DEF 14A 1 c61168dfdef14a.htm DEF 14A def14a
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
SCHEDULE 14A
(Rule 14a-101)
INFORMATION REQUIRED IN PROXY STATEMENT
SCHEDULE 14A INFORMATION
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EMERSON ELECTRIC CO.
 
(Name of Registrant as Specified in Its Charter)
 
(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
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NOTICE OF ANNUAL MEETING
OF STOCKHOLDERS
 
(EMERSON  LOGO)
St. Louis, Missouri
December 10, 2010
TO THE STOCKHOLDERS OF
  EMERSON ELECTRIC CO.:
 
The Annual Meeting of the Stockholders of Emerson Electric Co. will be held at the office of the Company, 8000 West Florissant Avenue, St. Louis, Missouri 63136 on Tuesday, February 1, 2011, commencing at 10:00 a.m. Central Standard Time, at which meeting only holders of the common stock of record at the close of business on November 23, 2010 will be entitled to vote, for the following purposes:
 
  1.       To elect as directors the five Directors named in the attached proxy statement;
 
  2.       To re-approve the performance measures under the Emerson Electric Co. 2006 Incentive Shares Plan;
 
  3.       To approve the Emerson Electric Co. 2011 Stock Option Plan;
 
  4.       To ratify the appointment of KPMG LLP as our independent registered public accounting firm;
 
  5.       To hold an advisory vote on executive compensation;
 
  6.       To hold an advisory vote to determine the frequency of future advisory votes on executive compensation;
 
  7.       To vote upon the stockholder proposal described in the accompanying proxy statement, if properly presented at the meeting; and
 
  8.       To transact such other and further business, if any, as lawfully may be brought before the meeting.
 
EMERSON ELECTRIC CO.
 
  By   -s- David N Farr
Chairman of the Board and
Chief Executive Officer
 
-s- F. L. Steeves
Secretary
 
Even though you may plan to attend the meeting in person, please vote by telephone or the Internet, or execute the enclosed proxy card and mail it promptly. A return envelope (which requires no postage if mailed in the United States) is enclosed for your convenience. Telephone and Internet voting information is provided on your proxy card. Should you attend the meeting in person, you may revoke your proxy and vote in person.
 
IMPORTANT
Please note that a ticket is required for admission to the meeting. If you plan to attend in person and are a stockholder of record, please check the box on your proxy card and bring the tear-off admission ticket with you to the meeting. If your shares are held by someone else (such as a broker) please bring with you a letter from that firm or an account statement showing you were a beneficial holder on November 23, 2010.


 

 
Table of Contents
 
         
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Appendices
       
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    B-1  
         


 

 
EMERSON ELECTRIC CO.
8000 WEST FLORISSANT AVENUE, ST. LOUIS, MISSOURI 63136
PROXY STATEMENT
FOR ANNUAL MEETING OF STOCKHOLDERS TO BE HELD FEBRUARY 1, 2011
 
This proxy statement is furnished to the stockholders of Emerson Electric Co. in connection with the solicitation of proxies for use at the Annual Meeting of Stockholders to be held at 10:00 a.m. Central Standard Time on February 1, 2011 at the office of the Company, 8000 West Florissant Avenue, St. Louis, Missouri 63136 and at all adjournments thereof, for the purposes set forth in the accompanying Notice of Annual Meeting of Stockholders. This proxy statement and the enclosed form of proxy are first being mailed to stockholders on or about December 10, 2010. A copy of the Company’s Annual Report to Stockholders for the fiscal year ended September 30, 2010 accompanies this proxy statement.
 
If you plan to attend and have a disability which requires accommodation at the meeting, please call 314-553-2197. Requests must be received by January 17, 2011. If you have questions regarding admission or directions to the Annual Meeting of Stockholders, please call 314-553-2197.
 
Stockholders can simplify their voting and save Emerson expense by voting by telephone or by Internet. If you vote by telephone or Internet, you need not mail back your proxy card. Telephone and Internet voting information is provided on your proxy card. A Control Number, located on the proxy card, is designed to verify your identity and allow you to vote your shares and confirm that your voting instructions have been properly recorded.
 
If your shares are held in the name of a bank or broker, follow the voting instructions on the form you receive from that firm. The availability of telephone or Internet voting will depend on that firm’s voting processes. If you choose not to vote by telephone or Internet, please return your proxy card, properly signed, and the shares represented will be voted in accordance with your directions. You can specify your choices by marking the appropriate boxes on the proxy card. If your proxy card is signed and returned without specifying choices, the shares will be voted FOR the nominees for Director in Proposal 1, FOR the re-approval of the performance measures under the Emerson Electric Co. 2006 Incentive Shares Plan in Proposal 2, FOR the approval of the Emerson Electric Co. 2011 Stock Option Plan in Proposal 3, FOR the ratification of the appointment of KPMG LLP as our independent registered public accounting firm in Proposal 4, FOR the approval of the Company’s executive compensation in Proposal 5, and AGAINST the stockholder proposal in Proposal 7. If your proxy card is signed and returned without specifying a choice on the vote regarding the frequency of advisory votes on executive compensation, the shares will be voted to hold such advisory votes EVERY THREE YEARS in Proposal 6. Otherwise, signed proxy cards without specified choices will be voted in the discretion of the proxies. The Company knows of no reason why any of the nominees for Director named herein would be unable to serve. In the event, however, that any nominee named should, prior to the election, become unable to serve as a Director, your proxy (unless designated to the contrary) will be voted for such other person or persons as the Board of Directors of the Company may recommend.
 
You may revoke your proxy at any time before it is voted (in the case of proxy cards) by giving notice to the Secretary of the Company or by executing and mailing a later-dated proxy. To revoke a proxy given, or change your vote cast, by telephone or Internet, you must do so by telephone or Internet, respectively (following the directions on your proxy card), by 11:59 p.m. Eastern Standard Time on January 31, 2011.
 
The close of business on November 23, 2010 was fixed by the Board of Directors as the record date for the determination of stockholders entitled to vote at the Annual Meeting of Stockholders. As of the record date, there were outstanding and entitled to be voted at such meeting 754,284,594 shares of our common stock, par value $0.50 per share. The holders of the common stock will be entitled on each matter to one vote for each share of common stock held of record on the record date. There is no cumulative voting with respect to the election of Directors.
 
This proxy is solicited by the Board of Directors of the Company. The solicitation will be by mail and the expense thereof will be paid by the Company. The Company has retained Morrow & Co., LLC to assist in the solicitation of proxies at an estimated cost of $12,500 plus expenses. In addition, solicitation of proxies may be made by additional mailings, electronic mail, telephone or in person by Directors, officers or regular employees of the Company.
 
Important Notice Regarding the Availability of Proxy Materials for the Annual Meeting of Stockholders To Be Held on February 1, 2011. This proxy statement, form of proxy and our Annual Report to Stockholders are available at www.proxyvote.com. You will need to input the Control Number, located on the proxy card, when accessing these documents.


2


 

 
I. ELECTION OF DIRECTORS
 
Nominees and Continuing Directors
 
The Board of Directors is divided into three classes, with the terms of office of each class ending in successive years. Five Directors of the Company are to be elected for terms ending at the Annual Meetings specified below, or until their respective successors have been elected and have qualified. Certain information with respect to the nominees for election as Directors proposed by the Company, as well as the other Directors whose terms of office as Directors will continue after the Annual Meeting, is set forth below, including directorships held by each nominee at other public companies in the last five years and additional information regarding each nominee’s specific experience, qualifications, attributes and skills that led the Board to conclude that he or she should serve as a Director. All of the nominees meet the Board membership criteria described on page 12 under “Nomination Process.” The Board of Directors unanimously recommends a vote “FOR” each nominee indicated below.
 
         
    Served as
 
Name, Age, Principal Occupation
  Director
 
or Position, Other Directorships
  Since  
 
         
NOMINEES FOR TERMS ENDING IN 2014
       
         
D. N. Farr, 55 
    2000  
Chairman of the Board and Chief Executive Officer of Emerson
       
         
He is also a former Director of Delphi Corp.
       
         
Mr. Farr’s qualifications to serve on the Board also include his leadership, international and planning experience as former Chief Operating Officer of Emerson; former Executive Vice President and Business Leader, Emerson Process Management; former CEO of Astec International, a Hong Kong based Emerson subsidiary; former President, Ridge Tool Company subsidiary of Emerson; and former Vice President, Emerson Corporate Planning and Development.
       
         
H. Green, 49 
    2008  
President, Chief Executive Officer and a Director of Premier Farnell plc, a global distribution company
       
         
She is also a Non-Executive Director of BAE Systems PLC.
       
         
Ms. Green’s qualifications to serve on the Board also include her leadership, international and marketing experience in former regional management positions in Asia-Pacific, the United States, Northern Europe and Africa for Arrow Electronics; former Head of Worldwide Marketing and former Head of Global Strategy and New Business Development for Arrow Electronics; and as former Managing Director of The Macro Group, a United Kingdom semiconductor distributor.
       
         
C. A. Peters, 55 
    2000  
Senior Executive Vice President of Emerson
       
         
Mr. Peters’ qualifications to serve on the Board also include his leadership, technology and planning experience as former Senior Vice President-Growth Programs for Emerson; former Vice President-Development and Technology of Emerson; former Vice President-Strategic Planning of Emerson; former President, Harris Calorific Division of Emerson; and former Director of Strategic Planning of Emerson’s Skil Corporation subsidiary.
       
         
J. W. Prueher, 68 
    2001  
Admiral, U.S. Navy (Retired), and Former U.S. Ambassador to The People’s Republic of China
       
         
He is also a Director of The New York Life Insurance Company, Amerigroup Corporation and Fluor Corporation. He is a former Director of Bank of America Corporation, Merrill Lynch & Co., Inc. and Dyncorp International, Inc.
       


3


 

         
    Served as
 
Name, Age, Principal Occupation
  Director
 
or Position, Other Directorships
  Since  
 
         
Admiral Prueher’s qualifications to serve on the Board also include his knowledge of and experience with the People’s Republic of China, and his leadership, government and international experience as former Commander-in-Chief of the U.S. Pacific Command; former Commandant of the U.S. Naval Academy; and former consulting professor and senior adviser for the Stanford Harvard Preventive Defense Project.
       
         
NOMINEE FOR TERM ENDING IN 2012(1)
       
         
R. L. Ridgway, 75 
    1995  
Former Assistant Secretary of State for Europe and Canada
       
         
She is also a Director of three funds in the American Funds complex of mutual funds and Chairman (non-executive) of the Baltic-American Enterprise Fund, the Baltic-American Freedom Foundation and the Center for Naval Analyses. She is a former Director of The Boeing Company, Manpower, Inc., 3M Company and Sara Lee Corporation.
       
