DEF 14A 1 ddef14a.htm NOTICE AND PROXY STATEMENT Notice and Proxy Statement
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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-11(c) or 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:


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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 3, 2010

 

Dear Ashland Inc. Shareholder:

On behalf of your Board of Directors and management, I am pleased to invite you to attend the 2011 Annual Meeting of Shareholders of Ashland Inc. The meeting will be held on Thursday, January 27, 2011, 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. Whether or not you plan to attend the meeting, we encourage you to vote promptly, following the instructions on your Proxy Card.

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

Sincerely,

LOGO

James J. O’Brien

 


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Ashland Inc.

 

 

NOTICE OF ANNUAL MEETING OF SHAREHOLDERS

 

 

To be held January 27, 2011

To our Shareholders:

Ashland Inc. will hold its Annual Meeting of Shareholders on Thursday, January 27, 2011, 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 three directors to Class I: Kathleen Ligocki, James J. O’Brien and Barry W. Perry;

 

  (2) To ratify the appointment of PricewaterhouseCoopers LLP as independent registered public accountants for fiscal 2011;

 

  (3) To approve the 2011 Ashland Inc. Incentive Plan;

 

  (4) To approve the compensation of the named executive officers as disclosed in this proxy statement pursuant to Item 402 of Regulation S-K under the Securities Act of 1933, as amended, and the Securities Exchange Act of 1934, as amended (the “Exchange Act”);

 

  (5) To determine whether the shareholder vote to approve the compensation of the named executive officers as required by Section 14A(a)(2) of the Exchange Act should occur every one, two or three years; and

 

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

Only shareholders of record at the close of business on December 1, 2010, are entitled to vote at the Annual Meeting or any adjournment of that meeting. Your vote will constitute voting instructions to the applicable Trustee of the respective plan for the shares held in your account 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”) or the Hercules Incorporated Savings and Investment Plan (the “SIP”).

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. Our proxy tabulator, Corporate Election Services, or its agent, must receive all voting instructions to the Trustee of the Employee Savings Plan, the LESOP and the SIP whether given by telephone, over the Internet or by mail, before 6:00 a.m. (EST) on Tuesday, January 25, 2011.

By Order of the Board of Directors,

LINDA L. FOSS

Assistant General Counsel

and Corporate Secretary

Covington, Kentucky

December 3, 2010


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Table of Contents

 

     Page  

Questions and Answers about the 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 2011 Annual Meeting

     9   

Continuing Directors Not Up for Election at the 2011 Annual Meeting

     12   

Compensation of Directors

     19   

Director Compensation Table

     19   

Annual Retainer

     20   

Restricted Shares/Units

     20   

Stock Ownership Guidelines for Directors

     21   

Corporate Governance

     22   

Governance Principles

     22   

Board Leadership Structure

     22   

Board’s Role of Risk Oversight

     23   

Director Independence and Certain Relationships

     23   

Related Person Transaction Policy

     24   

Communication with Directors

     25   

Attendance at Annual Meeting

     25   

Executive Sessions of Directors

     25   

Shareholder Recommendations for Directors

     25   

Shareholder Nominations of Directors

     26   

Committees and Meetings of the Board of Directors

     27   

Personnel and Compensation Committee Interlocks and Insider Participation

     29   

Executive Compensation

     30   

Compensation Discussion and Analysis

     30   

Executive Summary

     30   

Principles and Objectives of Ashland’s Executive Compensation Program

     32   

Oversight of Ashland’s Executive Compensation Program

     32   

Factors Considered in Determining Executive Compensation

     35   

Elements of Ashland’s Executive Compensation Program

     37   

Pay Mix

     38   

Risk Assessment

     47   

Executive Compensation Recovery “Clawback” Policy

     48   

Retirement Benefits

     48   

Health and Welfare Benefits

     49   

Executive Perquisites

     49   

Severance Pay Plan

     49   

Change in Control Agreements

     49   

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   


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     Page  

Pension Benefits

     59   

Nonqualified 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 the 2011 Ashland Inc. Incentive Plan—Item 3

     76   

Equity Compensation Plan Information

     84   

Approval of the Compensation of the Named Executive Officers—Item 4

     85   

Frequency of the Shareholder Vote on Executive Compensation—Item 5

     87   

Miscellaneous

     88   

Section 16(a) Beneficial Ownership Reporting Compliance

     88   

Proxy Solicitation Costs

     88   

Shareholder Proposals for the 2012 Annual Meeting

     88   

Other Matters

     89   

Appendix A—2011 Ashland Inc. Incentive Plan

     A-1   


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ASHLAND INC.

PROXY STATEMENT

QUESTIONS AND ANSWERS ABOUT THE ANNUAL MEETING

 

Q: What am I voting on?

 

A:   (1)   Election of three directors to Class I: Kathleen Ligocki, James J. O’Brien and Barry W. Perry;
  (2)   Ratification of PricewaterhouseCoopers LLP (“PwC”) as Ashland’s independent registered public accountants for fiscal 2011;
  (3)   Approval of the 2011 Ashland Inc. Incentive Plan (“2011 Incentive Plan”);
  (4)   Approval of the compensation of the named executive officers as disclosed in this proxy statement pursuant to Regulation S-K under the Securities Act of 1933, as amended (the “Securities Act”), and the Securities and Exchange Act of 1934, as amended (the “Exchange Act”); and
  (5)   Whether the shareholder vote to approve the compensation of the named executive officers as required by the Exchange Act should occur every one, two or three years.

 

Q: Who may vote at the Annual Meeting?

 

A: Shareholders of Ashland Inc. (“Ashland” or the “Company”) at the close of business on December 1, 2010 (the “Record Date”), are entitled to vote at the Annual Meeting. As of the Record Date, there were 78,907,301 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 nominee (e.g., through a bank or broker), you will need to bring a proxy or letter from that nominee that confirms you are the beneficial owner of those shares.

 

Q: When will the proxy statement and proxy card be mailed to Ashland shareholders?

 

A: The proxy statement and proxy card will be mailed to Ashland shareholders on or about December 10, 2010.

 

Q: How do I vote?

 

A: If your shares are registered in the name of a nominee, follow the instructions provided by your nominee to vote your shares. If your shares are registered in your name:

You may vote in person at the Annual Meeting. You may obtain directions to the Annual Meeting in order to vote in person by calling Ashland’s Investor Relations department at 859-815-4454.

You may vote by telephone. You may vote by telephone regardless of whether you receive your Annual Meeting materials through the mail or over the Internet. Simply follow the instructions on your proxy card or electronic access notification. If you vote by telephone, you should not vote over the Internet or mail in your proxy card.

You may vote over the Internet. You may vote over the Internet regardless of whether you receive your Annual Meeting materials through the mail or over the Internet. Simply follow the instructions on your proxy card or electronic access notification. If you vote over the Internet, you should not vote by telephone or mail in your proxy card.

You may vote by mail. If you received a proxy card through the mail, simply complete and sign your proxy card and mail it in the enclosed prepaid and addressed envelope. If you mark your voting instructions on the proxy card, your shares will be voted as you instruct.

 

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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 signed and returned proxy card, James J. O’Brien or Linda L. Foss, as individuals named on the proxy card, will vote (i) FOR the election of the three director nominees, (ii) FOR the ratification of PwC, (iii) FOR the approval of the 2011 Incentive Plan, (iv) FOR the approval of the compensation of the named executive officers as disclosed in this proxy statement pursuant to Regulation S-K under the Securities Act and the Exchange Act, and (v) for the shareholder vote to approve the compensation for the named executive officers as required by the Exchange Act to occur every THREE years.

 

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 Corporate Secretary in writing, (b) returning a later-dated proxy card, or (c) entering a later-dated telephone or Internet vote; or (2) voting in person at the Annual Meeting. However, any changes or revocations of voting instructions to the Trustee of the Ashland Inc. Employee Savings Plan (the “Employee Savings Plan”), the Ashland Inc. Leveraged Employee Stock Ownership Plan (the “LESOP”) and the Hercules Incorporated Savings and Investment Plan (the “SIP”) must be received by our proxy tabulator, Corporate Election Services (“CES”), before 6:00 a.m. (EST) on Tuesday, January 25, 2011.

 

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 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 or the SIP. Additionally, your proxy card includes shares in the dividend reinvestment plan administered by Computershare Trust Company, N.A. (“Computershare”) for investors in Ashland Common Stock (the “DRP”). If your shares are held through a nominee, you will receive either a voting instruction form or a proxy card from the nominee to vote your shares.

 

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 Computershare, the plan sponsor and administrator, in accordance with your voting instructions.

 

Q: How will the Trustees of the Employee Savings Plan, the LESOP and the SIP vote?

 

A: Each participant in the Employee Savings Plan, the LESOP or the SIP will instruct the applicable 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 but for which voting instructions are not timely received by the Trustee and, in the case of the SIP, this instruction also applies to a proportionate number of those shares of Ashland Common Stock that are not allocated to participant accounts. 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 plans under the Employee Retirement Income Security Act of 1974, as amended (“ERISA”). Your vote must be received by our proxy tabulator, CES, before 6:00 a.m. (EST) on Tuesday, January 25, 2011.

 

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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 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, Pittsburgh, PA 15230. Participants in the SIP, however, cannot direct that the Non-Directed shares be voted differently from the shares in their accounts.

 

Q: What constitutes a quorum?

 

A: As of the Record Date, 78,907,301 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 2011 Ashland Inc. Incentive Plan—The 2011 Incentive Plan will be approved if the votes cast in its favor exceed votes cast against it.
  (4)   Approval of the compensation of the named executive officers—The advisory vote regarding the compensation of the named executive officers as disclosed in this proxy statement pursuant to Item 402 of Regulation S-K under the Securities Act and the Exchange Act will be approved if the votes cast in its favor exceed votes cast against it.
  (5)   Frequency of the shareholder vote on executive compensation—The advisory vote regarding the frequency of the shareholder vote to approve the compensation of the named executive officers as required by Section 14A(a)(2) of the Exchange Act will be determined by a plurality of the votes cast.

 

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 being considered passes.

 

Q: What happens if other matters come up during the meeting?

 

A: If matters other than those referred to in this proxy statement properly come before the meeting, the individuals named on the proxy card will vote the proxies held by them in accordance with their best judgment. Ashland is not aware of any business other than the items referred to in this proxy statement and in the proxy card that may be considered at the Annual Meeting.

 

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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 Securities and Exchange Commission (the “SEC”) no later than February 2, 2011. 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.

 

Q: May I receive future shareholder communications over the Internet?

 

A: Yes. You may consent to access future shareholder communications (e.g., annual reports, proxy statements and interim communications) from us or on our behalf over the Internet instead of receiving those documents in the mail. Providing such communications over the Internet will reduce our printing and postage costs and the number of paper documents you would otherwise receive. If you give your consent, in the future, when, and if, material is available over the Internet, you will receive notification that will contain the Internet location of the material. There is no cost to you for this service other than charges you may incur from your Internet, telephone and/or cable provider. Once you give your consent, it will remain in effect until you inform us otherwise. To give your consent, if your shares are registered in your name, follow the prompts when you vote by telephone or over the Internet or check the appropriate box located at the bottom of the proxy card when you vote by mail. If your shares are registered in the name of a nominee, follow the directions provided by such nominee if this option is available.

Important Notice regarding the availability of Proxy Materials for the Annual Meeting to be held on January 27, 2011. This proxy statement and Ashland’s 2010 Annual Report to Shareholders are available at www.ashland.com/proxy.

 

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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, 2010.

 

Name and Address of Beneficial Owner

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

BlackRock, Inc.

