm of the Corporation for the fiscal year ending September 30, 2011, subject to the approval of shareowners.

 

Audit Committee
Verne G. Istock, Chair
Barry C. Johnson
Donald R. Parfet
David B. Speer

 

The following table shows the beneficial ownership, reported to us as of October 31, 2010, of our common stock, including shares as to which a right to acquire ownership within 60 days exists, of each director, each nominee for director, and each executive officer listed in the table on page 35 (named executive officers) and of these persons and other executive officers as a group. On October 31, 2010 we had outstanding 141,790,182 shares of our common stock.

 

 

 

 

Executive Summary

 

Rockwell Automation has had a long-standing strong orientation in its executive compensation program toward pay for performance. This orientation has held constant throughout the business cycles that our organization has confronted over time. The compensation decisions made for fiscal 2010 reflect our company’s strong performance relative to our initial expectations for the year and the changes in the economic environment. Our compensation programs include base salary, annual incentive compensation, long-term incentives, defined benefit and defined contribution pension plans and a very limited perquisite package. We believe the decisions described in this proxy statement reflect our orientation toward pay for performance and demonstrate our ongoing commitment to our shareowners, employees and other stakeholders.

 

Fiscal 2010 Performance

 

Early in the year, the Board of Directors approved a business plan that reflected our initial expectations for our company performance. The Compensation and Management Development Committee (the Compensation Committee) set goals for sales, earnings per share from continuing operations (EPS), free cash flow, return on invested capital (ROIC), and segment operating earnings. These goals served as targets for our incentive compensation plans (ICP). In establishing these goals, the Compensation Committee considered the uncertainty related to the timing of an economic recovery. The Compensation Committee determined that meeting these goals would require continued execution of our growth and performance strategy.

 

Fiscal 2010 was a very good year. We experienced an improved global economic climate and benefited from the cost savings actions we took in fiscal 2009 as well as the execution of our growth and performance strategy. Market conditions improved more than our original expectations with global industrial production and global Gross Domestic Product (GDP) ending 3.3 percentage points and 2.1 percentage points above initial projections. In fiscal 2010, our sales increased 12% year over year (10% excluding the effect of currency and acquisitions), which growth rate is in excess of the growth rate of global industrial production and global GDP. Also in fiscal 2010, our diluted EPS from continuing operations nearly doubled from the prior year, despite incremental investments in our core technologies and global domain expertise. ROIC was 22.8%, up from 10.7% in fiscal 2009, and we exceeded fiscal 2010 free cash flow goals.

 

Fiscal 2010 Pay Implications

 

We have not changed our overall approach to our executive compensation through the downturn and the start of the economic recovery. Our equity grants continued to be a combination of stock options, performance shares and restricted stock. The factors used to determine our ICP did not change from fiscal 2009. The Compensation Committee retained discretion in fiscal 2010 in determining ICP awards for performance above or below our goals. We significantly exceeded all of the financial goals set early in the year. In addition, the Committee reviewed our performance in light of the change in the global Industrial Production Index and currency fluctuations, and determined that the Corporation had outperformed the underlying manufacturing economy. ICP awards for our named executive officers averaged 182% of target payout, reflecting performance well in excess of our financial goals. Over the performance period from October 1, 2007 to September 30, 2010, our total shareowner return (TSR) was at the 55th percentile of the companies in the S&P 500 Index. While our TSR performance exceeded the majority of the companies in the S&P 500 Index, our absolute performance was -7.6% (including the value of reinvested dividends). In accordance with our plan, the number of performance shares paid out was reduced by 50 percent from the level it would have been with positive TSR, resulting in a payout of 42% of the target number of performance shares awarded. We expected market data to show higher values of long-term incentives granted at other companies in 2010 and as a result we increased the value of our long-term incentives grants for our named executive officers in 2010. As a result of this decision and our higher stock price, the grant date fair value of the fiscal 2010 long-term incentive grants was up an average of 29% from the grant date fair value of the fiscal 2009 grants.