         
Ms. Ridgway’s qualifications to serve on the Board also include her leadership, government and international experience as a former senior officer of the U.S. Department of State; former Ambassador to the German Democratic Republic and to Finland; former Chief Executive Officer of The Atlantic Council of the United States; and broad experience as a director and as committee chair of large public companies and non-profit entities.
       
         
TO CONTINUE IN OFFICE UNTIL 2013
       
         
C. A. H. Boersig, 62 
    2009  
Chairman of the Supervisory Board of Deutsche Bank AG, a global investment bank
       
         
He is also a Member of the Supervisory Board of Daimler AG, Linde AG, and Bayer AG, and a former Member of the Supervisory Boards of Lufthansa AG and Heidelberger Druckmaschinen AG.
       
         
Mr. Boersig’s qualifications to serve on the Board also include his leadership, financial and international experience as a member of the Supervisory Boards of Bayer AG, Daimler AG and Linde AG; former member of the Management Boards of Deutsche Bank and RWE AG; former Chief Financial Officer and Chief Risk Officer of Deutsche Bank; and former Chief Financial Officer of RWE.
       
         
C. Fernandez G., 44
    2001  
Chairman and Chief Executive Officer of Grupo Modelo, S.A.B. de C.V., a brewery holding company
       
         
He is also a Director of Grupo Televisa, S.A.B. and a former Director of Anheuser-Busch Companies, Inc.
       
         
Mr. Fernandez’s qualifications to serve on the Board also include his international, operating and marketing experience as former Chief Operating Officer of Grupo Modelo.
       
         
W. J. Galvin, 64
    2000  
Vice Chairman of Emerson
       
         
He is also a Director of Ameren Corporation.
       
         
Mr. Galvin’s qualifications to serve on the Board also include his leadership and financial experience as former Senior Executive Vice President and Chief Financial Officer of Emerson; former Senior Vice President, Controller and Principal Financial Officer of Emerson; former Executive Vice President-Finance and Administration, U.S. Electrical Motors Division of Emerson; and former Lieutenant (Operations Officer), U.S. Navy.
       

4


 

         
    Served as
 
Name, Age, Principal Occupation
  Director
 
or Position, Other Directorships
  Since  
 
         
R. L. Stephenson, 50 
    2006  
Chairman, Chief Executive Officer and President of AT&T Inc., telecommunications provider
       
         
He is also a former Director of Cingular Wireless.
       
         
Mr. Stephenson’s qualifications to serve on the Board also include his leadership, technology, operating and financial experience as former Chief Operating Officer and Chief Financial Officer of AT&T Inc.; and former Chief Operating Officer of SBC Communications Inc.
       
         
TO CONTINUE IN OFFICE UNTIL 2012
       
         
A. A. Busch III, 73 
    1985  
Retired Chairman of the Board of Anheuser-Busch Companies, Inc., brewery, container manufacturer and theme park operator
       
         
He is also a former Director of AT&T Inc.
       
         
Mr. Busch’s qualifications to serve on the Board also include his leadership and international experience as former Chief Executive Officer and President of Anheuser-Busch Companies and broad experience as a director of large public companies.
       
         
A. F. Golden, 64 
    2000  
Partner of Davis Polk & Wardwell, lawyers
       
         
Mr. Golden’s qualifications to serve on the Board include his leadership, international and industry experience in heading Davis Polk teams in private and governmental litigation; in representing large multinational companies in corporate governance matters and acquisition-related transactions; counseling multinational companies on antitrust matters; and as a former member of his firm’s Management Committee.
       
         
W. R. Johnson, 61 
    2008  
Chairman, President and Chief Executive Officer of H. J. Heinz Company, a global packaged food manufacturer
       
         
He is also a Director of United Parcel Service, Inc.
       
         
Mr. Johnson’s qualifications to serve on the Board also include his leadership, international, operating and marketing experience as former Senior Vice President of H. J. Heinz responsible for Heinz operations in the Asia-Pacific area; former Chief Operating Officer of H. J. Heinz; and former Vice President of Marketing for Heinz ketchup, foodservice and sauces.
       
         
J. B. Menzer, 59
    2002  
Chief Executive Officer of Michaels Stores, Inc., retailer
       
         
He is also a former director of Wal-Mart de Mexico and The Seiyu, Ltd.
       
         
Mr. Menzer’s qualifications to serve on the Board also include his leadership, international and financial experience as retired Vice Chairman and Chief Administrative Officer of Wal-Mart Stores, Inc.; former President and CEO of Wal-Mart International, with operating responsibilities for all Wal-Mart international operations; former Chief Financial Officer of Wal-Mart Stores, Inc.; former President of Ben Franklin Retail Stores, Inc.; and Certified Public Accountant.
       
 
 
(1)  Pursuant to the Company’s Bylaws, a person may not stand for election or re-election as a Director after attaining the age of 72, provided that the Bylaws permit Ms. Ridgway to serve as a member of the Board for an additional one-year term ending at the Company’s annual meeting on February 7, 2012.

5


 

 
Each of the nominees and continuing Directors has had the same position or other executive positions with the same employer during the past five years, except as follows:
 
  •   Mr. Boersig served as a member of the Management Board of Deutsche Bank AG, Frankfurt am Main, from 2001 to 2006.
 
  •   Mr. Farr served as President of Emerson from 2005 to 2010.
 
  •   Mr. Galvin was appointed Vice Chairman of the Company in October 2009. He previously served as Senior Executive Vice President from October 2004 to October 2009. He was Chief Financial Officer of the Company from 1993 until February 2010.
 
  •   Ms. Green served as the President of Arrow Asia-Pacific from 2004 to 2006.
 
  •   Mr. Menzer served as Vice Chairman of Wal-Mart Stores, Inc. from September 2005 until his retirement in March 2008, and as Chief Administrative Officer of Wal-Mart Stores, Inc. from March 2007 until his retirement in March 2008. Mr. Menzer became Chief Executive Officer of Michaels Stores, Inc. in April 2009.
 
  •   Prior to becoming Chairman, Chief Executive Officer and President of AT&T Inc. in June 2007, Mr. Stephenson served as Chief Operating Officer of AT&T Inc. from November 2005 to June 2007.
 
Stock Ownership of Directors, Executive Officers and 5% Beneficial Owners
 
The following table shows the number of shares of the Company’s common stock that are beneficially owned by the Directors, by each of the named executive officers in the Summary Compensation Table, and by all Directors and executive officers as a group as of September 30, 2010. No person reflected in the table owns more than 0.5% of the outstanding shares of Emerson common stock.
 
             
    Total Shares of
   
    Emerson Common
   
    Stock Beneficially
   
Name
 
Owned (1)(2)
   
 
C. A. H. Boersig
    6,011      
A. A. Busch III(3)
    209,261      
F. J. Dellaquila(4)
    184,968      
D. N. Farr(5)
    2,036,793      
C. Fernandez G 
    41,241      
W. J. Galvin(6)
    1,030,591      
A. F. Golden
    29,977      
H. Green
    7,058      
R. B. Horton(7)
    34,085      
W. R. Johnson
    8,444      
V. R. Loucks, Jr.(8)
    29,061      
J. B. Menzer
    21,793      
E. L. Monser
    424,403      
C. A. Peters(9)
    765,434      
J. W. Prueher
    22,451      
R. L. Ridgway
    31,281      
F. L. Steeves
    122,706      
R. L. Stephenson
    12,531      
All Directors and Executive Officers as a group (20 persons)
    5,268,849 (10)(11)    
 
(1) Under rules of the Securities and Exchange Commission (“SEC”), persons who have power to vote or dispose of securities, either alone or jointly with others, are deemed to be the beneficial owners of such securities. Each person reflected in the table has both sole voting power and sole investment power with respect to the shares included in the table, except as described in the footnotes below and except for the following shares of restricted stock over which the person named has no investment power: Mr. Farr-510,000; Mr. Dellaquila, Senior Vice President and Chief Financial Officer-30,000; Mr. Galvin-260,000; Mr. Monser, President and Chief Operating Officer-80,000; Mr. Peters-120,000; Mr. Steeves, Senior Vice President, Secretary and General Counsel-10,000; Mr. Boersig-3,450;


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Mr. Busch-29,061; Mr. Fernandez-21,161; Mr. Golden-21,549; Ms. Green-4,497; Sir Robert Horton-29,061; Mr. Johnson-7,366; Mr. Loucks-2,561; Mr. Menzer-17,793; Adm. Prueher-20,361; Ms. Ridgway-2,561; Mr. Stephenson-11,659; and all Directors and executive officers as a group-1,236,080 shares.
 
(2) As required by SEC rules, includes the following shares which such persons have, or will have within 60 days after September 30, 2010, the right to acquire upon the exercise of employee stock options: Mr. Farr-700,000; Mr. Dellaquila-40,000; Mr. Galvin-446,673, including 217,180 held by The Galvin Family Trust (see footnote (6)); Mr. Monser-266,666; Mr. Peters-226,666; and Mr. Steeves-100,000. Also includes 2,561 restricted stock units held by each of Mr. Boersig and Ms. Green.
 
(3) Includes 1,200 shares held by Mr. Busch as co-trustee of two trusts, as to which Mr. Busch shares voting and investment power and disclaims beneficial ownership.
 
(4) Includes 16,407 shares held by the spouse and/or the son of Mr. Dellaquila. Includes 239 shares held in the Emerson Directors’ and Officers’ Charitable Trust over which Mr. Dellaquila exercises investment power but has no financial interest.
 
(5) Includes 143,214 shares held by the spouse and/or children of Mr. Farr. Includes 6,437 shares held in the Emerson Directors’ and Officers’ Charitable Trust over which Mr. Farr exercises investment power but has no financial interest.
 
(6) Includes 25,656 shares held by or in trust for the spouse and/or children of Mr. Galvin, of which Mr. Galvin disclaims beneficial ownership as to 6,452 shares. Includes 214,000 shares held by JGM Investors, LP, a limited partnership of which The Galvin Family Trust and Mr. Galvin’s spouse are the general partners. The Galvin Family Trust is the controlling general partner of JGM Investors, LP. Mr. Galvin’s children are the trustees of The Galvin Family Trust and Mr. Galvin’s spouse and children are the beneficiaries. The Galvin Family Trust has a 99.9% limited partnership interest in JGM Investors, LP. Mr. Galvin disclaims beneficial ownership in the shares held by JGM Investors, LP that are beneficially owned by his children.
 
(7) Sir Robert Horton is not standing for re-election for personal reasons.
 
(8) Mr. Loucks is not standing for re-election pursuant to the requirement in the Company’s Bylaws that a person may not stand for election or re-election after the age of 72. Amounts shown include 26,500 shares pledged as security.
 
(9) Includes 281,460 shares pledged as security to a commercial bank.
 
(10) Includes 1,896,004 shares of common stock which executive officers have, or will have within 60 days after September 30, 2010, the right to acquire upon exercise of employee stock options. Also includes 2,561 restricted stock units held by each of Mr. Boersig and Ms. Green. Shares owned as a group represent 0.70% of the outstanding common stock of the Company.
 
