DEF 14A 1 d428134ddef14a.htm DEFINITIVE PROXY STATEMENT Definitive Proxy Statement
Table of Contents

SCHEDULE 14A INFORMATION

PROXY STATEMENT PURSUANT TO SECTION 14(a)

OF THE SECURITIES EXCHANGE ACT OF 1934 (AMENDMENT NO.     )

Filed by the Registrant    x                                                                  Filed by a Party other than the Registrant    ¨

Check the appropriate box:

 

¨   Preliminary Proxy Statement
¨   Confidential, for Use of the Commission Only (as Permitted by Rule 14a-6(e)(2))
x   Definitive Proxy Statement
¨   Definitive Additional Materials
¨   Soliciting Material Pursuant to Section 240.14a-12

ASHLAND INC.

 

(Name of Registrant as Specified in Its Charter)

N/A

 

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

Payment of Filing Fee (Check the appropriate box):

 

x No fee required

 

¨ Fee computed on table below per Exchange Act Rules 14a-6(i)(4) and 0-11.

 

  (1) Title of each class of securities to which transaction applies:    N/A

 

      

 

 

  (2) Aggregate number of securities to which transaction applies:    N/A

 

      

 

 

  (3) Per unit price or other underlying value of transaction computed pursuant to Exchange Act Rule 0-11 (set forth the amount on which the filing fee is calculated and state how it was determined):    N/A

 

      

 

 

  (4) Proposed maximum aggregate value of transaction:    N/A

 

      

 

 

  (5) Total fee paid:    N/A

 

      

 

 

¨ Fee paid previously with preliminary materials.

 

¨ Check box if any part of the fee is offset as provided by Exchange Act Rule 0-11(a)(2) and identify the filing for which the offsetting fee was paid previously. Identify the previous filing by registration statement number, or the Form or Schedule and the date of its filing.

 

  (1) Amount Previously Paid:    N/A

 

      

 

 

  (2) Form, Schedule or Registration Statement No.:    N/A

 

      

 

 

  (3) Filing Party:    N/A

 

      

 

 

  (4) Date Filed:    N/A

 

      

 

Notes:


Table of Contents

LOGO

 

James J. O’Brien

Chairman and

Chief Executive Officer

  

Ashland Inc.

50 E. RiverCenter Blvd., P.O. Box 391

Covington, KY 41012-0391

   December 12, 2012

 

Dear Ashland Inc. Shareholder:

On behalf of your Board of Directors and management, I am pleased to invite you to attend the 2013 Annual Meeting of Shareholders of Ashland Inc. The meeting will be held on Thursday, January 31, 2013, at 10:30 a.m. (EST), at the Metropolitan Club, 50 E. RiverCenter Boulevard, Covington, Kentucky.

The attached Notice of Annual Meeting and Proxy Statement describe the business to be conducted at the meeting. We have elected, where possible, to provide access to our proxy materials over the Internet under the Securities and Exchange Commission’s “notice and access” rules. We believe that providing our proxy materials over the Internet reduces the environmental impact of our Annual Meeting without limiting our shareholders’ access to important information about Ashland.

Whether or not you plan to attend the meeting, we encourage you to vote promptly.

We appreciate your continued confidence in Ashland, and we look forward to seeing you at the meeting.

 

Sincerely,

 

LOGO

James J. O’Brien

 


Table of Contents

Ashland Inc.

 

 

NOTICE OF ANNUAL MEETING OF SHAREHOLDERS

 

 

To be held January 31, 2013

To our Shareholders:

Ashland Inc., a Kentucky corporation, will hold its Annual Meeting of Shareholders on Thursday, January 31, 2013, at 10:30 a.m. (EST) at the Metropolitan Club, 50 E. RiverCenter Boulevard, Covington, Kentucky. Ashland’s shareholders will act on the following matters at the Annual Meeting or any adjournment of that meeting:

 

  (1) To elect four directors to Class III: Brendan M. Cummins, Mark C. Rohr, Janice J. Teal and Michael J. Ward;

 

  (2) To ratify the appointment of PricewaterhouseCoopers LLP as independent registered public accountants for fiscal 2013;

 

  (3) To approve an amendment to the 2011 Ashland Inc. Incentive Plan to increase the aggregate number of shares of common stock authorized for issuance under the plan by 2,000,000 shares and to make certain other amendments included therein;

 

  (4) To vote upon a non-binding advisory resolution approving the compensation paid to Ashland’s named executive officers, as disclosed pursuant to Item 402 of Regulation S-K, including the Compensation Discussion and Analysis, compensation tables and narrative discussion;

 

  (5) To vote upon a shareholder proposal recommending that the Board of Directors take action to declassify the Board, if properly presented at the Annual Meeting; and

 

  (6) To consider any other business properly brought before the Annual Meeting.

Only shareholders of record at the close of business on December 3, 2012 are entitled to vote at the Annual Meeting or any adjournment of that meeting.

If you are a participant in the Ashland Inc. Employee Savings Plan (the “Employee Savings Plan”), the Ashland Inc. Leveraged Employee Stock Ownership Plan (the “LESOP”), the Ashland Inc. Employee Union Savings Plan (the “Union Plan”) or the International Specialty Products Inc. 401(k) Plan (the “ISP Plan”), your vote will constitute voting instructions to Fidelity Management Trust Company, who serves as trustee of all four of these plans (the “Trustee”), for the shares held in your account.

In order that your Ashland Common Stock may be represented at the Annual Meeting, please vote in person, by telephone, over the Internet or by mailing your proxy card. If you are a participant in the Employee Savings Plan, the LESOP, the Union Plan or the ISP Plan, then our proxy tabulator, Corporate Election Services or its agent, must receive all voting instructions, whether given by telephone, over the Internet or by mail, before 6:00 a.m. (EST) on Tuesday, January 29, 2013.

By Order of the Board of Directors,

PETER J. GANZ

Senior Vice President, General Counsel

and Secretary

Covington, Kentucky

December 12, 2012


Table of Contents

Table of Contents

 

     Page  

Questions and Answers about the Annual Meeting

     1   

Ashland Common Stock Ownership of Certain Beneficial Owners

     5   

Ashland Common Stock Ownership of Directors and Executive Officers of Ashland

     6   

Election of Directors—Item 1

     8   

Board of Directors

     8   

Nominees for Election at the 2013 Annual Meeting

     9   

Continuing Directors Not Up for Election at the 2013 Annual Meeting

     13   

Compensation of Directors

     20   

Director Compensation Table

     20   

Annual Retainer

     22   

Restricted Shares/Units

     22   

Stock Ownership Guidelines for Directors

     22   

Corporate Governance

     23   

Governance Principles

     23   

Board Leadership Structure

     23   

Oversight of Ashland’s Executive Compensation Program

     24   

Personnel and Compensation Committee Interlocks and Insider Participation

     25   

Board’s Role of Risk Oversight

     25   

Director Independence and Certain Relationships

     25   

Related Person Transaction Policy

     26   

Communication with Directors

     27   

Attendance at Annual Meeting

     27   

Executive Sessions of Directors

     27   

Shareholder Recommendations for Directors

     27   

Shareholder Nominations of Directors

     28   

Committees and Meetings of the Board of Directors

     29   

Executive Compensation

     32   

Compensation Discussion and Analysis

     32   

Executive Summary

     32   

Principles and Objectives of Ashland’s Executive Compensation Program

     34   

Factors Considered in Determining Executive Compensation

     36   

Elements of Ashland’s Executive Compensation Program

     38   

Pay Mix

     39   

Risk Assessment

     48   

Executive Compensation Recovery “Clawback” Policy

     49   

Retirement Benefits

     49   

Health and Welfare Benefits

     49   

Executive Perquisites

     50   

Severance Pay Plan

     50   

Change in Control Agreements

     50   

Deductibility of Compensation

     50   

Personnel and Compensation Committee Report on Executive Compensation

     51   

Summary Compensation Table

     52   

Grants of Plan-Based Awards

     54   

Outstanding Equity Awards at Fiscal Year-End

     56   

Option Exercises and Stock Vested

     58   


Table of Contents
     Page  

Pension Benefits

     59   

Non-Qualified Deferred Compensation

     64   

Potential Payments upon Termination or Change in Control

     65   

Audit Committee Report

     73   

Ratification of Independent Registered Public Accountants—Item 2

     75   

Approval of an Amendment to the 2011 Ashland Inc. Incentive Plan to Increase the Aggregate Number of Shares of Common Stock Authorized for Issuance under the Plan by 2,000,000 Shares and to Make Certain Other Amendments Included Therein—Item 3

     76   

Equity Compensation Plan Information

     84   

Non-Binding Advisory Resolution Approving the Compensation Paid to Ashland’s Named Executive Officers—Item 4

     86   

Shareholder Proposal Recommending that the Board of Directors Take Action to Declassify the Board—Item 5

     88   

Miscellaneous

     92   

Proxy Solicitation Costs

     92   

Shareholder Proposals for the 2014 Annual Meeting

     92   

Other Matters

     93   

Appendix A—Amendment to 2011 Ashland Inc. Incentive Plan

     94   

Appendix B—2011 Ashland Inc. Incentive Plan

     95   


Table of Contents

ASHLAND INC.

PROXY STATEMENT

QUESTIONS AND ANSWERS ABOUT THE ANNUAL MEETING

 

Q: What am I voting on?

 

A:   (1)   Election of four directors to Class III: Brendan M. Cummins, Mark C. Rohr, Janice J. Teal and Michael J. Ward;
  (2)   Ratification of PricewaterhouseCoopers LLP (“PwC”) as Ashland’s independent registered public accountants for fiscal 2013;
  (3)   Approval of an amendment to the 2011 Ashland Inc. Incentive Plan (the “2011 Incentive Plan”) to increase the aggregate number of shares of common stock authorized for issuance under the plan by 2,000,000 shares and to make certain other amendments included therein;
  (4)   A non-binding advisory resolution approving the compensation paid to Ashland’s named executive officers, as disclosed pursuant to Item 402 of Regulation S-K, including the Compensation Discussion and Analysis, compensation tables and narrative discussion; and
  (5)   A shareholder proposal recommending that the Board of Directors (“Board” or “Board of Directors”) take action to declassify the Board, if properly presented at the Annual Meeting.

 

Q: Who may vote at the Annual Meeting?

 

A: Shareholders of Ashland Inc. (“Ashland” or the “Company”) at the close of business on December 3, 2012 (the “Record Date”), are entitled to vote at the Annual Meeting. As of the Record Date, there were 78,907,050 shares of Ashland Common Stock outstanding. Each share of Ashland Common Stock is entitled to one vote.

 

Q: Who can attend the Annual Meeting?

 

A: All Ashland shareholders on the Record Date are invited to attend the Annual Meeting, although seating is limited. If your shares are held in the name of a broker, bank or other nominee, you will need to bring a proxy or letter from that nominee that confirms you are the beneficial owner of those shares.

 

Q: Why did I receive the Notice of Internet Availability of Proxy Materials in the mail instead of a full set of proxy materials?

 

A: In accordance with rules adopted by the Securities and Exchange Commission (the “SEC”), we may furnish proxy materials, including this Notice of Annual Meeting of Shareholders and Proxy Statement, together with our 2012 Annual Report to Shareholders, by providing access to such documents on the Internet instead of mailing printed copies. Most shareholders will not receive printed copies of the proxy materials unless they have specifically requested them. Instead, a Notice of Internet Availability of Proxy Materials (“Notice”) will be mailed to shareholders starting on or around December 12, 2012.

 

Q: How do I access the proxy materials?

 

A: The Notice will provide you with instructions regarding how to view Ashland’s proxy materials for the Annual Meeting and the 2012 Annual Report to Shareholders on the Internet. The Notice also instructs you how you may submit your vote. If you would like to receive a paper or email copy of our proxy materials, you should follow the instructions for requesting such materials in the Notice.

 

1


Table of Contents
Q: What shares are included in the proxy card?

 

A: Your proxy card represents all shares of Ashland Common Stock that are registered in your name and any shares you hold in the Employee Savings Plan, the LESOP, the Union Plan or the ISP Plan. Additionally, your proxy card includes shares you hold in the dividend reinvestment plan (the “DRP”) administered by Wells Fargo Bank, National Association (“Wells Fargo”) for investors in Ashland Common Stock. If your shares are held through a broker, bank or other nominee, you will receive either a voting instruction form or a proxy card from the broker, bank or other nominee instructing you how to vote your shares.

 

Q: How do I vote if I am a registered holder or I own shares through a broker, bank or other nominee?

 

A: If you are a registered shareholder as of the Record Date, you can vote (i) by attending the Annual Meeting, (ii) by following the instructions on the Notice or proxy card for voting by telephone or Internet or (iii) by signing, dating and mailing in your proxy card. If you hold shares through a broker, bank or other nominee, that institution will instruct you as to how your shares may be voted by proxy, including whether telephone or Internet voting options are available. If you hold your shares through a broker, bank or other nominee and would like to vote in person at the meeting, you must first obtain a proxy issued in your name from the institution that holds your shares.

 

     All shares represented by validly executed proxies will be voted at the Annual Meeting, and such shares will be voted in accordance with the instructions provided. If no voting specification is made on your returned proxy card, James J. O’Brien or Peter J. Ganz, as individuals named on the proxy card, will vote (i) FOR the election of the four director nominees, (ii) FOR the ratification of PwC, (iii) FOR the approval of an amendment to the 2011 Incentive Plan to increase the aggregate number of shares of common stock authorized for issuance under the plan by 2,000,000 shares and to make certain other amendments included therein, (iv) FOR the non-binding advisory resolution approving the compensation paid to Ashland’s named executive officers, as disclosed pursuant to Item 402 of Regulation S-K, including the Compensation Discussion and Analysis, compensation tables and narrative discussion and (v) AGAINST the shareholder proposal recommending that the Board of Directors take action to declassify the Board.

 

Q: How do I vote my shares in the DRP?

 

A: Shares of Ashland Common Stock credited to your account in the DRP will be voted by Wells Fargo, the plan sponsor and administrator, in accordance with your voting instructions.

 

Q: How will the Trustee of the Employee Savings Plan, the LESOP, the Union Plan and the ISP Plan vote?

 

A: Each participant in the Employee Savings Plan, the LESOP, the Union Plan or the ISP Plan will instruct the Trustee how to vote the shares of Ashland Common Stock credited to the participant’s account in each plan. This instruction also applies to a proportionate number of those shares of Ashland Common Stock allocated to participants’ accounts for which voting instructions are not timely received by the Trustee. These shares are collectively referred to as non-directed shares. Each participant who gives the Trustee such an instruction acts as a named fiduciary for the applicable plan under the Employee Retirement Income Security Act of 1974, as amended (“ERISA”). Your vote must be received by our proxy tabulator, Corporate Election Services (“CES”), before 6:00 a.m. (EST) on Tuesday, January 29, 2013.

 

Q: Can a plan participant vote the non-directed shares differently from shares credited to his or her account?

 

A:

Yes, provided that you are a participant in the Employee Savings Plan or the LESOP. Any participant in the Employee Savings Plan or the LESOP Plan who wishes to vote the non-directed shares differently from the shares credited to his or her account or who wishes not to vote the non-directed shares at all may do so by requesting a separate voting instruction card from CES at Corporate Election Services, P.O. Box 1150,

 

2


Table of Contents
  Pittsburgh, PA 15230. Participants in the Union Plan and the ISP Plan, however, cannot direct that the non-directed shares be voted differently from the shares in their accounts.

 

Q: Can I change my vote once I vote by mail, by telephone or over the Internet?

 

A: Yes. You have the right to change or revoke your proxy (1) at any time before the Annual Meeting by (a) notifying Ashland’s Secretary in writing, (b) returning a later-dated proxy card or (c) entering a later-dated telephone or Internet vote; or (2) by voting in person at the Annual Meeting. However, any changes or revocations of voting instructions to the Trustee of the Employee Savings Plan, the LESOP, the Union Plan or the ISP Plan must be received by our proxy tabulator, CES, before 6:00 a.m. (EST) on Tuesday, January 29, 2013.

 

Q: Who will count the vote?

 

A: Representatives of CES will tabulate the votes and will act as the inspector of election.

 

Q: Is my vote confidential?

 

A: Yes. Your vote is confidential.

 

Q: What constitutes a quorum?

 

A: As of the Record Date, 78,907,050 shares of Ashland Common Stock were outstanding. A majority of the outstanding shares present in person or by proxy is required to constitute a quorum to transact business at the Annual Meeting. If you vote in person, by telephone, over the Internet or by returning a properly executed proxy card, you will be considered a part of that quorum.

 

     Abstentions and broker non-votes (i.e., when a broker does not have authority to vote on a specific issue) will be treated as present for the purpose of determining a quorum but as unvoted shares for the purpose of determining the approval of any matter submitted to the shareholders for a vote.

 

Q: What vote is required for approval of each matter to be considered at the Annual Meeting?

 

A:   (1)   Election of directors—Under Article XII of Ashland’s Articles of Incorporation, as amended, the affirmative vote of a majority of votes cast with respect to each director nominee is required for the nominee to be elected. A majority of votes cast means that the number of votes cast “for” a director nominee must exceed the number of votes cast “against” that director nominee.
  (2)   Ratification of independent registered public accountants—The appointment of PwC will be deemed ratified if votes cast in its favor exceed votes cast against it.
  (3)   Approval of an amendment to the 2011 Incentive Plan to increase the aggregate number of shares of common stock authorized for issuance under the plan by 2,000,000 shares and to make certain other amendments included therein—The amendment to the 2011 Incentive Plan will be approved if the votes cast in its favor exceed votes cast against it.
  (4)   Non-binding advisory resolution approving the compensation paid to Ashland’s named executive officers—The non-binding advisory resolution approving the compensation paid to Ashland’s named executive officers, as disclosed in this proxy statement pursuant to Item 402 of Regulation S-K, including the Compensation Discussion and Analysis, compensation tables and narrative discussion, will be approved if the votes cast in its favor exceed votes cast against it.
  (5)   Shareholder proposal to recommend that the Board of Directors take action to declassify the Board —The shareholder proposal recommending that the Board of Directors take action to declassify the Board will be approved if the votes cast in its favor exceed votes cast against it. However, it is important to note that shareholder approval of the proposal would not by itself declassify the Board, but would serve as a recommendation to the Board to authorize an amendment to Ashland’s governance documents.

 

3


Table of Contents
Q: How will broker non-votes be treated?

 

A: Ashland will treat broker non-votes as present to determine whether or not there is a quorum at the Annual Meeting, but they will not be treated as entitled to vote on the matters, if any, for which the broker indicates it does not have discretionary authority. This means that broker non-votes will not have any effect on whether a matter proposed at the Annual Meeting passes.

 

Q: Where can I find the voting results of the meeting?

 

A: We intend to announce preliminary voting results at the Annual Meeting. We will report the final results on a Current Report on Form 8-K filed with the SEC no later than February 6, 2013. You can obtain a copy of the Form 8-K by logging on to our website at http://investor.ashland.com, by calling the SEC at 1-800-SEC-0330 for the location of the nearest public reference room or through the SEC’s EDGAR system at http://www.sec.gov.

Important Notice regarding the availability of Proxy Materials for the Annual Meeting to be held on January 31, 2013. This proxy statement and Ashland’s 2012 Annual Report to Shareholders are available at www.ashland.com/proxy.

 

4


Table of Contents

ASHLAND COMMON STOCK OWNERSHIP OF CERTAIN BENEFICIAL OWNERS

The following table sets forth information with respect to each person known to Ashland to beneficially own more than 5% of the outstanding shares of Ashland Common Stock as of September 30, 2012.

 

Name and Address of Beneficial Owner

   Amount and Nature
of Common Stock
Beneficial Ownership
    Percent of
Class of Common Stock*
 

FMR LLC

     8,685,586  (1)      11.02

82 Devonshire Street

    

Boston, Massachusetts 02109

    

BlackRock, Inc.

     4,798,684  (2)      6.09

40 East 52nd Street

    

New York, New York 10022

    

 

* Based on 78,815,033 shares of Ashland Common Stock outstanding as of September 30, 2012.

 

(1) Based upon information contained in the Schedule 13G/A filed by FMR LLC (“FMR”) with the SEC on February 14, 2012, FMR beneficially owned 8,685,586 shares of Ashland Common Stock as of December 31, 2011, with sole voting power over 2,990,391 shares, shared voting power over no shares, sole dispositive power over 8,685,586 shares and shared dispositive power over no shares. FMR reported its beneficial ownership on behalf of itself and its direct and indirect subsidiaries and affiliates as follows: (i) 4,712,674 shares owned by Fidelity Management & Research Company; (ii) 1,052 shares owned by Strategic Advisers, Inc.; (iii) 629,980 shares owned by Pyramis Global Advisors, LLC; (iv) 3,311,280 shares owned by Pyramis Global Advisors Trust Company; and (v) 30,600 shares owned by FIL Limited.

 

(2) Based upon information contained in the Schedule 13G/A filed by BlackRock, Inc. (“BlackRock”) with the SEC on February 13, 2012, BlackRock beneficially owned 4,798,684 shares of Ashland Common Stock as of December 31, 2011, with sole voting power over 4,798,684 shares, shared voting power over no shares, sole dispositive power over 4,798,684 shares and shared dispositive power over no shares. BlackRock reported its beneficial ownership on behalf of itself and the following direct and indirect subsidiaries and affiliates: BlackRock Japan Co. Ltd; BlackRock Advisors (UK) Limited; BlackRock Institutional Trust Company, N.A.; BlackRock Fund Advisors; BlackRock Asset Management Canada Limited; BlackRock Asset Management Australia Limited; BlackRock Advisors, LLC; BlackRock Capital Management, Inc.; BlackRock Financial Management, Inc.; BlackRock Investment Management, LLC; BlackRock Fund Managers Limited; and BlackRock International Ltd.

 

5


Table of Contents

ASHLAND COMMON STOCK OWNERSHIP OF DIRECTORS

AND EXECUTIVE OFFICERS OF ASHLAND

The following table shows as of October 31, 2012, the common stock ownership of each Ashland director and each Ashland executive officer named in the Summary Compensation Table on page 52 of this proxy statement and the common stock ownership of the directors and executive officers of Ashland as a group.

Common Stock Ownership

 

Name of Beneficial Owner

   Aggregate Number of Shares of
Common Stock Beneficially  Owned
 

James J. O’Brien

     456,649         (1 )(2)(3) 

Lamar M. Chambers

     133,240         (1 )(2)(3) 

Peter J. Ganz

     16,682         (3 )(4) 

John E. Panichella

     61,124         (1 )(3)(4) 

Theodore L. Harris

     53,754         (1 )(2)(3)(4) 

Brendan M. Cummins

     2,088         (2 )(5) 

Roger W. Hale

     45,871         (2 )(3)(5)(6) 

Kathleen Ligocki

     69,865         (2 )(3)(5) 

Vada O. Manager

     21,399         (2 )(5) 

Barry W. Perry

     21,882         (2 )(5) 

Mark C. Rohr

     24,809         (2 )(5) 

George A. Schaefer, Jr.