 

Our executives’ base salaries were reviewed at the start of fiscal 2010. Due to the uncertainty that still surrounded the economic recovery, we did not grant salary increases at that time to any of our named executive

officers; however, we did restore their base salaries to the levels they were at in March 2009 prior to the temporary salary reductions. By the end of the second quarter, the Compensation Committee determined that the strength of the business had recovered to the extent that we provided salary increases to our named executive officers in July 2010 at the same time we increased salaries for other employees. As we did for other employees, with the exception of Mr. Nosbusch, we also provided our named executive officers a one-time payment that accounted for the period from January 1, 2010 to June 30, 2010. The Compensation Committee determined that this payment was appropriate given the strong performance of these individuals and the level to which the business had returned.

 

The net result is that Total Direct Compensation (base salary, ICP, grant date fair value of long term incentive (LTI) grants) for the named executive officers was 67% higher than in fiscal 2009. This is in line with the $2.69 billion increase in market capitalization during fiscal 2010 and financial performance well in excess of our goals.

 

Effective January 1, 2010, we eliminated tax gross-ups related to personal liability insurance and FICA tax on our non-qualified savings plan and pension plan. We also eliminated the excise tax gross-up in the change of control agreements we entered into with our named executive officers on September 27, 2010.

 

The Compensation Committee and the Board believe that the skill and motivation of our employees, and especially our executive leaders, are essential to the Corporation’s performance and creation of shareowner value. We believe our compensation program motivates performance that differentiates us from our competitors. We will continue to provide a compensation program that we believe is effective, serves shareowner interests and is worthy of shareowner support.

 

Compensation Philosophy

 

Our long-term growth and performance business strategy seeks sustained organic growth through, among other things, expanding our served markets and enhancing our market access. We have developed a strong productivity culture that has allowed us to reinvest in organic growth. We believe that our employees’ knowledge of our customers and their applications, and our technology is a key factor that makes this strategy work. We also believe that it is important to align the compensation of our leadership with this strategy and therefore we choose the factors in our short and long-term incentives plans, among other things, to focus the management team’s efforts in the areas that are critical to the success of this strategy.

 

The quality of our leadership has a direct impact on our performance, and with the oversight of the Compensation Committee, we offer compensation plans, programs and policies intended to attract and retain executive talent and “pay for performance,” including the creation of shareowner value. Our compensation programs include base salary, annual incentive compensation, long-term incentives, defined benefit and defined contribution pension plans and a very limited perquisite package.

 

The following table highlights the principal purposes of the main elements of our compensation programs:

 

 

We believe that a significant portion of an executive’s compensation should be directly linked to our performance and the creation of shareowner value. In fiscal 2010, for our named executive officers, the Compensation Committee planned a targeted mix of Total Direct Compensation in which 77% to 86% was based on pay for performance. The Compensation Committee targeted 59% to 68% of Total Direct Compensation of our named executive officers in the form of long-term incentives directly linked to the creation of shareowner value. These target percentages have been similar throughout fiscal years 2008, 2009, and 2010. Total Direct Compensation consists of base salary, annual ICP awards and LTI grants

(calculated at the grant date fair value outlined in the Grants of Plan-Based Awards Table). As shown in the following graphs:

 

 

 

 

As shown in the above graphs, Mr. Nosbusch’s target and actual Total Direct Compensation have varied each year based on our performance. The following table illustrates the changes in Mr. Nosbusch’s actual Total Direct Compensation compared to the changes in diluted EPS from continuing operations.

 

 

We believe that our compensation program reinforces our pay-for-performance philosophy and has outcomes that are appropriate and in line with the changes in our business performance.

Compensation Review Process

 

We evaluate and take into account market data in setting each element of our officers’ compensation. As we do not believe that a peer group of companies directly comparable to us exists, we instead use the results of executive compensation surveys of major companies (the Major Companies) provided by Towers Watson and Hewitt Associates (collectively, the Survey Providers). The Towers Watson database includes over 428 companies and the Hewitt Associates database includes over 275 companies. In setting compensation levels for each element of pay, we analyze data relating to the Major Companies using regression analyses developed by the Survey Providers based on our sales. The market data analysis is typically the starting point for, and a significant factor in, our compensation determinations, but is not the only factor as we also consider the scope of the individual officer’s responsibilities and more subjective factors, such as the Compensation Committee’s (and the CEO’s in the case of other officers) assessment of the officer’s individual performance and expected future contributions and leadership.

 

The Compensation Committee has engaged Towers Watson who is directly accountable to the Compensation Committee, to provide advice on compensation trends and market information to assist the Compensation Committee in fulfilling its duties. See page 15 for a description of the services provided by Towers Watson to the Corporation and the Compensation Committee’s assessment of Towers Watson’s independence.