(11) Includes 250,760 shares beneficially owned by two other executive officers of the Company, of which 55,000 shares are shares of common stock over which the two other executive officers have no investment power, 115,999 are shares of common stock over which the two other executive officers have, or will have within 60 days after September 30, 2010, the right to acquire upon exercise of employee stock options, and 900 shares held by one of the other executive officers in the Emerson Directors’ and Officers’ Charitable Trust over which the executive officer exercises investment power but has no financial interest.
 
Capital World Investors, a division of Capital Research and Management Company, filed a Schedule 13G on February 11, 2010 with the SEC indicating that it has sole voting and dispositive power with respect to 43,095,000 shares of the Company’s common stock, or 5.7% of the Company’s outstanding stock as of September 30, 2010. Its address is 333 South Hope Street, Los Angeles, CA 90071. The Company is not aware of any other shareholders who beneficially own more than 5% of its outstanding common stock.
 
Corporate Governance
 
The Company’s Corporate Governance Principles and Practices and the charters of all Board Committees are available on the Company’s website at www.Emerson.com, Investor Relations, Corporate Governance. The foregoing documents are available in print to stockholders upon written request delivered to Emerson Electric Co., 8000 West Florissant Avenue, St. Louis, Missouri 63136, Attn: Secretary.


7


 

There were ten meetings of the Board of Directors during fiscal 2010. All of the Directors attended at least 75% of the meetings of the Board and committees on which they served. Directors are strongly encouraged to attend the Annual Meeting of Stockholders unless extenuating circumstances prevent them from attending, although the Company has no formal, written policy requiring such attendance. In 2010, all of the Directors attended the Annual Meeting of Stockholders.
 
The Board of Directors has appointed a Discussion Leader who chairs regularly scheduled meetings of non-management Directors, as provided in the Company’s Corporate Governance Principles and Practices. The Discussion Leader position rotates annually among the Chairs of each of the independent Board Committees. Stockholders and other interested persons may contact the Discussion Leader in writing c/o Emerson Electric Co., 8000 West Florissant Avenue, St. Louis, Missouri 63136, Attn: Secretary. All such letters will be forwarded promptly to the Discussion Leader.
 
Stockholders may communicate with any of our Directors by sending a letter to the Director, c/o Emerson Electric Co., 8000 West Florissant Avenue, St. Louis, Missouri 63136, Attn: Secretary. All such letters will be forwarded promptly to the relevant Director.
 
Board Leadership Structure and Role in Risk Oversight
 
The Board believes that it should have the flexibility to make the determination of whether the same person should serve as both the Chief Executive Officer and Chairman of the Board at any given point in time, or if the roles should be separate. The Company has in the past combined the functions of Chairman of the Board with those of the Chief Executive Officer and has also separated those positions. The Board bases this determination on the way that it believes is best to provide appropriate leadership for the Company at the time. The Board believes that its current leadership structure, with Mr. Farr serving as both Chief Executive Officer and as Chairman of the Board, as well as Chairman of our Executive Committee, is appropriate given Mr. Farr’s past success and extensive experience serving in these roles, the efficiencies of having the Chief Executive Officer also serve in the role of Chairman, the Company’s strong corporate governance structure and the Company’s financial success under Mr. Farr’s leadership. As a result, our Bylaws currently require that our Chairman shall also be our Chief Executive Officer. The Board has not found it necessary to designate a “Lead Director” from among the non-management Directors. However, as discussed above, the Board does have an annual rotation of independent Directors who serve as Discussion Leaders to preside at the periodic meetings of non-management Directors. The Chairman and Chief Executive Officer consults periodically with the Discussion Leader and the Chairs of our other Board committees, all of whom are independent, on Board matters and on issues facing the Company. In addition, the Discussion Leader presides at an executive session of non-management directors at each regularly scheduled Board meeting.
 
The Board as a whole has responsibility for the oversight of the Company’s risk management process. This process is designed to provide to the Board timely visibility about the identification, assessment and management of critical risks. The Audit Committee assists the Board by annually reviewing and discussing with management this process and its functionality. The areas of critical risk include strategic, operational, compliance, environmental and financial risks. The full Board, or the appropriate Committee, receives this information through updates from the appropriate members of management to enable it to understand and monitor the Company’s risk management process. Information brought to the attention of the Committees can then be shared with the full Board, as appropriate.
 
Director Independence
 
The Board of Directors has determined that the following of its members are independent, as that term is defined under the general independence standards in the listing standards of the New York Stock Exchange: C. A. H. Boersig, A. A. Busch III, C. Fernandez G., A. F. Golden, H. Green, R. B. Horton, W. R. Johnson, V. R. Loucks, Jr., J. B. Menzer, J. W. Prueher, R. L. Ridgway and R. L. Stephenson. Messrs. Horton and Loucks will not be standing for re-election. All Directors identified as independent in this proxy statement meet the categorical standards adopted by the Board to assist it in making determinations of Director independence. A copy of these standards is set forth under the caption “Emerson Director Independence Standards” in Appendix A attached to this proxy statement and is available on the Company’s website at www.Emerson.com, Investor Relations, Corporate Governance.


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In the course of the Board’s determination regarding independence of each non-management Director, it considered any transactions, relationships and arrangements as required by the Company’s independence standards. In particular, with respect to each of the three most recently completed fiscal years, the Board considered for:
 
  •   Each of Messrs. Fernandez, Johnson and Stephenson and Ms. Green, the annual amount of sales to Emerson by the company which the Director serves as an executive officer, and purchases by that company from Emerson, and determined that the amounts of such sales and purchases were consistent with the Emerson Director Independence Standards.
 
  •   Mr. Boersig, the amount of compensation earned by the bank of which he is a director from business with Emerson, and determined that the total amount of such compensation was consistent with the Emerson Director Independence Standards.
 
  •   Mr. Stephenson, the immediate family member who was employed by our independent registered public accounting firm was not a partner of such firm and did not participate in the audit of Emerson or provide any other services to Emerson.
 
  •   Each of Messrs. Busch and Prueher, the annual amount of sales to Emerson by the company which one of his immediate family members serves or served as an executive officer, and purchases by that company from Emerson, and determined that the amounts of such sales and purchases were consistent with the Emerson Director Independence Standards.
 
  •   Mr. Golden, the annual amount paid by Emerson to the law firm of which he is a partner, and determined that the total amount of such payments was consistent with the Emerson Director Independence Standards.
 
  •   Each of Messrs. Boersig, Busch, Fernandez, Golden, Prueher and Stephenson and Ms. Green and Ms. Ridgway, the annual amount of contributions by Emerson, if any, to charitable organizations for whom the Director served as a director, officer or trustee, and determined that such contributions, if any, were consistent with the Emerson Director Independence Standards.
 
Review, Approval or Ratification of Transactions with Related Persons
 
We review all transactions and relationships in which the Company and any of our Directors, nominees for Director or executive officers, or any of their immediate family members, are participants, so as to determine whether any of these individuals have a direct or indirect material interest in any such transaction. We have developed and implemented processes and controls to obtain information from the Directors and executive officers about related person transactions, and for then determining, based on the facts and circumstances, whether a related person has a direct or indirect material interest in any such transaction. Transactions that are determined to be directly or indirectly material to a related person are disclosed as required.
 
Pursuant to these processes, all Directors and executive officers annually complete, sign and submit a Director and Executive Officer Questionnaire and a Conflict of Interest Questionnaire that are designed to identify related person transactions and both actual and potential conflicts of interest. We also make appropriate inquiries as to the nature and extent of business that the Company conducts with other companies for whom any of our Directors or executive officers also serve as directors or executive officers. Under the Company’s Code of Business Ethics, if an actual or potential conflict of interest affects an executive officer, he or she is to immediately disclose all the relevant facts and circumstances to the Company’s Ethics and Environmental Policy Committee. If the Committee determines that there is a conflict, it will refer the matter to the Board of Directors, which will review the matter to make a final determination as to whether a conflict exists, and, if so, how the conflict should be resolved. If an actual or potential conflict of interest affects a Director, he or she is to immediately disclose all the relevant facts and circumstances to the Board of Directors, which likewise will review the matter to make a final determination as to whether a conflict exists, and, if so, how it should be resolved.
 
The Company has a written Code of Business Ethics applicable to all Directors and executive officers of the Company that prohibits Directors and executive officers from entering into transactions, or having any relationships, that would result in a conflict of interest with the interests of the Company. Waivers of the Code of Business Ethics for Directors and executive officers may only be granted by the Board of Directors. The Code of Business Ethics can be found on the Company’s website at www.Emerson.com, Investor Relations, Corporate Governance.


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Certain Business Relationships and Related Party Transactions
 
Based on the review described above, there were no transactions from October 1, 2009 through the date of this proxy statement, and there are no currently proposed transactions, in which the Company was or is to be a participant, in which the amount involved exceeded $120,000 and in which any of the Company’s Directors or executive officers or any of their immediate family members, or any beneficial holder of more than 5% of our common stock, either had or will have a direct or indirect material interest.
 
Board of Directors and Committees
 
The members of the Board are elected to various committees. The standing committees of the Board (and the respective Chairmen) are: Executive Committee (Farr), Audit Committee (Busch), Compensation Committee (Loucks), Corporate Governance and Nominating Committee (Golden) and Finance Committee (Horton).
 
Audit Committee
 
The Audit Committee met four times in fiscal 2010. The members of the Audit Committee are A. A. Busch III, Chairman, H. Green, R. B. Horton, J. B. Menzer and R. L. Ridgway, all of whom are independent. The functions of the Audit Committee are described under “Report of the Audit Committee” at page 15 below. The Board has determined that all of the Audit Committee members are independent, as that term is defined under the enhanced independence standards for audit committee members in the Securities Exchange Act of 1934 (the “Exchange Act”) and rules thereunder, as incorporated into the listing standards of the New York Stock Exchange. The Board has also determined that J. B. Menzer and H. Green are Audit Committee Financial Experts as that term is defined in the rules issued pursuant to the Sarbanes-Oxley Act of 2002. See the “Report of the Audit Committee” at page 15 below.
 
Compensation Committee
 
The Compensation Committee met five times in 2010. The Compensation Committee Charter requires that the Committee be comprised of at least three Directors. The current Compensation Committee members are V. R. Loucks, Jr., Chairman, C. A. H. Boersig, W. R. Johnson, J. W. Prueher and R. L. Stephenson. The Board has determined that, as required by the Committee Charter, each of the members of the Compensation Committee meets applicable independence requirements, including those of the New York Stock Exchange, and qualifies as an “outside director” under Section 162(m) of the Internal Revenue Code and as a “non-employee director” under Rule 16b-3 of the Exchange Act. For purposes of its independence determination, the Board considered the enhanced independence standards for compensation committees which recently enacted federal legislation (Public Law 111-203) specified must be required by the SEC for the listing standards of national securities exchanges.
 