     41,092         (2 )(3)(5) 

Janice J. Teal

     1,000         (5

John F. Turner

     21,882         (2 )(5) 

Michael J. Ward

     67,176         (2 )(3)(5) 

All directors and executive officers as a group (21 people)

     1,223,420         (1 )(2)(3)(4)(5)(6)   

 

As of October 31, 2012, there were 78,822,048 shares of Ashland Common Stock outstanding. None of the listed individuals owned more than 1% of Ashland’s Common Stock outstanding as of October 31, 2012. All directors and executive officers as a group owned 1,223,420 shares of Ashland Common Stock, which equaled 1.54% of the Ashland Common Stock outstanding as of October 31, 2012. Shares deemed to be beneficially owned are included in the number of shares of Ashland Common Stock outstanding on October 31, 2012 for computing the percentage ownership of the applicable person and the group, but such shares are not deemed to be outstanding for computing the percentage ownership of any other person.

 

  (1) Includes shares of Ashland Common Stock held under the Employee Savings Plan and/or the LESOP by executive officers: as to Mr. O’Brien, 5,796 shares; as to Mr. Chambers, 17,969 shares; as to Mr. Panichella, 1,333 shares; as to Mr. Harris, 1,636 shares; and as to all executive officers as a group, 38,427 shares. Participants can vote the Employee Savings Plan and the LESOP shares.

 

  (2) Includes common stock units and/or restricted stock units (share equivalents) held by executive officers in the Ashland Common Stock fund under Ashland’s non-qualified deferred compensation plans for employees (the “Employees’ Deferral Plan”) or by directors under the non-qualified deferred compensation plans for non-employee directors (the “Directors’ Deferral Plan”): as to Mr. O’Brien, 137,537 units; as to Mr. Chambers, 25,604 units; as to Mr. Harris, 2,120 units; as to Mr. Hale, 30,873 units; as to Ms. Ligocki, 35,413 units; as to Mr. Manager, 19,090 units; as to Mr. Perry, 20,882 units; as to Mr. Rohr, 18,809 units; as to Mr. Schaefer, 20,882 units; as to Mr. Turner, 20,882 units; as to Mr. Ward, 53,264 units; and as to all directors and executive officers as a group, 429,449 units. Mr. Cummins, as a non-U.S. resident, is not eligible to defer U.S.-based compensation and therefore holds 2,088 restricted stock units directly and not through the Directors’ Deferral Plan.

 

  (3)

Includes shares of Ashland Common Stock with respect to which the directors and executive officers have the right to acquire beneficial ownership within 60 calendar days after October 31, 2012, through

 

6


Table of Contents
  the exercise of stock options or stock appreciation rights (“SARs”): as to Mr. O’Brien, 216,636 shares through SARs; as to Mr. Chambers, 70,657 shares through SARs; as to Mr. Ganz, 1,446 shares through SARs; as to Mr. Panichella, 9,785 shares through SARs; as to Mr. Harris, 13,098 shares through SARs; as to Messrs. Hale and Ward and Ms. Ligocki, 12,912 shares through options; as to Mr. Schaefer, 16,474 shares through options; and as to all directors and executive officers as a group, 55,210 shares through options and 374,092 shares through SARs. All unexercised options on this table are reported as gross shares. All SARs included in this table are reported on a net basis based on the closing price for Ashland Common Stock as reported on the New York Stock Exchange (“NYSE”) Composite Tape on October 31, 2012. All SARs are stock settled and are not issued in tandem with an option.

 

  (4) Includes restricted shares of Ashland Common Stock: as to Mr. Ganz, 15,236 shares; as to Mr. Panichella, 50,000 shares; as to Mr. Harris, 21,250 shares; and as to all executive officers as a group, 117,326 shares.

 

  (5) Includes 1,000 restricted shares of Ashland Common Stock for each of the non-employee directors except for Mr. Cummins, who received 1,000 restricted stock units in lieu of 1,000 restricted shares (discussed in footnote 2 above).

 

  (6) Includes shares of Ashland Common Stock held under the DRP, which provides participants with voting power with respect to such shares.

 

7


Table of Contents

ELECTION OF DIRECTORS

Item  1

Board of Directors

The Board of Directors is currently made up of eleven directors, divided into three classes. The four individuals nominated for election as Class III directors at the Annual Meeting are Brendan M. Cummins, Mark C. Rohr, Janice J. Teal and Michael J. Ward. The nominees to Class III will be elected to serve a three-year term until the 2016 Annual Meeting. The Governance and Nominating Committee (“G&N Committee”) has confirmed that all four nominees will be available to serve as directors upon election and recommends that shareholders vote for them at the Annual Meeting.

Under Article XII of Ashland’s Articles of Incorporation, as amended, in an uncontested election the affirmative vote of a majority of votes cast with respect to a director nominee is required for the nominee to be elected. Therefore, the number of votes cast “for” a nominee must exceed those cast “against” a nominee for the nominee to be elected to the Board of Directors.

Pursuant to the Board of Directors’ resignation policy in Ashland’s Corporate Governance Guidelines (published on Ashland’s website (http://investor.ashland.com)), any nominee who is serving as a director at the time of an uncontested election who fails to receive a greater number of votes “for” his or her election than votes “against” his or her election will tender his or her resignation for consideration by the Board of Directors within ten days following the certification of the shareholder vote. The Board will decide, through a process managed by the G&N Committee, whether to accept the resignation within 90 days following the date of the shareholder meeting. The Company will then promptly disclose the Board’s decision and reasons therefor. As a condition to his or her nomination, each person nominated by the G&N Committee must agree in advance to abide by the policy. Messrs. Cummins, Rohr and Ward and Dr. Teal, the four nominees to Class III, have each agreed to abide by the policy.

If no voting specification is made on a properly returned or voted proxy card, James J. O’Brien or Peter J. Ganz (proxies named on the proxy card) will vote FOR the four nominees named in this proxy statement. If any of the nominees should be unable or unwilling to stand for election at the time of the Annual Meeting, the proxies may vote for a replacement nominee recommended by the Board of Directors, or the Board may reduce the number of directors to be elected at the Annual Meeting. At this time, the Board knows of no reason why any of the nominees would not be able to serve as a director if elected.

The Board of Directors recommends a vote FOR Brendan M. Cummins, Mark C. Rohr, Janice J. Teal and Michael J. Ward for election as Class III directors at the 2013 Annual Meeting.

 

8


Table of Contents

Nominees for Election at the 2013 Annual Meeting

Class III Directors

(Term expiring in 2016)

 

LOGO

 

Brendan M. Cummins

 

Former Consultant to The

Valence Group

Former Chief Executive

Officer of Ciba

Specialty Chemicals

Director since 2012

Committees:

•   Audit

•   Environmental, Health and Safety

Age: 61

  

Professional Experience:

 

Mr. Cummins served as a global strategic advisor to, and on the senior executive panel of, The Valence Group, a specialist mergers and acquisitions firm from 2010 until May 2012. Prior to that position, Mr. Cummins served with Ciba Specialty Chemicals as Chief Executive Officer from 2007 to 2008 and as Chief Operating Officer from 2005 to 2007. From 1974 to 2005, Mr. Cummins held a variety of international and senior management positions with Ciba.

 

Education:

 

Mr. Cummins is an Associate and Fellow of the Institute of Company Accountants, is a Fellow of the Association of International Accountants and received a Diploma in Company Direction from the Institute of Directors in 2010. He also completed a management development program at Harvard in 1989.

 

Non-Profit Boards:

 

Mr. Cummins serves as Chairman of The Viking Trust Ltd in Waterford City, Ireland and as a board member and Treasurer of the Waterford Civic Trust.

 

Director Qualifications:

 

As the former Chief Executive Officer of a major chemical company and chemical industry consultant, Mr. Cummins brings significant management and chemical industry experience and knowledge to the Board in the areas of international business operations, accounting and finance, risk oversight, environmental compliance and corporate governance.

 

9


Table of Contents

Nominees for Election at the 2013 Annual Meeting (continued)

 

LOGO

 

Mark C. Rohr

 

Chairman and Chief

Executive Officer of

Celanese Corporation

Director since 2008

Committees:

•   Audit

•   Environmental, Health and Safety

Age: 61

  

Professional Experience:

 

Mr. Rohr is Chairman and Chief Executive Officer of Celanese Corporation, a technology and specialty materials company. He has served in these roles since April 2012. Prior to this position, he held several executive positions with Albemarle Corporation, a specialty chemical company, including Executive Chairman of the Board (2011-2012), Chairman of the Board (2008-2011), Chief Executive Officer (2002-2011) and President (2000-2010). Before joining Albemarle, he served with Occidental Chemical Corporation as Senior Vice President, Specialty Chemicals.

 

Education:

 

Mr. Rohr holds Bachelor of Science degrees in chemistry and chemical engineering from Mississippi State University.

 

Public Company Boards:

 

Within the past five years, Mr. Rohr has served as the Executive Chairman and Chairman of the Board of Albemarle Corporation.

 

Non-Profit Boards:

 

Mr. Rohr serves on the Executive Committee of the American Chemistry Council and the Advisory Board of Mississippi State University College of Arts and Sciences.

 

Director Qualifications:

 

As a current Chairman and Chief Executive Officer of a leading technology and specialty materials company and former Chairman of the Board and Chief Executive Officer of a leading chemical company, Mr. Rohr brings significant management and chemical industry experience and knowledge to the Board in the areas of finance, accounting, international business operations, safety, environmental compliance, risk oversight and corporate governance. He also brings significant experience gained from service on the board of directors of other public companies.

 

10


Table of Contents

Nominees for Election at the 2013 Annual Meeting (continued)

 

LOGO

 

Janice J. Teal

 

Former Group Vice

President and Chief Scientific Officer for Avon Products Inc.

Director since 2012

Committees:

•   Environmental, Health and Safety

•   Personnel and Compensation

Age: 60

  

Professional Experience:

 

Dr. Teal served as the Group Vice President and Chief Scientific Officer for Avon Products Inc., a direct seller of beauty and related products, from January 1999 to May 2010. Prior to that position, Dr. Teal served as Vice President of the Avon Skin Care Laboratories, where she led the bioscience research and skin care teams.

 

Education:

 

Dr. Teal holds a doctorate degree and a Master of Science degree in Pharmacology from Emory University Medical School, a Pharmacy Degree from Mercer University and was a Post-Doctoral Fellow at the New York University Medical Center Institute of Environmental Medicine.

 

Public Company Boards:

 

From 2003 to 2011, Dr. Teal served on the Board of Directors of Arch Chemicals, Inc., where she served on the Audit Committee and the Corporate Governance Committee.

 

Non-Profit Boards:

 

Dr. Teal is a member of the Board of Trustees of Dominican College.

 

Director Qualifications:

 

As former Group Vice President and Chief Scientific Officer of a leading personal care company, Dr. Teal brings significant scientific and personal care industry experience and knowledge to the Board in the areas of research and development, marketing, safety and risk oversight. She also brings significant experience gained from service on the board of directors of another public chemical company.

 

11


Table of Contents

Nominees for Election at the 2013 Annual Meeting (continued)

 

LOGO

 

Michael J. Ward

 

Chairman of the Board and Chief Executive Officer of CSX Corporation

Director since 2001

Committees:

•   Governance and Nominating

•   Personnel and Compensation

Age: 62

  

Professional Experience:

 

Mr. Ward is Chairman of the Board and Chief Executive Officer of CSX Corporation, a transportation supplier. Prior to this position, he was President of CSX Transportation, the corporation’s rail unit.

 

Education:

 

Mr. Ward holds a Bachelor of Science degree from the University of Maryland and a Masters in Business Administration from the Harvard Business School.

 

Non-Profit Boards:

 

Mr. Ward is a Director of the American Coalition for Clean Coal Electricity, City Year and Take Stock in Children. His other affiliations include The Florida Council of 100, The Business Roundtable, the Hubbard House Foundation, Edward Waters College Foundation and Michael and Kim Ward Foundation.

 

Director Qualifications:

 

As a current Chairman of the Board and Chief Executive Officer of a major transportation company, Mr. Ward brings significant experience and knowledge to the Board in the areas of finance, accounting, business operations, safety, environmental compliance, risk oversight and corporate governance. He also brings significant experience gained from service on the board of directors of another public company.

 

12


Table of Contents

Continuing Directors Not Up for Election at the 2013 Annual Meeting

 

  

Class I Directors

(Term expiring in 2014)

LOGO

 

Kathleen Ligocki

 

Operating Executive of Kleiner

Perkins Caufield & Byers

Director since 2004

Committees:

•    Chair, Environmental,

Health and Safety

•    Audit

•    Personnel and Compensation

Age: 56

  

Professional Experience:

 

Ms. Ligocki is an Operating Executive at Kleiner Perkins Caufield & Byers, one of Silicon Valley’s largest capital providers. She is also a principal in Pine Lake Partners, Inc., a consulting firm focused on turnaround and start-up companies. She served as the Chief Executive Officer of Next Autoworks, from 2010 to 2012, and GS Motors, from 2008 to 2009, two privately-held start-up companies. Prior to joining GS Motors, Ms. Ligocki worked at Tower Automotive, the Ford Motor Company, United Technologies and General Motors Corporation.

 

Education:

 

Ms. Ligocki holds a Bachelor of Arts degree in liberal studies from Indiana University, a Masters in Business Administration from The Wharton School at the University of Pennsylvania and honorary doctorates from Indiana University and Central Michigan University.

 

Public Company Boards:

 

Ms. Ligocki is a Director of Lear Corporation, where she serves on the Audit Committee.

 

Non-Profit Boards:

 

Ms. Ligocki serves on a variety of non-profit and academic boards focused on women, families and life-long education.

 

Director Qualifications:

 

As an executive for a leading venture capital fund and a former Chief Executive Officer and senior officer of several large automotive companies, Ms. Ligocki brings significant experience and knowledge to the Board in the areas of manufacturing, finance, accounting, international business operations, safety, environmental compliance, risk oversight and corporate governance.

 

13


Table of Contents

Continuing Directors Not Up for Election at the 2013 Annual Meeting (continued)

 

LOGO

 

James J. O’Brien

 

Chairman of the Board and Chief Executive Officer of Ashland Inc.

Director since 2002

Age: 58

  

Professional Experience:

 

Mr. O’Brien is Ashland’s Chairman of the Board and Chief Executive Officer. Prior to this position, Mr. O’Brien was President and Chief Operating Officer of Ashland and Senior Vice President and Group Operating Officer of Ashland. He also served as the President of Valvoline from 1995 to 2001.

 

Education:

 

Mr. O’Brien holds a Bachelor of Science degree in accounting and finance and a Masters in Business Administration from The Ohio State University.

 

Public Company Boards:

 

Mr. O’Brien is a Director of Humana Inc., where he serves on the Investment and Audit Committees, and a Director of Albemarle Corporation, where he serves on the Executive Compensation and Health, Safety & Environment Committees.

 

Non-Profit Boards:

 

Mr. O’Brien serves as a member of the Dean’s Advisory Council for the Fisher Graduate College of Business at The Ohio State University. He is also a member of the Board of Directors of the American Chemistry Council.

 

Director Qualifications:

 

Mr. O’Brien has extensive knowledge of Ashland and all of its business segments, and he brings significant management experience and knowledge to the Board in the areas of finance, accounting, international business operations, risk oversight and corporate governance. He also brings significant experience gained from service on the board of directors of other public companies.

 

14


Table of Contents

Continuing Directors Not Up for Election at the 2013 Annual Meeting (continued)

 

LOGO

 

Barry W. Perry

 

Former Chairman and Chief Executive Officer of Engelhard Corporation

Director since 2007

Lead Independent Director

Committees:

•   Chair, Personnel and Compensation

•   Governance and Nominating

Age: 66

  

Professional Experience:

 

Mr. Perry served as Chairman and Chief Executive Officer of Engelhard Corporation from January 2001 to June 2006. Prior to this position, he held various management positions with Engelhard Corporation beginning in 1993. From 1991 to 1993, Mr. Perry was a Group Vice President of Rhone-Poulenc. Prior to joining Rhone-Poulenc, he held a number of executive positions with General Electric Company.

 

Education:

 

Mr. Perry holds a Bachelor of Science degree in plastics engineering from the University of Massachusetts.

 

Public Company Boards:

 

Mr. Perry is a Director of Arrow Electronics, Inc., where he serves on the Compensation and Audit Committees, and Albemarle Corporation, where he serves on the Executive Compensation Committee and chairs the Health, Science and Environmental Committee. Within the past five years, Mr. Perry also served on the Board of Directors of Cookson Group PLC.

 

Director Qualifications:

 

As the former Chairman of the Board and Chief Executive Officer of a leading chemical company, Mr. Perry brings significant management and chemical industry experience and knowledge to the Board in the areas of finance, accounting, international business operations, safety, environmental compliance, risk oversight and corporate governance. He also brings significant experience gained from service on the boards of directors of other public companies.

 

15


Table of Contents

Continuing Directors Not Up for Election at the 2013 Annual Meeting (continued)

Class II Directors

(Term expiring in 2015)

 

LOGO

 

Roger W. Hale

 

Independent Consultant

Former Chairman and Chief Executive Officer of LG&E Energy Corporation

Director since 2001

Committees:

•   Environmental, Health and Safety

•   Governance and Nominating

Age: 69

  

Professional Experience:

 

Mr. Hale is currently an independent consultant. He served as Chairman of the Board and Chief Executive Officer of LG&E Energy Corporation, a diversified energy services company headquartered in Louisville, Kentucky, from August 1990 until retiring in April 2001. Prior to joining LG&E Energy, he was Executive Vice President of BellSouth Corporation, a communications services company in Atlanta, Georgia. From 1966 to 1986, Mr. Hale held several executive positions with AT&T Co., a communications services company, including Vice President, Southern Region from 1983 to 1986.

 

Education:

 

Mr. Hale holds a Bachelor of Arts degree from the University of Maryland and a Masters of Science in Management from the Massachusetts Institute of Technology, Sloan School of Management.

 

Public Company Boards:

 

Mr. Hale is a Director of Hospira, Inc., where he chairs the Compensation Committee and is a member of the Governance and Public Policy Committee and the Science, Technology and Quality Committee. Within the past five years, Mr. Hale also served on the board of directors of H&R Block, Inc. as Presiding Director.

 

Director Qualifications:

 

As a former Chairman of the Board and Chief Executive Officer of a diversified energy services company, Mr. Hale brings significant management experience and knowledge to the Board in the areas of finance, accounting, business operations, risk oversight and corporate governance. He also brings significant experience gained from service on the board of directors of other public companies.

 

16


Table of Contents

Continuing Directors Not Up for Election at the 2013 Annual Meeting (continued)

 

LOGO

 

Vada O. Manager

 

Chief Executive Officer of Manager Global Consulting Group

Senior Director/Senior Counselor of APCO Worldwide

Director since 2008

Committees:

•   Audit

•   Governance and Nominating

•   Personnel and Compensation

Age: 51

  

Professional Experience:

 

Mr. Manager is the Chief Executive Officer of Manager Global Consulting Group and a Senior Director/Senior Counselor of APCO Worldwide, a strategic consulting company. Prior to this position, he was an independent global consultant. Mr. Manager served as the Senior Director of Global Issues Management for Nike, Inc. from 2006 until March 2009, and he held various management positions at Nike beginning in 1997. Before joining Nike, he performed a similar role for Levi Strauss & Co. and was also a Vice President of the Washington, D.C.-based public affairs firm, Powell Tate, a part of Weber Shandwick.

 

Education:

 

Mr. Manager holds a Bachelor of Science degree in political science from Arizona State University and performed graduate work at the London School of Economics.

 

Director Qualifications:

 

As a current senior officer and former consultant and senior officer of other large companies, Mr. Manager brings significant experience and knowledge to the Board in the areas of risk oversight, crisis management, marketing, finance, accounting and international business operations.

 

17


Table of Contents

Continuing Directors Not Up for Election at the 2013 Annual Meeting (continued)

 

LOGO

 

George A. Schaefer, Jr.

 

Former Chairman and Chief Executive Officer of Fifth Third Bancorp

Director since 2003

Committees:

•   Chair, Audit

•   Personnel and Compensation

Age: 67

  

Professional Experience:

 

Mr. Schaefer served as Chairman of the Board of Directors of Fifth Third Bancorp and Fifth Third Bank headquartered in Cincinnati, Ohio until June 2008. Prior to this position, he held several executive positions with Fifth Third Bancorp and Fifth Third Bank, including Chief Executive Officer, President and Chief Operating Officer.

 

Education:

 

Mr. Schaefer holds a Bachelor of Science degree from the U.S. Military Academy at West Point and a Masters in Business Administration from Xavier University.

 

Public Company Boards:

 

Mr. Schaefer is a Director of Wellpoint Inc., where he chairs the Audit Committee and is a member of the Executive and Compensation Committees. Within the past five years, Mr. Schaefer also served on the Board of Directors of Fifth Third Bancorp.

 

Non-Profit Boards:

 

Mr. Schaefer is a member of the Board of Trustees of the University of Cincinnati Healthcare System.

 

Director Qualifications:

 

As a former Chairman of the Board and Chief Executive Officer of a leading financial institution, Mr. Schaefer brings significant experience and knowledge to the Board in the areas of finance, accounting, business operations, risk oversight and corporate governance. He also brings significant experience gained from service on the board of directors of other public companies.

 

18


Table of Contents

Continuing Directors Not Up for Election at the 2013 Annual Meeting (continued)

 

LOGO

 

John F. Turner

 

Former Assistant Secretary of State for the U.S. Department of State’s Bureau of Oceans and International and Scientific Affairs

Director since 2006

Committees:

•   Chair, Governance and Nominating

•   Environmental, Health and Safety

Age: 70

  

Professional Experience:

 

Mr. Turner served as Assistant Secretary of State for the U.S. Department of State’s Bureau of Oceans and International and Scientific Affairs in Washington, D.C., from November 2001 until July 2005. Prior to serving at the Department of State, he was President and Chief Executive Officer of The Conservation Fund, a non-profit organization dedicated to conserving America’s natural and historic heritage. Mr. Turner also served in the Wyoming state legislature for 19 years and is a past president of the Wyoming State Senate. He is also a managing partner in The Triangle X Ranch in Wyoming and a visiting professor at the University of Wyoming.

 

Education:

 

Mr. Turner holds a Bachelor of Arts degree in biology from the University of Notre Dame and a Master of Science degree in wildlife ecology from the University of Michigan.

 

Public Company Boards:

 

Mr. Turner is a Director of Peabody Energy Company, where he serves on the Health, Safety, Security and Environmental and the Nominating and Corporate Governance Committees; International Paper Company, where he chairs the Public Policy and Environment Committee and serves on the Governance and Executive Committees; and American Electric Power Company, Inc., where he is a member of the Audit, Policy and Nuclear Oversight Committees.