 

We consider the total compensation (earned or potentially available) of each of the named executive officers and the other officers in establishing each element of compensation. As part of our compensation review process we conduct a total compensation or “Tally Sheet” review with the Compensation Committee for each of our officers in which we review all elements of compensation, including base salary, annual incentives, long-term incentive grants, perquisites, health benefits and retirement and termination benefits. This review includes a consideration of amounts to be paid and other benefits accruing to our officers upon their retirement or other termination of employment. We consider the potential outcomes of annual incentives and long-term incentive grants under a variety of scenarios from low to high performance. We also review the officers’ current balances in various compensation and benefit plans. Based upon the results of this analysis we concluded that our compensation programs are in line with our compensation philosophy and provide an appropriate range of outcomes.

 

We do not believe our compensation program encourages our executives to take excessive risk. Our ICP provides a balance among revenue, earnings, cash flow and asset performance, limiting the effect of over-performance in one area at the expense of others. Additionally, payouts under our ICP are capped at twice the individual’s ICP target, limiting excessive rewards for short-term results. The Compensation Committee can reduce or withhold the incentive if it determines that the executive has caused the Corporation to incur excessive risk. Moreover, the majority of the Total Direct Compensation for our executives is in the form of long-term incentives. We believe our mix of equity vehicles appropriately motivates long-term performance. In addition, the majority of equity vests over a period of several years with performance shares and restricted stock vesting at three years. We also have stock ownership guidelines for our named executive officers, which encourage a long term view. In September 2009, the Corporation entered into letter agreements with Mr. Nosbusch as CEO and Mr. Crandall as CFO with respect to the reimbursement (or claw-back) of certain compensation. If we are required to restate any financial statements for periods from and after fiscal 2009 due to a material non-compliance with any financial reporting requirement under the securities laws, Messrs. Nosbusch and Crandall have agreed to reimburse the Corporation for any incentive- or equity-based compensation received during the 12 months following the public filing of such financial statements with the SEC. Incentive compensation subject to the claw-back includes: ICP, equity-based compensation received, profits realized from the sale of securities of the Corporation, and other incentive-based compensation. The Committee also engaged Towers Watson to conduct a review of all of our compensation programs relative to the potential for incentives that drive excessive risk in a way that could materially affect the Corporation. Towers Watson reviewed the measures used in each program, the target setting process, and our overall governance of our compensation plans. The review concluded that we have strong governance procedures and that our plans do not present a material risk to the Corporation or encourage excessive risk taking by participants.

We review the amounts of prior equity grants held by our officers, but do not take these values into account in determining future long-term incentive grants for the following reasons:

 

 

In making recommendations and determinations regarding each of our officers’ compensation, the Compensation Committee and the CEO also consider internal comparisons to the compensation we pay to our other executives.

 

Role of Management.  The Compensation Committee assesses the performance of the CEO and sets the CEO’s compensation in executive session without the CEO present. The CEO reviews the performance of our other officers, including the named executive officers, with the Compensation Committee and makes recommendations regarding each element of their compensation for the Compensation Committee’s review and approval. The Compensation Committee and the CEO are assisted in their review by Towers Watson, the Senior Vice President, Human Resources and the Vice President, Compensation & Benefits. The other named executive officers do not play a role in their own compensation determination other than discussing their performance with the CEO.

 

Elements of Compensation

 

Base Salary

 

We develop base salary guidelines for our officers generally at the median of the Major Companies, employing regression analyses developed by the Survey Providers based on our sales. However, the Compensation Committee’s salary decisions reflect the market data as well the individual’s responsibilities and more subjective factors, such as the Compensation Committee’s (and the CEO’s in the case of other officers) assessment of the officer’s individual performance and expected future contributions and leadership. The Compensation Committee reviews base salaries for our officers every year.

 

In March 2009, as a result of the deterioration in market conditions, among other actions, the Corporation announced to its employees that we were suspending the matching contributions to the savings plans in the U.S., that each U.S. exempt employee would take a 4.6% salary reduction in exchange for additional time off and that each other employee would receive additional time off without payment. Our senior management asked for greater salary reductions; Mr. Nosbusch asked the Committee for a 20% base salary reduction, and the other named executive officers and direct reports to the CEO asked for a 10% base salary reduction. The Committee approved these reductions effective April 13, 2009.