The Compensation Committee discharges the Board’s responsibilities relating to compensation of the Company’s executives and produces the Committee’s report on executive compensation included in the Company’s annual proxy statement. Among other things, the Committee:
 
  •   Approves corporate goals and objectives relevant to Chief Executive Officer compensation, evaluates Chief Executive Officer performance, has sole authority to set Chief Executive Officer compensation, and annually reviews the compensation of the Chief Executive Officer with the Board in executive session of non-management Directors only.
 
  •   Approves elements of compensation and oversees the evaluation process for all officers.
 
  •   Administers the Company’s equity incentive plans.
 
  •   Approves Company contributions to benefit plans (other than qualified defined benefit plans), and the adoption, amendment or termination of benefit plans.
 
  •   Approves all additional compensation designed to attract and retain key employees.
 
  •   Monitors and keeps current the Senior Management Succession Plan.
 
The Compensation Committee operates under a written charter that details the scope of authority, composition and procedures of the Committee. The Committee may, when appropriate in its discretion, delegate authority with respect to specific matters to one or more members, provided that all decisions of any such members are presented to the full


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Committee at its next scheduled meeting. For a discussion of delegations of authority the Committee has made to the Chief Executive Officer, see “Equity Compensation Grant Practices” at page 29 below. The Committee reports to the Board of Directors regularly, reviews and reassesses the adequacy of its Charter at least annually and conducts an annual evaluation of its performance.
 
The Compensation Committee reviewed management’s process for assessing risk in the Company’s compensation programs for its employees, including an assessment by Ernst & Young of the Company’s executive compensation program and practices. The Committee also reviewed management’s longstanding internal process and controls for compensation programs for employees who do not participate in the executive compensation program. The Committee accepted the result of these reviews that our compensation programs do not create risks that are reasonably likely to have a material adverse effect on our business. Please see “Alignment with Stockholder Interests” on page 26 for additional information.
 
Role of Executive Officers and the Compensation Consultant
 
Executive Officers
 
The Chief Executive Officer makes recommendations to the Committee regarding total compensation to be paid to the Company’s executive officers other than himself, including salary, annual bonus, stock awards and benefits, as appropriate. Management makes recommendations to the Committee regarding salaries, at or above a level established by the Committee, to be paid to non-executive officer employees of the Company, its divisions and subsidiaries, including the officers of divisions and subsidiaries of the Company who are not officers of the Company, and salaries of all Division Presidents.
 
Management develops and presents to the Committee recommendations for the design of compensation programs, including stock or other incentive-based programs and other programs designed to attract and retain key employees.
 
The Committee has unrestricted access to management and may also request the participation of management in any discussion of a particular subject at any meeting. Committee meetings are regularly attended by the Chief Executive Officer, who generally attends all meetings except meetings in executive session and except discussions of Chief Executive Officer compensation, and by the Vice President-Executive Compensation, who is responsible for leading some of the discussions regarding the Company’s compensation programs and is responsible for recording the minutes of the meetings.
 
The Compensation Committee also meets in executive session without any members of management. The Committee may request the participation of management or outside consultants as it deems necessary or appropriate. The Committee regularly reports to the Board on compensation matters and annually reviews the Chief Executive Officer’s compensation with the Board in executive session of non-management Directors only.
 
Compensation Consultant
 
The Committee has sole discretion, at Company expense, to retain and terminate independent advisors, including sole authority to approve the fees and retention terms for such advisors, if it shall determine the services of such advisors to be necessary or appropriate. Any Committee member may request the participation of independent advisors in any discussion of a particular subject at any meeting. The Company engages Frederic W. Cook & Co., Inc. to assist the Company in its executive compensation program design and competitive pay analysis. The Committee reviews this information in determining compensation for its named executive officers. In fiscal 2010, the Committee did not engage a compensation consultant.
 
Corporate Governance and Nominating Committee
 
The Corporate Governance and Nominating Committee met four times in fiscal 2010. The members of the Committee are A. F. Golden, Chairman, C. Fernandez G., H. Green, V. R. Loucks, Jr., R. L. Ridgway and R. L. Stephenson, all of whom are independent. The Corporate Governance and Nominating Committee reviews the Company’s corporate governance matters and principles and independence standards; oversees the annual self-evaluation by the Board and its committees; discharges the Board’s responsibilities related to compensation of Directors; identifies and evaluates individuals for Board and committee membership and Chairs; makes recommendations to the Board concerning the selection of Director nominees; makes recommendations as to the size and composition of the Board and its committees; and approves and/or


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reviews the Company’s conflict of interest policies, codes of ethics, political activities and compliance with laws and regulations, and oversees management’s implementation thereof. For a description of the process used by the Committee in evaluating and recommending Director nominees, see “Nomination Process” below.
 
Nomination Process
 
The Corporate Governance and Nominating Committee regularly reviews the appropriate size and composition of the Board and anticipates future vacancies and needs of the Board. In the event the Committee recommends an increase in the size of the Board or a vacancy occurs, the Committee may consider nominees submitted by several sources, including current Board members, management of the Company, director search firms, stockholders or other persons.
 
In evaluating possible Director nominees, the Committee considers the knowledge, experience, integrity and judgment of possible candidates, their potential contribution to the diversity of backgrounds, experience and skills of the Board, and their ability to devote sufficient time and effort to their duties as Directors. The Company’s Statement of Corporate Governance Principles and Practices sets forth the minimum qualifications for Director nominees which include, among other criteria determined by the Board, senior management experience in business, government and/or other relevant organizations. Important experience includes the field of manufacturing, international exposure and Board membership with major organizations. Pursuant to the Company’s Bylaws, a Director may not stand for election or re-election as a Director after attaining the age of 72, provided that the Bylaws permit Ms. Ridgway to serve as a member of the Board for an additional one-year term ending at the Company’s annual meeting on February 7, 2012.
 
It is the policy of the Company to seek the most qualified candidates for Board membership without regard to race, gender, national origin, religion, disability, age or sexual orientation. The Company does seek a diversity of viewpoints in order to better understand the technical, economic, political and social environments in which it operates. This policy is implemented by using existing Board members and outside agencies to actively seek qualified candidates. The Company’s success in seeking a diversity of viewpoints is measured by the range of viewpoints represented on the Company’s Board.
 
The Committee evaluates Director nominees at regular or special Committee meetings pursuant to the criteria described above and reviews qualified Director nominees with the Board. The Committee evaluates candidates that meet the Director criteria, and the Committee selects nominees that best suit the Board’s current needs and recommends one or more of such individuals for election to the Board. From time to time, the Company retains an independent search firm to assist the Committee in identifying potential candidates for Board membership and in evaluating their qualifications and availability.
 
The Committee will consider candidates recommended by stockholders, provided the names of such persons, accompanied by relevant biographical information, are properly submitted in writing to the Secretary of the Company in accordance with the manner described for stockholder nominations in ‘‘IX. Stockholders’ Proposals” at page 53 below. The Secretary will send properly submitted stockholder recommendations to the Committee. Individuals recommended by stockholders in accordance with these procedures will receive the same consideration received by individuals identified to the Committee through other means. The Committee also may, in its discretion, consider candidates otherwise recommended by stockholders without accompanying biographical information, if submitted in writing to the Secretary.
 
In addition, the Company’s Bylaws permit stockholders to nominate Directors at an annual meeting of stockholders or at a special meeting at which Directors are to be elected in accordance with the notice of meeting. The procedures for making such nominations are discussed in “IX. Stockholders’ Proposals” at page 53 below.
 
Processes and Procedures for Determination of Director Compensation
 
The Corporate Governance and Nominating Committee annually reviews compensation of the Company’s Directors, as well as the Company’s compensation practices for Directors, and makes recommendations to the Board regarding these matters. The Board makes the final determinations as to Director compensation and compensation practices.
 
To assist the Committee in performing these duties, Company management periodically engages an outside consultant to prepare a study of outside director compensation trends and best practices in the competitive market, and to make recommendations as to the compensation of the Company’s non-management Directors. Management, including the Chief Executive Officer, presents these recommendations to the Committee for its consideration. No consultant was engaged for fiscal 2010.


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Director Compensation
 
Directors who are employees of the Company do not receive any compensation for service as Directors. Each non-management Director is currently paid an annual retainer, a portion of which is paid in cash and a portion of which is paid in restricted stock and/or restricted stock units, and fees of $1,500 plus expenses for attendance at each Board meeting. The cash portion of the annual retainer, which is paid on a monthly basis, was $70,000 in fiscal year 2010. The amount of the annual retainer paid in restricted stock and/or restricted stock units each year is determined by or upon the recommendation of the Corporate Governance and Nominating Committee. For fiscal 2010, non-management Directors received $115,000 in restricted stock or restricted stock units. See footnote (2) to the Director Compensation table below.
 
The restricted stock and restricted stock unit awards generally do not vest and the stock cannot be sold until the last day of a Director’s term after the age of 72 or earlier death, disability or a change of control of the Company. If a Director’s tenure on the Board ends for any other reason, the vesting of the award is in the discretion of the Committee. If the restrictions on the awards do not lapse, such awards will be forfeited to the Company. As a result of these restrictions, the amount of restricted stock held by a Director reflects the length of time that a Director has served on the Board. Non-management Directors receive dividends with respect to restricted stock or, in the case of restricted stock units, dividend equivalents which may be paid out regularly or deferred until final settlement, with interest compounded quarterly as determined by the Committee, but in any event no greater than 120% of the applicable federal long-term rate. Restricted stock awards are entitled to voting rights; restricted stock units are not.
 
Each committee Chairman is currently paid an annual retainer of $12,000, except for the Chairman of the Audit Committee who is paid an annual retainer of $15,000, and each committee member is paid $1,500 plus expenses for attendance at each committee meeting.
 
Directors may elect to defer all or a part of their cash compensation under the Company’s Deferred Compensation Plan for Non-Employee Directors. Under the plan, which has existed since 1982, such deferred amounts are credited with interest quarterly at the prime rate charged by Bank of America, N.A. Under the rules of the SEC, interest on deferred compensation is considered above-market only if the rate of interest exceeds 120% of the applicable federal long-term rate, which is the rate applying to debt instruments with a term of more than 9 years published monthly by the Internal Revenue Service. During fiscal 2010, the Bank of America prime rate was 3.25%, while 120% of the applicable federal long-term rate ranged from 4.32% to 5.24%. A. A. Busch, A. F. Golden and R. L. Stephenson currently participate in this deferral program. There were no above-market earnings on deferred compensation for each of these Directors in fiscal 2010. In the alternative, Directors may elect to have deferred fees converted into units equivalent to shares of Emerson common stock and their accounts credited with additional units representing dividend equivalents. Regardless of the election, all deferred amounts are payable only in cash.
 