 

Non-Profit Boards:

 

Mr. Turner is Chairman of the Ruckelshaus Institute of Environmental Natural Resources at the University of Wyoming and Senior Associate of The Conservation Fund. Mr. Turner is also a member of the advisory boards of Grand Teton National Park Foundation, the National Museum of Wildlife Art, the Jackson Hole Historical Society and The Raptor Center.

 

Director Qualifications:

 

As a former senior governmental official, Mr. Turner brings significant experience and knowledge to the Board in the areas of environmental protection and regulatory compliance, risk oversight and corporate governance. He also brings significant experience gained from his public service and his service on the board of directors of other public companies.

 

19


Table of Contents

COMPENSATION OF DIRECTORS

Director Compensation Table

The following table is a summary of compensation information for the fiscal year ended September 30, 2012 for Ashland’s non-employee directors. Mr. O’Brien, Chairman of the Board and Chief Executive Officer, receives no compensation as a Director of Ashland.

 

Name

   Fees Earned or
Paid in Cash (1)
($)
     Stock
Awards (2)
($)
     Total
($)
 
(a)    (b)      (c)      (h)  

Brendan M. Cummins*

     37,125         128,692         165,817   
        

Roger W. Hale

     90,000         100,000         190,000   
        

Kathleen Ligocki

     107,667         100,000         207,667   
        

Vada O. Manager

     98,500         100,000         198,500   
        

Barry W. Perry

     121,792         100,000         221,792   
        

Mark C. Rohr

     98,500         100,000         198,500   
        

George A. Schaefer, Jr.

     105,000         100,000         205,000   
        

Theodore M. Solso**

     32,500         0         32,500   
        

Janice J. Teal***

     7,500         108,363         115,863   
        

John F. Turner

     99,167         100,000         199,167   
        

Michael J. Ward

     90,000         100,000         190,000   
        

 

* Mr. Cummins was elected to Ashland’s Board of Directors on May 17, 2012.

 

** Mr. Solso retired from Ashland’s Board of Directors on January 26, 2012.

 

*** Dr. Teal was elected to Ashland’s Board of Directors on September 19, 2012.

 

(1) For fiscal 2012, Messrs. Perry and Ward deferred all of their fees into the Directors’ Deferral Plan, and Mr. Solso deferred his first quarter fees into the Directors’ Deferral Plan and received his second quarter fees for service prior to his retirement in cash. Ms. Ligocki deferred her first quarter fees into the Directors’ Deferral Plan. Mr. Manager deferred $14,775 of his fees into the Directors’ Deferral Plan and he received $11,069 of his fees in Ashland Common Stock.

 

(2)

The values in column (c) represent the aggregate grant date fair value of restricted stock unit awards granted in fiscal 2012 computed in accordance with FASB ASC Topic 718. These restricted stock unit awards are recorded as liabilities under generally accepted accounting principles and do not require assumptions in computing their grant date fair value. The number of restricted stock unit awards received is rounded down to the nearest whole share. Other than Dr. Teal and Messrs. Cummins and Solso, each non-employee director received a grant of 1,564 restricted stock units of Ashland Common Stock in the Directors’ Deferral Plan on January 26, 2012. The grant date fair value per share of each restricted stock unit was the same as the closing price of $63.95 per share of Ashland Common Stock on the NYSE on such date. Mr. Cummins and Dr. Teal received a pro-rated amount of restricted stock units based on their respective pro-rated service

 

20


Table of Contents
  as a director for calendar year 2012 as follows: Mr. Cummins received a grant of 1,075 restricted stock units directly on May 17, 2012, at a grant date fair value price of $62.02, the closing price per share on the NYSE on such date, and Dr. Teal received a grant of 444 restricted stock units in the Directors’ Deferral Plan on September 19, 2012, at a grant date fair value price of $75.03, the closing price per share on the NYSE on such date.

The value in column (c) also includes amounts received by Mr. Cummins and Dr. Teal upon becoming a director. Mr. Cummins received 1,000 restricted stock units (in lieu of restricted Ashland Common Stock) with a grant date fair value of $62,020, which was based on the closing price of Ashland Common Stock on the date of grant of $62.02. Dr. Teal received 1,000 shares of restricted Ashland Common Stock with a grant date fair value of $75,030, which was based on the closing price of Ashland Common Stock on the date of grant of $75.03. These grants vest as described in the “Restricted Share/Units” section of this proxy statement.

The following table identifies the aggregate number of stock and option awards for each non-employee director outstanding as of September 30, 2012.

 

Name

   Shares of
Restricted Ashland
Common Stock
(#)
     Unvested
Restricted Stock
Units of Ashland
Common Stock  (1)
(#)
     Outstanding
Ashland Stock
Options (2)
(#)
 

Brendan M. Cummins*

     0         2,088         0   
        

Roger W. Hale

     1,000         1,578         12,912   
        

Kathleen Ligocki

     1,000         1,578         12,912   
        

Vada O. Manager

     1,000         1,578         0   
        

Barry W. Perry

     1,000         1,578         0   
        

Mark C. Rohr

     1,000         1,578         0   
        

George A. Schaefer, Jr.

     1,000         1,578         16,474   
        

Janice J. Teal**

     1,000         444         0   
        

John F. Turner

     1,000         1,578         0   
        

Michael J. Ward

     1,000         1,578         12,912   
        

 

* Mr. Cummins was elected to Ashland’s Board of Directors on May 17, 2012.

 

** Dr. Teal was elected to Ashland’s Board of Directors on September 19, 2012.

 

(1) Includes credit for reinvested dividends allocated since the grant date, January 26, 2012, for all directors other than Dr. Teal and Mr. Cummins. Dr. Teal received no credit for reinvested dividends on her restricted stock units since the grant date of September 19, 2012, and Mr. Cummins received credit for reinvested dividends allocated since the grant date of May 17, 2012. For all directors other than Mr. Cummins, the restricted stock units vest one year after date of grant or upon the date of the next annual shareholder meeting, if earlier. Mr. Cummins’s restricted stock units vest as described below under “Restricted Shares/Units” of this proxy statement.

 

(2) No stock options have been granted to non-employee directors since January 26, 2006.

 

21


Table of Contents

Annual Retainer

Ashland’s non-employee director compensation program provides: (a) an annual retainer of $90,000 for each director; (b) an additional annual retainer of $20,000 for the Lead Independent Director; (c) an additional annual retainer of $15,000 for the Chair of the Audit Committee and $9,000 for Audit Committee members; and (d) an additional annual retainer of $10,000 for other Committee Chairs.

Non-employee directors may elect to receive part or all of each retainer in cash or in shares of Ashland Common Stock. They may also elect to have a portion or all retainers deferred and paid through the Directors’ Deferral Plan. The directors who make an election to defer retainers may have the deferred amounts held as common stock units (share equivalents) in the hypothetical Ashland Common Stock fund or invested under the other available investment options under the plan. The payout of the deferred retainers occurs upon termination of service by a director. Directors may elect to have the payout in a single lump sum or in installments not to exceed 15 years. For deferrals before January 1, 2005, upon a “change in control” of Ashland (as defined in the Directors’ Deferral Plan), amounts in the directors’ deferral accounts will be automatically distributed as a lump sum in cash to the director. For deferrals on and after January 1, 2005, distributions for such deferrals will be made pursuant to each director’s election and valued at the time of the distribution.

Restricted Shares/Units

Upon election to the Board of Directors, each new director (other than Mr. Cummins, who is a non-U.S. resident) received 1,000 restricted shares of Ashland Common Stock. In lieu of 1,000 restricted shares of Ashland Common Stock, Mr. Cummins received 1,000 restricted stock units. The restricted shares and Mr. Cummins’s restricted stock units may not be sold, assigned, transferred or otherwise encumbered until the earliest to occur of: (i) retirement from the Board of Directors; (ii) death or disability of the director; (iii) a 50% change in the beneficial ownership of Ashland; or (iv) voluntary early retirement to enter governmental service. The G&N Committee has discretion to limit a director’s forfeiture of these shares or restricted stock units if the non-employee director leaves the Board of Directors for reasons other than those listed above.

Each non-employee director (other than Mr. Cummins) also receives an annual award of deferred restricted stock units in the Directors’ Deferral Plan with a grant date value of $100,000 (pro-rated as applicable for less than a full-year of service). The restricted stock units vest one year after date of grant or upon the date of the next annual shareholder meeting, if earlier. Dividends on restricted stock units are reinvested in additional restricted stock units. Upon a “change in control” of Ashland, the restricted stock units immediately vest. A director may elect before the restricted stock units vest to have his or her vested units paid in shares of Ashland Common Stock or in cash after the director terminates from service.

Mr. Cummins, as a non-U.S. resident, is not eligible to participate in the Directors’ Deferral Plan. Therefore, he received a pro-rata annual award of restricted stock units directly, which will vest on the same basis as his restricted stock units described in the preceding paragraph. His annual award will continue to be granted directly (and not through deferral).

Stock Ownership Guidelines for Directors

The Board of Directors considers Ashland Common Stock ownership by directors to be of utmost importance. The Board believes that such ownership enhances the commitment of directors to Ashland’s future and aligns their interests with those of Ashland’s other shareholders. The Board has therefore established minimum stock ownership guidelines for non-employee directors which require each director to own the lesser of (i) 12,500 shares or units of Ashland Common Stock, or (ii) Ashland Common Stock having a value of at least five times his or her base annual cash retainer of $90,000. Each newly elected director has five years from the year elected to reach this ownership level. All of Ashland’s current directors have attained the minimum stock ownership levels based on holdings as of October 31, 2012, except for Mr. Cummins and Dr. Teal, each of whom joined the Board in 2012 and will not be required to meet the minimum stock ownership guidelines until 2017.

 

22


Table of Contents

CORPORATE GOVERNANCE

Governance Principles

Ashland is committed to adhering to sound corporate governance practices. The documents described below are published on Ashland’s website (http://investor.ashland.com). These documents are also available for free in print to any shareholder who requests them. Among the corporate governance practices followed by Ashland are the following:

 

   

Ashland has adopted Corporate Governance Guidelines. These guidelines provide the framework for the Board of Directors’ governance of Ashland and include a general description of the Board’s purpose, director qualification standards, retirement and resignation policies and other responsibilities. The Corporate Governance Guidelines require that at least two-thirds of Ashland’s directors be independent, as defined by Ashland’s Director Independence Standards (the “Standards”), which incorporate the independence requirements of the SEC’s rules and the listing standards of the NYSE.

 

   

Ashland also requires compliance with its code of business conduct which applies to all of Ashland’s directors and employees, including the principal executive officer, principal financial officer, principal accounting officer and persons performing similar functions. The code of business conduct promotes honest and ethical conduct, compliance with applicable laws, rules and regulations, prompt reporting of violations of the code and full, fair, accurate, timely and understandable disclosure in reports filed with the SEC. Ashland intends to post any amendments or waivers of the code (to the extent applicable to Ashland’s directors and executive officers) on Ashland’s website or in a Current Report on Form 8-K.

 

   

Each of Ashland’s Board Committees has adopted a charter defining its respective purposes and responsibilities.

 

   

Only independent directors, as defined in the Standards, may serve on the Audit Committee, G&N Committee, Personnel and Compensation Committee (the “P&C Committee”) and Environmental, Health and Safety Committee (the “EH&S Committee”) of the Board.

 

   

The Board, and each Committee of the Board, has the authority to engage independent consultants and advisors.

Board Leadership Structure

Ashland combines the roles of Chairman of the Board and Chief Executive Officer, which is balanced through the appointment of a Lead Independent Director. The Board believes that combining the positions of Chairman and Chief Executive Officer provides clarity of leadership and is in the best interests of Ashland and its shareholders at this time. The Board believes that the use of a Lead Independent Director provides appropriate independent oversight of management. Independent oversight has been further assured by having only one member of management on the Board. The non-management directors regularly meet alone in executive session at Board meetings.

The Lead Independent Director is an independent director selected annually by the G&N Committee. Mr. Perry is currently the Lead Independent Director. In addition to the duties of all Board members, the Lead Independent Director:

 

   

Coordinates with the Chairman of the Board to determine the appropriate schedule of meetings;

 

   

Places any item he or she determines is appropriate on the Board’s agenda;

 

   

Directs that specific materials be included in Board mailings and works with the G&N Committee, as appropriate, to assess the quality, quantity and timeliness of the flow of information from management to the Board;

 

   

Directs the retention of consultants and advisors to report directly to the Board;

 

23


Table of Contents
   

Coordinates with the G&N Committee to oversee compliance with Ashland’s Corporate Governance Guidelines and to recommend appropriate revisions thereto;

 

   

Coordinates and develops the agenda for, and moderates executive sessions of, the Board’s independent directors and acts as principal liaison between the independent directors and the Chairman of the Board and Chief Executive Officer on sensitive matters; and

 

   

Works with the G&N Committee to recommend the membership of the various Board Committees and Committee Chairs.

Oversight of Ashland’s Executive Compensation Program

The P&C Committee is responsible for the approval and administration of compensation programs for executive officers and certain other employees of Ashland. The P&C Committee is composed of independent directors. In making compensation decisions, the P&C Committee considers, among other things: Ashland’s compensation philosophy, its financial and operating performance, the individual performance of executives, compensation policies and practices for Ashland employees generally, and practices and executive compensation levels of peer and similarly-sized general industry companies.

The P&C Committee’s primary responsibilities are to:

 

   

Ensure that the Company’s executive compensation programs are appropriately competitive, support organizational objectives and shareholder interests, and emphasize the pay for performance linkage;

 

   

Review, evaluate and approve on an annual basis, the goals and objectives of the Chief Executive Officer. The P&C Committee annually evaluates the Chief Executive Officer’s performance in light of these established goals and objectives, and based on these evaluations after an executive session, the P&C Committee sets the Chief Executive Officer’s annual compensation, including base salary, annual incentives and long-term incentives;

 

   

Review and approve compensation of all key senior executives and elected corporate officers; and

 

   

Approve any employment agreements, consulting arrangements, severance or retirement arrangements, change in control agreements, and/or any special or supplemental benefits or provisions covering any current or former executive officer of Ashland.

For further information about the responsibilities of the P&C Committee, see “Committees and Meetings of the Board of Directors—Personnel and Compensation Committee” on page 31.

The P&C Committee may form and delegate authority to subcommittees with regard to any of the above responsibilities.

In determining and administering the executive compensation programs, the P&C Committee takes into consideration:

 

   

Recommendations of the Chief Executive Officer and the Chief Human Resources and Communications Officer regarding potential changes to named executive officer compensation based on performance, competitiveness, personnel and organizational changes, regulatory issues, strategic initiatives and other matters;

 

   

Information provided by the Human Resources function at Ashland; and

 

   

Advice of an outside, independent, executive compensation consultant on all aspects of executive compensation, including comparison to the practices and executive compensation levels of peer and general industry companies.

 

24


Table of Contents

The P&C Committee meets in executive session for a portion of each of its meetings.

Personnel and Compensation Committee Interlocks and Insider Participation

The members of the P&C Committee for fiscal 2012 were Barry W. Perry (Chair), Kathleen Ligocki, Vada O. Manager, George A. Schaefer, Jr. (from January 26, 2012), Janice J. Teal (from September 19, 2012) and Michael J. Ward. There were no impermissible interlocks or inside directors on the P&C Committee. Theodore M. Solso served as Chair of the P&C Committee until his retirement from the Board on January 26, 2012.

Board’s Role of Risk Oversight

The Board of Directors has oversight responsibility with respect to Ashland’s risk management processes. This includes working with management to determine and assess the Company’s philosophy and strategy towards risk management and mitigation. Management is responsible for the day-to-day management of risk, and they report periodically to the Board and to specific Committees on current and emerging risks and the Company’s approach to avoiding and mitigating risk exposure. The Board reviews in detail the Company’s most significant risks and whether management is responding consistently within the Company’s overall risk management and mitigation strategy.

While the Board maintains the ultimate oversight responsibility for risk management, each of the various Committees of the Board has been assigned responsibility for risk management oversight of specific areas. In particular, the Audit Committee maintains responsibility for overseeing risks related to Ashland’s financial reporting, audit process, internal controls over financial reporting and disclosure controls and procedures. The Audit Committee also has oversight responsibility related to Ashland’s key financial risks. The EH&S Committee assists the Board in fulfilling its oversight responsibility with respect to environmental, health, safety and business continuity risks. In setting compensation, the P&C Committee monitors and evaluates the compensation and benefits structure of the Company, including providing guidance on philosophy and policy matters and excessive risk-taking. Finally, the G&N Committee conducts an annual review of nominees to the Board and is charged with developing and recommending to the Board corporate governance principles and policies and Board Committee structure, leadership and membership.

Director Independence and Certain Relationships

The Board of Directors has adopted the Standards to assist in its determination of director independence. To qualify as independent under these Standards, the Board must affirmatively determine that a director has no material relationship with Ashland, other than as a director.

Pursuant to the Standards, the Board of Directors undertook a review of director independence in November 2012. During this review, the Board considered relationships and transactions between, on the one hand, each director, any member of his or her immediate family, and his or her affiliates, and on the other hand, Ashland and its subsidiaries and affiliates. As provided for in the Standards, the purpose of the review was to determine whether any such relationships or transactions were inconsistent with a determination that the director is independent.

As a result of the review, the Board of Directors affirmatively determined that Messrs. Cummins, Hale, Manager, Perry, Rohr, Schaefer, Turner and Ward, Ms. Ligocki and Dr. Teal are each independent of Ashland and its affiliates. Mr. O’Brien, Ashland’s Chief Executive Officer, is the only director determined not to be independent of Ashland.

In the normal course of business, Ashland had transactions with other corporations where certain directors are executive officers. None of the transactions were material in amount as to Ashland and none were reportable under federal securities laws. Ashland’s Board of Directors has concluded that the following relationships

 

25


Table of Contents

between Ashland and the director-affiliated entities are not material pursuant to the Standards, and the G&N Committee has determined that the transactions are not “Related Person Transactions,” as defined in the Related Person Transaction Policy:

Mark C. Rohr, a director of Ashland, became the Chairman and Chief Executive Officer of Celanese Corporation (“Celanese”) in April 2012. During fiscal 2012, Ashland paid Celanese approximately $15.3 million and Celanese paid Ashland approximately $28 million for certain products and/or services. In addition, Ashland sold its polyvinyl acetate homopolymer and copolymer (“PVAc”) business to Celanese in January 2012. Annual sales of the PVAc business were approximately $45 million and total net assets related to this business totaled $20 million as of the date of sale. In connection with this transaction, certain products are being temporarily toll manufactured by Ashland for Celanese.

Mark C. Rohr also served as the Executive Chairman of the Board (through February 1, 2012) and Chief Executive Officer (through August 31, 2011) of Albemarle Corporation (“Albemarle”). During fiscal 2012, Ashland paid Albemarle approximately $3.8 million and Albemarle paid Ashland approximately $3.9 million for certain products and/or services.

Michael J. Ward, a director of Ashland, is Chairman of the Board and Chief Executive Officer of CSX Corporation (“CSX”). During fiscal 2012, Ashland paid CSX approximately $2.0 million for transportation services. CSX did not purchase any products and/or services from Ashland.

Related Person Transaction Policy

Federal securities laws require Ashland to describe any transaction since the beginning of the last fiscal year, or any currently proposed transaction, in which Ashland was or is to be a participant and the amount involved exceeds $120,000, and in which any related person had or will have a direct or indirect material interest. Related persons are directors and executive officers, nominees for director and any immediate family members of directors, executive officers or nominees for director. Ashland is also required to describe its policies and procedures for the review, approval or ratification of any Related Person Transaction.

Pursuant to Ashland’s written Related Person Transaction Policy (the “Policy”), the G&N Committee is responsible for reviewing the material facts of all transactions that could potentially be “transactions with related persons.” The Policy covers any transaction, arrangement or relationship or series of similar transactions, arrangements or relationships (including any indebtedness or guarantee of indebtedness) in which (1) the aggregate amount involved will or may be expected to exceed $120,000 in any fiscal year, (2) Ashland is a participant, and (3) any related person has or will have a direct or indirect interest (other than solely as a result of being a director or a less than 10% beneficial owner of another entity). Transactions between Ashland and any firm, corporation or entity in which a related person is an executive officer or general partner, or in which any related persons collectively hold more than 10% of the ownership interests, are also subject to review under the Policy.

Under the Policy, Ashland’s directors and executive officers are required to identify annually potential transactions with related persons or their firms that meet the criteria set forth in the Policy, and management is required to forward all such disclosures to the G&N Committee. The G&N Committee reviews each disclosed transaction. The G&N Committee has discretion to approve, disapprove or otherwise act if a transaction is deemed to be a Related Person Transaction subject to the Policy. Only disinterested members of the G&N Committee may participate in the determinations made with regard to a particular transaction. If it is impractical to convene a meeting of the G&N Committee, the Chairman of the G&N Committee is authorized to make a determination and promptly report such determination in writing to the other G&N Committee members. All determinations made under the Policy are required to be reported to the full Board of Directors.

 

26


Table of Contents

Under the Policy and consistent with SEC regulations, certain transactions are not Related Person Transactions, even if such transactions exceed $120,000 in a fiscal year. Those exceptions are:

 

   

Compensation to a director or executive officer which is or will be disclosed in Ashland’s proxy statement;

 

   

Compensation to an executive officer which is approved by the P&C Committee and would have been disclosed in Ashland’s proxy statement if the executive officer was a “named executive officer;”

 

   

A transaction in which the rates or charges involved are determined by competitive bids, or which involves common, contract carrier or public utility services at rates or charges fixed in conformity with law or governmental authority;

 

   

A transaction that involves services as a bank depository of funds, transfer agent, registrar, indenture trustee or similar services; and

 

   

A transaction in which the related person’s interest arises solely from the ownership of Ashland stock and all shareholders receive the same benefit on a pro rata basis.

Communication with Directors

The Board of Directors has established a process by which shareholders and other interested parties may communicate with the Board. Persons interested in communicating with the Board, or with a specific member or Committee of the Board, may do so by writing to the Lead Independent Director in care of the General Counsel of Ashland, 50 E. RiverCenter Boulevard, P.O. Box 391, Covington, Kentucky 41012-0391. Communications directed to the Lead Independent Director will be reviewed by the General Counsel and distributed to the Lead Independent Director as well as to other individual directors, as appropriate, depending on the subject matter and facts and circumstances outlined in the correspondence. Communications that are not related to the duties and responsibilities of the Board, or are otherwise inappropriate, will not be forwarded to the Lead Independent Director, although all communications directed to the Board will be available to any director upon request.

Attendance at Annual Meeting

Ashland has a policy and practice of strongly encouraging all directors to attend the Annual Meeting. All of Ashland’s then current directors, except for Messrs. Hale and Turner, were present at the Annual Meeting held on January 26, 2012.