 

In January 2010, as a result of our improved sales and earnings, the Corporation resumed the matching contributions to the savings plans in the U.S., reinstated base salaries for exempt employees in the U.S. and rescinded the time off without pay for other employees. The Committee approved restoring the named executive officers’ salaries back to their March 2009 levels effective January 4, 2010, at the same time as salaries were restored for other employees. Given our continued improvement in sales and earnings through the third quarter, we granted salary increases to our employees effective July 5, 2010. The Committee reviewed the salaries for our named executive officers compared to the market data and considered their scope of responsibility and performance throughout the downturn, and granted salary increases to the named executive officers. As we did for other employees, with the exception of Mr. Nosbusch, we also provided for a one-time payment that accounted for the period from January 1, 2010 to July 4, 2010. The Compensation Committee determined that this payment was appropriate given the strong performance of these individuals and the level to which the business had returned.

Annual Incentive Compensation

 

Our annual incentive compensation plans (ICP) are designed to reward our executives for achieving Corporation and business segment results and for individual performance. Under our ICP, we establish for each executive at the start of each fiscal year an incentive compensation target equal to a percentage of the individual’s base salary. The target for annual incentive compensation is generally the median of the Major Companies, using regression analyses developed by the Survey Providers based on our sales. Actual incentive compensation payments under our ICP may be higher or lower than the incentive compensation target based on financial, operating and individual performance as described below. In line with our pay-for-performance orientation and as demonstrated in the graphs in the Compensation Philosophy section above, actual ICP payouts vary significantly from year to year based on our performance compared to the financial goals.

 

In the early part of each fiscal year, the CEO reviews with the Compensation Committee, and the Compensation Committee establishes, financial and operating goals for the fiscal year for purposes of our ICP. These goals include:

 

 

Each year, the Compensation Committee allocates a weighting of the target incentive compensation among the various goals that it establishes.

 

After the end of the fiscal year, the Compensation Committee and the CEO evaluate our performance and the performance of our business segments and consider the results compared to the pre-established goals. As a starting point, target amounts under our ICP are generally earned if we achieve our financial and operating goals for the year. For fiscal 2010, we used the same approach as fiscal 2009 in which the Compensation Committee, in its discretion, determined the payout levels for performance above or below the pre-determined goals after considering:

 

 

Awards to each officer under our ICP may be adjusted based on the Compensation Committee’s assessment (and except in the case of the CEO, based on the CEO’s recommendation) as to the individual’s achievement of individual goals and objectives and certain more subjective assessments of leadership acumen and the individual’s expected future contributions. Accordingly, while achieving our financial and operating goals is extremely important in determining our annual incentive compensation, the Compensation Committee maintains discretion to adjust annual incentive compensation upward or downward, notwithstanding achievement of these goals.

 

Under our Annual Incentive Compensation Plan for Senior Executive Officers (“Senior ICP”), which applies to the CEO and our four other most highly compensated officers, annual incentive compensation payments to those officers in total may not exceed 1% of our applicable net earnings (as defined in that plan) with the CEO’s maximum payment not to exceed 35% of the available funds, and each of the other four officers’ maximum payouts not to exceed 15% of the available funds.

 

The annual incentive compensation for Messrs. Nosbusch, Crandall and Hagerman is based upon our overall performance and the annual incentive compensation for Messrs. Eisenbrown and Ruff is based upon a combination of our overall performance and the performance of their segments.

The following table shows our principal 2010 financial goals used for determining awards under our ICP for fiscal 2010 and our performance compared to those goals:

 

ICP FACTORS

 

 

 

The Compensation Committee reviewed the results compared to our goals, as well as the changes in the manufacturing economy, compared to the initial expectations for the year. Growth for both global Gross Domestic Product (“GDP”) and global Industrial Production exceeded the initial expectations. Currency change was less than originally expected. Given this information, and the fact that sales growth exceeded our plan by 11.2% and diluted EPS from continuing operations grew by 99% from fiscal 2009, the Committee determined that we had outperformed the underlying economy and awarded ICP payments to our named executive officers that averaged 182% of target.