For Directors who assumed office on or after June 4, 2002, the Company has eliminated its Continuing Compensation Plan for Non-Management Directors. Non-management Directors continuing in office on that date who are not fully vested continue to vest in the plan. A non-management Director who assumed office prior to June 4, 2002 and who served as a Director for at least five years will, after the later of termination of service as a Director or age 72, receive for life a percentage of the annual $30,000 cash retainer for non-management Directors in effect on June 4, 2002. This percentage is 50% for five years service and an additional 10% for each year of service to 100% for ten or more years of service. In the event that service as a covered Director terminates because of death, the benefit will be paid to the surviving spouse for five years. Amounts relating to the aggregate change in the actuarial present value of the accumulated benefit for fiscal year 2010 pursuant to the Company’s Continuing Compensation Plan for Non-Management Directors are set forth in the Director Compensation table.
 
As part of the Company’s overall charitable contributions practice, the Company may, in the sole and absolute discretion of the Board and its Committees, make a charitable contribution in the names of Emerson and a Director upon his or her retirement from the Board (as determined by the Board and its Committees), taking into account such Director’s tenure on the Board, his or her accomplishments and service on the Board, and other relevant factors.


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The table below sets forth amounts for non-management Director compensation for fiscal 2010.
 
Director Compensation
 
                                                   
                  Change in Pension
           
                  Value and
           
      Fees
          Nonqualified
           
      Earned
    Stock
    Deferred
    All Other
     
      or Paid in
    Awards
    Compensation
    Compensation
     
 Name(1)     Cash ($)     ($)(2)(3)     Earnings ($)(4)     ($)(5)     Total ($)
 C. A. H. Boersig
      97,000         114,989                         211,989  
 A. A. Busch III
      112,000         114,989         23,000         10,000         259,989  
 C. Fernandez G.
      91,000         114,989         18,000                 223,989  
 A. F. Golden
      109,000         114,989         38,000         10,000         271,989  
 H. Green
      97,000         114,989                         211,989  
 R. B. Horton(6)
      107,500         114,989         23,000         10,000         255,489  
 W. R. Johnson
      92,500         114,989                         207,489  
 V. R. Loucks, Jr.(6)
      115,000         114,989                 10,000         239,989  
 J. B. Menzer
      95,500         114,989                         210,489  
 J. W. Prueher
      98,500         114,989         39,000         10,000         262,489  
 R. L. Ridgway
      95,500         114,989                 10,000         220,489  
 R. L. Stephenson
      98,500         114,989                 10,000         223,489  
                                                   
 
 
(1)  Messrs. D. N. Farr, W. J. Galvin and C. A. Peters are named executive officers who are also Directors and their compensation is set forth in the Summary Compensation Table and related tables. They did not receive any additional compensation for their service as Directors.
 
(2)  In fiscal 2010, the Directors in office on February 2, 2010 were awarded 2,561 shares of restricted stock, or restricted stock units in the cases of Mr. Boersig and Ms. Green, with a total value of $114,989 ($115,000 divided by the grant date fair market value of Emerson stock, rounded down to the nearest whole share). Each amount constitutes the aggregate grant date fair value of restricted stock and restricted stock unit awards for fiscal 2010 calculated in accordance with FASB ASC Topic 718, which is also the dollar amount recognized for financial statement reporting purposes for fiscal 2010.
 
(3)  The total number of shares of restricted stock held by each of the non-management Directors at September 30, 2010 (the end of fiscal 2010) is as follows: C. A. H. Boersig-3,450; A. A. Busch III-29,061; C. Fernandez G.-21,161; A. F. Golden-21,549; H. Green-4,497; R. B. Horton-29,061; W. R. Johnson-7,366; V. R. Loucks, Jr.-2,561; J. B. Menzer-17,793; J. W. Prueher-20,361; R. L. Ridgway-2,561; and R. L. Stephenson-11,659. In addition, C. A. H. Boersig and H. Green each hold 2,561 restricted stock units, which they received instead of restricted stock in fiscal 2010 as provided in the Company’s Restricted Stock Plan for Non-Management Directors.
 
(4)  Represents the aggregate change in the actuarial present value of the accumulated pension benefit for fiscal year 2010 pursuant to the Company’s Continuing Compensation Plan for Non-Management Directors who assumed office prior to June 4, 2002. Pursuant to applicable regulations, does not include the following negative amounts relating to the change in actuarial present value: V. R. Loucks. Jr.-$3,000; and R. L. Ridgway-$3,000. The Company has eliminated its Continuing Compensation Plan for Non-Management Directors who assumed office on or after June 4, 2002. Non-management Directors continuing in office on that date who are not fully vested continue to vest in the plan. The actuarial present value changes reflect in part the continued vesting of these Directors. Please see the narrative above for more information.
 
(5)  Represents Company matching contributions under the Company’s charitable matching gifts program which matches charitable gifts of up to $10,000 for all employees and Directors of the Company.
 
(6)  Messrs. Horton and Loucks are not standing for re-election.


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Code of Ethics
 
The Company has adopted a Code of Ethics that applies to the Company’s chief executive officer, chief financial officer, chief accounting officer, and controller; has posted such Code of Ethics on its website; and intends to satisfy the disclosure requirement under Item 5.05 of Form 8-K by posting such information on its website at www.Emerson.com, Investor Relations, Corporate Governance. The Company has adopted a Code of Business Ethics for Directors, officers and employees, which is available at the same location on the Company’s website. Printed copies of the foregoing documents are available to stockholders upon written request delivered to Emerson Electric Co., 8000 West Florissant Avenue, St. Louis, Missouri 63136, Attn: Secretary.
 
Compensation Committee Interlocks and Insider Participation
 
The functions and members of the Compensation Committee are set forth above under “Board of Directors and Committees — Compensation Committee.” All Committee members are independent and none of the Committee members has served as an officer or employee of the Company or a subsidiary of the Company.
 
Section 16(a) Beneficial Ownership Reporting Compliance
 
The Company’s Directors and executive officers are required, pursuant to Section 16(a) of the Exchange Act, to file statements of beneficial ownership and changes in beneficial ownership of common stock of the Company with the SEC and the New York Stock Exchange, and to furnish copies of such statements to the Company. Based solely on a review of the copies of such statements furnished to the Company and written representations that no other such statements were required, the Company believes that during fiscal year 2010 its Directors and executive officers complied with all such requirements.
 
Report of the Audit Committee
 
The Audit Committee assists the Board in providing oversight of the systems and procedures relating to the integrity of the Company’s financial statements, the Company’s financial reporting process, its systems of internal accounting and financial controls, the internal audit process, risk management, the annual independent audit process of the Company’s annual financial statements, the Company’s compliance with legal and regulatory requirements and the qualification and independence of the Company’s independent registered public accounting firm. The Audit Committee reviews with management the Company’s major financial risk exposures and the steps management has taken to monitor, mitigate and control such exposures. Management has the responsibility for the implementation of these activities. In fulfilling its oversight responsibilities, the Committee reviewed and discussed with management the audited financial statements in the Company’s Annual Report on Form 10-K for the fiscal year ended September 30, 2010, including a discussion of the quality and the acceptability of the Company’s financial reporting and controls.
 
The Company’s independent registered public accounting firm is responsible for expressing an opinion on the conformity of those audited financial statements with U.S. generally accepted accounting principles and on the effectiveness of the Company’s internal control over financial reporting. The Committee reviewed with the independent registered public accounting firm the firm’s judgments as to the quality and the acceptability of the Company’s financial reporting and such other matters as are required to be discussed with the Committee under auditing standards of the Public Company Accounting Oversight Board (PCAOB) (United States), including the matters required to be discussed by PCAOB Interim Auditing Standard AU Section 380, Communication with Audit Committees. In addition, the Committee has discussed with the independent registered public accounting firm the firm’s independence from management and the Company, including the impact of non-audit-related services provided to the Company and the matters in the independent registered public accounting firm’s written disclosures required by Rule 3526 of the Public Company Accounting Oversight Board (United States), as may be modified or supplemented.
 
The Committee also discussed with the Company’s internal auditors and the independent registered public accounting firm in advance the overall scope and plans for their respective audits. The Committee meets regularly with the internal auditor and the independent registered public accounting firm, with and without management present, to discuss the results of their examinations, their evaluations of the Company’s internal controls, and the overall quality of the Company’s financial reporting.


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In reliance on the reviews and discussions referred to above, the Committee recommended to the Board of Directors that the audited financial statements be included in the Company’s Annual Report on Form 10-K for the fiscal year ended September 30, 2010 for filing with the Securities and Exchange Commission. The Committee also reappointed KPMG LLP as the Company’s independent registered public accounting firm for fiscal 2011.
 
Audit Committee
 
  A. A. Busch III, Chairman
  H. Green
  R. B. Horton
  J. B. Menzer
  R. L. Ridgway
 
Fees Paid to KPMG LLP
 
The following are the fees of KPMG LLP, the Company’s independent registered public accounting firm, for services rendered in 2009 and 2010 ($ in millions):
 
                 
    2009     2010  
 
Audit Fees
  $ 25.6     $ 27.0  
Audit-Related Fees
    3.0       2.7  
Tax Fees
    1.6       3.0  
All Other Fees
    0       0  
                 
Total KPMG LLP Fees
  $ 30.2     $ 32.7  
                 
 
Audit Fees primarily represent the cost for the audit of the Company’s annual financial statements, reviews of SEC Forms 10-Q and 10-K and statutory audit requirements at certain non-U.S. locations.
 
Audit-Related Fees are primarily related to acquisition and divestiture due diligence, audits of employee benefit plans and statutory filings.
 
Tax Fees are primarily related to tax compliance services, which represented $2.0 million and $1.5 million in 2010 and 2009, respectively. The remaining tax fees related to tax consulting services and represented $1.0 million and $0.1 million in 2010 and 2009, respectively.
 
The Audit Committee approved in advance all services provided by KPMG LLP. The Audit Committee’s pre-approval policies and procedures are included within the Audit Committee Charter, which can be found on the Company’s website at www.Emerson.com, Investor Relations, Corporate Governance.


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EXECUTIVE COMPENSATION
 
Compensation Discussion and Analysis
 
Overview
 
Emerson is a performance-driven, financially focused company that has a long track record of consistently delivering increased value to our stockholders. Continuity, stability, and rigorous execution of our business plans — combined with a continuous drive to develop innovative solutions for our customers — are hallmarks of our management team and management process. As a result, the Company has achieved the following:
 
  •   An increase in earnings per share in the last five years at a compound annual growth rate of 10.8%.
 
  •   Increases in dividends per share for the last 54 consecutive years, at a compound annual growth rate of 10.9%.
 
  •   Consistent generation of substantial cash flow which the Company uses for strategic acquisitions, investment in new technology, and funding of dividend payments and share repurchases.
 
The Company has built this performance record in good and bad economic times — in the face of various recessions, inflationary periods, technological revolutions, and intense global competition. Our executive compensation program, with its pay for performance philosophy, is a part of our consistent and rigorous management process. We believe it has effectively motivated and rewarded Emerson executives to meet all these challenges, and continues to do so today.
 