     13,001,512  (1)      16.50

40 East 52nd Street

    

New York, New York 10022

    

Fidelity Management Trust Company

     5,518,491  (2)      7.00

82 Devonshire Street

    

Boston, Massachusetts 02109

    

FMR LLC

     5,215,109  (3)      6.62

82 Devonshire Street

    

Boston, Massachusetts 012109

    

LSV Asset Management

     4,052,218  (4)      5.14

155 N. Wacker Drive

    

Suite 4600

    

Chicago, IL 60606

    

 

* Based on 78,808,794 shares of Ashland Common Stock outstanding as of September 30, 2010.

 

(1) Based upon information contained in the Schedule 13G/A filed by BlackRock, Inc. (“BlackRock”) with the SEC on May 10, 2010, BlackRock beneficially owned 13,001,512 shares of Ashland Common Stock as of April 30, 2010, with sole voting power over 13,001,512 shares, shared voting power over no shares and sole dispositive power over 13,001,512 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 (Luxembourg) S.A.; Blackrock (Netherlands) B.V.; BlackRock Fund Managers Ltd; BlackRock International Ltd; BlackRock Investment Management UK Ltd; and State Street Research & Management Co.

 

(2) As of September 30, 2010, Fidelity Management Trust Company (“FMT”) was the record owner of 5,518,491 shares of Ashland Common Stock. These shares include 2,583,031 shares held by it as Trustee of the LESOP and 2,935,460 shares held by it as Trustee of the Employee Savings Plan. FMT will vote shares allocated to a participant’s LESOP and Employee Savings Plan account as instructed by the participant. This instruction also applies to a proportionate number of those shares of Ashland Common Stock allocated to participants’ accounts but for which voting instructions are not timely received by the Trustee. FMT disclaims beneficial ownership of these shares.

 

(3) Based upon information contained in the Schedule 13G/A filed by FMR LLC (“FMR”) with the SEC on February 16, 2010, FMR beneficially owned 5,215,109 shares of Ashland Common Stock as of December 31, 2009, with sole voting power over 1,202,384 shares, shared voting power over no shares, no voting power over 4,012,725 shares and sole dispositive power over 5,215,109 shares. FMR reported its beneficial ownership on behalf of itself and its direct and indirect subsidiaries and affiliates as follows: (i) 3,942,985 shares owned by Fidelity Management & Research Company; (ii) 64 shares owned by Strategic Advisers, Inc.; (iii) 45,100 shares owned by Pyramis Global Advisors, LLC; (iv) 351,620 shares owned by Pyramis Global Advisors Trust Company; and (v) 875,340 shares owned by FIL Limited.

 

(4) Based upon information contained in the Form 13F filed by LSV Asset Management (“LSV”) with the SEC on November 15, 2010, LSV beneficially owned 4,052,218 shares of Ashland Common Stock as of September 30, 2010, with sole voting authority over 2,565,520 shares, shared voting power over no shares, no voting authority over 1,486,698 shares and sole dispositive power over all of the 4,052,218 shares.

 

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ASHLAND COMMON STOCK OWNERSHIP OF DIRECTORS

AND EXECUTIVE OFFICERS OF ASHLAND

The following table shows as of October  29, 2010, 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

     477,077       (1)(2)(3)

Lamar M. Chambers

     118,369       (1)(2)(3)(4)

Samuel J. Mitchell

     101,237       (1)(2)(3)(4)

David L. Hausrath

     77,127       (1)(2)(3)

John E. Panichella

     62,841       (1)(3)(4)

Roger W. Hale

     44,594       (2)(3)(5)(6)

Bernadine P. Healy

     51,424       (2)(3)(5)

Kathleen Ligocki

     63,535       (2)(3)(5)

Vada O. Manager

     16,209       (2)(5)

Barry W. Perry

     17,306       (2)(5)

Mark C. Rohr

     20,282       (2)(5)

George A. Schaefer, Jr.

     36,516       (2)(3)(5)

Theodore M. Solso

     64,968       (2)(3)(5)

John F. Turner

     17,306       (2)(5)

Michael J. Ward

     58,690       (2)(3)(5)

All directors and executive officers as a group (22 people)

     1,452,473       (1)(2)(3)(4)(5)(6)  

 

None of the listed individuals owned more than 1% of Ashland’s Common Stock outstanding as of the Record Date. All directors and executive officers as a group owned 1,452,473 shares of Ashland Common Stock, which equaled 1.4% of the Ashland Common Stock outstanding on the Record Date. Shares deemed to be beneficially owned are included in the number of shares of Ashland Common Stock outstanding on the Record Date 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, the LESOP and the SIP by executive officers. Participants can vote the Employee Savings Plan, the LESOP and the SIP shares, and can invest in numerous investment options available under the Employee Savings Plan and the SIP.

 

  (2) Includes stock and/or restricted stock units (share equivalents) held by executive officers in the Ashland Common Stock fund under Ashland’s nonqualified deferred compensation plans for employees or by directors under the nonqualified deferred compensation plans for non-employee directors (the “Directors’ Deferral Plan”): as to Mr. O’Brien, 134,495 units; as to Mr. Chambers, 25,118 units; as to Mr. Mitchell, 32,151 units; as to Mr. Hausrath, 21,961 units; as to Mr. Hale, 26,060 units; as to Dr. Healy, 25,866 units; as to Ms. Ligocki, 28,083 units; as to Mr. Manager, 14,392 units; as to Mr. Perry, 16,306 units; as to Mr. Rohr, 14,282 units; as to Mr. Schaefer, 16,306 units; as to Mr. Solso, 50,056 units; as to Mr. Turner, 16,306 units; as to Mr. Ward, 44,778 units; and as to all directors and executive officers as a group, 486,649 units.

 

  (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 29, 2010, through the exercise of stock options or stock appreciation rights (“SARs”): as to Mr. O’Brien, 222,456 shares through SARs; as to Mr. Chambers, 14,429 shares through options and 42,606 shares through SARs; as

 

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to Mr. Mitchell, 19,375 shares through options and 25,820 shares through SARs; as to Mr. Hausrath, 36,804 shares through SARs; as to Mr. Panichella, 11,802 shares through SARs; as to Dr. Healy, 20,036 shares through options; as to Messrs. Hale and Schaefer, 16,474 shares through options; as to Messrs. Solso, Ward and Ms. Ligocki, 12,912 shares through options; and as to all directors and executive officers as a group, 125,344 shares through options and 394,162 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 Composite Tape (“NYSE”) on October 29, 2010. All SARs are stock settled and not issued in tandem with an option.

 

  (4) Includes restricted shares of Ashland Common Stock: as to Mr. Chambers, 9,000 shares; as to Mr. Mitchell, 20,000 shares; as to Mr. Panichella, 50,000 shares; and as to all executive officers as a group, 193,131 shares.

 

  (5) Includes 1,000 restricted shares of Ashland Common Stock for each of the non-employee directors.

 

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

 

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ITEMS TO BE VOTED ON BY SHAREHOLDERS

ELECTION OF DIRECTORS

Item 1

Board of Directors

The Board of Directors is currently made up of eleven directors, divided into three classes. The three individuals nominated for election as Class I directors at the Annual Meeting are Kathleen Ligocki, James J. O’Brien and Barry W. Perry. The nominees to Class I will be elected to serve a three-year term until the 2014 Annual Meeting. The Governance and Nominating Committee (“G&N Committee”) has confirmed that all three nominees will be available to serve as directors upon election and recommends that shareholders vote for them at the Annual Meeting. Bernadine P. Healy, M.D., currently a Class I director, has decided after twelve years of service on Ashland’s Board that she will not stand for election, but she will continue to serve out her term which expires at the Annual Meeting. Upon Dr. Healy’s retirement from the Board, it is the intention of the Board to fix the number of directors at ten members, subject to increase or decrease pursuant to Ashland’s By-laws.

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 within ten days following the certification of the shareholder vote for consideration by the Board of Directors. 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. Kathleen Ligocki, James J. O’Brien and Barry W. Perry, the three nominees to Class I, 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 Linda L. Foss (proxies named on the proxy card) will vote FOR the three 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 returning nominees would not be able to serve as a director if elected.

The Board of Directors recommends a vote FOR Kathleen Ligocki, James J. O’Brien and Barry W. Perry for election as Class I directors at the 2011 Annual Meeting.

 

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Nominees for Election at the 2011 Annual Meeting

Class I Directors

(Term expiring in 2014)

 

LOGO

 

Kathleen Ligocki

 

Chief Executive Officer of Next Autoworks Company

Director since 2004

Committees:

•  Chair, Environmental, Health and Safety

•  Audit

•  Personnel and Compensation

Age: 54

  

Professional Experience:

 

Ms. Ligocki is Chief Executive Officer and a Director of Next Autoworks Company. She is also a principal in Pine Lake Partners, Inc., a consulting firm focused on turnarounds and start-up companies. Ms. Ligocki served as Chief Executive Officer of GS Motors, a subsidiary of a large conglomerate based in Mexico City from 2007-2010. Prior to these positions, she served as President, Chief Executive Officer and a Director of Tower Automotive, Inc. from August 2003 to August 2007. Tower Automotive filed to reorganize under Chapter 11 of the U.S. Bankruptcy Code in February 2005, and on July 31, 2007 emerged from Chapter 11 when substantially all of its assets were purchased by an affiliate of Cerberus Capital Management, L.P. Prior to joining Tower Automotive, Ms. Ligocki worked at 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.

 

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 a current Chief Executive Officer and former 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.

 

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Nominees for Election at the 2011 Annual Meeting (continued)

 

LOGO

 

James J. O’Brien

 

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

Director since 2002

Age: 56

  

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.

 

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. Mr. O’Brien also serves on the national Board of Directors of Big Brothers/Big Sisters. He is Chairman of the Board of Trustees for Midway College in Kentucky and a member 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 another public company.

 

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Nominees for Election at the 2011 Annual Meeting (continued)

 

LOGO

 

Barry W. Perry

 

Former Chairman and Chief Executive Officer of Englehard Corporation

Director since 2007

Lead Independent Director

Committees:

•  Environmental, Health and Safety

•  Governance and Nominating

•  Personnel and Compensation

Age: 64

  

Professional Experience:

 

Mr. Perry served as Chairman and Chief Executive Officer of Englehard Corporation from January 2001 to June 2006. Prior to this position, he held various management positions with Englehard Corporation beginning in 1993. From 1991 to 1993, Mr. Perry was a Group Vice President of Rhone-Poulene. Prior to joining Rhone-Poulene, 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 Committee; Cookson Group PLC, where he serves on the Audit and Compensation Committees; and Albemarle Corporation, where he serves on the Audit and the Health, Science and Environmental Committees.

 

Director Qualifications:

 

As the former 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 board of directors of other public companies.

 

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Continuing Directors Not Up for Election at the 2011 Annual Meeting

Class II Directors

(Term expiring in 2012)

 

LOGO

 

Roger W. Hale

 

Independent Consultant

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

Director since 2001

Committees:

•  Finance

•  Governance and Nominating

Age: 67

  

Professional Experience:

 

Mr. Hale is currently acting as 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 is the Chairman of the Compensation Committee and a member of the Governance and Public Policy Committee and the Science, Technology and Quality Committee.

 

During 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 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.

 

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Continuing Directors Not Up for Election at the 2011 Annual Meeting (continued)

 

LOGO

 

Vada O. Manager

 

Independent Global Consultant

Former Senior Director of Global Issues Management for Nike, Inc.

Director since 2008

Committees:

•  Audit

•  Finance

•  Personnel and Compensation

Age: 49

  

Professional Experience:

 

Mr. Manager is currently an independent global consultant. He served as the Senior Director of Global Issues Management for Nike, Inc., from 2006 until March 2009, and 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 Arts degree in political science from Arizona State University and performed graduate work at the London School of Economics.