 

Long-Term Incentives

 

The principal purposes of our long-term incentives are to reward management for creating shareowner value and to align the financial interests of management with shareowners. Our long-term incentive awards are designed to reward the increase in both absolute and relative shareowner value. Our annual long-term incentive awards for executives include a combination of stock options, performance shares and restricted stock.

 

We grant annual long-term incentive awards with an aggregate anticipated value that is generally set between the 50th and 75th percentile of the Major Companies participating in the Towers Watson executive compensation database, using a regression analysis developed by Towers Watson based on our sales (the Hewitt Associates executive compensation database does not provide a regression analysis on long-term equity incentives). For fiscal 2010 we calculated the number of options, performance shares and shares of restricted stock based on the anticipated value of these grants using the 3-month average of our stock price prior to November 13, 2009. We used this approach to avoid single day anomalies in our stock price when determining the anticipated value of the long-term incentive grants and to provide an equal time period before the end of the previous fiscal year and after the start of the new fiscal year. The actual value of the grants to our executives may be higher or lower based upon the stock price on the day of the grant, and the ultimate amount realized by the executives from the grants.

 

We generally make long-term incentive grants near the beginning of each fiscal year at the same time the Compensation Committee performs its annual management performance evaluation and takes other compensation actions. Annual equity grants for officers occur on the same dates as our annual equity grants for our other professional and managerial employees, which in fiscal 2010 was the date of the Compensation Committee’s December meeting. As the grant date for our annual long-term incentive awards generally occurs at a Compensation Committee meeting held in the first quarter of our fiscal year, the grant date is effectively set approximately one year in advance when all Compensation Committee meetings for the next year are scheduled. We do not grant equity awards in anticipation of the release of material non-public information. Similarly, we do not time the release of information based on equity award grant dates.

 

The CEO recommends to the Compensation Committee the equity grants for other executives, and the Compensation Committee approves all equity grants for executives. We also at times award equity grants to new executives as they are hired or promoted during the year. These grants are approved by the Compensation Committee, and the grant date is the date the Compensation Committee approves the grant or, if later, the start date for a new executive.

 

In fiscal 2010 we did not adjust our approach to equity grants from prior years as a result of the uncertainty related to the timing of an economic recovery; however, we expected market data to show higher values of long-term incentives granted at other companies in 2010 and therefore we increased the value of our long-term incentive grants to our named executive officers in 2010. As a result of this decision and our growth in our stock price, the grant date fair value of the fiscal 2010 long-term incentive grants (determined in the manner described in the Grants of Plan-Based Awards Table) increased an average of 29% compared to the fiscal 2009 grants. Our equity grants to vice presidents and above continued to have three components. We targeted stock options at approximately 5/8 of the anticipated value of the long-term incentive grant, performance shares at approximately 1/4 of the anticipated value of the grant and restricted stock at approximately 1/8 of the anticipated value of the grant. We determined this allocation of equity vehicles taking into account a review of approximately 176 Fortune 500 companies that had filed proxy statements during the year ended March 31, 2010. This review was conducted by Towers Watson. Compared to this review, we grant a greater percentage of our long-term incentives as stock options and performance shares than market practice because we believe that a greater proportion of long-term incentives should depend on an increase in shareowner value.

 

Options:  We believe that stock options are an appropriate vehicle to reward management for increases in shareowner value, as they provide no value if share price does not increase. Our stock option grants vest in 1/3 increments at one, two and three years from the grant date and have a 10 year life. The exercise price of all stock option grants is the fair market value of our stock at the close of trading on the date of the grant. Our long-term incentives plan does not allow us to reprice stock options. During fiscal 2010, stock options granted to executives and other employees were approximately 1.5% of outstanding common shares at end of fiscal 2010. Total options outstanding at the end of fiscal 2010 were approximately 7.3% of outstanding shares at end of fiscal 2010. The Compensation Committee takes these figures into account when determining the annual stock option grant.

Performance Shares:  Performance shares are designed to reward management for our relative performance compared to the performance of companies in the S&P 500 Index over a three-year period. The payout in respect of performance shares granted in December 2008, December 2009, and December 2010 will be made in shares of our common stock or cash, and will range from zero to 200% of the target number of shares awarded based on our total shareowner return compared to the performance of companies in the S&P 500 Index over a three-year period. The payouts will be at zero, the target amount and the maximum amount if our total shareowner return is equal to or less than the 30th percentile, equal to the 60th percentile and equal to or greater than the 75th percentile of the total shareowner return of companies in the S&P 500 Index, respectively, over the applicable three-year period, with the payout interpolated for results between those percentiles. If performance shares are earned and total shareowner return is negative, the amount of shares earned will be reduced by 50%.