We continually evaluate the individual elements of our compensation program in light of market conditions and governance requirements and make changes where appropriate for Emerson’s business. However, we believe that the core of our compensation program, which is substantially unchanged since 1977, continues to result in outstanding financial performance for the Company and its stockholders over the long term in a variety of business conditions. We carefully consider any changes to the program so that we do not imperil its long record of success.
 
Executive Summary
 
In the past two fiscal years, Emerson’s senior executives reacted quickly and decisively to changing economic circumstances to protect the Company and to deliver value to its stockholders. In fiscal 2009, management responded to the challenge of the severe global recession by taking aggressive restructuring actions without sacrificing the Company’s continued investment in acquisitions, technology innovation and global positioning. In fiscal 2010, they realigned and strengthened the Company’s overall long-term growth profile through a number of key acquisitions and divestitures.
 
In fiscal 2010, these actions bore fruit, as the Company achieved markedly improved results over fiscal 2009 while operating in an uncertain global economy. Our management’s persistent commitment to invest during a downturn — while generating substantial cash flow — has positioned the Company well to address future challenges and opportunities. The Company’s fiscal 2010 financial results and the individual performance of our named executive officers (the senior executives included in the Summary Compensation Table on page 30 below) are discussed under “Setting Total Compensation” beginning on page 19.
 
In this Compensation Discussion and Analysis, you will see the following for fiscal 2010:
 
  •   Base salaries that were reduced early in fiscal 2009 were restored during fiscal 2010 to prior levels.
 
  •   Bonus payouts reflect significantly improved financial performance in fiscal 2010.
 
  •   Participants in the 2007 performance shares program, which covered the four-year performance period ended September 30, 2010, earned a 96% payout.
 
  •   Consistent with our historical practice of making triennial awards, in October 2009 performance share awards were made under the 2010 performance shares program, which covers the four-year performance period from the beginning of fiscal 2010 through the end of fiscal 2013.
 
Compensation Objectives and Elements
 
Emerson’s executive compensation program is designed to support the interests of stockholders by rewarding executives for achievement of the Company’s specific business objectives, such as growth in earnings per share and cash flow. The fundamental principles underlying the program are:
 
  •   Rewarding for superior performance rather than creating a sense of entitlement.


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  •   Maximizing stockholder value by allocating a significant percentage of compensation to performance based pay that is dependent on achievement of the Company’s performance goals, without encouraging excessive or unnecessary risk taking.
 
  •   Aligning executives’ interests with stockholder interests by providing significant stock-based compensation and expecting executives to hold the stock they earn.
 
  •   Attracting and retaining talented executives by providing competitive compensation opportunities.
 
  •   Rewarding overall corporate results while recognizing individual contributions.
 
Our executive compensation program includes incentive plans that communicate to participants the Company’s critical business values, strategies and performance objectives, and are clear and simple to understand. This understanding focuses their efforts on the performance objectives that drive Emerson’s success and encourages them to make career commitments to the Company. The program offers a balanced approach to compensation and consists of the primary components illustrated below. Taken together, we refer to these components as “total compensation.” Individual compensation packages and the mix of base salary, annual cash bonus opportunity and long-term stock compensation for each named executive officer vary depending upon the executive’s level of responsibilities, potential, performance and tenure with the Company. Each of the elements shown below is designed for a specific purpose, with the overall goal of achieving a high and sustainable level of Company and individual performance. The performance based portion of total compensation generally increases as an executive’s level of responsibilities increases. The chart below is not to scale for any particular named executive officer.
 
(CHART)


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The percentage ranges in the chart above are based on annualized total compensation values and do not necessarily correspond to, and are not a substitute for, the values disclosed in the Summary Compensation Table and supplemental tables. Annualized values for long-term stock compensation are based on the grant date value of awards annualized over the three-year award cycle for performance shares and options and over the vesting terms for restricted stock, based on data provided by our compensation consultant. We use these annualized values because competitive data is calculated in the same manner.
 
Competitive Market Pay Information and Philosophy
 
In determining total compensation levels and mix for our Chief Executive Officer (“CEO”) and our other named executive officers, the Compensation Committee reviews market trends in executive compensation and a competitive analysis prepared by Frederic W. Cook & Co. which is derived from the most recent proxy data of the companies in the comparator group described below. The analysis compares the total compensation (cash and long-term stock compensation) of each of our named executive officers with the median range of total compensation for comparable positions at the comparator group companies. The Company’s compensation philosophy is to target total compensation in the median range of this competitive data, as adjusted based on revenue, which we refer to as the “median range”, with actual pay delivered dependent on Company and individual performance. Equity awards are valued at grant and annualized over their award frequency. This approach is consistent with long-standing Company practices.
 
The Committee used the same comparator group of 25 companies in fiscal 2010 that it had used in fiscal 2009 to assist it in making its compensation decisions. The Committee confirmed that such companies continued to satisfy the same numeric screening criteria (industry classifications, size and scope, and financial metrics) that had been used in a special study prepared by Frederic W. Cook & Co. in fiscal 2009 of potential comparator group companies. In fiscal 2009, the Committee chose the comparator group from these companies based upon one or more of the following criteria: (1) companies in the primary industry segments in which the Company operates; (2) companies with annual revenues greater than $5 billion; (3) companies with profiles similar to the Company’s based on business complexity, industries or markets served, innovation and technology, customers targeted, investor profiles and global strategy; and (4) companies with which we compete for executive talent. The comparator group companies are as follows:
 
                 
Alcoa
Caterpillar
Cisco Systems
Danaher
Deere
  DuPont
Eaton
Fluor
Freeport McMoRan Copper
General Dynamics
  General Electric
Goodyear Tire
Honeywell
Illinois Tool Works
International Paper
  Johnson Controls
Lockheed Martin
Northrop Grumman
Raytheon
Schlumberger
  Tyco
Union Pacific
US Steel
United Technologies
3M
 
In fiscal 2010, Frederic W. Cook & Co. provided analysis of competitive pay (cash and long term) at the median for the proxy reported positions of the companies in the Company’s comparator group.
 
The Committee considers this comparator group competitive pay analysis as a frame of reference in making its pay decisions. The pay decisions are not formulaic and the Committee exercises judgment in making them. This analysis is not used to establish performance goals in the Company’s compensation programs.
 
Setting Total Compensation
 
Each year as part of the Company’s continuing, disciplined management development and succession planning process, management meets with division and corporate executives to evaluate the individual performance and leadership potential of our key executives. Our CEO uses these performance and leadership evaluations to develop individual pay recommendations to the Committee for senior executives, including the named executive officers (other than himself). The Committee reviews the performance evaluations and pay recommendations for the named executive officers and the other senior executives. The Committee separately meets in executive session without the CEO present to review the CEO’s performance and set his compensation.
 
CEO Compensation. In setting the CEO’s compensation, the Committee first considered the Company’s financial results, which they believed were extraordinary under the circumstances. The Committee compared the Company’s financial performance in fiscal 2010 with fiscal 2009 results, with particular focus on the following:
 
  •   The Company’s net sales in fiscal 2010 were $21.0 billion, compared to fiscal 2009 net sales of $20.1 billion.


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  •   Earnings per share increased 25.1 percent to $2.84 from the $2.27 achieved in fiscal 2009, as the Company undertook significant global restructuring for a stronger global best cost position.
 
  •   Operating cash flow remained strong at $3.3 billion in fiscal 2010, versus $3.1 billion in fiscal 2009.
 
  •   Free cash flow (operating cash flow less capital expenditures) was $2.8 billion in fiscal 2010, a record level, versus $2.6 billion in fiscal 2009 (with capital expenditures of $0.5 billion in both fiscal 2010 and fiscal 2009).
 
  •   Return on total capital was 18.9 percent, an increase of 2.7 percentage points.
 
  •   The Company increased its dividend to stockholders to $1.34 per share from $1.32 per share in fiscal 2009 — its 54th consecutive year of increased dividends.
 
When comparing current and prior year results, the Committee looks at the Company’s financial performance in totality, without mechanically weighting individual factors. Sales, earnings and cash flow are key factors considered, but the other factors shown above are considered as well. The Committee does not set specific financial targets related to cash compensation. The Committee does set performance objectives used to establish maximum bonus amounts for compliance with Section 162(m) of the Internal Revenue Code (see “Regulatory Considerations” at page 28 below).
 
In addition to financial performance, the Committee evaluates the CEO’s day-to-day performance and leadership. In setting the CEO’s compensation, the Committee noted that in his tenth year as CEO Mr. Farr continued to provide exceptional, consistent leadership for the Company’s long-term success. In addition to executing the financial performance described above, Mr. Farr, leading his executive team:
 
  •   Aggressively repositioned and strengthened the Company’s overall long-term growth profile through a number of key acquisitions and divestitures, notably:
 
  ¡   Acquisitions in the Emerson Network Power segment of Chloride Group PLC and Avocent Corporation, providing a broader and deeper capability and footprint in global uninterruptible power supply (UPS) and data center infrastructure management.
 
  ¡   Divestiture of the Company’s appliance motors and U.S. commercial and industrial motors businesses.
 
  •   Increased investment in technology, innovation and the Company’s global position to address changing and emerging customer needs and global trends, including:
 
  ¡   Expansion of Emerson Climate Technologies’ presence and capabilities in China and other Asian countries through energy-efficient technology development and strengthened customer relationships.
 
  ¡   Enhancement of offshore software and automation technology and Smart Wireless capabilities in the Emerson Process Management business.
 
  ¡   Creation of a stronger, more focused organization to address global opportunities in wind and solar power.
 
  •   Continued to build stronger, shared internal and customer service capabilities through engineering, technology and shared service facilities in key regions of the world.
 
  •   Maintained strong emphasis on global development of the Company’s leadership and management capabilities.
 
The Committee uses the competitive pay analysis for the comparator group to compare Mr. Farr’s total compensation to the median range for total compensation of CEOs in the comparator group. The Committee also reviews the relative internal compensation relationships between the CEO and the other named executive officers, as compared to the pay relationships in the Frederic W. Cook & Co. survey data. While the Committee monitors these pay relationships, it does not target any specific pay ratios. The Committee notes that Mr. Farr’s responsibilities as CEO are greater than those of the other named executive officers.
 
The Committee also receives and reviews a summary for the CEO showing all elements of his compensation, including base salary, annual cash bonus, long-term stock compensation, retirement and other benefits and perquisites. The summary shows compensation that may be paid upon voluntary or involuntary termination of employment, retirement, death or disability, or upon a change of control. This CEO compensation summary, along with competitive market and other data, is also annually reviewed and discussed by the non-management Directors in a private session.
 
Mr. Farr does not have an employment, severance or change in control agreement with the Company.
 