Executive Sessions of Directors

The non-employee directors meet in executive session at each regularly scheduled meeting of the Board, and at other times as they may determine appropriate. The Audit and P&C Committees of the Board meet in executive session during every regular Committee meeting. Other Board Committees meet in executive session at the discretion of the Committee members.

Shareholder Recommendations for Directors

The G&N Committee considers director candidates recommended by other directors, employees and shareholders, and is authorized, at its discretion, to engage a professional search firm to identify and suggest director candidates. Written suggestions for director candidates should be sent via registered, certified or express mail to the Secretary of Ashland at 50 E. RiverCenter Boulevard, P.O. Box 391, Covington, Kentucky 41012-0391. Such suggestions should be received no later than September 1, 2013, to be considered by the G&N Committee for inclusion as a director nominee for the 2013 Annual Meeting. Suggestions for director candidates should include all information required by Ashland’s By-laws, and any other relevant information, as to the proposed candidate. The G&N Committee selects each director nominee based on the nominee’s skills,

 

27


Table of Contents

achievements and experience. The G&N Committee will review all director candidates in accordance with its charter and Ashland’s Corporate Governance Guidelines, and it will identify qualified individuals consistent with criteria approved by the Board of Directors. The G&N Committee shall select individuals as director nominees who exhibit the highest personal and professional integrity, who have demonstrated exceptional ability and judgment and who shall be most effective in serving the interests of Ashland’s shareholders. Additionally, the G&N Committee shall seek director candidates who exhibit the following personal and professional qualifications: (1) significant experience in either the chemical or consumer marketing industries; (2) product or process innovation experience; (3) international business expertise; (4) diverse experience in policy-making in business, government, education and/or technology, or in areas that are relevant to Ashland’s global business and strategy; (5) an inquisitive and objective nature, practical wisdom and mature judgment; and (6) the ability to work with Ashland’s existing directors and management. Individuals recommended by shareholders in accordance with these procedures will be evaluated by the G&N Committee in the same manner as individuals who are recommended through other means.

Shareholder Nominations of Directors

In order for a shareholder to nominate a director at an annual meeting who is not otherwise nominated by the G&N Committee, Ashland’s By-laws require that the shareholder must give written notice (as specified below) to the Secretary of Ashland not later than ninety days in advance of the annual meeting (provided that if the annual meeting of shareholders is held earlier than the last Thursday in January, such notice must be given within ten days after the first public disclosure of the date of the annual meeting). Public disclosure may include a public filing with the SEC. The notice must contain the following information:

 

   

The name and address of the shareholder who intends to make the nomination and the name and address of the person(s) to be nominated;

 

   

A representation that the shareholder is a shareholder of record of Ashland Common Stock entitled to vote at such meeting and that the shareholder intends to appear in person or by proxy to make the nomination(s) specified in the notice;

 

   

A description of all arrangements or understandings between the shareholder and each nominee and any other person(s) pursuant to which the nomination(s) are to be made by the shareholder. The other person(s) must be named in the notice;

 

   

Information about each nominee that would be required in a proxy statement, according to the rules of the SEC, had the nominee been proposed by the Board of Directors;

 

   

The consent of each nominee to serve as a director if so elected; and

 

   

A representation as to whether or not the shareholder will solicit proxies in support of his or her nominee(s).

The chairman of any meeting of shareholders to elect directors and the Board of Directors may refuse to acknowledge any nomination that is not made in compliance with the procedure described above or if the shareholder fails to comply with the representations set forth in the notice.

 

28


Table of Contents

COMMITTEES AND MEETINGS OF THE BOARD OF DIRECTORS

The Board of Directors currently has four committees: Audit Committee; Environmental, Health and Safety Committee; Governance and Nominating Committee; and Personnel and Compensation Committee. All Committees are composed entirely of independent directors. During fiscal 2012, six meetings of the Board were held. Each current director attended at least 75% of the total meetings of the Board and the Committees on which he or she served. Overall attendance at Board and Committee meetings was 93.9%. The following table describes the members of each of the Committees as of September 30, 2012, each Committee’s primary responsibilities and the number of meetings held during fiscal 2012. Each Committee’s charter is available on Ashland’s website (http://investor.ashland.com/governance.cfm).

 

Meetings and Current Members   Summary of Responsibilities

AUDIT COMMITTEE

 

Meetings in fiscal 2012: 7

 

In addition, the Committee met quarterly to discuss and review Ashland’s quarterly financial performance, associated news releases and Form 10-Q filings.

 

Members:

 

George A. Schaefer, Jr. (Chair)

Brendan M. Cummins

Kathleen Ligocki

Vada O. Manager

Mark C. Rohr

 

•     Oversees Ashland’s financial reporting process, including earnings releases and the filing of financial reports

•     Reviews management’s implementation and maintenance of adequate systems of internal accounting and financial controls (including internal control over financial reporting)

•     Oversees performance of Ashland’s internal audit function and independent auditors, who report directly to this Committee

•     Evaluates the independence and performance of the independent auditors

•     Selects independent auditors based on qualification and independence and approves audit fees and services performed by independent auditors

•     Reviews the effectiveness of Ashland’s legal and regulatory compliance programs

•     Discusses the overall scope and plans for audits with both internal and independent auditors

•     Reviews and investigates any matters pertaining to the integrity of management

•     Establishes and maintains procedures for handling complaints regarding accounting and auditing matters

•     Reviews Ashland’s risk management policies and assessment processes

•     Evaluates and recommends actions regarding significant financial issues such as capital structure, dividend policy, offerings of corporate securities, major borrowings, credit facilities, derivatives policy and past audits of capital investments

•     Oversees funding and investment policy related to employee benefit plans

 

29


Table of Contents
Meetings and Current Members   Summary of Responsibilities

ENVIRONMENTAL, HEALTH AND SAFETY COMMITTEE

 

Meetings in fiscal 2012: 5

 

Members:

 

Kathleen Ligocki (Chair)

Brendan M. Cummins

Roger W. Hale

Mark C. Rohr

Janice J. Teal

John F. Turner

 

•    Oversees and reviews Ashland’s environmental, health and safety policies, programs, practices, product quality compliance, competitors’ activities and industry best practices

•    Oversees and reviews environmental, health and safety regulatory trends, including Ashland’s overall compliance, remediation and sustainability efforts

•    Oversees, reviews and receives updates on Ashland’s policies regarding environmental, health and safety and business continuity risks

•    Reports to the Board concerning implementation of environmental, health and safety policies and assists the Board in assuring Ashland’s compliance with those policies

GOVERNANCE AND NOMINATING COMMITTEE

 

Meetings in fiscal 2012: 6

 

Members:

 

John F. Turner (Chair)

Roger W. Hale

Vada O. Manager

Barry W. Perry

Michael Ward

 

•    Recommends nominees for the Board of Directors and its Committees

•    Reviews suggested potential candidates for the Board

•    Recommends desirable size and composition of the Board and its Committees

•    Recommends to the Board programs and procedures relating to director compensation, evaluation, retention and resignation

•    Reviews corporate governance guidelines, corporate charters and proposed amendments to the Articles and By-laws of Ashland

•    Reviews transactions pursuant to the Related Person Transaction Policy

•    Assists the Board in ensuring the Board’s independence as it exercises its corporate governance and oversight roles

•    Oversees the evaluation of the Board

•    Reviews the process for succession planning for the executive management of Ashland

•    Reviews all Committee charters

•    Reviews and makes recommendations to address shareholder proposals

 

30


Table of Contents
Meetings and Current Members   Summary of Responsibilities

PERSONNEL AND COMPENSATION COMMITTEE

 

Meetings in fiscal 2012: 6

 

Members:

 

Barry W. Perry (Chair)

Kathleen Ligocki

Vada O. Manager

George A. Schaefer, Jr.

Janice J. Teal

Michael J. Ward

 

•    Ensures Ashland’s executive compensation programs are appropriately competitive, support organizational objectives and shareholder interests and emphasize pay for performance linkage

•    Evaluates and approves compensation and sets performance criteria for compensation programs with respect to Ashland’s Chief Executive Officer

•    Evaluates and approves compensation and sets performance criteria for compensation programs for all key senior executives and elected officers

•    Oversees the execution of senior management succession plans, including HR-related business continuity plans

•    Approves any employment agreements, consulting arrangements, severance or retirement arrangements, change-in-control agreements and/or any other special or supplemental benefits covering any current or former executive officer

•    Adopts, amends, terminates and performs other design functions for Ashland’s benefit plans

•    Oversees the implementation and administration of Ashland’s compensation plans

•    Monitors and evaluates Ashland’s compensation and benefits structure, providing guidance on philosophy, policy matters and excessive risk taking

•    Oversees regulatory compliance on compensation matters, including Ashland’s policies on structuring compliance programs to preserve tax deductibility

•    Oversees the preparation of the annual report on executive compensation

 

31


Table of Contents

EXECUTIVE COMPENSATION

COMPENSATION DISCUSSION AND ANALYSIS

This Compensation Discussion and Analysis describes the overall executive compensation policies and practices at Ashland and specifically analyzes the total compensation for the following named executive officers:

 

   

James J. O’Brien, Chairman of the Board and Chief Executive Officer;

 

   

Lamar M. Chambers, Senior Vice President and Chief Financial Officer;

 

   

Peter J. Ganz, Senior Vice President, General Counsel and Secretary;

 

   

John E. Panichella, Senior Vice President and Group Operating Officer, President of Ashland Specialty Ingredients; and

 

   

Theodore L. Harris, Senior Vice President, President of Global Supply Chain, and President of Ashland Performance Materials.

Executive Summary

Ashland’s executive compensation program is designed to attract, motivate and retain individuals with the skills required to formulate and drive Ashland’s strategic direction and achieve annual and long-term performance goals necessary to create shareholder value. The program seeks to align executive compensation with shareholder value on an annual and long-term basis through a combination of the following types of compensation: base pay, annual incentive compensation awards and long-term incentive compensation awards which are comprised primarily of SARs and Long-Term Incentive Plan Awards (“LTIPs”).

Fiscal 2012 Highlights

During the past several years, Ashland’s focus has been on transforming its business into a leading, global specialty chemicals company and positioning itself for long-term sustainable growth. Ashland’s acquisition of International Specialty Products Inc. (“ISP”) in August 2011, together with the sale of the Distribution business in March 2011, completed this transformation and positioned the Company in fiscal 2012 to focus on earnings expansion.

Ashland’s highlights for fiscal 2012 include, among other things, the following:

 

   

Significantly increased earnings. Ashland significantly increased its earnings in fiscal 2012 as compared to the prior year. This increase was driven by strong earnings growth in the Specialty Ingredients, Performance Materials and Consumer Markets commercial units. See “—Results of Operations— Consolidated Review” and “—Business Segment Review” within “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in the 2012 Form 10-K for further information.

 

   

Significant cost reductions. Ashland achieved approximately $75 million in savings through its cost reduction program. These savings were realized more quickly than expected and contributed to EBITDA growth for the fiscal year.

 

   

Completion of the commercial integration of ISP. Ashland completed the commercial integration of ISP, and the Company now has a unified channel to market. Back office integration continues and is expected to be completed in the summer of 2013.

 

   

Improved capital structure. Ashland paid down nearly $250 million in debt during fiscal 2012, and the Company improved its leverage ratio to 2.6 times as compared to 3.3 times as of September 30, 2011. Ashland also refinanced approximately 88% of its 9.125% bonds and implemented a $350 million accounts receivable securitization program to pay down the relatively higher interest term loan B notes.

 

32


Table of Contents
 

The latter two transactions are expected to save Ashland approximately $40 million in fiscal 2013 book interest.

Key Executive Compensation Objectives

Ashland aligns executive compensation and shareholder value by providing appropriate and competitive incentives to achieve annual and long-term performance goals. Indicative of this alignment is the mix of at-risk compensation (annual incentive, SARs and LTIP awards) for the Chief Executive Officer and the other named executive officers. For the Chief Executive Officer, the target of Total Direct Compensation (as defined on page 39) that is at risk is 84%. Specifically, the Chief Executive Officer’s target Total Direct Compensation is allocated as follows: (i) 64% to long-term incentives (SAR and LTIP awards), (ii) 20% to annual incentives and (iii) 16% to base salary. For the other named executive officers, their target Total Direct Compensation that is at risk is an average of 70%. Specifically, their target Total Direct Compensation is allocated as follows: (i) 44% to long-term incentives, (ii) 26% to annual incentives and (iii) 30% to base salary.

The performance measures for the incentive compensation plans are as follows:

 

   

Incentive Compensation Plan. The two primary financial performance measures used in determining the incentive compensation payments are Operating Income and Working Capital Efficiency (as each is defined on page 41). These performance measures are company-wide and/or specific to the business segment to which an executive is assigned and are also used in the incentive compensation program and the variable pay program in which all employees participate. These performance measures help ensure that the cash compensation of all employees, including the named executive officers, are aligned with key Company objectives. Safety performance may modify the incentive compensation payment.

 

   

Long-Term Incentive Plan. The LTIP has two performance measures, Return on Investment (ROI) and Total Shareholder Return (TSR) (as each is defined on page 45). For all executives, including the named executive officers, these performance measures apply at the Ashland level but not at the business segment levels. This ensures the proper alignment between long-term executive compensation and shareholder value.

Ashland also has several governance practices in place to align executive compensation with shareholder interests and mitigate risks in its plans. These practices include: stock ownership guidelines, limited perquisites, use of tally sheets and a clawback policy.

The P&C Committee considered the shareholder vote on the non-binding resolution approving Ashland’s executive compensation program voted on at the 2012 Annual Meeting of Shareholders. Because a substantial majority (97%) of votes cast approved the compensation program described in the Company’s proxy statement for the 2012 Annual Meeting of Shareholders, the P&C Committee continued to apply the same principles in determining the amounts and types of executive compensation.

Compensation Decisions for Fiscal 2012

 

   

Base Pay. Ashland utilizes merit increase guidelines based on the individual’s performance and his position relative to the salary range midpoint to formulate merit increase recommendations. The Chief Executive Officer and all of the named executive officers are subject to the same merit increase guidelines as all other employees. For fiscal 2012, these guidelines provided for increases between 0% and 8.0%. The P&C Committee approved a base pay increase for Mr. O’Brien of 2.5%.

 

   

Incentive Compensation Plan. The fiscal 2012 target incentive opportunities for all named executive officers, including the Chief Executive Officer, remained the same as fiscal 2011. The maximum incentive payout also remained the same at 150% of the target incentive opportunity. The P&C

 

33


Table of Contents
 

Committee established performance targets for two performance measures at the beginning of the fiscal year. Based on Ashland’s performance in fiscal 2012 compared to the performance goals established at the beginning of the fiscal year, the P&C Committee approved incentive compensation payouts at 91.2% of incentive opportunity for Messrs. O’Brien, Chambers and Ganz. For Messrs. Panichella and Harris, the payout was 139.1% and 103.9% of incentive opportunity, respectively.

 

   

Long-Term Incentive Plan Payment. The LTIP plan payment for the performance period of fiscal 2009 through fiscal 2011 was approved by the P&C Committee in December 2011. This LTIP performance plan paid out at a weighted score of 119.7% of the target number granted, with the ROI portion scoring at 45.5% and the TSR portion scoring at 193.8%.

 

   

Long-Term Incentive Grants. The P&C Committee typically grants SAR and LTIP awards in November of each fiscal year. SARs are valued on a Black-Scholes methodology based on the average closing stock price for the 20 business days ending on September 30 of the prior fiscal year-end. LTIP awards are valued based on the average closing stock price for the 20 business days ending on September 30 of the prior fiscal year-end. For the Chief Executive Officer, total long-term incentive grant target values have an allocation of 50% to SARs and 50% to LTIPs. For fiscal 2012, the grant value targets for SARs and LTIPs for the Chief Executive Officer and the other named executive officers, except for Mr. Chambers, remained the same as fiscal 2011. For Mr. Chambers, the grant value target was increased to 225% of base pay, from 175% of base pay, to align his total direct compensation with market competitive practices.

Principles and Objectives of Ashland’s Executive Compensation Program

Ashland’s executive compensation program is designed to attract, motivate and retain individuals with the skills required to formulate and drive Ashland’s strategic direction and achieve annual and long-term performance goals necessary to create shareholder value. The program is designed to reflect the individual executive’s contribution and the performance of Ashland. The core principles of Ashland’s approach to executive compensation design and evaluation are as follows:

 

   

Programs should create alignment between the interests of the executives and the shareholders by ensuring that compensation opportunities for executives are linked to building long-term shareholder value through the achievement of the financial and strategic objectives of Ashland.

 

   

Programs should provide competitive, market-driven compensation to attract and retain executive talent for the long-term.

 

   

Compensation should generally be targeted at the median of the market when compared to the compensation of individuals in similar-sized organizations in the chemical industry as well as in the general industry.

 

   

The concept of opportunity is important. Individuals should have the opportunity to do well when Ashland does well and total compensation should vary in relation to the Company’s performance.

 

   

There should be a balance between fixed and variable compensation, with variable compensation constituting a larger portion of an executive’s total compensation the more senior the executive. The targeted pay mix for an executive should also be aligned with market competitive practices.

 

   

Programs should promote ownership of Ashland stock to align the interests of management and shareholders.

 

   

Incentive compensation should not promote unreasonable or excessive risk taking that could threaten the short or long-term value of Ashland.

The P&C Committee is responsible for the approval and administration of compensation programs for executive officers and certain other employees of Ashland. The P&C Committee frequently reviews Ashland’s

 

34


Table of Contents

compensation practices, and its decisions take into consideration, among other things, Ashland’s compensation philosophy, its financial and operating performance, individual performance, and practices and compensation levels of peer companies. See “Oversight of Ashland’s Executive Compensation Program” on page 24 for a more detailed discussion of the P&C Committee’s role in the executive compensation process.

Management also plays an important role in the process of setting compensation for executives, other than the Chief Executive Officer. The Chief Executive Officer (and in certain instances the other members of the Executive Committee), in consultation with the P&C Committee’s independent executive compensation consultant and the Chief Human Resources and Communications Officer, develops compensation recommendations for the P&C Committee’s consideration including:

 

   

Business performance targets and objectives that are tied to Ashland’s annual and long-term incentive plans;

 

   

Plan design changes based on competitive analysis of executive pay practices;

 

   

Individual performance evaluations;

 

   

Recommendation of base salary and target bonus opportunities;

 

   

The mix of restricted stock, SARs and LTIP grants;

 

   

Recommendation of adjustments to the reported financial results for purposes of determining annual and long-term incentive payments; and

 

   

Recommendation of adjustments to awards.

The Chief Executive Officer takes various factors into consideration when making individual compensation recommendations including: the relative importance of the executive’s position within the organization; the individual tenure and experience of the executive; and the executive’s individual performance and contributions to Ashland’s financial and operating results.

Independent Executive Compensation Consultant’s Role

The P&C Committee directly engages Deloitte to serve as the outside advisor on executive compensation matters and to review Ashland’s executive compensation program. The assessment consists of reviews of:

 

   

The competitiveness of compensation provided to Ashland’s key executives;

 

   

Ashland’s peer group for pay and performance comparisons;

 

   

Ashland’s executive stock ownership guidelines;

 

   

Ashland’s executive change in control agreements for key executives;

 

   

Ashland’s incentive compensation programs for risk;

 

   

The degree of difficulty of the performance targets under the incentive compensation plan; and

 

   

The alignment of pay for performance by analyzing the targets to actual compensation.

Deloitte’s engagement includes the following on-going work on behalf of the P&C Committee: review of competitive pay practices for outside board members; as needed, reviews of other components of Ashland’s compensation programs including: benefits, perquisites, deferred compensation plans, severance policies and change in control provisions; updates regarding trends in executive and outside board compensation practices; and updates regarding changes in regulatory and legislative developments. Deloitte’s aggregate fees for executive and director compensation services in fiscal 2012 were $81,000.

 

35


Table of Contents

In addition to the compensation services provided by Deloitte to the P&C Committee, Deloitte affiliates provided certain services to Ashland at the request of management consisting of (i) tax services and other tax-related services; and (ii) actuarial services. Ashland paid $9.8 million to Deloitte in fiscal 2012 for these other services. The P&C Committee believes that, given the nature and scope of these projects, these additional services did not raise a conflict of interest and did not impair Deloitte’s ability to provide independent advice to the P&C Committee concerning executive compensation matters. In making this determination, the P&C Committee considered, among other things, the following factors: (i) the types of non-compensation services provided by Deloitte, (ii) the amount of fees for such non-compensation services, noting in particular that such fees are negligible when considered in the context of Deloitte’s total revenues for the period, (iii) Deloitte’s policies and procedures concerning conflicts of interest, (iv) Deloitte representatives who advise the P&C Committee do not provide any non-compensation related services to Ashland, (v) there are no other business or personal relationships between Ashland management or members of the P&C Committee, on the one hand, and any Deloitte representatives who provide compensation services to Ashland, on the other hand, and (vi) neither Deloitte nor any of the Deloitte representatives who provide compensation services to Ashland own any common stock or other securities of Ashland.

Factors Considered In Determining Executive Compensation

Competitive Benchmarking

The P&C Committee annually reviews competitive compensation information in order to evaluate if executive pay levels are market competitive and consistent with the Company’s stated compensation philosophy. Competitive compensation information is comprised of both industry-specific and general industry company data because Ashland competes for executive talent among a broad array of companies, both within and outside of the chemical industry. The competitive data is size-adjusted based on revenues and a statistical regression analysis that is consistent with the corporate or business segment responsibilities for each executive.

Competitive pay data has been gathered from the following published survey sources:

 

Survey Source   Primary Scope   Secondary Scope
Towers Watson 2011 Top Management Survey   Chemical Companies   Non-Durable Goods Manufacturing Companies
Mercer Executive Compensation Survey   Non-Durable Goods Manufacturing Companies   All Companies
Towers Perrin 2011 Compensation Database   Chemical and Gas Companies   All Companies

Industry specific competitive pay data has been gathered utilizing the specialty chemical companies participating in the Towers Watson 2011 Top Management Survey. The data was size-adjusted based on revenues and a statistical regression analysis was used. The specific companies used in the peer group are set forth below:

 

•     Air Products & Chemicals Inc.

  

•     International Flavors & Fragrances Inc.

•     Cabot Corporation

  

•     Lubrizol Corporation

•     Chemtura Corporation

  

•     Momentive Performance Materials Holdings LLC

•     Cytec Industries Inc.

  

•     NOVA Chemicals Corporation

•     Dow Corning Corporation

  

•     PolyOne Corporation

•     Eastman Chemical Company

  

•     PPG Industries Inc.

•     Ecolab Inc.

  

•     Praxair Inc.