 

Director Qualifications:

 

As a consultant and former 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.

 

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Continuing Directors Not Up for Election at the 2011 Annual Meeting (continued)

 

LOGO

 

George A. Schaefer, Jr.

 

Former Chairman and Chief Executive Officer of Fifth Third Bancorp

Director since 2003

Committees:

•  Chair, Audit

•  Finance

Age: 65

  

Professional Experience:

 

Mr. Schaefer served as Chairman of the Board of Directors of Fifth Third Bancorp headquartered in Cincinnati, Ohio until June 2008. Prior to this position, he held several executive positions with Fifth Third, 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.

 

Non-Profit Boards:

 

Mr. Schaefer is a member of the Board of Trustees of the University of Cincinnati Foundation, a Trustee for the University of Cincinnati Medical School Advisory Board and a Director of U.C. Physicians.

 

Director Qualifications:

 

As a former 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.

 

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Continuing Directors Not Up for Election at the 2011 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: 68

  

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.

 

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 Compensation and Nominating and Corporate Governance Committees; International Paper Company, where he chairs the Public Policy and Environment Committees and serves on the Governance Committee; and American Electric Power Company, Inc., where he is a member of the Audit 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.

 

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.

 

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Continuing Directors Not Up for Election at the 2011 Annual Meeting (continued)

 

 

  

Class III Directors

(Term expiring in 2013)

LOGO

 

Mark C. Rohr

 

Chairman of the Board and Chief Executive Officer of Albemarle Corporation

Director since 2008

Committees:

•  Audit

•  Environmental, Health and Safety

Age: 59

  

Professional Experience:

 

Mr. Rohr is Chairman of the Board and Chief Executive Officer of Albemarle Corporation. Prior to this position, he held several executive positions with Albemarle, including President and Chief Operating Officer. Before joining Albemarle, he served with Occidental Chemical Corp. 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:

 

Mr. Rohr is Presiding Director of Celanese Corp., where he is Chairman of the Nominating and Corporate Governance Committee and a member of the Environmental, Health and Safety Committee.

 

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 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.

 

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Continuing Directors Not Up for Election at the 2011 Annual Meeting (continued)

 

LOGO

 

Theodore M. Solso

 

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

Director since 1999

Committees:

•  Chair, Personnel and Compensation

•  Finance

•  Governance and Nominating

Age: 63

  

Professional Experience:

 

Mr. Solso is Chairman of the Board and Chief Executive Officer of Cummins Inc. Prior to this position, he held several executive positions with Cummins, including President and Chief Operating Officer.

 

Education:

 

Mr. Solso holds a Bachelor of Arts degree in psychology from DePauw University and a Masters in Business Administration from the Harvard Business School.

 

Public Company Boards:

 

Mr. Solso is a Director of Ball Corporation, where he is a member of the Audit and Human Resources Committees.

 

During the past five years, Mr. Solso also served on the board of directors of Irwin Financial Corporation.

 

Non-Profit Boards:

 

Mr. Solso serves as Chairman of the Cummins Foundation, Principal on the American Energy Innovation Council and Director of the American Transportation Research Institute. Mr. Solso is U.S. Chairman of the U.S.-Brazil CEO Forum and is a member of the The Business Roundtable and the Indiana Academy. He serves on the Board of the Initiative for Global Development, Earth University and the Earth University Foundation.

 

Director Qualifications:

 

As a current Chief Executive Officer of a leading global manufacturing company, Mr. Solso brings significant management experience and knowledge to the Board in the areas of manufacturing, 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.

 

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Continuing Directors Not Up for Election at the 2011 Annual Meeting (continued)

 

LOGO

 

Michael J. Ward

 

Chairman of the Board and Chief Executive Officer of CSX Corporation

Director since 2001

Committees:

•  Chair, Finance

•  Personnel and Compensation

Age: 60

  

Professional Experience:

 

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

 

Education:

 

Mr. Ward holds a Bachelor of Arts 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 business affiliations include The Florida Council of 100, The Business Roundtable and the HSC Foundation.

 

Director Qualifications:

 

As a current 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.

 

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COMPENSATION OF DIRECTORS

Director Compensation Table

The following table is a summary of compensation information for the fiscal year ended September 30, 2010 for Ashland’s non-employee directors. Compensation paid to Mr. O’Brien, Chairman of the Board and Chief Executive Officer, is disclosed in the Summary Compensation Table to this proxy statement and is not included in this table.

 

Name

  Fees Earned or
Paid in Cash (1)
($)
    Stock
Awards (2)
($)
    Option
Awards
($)
    Non-Equity
Incentive Plan
Compensation
($)
    Change in
Pension Value
and
Nonqualified
Deferred
Compensation
Earnings
($)
    All
Other
Compensation
($)
    Total
($)
 
(a)   (b)     (c)     (d)     (e)     (f)     (g)     (h)  

Roger W. Hale

    95,000        100,000        0        0        0        0        195,000   
             

Dr. Bernadine P. Healy*

    97,500        100,000        0        0        0        0        197,500   
             

Kathleen Ligocki

    105,000        100,000        0        0        0        0        205,000   
             

Vada O. Manager

    76,875        118,125        0        0        0        0        195,000   
             

Barry W. Perry

    103,333        100,000        0        0        0        0        203,333   
             

Mark C. Rohr

    97,500        100,000        0        0        0        0        197,500   
             

George A. Schaefer, Jr.

    105,000        100,000        0        0        0        0        205,000   
             

Theodore M. Solso

    104,167        100,000        0        0        0        0        204,167   
             

John F. Turner

    95,000        100,000        0        0        0        0        195,000   
             

Michael J. Ward

    97,500        100,000        0        0        0        0        197,500   
             

 

* Dr. Healy will retire from Ashland’s Board of Directors on January 27, 2011.

 

(1) For fiscal 2010, Ms. Ligocki and Messrs. Perry, Solso and Ward deferred all of their fees into the Directors’ Deferral Plan and Mr. Manager deferred $18,125 of his fees into the Directors’ Deferral Plan.

 

(2) The values in this column (c) represent the aggregate grant date fair value of restricted stock unit awards granted in fiscal 2010 computed in accordance with FASB ASC Topic 718. These restricted stock unit awards are recorded as liabilities under generally accepted account principles and do not require assumptions in computing their grant date fair value. Each non-employee director received a grant of 2,385 restricted stock units of Ashland Common Stock in the Directors’ Deferral Plan on January 28, 2010. The grant price was the same as the closing price of $41.92 per share of Ashland Common Stock on the NYSE on such date. For Mr. Manager, column (c) also includes $18,125 of his fees paid in Ashland Common Stock.

 

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As of September 30, 2010, the following table identifies the aggregate amount of outstanding stock and option awards granted to each current non-employee director.

 

Name

   Shares of
Restricted Ashland
Common Stock
(#)
     Restricted Stock
Units of Ashland
Common Stock  (a)
(#)
     Outstanding
Ashland Stock
Options (b)
(#)
 

Roger W. Hale

     1,000         18,709         16,474   
        

Dr. Bernadine P. Healy

     1,000         18,709         20,036   
        

Kathleen Ligocki

     1,000         18,709         12,912   
        

Vada O. Manager

     1,000         16,685         0   
        

Barry W. Perry

     1,000         18,709         0   
        

Mark C. Rohr

     1,000         16,685         0   
        

George A. Schaefer, Jr.

     1,000         18,709         16,474   
        

Theodore M. Solso

     1,000         18,709         12,912   
        

John F. Turner

     1,000         18,709         0   
        

Michael J. Ward

     1,000         18,709         12,912   
        

 

(a) Includes credit for reinvested dividends allocated since the grant date.

 

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

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 $7,500 for Audit Committee members; and (d) an additional annual retainer of $7,500 for other Committee Chairs.

Non-employee directors may elect to receive part or all of each retainer in cash or as 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 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 received 1,000 restricted shares of Ashland Common Stock. The restricted shares may not be sold, assigned, transferred or otherwise encumbered until the

 

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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 if he or she leaves the Board of Directors for reasons other than those listed above.

Each non-employee director also receives an annual award of deferred restricted stock units in the Directors’ Deferral Plan with a grant date value of $100,000. The restricted stock units will 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.

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 their base annual 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 29, 2010.

 

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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 two-thirds of Ashland’s directors be independent, as defined by Ashland’s Director Independence Standards (the “Standards”).

 

   

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. 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, including the Audit Committee, G&N Committee and Personnel and Compensation Committee (“P&C Committee”), has adopted charters defining their respective purposes and responsibilities.

 

   

Only independent directors, as defined in the Standards, may serve on the Audit Committee, G&N Committee and P&C 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 with carefully delineated duties 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;

 

   

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

 

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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.

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 reports 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, and internal controls over financial reporting and disclosure controls and procedures. The Finance Committee has oversight responsibility related to Ashland’s key financial risks. The Environmental, Health and Safety Committee assists the Board in fulfilling its oversight responsibility with respect to environmental, health and safety and business continuity risks. In addition, 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 2010. During this review, the Board considered relationships and transactions between each director, any member of his or her immediate family, and his or her affiliates, and 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. Hale, Manager, Perry, Rohr, Schaefer, Solso, Turner and Ward and Dr. Healy and Ms. Ligocki 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 the federal securities laws. Ashland’s Board of Directors has concluded that the following relationships 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:

 

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Mark C. Rohr, a director of Ashland, is Chairman of the Board and Chief Executive Officer of Albemarle Corporation (“Albemarle”). During fiscal 2010, Ashland paid Albemarle approximately $3.5 million and Albemarle paid Ashland approximately $1.8 million for certain products and/or services.

Theodore M. Solso, a director of Ashland, is Chairman of the Board and Chief Executive Officer of Cummins Inc. (“Cummins”). During fiscal 2010, Ashland paid Cummins approximately $0.5 million for certain products and services, and Cummins paid Ashland approximately $28.7 million for goods and services. The monies paid to Ashland by Cummins were primarily paid for the initial fill of engines with oil and lubricants, as well as for lubricants supplied to Cummins and its distributors. Additionally, Valvoline, a division of Ashland, and Cummins are partners in joint ventures in Argentina, Brazil, China and India. The joint ventures market lubricants for servicing heavy duty engines and equipment.

Michael J. Ward, a director of Ashland, is Chairman of the Board and Chief Executive Officer of CSX Corporation (“CSX”). During fiscal 2010, Ashland paid CSX and its subsidiaries approximately $6.1 million for transportation services, and CSX paid Ashland approximately $125,000 for certain products and/or services.

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 the 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 interest, are also subject to review under the Policy.

Under the Policy, Ashland’s directors and executive officers are required to annually identify 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 to determine if it is a transaction with a related person. The G&N Committee has discretion to approve, disapprove or otherwise act if a transaction is deemed to be a related person transaction. 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.

Certain transactions have been determined by the Board of Directors to NOT be related person transactions, and therefore fall outside the scope of the Policy, 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;

 

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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 were present at the Annual Meeting held on January 28, 2010.

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 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 Corporate Secretary of Ashland at 50 E. RiverCenter Boulevard, P.O. Box 391, Covington, Kentucky 41012-0391. Such suggestions must be received no later than September 1, 2011, to be considered by the G&N Committee for inclusion as a director nominee for the 2012 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, 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

 

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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 a shareholder provide written notice of intent to nominate a director not later than 90 days prior to the Annual Meeting (if the Annual Meeting is held on the last Thursday in January). For an Annual Meeting held earlier than the last Thursday in January, notice must be given within 10 days of 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.