The Committee reviewed alternatives for delivering the appropriate level of total compensation for Mr. Farr based on the Company’s and his performance, as described above. These alternatives took into account current cash compensation and


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the value of long-term awards allocable to the current year, based on annualization of the grant date fair value over the three-year award cycle or vesting period of the awards. These alternatives reflected that fiscal 2011 is a triennial award year for stock options.
 
Other Named Executive Officer Compensation. In setting compensation for the other named executive officers, the Committee follows a similar process. The Committee first considered the financial performance of the Company for fiscal 2010. The Committee reviewed the competitive pay analysis at the median range for each named executive officer as compared to the comparable positions at the companies in the comparator group as a frame of reference in exercising its judgment regarding pay decisions. The Committee then reviewed the CEO’s evaluations of the individual performance of each named executive officer, which in each case he determined to be outstanding. The Committee also took into account its own evaluations of the named executive officers based on their frequent interactions with, and presentations to, the members of the Board of Directors. The Committee considered the following accomplishments:
 
  •   Mr. Galvin successfully transitioned the Chief Financial Officer role to Mr. Dellaquila; improved international cash utilization; provided financial input to Emerson’s acquisition and divestiture strategy; and actively managed governmental relations in a changing political environment.
 
  •   Mr. Monser managed the recovery of Emerson operating profit from the downturn to near record high levels; effectively reduced inventory levels; improved cash flow with trade working capital at record low levels; oversaw excellent growth in emerging markets with sales in Asia-Pacific reaching $5 billion; and was involved in both the Chloride and Avocent acquisition teams.
 
  •   Mr. Peters furthered new solutions business models; built and applied price optimization tools; initiated a social media program targeting key customer communities; migrated key applications into the new data center infrastructure; completed a directory of and worked with the Company’s internal legal counsel to review Emerson’s principal business information; and was involved in both the Chloride and Avocent acquisition teams.
 
  •   Mr. Dellaquila effectively transitioned into the role of Chief Financial Officer; implemented financing and currency strategies to fund acquisitions totaling nearly $3 billion; issued long-term debt to enhance Company liquidity; provided assistance with financial aspects of acquisitions and divestitures; and implemented actions to improve international cash utilization.
 
  •   Mr. Steeves met the demands of increasingly complex litigation, regulatory and political environments; continued his success in Emerson litigation worldwide; introduced programs and controls necessary to meet the demands of changing trade regulations; initiated employee legal and regulatory education programs; managed the Company’s intellectual property; and successfully provided legal support for the Company’s acquisition activities in fiscal 2010.
 
None of the named executive officers has an employment, severance or golden parachute agreement with the Company.
 
For the named executive officers, the Committee made its annual pay decisions for each of the compensation components as outlined below.
 
Annual Cash Compensation
 
The Committee targets total annual cash compensation in the median range of market total cash compensation, while placing more emphasis on performance based annual cash bonus than on base salary.
 
Base salary: For the named executive officers, the Committee awards base salary increases (if any) after reviewing the Company’s performance, individual performance, and competitive market compensation. As described in last year’s proxy statement, in October 2008 each of the then named executive officers received a normal merit increase for fiscal 2009 based on fiscal 2008 financial performance and individual responsibilities, performance and potential. However, in response to the economic downturn that began in late calendar year 2008, the base salary rate for each of those executive officers was reduced effective January 1, 2009. Mr. Farr’s base salary rate was reduced to his fiscal 2007 rate, and the base salary rates for Messrs. Galvin, Monser, Peters and Steeves were reduced to their respective fiscal 2008 levels. No merit increases were made in fiscal 2010; however, effective April 1, 2010 the Committee restored the previously approved and reported fiscal 2009 base salary rates, as business conditions were determined to have improved consistent


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with fiscal year 2010 expectations. For fiscal 2011, the Committee reviewed predicted base salary merit increases, which averaged approximately 3%, and, in October 2010, approved the following base salaries for 2011:
 
                                     
      FY2010
    FY2010
           
      Oct. 1, 2009-
    April 1, 2010-
           
      Mar. 31, 2010
    Sept. 30, 2010
    FY2011
    Percentage
Name     (Rate)     (Rate)     (Rate)     Increase
D. N. Farr
      $1,150,000       $1,225,000       $1,225,000         0%  
W. J. Galvin
      $710,000       $735,000       $755,000         2.7%  
E. L. Monser
      $600,000       $625,000       $642,000         2.7%  
C. A. Peters
      $540,000       $565,000       $580,000         2.7%  
F. L. Steeves
      $560,000       $580,000       $595,000         2.6%  
                                     
 
In connection with his promotion to Chief Financial Officer on February 2, 2010, Mr. Dellaquila’s base salary was increased from $385,000 to $450,000. For fiscal 2011, his base salary is $500,000, an increase of 11.1%.
 
Annual bonus: The determination of individual bonus amounts for the named executive officers is discretionary, subject to the Section 162(m) limitation established by the Committee (see “Regulatory Considerations” on page 28), but is based on the Company’s financial performance and the individual performance factors referred to above. The Committee did not assign individual weights to any of these factors but used them collectively to make its compensation determinations. The Committee noted that fiscal 2010 financial performance improved significantly compared to fiscal 2009 financial results as summarized in the bullets on pages 19 and 20. The Committee took these factors into account and exercised its discretion to determine the bonus amounts for fiscal 2010 as shown below:
 
                                     
            2008-2009
          2009-2010
            Percentage
          Percentage
Name     FY2009     Change     FY2010     Change
D. N. Farr
      $1,500,000       (50.0)%       $2,200,000         46.7%  
W. J. Galvin
      $800,000       (31.9)%       $1,025,000         28.1%  
E. L. Monser
      $600,000       (29.4)%       $780,000         30.0%  
C. A. Peters
      $585,000       (29.9)%       $750,000         28.2%  
F. L. Steeves
      $500,000       (16.7)%       $640,000         28.0%  
                                     
 
Mr. Dellaquila’s bonus for fiscal 2010 was $590,000 (34.1% increase from 2009).
 
Total cash compensation: As a result of these base salary and bonus determinations, the aggregate cash compensation for the named executive officers increased for 2010, but remained less than in 2008.
 
Long-Term Stock Compensation
 
The Committee may make long-term stock compensation awards to the Company’s executives, including the named executive officers. Executives participate in these programs based on their: (1) ability to make a significant contribution to the Company’s financial results, (2) level of responsibility, (3) performance and (4) leadership potential. No executive is entitled to participate automatically based on title, position or salary level. We require participants to accept confidentiality, non-competition and non-solicitation obligations. In general, we target long-term stock compensation in the median range of market long-term compensation, with more emphasis on performance based equity compensation.
 
Our long-term stock compensation consists of three programs: performance shares, stock options and restricted stock. We allocate the largest portion to performance shares, which are the primary incentive for delivery of superior longer-term financial performance, with a small portion allocated to stock options and the remainder through the selective use of


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restricted stock. We make awards of stock options and performance shares periodically, generally every three years, instead of annually, and restricted stock awards have no set award cycle, as illustrated below.
 
(PERFORMACNE GRAPH)
 
For purposes of its analysis, the Committee considers values of these awards based on the grant date value annualized over the three-year award cycle for performance shares and options and over the vesting terms for restricted stock, because the values are consistent with competitive data considered by the Committee. These estimates do not necessarily correspond to and are not a substitute for, the values described for the awards in the Summary Compensation Table or in the tables that follow it.
 
Performance Shares Program. Our performance shares program is the primary element of long-term stock compensation for our named executive officers. This plan is the linchpin of the Company’s pay for performance philosophy and is used to align the interests of participants and stockholders and for retention and succession purposes. For over thirty years, the program has reinforced the Company’s long-term financial objective, enhancing stockholder value. We limit participation in the programs to individuals who can most directly influence our long-term success. The long-term stock compensation opportunities for our senior executives are heavily weighted towards performance shares, which on an annualized basis generally represent approximately 45-55% of total compensation and 70-80% of long-term stock compensation.
 
Unlike many companies, Emerson awards performance shares every three years rather than annually, and the payout is based on four-year performance. This means that participants have the opportunity to earn a payout every three years, not annually. Awards of performance shares are made in share units. Participants can earn from 0-100% of the awarded units depending upon the Company’s financial results at the end of the performance period measured against the pre-established target. Participants cannot earn greater than 100%, regardless of the extent to which actual Company performance exceeds the target. For performance in excess of the targets, participants benefit only to the extent that performance results in increases in the price of the Emerson stock received upon payout of the performance shares.
 
As a result of the three-year award cycle for performance share awards, certain years involve an “overlap” in which two sets of awards are in effect as illustrated below. For example, fiscal 2010 was an “overlap” year, both the final year of the


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2007 program performance period, which ended on September 30, 2010, and the first year of the 2010 program performance period, which began on October 1, 2009 and ends on September 30, 2013.
 
(PERFORMACNE GRAPH)
 
Payout is made as soon as practicable after the achievement of the performance target at the end of the four-year performance period, provided that the Committee may establish additional vesting conditions for retention purposes. For the 2007 and 2010 performance shares programs, the Committee specified that 60% of any earned performance share units would be paid at the end of the four-year performance period, and the remaining 40% would be paid one year later subject to continued service. The 40% holdback periods for both the 2007 and 2010 performance share programs are shown above.
 
Cash dividend equivalents are paid on 40% of the award during the four-year performance period and on the 40% portion of the earned award during the one-year holdback period. Payment of the cash dividend equivalents during the performance period is a key feature of this program, as it promotes executive behavior that inures to the long-term benefit of our stockholders, and reinforces our pay-for-performance philosophy. Program participants’ interests are aligned with the interests of our stockholders: the achievement of the plan’s performance objective historically has rewarded both with higher stock value and increased dividends. During the four-year performance period and three-year award/payout cycles described above, this feature encourages continued participant engagement and focus on the plan’s long-term performance objectives. In fiscal 2009, the Committee considered eliminating this feature, but concluded that doing so would dilute the effectiveness of the Company’s primary long-term stock program that has served our stockholders well for more than 30 years. Payment of these dividends is authorized pursuant to the Company’s 2006 Incentive Shares Plan approved by our shareholders. We expect to again reconsider this feature when we propose our next incentive shares compensation plan.
 
In order to earn a 100% payout under the 2007 and 2010 programs, the Company’s actual earnings per share in the last year of the four-year performance period must equal or exceed fiscal year 2006 and 2009 earnings per share, respectively, multiplied by the compounded average annual growth rate in the U.S. Gross National Product plus three percentage points over the four-year performance period. We target growth in earnings per share which exceeds the growth in the economy because we believe this focus on above-market growth over the long-term performance period drives participants in the program to produce superior financial returns for our stockholders. The payout is made primarily in common stock, with a portion paid in cash to cover tax obligations of participants.
 
At the end of fiscal 2010, the four-year performance period for the 2007 performance shares program ended. The compounded average annual growth rate in the U.S. Gross National Product plus three percentage points over the four-year performance period for the 2007 performance shares program was 5.4%. The Committee determined that the Company’s earnings per share from continuing operations in fiscal year 2010, compared with the target at the end of the performance period, resulted in a 96% payout, with the units earned set forth in the table below.
 