  

•     Sigma-Aldrich Corporation

 

36


Table of Contents

Individual Performance Evaluation: Chief Executive Officer

The P&C Committee evaluates the Chief Executive Officer’s performance based on Ashland’s financial performance, the accomplishment of Ashland’s long-term strategic objectives and the accomplishment of annual objectives. The P&C Committee then reviews its determination with the other independent members of the Board. The Chief Executive Officer reviews the status of performance against objectives with the Board at mid-year and again after the end of the fiscal year. The Chief Executive Officer’s individual performance against objectives is used for compensation purposes by the P&C Committee primarily in consideration of a merit adjusted, base salary increase.

Individual performance goals for the Chief Executive Officer for fiscal 2012 included the following:

 

   

Achieve top-quartile performance in Responsible Care;

 

   

Achieve operating plan and working capital targets;

 

   

Accelerate growth in emerging markets; and

 

   

Win new business through innovation.

For fiscal 2012, employees eligible for incentive compensation participate in an individual performance pool designed to recognize outstanding individual performance. Mr. O’Brien is not eligible to participate in the individual performance pool component of the incentive compensation plan. As a result, the determination of Mr. O’Brien’s 2012 annual incentive payment was based entirely on predetermined financial measures. The annual incentive compensation plan is explained in further detail on page 41.

Individual Performance Evaluations: Named Executive Officers other than the Chief Executive Officer

At the beginning of each fiscal year, each named executive officer (excluding the Chief Executive Officer) and certain other officers jointly set their annual, individual performance objectives with the Chief Executive Officer. Performance against objectives is reviewed throughout the year on a quarterly basis. At the end of the fiscal year, the Chief Executive Officer conducts a final review with each of his direct reports, including each named executive officer, and rates their performance using a scale of “Greatly Exceeds Expectations” to “Does Not Meet Expectations.” The Chief Executive Officer then submits to the P&C Committee a performance assessment and compensation recommendation for each of the named executive officers as well as for most other executive officers. The performance evaluations are based on factors such as achievement of Company and individual objectives as well as contributions to the financial performance of Ashland. Individual performance of the named executive officers is used by the Chief Executive Officer and P&C Committee in consideration of individual merit base salary increases. In addition, individual performance is used in consideration of awards under the individual performance pool of the incentive compensation plan. No named executive officer received an individual performance pool award for fiscal 2012.

Individual performance goals for the other named executive officers include the achievement of sales, operating income and working capital efficiency objectives compared to targeted goals. They also include specific goals related to: cost reduction, planned expansion into designated markets and geographical areas, organizational effectiveness, operational excellence, process improvement and safety.

Tally Sheets

In January 2012, the P&C Committee reviewed the compensation tally sheet for Mr. O’Brien. The P&C Committee primarily uses the tally sheet information as an overview of total compensation including the value of benefits and perquisites paid, the value of equity holdings at the end of the fiscal year, an inventory of SARs and stock options, restricted shares and performance units, and as an analysis of the realized value of equity awards earned, vested or exercised in the past two fiscal years. In addition, the P&C Committee reviews a summary of

 

37


Table of Contents

severance benefits that would be paid upon termination of employment under various scenarios to determine the appropriateness of such benefits. The scenarios included in the review are: termination without cause or for good reason after a change in control; termination by Ashland without cause in the absence of a change of control; and voluntary termination. The tally sheet analysis provides the P&C Committee with a comprehensive overview of the executive compensation components and serves as background information for future compensation decisions. Based on the review of the tally sheets conducted in January 2012, the P&C Committee concluded that Ashland’s executive compensation program was working as intended and that no significant changes were needed.

Elements of Ashland’s Executive Compensation Program

The executive compensation program consists of the following elements of pay:

Annual Cash Compensation

 

   

Base Salary

 

   

Annual Incentive Compensation

Long-Term Incentives Compensation

 

   

LTIP-Performance Units

 

   

SARs

 

   

Restricted Shares

Retirement Benefits

Health and Welfare Benefits

Executive Perquisites

Severance Pay Plan

Change in Control Agreements

 

38


Table of Contents

Pay Mix

Base salary represents 16% of the Chief Executive Officer’s target compensation and approximately 30% of other named executive officers’ target compensation. On average, at least 70% of annual compensation for Ashland’s named executive officers varies each year based primarily upon Ashland’s financial performance because this portion of compensation is at risk. The following charts show the fiscal 2012 Total Direct Compensation* mix (based on targeted compensation).

 

LOGO

 

LOGO

 

* Total Direct Compensation represents the sum of base salary + target annual incentive + target long-term incentive. The base salary is the only fixed compensation component. At-risk compensation is equal to the sum of target annual incentive + target long-term incentive.

For fiscal 2012, base salaries, annual incentive targets and long-term incentives were generally targeted at the market median.

 

39


Table of Contents

Annual Cash Compensation

Annual cash compensation consists of market competitive base salary and annual incentive compensation.

Base Salary

Base salaries are the foundation for the compensation programs provided to named executive officers, as annual incentive payments, long-term incentive grants and most employee benefits are linked to base salary. Base salary is designed to compensate executives for services rendered during the fiscal year and for their sustained performance. Base salaries are targeted at the 50th percentile of salaries for individuals having similar jobs in similarly-sized companies in the specialty chemical and general industries. Competitive salary ranges are established for executive positions (including each named executive officer) with the midpoint of the salary range representing the approximate median level of base pay in the competitive market for each position.

Ashland believes that base salary is within the range of competitive practice if it is 20% above or below the desired target. Based on the P&C Committee’s review of an analysis conducted by the compensation consultant, the P&C Committee concluded that all named executive officers fall within this range.

Base salary increases are a reflection of individual performance and of an individual’s pay relative to the salary range midpoint for his or her position. The merit increase process (merit guideline) that is used for most employees, including the named executive officers, provides for greater increases to the highest-performing employees, up to a maximum of 120% of the salary range midpoint. The merit guideline also provides for greater increases to employees who are below their salary range midpoint and are meeting acceptable performance levels. For 2012, the merit guideline provided for increases between 0% and 8.0%, depending on an individual’s performance and their position relative to the salary range midpoint for their job.

The Chief Executive Officer uses the merit guideline as the basis for his salary increase recommendations for named executive officers (excluding himself) and other corporate officers. The Chief Executive Officer has the discretion to adjust merit increase recommendations from the guideline suggested amount based upon such factors as internal equity and individual performance. The P&C Committee reviews the market data provided by Deloitte and the individual performance evaluations and merit increase recommendations submitted by the Chief Executive Officer to approve salary increases for the named executive officers and other corporate officers.

The same merit guidelines are used by the P&C Committee when evaluating the merit increase for the Chief Executive Officer. After reviewing the merit guideline, the competitive market data and the Chief Executive Officer’s individual performance relative to pre-established objectives (including a review of the Chief Executive Officer’s self assessment), the P&C Committee, in executive session without management present, develops a recommended salary increase for the Chief Executive Officer. Final compensation actions for the Chief Executive Officer are approved by the independent Board members.

After consideration, the P&C Committee rated Mr. O’Brien’s performance as exceeding expectations under Ashland’s performance management system for fiscal year 2011. The P&C Committee used the merit guideline to establish a recommended salary increase for Mr. O’Brien. The combination of Mr. O’Brien’s performance evaluation with his pay level relative to the established salary range midpoint, resulted in a guideline recommended increase of approximately 2.5% and an actual base salary increase of $29,140. Using the same methodology, the base salary increases for all other named executive officers were as follows: Mr. Chambers (8.0%), Mr. Ganz (2.5%), Mr. Panichella (4.5%) and Mr. Harris (3.0%). The salary increases became effective in April 2012.

 

40


Table of Contents

In September 2012, Mr. Panichella was promoted to Group Operating Officer and assumed additional responsibility for the Ashland Water Technologies business. He received a base pay increase of 14% in connection with this promotion. The resulting base pay aligns his compensation to the market median of comparable positions.

Annual Incentive Compensation

The annual cash incentive is designed to compensate executives for the achievement of annual, primarily short-term performance goals. The named executive officers and approximately 175 additional senior employees participated in the fiscal 2012 incentive compensation plan. The plan provides an opportunity for each participant to earn a targeted percentage of base salary based on achievement of company-wide or business unit performance targets. The target annual incentive opportunity is higher for the Chief Executive Officer relative to the other named executive officers based upon market competitive data. The table below reflects the targeted annual incentive opportunity:

 

Named Executive Officer

   Annual Incentive
Target as a
Percentage of
Base Salary
    Target
Annual Incentive
 

Mr. O’Brien

     120   $ 1,433,230   

Mr. Chambers

     90   $ 494,550   

Mr. Ganz

     75   $ 345,938   

Mr. Panichella

     75   $ 329,175   

Mr. Harris

     75   $ 324,450   

In November 2011, the P&C Committee reviewed and approved measures and target performance levels for the fiscal 2012 incentive compensation. The approved performance measures were Operating Income and Working Capital Efficiency. The Operating Income measurement is an indication of the profitability of Ashland and each business unit. Operating Income may be adjusted for key items. The Working Capital Efficiency measurement focused on three key cash flow drivers, which were accounts receivable, inventory and accounts payable, and was measured as a percentage of sales. This measurement was chosen because Working Capital Efficiency, like Operating Income, was viewed as a critical measure of Ashland’s ability to optimize cash flow and value given the economic environment. The P&C Committee believes the use of both of these measures helps balance management decision-making on both profit growth and working capital management. The P&C Committee also believes that these objectives represent measures that are important to Ashland’s shareholders. The weighting and business unit focus of the measures for each named executive officer is as follows:

 

Messrs. O’Brien, Chambers and Ganz

   90% weight on Ashland’s “Operating Income”* performance
   10% weight on Ashland’s “Working Capital Efficiency”** performance
Mr. Panichella    20% weight on Ashland’s Operating Income performance
   70% weight on Ashland Specialty Ingredients’ Operating Income performance
   10% weight on Ashland Specialty Ingredients’ Working Capital Efficiency performance
Mr. Harris    55% weight on Ashland’s Operating Income performance
   35% weight on Ashland Performance Materials’ Operating Income performance
   10% weight on Ashland Performance Materials’ Working Capital Efficiency performance

 

* “Operating Income” is generally net operating income under generally accepted accounting principles adjusted for certain key items.

 

** “Working Capital Efficiency” is defined as (accounts receivable + inventory – accounts payable)/sales measured on a thirteen month average basis.

 

41


Table of Contents

For each of the measures previously listed, the P&C Committee established a minimum (hurdle), target and maximum performance level. For fiscal 2012, the target annual incentive opportunity for each of the named executive officers was positioned at approximately the 50th percentile in order to drive financial performance and align compensation with market competitive practices. To assess the rigors of the goals under the annual incentive plan, the P&C Committee compared Ashland’s 2012 performance targets to actual fiscal 2011 results, to the fiscal 2012 operating plan and to EBITDA goals. Based on this review, the P&C Committee confirmed that Ashland’s targeted level of performance required high levels of performance in order to achieve target-level incentive award payouts.

Consistent with past practice and based on a core set of principles and adjustment criteria established at the beginning of the performance period, the P&C Committee adjusted the results on which fiscal 2012 operating income incentives were determined to account for the effect of pension actuarial loss, restructuring severance costs and integration expenses. These adjustments are consistent with established policy. The adjustments were intended to ensure that award payments represent the underlying performance of the business and are not artificially inflated or deflated due to such items. Adjustments are reviewed thoroughly as soon as practical after they are identified. No adjustments were made to Working Capital Efficiency.

On an adjusted basis, Operating Income performance for fiscal 2012 relative to target was as follows:

Operating Income Performance and Incentive Compensation Scores

FY2012—Adjusted

($, Thousands)

 

Operating Unit

   Hurdle
(20% Payout)
     Target
(100% Payout)
     Maximum
(155.5% Payout)
     Adjusted
Operating Income
     Operating
Income
Component
Percent of
Target Award
Earned
 

Specialty Ingredients

   $ 290,453       $ 387,271       $ 464,725       $ 509,875         155.5

Water Technologies

   $ 108,193       $ 144,257       $ 173,108       $ 74,729         0.0

Performance Materials

   $ 73,443       $ 97,924       $ 117,509       $ 111,199         137.6

Consumer Markets

   $ 220,517       $ 294,022       $ 352,826       $ 237,263         38.2

Ashland Inc.

   $ 701,361       $ 932,229       $ 1,116,924       $ 936,703         101.3

For fiscal 2012, the Working Capital Efficiency measure was limited to a 100% payout. The 100% payout level is the targeted performance level and maximum payout of the component. Working Capital Efficiency performance for fiscal 2012 relative to target was as follows:

Working Capital Efficiency (“WCE”) Performance and Incentive Compensation Scores

FY2012

 

Operating Unit

   Hurdle
(20% Payout)
    Target and Maximum
(100% Payout)
    WCE     WCE
Component
Percent of
Target Award
Earned
 

Specialty Ingredients

     24.02     23.10     25.27     0

Water Technologies

     15.52     14.92     14.75     100

Performance Materials

     10.30     9.90     11.23     0

Consumer Markets

     14.94     14.37     13.45     100

Ashland Inc.

     16.96     16.31     17.40     0

 

42


Table of Contents

To reflect the importance of safety matters within Ashland, a safety modifier either added or deducted up to 10 percentage points based on a combination of the Operating Unit’s Total Recordable Rate (“TRR”) and safety activity based performance by the executive. The safety modifier may not increase the incentive paid above 150% of target. The safety modifier adjusted the incentive compensation earned as follows:

 

Named Executive Officer

  Positive 10 Percentage Points
added if TRR was less than
    No adjustment if
TRR is between
    Negative 10 Percentage
Points added if TRR
was more than
    TRR
Achieved
    Safety Modifier
Earned
 

Mr. O’Brien

    0.90        0.91 to 1.29        1.30        1.15        0 pts.   

Mr. Chambers

    0.90        0.91 to 1.29        1.30        1.15        0 pts.   

Mr. Ganz

    0.90        0.91 to 1.29        1.30        1.15        0 pts.   

Mr. Panichella

    0.74        0.75 to 0.94        0.95        0.71        +10 pts.   

Mr. Harris

    0.90        0.91 to 1.29        1.30        1.15        0 pts.   

Based on these results, the annual incentives earned for fiscal 2012 performance were as follows:

 

Named Executive Officer

   Annual Incentive
Target as a
Percentage of
Base Salary
    Target
Annual Incentive
     Percent of
Target Annual
Incentive Earned
    Actual 
Annual Incentive
Paid
 

Mr. O’Brien

     120   $ 1,433,230         91.2   $ 1,306,678   

Mr. Chambers

     90   $ 494,550         91.2   $ 450,882   

Mr. Ganz

     75   $ 345,938         91.2   $ 315,392   

Mr. Panichella*

     75   $ 329,175         139.1   $ 457,313   

Mr. Harris

     75   $ 324,450         103.9   $ 337,023   

 

* In addition, Mr. Panichella received a retention bonus of $120,000 pursuant to a three-year employment agreement entered into in connection with Ashland’s acquisition of Hercules Incorporated in November 2008.

The actual payout levels for the annual incentive compensation plan vary from year to year as represented in the chart below that reflects the Ashland Inc. weighted scores for the last five years:

 

Incentive Compensation

(Fiscal Year)

  

Weighted Score as a % of
Target (100% Payout)

2012      91.2%
2011      72.1%
2010    135.5%
2009      93.8%
2008      33.3%

Long-Term Incentive Compensation

Ashland’s long-term incentive compensation is designed to reward key employees for achieving and exceeding long-term goals and driving shareholder return. It is also designed to foster stock ownership among executives. The performance measures used in Ashland’s long-term plan are different than those used in the annual incentive program. This is an intentional design element. The P&C Committee believes that shareholders interests are best served by balancing the focus of executives’ decisions between short-term and longer-term measures. Long-term incentive compensation is comprised primarily of two elements: SARs and LTIP awards. Restricted stock is also a component of long-term compensation, but it is granted on a very selective basis rather than annually.

An overall long-term incentive target opportunity is established based on competitive data, current base salaries and pay band or position. For fiscal 2012, the long-term incentive targets for each of the named executive officers were generally positioned at the median of competitive practice. The target long-term incentive

 

43


Table of Contents

opportunity is expressed as a percentage of base salary or midpoint of the assigned pay band. Mr. O’Brien’s total long-term incentive target relative to that of the other named executive officers is a reflection of the competitive market data for similarly situated executives. The total long-term incentive target guidelines for Ashland’s named executive officers for fiscal 2012 are as follows:

 

Named Executive Officer

   Total Long-Term
Incentive Target as
a % of Salary
 

Mr. O’Brien

     400

Mr. Chambers

     225

Mr. Ganz

     150

Messrs. Panichella and Harris

     135

The total Long-Term Incentive Target as a percentage of salary is allocated 50% to SARs and 50% to LTIP awards for all executives that participate in both programs. Targets are typically established by the P&C Committee at its November meeting. Ashland’s process for establishing the grant date well in advance provides assurance that grant timing is not being manipulated for employee gain.

LTIP—Performance Units

The LTIP for certain key employees is a long-term incentive tied to Ashland’s overall financial and total shareholder return performance. It is designed to encourage and reward executives for achieving long-term financial performance that meets or exceeds the relative financial performance of peers.

Awards under the LTIP are granted annually, with each award covering a three-year performance cycle. The number of units awarded is based on a targeted percentage of the employee’s base salary or midpoint of the assigned pay band and valued by the average of the closing prices of Ashland Common Stock for the last twenty business days of the prior fiscal year. Awards under the LTIP are not adjusted for, nor entitled to receive, cash dividends during the performance period.

2012-2014 LTIP Performance Units Awards

The following calculation showing how Mr. O’Brien’s target fiscal 2012–2014 LTIP grant was determined is illustrative of the overall grant determination process:

 

Mr. O’Brien’s base salary as of October 1, 2011:

   $ 1,165,225   

LTIP target as a percent of salary:

     200%   
  

 

 

 

Target fiscal 2012–2014 LTIP value:

   $ 2,330,450   

Target fiscal 2012–2014 grant: $2,330,450/$48.15* = 48,400 performance units (rounded up to the nearest hundred units)

  

 

* Average of closing prices of Ashland Common Stock for the twenty business days ended September 30, 2011. The twenty business day average is used to reduce stock volatility and better represents the Company’s stock price.

 

44


Table of Contents

Actual grants under the fiscal 2012–2014 LTIP for Ashland’s named executive officers were as follows:

 

Named Executive Officer

   LTIP Target as a % of
Salary
    Number of LTIP
Units Granted
 

Mr. O’Brien

     200.0     48,400   

Mr. Chambers

     112.5     11,900   

Mr. Ganz

     75.0     7,100   

Mr. Panichella

     67.5     5,900   

Mr. Harris

     67.5     5,900   

In November 2011, the P&C Committee reviewed and approved measures and target performance levels for the fiscal 2012–2014 LTIP. The performance period for this LTIP began on October 1, 2011 and ends on September 30, 2014. For all participants, including the named executive officers, the performance measures are Ashland’s return on investment (ROI) and Ashland’s total shareholder return (TSR) performance. Each of the performance measures in the LTIP is weighted equally and evaluated separately. In choosing these measures, the P&C Committee considered the performance measures used in the other components of Ashland’s executive compensation programs. ROI and TSR are believed to represent an appropriate balance to the shorter-term operating income and working capital efficiency measures used in the annual incentive plan. By balancing the performance measures used, the overall program design encourages management to focus on the overall performance of Ashland and on value creation for Ashland’s shareholders.

Return on Investment (ROI) is a measurement of the effective use of capital, and it is generally determined by dividing net income (excluding certain key items) over a specified period by the average equity and debt outstanding over such period. Ashland’s ROI measurement was changed from a relative performance measure to an absolute performance measure beginning with the 2012-2014 LTIP. The transformation of Ashland into a leading specialty chemical company significantly increased the company’s goodwill and intangible assets as compared to other peer companies. Accordingly, the P&C Committee determined that measuring ROI performance based on internally established goals is a more appropriate method to measure return on investment and to recognize and reward performance.

Total Shareholder Return (TSR) is a measure of shareholder value creation, and it is defined as the change in Ashland’s stock price plus aggregate dividend payments over the performance period divided by the stock price at the beginning of the performance period. Ashland’s TSR performance is measured against the entire S&P MidCap 400 and the S&P 500 Materials Group (the “Performance Peer Group”). Ashland believes that the use of these indices better represents shareholder interests and reduces the volatility of the TSR calculation. The use of these indices applies to the fiscal 2012-2014 LTIP grant. Ashland must achieve median performance relative to the Performance Peer Group for eligible executives to earn a target award for the TSR portion of the award. Prior LTIP grants that have not yet vested continue to use their established performance peer groups.

Each of the performance measures in the LTIP is weighted equally and evaluated separately. The performance hurdle is the minimum performance that must be achieved to earn a payout under the stated objectives. For the fiscal 2012–2014 LTIP, the TSR hurdle was set at the 35th percentile. If Ashland’s performance is below the 35th percentile, no award is earned. To earn the target award, Ashland’s TSR performance must be at the 50th percentile (median) relative to the Performance Peer Group. The performance maximum represents a level of performance that is at the 90th percentile or above, relative to the respective Performance Peer Group. The P&C Committee has established similar internal hurdle, target and maximum performance goals for the ROI portion of the LTIP awards. If the maximum performance is achieved for both

 

45


Table of Contents

ROI and TSR, the award earned is 200% of the award opportunity at target. The following chart illustrates these award percentages based on performance levels:

 

Performance Level

   Percent of Target Award
Earned
 

Hurdle

     25

Target

     100

Maximum

     200

In the event performance falls between hurdle and target or target and maximum, the LTIPs are calculated on a linear basis. The earned amount of the LTIP award is paid in Ashland Common Stock.

2010-2012 LTIP Performance Unit Award Results and Payment

The fiscal 2010-2012 LTIP was paid in November 2012 for the performance period of October 1, 2009 to September 30, 2012. The following chart illustrates these award levels and the corresponding relative TSR and ROI performance required:

 

Performance Level

   Percentile Performance
Relative to Performance Peer
Group
     Percent of Target Award
Earned
 

Hurdle

     35th percentile         25

Target

     50th percentile         100

Maximum

     90th percentile         200

For this performance period, relative TSR performance was at the 58th percentile of the applicable performance peer group, which resulted in a payout of 119.4% for the TSR performance.

When calculating Ashland’s ROI performance for the 2010-2012 performance period, and the relative performance of each company in the applicable performance peer group, the P&C Committee considered and adjusted ROI to exclude the value of goodwill and intangible assets. Without this adjustment, Ashland’s relative performance would have been at the 21st percentile of the applicable performance peer group, resulting in no payout for the ROI performance. With this adjustment, ROI performance was at the 74th percentile of the applicable performance peer group, which would have resulted in a payout of 157% for the ROI portion of the LTIP, except that the P&C Committee determined to cap the resulting ROI payout at 100%. The weighted average payout for the 2010-2012 LTIP was 111.75%.