 

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COMMITTEES AND MEETINGS OF THE BOARD OF DIRECTORS

The Board of Directors has five committees: Audit Committee; Environmental, Health and Safety Committee; Finance Committee; G&N Committee; and P&C Committee. All Committees are composed entirely of independent directors. During fiscal 2010, 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 96.5%. The following table describes the members of each of the Committees, its primary responsibilities and the number of meetings held during fiscal 2010.

 

Meetings and Current Members   Summary of Responsibilities

AUDIT COMMITTEE

 

Meetings in fiscal 2010: 6

 

The Committee also 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)

Bernadine P. Healy*

Kathleen Ligocki

Vada O. Manager

Mark C. Rohr

 

*  Will retire January 27, 2011.

 

•   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

ENVIRONMENTAL, HEALTH AND SAFETY COMMITTEE

 

Meetings in fiscal 2010: 7

 

Members:

 

Kathleen Ligocki (Chair)

Bernadine P. Healy*

Barry W. Perry

Mark C. Rohr

John F. Turner

 

*  Will retire January 27, 2011.

 

•   Oversees and reviews Ashland’s environmental, health and safety policies, programs, practices, 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 policies

 

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Meetings and Current Members   Summary of Responsibilities

FINANCE COMMITTEE

 

Meetings in fiscal 2010: 5

 

Members:

 

Michael J. Ward (Chair)

Roger W. Hale

Vada O. Manager

George A. Schaefer, Jr.

Theodore M. Solso

 

•   Reviews Ashland’s current and contemplated funding requirements

•   Oversees significant financial issues such as capital structure, dividend action, offerings of debt or equity securities and major borrowings

•   Reviews financial post-audits of major investments

•   Oversees funding and investment policy related to employee benefit plans

•   Monitors and reviews Ashland’s use of derivatives

•   Monitors and reviews Ashland’s key financial risks

GOVERNANCE AND NOMINATING COMMITTEE

 

Meetings in fiscal 2010: 4

 

Members:

 

John F. Turner (Chair)

Roger W. Hale

Bernadine P. Healy*

Barry W. Perry

Theodore M. Solso

 

*  Will retire January 27, 2011.

 

•   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

 

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Meetings and Current Members   Summary of Responsibilities

PERSONNEL AND COMPENSATION COMMITTEE

 

Meetings in fiscal 2010: 5

 

Members:

 

Theodore M. Solso (Chair)

Kathleen Ligocki

Vada O. Manager

Barry W. Perry

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

Personnel and Compensation Committee Interlocks and Insider Participation

The members of the P&C Committee for fiscal 2010 were Theodore M. Solso (Chair), Kathleen Ligocki, Vada O. Manager, Barry W. Perry and Michael J. Ward. There were no impermissible interlocks or inside directors on the P&C Committee.

 

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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 and Chief Executive Officer;

 

   

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

 

   

Samuel J. Mitchell, Vice President, President of Ashland Consumer Markets (Valvoline);

 

   

David L. Hausrath, Senior Vice President and General Counsel; and

 

   

John E. Panichella, Vice President, President of Ashland Aqualon Functional Ingredients.

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 stock appreciation rights (“SARs”) and Long-Term Incentive Plan Awards (“LTIPs”).

Growth of Specialty Chemicals Business and Fiscal 2010 Accomplishments

During the past several years, Ashland has been focused on the objective of creating a dynamic, global specialty chemicals company. In that process, Ashland has divested certain non-core businesses, redesigned business models, and acquired businesses in growth markets like specialty additives, functional ingredients, water and adhesives to enhance Ashland’s specialty chemicals offerings. Ashland’s acquisition of Hercules Incorporated (“Hercules”) in November 2008 propelled the combined company to a global leadership position with expanded capabilities and promising growth potential in specialty additives and functional ingredients, paper and water technologies, and specialty resins.

Since the acquisition of Hercules, Ashland has moved quickly over the past two years to reconstruct its business on a cost-effective and strong cash generating base that the Company believes is highly leverageable to an economic recovery. In this regard, fiscal 2010 accomplishments include, among other things:

 

   

Completing the Hercules integration;

 

   

Generating in excess of $425 million of annualized savings since April 2008 by resizing Ashland’s cost structure;

 

   

Signing a global joint venture agreement with Süd-Chemie to combine our foundry businesses;

 

   

Producing free cash flow of $276 million;

 

   

Reducing net debt by more than $400 million;

 

   

Doubling the Company’s dividend to an annual rate of 60 cents per share; and

 

   

Strengthening the balance sheet and increasing liquidity to fund Ashland’s growth strategy.

 

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Key Executive Compensation Objectives

Ashland aligns executive compensation and shareholder value by seeking to achieve annual and long-term performance goals. Indicative of this alignment is the mix of at-risk compensation (annual incentive, SARs and LTIP) 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 38) 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 40). 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 44). 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 programs in place to align executive compensation with shareholder interests and mitigate risks in its plans. These programs include: stock ownership guidelines, limited perquisites, use of tally sheets and a clawback policy.

Key Compensation Decisions for Fiscal 2010

 

   

Base Pay. After a global salary freeze in fiscal 2009, a general merit increase approach of 2.5% for most employees was utilized for fiscal 2010. Consistent with this general increase and in consultation with Deloitte Consulting LLP (“Deloitte”), the P&C Committee approved a 2.5% merit increase for the Chief Executive Officer and the other named executive officers in April 2010.

 

   

Incentive Compensation Plan. The fiscal 2010 target incentive opportunities for all named executive officers, including the Chief Executive Officer, remained the same as fiscal 2009. The maximum incentive payout also remained the same at 150% of the incentive opportunity. The P&C Committee established performance targets for two performance measures at the beginning of the fiscal year. Based on Ashland’s performance in fiscal 2010 compared to the performance goals established at the beginning of the fiscal year, the P&C Committee approved incentive compensation payouts at 145.5% of incentive opportunity for Messrs. O’Brien, Chambers and Hausrath. For Messrs. Mitchell and Panichella, the payout was 140.4% and 150.0% of incentive opportunity, respectively.

 

   

Long-Term Incentive Plan Payment. The LTIP plan for the performance period of fiscal 2007 through fiscal 2009 was approved by the P&C Committee in January. This LTIP performance plan paid out at a weighted score of 26%, with the ROI portion scoring at 52% and the TSR portion scoring at 0%.

 

   

Long-Term Incentive Grants. The P&C Committee grants SAR and LTIP awards in November of each fiscal year. SARs are valued based on a Black-Scholes methodology, and LTIP awards are valued based

 

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on the 20-day average stock price 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 2010, the grant value targets for SARs and LTIPs for the Chief Executive Officer and the other named executive officers remained the same as fiscal 2009.

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 our 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 between the median and 75th percentile 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. We believe individuals should have the opportunity to do well when Ashland does well and that total compensation should vary in relation to our 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 excessively risky behavior that could threaten the long-term value of Ashland.

Oversight of Ashland’s Executive Compensation Program

The Personnel & Compensation Committee’s Role

The P&C Committee is composed of independent directors and is responsible for the approval and administration of compensation programs for executive officers and certain other employees of Ashland. The P&C Committee regularly reviews Ashland’s compensation practices, and when making decisions considers:

 

   

Ashland’s compensation philosophy;

 

   

Ashland’s financial and operating performance;

 

   

Individual performance of executives;

 

   

Compensation policies and practices for Ashland employees generally; and

 

   

Practices and executive compensation levels within 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;

 

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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; 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;

 

   

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;

 

   

Adopt, amend and terminate the benefit plans of the Company, and perform any other design functions in connection with the Company’s employee benefit plans;

 

   

Oversee the implementation and administration of the compensation plans of the Company, including incentive and equity-based plans, and ensure that these plans are consistent with the Company’s general compensation policies;

 

   

Monitor and evaluate the compensation and benefits structure of the Company, including providing guidance on philosophy and policy matters and excessive risk-taking;

 

   

Oversee regulatory compliance with respect to compensation matters, including overseeing the Company’s policies on structuring compensation programs to preserve tax deductibility; and

 

   

Oversee the development and execution of Chief Executive Officer and senior management development and succession plans, including HR-related business continuity plans, and report to the Board periodically on such plans.

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 Vice President, Human Resources and Communications 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-Global Total Rewards function at Ashland and its compensation consultant; and

 

   

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

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

 

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Management’s Role

Management 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, which includes Messrs. Chambers and Hausrath), in consultation with the P&C Committee’s independent executive compensation consultant and the Vice President, Human Resources and Communications, 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 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 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 to 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; updates regarding changes in regulatory and legislative developments; and reviews of the policies, procedures and charter of the P&C Committee to ensure the P&C Committee is compliant with corporate governance requirements. Deloitte’s aggregate fees for executive and director compensation services in fiscal 2010 were $207,500.

 

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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; (ii) merger and acquisition integration consulting services; and (iii) information technology consulting. Ashland paid $11.3 million to Deloitte for these other services. The P&C Committee believes that, given the nature and scope of these projects, the additional assignments described above did not impair Deloitte’s ability to provide an independent perspective to the P&C Committee’s deliberations about executive compensation.

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. The competitive compensation information is derived from multiple published survey sources and is based on competitive data for chemical and general industry companies. Competitive pay data has been gathered from the following published survey sources:

 

   

Towers Perrin “custom data cut” (an analysis based on the following companies in the chemical industry: Air Products and Chemicals, Inc., Cabot Corporation, Chevron Phillips Chemical, Cytec Industries, Inc., Dow Chemical Company, E.I. du Pont de Nemours and Company, Eastman Chemical Company, Ecolab Inc., H.B. Fuller Company, Hexion Specialty Chemicals Inc., Huntsman Corporation, International Specialty Products (ISP), International Flavors & Fragrances Inc., NOVA Chemicals, PPG Industries, Inc., PolyOne Corporation, Praxair Inc., The Scotts Miracle-Gro Company, Terra Industrials Inc., Texas Petrochemicals, and W.R. Grace). These companies represent the chemical companies that are included in Towers Perrin’s database;

 

   

Watson Wyatt 2009/2010 Top Management Compensation Calculator; and

 

   

2009 U.S. Mercer Executive Compensation Database.

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 statistical regression analysis that is consistent with the Corporate or business segment revenue responsibilities for each executive. The benchmarking scope that is used to develop competitive pay levels for Corporate and Ashland Distribution executives is reduced to account for the pass-through nature of Ashland Distribution’s business. As a result, pay levels for Corporate and Ashland Distribution executives are benchmarked using revenue levels that are less than their actual revenue responsibilities. The P&C Committee’s evaluation of pay levels for these executives is based on the adjusted revenue data.

 

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Relative Performance Comparisons

To align Ashland’s executive compensation program with the interests of shareholders and to reinforce the concept of pay for performance, Ashland uses relative performance as compared to a select peer group (“Performance Peer Group”) for determination of awards under its Long-Term Incentive Program (LTIP) described on page 43 of this analysis. Return on Investment (ROI) and Total Shareholder Return (TSR) performance are the measures compared. These measures are weighted equally. Ashland must achieve median performance relative to the Performance Peer Group for eligible executives to earn a target award under the LTIP. The Performance Peer Group is a sub-set of the S&P Diversified and Specialty Chemical Indices. The Performance Peer Group may be adjusted for each three-year performance period depending on changes in the market capitalization of those companies in the S&P Diversified and Specialty Chemical Indices. Ashland believes that the use of published indices as the basis for developing the Performance Peer Group ensures a sufficient level of objectivity. The Performance Peer Group companies typically have a market capitalization between $0.4 billion and $20 billion. Companies that fall outside of this market capitalization are not selected to be in the Performance Peer Group. The P&C Committee has approved the following companies as the Performance Peer Group for the fiscal 2010-2012 LTIP grant, all of which have a market capitalization between $0.4 billion and $20 billion as of January 2010:

 

Albemarle Corporation

  H.B. Fuller Company   PPG Industries, Inc.