 

For the performance period from October 1, 2007 to September 30, 2010, our total shareowner return (TSR) was at the 55th percentile of the companies in the S&P 500 Index. While our TSR performance exceeded the majority of the companies in the S&P 500 Index, our absolute performance was -7.6 percent (including the value of reinvested dividends). In accordance with our plan, the awards were reduced by 50 percent from the level they would have been with positive TSR, resulting in 42% of the target number of performance shares being earned for that performance period. The starting price for this performance period of $69.65 was based on the 20-day average trading price prior to October 1, 2007 and the ending price of $59.20 was based on the 20-day average trading price prior to October 1, 2010.

 

Restricted Stock:  We grant restricted shares primarily in order to retain high quality executives throughout a business cycle. Accordingly, restricted shares generally do not vest until three years after the grant date.

 

Perquisites

 

During fiscal 2010, our officers received a very limited perquisite package that included personal liability insurance, an annual physical and tax gross-ups on personal liability insurance and FICA tax due on matching contributions to certain non-qualified plans. Upon retirement, officers may elect to continue the personal liability insurance coverage at their own expense.

 

The tax gross-ups for personal liability insurance and FICA tax due on the matching contributions to certain non-qualified plans were eliminated effective January 1, 2010.

 

Other

 

With regard to other benefits, our officers receive the same benefits as other eligible U.S. salaried employees. They participate on the same basis as other eligible U.S. salaried employees in:

 

 

Compensation Deductibility

 

Internal Revenue Code Section 162(m) provides that we may not deduct in any taxable year compensation in excess of $1 million paid in that year to our chief executive officer and our other three most highly compensated executive officers, other than the chief financial officer, unless the compensation is “performance based.” Grants of stock options, performance shares and awards under our Senior ICP are considered “performance based” compensation for this purpose. Base salaries, restricted stock awards and other annual incentive compensation awards do not qualify as “performance based” compensation for this purpose. With the exception of a portion of the restricted stock granted to Mr. Nosbusch, we do not anticipate that any portion of our fiscal 2010 compensation to the named executive officers covered by Section 162(m) will exceed the deductibility limitations of Section 162(m).

Change of Control and Severance Agreements

 

We do not have employment contracts with any officers. However, in November 2007, we entered into change of control agreements with Messrs. Nosbusch, Crandall, Eisenbrown, Hagerman and Ruff and certain other officers. There are two main purposes of these agreements.

 

 

In short, they seek to ensure that we may rely on key executives to continue to manage our business consistent with the Corporation’s best interests despite concerns for personal risks. We do not believe these agreements encourage our executives to favor or oppose a change of control. We believe these agreements strike a balance that the amounts are neither so low to cause an executive to oppose a change of control nor so high as to cause an executive to favor a change of control.

 

These agreements expired on September 30, 2010. On September 27, 2010, we entered into new change of control agreements with Mr. Nosbusch, each of the other named executive officers, and certain other officers. The agreements become effective if there is a change of control of the Corporation after September 30, 2010 and before October 1, 2013. The terms and conditions are substantially the same as those in the agreements that expired on September 30, 2010, except that:

 

 

For a description of the change of control agreements, see “Potential Payments Upon Termination or Change of Control.”

 

In the case of terminations other than those to which our change of control agreements apply, we have no severance agreements in place. However, in the past we have at times entered into severance agreements with executives upon termination of their employment with the terms and conditions depending upon the individual circumstances of the termination, the transition role we expect from the executive and our best interests.

 

Executive Stock Ownership

 

We believe our focus on “pay for performance” is sharpened by aligning closely the financial interests of our officers with those of shareowners. Accordingly, we have set the following minimum ownership guidelines for our named executive officers. These guidelines must be met within 5 years after becoming an officer.