The P&C Committee determined that it was appropriate to make this adjustment to the ROI score to reflect the following two significant corporate transactions that contributed to the transformation of Ashland into a specialty chemical company during the 2010-2012 performance period:

 

   

The sale of the Ashland Distribution commercial unit in March 2011. This unit historically had contributed a meaningful proportion of Ashland’s overall ROI.

 

   

The acquisition of ISP in August 2011. This transaction significantly increased Ashland’s goodwill and its intangible assets relative to the applicable performance peer group and, therefore, had the effect of decreasing Ashland’s overall ROI.

Although the sale of the Ashland Distribution commercial unit and the subsequent acquisition of ISP had the effect of reducing the ROI for the 2010-2012 performance period, the P&C Committee believes that these two transactions have been, and will continue to be, in the best interests of Ashland’s shareholders. The P&C Committee also did not believe it was appropriate for Ashland’s executive officers, including the named executive officers, to receive a reduced LTIP award for engaging in these important transactions. Therefore, in an

 

46


Table of Contents

effort to strengthen retention incentives for executive officers, and to reward their leadership and efforts in completing Ashland’s transformation and enhancing shareholder value, the P&C Committee authorized the ROI adjustments described above, subject to a cap at the “target” payout level. The P&C Committee believes these adjustments are consistent with the intent of the LTIP Plan.

The chart below provides the actual payout amounts:

 

Named Executive Officer

   Number of LTIP
Units Granted
     LTIP Award as a % of
Target
    Number of Shares
Paid
 

Mr. O’Brien

     54,200         111.75     60,569   

Mr. Chambers

     7,300         111.75     8,158   

Mr. Ganz*

     —           —          —     

Mr. Panichella

     4,400         111.75     4,917   

Mr. Harris

     4,400         111.75     4,917   

 

* Mr. Ganz was not eligible for the 2010-2012 LTIP because he was not an Ashland employee at the time of grant.

The LTIP is a performance-based plan. As such, the actual payout levels vary from year to year as represented in the chart below reflecting the LTIP weighted scores for the last five years:

 

LTIP Plan
Year

   Date of Payment    Weighted Score as a % of Target
(100% Payout)

2010-2012  

   November, 2012         111.75%

2009-2011  

   December, 2011         119.65%

2008-2010  

   December, 2010           15.75%

2007-2009  

    February, 2010            26.0%

2006-2008*

    February, 2009*          25.8%*

 

* Messrs. O’Brien and Chambers declined payment of the fiscal 2006-2008 LTIP award due to the 2009 global economic recession.

SARs

Ashland’s SARs program is a long-term incentive plan designed to link executive compensation with increased shareholder value over time. The grants of SARs typically occur annually in November.

The methodology for determining the number of SARs to be awarded utilizes a variable approach based on a target value determined as a percentage of an individual’s actual base salary or midpoint of the assigned pay band. The actual number of SARs granted is then determined by taking the target value for each participant and dividing by the Black-Scholes value using the average of the closing prices of Ashland Common Stock for the last twenty business days of the prior fiscal year as determined by the Black-Scholes method.

The following calculation showing how Mr. O’Brien’s target fiscal 2012 SAR grant was determined is illustrative of the overall grant determination process:

 

Mr. O’Brien’s base salary as of October 1, 2011:    $ 1,165,225   

x

     Target SAR value as a percent of salary:      200%   
       

 

 

 

=

     Target fiscal 2012 SAR value:    $ 2,330,450   

Target SAR grant: $2,330,450/$25.66* = 90,900 SARs (rounded up to the nearest hundred units)

  

 

* Black-Scholes value using the average of closing prices of Ashland Common Stock for the twenty business days ended September 30, 2011. The twenty-business day average is used to reduce stock volatility and better represents the Company’s stock price.

 

47


Table of Contents

Actual grants for fiscal 2012 for Ashland’s named executive officers were as follows:

 

Named Executive Officer

   SARs Target as a % of
Salary
    Number of SARs
Granted
 

Mr. O’Brien

     200.0     90,900   

Mr. Chambers

     112.5     22,400   

Mr. Ganz

     75.0     13,200   

Mr. Panichella

     67.5     11,100   

Mr. Harris

     67.5     11,100   

All SARs are granted with an exercise price equal to the closing price of Ashland Common Stock on the NYSE on the date of grant and are not re-valued if the stock price declines below the exercise price. SARs expire on the tenth anniversary plus one month from the date of grant. SARs vest over a three-year period as follows: 50% vest on the first anniversary of the grant date; an additional 25% vest on the second anniversary of the grant date; and the final 25% vest on the third anniversary of the grant date.

Restricted Shares

There were no grants of restricted shares to any named executive officer in fiscal 2012.

Stock Ownership Guidelines

Equity compensation encourages executives to have a shareholder’s perspective in managing Ashland. Consistent with this philosophy, the P&C Committee has established stock ownership guidelines for Ashland’s executive officers and designated key employees. Employees are subject to the stock ownership requirements if they are eligible to participate in Ashland’s LTIP. Under these guidelines, each employee has five years from the date he or she becomes subject to a particular guideline to reach the minimum levels of Ashland Common Stock ownership identified by the P&C Committee. The current ownership guidelines are the lesser of the following two metrics:

 

     Dollar Value of
Ashland Common Stock
     or    Number of Shares of
Ashland Common Stock
 

Mr. O’Brien

     5x salary            125,000   

Mr. Chambers

     3x salary            30,000   

Messrs. Ganz, Panichella and Harris

     3x salary            25,000   

Range for other LTIP participants

     1-3x salary            3,500-25,000   

Ashland Common Stock ownership includes the following: shares held in Ashland’s 401(k) plan and LESOP; equivalent shares held in the non-qualified deferred compensation plan; unvested restricted stock that will vest within five years of the ownership guidelines date; and shares held by employees outside of Ashland plans.

The P&C Committee reviews progress towards achieving the ownership guidelines for the covered employees on an annual basis. Based upon the 2012 review, all of the named executive officers, except Mr. Ganz, have met their stock ownership requirements. Mr. Ganz joined Ashland in 2011, and in accordance with the stock ownership guidelines, he has until 2016 to meet the ownership requirements.

Risk Assessment

The Company’s compensation program is designed to motivate and reward employees and executive officers for their performance during the fiscal year and over the long-term and for taking appropriate business risks. The P&C Committee asked its compensation consultant to conduct a risk assessment of the Company’s incentive compensation plans in May 2012.

 

48


Table of Contents

Based on its review of the risk assessment, a review of the Company’s internal controls and the risk mitigating components of the Company’s compensation programs, the P&C Committee determined that the Company’s compensation programs do not encourage executives or other employees to take inappropriate risks that are reasonably likely to have a material adverse effect on the Company.

Executive Compensation Recovery “Clawback” Policy

Ashland has an Executive Compensation Recovery Policy (“Clawback Policy”) effective for plan years beginning on or after October 1, 2009 for executive officers. This policy further strengthens the risk mitigation program by defining the economic consequences that misconduct has on the executive officer’s incentive-related compensation. In the event of a financial restatement due to fraudulent activity or intentional misconduct as determined by the Board of Directors, the culpable executive officer will reimburse Ashland for incentive-related compensation paid to him or her. In addition, the Board of Directors has the discretion to determine whether any of the named executive officers will be required to repay incentive-related compensation, whether or not such named executive officer was involved in the fraudulent activity or misconduct. Ashland has a period of three years after the payment or award is made to seek reimbursement.

Retirement Benefits

The combination of tax-qualified and non-qualified retirement plans are designed to assist the named executive officers in building savings for retirement over the term of their employment.

The Company’s pension and 401(k) plans are tax-qualified vehicles to provide retirement benefits to the named executive officers and their families. The benefits in these plans are available to most U.S.-based employees. The benefits are funded through trusts and are separate from the assets of Ashland and by law are protected from Ashland’s creditors.

The benefits that may be provided under the tax-qualified plans are limited by the Internal Revenue Code of 1986, as amended (the “Code”). These plans, standing alone, do not provide sufficient retirement income to the named executive officers when compared to their pay as an active employee. To make up for this gap in potential replacement income in retirement, Ashland offers the named executive officers non-qualified retirement plans that complement each other and the tax-qualified plans. A detailed description of the non-qualified plans for the applicable named executive officers is included in the Pension Benefits section of this proxy statement.

The 401(k) plan contributions are also limited by law, which means their potential Ashland matching contributions are also limited. The Ashland match that could not be made to the 401(k) plan will be paid to the named executive officers (as well as any affected employee) as additional compensation.

Ashland also has employee deferral plans that allow the named executive officers to annually make a separate deferral election so that the named executive officers can save amounts from their own pay in addition to amounts they are allowed to save in the savings plans.

Health and Welfare Benefits

The health of all employees is important to Ashland as is the need to provide for financial security to the families of employees who may become ill, disabled or die during active employment. To these ends, Ashland provides a wide variety of health and welfare benefit plans to a majority of its active U.S. workforce. These same plans are offered to the named executive officers for the same reasons as they are offered to the majority of the rest of the active workforce. These plans include medical, dental, vision, life, accidental death and dismemberment, business travel and accident coverage and long-term care insurance. These benefits are targeted at median competitive levels.

 

49


Table of Contents

Executive Perquisites

The only perquisites Ashland provides to the named executive officers and other selected executives are financial planning (including tax preparation) and home security systems and monitoring. Mr. O’Brien participated in the financial planning and home security programs during fiscal 2012. The other named executive officers participated in only the financial planning program.

The P&C Committee reviews the perquisites provided to executive officers as part of their overall review of executive compensation. The P&C Committee has determined the perquisites to be within the appropriate range of compensation practices.

Severance Pay Plan

The named executive officers are covered by the Severance Pay Plan that provides benefits in the event of a covered termination in absence of a change in control. A covered termination is the direct result of the permanent closing of a facility, job discontinuance or other termination action of Ashland’s initiative as determined by Ashland. The plan excludes certain terminations such as, but not limited to, termination for cause and voluntary resignation.

A detailed description of this plan is included in the “Potential Payments upon Termination or Change in Control” section of this proxy statement.

Change in Control Agreements

Each named executive officer has a change in control agreement that sets forth the economic consequences and entitlements for termination without cause or for good reason after a change in control. The primary purpose of these protections is to align executive and shareholder interests by enabling the executives to assess possible corporate transactions without regard to the affect such transactions could have on their employment. Change in Control agreements entered into after July 2009 do not include a “gross-up” for excise and related taxes.

A detailed description of these agreements is included in the “Potential Payments upon Termination or Change in Control” section of this proxy statement.

Deductibility of Compensation

Ashland attempts to maximize the tax deductibility of the compensation paid to its executives. However, tax rules may limit the tax deductibility of certain types of non-performance based compensation paid to the named executive officers. As a result of these rules, it is expected that approximately $320,000 of named executive officer compensation paid in fiscal 2012 will be nondeductible.

Ashland considers the tax deductibility of compensation awarded to the named executive officers, and weighs the benefits of: (1) awarding compensation that may be nondeductible against (2) contingencies required by the tax laws. The P&C Committee believes that in certain circumstances the benefit of awarding nondeductible compensation exceeds the benefit of awarding deductible compensation that is subject to contingencies derived from the tax laws.

In addition, Ashland considers various other tax rules governing named executive officer compensation, including (but not limited to) tax rules relating to fringe benefits, qualified and non-qualified deferred compensation and compensation triggered by a change in control.

 

50


Table of Contents

PERSONNEL AND COMPENSATION COMMITTEE REPORT ON EXECUTIVE COMPENSATION

The P&C Committee has reviewed the Compensation Discussion and Analysis appearing on pages 32 through 50 of this proxy statement and discussed it with management. Based on its review and discussions with management, the P&C Committee recommended to the Board of Directors that the Compensation Discussion and Analysis be included in Ashland’s Annual Report on Form 10-K for fiscal 2012 and Ashland’s proxy statement for its 2013 Annual Meeting of Shareholders. This report is provided by the following independent directors who comprise the P&C Committee:

PERSONNEL AND COMPENSATION

COMMITTEE

Barry W. Perry, Chairman

Kathleen Ligocki

Vada O. Manager

George A. Schaefer, Jr.

Janice J. Teal

Michael J. Ward

The P&C Committee report does not constitute soliciting material, and shall not be deemed to be filed or incorporated by reference into any other filing under the Securities Act of 1933, or the Securities Exchange Act of 1934, except to the extent that Ashland specifically incorporates the P&C Committee report by reference therein.

 

51


Table of Contents

Summary Compensation Table

The following table is a summary of compensation information for the last three fiscal years, the most recent of which ended September 30, 2012, for Ashland’s Chief Executive Officer, Chief Financial Officer and each of the other three most highly compensated executive officers.

 

Name and Principal Position   Year    

Salary

($)

   

Bonus (1)

($)

   

Stock
Awards (2)

($)

   

Option

Awards (3)

($)

   

Non-Equity
Incentive
Plan
Compen-

sation (4)

($)

   

Change in
Pension
Value and
Non-
Qualified
Deferred
Compen-

sation
Earnings (5)

($)

   

All

Other

Compen-

sation (6)

($)

   

Total

($)

 

(a)

  (b)     (c)     (d)     (e)     (f)     (g)     (h)     (i)     (j)  

J. J. O’Brien

    2012        1,178,669        0        3,061,784        2,170,692        1,306,678        775,679        68,586        8,562,088   

Chairman of the Board and Chief Executive Officer

 

   

 

2011

2010

  

 

   

 

1,153,795

1,127,363

  

  

   

 

0

0

  

  

   

 

2,828,696

2,125,995

  

  

   

 

1,891,250

1,717,474

  

  

   

 

1,008,289

1,994,853

  

  

   

 

—  

1,777,138

  

  

   

 

69,469

83,335

  

  

   

 

6,951,499

8,826,158

  

  

                 

L. M. Chambers

    2012        527,579        0        752,794        534,912        450,882        807,328        27,117        3,100,612   

Senior Vice President

and Chief Financial Officer

 

   

 

2011

2010

  

 

   

 

497,835

461,252

  

  

   

 

0

0

  

  

   

 

527,384

286,343

  

  

   

 

353,775

393,657

  

  

   

 

330,201

637,656

  

  

   

 

126,814

1,073,662

  

  

   

 

33,776

31,931

  

  

   

 

1,869,785

2,884,501

  

  

                 

P. J. Ganz

    2012        455,192        0        449,146        315,216        315,392        —          7,600        1,542,546   

Senior Vice President, General Counsel and Secretary

 

                 
                 

J. E. Panichella

    2012        436,800        120,000        373,234        265,068        457,313        314,537        27,413        1,994,365   

Senior Vice President and Group Operating Officer, and President of Ashland Specialty Ingredients

 

   

 

2011

2010

  

  

   

 

399,916

364,500

  

  

   

 

120,000

120,000

  

  

   

 

311,636

172,590

  

  

   

 

206,925

235,862

  

  

   

 

375,515

388,613

  

  

   

 

180,864

268,236

  

  

   

 

26,428

40,946

  

  

   

 

1,621,284

1,590,747

  

  

                 

T. L. Harris

    2012        425,815        0        373,234        265,068        337,023        345,449        52,587        1,799,176   

Senior Vice President, President of Global Supply Chain and President of Ashland Performance Materials

   

 

2011

2010

  

 

   

 

376,071

364,154

  

  

   

 

0

0

  

  

   

 

311,636

172,590

  

  

   

 

206,925

235,862

  

  

   

 

213,123

360,218

  

  

   

 

148,892

141,957

  

  

   

 

47,424

24,865

  

  

   

 

1,304,071

1,299,646

  

  

 

(1) Pursuant to a three-year employment agreement entered into in connection with Ashland’s acquisition of Hercules Incorporated in November 2008, Mr. Panichella received an annual retention bonus of $120,000.

 

(2) The values in column (e) represent the aggregate grant date fair value of LTIP awards computed in accordance with FASB ASC Topic 718. The assumptions made when calculating the amounts for column (e) are found in Note P to the Notes to Consolidated Financial Statements included in the Company’s Annual Report on Form 10-K for the fiscal year ended September 30, 2012 (the “2012 Form 10-K”). For LTIP awards, the grant date fair value is based on the probable outcome of performance conditions. The grant date fair values of fiscal 2012-2014 LTIP awards assuming the maximum level of performance are as follows: Mr. O’Brien, $6,123,568; Mr. Chambers, $1,505,588; Mr. Ganz, $898,292; Mr. Panichella, $746,468 and Mr. Harris, $746,468.

 

(3) The values in column (f) represent the aggregate grant date fair value of SAR awards computed in accordance with FASB ASC Topic 718. The assumptions made when calculating the amounts for column (f) are found in Note P to the Notes to Consolidated Financial Statements included in the 2012 Form 10-K.

 

52


Table of Contents
(4) The values in column (g) represent the amounts earned with respect to fiscal 2012 performance that were paid in December 2012 for annual incentive awards under the 2011 Incentive Plan.

 

(5) Ashland’s non-qualified deferred compensation arrangements do not provide above-market or preferential earnings; therefore, the amounts in column (h) represent only the one-year change between September 30, 2011 and September 30, 2012 in the present value of accrued benefits under Ashland’s qualified and non-qualified defined benefit plans. These plans are more fully discussed in the narrative to the Pension Benefits table in this proxy statement. For fiscal 2011, Mr. O’Brien’s change in pension value was a negative amount.

The present values at September 30, 2011 and September 30, 2012 were calculated based on the earliest age that a participant could receive an unreduced benefit (see the discussion under the Pension Benefits table in this proxy statement regarding the earliest retirement age under the various plans).

 

(6) Amounts reported in column (i) for fiscal 2012 are composed of the following items:

 

     J. J. O’Brien      L. M. Chambers      P. J. Ganz      J. E. Panichella      T. L. Harris  

Ashland 401(k) Plan Match (a)

   $ 13,920       $ 13,920       $ 1,517       $ 13,920       $ 32,420   

Supplemental Ashland 401(k) Plan Match (b)

     37,147         11,103         3,362         7,149         6,733   

Life Insurance Premiums (c)

     2,094         2,094         921         1,344         682   

Other (d)

     15,425         0         1,800         5,000         12,752   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total

   $ 68,586       $ 27,117       $ 7,600       $ 27,413       $ 52,587   

 

(a) The amounts in this row represent the contributions by Ashland to the accounts of each of the named executive officers in the Ashland 401(k) Plan.

 

(b) The amounts in this row represent payments by Ashland for the named executive officers that would have been made as matching contributions to the Ashland 401(k) Plan, but for the limitations placed on such contributions under the Code.

 

(c) The amounts in this row represent the value of life insurance premiums paid on behalf of the named executive officers.

 

(d) In accordance with SEC rules, disclosure of perquisites and other personal benefits is omitted if the aggregate amount of such compensation for an executive officer is less than $10,000 for the given year. If the total amount exceeds $10,000, each perquisite must be identified by type, and if the amount of a perquisite exceeds the greater of $25,000 or 10% of total perquisites, its value must be disclosed. The amounts in this row represent the amount of aggregate incremental cost to Ashland with respect to any tax and financial planning services and monitoring of home security systems, none of which exceeded the greater of $25,000 or 10% of total perquisites as a category for any named executive officer.

 

53


Table of Contents

Grants of Plan-Based Awards

The following table sets forth certain information regarding the annual and long-term incentive awards and SARs granted during fiscal 2012 to each of the named executive officers. No grants of restricted stock were made to the named executive officers in fiscal 2012.

 

Name   Grant
Date
    Estimated Possible Payouts
Under
Non-Equity Incentive Plan
Awards (1)
    Estimated Future Payouts
Under Equity Incentive
Plan Awards (2)
    All
Other
Stock
Awards:
Number
of
Shares
of Stock
or Units
(#)
 

All Other
Option
Awards:
Number of
Securities
Underlying
Options

(#) (3)

    Exercise
or Base
Price of
Option
Awards
($/Sh)
    Grant
Date
Fair
Value of
Stock
and
Option
Awards
($) (4)
 
   

Threshold

($)

   

Target

($)

   

Maximum

($)

   

Threshold

(#)

   

Target

(#)

   

Maximum

(#)

         

(a)

  (b)     (c)     (d)     (e)     (f)     (g)     (h)     (i)   (j)     (k)     (l)  

J. J. O’Brien

      286,646        1,433,230        2,149,845                 
    12/02/11              12,100        48,400        96,800              3,061,784   
    12/02/11                     90,900        55.56        2,170,692   
                     

L. M. Chambers

      98,910        494,550        741,825                 
    12/02/11              2,975        11,900        23,800              752,794   
    12/02/11                     22,400        55.56        534,912   
                     

P. J. Ganz

      69,188        345,938        518,907                 
    12/02/11              1,775        7,100        14,200              449,146   
    12/02/11                     13,200        55.56        315,216   
                     

J. E. Panichella

      65,835        329,175        493,763                 
    12/02/11              1,475        5,900        11,800              373,234   
    12/02/11                     11,100        55.56        265,068   
                     

T. L. Harris

      64,890        324,450        486,675                 
    12/02/11              1,475        5,900        11,800              373,234   
    12/02/11                     11,100        55.56        265,068   

 

(1) The dollar amounts in these columns represent the potential annual incentive payouts under the 2011 Incentive Plan for fiscal 2012. The actual dollar amounts earned were paid in December 2012 and are included in column (g) in the fiscal 2012 row of the Summary Compensation Table.

 

(2) The amounts in these columns represent potential payments under LTIP awards for the fiscal 2012-2014 performance period under the 2011 Incentive Plan. Payments, if any, under these awards will be made in shares of Ashland Common Stock on a one-for-one basis at the end of the three-year performance period.

 

(3) The amounts in column (j) represent the number of shares of Ashland Common Stock that may be issued to named executive officers on exercise of SARs granted under the 2011 Incentive Plan in fiscal 2012. All SARs were granted at an exercise price of $55.56 per share, the closing price of Ashland Common Stock as reported on the NYSE on December 2, 2011, the date of grant.

 

(4) The dollar amounts in column (l) are calculated in accordance with FASB ASC Topic 718 and assume (i) payment of LTIP awards at target calculated using a Monte-Carlo simulation valuation ($53.71 per unit for the ROI portion and $72.81 per unit for the TSR portion); and (ii) valuation of all SARs using the Black-Scholes valuation model ($23.88 per SAR). For further information on the Black-Scholes model and related stock price assumptions utilized during fiscal 2012, see Note P to the Notes to Consolidated Financial Statements in the 2012 Form 10-K.

Annual Incentive Compensation

Incentive compensation for executives is awarded annually, contingent upon meeting applicable targets. After the beginning of each fiscal year, performance hurdle, target and maximum objectives are established for

 

54


Table of Contents

the upcoming year. Awards for the Chief Executive Officer and certain other executive officers are based upon overall Ashland performance as well as the performance of Ashland’s business segments. Awards for other executives and employees are based upon the performance of Ashland’s divisions. Awards for division employees are based primarily on division performance.