Arch Chemicals, Inc.

  International Flavors & Fragrances Inc.   RPM International Inc.

Balchem Corporation

  The Lubrizol Corporation   Schulman (A.) Inc.

Cabot Corporation

  Mineral Technologies Inc.   Sensient Technologies Corporation

Cytec Industries Inc.

  NewMarket Corporation   Sigma-Aldrich Corporation

Eastman Chemical Company

  Olin Corporation   Stephan Co.

Ecolab Inc.

  OM Group, Inc.   Valspar Corporation

FMC Corp.

  PolyOne Corporation   Zep Inc.

The Performance Peer Group has been updated for fiscal 2010 to reflect changes in the S&P Diversified and Specialty Chemicals Indices, which is consistent with Ashland’s prior practice.

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. The annual incentive award is determined by predetermined goals.

Individual performance goals for the Chief Executive Officer for fiscal 2010 included the following:

 

   

Creating a zero incident culture for top quartile safety performance;

 

   

Achieving operating plan and working capital targets;

 

   

Competing to win new business; and

 

   

Creating a unified Ashland.

For fiscal 2010, 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

 

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Mr.  O’Brien’s 2010 annual incentive payment was based entirely on predetermined financial measures. The annual incentive compensation plan is explained in further detail on page 40 of this analysis.

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 and 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.

Individual performance goals 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 2010, 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 the Chief Executive Officer’s 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 stock options and SARs, 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 severance benefits that would be paid upon termination of Mr. O’Brien’s 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 a comprehensive overview of the primary executive compensation components and serves as background information for future compensation decisions. Based on the review of the tally sheets conducted in January 2010, 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

 

   

Long-Term Incentive Program (“LTIP”)—Performance Units

 

   

Stock Appreciation Rights (“SARs”)

 

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Restricted Shares

Retirement Benefits

Health and Welfare Benefits

Executive Perquisites

Severance Pay Plan

Change in Control Agreements

Pay Mix

Base salary represents 16% of the Chief Executive Officer’s target compensation and approximately 30% of other named executive officers’ target compensation. In fact, on average, at least 70 percent 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 2010 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.

 

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Base salaries are generally targeted at the market median; annual incentive targets are set at the competitive 75th percentile; and long-term incentive opportunities are generally positioned between the median and 75th percentile. The higher target opportunity for annual incentive drives financial performance and provides Ashland the ability to attract and retain executive talent during a period in which the Company is undergoing a strategic transformation.

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. All named executive officers fall within this range. The executive compensation review conducted by Deloitte in January 2010 showed that the average base salary of Ashland’s executive officers, as a group, was approximately 3.0% below the 50th percentile.

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.

In years when a merit increase budget is established, 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 a global salary freeze in fiscal 2009, the merit increase budget was 2.5% for fiscal 2010. This budget, however, did not provide for sufficient differentiation of performance in the merit guidelines. Therefore, a general merit increase of 2.5% was implemented provided that the employee’s performance was at least “meets expectations”. In connection with the general merit increase, the Chief Executive Officer and all of the named executive officers’ base salaries were increased by 2.5% in April 2010.

 

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In addition, based on a review of competitive data, the P&C Committee in consultation with Deloitte approved a 26% base pay increase for Mr. Chambers in November 2009. Mr. Chambers was promoted to Chief Financial Officer in June 2008. His base pay was not increased to fully competitive levels for his position. This base pay increase positions Mr. Chambers’ pay at 10% below the market median.

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 240 additional senior employees participated in the fiscal 2010 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:

 

Executive

   Annual Incentive
Target as a
Percentage of
Base Salary
    Target 2010
Annual Incentive
 

Mr. O’Brien

     120   $ 1,370,844   

Mr. Chambers

     90   $ 438,192   

Mr. Mitchell

     90   $ 313,191   

Mr. Hausrath

     90   $ 422,973   

Mr. Panichella

     75   $ 276,750   

In November 2009, the P&C Committee reviewed and approved measures and target performance levels for the fiscal 2010 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 on a percentage of sales. This measurement was chosen because Working Capital Efficiency, like Operating Income, was viewed as a critical measure of Ashland’s value given the economic downturn and tightening credit markets. 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 our shareholders. The weighting and business unit focus of the measures for each named executive officer is as follows:

 

Messrs. O’Brien, Chambers and Hausrath

   80% weight on Ashland’s “Operating Income”* performance
   20% weight on Ashland’s “Working Capital Efficiency”** performance
Mr. Mitchell    20% weight on Ashland’s Operating Income performance
   60% weight on Ashland Consumer Markets’ Operating Income performance
   20% weight on Ashland Consumer Markets’ Working Capital Efficiency performance
Mr. Panichella    20% weight on Ashland’s Operating Income performance
   60% weight on Ashland Aqualon Functional Ingredients’ Operating Income performance
   20% weight on Ashland Aqualon Functional Ingredients’ 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.

 

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For each of the measures previously listed, the P&C Committee established a minimum (hurdle), target and maximum performance level. The target annual incentive opportunity for each of the named executive officers is positioned at approximately the 75th percentile in order to drive financial performance and to attract and retain executive talent during a period in which the Company is undergoing a strategic transformation. To validate that the performance targets are sufficiently difficult, and to assess the rigors of the goals under the annual incentive plan, the P&C Committee compared Ashland’s 2010 performance targets to the actual fiscal 2009 results, the fiscal 2010 budget and the fiscal 2010 forecasts. 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 2010 incentives were determined to account for the effect of restructuring severance costs and other special items. 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.

Operating Income Performance and Incentive Compensation Scores

FY2010—Adjusted Actual

($, Thousands)

On an adjusted basis, actual Operating Income performance for fiscal 2010 relative to target was as follows:

 

Operating Unit

   Hurdle
(20% Payout)
     Target
(100% Payout)
     Maximum
(150% Payout)
     2010 Adjusted
Operating Income
     Operating
Income
Component
Percent of
Target Award
Earned
 

Functional Ingredients

   $ 80,351       $ 101,198       $ 126,700       $ 113,122         123.4

Water Technologies

   $ 70,031       $ 86,995       $ 109,962       $ 113,636         150.0

Performance Materials

   $ 23,988       $ 49,974       $ 74,961       $ 40,363         80.7

Consumer Markets

   $ 147,000       $ 210,000       $ 250,000       $ 261,512         150.0

Distribution

   $ 51,018       $ 72,675       $ 90,044       $ 61,055         60.9

Ashland Inc.

   $ 370,696       $ 509,198       $ 624,786       $ 582,958         131.9

 

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On an adjusted basis, actual Working Capital Efficiency performance for fiscal 2010 relative to target was as follows:

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

FY2010—Adjusted Actual

 

Operating Unit

   Hurdle
(20% Payout)
    Target
(100% Payout)
    Maximum
(150% Payout)
    2010 Adjusted
WCE
    WCE
Component
Percent of
Target Award
Earned
 

Functional Ingredients

     29.71     28.57     27.72     24.33     150.0

Water Technologies

     14.75     14.18     13.75     14.05     115.2

Performance Materials

     9.79     9.41     9.13     5.94     150.0

Consumer Markets

     15.44     14.85     14.41     13.26     150.0

Distribution

     12.66     12.17     11.80     11.24     150.0

Ashland Inc.

     15.45     14.86     14.42     12.86     150.0

For fiscal 2010, a “safety modifier” was added to reflect the importance of safety matters within Ashland. The safety modifier either added or deducted up to 10 percentage points based on a combination of the Operating Unit’s Total Reportable 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

    0.91        0.92 to 1.28        1.29        0.80        +10 pts   

Mr. Chambers

    0.91        0.92 to 1.28        1.29        0.80        +10 pts   

Mr. Mitchell

    2.70        2.71 to 3.61        3.62        3.09        (0) no modifier   

Mr. Hausrath

    0.91        0.92 to 1.28        1.29        0.80        +10 pts   

Mr. Panichella

    0.94        0.95 to 1.26        1.27        0.50        +10 pts   

Based on these results, the annual incentives earned for fiscal 2010 performance were as follows:

 

Named Executive Officer

   Annual Incentive
Target as a
Percentage of
Base Salary
    Target 2010
Annual Incentive
     Percent of
Target Annual
Incentive Earned
    Actual 2010
Annual Incentive
Paid
 

Mr. O’Brien

     120   $ 1,370,844         145.5   $ 1,994,853   

Mr. Chambers

     90   $ 438,192         145.5   $ 637,656   

Mr. Mitchell

     90   $ 313,191         150.0   $ 458,499   

Mr. Hausrath

     90   $ 422,973         145.5   $ 615,511   

Mr. Panichella*

     75   $ 276,750         140.4   $ 388,613   

 

* In addition, Mr. Panichella received a retention bonus of $120,000. This retention bonus was a component of the employment agreement entered into with Ashland in November 2008 in connection with the Hercules acquisition.

 

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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 (5) years:

 

Incentive Compensation

(Fiscal Year)

  

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

2010    135.5%
2009      93.8%
2008      33.3%
2007      68.9%
2006      85.1%

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 LTIPs. 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. The long-term incentive targets for each of the named executive officers are generally positioned between the median and 75th percentiles of competitive practice. The target long-term incentive 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 2010 are as follows:

 

Named Executive Officer

   Total Long-Term
Incentive Target as
a % of Salary
 

Mr. O’Brien

     400

Messrs. Chambers and Hausrath

     175

Messrs. Mitchell and Panichella

     135

The total long-term incentive award opportunity is granted through a combination of SARs and LTIPs. The P&C Committee has the discretion to vary grant levels upward or downward based upon internal equity comparisons and individual performance. The target for Mr. Chambers was adjusted upward to 216% of his base pay as of September 30, 2009. His base pay at that time was below market competitive levels for a Chief Financial Officer. The target for Mr. Mitchell was adjusted upward to 143% to maintain internal equity with his peers.

Annual SAR and LTIP grants are typically made concurrent with the date of the P&C Committee meeting in November. Ashland’s process for establishing the grant date well in advance provides assurance that grant timing is not being manipulated for employee gain.

Long-Term Incentive Program (“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 relative to the financial and total shareholder return performance of the Performance Peer Group. It is designed to encourage and reward executives for achieving long-term financial performance that meets or exceeds the relative financial performance of peers. The P&C Committee and

 

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management believe that the focus on relative performance encourages management to make decisions that create shareholder value.

Awards under the LTIP are granted annually, with each award covering a three-year performance cycle. The number of LTIPs 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.

The following calculation showing how Mr. O’Brien’s target fiscal 2010–2012 LTIP grant was determined is illustrative of the overall grant determination process:

 

Mr. O’Brien’s base salary as of October 1, 2009:    $ 1,114,500   

x

     LTIP target as a percent of salary:      200%   
             

=

     Target fiscal 2010–2012 LTIP value:    $ 2,229,000   

Target fiscal 2010–2012 grant: $2,229,000/$41.19* = 54,115 performance units

  

 

* average of closing prices of Ashland Common Stock for the twenty business days ended September 30, 2009. The twenty business day average is used to reduce stock volatility and better represents the Company’s stock price.