 

 

Shares owned directly (including restricted shares) or through our savings plans (including share equivalents under our non-qualified savings plans) and the after-tax value of vested unexercised stock options are considered in determining whether an officer meets the guidelines, except that no more than 50% of the guidelines can be met by the after-tax value of vested unexercised stock options. At September 30, 2010, the five named executive officers owned an aggregate of 547,934 shares (including share equivalents under our non-qualified savings plans) of our common stock, with an aggregate market value of $33.8 million. As of September 30, 2010, all of the named executive officers met the guidelines. If a named executive officer

subject to the guidelines does not make appropriate progress to meet the guidelines, the named executive officer’s future long-term incentive grants may be adversely affected.

 

Compensation of the Chairman of the Board and Chief Executive Officer

 

Effective April 13, 2009, at Mr. Nosbusch’s request, the Compensation Committee reduced his base salary by 20% instead of the 4.6% used for all other employees, except the named executive officers and direct reports to the CEO who took a 10% salary reduction. Effective January 4, 2010, as a result of our improved sales and operating earnings, the Compensation Committee restored Mr. Nosbusch’s base salary to his March 2009 level of $1,040,000, at the same time salaries were restored for other U.S. employees. At the June 2010 meeting, the Committee considered Mr. Nosbusch’s performance through the downturn, the market value for CEOs, Mr. Nosbusch’s salary as a multiple of the other named executive officers and our salary increase plan for other employees, and increased Mr. Nosbusch’s base salary to $1,070,000. Mr. Nosbusch did not receive the one-time lump sum payment that accounted for the period from January 1, 2010 to June 30, 2010 that was made to other employees. Prior to the restoration of his base salary in January 2010, his base salary had last been increased in January 2008. Mr. Nosbusch’s base salary was positioned near the median for CEOs as compared to the Major Companies using regression analyses developed by the Survey Providers based on our sales. His total annual compensation continues to depend significantly on incentive compensation tied to the Compensation Committee’s assessment of his and our performance.

 

Near the beginning of fiscal 2010, we granted to Mr. Nosbusch options for 180,700 shares, 10,100 restricted shares and 25,200 performance shares. Consistent with our executive compensation philosophy, the anticipated value of this grant was in the corridor between the 50th and 75th percentile of long-term incentives grants to CEOs of the Major Companies using the regression analysis developed by Towers Watson based on our sales. In determining these grants, the Compensation Committee considered:

 

 

The grant date fair value of these awards to Mr. Nosbusch in fiscal 2010 was $4,303,141, which was up 29% from the grant date fair value of $3,332,949 of the equity awards granted to Mr. Nosbusch in fiscal 2009, and 2% below the equity awards granted in fiscal 2008. These amounts were determined using the valuation method described in the Grants of Plan-Based Awards Table.

 

In determining Mr. Nosbusch’s annual incentive compensation for fiscal 2010, the Compensation Committee concluded that under his leadership the Corporation had significantly outperformed our financial goals and the underlying economic environment. They also determined that the actions we took in fiscal 2009 contributed to the strong earnings conversion in fiscal 2010. The Committee also considered:

 

 

In December 2010, Mr. Nosbusch was awarded an ICP payment of $1,911,021. Mr. Nosbusch’s ICP payment was 179% of his target annual incentive compensation, which was less than the average percent of target for the other named executive officers. Mr. Nosbusch’s percentage was less because of the caps on payments contained in the Senior ICP.

 

The following line graph compares the cumulative total shareowner return on our common stock against the cumulative total return of the S&P 500 Index for the period of five years from October 1, 2005 to September 30, 2010, assuming in each case a fixed investment of $100 at the respective closing prices on September 30, 2005 and reinvestment of all dividends. Our 5-year performance outpaced the S&P 500.

 

Comparison of Five-Year Cumulative Total Return

 

Rockwell Automation and S&P 500 Index

 

 

The cumulative total returns on Rockwell Automation common stock and the S&P 500 Index as of each September 30, 2005-2010 plotted in the above graph are as follows:

 

 

 

* Includes the reinvestment of all dividends in our common stock

 

We believe the returns to shareowners shown in this graph indicate that our pay-for-performance philosophy and our emphasis on long-term incentives are well in line with the interests of shareowners, and that Mr. Nosbusch’s compensation is appropriate given both the fiscal 2010 and long-term performance of our company.