The performance hurdle, target and maximum objectives for fiscal 2012 included measures of Operating Income and Working Capital Efficiency, as well as a “safety modifier.” The Compensation Discussion and Analysis section in this proxy statement discusses the fiscal 2012 performance goals as well as other aspects of this program.

Long-Term Incentive Program

LTIP awards are available to certain key employees. LTIP awards are long-term incentives tied to Ashland’s return on investment (ROI) and total shareholder return (TSR) over the performance period. Awards are granted annually, with each award covering a three-year performance period.

After the beginning of the performance period, performance hurdle, target and maximum objectives are established for the performance period. The initial number of performance units awarded is based on the employee’s salary or midpoint of salary band depending on salary band. The Compensation Discussion and Analysis section in this proxy statement discusses fiscal 2012-2014 LTIP awards.

Stock Appreciation Rights, Stock Options and Restricted Stock

Ashland’s employee SARs and stock option program is a long-term plan designed to link executive compensation with increased shareholder value over time. In determining the amount of SARs or stock options to be granted annually to key employees, a target number of shares for each employee grade level is established. All SARs and stock options are granted with an exercise price equal to the fair market value of Ashland Common Stock on the date of grant. Vesting of SARs and stock options occurs over a period of three years, as more fully described in footnote (1) of the Outstanding Equity Awards at Fiscal Year-End table in this proxy statement. For accelerated vesting events, see the SARs/Stock Options, Incentive Compensation, Restricted Stock and LTIPs subsection of the Potential Payments upon Termination or Change in Control section in this proxy statement. SARs and stock options are not re-valued if the stock price declines below the grant price.

These programs are described in more detail in the Compensation Discussion and Analysis section in this proxy statement.

 

55


Table of Contents

Outstanding Equity Awards at Fiscal Year-End

The following table sets forth certain information regarding stock options, SARs, restricted stock and LTIP performance units held by each of the named executive officers at September 30, 2012.

 

    Option Awards     Stock Awards  
Name  

Number of
Securities
Underlying
Unexercised
Options

Exercisable (1)
(#)

   

Number of
Securities
Underlying
Unexercised
Options

Unexercisable (1)
(#)

    Equity
Incentive
Plan
Awards:
Number of
Securities
Underlying
Unexercised
Unearned
Options
    Option
Exercise
Price
    Option
Expiration
Date
    Number
of Shares
or Units
of Stock
That
Have Not
Vested (2)
    Market
Value of
Shares or
Units of
Stock
That
Have Not
Vested (2)
    Equity
Incentive
Plan
Awards:
Number of
Unearned
Shares,
Units or
Other
Rights That
Have Not
Vested (3)
   

Equity
Incentive Plan
Awards:
Market or
Payout Value
of Unearned
Shares, Units
or
Other

Rights That

Have Not
Vested (3)

 
      (#)     ($)       (#)     ($)     (#)     ($)  

    (a)    

  (b)     (c)     (d)     (e)     (f)     (g)     (h)     (i)     (j)  

J. J. O’Brien

    0        90,900 (4)      0        55.56        01/02/22           
    42,500 (5)      42,500 (5)      0        51.86        12/17/20           
    77,550 (6)      25,850 (6)      0        37.69        12/18/19           
    125,000        0        0        10.72        12/20/18           
    105,000        0        0        53.33        12/14/17           
    110,000        0        0        65.78        12/15/16           
              60,569        4,336,740       
                  95,600        6,844,960   
                 

L. M. Chambers

    0        22,400 (4)      0        55.56        01/02/22           
    7,950 (5)      7,950 (5)      0        51.86        12/17/20           
    17,775 (6)      5,925 (6)      0        37.69        12/18/19           
    61,200        0        0        10.72        12/20/18           
    5,500        0        0        53.33        12/14/17           
    6,200        0        0        65.78        12/15/16           
              8,158        584,113       
                  20,700        1,482,120   
                 

P. J. Ganz

    0        13,200 (4)      0        55.56        01/02/22           
              15,236        1,090,898       
                  7,100        508,360   
                 

J. E. Panichella

    0        11,100 (4)      0        55.56        01/02/22           
    4,650 (5)      4,650 (5)      0        51.86        12/17/20           
    10,650 (6)      3,550 (6)      0        37.69        12/18/19           
              54,917        3,932,057       
                  11,100        794,760   
                 

T. L. Harris

    0        11,100 (4)      0        55.56        01/02/22           
    4,650 (5)      4,650 (5)      0        51.86        12/17/20           
    10,650 (6)      3,550 (6)      0        37.69        12/18/19           
    6,100        0        0        53.33        12/14/17           
    7,300        0        0        65.78        12/15/16           
    4,112        0        0        49.79        10/15/15           
              26,167        1,873,557       
                  11,100        794,760   

 

(1) The numbers in columns (b) and (c) relate to SARs which vest over a three-year period measured from the date of grant. Fifty percent vest after the first year and 25% vest in each of the remaining two years.

 

(2)

The numbers in column (g) and the dollar values in column (h) represent the number of shares earned for the fiscal 2010-2012 LTIP performance period (which is payable in stock) and/or unvested shares of restricted Ashland Common Stock. The number of shares of Ashland Common Stock earned for the fiscal 2010-2012 LTIP awards was determined by the P&C Committee in November 2012 and became vested when paid in November 2012. For Messrs. O’Brien and Chambers, the amounts reported in columns (g) and (h) relate solely to the LTIP award for the fiscal 2010-2012 performance period. For Mr. Ganz, the amounts reported in columns (g) and (h) relate solely to 15,000 shares of restricted Ashland Common Stock granted on July 13, 2011 that will vest 100% on July 13, 2015 and 236 shares earned from dividends on the restricted Ashland Common Stock. For

 

56


Table of Contents
  Mr. Panichella, the amounts reported in columns (g) and (h) represent 4,917 shares of Ashland Common Stock earned under the LTIP for the fiscal 2010-2012 performance period and 50,000 shares of restricted Ashland Common Stock granted on November 20, 2008 which vested 100% on November 20, 2012. For Mr. Harris, the amounts reported in columns (g) and (h) represent 4,917 shares of Ashland Common Stock earned under the LTIP for the fiscal 2010-2012 performance period, 20,000 shares of restricted Ashland Common Stock granted on November 20, 2008 which vested 100% on November 20, 2012 and 1,250 shares of restricted Ashland Common Stock granted on July 15, 2009 which will vest 100% on July 15, 2013. The dollar values in column (h) are calculated using the closing price of Ashland Common Stock of $71.60 as reported on the NYSE on September 28, 2012.

 

(3) The numbers in column (i) represent the estimated units granted through September 30, 2012 under the LTIP for the fiscal 2011-2013 and the fiscal 2012-2014 performance periods. The estimated number is computed assuming that the target performance goals are achieved. The dollar amounts in column (j) correspond to the units identified in column (i). The dollar value is computed by converting the units to shares of Ashland Common Stock on a one-for-one basis. The number of shares is then multiplied by the closing price of Ashland Common Stock of $71.60 as reported on the NYSE on September 28, 2012. Payment, if any, under LTIP awards will be in Ashland Common Stock for the fiscal 2011-2013 and the fiscal 2012-2014 performance periods.

 

(4) These numbers relate to SARs granted on December 2, 2011 that vest over the three-year period referenced in footnote (1) above.

 

(5) These numbers relate to SARs granted on November 17, 2010 that vest over the three-year period referenced in footnote (1) above.

 

(6) These numbers relate to SARs granted on November 18, 2009 that vest over the three-year period referenced in footnote (1) above.

 

57


Table of Contents

Option Exercises and Stock Vested

The following table sets forth certain information regarding the value realized by each named executive officer during fiscal 2012 upon the exercise of SARs/stock options and the vesting of restricted stock and LTIP awards.

 

     Option Awards      Stock Awards  
     Number of Shares
Acquired on Exercise (1)
     Value Realized on
Exercise (1)
     Number of Shares
Acquired on Vesting (2)
     Value Realized on
Vesting (2)
 
Name    (#)      ($)      (#)      ($)  

(a)

   (b)      (c)      (d)      (e)  

J. J. O’Brien

     491,509         16,855,355         100,506         5,584,113   
           

L. M. Chambers

     19,499         509,007         21,923         1,307,772   
           

P. J. Ganz

     0         0         0         0   
           

J. E. Panichella

     12,500         786,125         10,171         565,101   
           

T. L. Harris

     16,062         933,299         11,421         650,838   

 

(1) The amounts in column (b) represent the total number of SARs exercised or the gross number of shares acquired on exercise of options. The amounts in column (c) represent the value realized on exercise.

 

(2) For Messrs. O’Brien and Panichella, the amounts in column (d) represent only the shares of Ashland Common Stock received in settlement of the fiscal 2009-2011 LTIP award. The dollar amounts in column (e) represent the value of the fiscal 2009-2011 LTIP award (computed by multiplying the number of shares awarded by $55.56, the closing price of Ashland Common Stock as reported on the NYSE on December 2, 2011, the date the P&C Committee approved the payment). The weighted score for the 2009-2011 LTIP was 119.65%.

For Mr. Chambers, the amount in column (d) includes 9,000 shares of restricted Ashland Common Stock which vested on May 14, 2012, and 12,923 shares of Ashland Common Stock received in settlement of the fiscal 2009-2011 LTIP award. The dollar amount in column (e) includes $589,770 for the restricted shares which vested on May 14, 2012 based on the closing price of $65.53 of Ashland Common Stock as reported on the NYSE on that date, and $718,002 for the fiscal 2009-2011 LTIP award (computed as described above).

For Mr. Harris, the amount in column (d) includes 1,250 shares of restricted Ashland Common Stock which vested on July 15, 2012, and 10,171 shares of Ashland Common Stock received in settlement of the fiscal 2009-2011 LTIP award. The dollar amount in column (e) includes $85,737 for the restricted shares which vested on July 15, 2012 based on the closing price of $68.59 of Ashland Common Stock as reported on the NYSE on that date, and $565,101 for the fiscal 2009-2011 LTIP award (computed as described above).

 

58


Table of Contents

Pension Benefits

The following table shows the actuarial present value of the named executive officers’ (other than Peter J. Ganz) accumulated benefits under each of Ashland’s qualified and non-qualified pension plans, calculated as of September 30, 2012. Mr. Ganz is not eligible to participate in the Pension Plan, the Excess Plans or the SERP (as defined in footnote 1). Mr. Ganz joined Ashland in July 2011, and these plans were closed to new participants on January 1, 2011.

 

Name

(a)

   Plan Name (1)
(b)
   Number of Years
Credited Service (2)

(#)
(c)
   Present Value of
Accumulated Benefit
($)
(d)
     Payments During Last
Fiscal Year
($)
(e)
 

J. J. O’Brien

   Ashland Hercules Pension
Plan

 

Ashland Inc. Excess

Benefit Pension Plan

 

Ashland Inc. Supplemental
Early Retirement Plan for
Certain Employees

   33 years 4 months

 

 

33 years 4 months

 

 

20 years

    

 

 

 

 

 

 

1,512,039

 

 

4,890,991

 

 

5,996,318

  

 

 

  

 

 

  

    

 

 

 

 

 

 

0

 

 

0

 

 

0

  

 

 

  

 

 

  

           

L. M. Chambers

   Ashland Hercules Pension
Plan

 

Ashland Inc. Excess
Benefit Pension Plan

 

Ashland Inc. Supplemental
Early Retirement Plan for
Certain Employees

   32 years 6 months

 

 

32 years 6 months

 

 

20 years

    

 

 

 

 

 

 

1,452,498

 

 

1,168,877

 

 

2,070,274

  

 

 

  

 

 

  

    

 

 

 

 

 

 

0

 

 

0

 

 

0

  

 

 

  

 

 

  

           

J. E. Panichella

   Ashland Hercules Pension
Plan

 

Hercules Inc. Employee
Pension Restoration Plan

 

Ashland Inc. Supplemental
Early Retirement Plan for
Certain Employees

   28 years 9 months

 

 

28 years 9 months

 

 

3 years 10 months

    

 

 

 

 

 

 

999,875

 

 

913,531

 

 

0

  

 

 

  

 

 

  

    

 

 

 

 

 

 

0

 

 

0

 

 

0

  

 

 

  

 

 

  

           

T. L. Harris

   Ashland Hercules Pension
Plan

 

Ashland Inc. Excess
Benefit Pension Plan

 

Ashland Inc. Supplemental
Early Retirement Plan for
Certain Employees

   7 years 8 months

 

 

7 years 8 months

 

 

8 years 8 months

    

 

 

 

 

 

 

87,394

 

 

30,426

 

 

1,015,879

  

 

 

  

 

 

  

    

 

 

 

 

 

 

0

 

 

0

 

 

0

  

 

 

  

 

 

  

 

(1) The Ashland Hercules Pension Plan (the “Pension Plan”) is a tax-qualified plan under §401(a) of the Code. The Ashland Inc. Excess Benefit Pension Plan (the “Ashland Excess Plan”) and the Hercules Inc. Employee Pension Restoration Plan (the “Hercules Excess Plan” and together with the Ashland Excess Plan, the “Excess Plans”) are non-qualified plans that are coordinated with the tax-qualified plan. The Ashland Inc. Supplemental Early Retirement Plan for Certain Employees (the “SERP”) is a non-qualified plan. The material terms of each of these plans are described in the narrative below.

 

59


Table of Contents
(2) The maximum number of years of credited service under the SERP is 20 years. The number of years of service for the SERP is measured from the date of hire. The number of years of service under the Pension Plan and the Excess Plans is measured from the date the named executive officer began participating in the Pension Plan.

Assumptions

The present values of the accumulated benefits were calculated as of September 30, 2012 based on the earliest age a participant could receive an unreduced benefit. For Messrs. O’Brien, Chambers and Panichella, age 62 is the earliest age that an unreduced benefit is available under the qualified Pension Plan and the applicable non-qualified Excess Plan because their benefits are calculated under the traditional annuity pension formula. For Mr. Harris, age 55 is the earliest age he may receive unreduced benefits under the qualified Pension Plan and the non-qualified Ashland Excess Plan because his qualified Pension Plan benefits are calculated under the cash balance pension formula. Messrs. O’Brien and Chambers are currently eligible to receive a reduced benefit because they are 55 or older. The programs were closed to new participants on January 1, 2011.

Messrs. O’Brien and Chambers have a benefit in Ashland’s qualified LESOP. The LESOP was completely allocated on March 31, 1996 and no additional benefits are accruing. The LESOP and the qualified Pension Plan are in a floor-offset arrangement. The value of the shares allocated to a participant’s LESOP offset account reduces the value of the participant’s Pension Plan benefit. A participant may elect to transfer his or her LESOP offset account to the Pension Plan at the time of his or her termination in order to receive an unreduced Pension Plan benefit. The calculations in the Pension Benefits table assume that the named executive officers with a LESOP benefit elect to transfer their LESOP offset accounts to the Pension Plan.

The SERP provides an umbrella (or gross) benefit that is subject to certain reductions. The amount in the Pension Benefits table for the SERP benefit for applicable named executive officer is the net benefit under that plan, after applicable reductions. The reductions referred to in this paragraph are described in the Ashland Inc. Supplemental Early Retirement Plan for Certain Employees (SERP) section below.

Under the SERP, the earliest age a named executive officer could receive an unreduced benefit is the earlier of age 55 or when the sum of the named executive officer’s age and service equals at least 80, provided that the officer has at least 20 years of service under the plan. Messrs. O’Brien and Chambers are the only named executive officers that have at least 20 years of service.

The valuation method and all material assumptions applied in quantifying the present value of the accumulated benefit are incorporated by reference from Note M to the Notes to Consolidated Financial Statements in the 2012 Form 10-K.

Ashland Hercules Pension Plan (Pension Plan)

The Pension Plan is a tax-qualified defined benefit pension plan under Code §401(a). The Pension Plan provides retirement income for eligible participants. Beginning in January 2011, the Pension Plan was closed to new participants and to additional credits in the retirement growth account.

The Pension Plan has two benefit formulas—a traditional formula, referred to as the annuity benefit, and a cash balance formula, referred to as the retirement growth account. The traditional formula produces an annuity benefit at retirement based on a percentage of final average compensation multiplied by years of plan service (see the description in the Traditional Benefit/Annuity Formula section below). The cash balance formula produces a hypothetical account balance based on the sum of contribution credits and interest on those contribution credits (see the description in the Retirement Growth Account Benefit/Cash Balance Formula below). In general, participants who were actively employed on June 30, 2003 with at least 10 years of service remained in the

 

60


Table of Contents

annuity benefit formula. All other participants moved to the retirement growth account formula. The formula under which a participant’s benefit is computed is a matter of plan design and not participant election.

If a participant has a benefit payable from the LESOP, then the participant’s LESOP offset account reduces the amount payable to the participant, regardless of the formula under which the participant’s benefit is paid. At termination from employment, the participant may elect to transfer the LESOP offset account to the Pension Plan and receive an unreduced Pension Plan benefit.

Years of service in addition to what is actually incurred under the Pension Plan cannot be granted. However, in the case of an acquisition, prior service with the acquired business is often counted for purposes of vesting and eligibility, but not for purposes of benefit accrual under the annuity benefit formula. These same rules apply equally to the Excess Plans.

Traditional Benefit/Annuity Formula

Under this formula, for certain highly compensated employees, compensation only includes base compensation, up to the maximum allowed under Code §401(a)(17). For all other participants, compensation includes bonus amounts. This applies to both the annuity formula and the cash balance formula. The final average compensation formula is the average for a 48 consecutive month period producing the highest average for the last 120 months of credited service. For participants who were employees of Hercules prior to the acquisition, the final average compensation is the average for the 60 consecutive month period producing the highest average for the last 120 months of credited service.

The annual annuity benefit formula is:

(1.08% x final average compensation up to $10,700) + (1.5% x final average compensation exceeding $10,700)

x

(years of credited service, which means years as a participant in the plan up to a maximum of 35 years)

For participants who were employees of Hercules prior to the acquisition, the annual annuity benefit formula is:

(1.2% x final average compensation up to $53,400) + (1.6% x final average compensation exceeding $53,400)

x

(years of credited service)

The normal form of benefit payment under the annuity benefit is a single life annuity. However, as required by federal law, the normal form of benefit for a married participant is a joint and survivor annuity, unless the spouse consents to a different benefit distribution. A participant may also elect a non-spousal joint and survivor annuity or a 10-year term certain annuity. All payment forms are actuarially equivalent.

The normal retirement age is 65, but an unreduced benefit is paid for retirement at age 62. A participant may retire early once the participant is either at least age 55 or when the sum of the participant’s age and service equals at least 80.

Retirement Growth Account Benefit/Cash Balance Formula

Under this formula, contribution credits are accumulated in a notional account. Interest credits are allocated to each participant’s account monthly. The interest rate is from a minimum of 4.0% to a maximum of 7.0% and is set at the beginning of each plan year. The interest rate for fiscal 2012 was 4.0%.

 

61


Table of Contents

The accrued benefit under this formula is the balance in the retirement growth account. The benefit is payable in the same forms that apply to the annuity benefit formula or may be paid as a single lump sum.

The normal retirement age under the retirement growth account formula is also age 65. The earliest that a participant can receive an unreduced benefit is at age 55 with at least five years of service.

Non-Qualified Excess Benefit Pension Plans (Excess Plans) and Non-Qualified Defined Contribution Plan

The Excess Plans are unfunded, non-qualified plans of deferred compensation providing a benefit payable, based on the applicable named executive officer’s pension plan eligibility, equal to the difference between the benefit under the Pension Plan in the absence of the Code limits (the gross benefit) and the actual benefit that would be payable under the Pension Plan.

The Excess Plans cover employees (i) who are eligible for the Pension Plan and whose benefit under the Pension Plan is limited because of either Code §401(a)(17) or §415(b) and (ii) who are not terminated for cause as defined in the Excess Plans. For purposes of computing the Excess Plans’ benefits, a participant’s compensation is defined the same as it is for the Pension Plan. However, the limits on the compensation under the Pension Plan that are imposed by the Code do not apply under the Excess Plans.

The benefit under the Excess Plans is payable in a lump sum and may be transferred to the Employees’ Deferral Plan. A benefit payable to a named executive officer and certain other highly compensated participants cannot be paid for six months following separation from service. All named executive officers, except Mr. Ganz, participate in an Excess Plan.

Mr. Ganz participates in the Non-Qualified Defined Contribution plan (the “NQDC Plan”). The NQDC Plan provides a contribution equivalent to the company match on annual incentive compensation not permitted in the qualified 401(k) plan. The account balance may be invested in the mutual funds available in the Employees’ Deferral Plan (described on page 64). The benefit payable under the NQDC Plan will be made in installments or as a lump sum based on distribution elections. Named executive officers and certain other highly compensated participants cannot begin to receive distributions for six months following separation from service.

Ashland Inc. Supplemental Early Retirement Plan for Certain Employees (SERP)

The SERP is an unfunded, non-qualified plan of deferred compensation and covers a select group of highly compensated employees. Beginning January 1, 2011, the eligibility for this program was restricted to only highly compensated employees participating in the Pension Plan on December 31, 2010. Employees who would have otherwise been eligible to participate in the SERP will now participate only in the NQDC Plan.

The SERP benefit formula covering the applicable named executive officers and certain other highly compensated participants provides a benefit of 25% of final average compensation multiplied by the participant’s years of service up to 20 years. For this purpose, the final average compensation formula is total compensation (base plus incentive compensation) for the 48 months out of the 96 months before retirement that produces the highest average.

The applicable named executive officers may retire on the earlier of age 55 with three years of service or when the sum of the executive’s age and service equals at least 80. The benefit produced by the above described formula is subject to proportionate reduction for each year of service credited to the participant that is less than 20 years of service. Additionally, the benefit is reduced by the sum of the following:

 

   

The participant’s qualified Pension Plan benefit (assuming the LESOP offset account is transferred to the Pension Plan);

 

62


Table of Contents
   

The participant’s Excess Plans benefit; and

 

   

50% of any shares of Ashland Common Stock that could not be allocated to the participant’s account in the LESOP due to Code limits.

Messrs. O’Brien and Chambers are eligible to retire and commence their SERP benefits. SERP benefits become vested upon attaining three years of service. Messrs. Panichella and Harris are vested in the SERP, but they are not retirement eligible.

The SERP benefit is payable in a lump sum and may be transferred to the Employees’ Deferral Plan. Distributions to the applicable named executive officers and certain other highly compensated participants cannot begin until six months after separation from service.

The SERP contains a non-compete provision. Any executive who, within a period of five years after his or her termination of employment, accepts a consulting or employment engagement that is in direct and substantial conflict with the business of Ashland will be deemed to have breached the SERP provisions. A breach in the SERP provisions requires the executive to reimburse Ashland for any distributed benefits and to forfeit benefits that have not yet been paid under the plan.