Actual grants under the fiscal 2010–2012 LTIP for Ashland named executive officers were as follows:

 

Named Executive Officer

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

Mr. O’Brien

     200     54,200   

Mr. Chambers

     80     7,300   

Mr. Mitchell

     53     4,400   

Mr. Hausrath

     80     9,000   

Mr. Panichella

     50     4,400   

In November 2009, the P&C Committee reviewed and approved measures and target performance levels for the fiscal 2010–2012 LTIP. The performance period for this LTIP began on October 1, 2009 and ends on September 30, 2012. 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 as compared to the Performance Peer Group over the three-year cycle. 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 our shareholders. ROI is a measurement of the effective use of capital, and it is generally determined by dividing net income (excluding certain items) over a specified period by the average equity and debt outstanding over such period. TSR is a measurement 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. There are no dividends paid on performance units that are granted.

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 2010–2012 LTIP, the 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 performance must be at the

 

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50th percentile (median) relative to the peers. The performance maximum represents a level of performance that is at the 90th percentile or above, relative to the Performance Peer Group. If the maximum performance is achieved for both relative ROI and TSR, the award earned is 200% of the award opportunity at target. The following chart illustrates these award levels and the corresponding relative 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

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.

The fiscal 2007-2009 LTIP was paid in February 2010 for the performance period of October 1, 2006 to September 30, 2009. The following chart illustrates these award levels and the corresponding relative 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

The ROI measurement for this LTIP plan period indicated that Ashland’s performance was at the 40.4 percentile of our Performance Peer Group, which resulted in a 52% payout for the ROI performance. The TSR performance was at the 26.0 percentile of the Performance Peer Group which resulted in a 0% payout for TSR performance. The weighted score resulted in a 26% payout. 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

     37,736         26%         9,812   

Mr. Chambers

     2,673         26%         695   

Mr. Mitchell

     4,183         26%         1,088   

Mr. Hausrath

     5,303         26%         1,379   

Mr. Panichella

     Not Eligible         Not Eligible         Not Eligible   

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 (5) years:

 

LTIP Plan Year

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

2007-2009

   February, 2010      26.0%

  2006-2008*

   February, 2009*      25.8%*

2005-2007

   February, 2008      51.4%

2004-2006

   February, 2007      82.8%

2003-2005

   February, 2006      64.3%

 

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

 

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Stock Appreciation Rights (“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 occur annually in November. This practice began in November 2006 (for fiscal 2007) to align our SAR grant with the beginning of Ashland’s fiscal year. Prior to fiscal 2007, the annual grant occurred in September of each year. The change in grant date resulted in no SAR grants made in fiscal 2006, as the grants were moved from September 2006 to November 2006.

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 2010 SAR grant was determined is illustrative of the overall grant determination process:

 

Mr. O’Brien’s base salary as of October 1, 2009:    $ 1,114,500   

x

     Target SAR value as a percent of salary:      200%   
             

=

     Target fiscal 2010 SAR value:    $ 2,229,000   

Target SAR grant: $2,229,000/$21.57* = 103,337 SARs

  

 

* Black-Scholes value of average of closing prices of Ashland Common Stock for the twenty business days ended September 30, 2009. The twenty business day average is used to reduce stock volatility and better represents the Company’s stock price.

Actual grants for fiscal 2010 for Ashland named executive officers were as follows:

 

Named Executive Officer

   SARs Target as a % of
Salary
    Number of SARs
Granted
 

Mr. O’Brien

     200     103,400   

Mr. Chambers

     95     23,700   

Mr. Mitchell

     90     14,200   

Mr. Hausrath

     95     20,200   

Mr. Panichella

     85     14,200   

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

The P&C Committee may award restricted shares of Ashland Common Stock to key employees. A restricted share award is intended to reward superior performance and encourage continued employment with Ashland. Executives who have been awarded unvested restricted shares of Ashland Common Stock receive quarterly dividend payments in the form of cash compensation. Beginning with restricted shares granted on or after January 27, 2010, dividends are paid on the restricted shares with additional shares of restricted stock which are subject to the same vesting requirements.

 

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The table below reflects the restricted stock grant to Mr. Mitchell during fiscal year 2010. The grant was awarded for retention reasons. The grant was recommended by Mr. O’Brien and approved by the P&C Committee.

 

Named Executive Officer

   Grant Date    Restricted
Shares
Granted
     Vesting Period

Mr. Mitchell

   November 18, 2009      20,000       100% on November 18, 2013

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   

Messrs. Chambers and Hausrath

     3x salary            30,000   

Messrs. Mitchell and Panichella

     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) plans and LESOP; equivalent shares held in the non-qualified deferred compensation plan; unvested restricted stock that will vest within five years of the ownership guideline 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 2010 review, all of the named executive officers had achieved their stock ownership requirements.

Risk Assessment

At the request of the P&C Committee, Deloitte performed a risk assessment of Ashland’s incentive plans in September 2009. The incentive plans analyzed were the Incentive Compensation Plan and Long-Term Incentive Plan, both described in this Compensation Discussion and Analysis, as well as the variable pay program which is applicable to Ashland’s broader employee population. The risk assessment was performed to identify potential areas that could encourage participants to take excessive risks, manipulate reported financial results, or to focus on short-term results at the expense of long-term value creation. The assessment included the review of plan documents and communication materials, the analysis of performance measures and plan mechanics and interviews with key individuals involved in the incentive plan design and administration. Below are the key observations made during the assessment:

 

   

The possibility of “gaming” financial results is greatly reduced due to the high degree of oversight provided.

 

   

The process to establish and finalize goals includes multiple levels of review that includes corporate level management, the Executive Committee and the P&C Committee to ensure the goals are consistent with corporate objectives.

 

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The measurements used, such as Operating Income and Working Capital Efficiency, directly tie to Ashland’s audited financial statements. These results are highly scrutinized by Ashland’s Finance and Accounting departments as well as Ashland’s external auditor.

 

   

Multiple risk mitigators are in place, including performance thresholds required to fund the annual incentive program, the use of multiple performance metrics in the annual incentive plan and LTIP, an emphasis on long-term compensation and stock ownership guidelines.

 

   

There are multiple “checkpoints” with respect to the accuracy of the data used to calculate the final incentive scores and validation of the individual award payments to the executives.

Deloitte concluded and the P&C Committee agreed that the incentive plans incorporate a significant amount of rigor and oversight to discourage excessive risk taking or manipulating performance in order to increase incentive award payouts.

Executive Compensation Recovery “Clawback” Policy

Ashland has adopted 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 named executive officers participate in the same qualified as well as nonqualified retirement plans that are offered to the majority of Ashland’s qualifying U.S. employees.

Financial security in retirement is an important aspect of every employee’s compensation and this holds true for the named executive officers as well. 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 pension plan provides a foundation for retirement security. Each named executive officer may build upon this foundation with his or her own savings and Ashland matching contributions through the 401(k) plans.

The benefits that may be provided under these plans are limited by the Internal Revenue Code of 1986, as amended (the “Code”). Therefore, these plans standing alone cannot 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 also offers the named executive officers non-qualified retirement plans that complement each other and the tax-qualified plans.

The non-qualified excess plans are coordinated with the pension plan to provide the part of the pension benefit that would have been paid through the pension plan but for the limitations on the permissible benefit under the pension plan. The pension plan may not include named executive officers’ variable compensation in its

 

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formula, so a supplemental benefit is calculated using base compensation and incentive compensation. To avoid duplicative payments, the supplemental benefit is reduced by the benefits from the pension plan and the non-qualified excess plan.

The named executive officer’s contributions to the 401(k) plans 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) plans will be paid to the named executive officers (as well as any affected employee) as additional compensation. Ashland’s employee deferral plans 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.

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 and Mr. Hausrath participated in the financial planning and home security programs during fiscal 2010. 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. The form of change in control agreement was updated in July 2009. Agreements entered into after July 2009 do not include a “conditional gross-up” for excise and related taxes.

 

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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 $200,000 of named executive officer compensation paid in fiscal 2010 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 instead of sound business discretion.

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.

 

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PERSONNEL AND COMPENSATION COMMITTEE REPORT ON EXECUTIVE COMPENSATION

The P&C Committee has reviewed the Compensation Discussion and Analysis appearing on pages 30 through 50 of this proxy statement and discussed that Analysis 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 2010 and Ashland’s proxy statement for its 2011 Annual Meeting of Shareholders. This report is provided by the following independent directors who comprise the P&C Committee:

PERSONNEL AND COMPENSATION

COMMITTEE

Theodore M. Solso, Chairman

Kathleen Ligocki

Vada O. Manager

Barry W. Perry

Michael J. Ward

 

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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, 2010, 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
Nonqualified
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

    2010        1,127,363        0        2,125,995        1,717,474        1,994,853        1,777,138        83,335        8,826,158   

Chairman of the Board and Chief Executive Officer

 

   

 

2009

2008

  

  

   

 

1,069,720

1,110,925

  

  

   

 

0

0

  

  

   

 

670,740

1,774,861

  

  

   

 

730,000

1,325,100

  

  

   

 

1,254,749

445,355

  

  

   

 

974,581

0

  

  

   

 

88,185

103,457

  

  

   

 

4,787,975

4,759,698

  

  

                 

L. M. Chambers

    2010        461,252        0        286,343        393,657        637,656        1,073,662        31,931        2,884,501   

Senior Vice President and Chief Financial Officer

 

   

 

2009

2008

  

  

   

 

352,746

320,476

  

  

   

 

0

0

  

  

   

 

276,038

642,430

  

  

   

 

178,704

69,410

  

  

   

 

316,643

84,760

  

  

   

 

568,687

0

  

  

   

 

25,783

17,533

  

  

   

 

1,718,601

1,134,609

  

  

                 
                 

S. J. Mitchell

    2010        343,418        0        926,390        235,862        458,499        390,147        30,017        2,384,333   

Vice President, and President of Ashland Consumer Markets

 

   

 

2009

2008

  

  

   

 

319,353

333,777

  

  

   

 

0

0

  

  

   

 

63,880

191,028

  

  

   

 

87,600

132,510

  

  

   

 

339,405

326,022

  

  

   

 

390,723

53,119

  

  

   

 

33,409

30,360

  

  

   

 

1,234,370

1,066,816

  

  

                 

D. L. Hausrath

    2010        463,794        0        353,025        335,522        615,511        693,653        31,954        2,493,459   

Senior Vice President and General Counsel

 

   

 

2009

2008

  

  

   

 

431,291

446,199

  

  

   

 

0

0

  

  

   

 

86,238

253,053

  

  

   

 

178,704

277,640

  

  

   

 

387,149

137,413

  

  

   

 

444,232

0

  

  

   

 

38,905

39,331

  

  

   

 

1,566,519

1,153,636

  

  

                 
                 

J. E. Panichella

    2010        364,500        120,000        172,590        235,862        388,613        268,236        40,946        1,590,747   

Vice President, and President of Ashland Aqualon Functional Ingredients

                 

 

(1) Pursuant to a three-year employment agreement dated July 8, 2008, Mr. Panichella receives an annual retention bonus of $120,000.

 

(2) For Messrs. O’Brien, Chambers, Hausrath and Panichella, the values in this column (e) represent the aggregate grant date fair value of LTIP awards computed in accordance with FASB ASC Topic 718. For Mr. Mitchell, the value in this column (e) represents the aggregate grant date fair value of LTIP awards and restricted stock 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, 2010 (the “2010 Annual Report”). For LTIP awards, the grant date fair value is based on the probable outcome of performance conditions. The grant date fair values of fiscal 2010-2012 LTIP awards assuming the maximum level of performance are as follows: Mr. O’Brien, $4,251,990; Mr. Chambers, $572,685; Mr. Mitchell, $345,180; Mr. Hausrath, $706,050; and Mr. Panichella, $345,180.

 

(3) The values in this 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 2010 Annual Report.