 

Compensation of Other Named Executive Officers

 

As a result of deteriorating market conditions and our performance in fiscal 2009, Messrs. Crandall, Eisenbrown, Hagerman, Ruff, and other direct reports to the CEO asked the Compensation Committee to reduce their base salaries by 10% instead of the 4.6% salary reduction that all employees received. The Compensation Committee approved their request effective April 13, 2009. Effective January 4, 2010, as a result of our improved sales and operating earnings, the Compensation Committee restored the base salaries for Messrs. Crandall, Eisenbrown, Hagerman, and Ruff to their March 2009 levels of $542,900, $536,900, $493,500 and $500,000, at the same time salaries were restored for all other U.S. exempt employees. At the June 2010 meeting, the Committee approved base salary increases of 2.7% for Messrs. Crandall, Eisenbrown and Hagerman. Consistent with our practice of bringing officers up to market over two to three years after a significant promotion, Mr. Ruff received a 10% increase. Effective July 5, 2010, their base salaries were increased to $557,500, $551,400, $506,800, and $550,000 for Messrs. Crandall, Eisenbrown, Hagerman and Ruff, respectively. As we did for other employees, with the exception of Mr. Nosbusch, we also provided a one-time payment that accounted for the period from January 1, 2010 to July 4, 2010, which was $7,300, $7,250, $6,650, and $25,000 for Messrs. Crandall, Eisenbrown, Hagerman and Ruff, respectively. The Compensation Committee determined that this payment was appropriate given the strong performance of these individuals and the level to which the business had returned.

 

In determining the compensation for Messrs. Crandall, Eisenbrown, Hagerman and Ruff we considered:

 

 

At the beginning of fiscal 2010, Messrs. Crandall and Ruff were each granted options for 53,200 shares, 3,000 restricted shares and 7,500 performance shares; Mr. Eisenbrown was granted options for 50,500 shares, 2,900 restricted shares and 7,100 performance shares; and Mr. Hagerman was granted options for 42,600 shares, 2,400 restricted shares and 6,000 performance shares. Consistent with our executive compensation philosophy, in determining these grants, we considered:

 

 

The grant date fair values of these awards was up 29% on average compared to the equity awards granted in fiscal 2009 (with grant date fair value determined in the manner described in the Grants of Plan-Based Awards Table).

 

In determining the fiscal 2010 ICP payouts for Messrs. Crandall, Eisenbrown, Hagerman and Ruff, we considered:

 

 

In December 2010, Messrs. Crandall, Eisenbrown, Hagerman and Ruff were awarded ICP payments of $655,100, $656,000, $595,500 and $587,200, respectively.

 

Changes in Compensation Program for Fiscal 2011

 

Base Salary

 

The salaries for Messrs. Nosbusch, Crandall, Eisenbrown, Hagerman and Ruff were increased effective January 2011 to $1,100,000, $572,500, $573,000, $520,500 and $565,000, respectively.

 

Annual Incentive Compensation

 

For fiscal 2011, the ICP financial measures will remain the same (sales, EPS, free cash flow and ROIC or segment operating earnings); however we will go back to having payout curves defined for each measure. No awards will be earned unless EPS at least equals fiscal 2010 EPS performance. Target amounts will generally be earned under our ICP if we achieve our financial goals for the year, and maximum payout for when we significantly exceed the goals. In determining the payout curves, the Compensation Committee considered:

 

 

The Compensation Committee retains the discretion to modify the formula award based on their assessment of our performance.

 

Long-Term Incentives

 

For the fiscal 2011 grants, the overall structure of our long-term incentive program remains unchanged from fiscal 2008 through fiscal 2010 (stock options, performance shares and restricted stock, with value allocated generally in the same proportions as in fiscal 2008, fiscal 2009 and fiscal 2010). We calculated the number of options, performance shares and shares of restricted stock using the closing price of our common stock on December 7, 2010, which was the date of grant. The exercise price of options continues to be the closing price on the date of the grant. We expect the value of these grants will be in the top half of the corridor between the 50th and 75th percentile.

 

The Compensation Committee approved the following grants of equity awards to the named executive officers at its December 2010 meeting:

 

 

The grants were effective December 7, 2010, the day of the Compensation Committee meeting, and the exercise price of the options is the closing price of our common stock on that date. The performance shares and restricted stock grants have terms and conditions that are substantially the same as the grants made in fiscal year 2010. See footnotes 2 and 4 to the Grants of Plan-Based Awards Table.

 

The following table sets forth the total compensation earned by each of the named executive officers for the fiscal years ended September 30, 2010, 2009 and 2008.