Ordinarily, years of service in addition to what is actually incurred are not granted. However, in the case of an acquisition, prior service with the acquired business is counted for purposes of vesting but not for calculating benefits under the SERP.

 

63


Table of Contents

Non-Qualified Deferred Compensation

The following table sets forth certain information for each of the named executive officers regarding non-qualified deferred compensation for fiscal 2012.

 

Name

(a)

   Executive
Contributions in
Last FY (1)
($)
(b)
     Registrant
Contributions in
Last FY
($)
(c)
     Aggregate
Earnings in
Last FY (2)
($)
(d)
     Aggregate
Withdrawals/
Distributions in
Last FY
($)
(e)
     Aggregate
Balance at
September 30,
2012
($)
(f)
 

J. J. O’Brien

     0         0         4,062,978         0         11,134,444   
              

L. M. Chambers

     314,466         0         875,290         8,776         3,657,822   
              

P. J. Ganz

     0         0         0         0         0   
              

J. E. Panichella

     0         0         7,242         0         227,999   
              

T. L. Harris

     11,308         0         72,537         0         549,873   

 

(1) The contributions for Mr. Chambers in column (b) relate to payment of fiscal 2011 incentive compensation paid in December 2011, which was included in prior Summary Compensation Tables, and for compensation paid in December 2011 related to the 2009-2011 LTIP payment. The contributions for Mr. Harris included in column (b) are also included in column (c) of the Summary Compensation Table in this proxy statement.

 

(2) Aggregate earnings are comprised of interest, dividends, capital gains and appreciation/depreciation of investment results. These earnings are not included in the Summary Compensation Table in this proxy statement.

Ashland Inc. Employees’ Deferral Plan

The Employees’ Deferral Plan is an unfunded, non-qualified deferred compensation plan for a select group of highly compensated employees. Participants may elect to have up to 50% of base pay and up to 100% of their incentive compensation and/or LTIP awards contributed to the plan. Elections to defer compensation must be made before the period for which the service relating to the particular kind of compensation is incurred.

Participants elect how to invest their account balances from among a diverse set of mutual fund offerings and a hypothetical Ashland Common Stock fund. No guaranteed interest or earnings are available and there are no above market rates of return on investments in the plan. Beginning October 1, 2000, investments in Ashland Common Stock units must remain so invested and must be distributed as Ashland Common Stock. In all other events, participants may freely elect to change their investments. Withdrawals are allowed for an unforeseeable emergency (single sum payment sufficient to meet the emergency), disability (lump sum payment), upon separation from employment (payable as lump sum or installments per election) and at a specified time (paid as single sum). In addition, for pre-2005 contributions, participants may elect to have withdrawals paid in a lump sum (subject to a penalty of up to 10%).

 

64


Table of Contents

Potential Payments upon Termination or Change in Control

The following table summarizes the estimated amounts payable to each named executive officer in the event of a termination from employment or change in control as of September 30, 2012. A narrative description follows the table. Different termination events are identified in columns (b)-(g). Column (a) enumerates the types of potential payments for each named executive officer. As applicable, each payment or benefit is estimated across the table under the appropriate column or columns.

These estimates are based on the assumption that the various triggering events occur on September 30, 2012, the last day of the 2012 fiscal year. Other material assumptions used in calculating the estimated compensation and benefits under each triggering event are noted below. The actual amounts that would be paid to a named executive officer upon certain terminations of employment or upon a change in control can only be determined at the time an actual triggering event occurs.

Potential Payments upon Termination or Change in Control Table

 

Name/Kinds of Payments

(a)

  Termination
prior to a
Change in
Control of
Company
without
Cause
($)
(b)
    Disability (6)
($)
(c)
    Voluntary
Resignation or
Involuntary
Termination
for Cause (7)
($)
(d)
    Retirement (8)
($)
(e)
    Change in
Control without
Termination (9)
($)
(f)
    Termination
after Change
in Control
of Company
without
Cause or
by Executive
for Good
Reason
($)
(g)
 

    J. J. O’Brien

           

Cash severance

    2,560,983        0        0        0        0        8,055,039   

Accelerated SARs (1)

    0        0        0        0        1,715,524        0   

Restricted stock

    0        0        0        0        0        0   

LTIP (2)

    7,907,181        7,907,181        0        7,907,181        7,907,181        2,818,499   

Incentive compensation (3)

    1,306,678        1,306,678        0        1,306,678        1,306,678        0   

Welfare benefit

    29,483        3,359,890        0        0        0        29,483   

Outplacement

    7,000        0        0        0        0        7,000   

Financial planning

    12,500        0        0        0        0        12,500   

280G excise tax gross-up (4)

    0        0        0        0        0        5,931,079   

Present value of retirement benefits (5)

    0        0        0        0        0        0   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

        Total

  $ 11,823,825      $ 12,573,749      $ 0      $ 9,213,859      $ 10,929,383      $ 16,853,600   
           

    L. M. Chambers

           

Cash severance

    895,051        0        0        0        0        2,158,901   

Accelerated SARs (1)

    0        0        0        0        357,850        0   

Restricted stock

    0        0        0        0        0        0   

LTIP (2)

    1,315,171        1,315,171        0        1,315,171        1,315,171        689,629   

Incentive compensation (3)

    450,882        450,882        0        450,882        450,882        0   

Welfare benefit

    29,524        1,155,943        0        0        0        29,524   

Outplacement

    7,000        0        0        0        0        7,000   

Financial planning

    7,500        0        0        0        0        7,500   

280G excise tax gross-up (4)

    0        0        0        0        0        1,404,394   

Present value of retirement benefits (5)

    0        0        0        0        0        0   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

        Total

  $ 2,705,128      $ 2,921,996      $ 0      $ 1,766,053      $ 2,123,903      $ 4,296,948   
           

 

65


Table of Contents

Name/Kinds of Payments

(a)

  Termination
prior to a
Change in
Control of
Company
without
Cause
($)
(b)
    Disability (6)
($)
(c)
    Voluntary
Resignation or
Involuntary
Termination for
Cause (7)
($)
(d)
    Retirement (8)
($)
(e)
    Change in
Control without
Termination (9)
($)
(f)
    Termination
after Change
in Control
of Company
without
Cause or
by Executive
for Good
Reason
($)
(g)
 

    P. J. Ganz

           

Cash severance

    739,774        0        0        0        0        1,662,274   

Accelerated SARs (1)

    0        0        0        0        0        0   

Restricted stock

    0        0        0        0        1,074,000        0   

LTIP (2)

    173,002        173,002        0        173,002        173,002        335,358   

Incentive compensation (3)

    315,392        315,392        0        315,392        315,392        0   

Welfare benefit

    26,687        1,465,081        0        0        0        26,687   

Outplacement

    7,000        0        0        0        0        7,000   

Financial planning

    5,000        0        0        0        0        5,000   

280G excise tax gross-up (4)

    0        0        0        0        0        0   

Present value of retirement benefits (5)

    0        0        0        0        0        0   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

        Total

    $1,266,855        $1,953,475        $0        $488,394        $1,562,394        $2,036,319   
           

    J. E. Panichella

           

Cash severance

    716,167        0        0        0        0        1,593,967   

Accelerated SARs (1)

    0        0        0        0        249,473        0   

Restricted stock

    0        0        0        0        3,580,000        0   

LTIP (2)

    756,612        756,612        0        756,612        756,612        353,188   

Incentive compensation (3)

    457,313        457,313        0        457,313        457,313        0   

Welfare benefit

    27,693        27,693        0        0        0        27,693   

Outplacement

    7,000        0        0        0        0        7,000   

Financial planning

    5,000        0        0        0        0        5,000   

280G excise tax gross-up (4)

    0        0        0        0        0        0   

Present value of retirement benefits (5)

    0        0        0        0        0        0   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

        Total

    $1,969,785        $1,241,618        $0        $1,213,925        $5,043,398        $1,986,848   
           

    T. L. Harris

           

Cash severance

    697,152        0        0        0        0        1,562,352   

Accelerated SARs (1)

    0        0        0        0        249,473        0   

Restricted stock

    0        0        0        0        1,539,400        0   

LTIP (2)

    756,612        756,612        0        756,612        756,612        353,188   

Incentive compensation (3)

    337,023        337,023        0        337,023        337,023        0   

Welfare benefit

    28,658        1,465,248        0        0        0        28,658   

Outplacement

    7,000        0        0        0        0        7,000   

Financial planning

    5,000        0        0        0        0        5,000   

280G excise tax gross-up (4)

    0        0        0        0        0        0   

Present value of retirement benefits (5)

    0        0        0        0        794,559        0   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

        Total

  $ 1,831,445      $ 2,558,883      $ 0      $ 1,093,635      $ 3,677,067      $ 1,956,198   

 

(1) A change in control without termination results in unvested SARs becoming immediately vested. See the Outstanding Equity Awards at Fiscal Year-End table in this proxy statement for the number of SARs outstanding for each named executive officer.

 

(2)

The LTIP amounts identified in all of the columns except for column (g) are based on the actual results for the fiscal 2010-2012 performance period and pro-rata payments of the LTIPs for the fiscal 2011-2013 and fiscal 2012-2014 performance periods at their respective targets. If one of the events represented by columns (b), (c) or (e) occurred, the pro-rata payments would be based on actual results, rather than target. However,

 

66


Table of Contents
  pursuant to the executive change in control agreement, in the event of a change in control without termination as of September 30, 2012 as reported in column (f), the calculation would be based on the actual results for the fiscal 2010-2012 performance period and the pro-rata target payment for the fiscal 2011-2013 and fiscal 2012-2014 performance periods. The amount identified in column (g) of this table for each named executive officer represents the LTIP units that are outstanding being paid at target, reduced by the amount the executive would receive as a result of a change in control identified in column (f).

 

(3) The amounts identified in the Incentive Compensation row of columns (b), (c) and (e) represent a payment of the fiscal 2012 annual incentive compensation based on actual results for the entire performance period pursuant to the change in control agreement. A change in control results in the payment of the annual incentive compensation based on target goals through the date of the change in control, and the annual incentive compensation remains outstanding subject to appropriate adjustments to reflect the transaction. The amounts identified in the Incentive Compensation row of column (f) reflect this payment, based on actual results for the fiscal year.

 

(4) Section 280G of the Code applies if there is a change in control of Ashland, compensation is paid to a named executive officer as a result of the change in control (“parachute payments”), and the present value of the parachute payments is 300% or more of the executive’s “base amount,” which equals the average W-2 income for the five-calendar-year period immediately preceding the change in control (e.g., 2008-2012 if the change in control occurs in 2013). If Section 280G applies, then the named executive officer is subject to an excise tax equal to 20% of the amount of the parachute payments in excess of the base amount (the “excess parachute payments”), in addition to income and employment taxes. Moreover, Ashland is denied a federal income tax deduction for the excess parachute payments. The amounts in the 280G Excise Tax Gross-Up row of columns (f) and (g) reflect a tax gross-up for the excise and related taxes, as required under the terms of the executive change in control agreements described below. The amounts are merely estimates based on the following assumptions: (i) an excise tax rate of 20% and a combined federal, state and local income and employment tax rate of 43%, (ii) a discount rate of 0.25%, and (iii) no amounts were allocated to the non-solicitation or non-competition covenants contained in the executive change in control agreements.

 

(5) The present value of each applicable named executive officer’s total retirement benefits as of September 30, 2012 (absent a change in control) is in the Pension Benefits table to this proxy statement. The account balances for each named executive officer as of September 30, 2012 in the Employees’ Deferral Plan are identified in the Non-Qualified Deferred Compensation table to this proxy statement.

 

     A change in control results in an additional three years of age and service being credited to the calculation of each named executive officer’s benefit under the SERP. The present value of this incremental additional benefit is identified in the Present Value of Retirement Benefits row of this table in column (f) for the applicable named executive officer. Messrs. O’Brien, Chambers and Panichella gain no incremental additional benefit under the SERP. Mr. Harris gains a benefit from the additional age and service because (1) he has less than the 20 years necessary for a full SERP benefit, therefore, the additional service brings him closer to a full SERP benefit; (2) the change in control makes it possible that he will be eligible for immediate retirement in the event of termination without cause or for good reason, thereby eliminating any discount; and (3) the additional age and service does not apply to the calculation of the Pension Plan and Excess Plans benefits. Mr. Ganz is not eligible to participate in the Pension Plan, the Excess Plans or the SERP.

 

(6)

For purposes of column (c), it is assumed that the named executive officer incurred a disabling event on September 30, 2012. The amounts in the Welfare Benefit row for column (c) represent the present value of the disability payments available under a supplemental Long Term Disability Plan for the incremental benefit above what would be payable under the generally available Long Term Disability Plan. No pre-retirement mortality assumption applies and the interest rate used is 8.01%. Subject to coordination with other income received while disabled, the Long Term Disability Plan provides a benefit equal to 60% of base compensation. The compensation covered by the plan is limited in 2012 to $10,000 per month. If the

 

67


Table of Contents
  named executive officer died, his beneficiaries would receive the same accelerated vesting of the LTIP award as the named executive officer would in the event of disability. The named executive officers also participate in a group variable universal life plan (GVUL) that is available to certain highly compensated employees. In the event of death, the executive receives the same benefits as identified with regard to disability in addition to the face amount of the policy plus their own invested amounts. For Messrs. O’Brien, Chambers, Ganz, Panichella and Harris, respectively, the death benefits as of September 30, 2012 would be: $1,000,000, $1,049,500, $500,000, $500,000 and $2,230,400, respectively.

 

(7) Ashland does not maintain any plans or arrangements that would provide additional or enhanced benefits to the named executive officers solely as a result of a voluntary termination.

 

(8) The requirements for retirement and receiving benefits under the retirement plans are described under the Pension Benefits table to this proxy statement.

 

(9) Under the Employees’ Deferral Plan, in an event of a change in control, the named executive officers will receive an automatic lump sum distribution of the benefit for deferrals made before January 1, 2005. Deferrals made on or after January 1, 2005 will not be automatically distributed upon a change in control, but rather will be distributed pursuant to each employee’s election and valued at the time of the distribution. To the extent that an executive’s account is invested in hypothetical shares of Ashland Common Stock, those shares would be valued at the highest price for which Ashland Common Stock closed during the 30 days preceding the change in control.

Severance Pay Plan

The named executive officers are covered by the Severance Pay Plan that provides benefits in the event of a covered termination from employment in absence of a change in control. A termination for which benefits under the plan will be considered include those directly resulting from the permanent closing of a facility, job discontinuance, or other termination at Ashland’s initiative for which Ashland elects to provide benefits. Certain terminations are excluded from coverage by the Severance Pay Plan (for example, refusal to sign a severance agreement and release; discharge for less than effective performance, absenteeism or misconduct; or voluntary resignation).

In order for any executive to receive benefits and compensation payable under the Severance Pay Plan, the executive must agree to a general release of liability which relates to the period of employment or termination. In addition, the executive must agree to refrain from engaging in competitive activity against Ashland and refrain from soliciting persons working for Ashland, soliciting customers of Ashland or otherwise interfering with Ashland’s business for a period of 24 months following the termination. The executive must also agree not to disclose Ashland’s confidential information.

The benefit payable under the Severance Pay Plan to the Chief Executive Officer is 104 weeks of base pay and for all other named executive officers is 78 weeks of base pay. Payments will be made as payroll continuation in bi-weekly increments if the executive is retirement eligible (or would be at the end of the payroll continuation period). If the executive is not retirement eligible or paying the benefit as payroll continuation will not make the executive retirement eligible, the benefit is paid as a lump sum. Payment of such amounts may be subject to a six-month deferral in order to comply with §409A of the Code.

Any executive who receives payroll continuation may also remain in the medical, dental, vision, group life and pension plans for the executive’s benefit continuation period. The benefit continuation period in that case is two weeks for each completed year of service, with a maximum of 52 weeks. Any executive who receives a lump sum severance benefit will be eligible to elect COBRA continuation of coverage at active employee rates for a period of three months.

 

68


Table of Contents

Executive Change in Control Agreements

The named executive officers and certain other executives have change in control agreements with Ashland. These agreements describe the payments and benefits to which an executive is entitled if terminated after a change in control of Ashland.

If within two years after a change in control (see the Definitions section below) an executive’s employment is terminated without cause or the executive terminates employment for good reason (see the Definitions section below), the executive is entitled to the following:

 

   

For the Chief Executive Officer, payment of three times the sum of his highest annual base compensation and highest target percentage annual incentive compensation in respect of the prior three fiscal years preceding the fiscal year in which the termination occurs in a lump sum paid in the seventh month following termination;

 

   

For the other named executive officers, payment of two times the sum of his highest annual base compensation and highest target percentage annual incentive compensation in respect of the prior three fiscal years preceding the fiscal year in which the termination occurs in a lump sum paid in the seventh month following termination;

 

   

Continued participation in Ashland’s medical, dental and group life plans through December 31 of the second calendar year following the calendar year in which the executive was terminated;

 

   

Full payment at target in cash of any LTIP awards existing at the executive’s termination (less any amounts already paid under the LTIP plan because of the change in control);

 

   

Payment in cash of all prior existing incentive compensation not already paid and pro-rata payment of any incentive compensation for the fiscal year in which the executive terminates at target level;

 

   

Outplacement services and financial planning services for one year after termination;

 

   

Payment of all unused, earned and accrued vacation in a lump sum in the seventh month following termination; and

 

   

Immediate vesting of all outstanding restricted stock, stock options and SARs.

As a condition to receiving the benefits and compensation payable under the agreement, each executive has agreed for a period of 24 months following the termination, absent prior written consent of Ashland’s General Counsel, to refrain from engaging in competitive activity against Ashland; and to refrain from soliciting persons working for Ashland, soliciting customers of Ashland or otherwise interfering with Ashland’s business relationships. Pursuant to the agreement, each executive has also agreed not to disclose confidential information. If an executive breaches the agreement, Ashland has the right to recover benefits that have been paid to the executive. Finally, an executive may recover legal fees and expenses incurred as a result of Ashland’s unsuccessful legal challenge to the agreement or the executive’s interpretation of the agreement.

In addition, each agreement with a named executive officer entered into prior to August 2009 provides a “gross-up” for excise and related taxes in the event (and to the extent) the severance compensation and other payments or distributions to a named executive officer, whether pursuant to an employment agreement, stock option, SAR, restricted stock, LTIP award or otherwise would constitute “excess parachute payments,” as defined in Section 280G of the Code. In the event the aggregate parachute value of all severance and other change in control payments to the named executive officer does not exceed the greater of (i) the maximum amount that may be paid under Section 280G of the Code without the imposition of an excise tax plus $50,000; or (ii) 110% of such maximum amount, the named executive officer’s payments under the agreement will be reduced to the extent necessary to avoid imposition of the excise tax on “excess parachute payments.”

 

69


Table of Contents

Change in control agreements entered into with executives after July 2009 do not include a provision for the “gross-up” of excise and related taxes.

Definitions

“Cause” is any of the following:

 

   

Willfully failing to substantially perform duties after a written demand for such performance (except in the case of disability);

 

   

Willfully engaging in gross misconduct demonstrably injurious to Ashland after a written request to cease such misconduct; or

 

   

Conviction or plea of nolo contendre for a felony involving moral turpitude.

To be terminated for cause, the Board of Directors must pass a resolution by three quarters vote finding that the termination is for cause.

“Good reason” includes any of the following that occurs after a change in control:

 

   

Adverse change in position, duties or responsibilities;

 

   

Reduction to base salary;

 

   

Failure to continue incentive plans, whether cash or equity, or any other plan or arrangement to receive Ashland securities; or

 

   

Material breach of the executive change in control agreement or a failure to assume such agreement.

“Change in control” is a complex definition, but may be summarized to include any of the following:

 

   

The consolidation or merger of Ashland into an unrelated entity in which the former Ashland shareholders own less than 50% of the outstanding shares of the new entity, except for a merger under which the shareholders before the merger have substantially the same proportionate ownership of shares in the entity immediately after the merger;

 

   

The sale, lease, exchange or other transfer of 80% or more of Ashland’s assets;

 

   

A shareholder approved liquidation or dissolution;

 

   

The acquisition of 25% or more of the outstanding shares of Ashland by an unrelated person without approval of the Board; or

 

   

Changes to Ashland’s Board during two consecutive years that result in a majority of the Board changing from its membership at the start of such two consecutive year period, unless two-thirds of the remaining Directors at the start of such two consecutive year period voted to approve such changes.

 

70


Table of Contents

SARs/Stock Options, Incentive Compensation, Restricted Stock and LTIPs

The following table summarizes what may happen to SARs, stock options, incentive compensation, restricted stock and LTIP grants upon termination from employment; death; disability or retirement; or in the event of a change in control.

 

    

Termination from
Employment*

  

Death, Disability or
Retirement*

  

Change in Control

SARs/Stock Options

   Termination within one year of grant results in forfeiture; otherwise lesser of 30 days or the exercise period within which to exercise the vested SARs/stock options    May exercise during the remainder of the exercise period    Immediately vest

Incentive

Compensation

   In general, termination before payment results in forfeiture. Pro-rata payment based on actual achievement for entire performance period if terminated prior to a change in control without “cause”    Pro-rata payment based on actual achievement for entire performance period    Accelerate the performance period and pay based on actual achievement through the date of the change in control

Restricted Stock

   Termination before vesting results in forfeiture    Occurrence of event before payment results in forfeiture    Immediately vest

LTIP

   In general, termination before payment results in forfeiture. Pro-rata payment based on actual achievement for entire performance period if terminated prior to a change in control without “cause”    Pro-rata payment based on actual achievement for entire performance period    Accelerate the performance period and pay based on actual achievement for the period through the date of the change in control

 

 

* P&C Committee has discretion to accelerate vesting of these benefits.

For purposes of the above table, the term “change in control” is defined in the applicable plan and has substantially the same meaning as it does in the executive change in control agreements.

SERP, Excess Plans, Qualified Pension Plan and Employees’ Deferral Plan

For payments and benefits under the SERP, the Excess Plans and the qualified Pension Plan, except in the event of a change in control, see the Pension Benefits table and the narrative thereunder in this proxy statement. For payments and benefits under the Employees’ Deferral Plan, except in the event of a change in control, see the Non-Qualified Deferred Compensation table and the narrative thereunder in this proxy statement.

 

71


Table of Contents

The SERP contains a non-compete provision. Any executive who, within a period of five years after his or her termination of employment, accepts a consulting or employment engagement that is in direct and substantial conflict with the business of Ashland will be deemed to have breached the SERP provisions. A breach of the SERP provisions requires the executive to reimburse Ashland for any distributed benefits and to forfeit benefits that have not yet been paid under the plan.

After a Change in Control

The term “change in control” is defined in the applicable plan and has substantially the same meaning as it does in the executive change in control agreements.

The occurrence of a change in control under the SERP for the applicable named executive officers has the following consequences: <