 

(4) The values in this column (g) represent the amounts earned with respect to fiscal 2010 performance to be paid in December 2010 for annual incentive awards under the 2006 Ashland Inc. Incentive Plan (the “2006 Incentive Plan”).

 

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(5) Ashland’s nonqualified 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, 2009 and September 30, 2010 in the present value of accrued benefits under Ashland’s qualified and nonqualified defined benefit plans. These plans are more fully discussed in the narrative to the Pension Benefits table in this proxy statement.

The present values at September 30, 2009 and September 30, 2010 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 this column (i) for fiscal 2010 are composed of the following items:

 

     J. J. O’Brien      L. M. Chambers      S. J. Mitchell      D. L. Hausrath      J. E. Panichella  

Ashland 401(k) Plans Match (a)

   $ 13,475       $ 15,545       $ 14,763       $ 13,475       $ 19,502   

Supplemental Ashland 401(k) Plans Match (b)

     48,530         9,737         2,540         5,941         0   

Life Insurance Premiums (c)

     3,560         1,649         621         2,050         276   

Other (d)

     17,770         5,000         12,093         10,488         21,168   
                                            

Total

   $ 83,335       $ 31,931       $ 30,017       $ 31,954       $ 40,946   

 

(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) Plans.

 

(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) Plans, 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 $25,000 as a category for any named executive officer.

 

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Grants of Plan-Based Awards

The following table sets forth certain information regarding the annual and long-term incentive awards, SARs and restricted stock granted during fiscal 2010 to each of the named executive officers.

 

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
(#) (3)
   

All Other
Option
Awards:
Number of
Securities
Underlying
Options

(#) (4)

    Exercise
or Base
Price of
Option
Awards
($/Sh)
    Grant
Date
Fair
Value of
Stock
and
Option
Awards
($) (5)
 
   

Threshold

($)

   

Target

($)

   

Maximum

($)

   

Threshold

(#)

   

Target

(#)

   

Maximum

(#)

         

(a)

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

J. J. O’Brien

    11/18/09        274,169        1,370,844        2,056,266                 
    11/18/09              13,550        54,200        108,400              2,125,995   
    11/18/09                      103,400        37.69        1,717,474   
                     

L. M. Chambers

    11/18/09        87,638        438,192        657,288                 
    11/18/09              1,825        7,300        14,600              286,343   
    11/18/09                      23,700        37.69        393,657   
                     

S. J. Mitchell

    11/18/09        62,638        313,191        469,787                 
    11/18/09              1,100        4,400        8,800              172,590   
    11/18/09                      14,200        37.69        235,862   
    11/18/09                    20,000            753,800   
                     

D. L. Hausrath

    11/18/09        84,595        422,973        634,460                 
    11/18/09              2,250        9,000        18,000              353,025   
    11/18/09                      20,200        37.69        335,522   
                     

J. E. Panichella

    11/18/09        55,350        276,750        415,125                 
    11/18/09              1,100        4,400        8,800              172,590   
    11/18/09                      14,200        37.69        235,862   

 

(1) The dollar amounts in these columns represent the potential annual incentive payouts under the 2006 Incentive Plan for fiscal 2010. The actual dollar amounts earned will be paid in December 2010 and are included in column (g) in the fiscal 2010 row of the Summary Compensation Table.

 

(2) The amounts in these columns represent potential payments under LTIP awards for the fiscal 2010-2012 performance period under the 2006 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) On November 18, 2009, Mr. Mitchell received a grant of 20,000 shares of restricted Ashland Common Stock pursuant to the 2006 Incentive Plan. The grant will vest in full on November 18, 2013. Mr. Mitchell is entitled to receive dividends, when, as and if paid, on these restricted shares on the same basis as unrestricted shares of Ashland Common Stock.

 

(4) 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 2006 Incentive Plan in fiscal 2010. All SARs were granted at an exercise price of $37.69 per share, the closing price of Ashland Common Stock as reported on the NYSE on November 18, 2009, the date of grant.

 

(5) The dollar amounts in column (l) are calculated in accordance with FASB ASC Topic 718 and assume (i) payment of LTIP awards at target multiplied by the Black-Scholes valuation model ($36.10 per unit for the ROI portion) and ($42.35 per unit for the TSR portion); (ii) valuation of all SARs using the Black-Scholes valuation model ($16.61 per SAR) and (iii) grant date fair value for the 20,000 shares of restricted stock awarded to Mr. Mitchell calculated using the closing price of $37.69 per share of Ashland Common Stock as reported on the NYSE on November 18, 2009, the date of the grant. For further information on the Black-Scholes model and related stock price assumptions utilized during fiscal 2010, see Note P to the Notes to Consolidated Financial Statements in the 2010 Annual Report.

 

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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 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 wholly-owned divisions. Awards for division employees are based primarily on division performance.

The performance hurdle, target and maximum objectives for fiscal 2010 included measures of Operating Income and Working Capital Efficiency. The Compensation Discussion and Analysis section in this proxy statement discusses the fiscal 2010 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 performance versus the performance of Ashland’s peer group of companies. 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. Target grants under the program range from 20% to 200% of an employee’s base salary. The Compensation Discussion and Analysis section in this proxy statement discusses the performance goals for fiscal 2010-2012 LTIP awards.

Stock Appreciation Rights, Stock Options and Restricted Stock

Ashland’s employee stock option and SARs program is a long-term plan designed to link executive compensation with increased shareholder value over time. In determining the amount of stock options or SARs to be granted annually to key employees, a target number of shares for each employee grade level is established. All stock options and SARs are granted with an exercise price equal to the fair market value of Ashland Common Stock on the date of grant. Vesting of stock options and SARs 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 Stock Options, SARs, Incentive Compensation, Restricted Stock and LTIP subsection of the Potential Payments upon Termination or Change in Control section in this proxy statement. Stock options and SARs are not re-valued if the stock price declines below the grant price.

In addition, the P&C Committee may award restricted shares of Ashland Common Stock and/or restricted share equivalents to key employees. Restricted share awards are intended to reward superior performance and encourage continued employment with Ashland. The restricted shares may not be sold, assigned, transferred or otherwise encumbered during the restricted period. Beginning with restricted shares granted on or after January 27, 2010, dividends are paid on the restricted shares with additional shares of restricted stock which are subject to the same vesting requirements. Prior to this change, dividends were paid in cash to the employee to whom the restricted shares were granted. For vesting periods applicable to restricted Ashland Common Stock granted to named executive officers, see footnote (2) of the Outstanding Equity Awards at Fiscal Year-End table in this proxy statement. For accelerated vesting events, see the Stock Options, SARs, Incentive Compensation, Restricted Stock and LTIP subsection of the Potential Payments upon Termination or Change in Control section in this proxy statement.

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

 

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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, 2010.

 

    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        103,400 (4)      0        37.69        12/18/19           
    125,000 (5)      125,000 (5)      0        10.72        12/20/18           
    78,750 (6)      26,250 (6)      0        53.33        12/14/17           
    110,000        0        0        65.78        12/15/16           
    152,744        0        0        49.79        10/15/15           
    213,765        0        0        38.47        10/16/14           
              5,530        269,698       
                  138,200        6,740,014   
                 

L. M. Chambers

    0        23,700 (4)      0        37.69        12/18/19           
    30,600 (5)      30,600 (5)      0        10.72        12/20/18           
    4,125 (6)      1,375 (6)      0        53.33        12/14/17           
    6,200        0        0        65.78        12/15/16           
    8,812        0        0        49.79        10/15/15           
    10,687        0        0        38.47        10/16/14           
    3,562        0        0        23.87        10/18/13           
    10,687        0        0        19.75        10/19/12           
              9,381        457,511       
                  18,100        882,737   
                 

S. J. Mitchell

    0        14,200 (4)      0        37.69        12/18/19           
    15,000 (5)      15,000 (5)      0        10.72        12/20/18           
    7,875 (6)      2,625 (6)      0        53.33        12/14/17           
    12,300        0        0        65.78        12/15/16           
    17,624        0        0        49.79        10/15/15           
    21,375        0        0        38.47        10/16/14           
    9,375        0        0        23.87        10/18/13           
    10,000        0        0        32.28        02/29/12           
              20,596        1,004,467       
                  12,400        604,748   
                 

D. L. Hausrath

    0        20,200 (4)      0        37.69        12/18/19           
    14,400 (5)      30,600 (5)      0        10.72        12/20/18           
    16,500 (6)      5,500 (6)      0        53.33        12/14/17           
    25,200        0        0        65.78        12/15/16           
    41,123        0        0        49.79        10/15/15           
    35,627        0        0        38.47        10/16/14           
              789        38,480       
                  19,800        965,646   
                 

J. E. Panichella

    0        14,200 (4)      0        37.69        12/18/19           
    0        25,000 (5)      0        10.72        12/20/18           
              50,000        2,438,500       
                  12,900        629,133   

 

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(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 payment of the LTIP awards for the fiscal 2008-2010 performance period (which is payable in stock) and unvested shares of restricted Ashland Common Stock. The number of shares of Ashland Common Stock earned for the fiscal 2008-2010 LTIP awards was determined by the P&C Committee on November 30, 2010, and such shares will be delivered in December 2010. For Mr. O’Brien, the amounts reported in columns (g) and (h) relate solely to the LTIP award for the fiscal 2008-2010 performance period. For Mr. Chambers, the amounts reported in column (g) and (h) represent 381 shares of Ashland Common Stock awarded under the LTIP for the fiscal 2008-2010 performance period and 9,000 shares of unvested restricted Ashland Common Stock granted on May 14, 2008 that will vest 100% on May 14, 2012. For Mr. Mitchell, the amounts reported in column (g) and (h) represent 596 shares of Ashland Common Stock awarded under the LTIP for the fiscal 2008-2010 performance period and 20,000 shares of restricted Ashland Common Stock granted on November 18, 2009 which will vest 100% on November 18, 2013. For Mr. Hausrath, the amounts reported in columns (g) and (h) relate solely to the LTIP award for the fiscal 2008-2010 performance period. For Mr. Panichella, the amounts reported in column (g) and (h) relate solely to the 50,000 shares of restricted Ashland Common Stock granted on November 20, 2008 which will vest 100% on November 20, 2012. The dollar values in column (h) are calculated using the closing price of Ashland Common Stock of $48.77 as reported on the NYSE on September 30, 2010.

 

(3) The numbers in column (i) represent the estimated units granted through September 30, 2010 under the LTIP for the fiscal 2009-2011 and the fiscal 2010-2012 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 $48.77 as reported on the NYSE on September 30, 2010. Payment, if any, under LTIP awards will be in Ashland Common Stock for the fiscal 2009-2011 and the fiscal 2010-2012 performance periods.

 

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

 

(5) These numbers relate to SARs granted on November 20, 2008 that vest over the three-year period referenced in footnote (1) above.

 

(6) These numbers relate to SARs granted on November 14, 2007 that vest over the three-year period referenced in footnote (1) above.

 

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Option Exercises and Stock Vested

The following table sets forth certain information regarding the value realized by each named executive officer during fiscal 2010 upon the exercise of stock options/SARs and 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

     0         0         9,812         420,346   
           

L. M. Chambers

     7,124         188,502         5,695         239,374   
           

S. J. Mitchell

     0         0         1,088         46,610   
           

D. L. Hausrath

     16,200         813,564         1,379         59,076   
           

J. E. Panichella

     25,000         857,250         0         0   

 

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

 

(2) For Messrs. O’Brien, Mitchell and Hausrath, the amounts in column (d) represent only the shares of Ashland Common Stock received in settlement of the fiscal 2007-2009 LTIP award. The dollar amounts in column (e) represent the value of the fiscal 2007-2009 LTIP award (computed by multiplying the number of shares awarded by $42.84, the closing price of Ashland Common Stock as reported on the NYSE on January 27, 2010, the date the P&C Committee approved the payment).

For Mr. Chambers, the amount in column (d) includes 5,000 shares of restricted Ashland Common Stock which vested on January 28, 2010 and 695 shares of Ashland Common Stock received in settlement of the fiscal 2007-2009 LTIP award. The amount in column (e) includes $209,600 for the restricted shares which vested on January 28, 2010 based on the closing price of $41.92 per share of Ashland Common Stock as reported on the NYSE on that date, and $29,774 for the fiscal 2007-2009 LTIP award (computed as described above).

 

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Pension Benefits

The following table shows the actuarial present value of the named executive officers’ accumulated benefit under each of Ashland’s qualified and nonqualified pension plans, calculated as of September 30, 2010.

 

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

  

31 years 4 months

 

 

31 years 4 months

 

 

20 years 0 months

    

 

 

 

 

 

 

1,028,741

 

 

3,495,151

 

 

7,471,114

  

 

 

  

 

 

  

    

 

 

 

 

 

 

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

  

30 years 6 months

 

 

30 years 6 months

 

 

20 years 0 months

    

 

 

 

 

 

 

980,961

 

 

584,109

 

 

2,192,444

  

 

 

  

 

 

  

    

 

 

 

 

 

 

0

 

 

0

 

 

0

  

 

 

  

 

 

  

           

S. J. Mitchell

   Ashland Hercules Pension
Plan

 

Ashland Inc. Excess
Benefit Pension Plan

 

Ashland Inc. Supplemental
Early Retirement Plan for
Certain Employees

  

12 years 5 months

 

 

12 years 5 months

 

 

13 years 5 months

    

 

 

 

 

 

 

174,369

 

 

66,158

 

 

1,587,006

  

 

 

  

 

 

  

    

 

 

 

 

 

 

0

 

 

0

 

 

0

  

 

 

  

 

 

  

           

D. L. Hausrath

   Ashland Hercules Pension
Plan

 

Ashland Inc. Excess
Benefit Pension Plan

 

Ashland Inc. Supplemental
Early Retirement Plan for
Certain Employees

  

28 years 7 months

 

 

28 years 7 months

 

 

20 years 0 months

    

 

 

 

 

 

 

1,048,913

 

 

904,963

 

 

2,538,302

  

 

 

  

 

 

  

    

 

 

 

 

 

 

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

  

26 years 9 months

 

 

26 years 9 months

 

 

1 year 10 months

    

 

 

 

 

 

 

722,071

 

 

695,934

 

 

0

  

 

 

  

 

 

  

    

 

 

 

 

 

 

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”) (collectively, the “Excess Plans”) are nonqualified

 

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plans that are coordinated with the tax-qualified plan. The Ashland Inc. Supplemental Early Retirement Plan for Certain Employees (the “SERP”) is a nonqualified plan. The material terms of each of these plans are described in the narrative below.

 

(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 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, 2010 based on the earliest age a participant could receive an unreduced benefit.

For Messrs. O’Brien, Chambers and Hausrath, the earliest age that an unreduced benefit is available under the qualified Pension Plan and the nonqualified Ashland Excess Plan is 62 and their benefits are calculated under the traditional pension formula. Messrs. O’Brien, Chambers and Hausrath are all eligible for early retirement under each of these plans. For Mr. Mitchell, age 55 is the earliest age he may receive unreduced benefits under the qualified Pension Plan and the nonqualified Ashland Excess Plan because his qualified Pension Plan benefits are calculated under the cash balance pension formula. For Mr. Panichella, age 60 is the earliest age he may receive unreduced benefits under the qualified Pension Plan and the nonqualified Hercules Excess Plan. Beginning January 1, 2011, the earliest age he may receive an unreduced benefit will be age 62.

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, Chambers and Hausrath have at least 20 years of service under the plan.

Messrs. O’Brien, Chambers and Hausrath 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 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 each 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.

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 Notes to Consolidated Financial Statements in the 2010 Annual Report.

Ashland Hercules Pension Plan (Pension Plan)

The Pension Plan is a tax-qualified defined benefit pension plan under Code §401(a). The plan provides retirement income for eligible participants.

The plan covers a wide range of employees sufficient to meet the coverage standards of Code §410(b). Eligible employees must be age 21 and have one year of service to participate. Participation is automatic once the requirements are met. Five years of service is required for a vested benefit.

 

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The 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 Annuity Benefit 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 Benefits below). In general, participants who were actively employed on June 30, 2003 with at least 10 years of service remained in the 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.

Under this plan, 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 formulas under the plan. Final average compensation is the average for the 36 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 Pension Plan also contains provisions for benefits applicable only to individuals who were employees of Hercules prior to Ashland’s acquisition of Hercules. These separate provisions do not apply to any of the named executive officers except for Mr. Panichella.

Annuity Benefit

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.

For participants who were employees of Hercules at the time of the acquisition, the normal retirement age is 65 but an unreduced benefit is paid for retirement at age 60 with 10 years of service. This age for an unreduced benefit will change to age 62 beginning January 1, 2011. A participant who was an employee of Hercules at the time of the acquisition may retire at age 55 with a reduced benefit.

 

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Retirement Growth Account Benefit

The retirement growth account formula grants annual credits as a percentage of compensation based on the sum of a participant’s age and years of service. This is illustrated in the following table:

 

Contribution Credits

Age plus Service in Whole Numbers Projected to

the End of the Plan Year

 

Contribution Credit as Percentage of Compensation

Less than 30

  3%

30-39

  4%

40-49

  5%

50-59

  6%

60-69

  7%

70-79

  9%

80 or more

  11%

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% to a maximum of 7% and is set at the beginning of each plan year. The interest rate for fiscal 2010 is 4.0%.

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 a distribution is age 55 with at least five years of service.

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 described below.

The Pension Plan also contains provisions for benefits applicable only to individuals who were employees of Hercules prior to Ashland’s acquisition of Hercules. These separate provisions do not apply to any of the named executive officers except for Mr. Panichella.

Nonqualified Excess Benefit Pension Plans (Excess Plans)

The Excess Plans are unfunded, nonqualified plans of deferred compensation and 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.

The benefit payable under the Excess Plans is the difference between the benefit under the Pension Plan in the absence of the tax Code limits (the gross benefit) and the actual benefit that would be payable under the Pension Plan. 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.

 

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The benefit under the Excess Plans is payable in a lump sum and may be transferred to the Ashland Inc. 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.

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

The SERP is an unfunded, nonqualified plan of deferred compensation and covers a select group of highly compensated employees.

The benefit formula covering the 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, final average compensation is total compensation (base plus incentive compensation) for the 36 months out of the 84 months before retirement that produces the highest average.

The 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);

 

   

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 tax Code limits.

Messrs. O’Brien, Chambers and Hausrath are eligible to retire and commence their SERP benefits. SERP benefits become vested upon attaining five years of service. Messrs. Mitchell and Panichella have vested SERP benefits, but they are not retirement eligible.

The SERP benefit is payable in a lump sum and may be transferred to the Ashland Inc. Employees’ Deferral Plan. Distributions to the named executive officers 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.

 

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Nonqualified Deferred Compensation

The following table sets forth certain information for each of the named executive officers regarding nonqualified deferred compensation for fiscal 2010.

 

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,
2010
($)
(f)
 

J. J. O’Brien

     0         0         827,062         0         7,650,067   
              

L. M. Chambers

     118,029         0         251,888         0         2,569,683   
              

S. J. Mitchell

     0         0         323,198         0         3,377,815   
              

D. L. Hausrath

     0         0         143,697         0         1,595,714   
              

J. E. Panichella

     16,427         0         5,077         0         169,640   

 

(1) The contributions of Mr. Chambers in the amount of $23,036 and Mr. Panichella in the amount of $16,427 included in this column (b) are also included in column (c) of the Summary Compensation Table in this proxy statement. The remaining amount for Mr. Chambers relates to payment of fiscal 2009 incentive compensation in November 2009, which is not included in the fiscal 2010 data on 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 Ashland Inc. Employees’ Deferral Plan is an unfunded, nonqualified 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%).

Amounts in the Hercules Employee Deferral Plan as of November 13, 2008 were funded through a Rabbi Trust. Effective January 1, 2011, the Hercules Employee Deferral Plan will become part of the Ashland Inc. Employee Deferral Plan.

 

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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, 2010. 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, 2010, the last day of the 2010 fiscal year. We have noted below other material assumptions used in calculating the estimated compensation and benefits under each triggering event. 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

    2,464,883        0        0        0        0        7,719,785   

Accelerated SARs (1)

    0        0        0        0        5,901,922        0   

Restricted Stock

    0        0        0        0        0        0   

LTIP (2)

    3,776,898        3,776,898        0        3,776,898        3,776,898        3,232,813   

Incentive compensation (3)

    1,994,853        1,994,853        0        1,994,853        1,994,853        0   

Welfare Benefit

    35,224        4,506,868        0        0        0        35,224   

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        0   

Present Value of Retirement Benefits (5)

    0        0        0        0        0        0   
                                               

        Total

  $ 8,291,358      $ 10,278,619      $ 0      $ 5,771,751      $ 11,673,673      $ 11,007,322   
           

    L. M. Chambers

           

Cash severance

    796,798        0        0        0        0        1,916,622   

Accelerated SARs (1)

    0        0        0        0        1,426,926        0   

Restricted Stock

    0        0        0        0        438,930        0   

LTIP (2)

    475,184        475,184        0        475,184        475,184        426,133   

Incentive compensation (3)

    637,657        637,657        0        637,657        637,657        0   

Welfare Benefit

    32,645        1,293,971        0        0        0        32,645   

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        1,298,508        0   

Present Value of Retirement Benefits (5)

    0        0        0        0        0        0   
                                               

        Total

  $ 1,956,784      $ 2,406,812      $ 0      $ 1,112,841      $ 4,277,205      $ 2,389,900   
           

 

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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)
 

    S. J. Mitchell

           

Cash severance

    552,769        0        0        0        0        1,353,146   

Accelerated SARs (1)

    0        0        0        0        728,086        0   

Restricted Stock

    0        0        0        0        975,400        0   

LTIP (2)

    350,943        350,943        0        350,943        350,943        282,871   

Incentive compensation (3)

    458,499        458,499        0        458,499        458,499        0   

Welfare Benefit

    28,971        933,095        0        0        0        28,971   

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        1,119,792        0   
                                               

        Total

  $ 1,403,182      $ 1,742,537      $ 0      $ 809,442      $ 3,632,720      $ 1,676,988   
           

    D. L. Hausrath

           

Cash severance

    774,547        0        0        0        0        1,855,478   

Accelerated SARs (1)

    0        0        0        0        1,228,146        0   

Restricted Stock

    0        0        0        0        0        0   

LTIP (2)

    521,432        521,432        0        521,432        521,432        482,693   

Incentive compensation (3)

    615,511        615,511        0        615,511        615,511        0   

Welfare Benefit

    31,904        31,904        0        0        0        31,904   

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        0   

Present Value of Retirement Benefits (5)

    0        0        0        0        0        0   
                                               

        Total

  $ 1,957,894      $ 1,168,847      $ 0      $ 1,136,943      $ 2,365,089      $ 2,384,575   
           

    J. E. Panichella

           

Cash severance

    567,160        0        0        0        0        1,305,160   

Accelerated SARs (1)

    0        0        0        0        1,108,586        0   

Restricted Stock

    0        0        0        0        2,438,500