                 
            40% One-Year
      60% Payout
    Holdback
Name     (units)     (units)
D. N. Farr
      264,960       176,640
W. J. Galvin
      115,200       76,800
E. L. Monser
      92,160       61,440
C. A. Peters
      69,120       46,080
F. J. Dellaquila
      31,104       20,736
F. L. Steeves
      51,840       34,560
                 
 
The payout of the 60% portion is shown in the Option Exercises and Stock Vested table on page 35 and the remaining 40% hold-back is shown in the Outstanding Equity Awards at Fiscal Year-End table on page 33.


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As reported in last year’s proxy statement, in October 2009, the beginning of fiscal 2010, as part of the triennial award cycle for performance share awards, the Committee made performance awards under the 2010 performance shares program as follows: D. N. Farr-450,000 units; E. L. Monser-175,000; C. A. Peters-135,000; F. J. Dellaquila-80,000; and F. L. Steeves-110,000. Mr. Dellaquila received in February 2010 an additional award of 20,000 units upon his promotion to Chief Financial Officer. These performance share units are subject to the achievement of the performance target over the four-year performance period. These awards reflected the Committee’s judgment that these named executive officers’ leadership, performance and their potential to enhance long-term stockholder value would continue to be significant factors in the Company’s future success. The Committee also determined that these awards were consistent with targeting, on an annualized basis, 45-55% of total compensation and 70-80% of long-term stock compensation in the form of performance shares.
 
Stock Options Program. Our stock option awards provide long-term focus and are the primary form of long-term stock compensation for a broader group of key employees. Although an important incentive, stock options represent a smaller portion of long-term stock compensation for the named executive officers, and generally represent 5-15% of their total compensation. We made no stock option awards to the named executive officers in fiscal 2010. As part of our triennial award cycle, in early fiscal 2011, the Committee awarded stock options as follows: D. N. Farr-250,000; W. J. Galvin-125,000; E. L. Monser-130,000; C. A. Peters-120,000; F. J. Dellaquila-95,000; and F. L. Steeves-110,000. The Committee determined that these amounts are consistent with targeting 5-15% of total compensation in the form of stock options.
 
Restricted Stock Program. Our restricted stock program is designed to retain key executives and future leaders of the Company and participation in the program is highly selective. The Committee views this program as an important management succession planning, retention and recognition tool. The objective is to lock in top executives and their potential replacements identified through the succession planning process. Restricted stock, along with stock options, supplement performance shares to achieve the target of long-term compensation in the median range of market compensation, and in some cases may provide compensation above the median range. Restricted stock generally represents 5-20% of the named executive officers’ total compensation. Restricted stock provides participants with dividends and voting rights beginning on the award date. There is no set frequency of restricted stock awards, and they are granted with long-term cliff vesting periods of up to ten years and no less than three years.
 
As reported in last year’s proxy statement, in October 2009 Mr. Farr was awarded 80,000 shares of restricted stock in recognition of his outstanding leadership and Mr. Galvin was awarded 150,000 shares of restricted stock in recognition of his promotion to Vice Chairman and continued commitment to the Company. In addition, in October 2009 Mr. Dellaquila was awarded 20,000 shares of restricted stock in recognition of his additional duties. In October 2010, the Committee awarded 80,000 shares of restricted stock to Mr. Farr, reflecting the outstanding performance of the Company in 2010, and 10,000 shares of restricted stock to Mr. Steeves in recognition of his individual contributions and performance. Succession planning and retention continue to be key considerations of the Committee in its review of the total compensation of the named executive officers. The Committee believes these awards help meet the Company’s retention and succession planning needs. In making these awards, the Committee took into account the continued financial success of the Company under these key leaders, their valuable and seasoned experience and the challenges the Company faces in its efforts to continue its financial success in the future.
 
Total Compensation
 
In the Committee’s judgment, Mr. Farr’s total compensation reflects the Company’s performance under his leadership as well as his individual performance, and his total compensation is in the median range of competitive market pay. The combination of the performance share awards, stock option awards and annual cash bonus represents performance based compensation of approximately 71% of Mr. Farr’s total compensation. For the other named executive officers, except for Mr. Galvin, the combination of the performance shares, stock option awards and annual cash bonus awarded by the Committee represents performance based compensation for the named executive officers of approximately 70-80% of their total compensation. These performance based incentives, and the way we allocate them, reward the named executive officers for the achievement of outstanding long-term Company performance, which builds stockholder value.
 
The table below illustrates how total compensation for our named executive officers for fiscal 2010 was allocated between performance based and fixed components, how performance based compensation is allocated between annual and long-term components, and how total compensation is allocated between cash and equity components. These percentages are


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based on annualized total compensation values and do not necessarily correspond to, and are not a substitute for, the values disclosed in the Summary Compensation Table and supplemental tables.
 
                                     
      Fiscal 2010 Total Compensation Mix*            
                  Percentage of
           
      Percentage of Total
    Performance Based
    Percent of Total
      Compensation that is:     Total that is:     Compensation that is:
      Performance
                Long-
           
Name     Based     Fixed     Annual     Term     Cash     Equity 
D. N. Farr
    71%     29%     27%     73%     29%     71%
                                     
W. J. Galvin
    35%     65%     55%     45%     33%     67%
                                     
E. L. Monser
    78%     22%     23%     77%     32%     68%
                                     
C. A. Peters
    75%     25%     25%     75%     33%     67%
                                     
F. J. Dellaquila
    78%     22%     32%     68%     42%     58%
                                     
F. L. Steeves
    80%     20%     26%     74%     40%     60%
                                     
 
*     The percentage ranges in the table above are based on amounts for annualized base salary, annual bonus and long-term compensation (performance shares, stock options and restricted stock). Other forms of compensation that are shown in the Summary Compensation Table were not included. Annualized values for long-term stock compensation are based on the grant date fair value of awards annualized over the triennial award cycle for performance shares and stock options and over the vesting terms for restricted stock, based on data provided by our compensation consultants. The competitive data we use is calculated in the same manner. For purposes of this table, (i) annual bonus, performance shares and stock options are performance based compensation, (ii) performance shares and stock options are long-term, performance based compensation, (iii) base salary and annual bonus are the only forms of cash compensation, and (iv) performance shares, stock options and restricted stock are equity compensation.
 
Summary Compensation Table Analysis
 
Please see the “Summary Compensation Table” on page 30 and the supplemental compensation tables for a quantitative summary of the compensation of our named executive officers. As a result of our multi-year award cycles, the numbers in our Stock Awards and Option Awards columns, and therefore the Total column, in the Summary Compensation Table will fluctuate from year to year. The 2010 Stock Awards column reflects the full grant date value of triennial awards made in 2010 under the 2010 performance shares program and which cover the four-year performance period beginning on October 1, 2010 and ending on September 30, 2013. Performance share awards were not made in fiscal 2009 or 2008. SEC rules require that the entire grant date fair value be included in the table in the year of grant even though payout of these awards is contingent upon the Company’s financial performance over a four-year performance period and a portion is contingent upon completing an additional year of service. Those amounts do not correspond to the actual value that will be realized by the named executive officers. The supplemental tables reflect the payout of earned awards for the four-year performance period ended September 30, 2010 under the 2007 performance shares program.
 
The amounts shown in the Change in Pension Value and Non-Qualified Deferred Compensation column of the Summary Compensation Table in part reflect the change in the discount rate from year to year. For fiscal 2009, the applicable discount rate used to value pension plan liabilities was reduced from 6.5% to 5.5%. This change in the discount rate caused pension values to increase significantly compared to other years, resulting in the amounts reported in 2009 being approximately 70% higher than they would have been if the discount rate had not changed. No changes were made in the method of calculating benefits under the plans, and no additional benefits were awarded. See footnote (4) to the Summary Compensation Table on page 30 for additional detail.
 
The totals in the Summary Compensation Table for 2010 include larger amounts primarily as a result of the 2010 performance share awards as discussed above and the other changes described herein. The three-year average column reflects the average of reported compensation for our named executive officers over our triennial award cycle.
 
Alignment with Stockholder Interests
 
We believe our balanced executive compensation program, coupled with our stock ownership guidelines and “clawback” policy, aligns the interests of our executives with stockholders by encouraging long-term superior performance, without encouraging excessive or unnecessary risk taking.


26


 

Our long standing compensation philosophy is a key component of our history of sustainable growth, which demonstrates an alignment of the interests of participants and stockholders and rewards each with increased value over the long-term. As shown in the Fiscal 2010 Total Compensation Mix table above, our compensation for our senior management is primarily based on performance over a long-term period. Under the performance shares program, earnings per share performance over the four-year performance period is required to earn compensation, which drives long term decision making, discourages adverse risk taking that may occur due to year-over-year performance measurements, and rewards for growth over the long term. Our restricted stock and option awards have long vesting terms that reward participants for increased value over the vesting terms. Annual cash amounts are limited and subject to Committee discretion, which discourages short-term risk taking.
 
The significant stock ownership of our named executive officers reflects their commitment to the Company for the long term. Our executive stock ownership guidelines provide that our Chief Executive Officer should generally hold Emerson stock, including share equivalents and shares in retirement accounts and restricted stock, equal to at least five times base salary. For our Chief Financial Officer the amount is three times, and for other named executive officers the amount is one time. Named executive officers generally have five years from the later of the date of the policy or becoming named executive officers to meet the guidelines. The Committee has discretion to adjust the guidelines for executives who are age 60 or over. The Compensation Committee monitors the stock ownership of the named executive officers, which substantially exceeds the guidelines. Based on beneficial ownership of Emerson stock, as shown on page 6, and the closing stock price at fiscal year end, the named executive officers’ holdings of Emerson stock are valued at multiples of between approximately 10 and 85 times their respective base salaries. Our stock trading policy also requires elected Company officers to obtain written permission from two other senior executives before engaging in transactions in Emerson stock.
 
Our clawback and anti-hedging policies further align the interests of our executives with stockholders. Under our clawback policy, our Board may in certain cases reduce or cancel, or require recovery of, any executive officer’s annual bonus or long-term incentive compensation award, or portions thereof, if the Board determines that such award should be adjusted because that executive officer has engaged in intentional misconduct that has led to a material restatement of the Company’s financial statements. Under our anti-hedging policy, our executives (as well as our directors) are prohibited from engaging in the following transactions (which could hedge or offset decreases in the market value of our common stock): short selling, put or call options, forward sale or purchase contracts, equity swaps and exchange funds.
 
Severance, Executive Termination and Retirement
 
Emerson does not provide employment agreements, severance agreements, or golden parachute agreements for the named executive officers. The terms of all executive terminations and retirements are determined individually based on specific facts and circumstances at the time of such events, and not on formulaic rules. In general, we follow these principles:
 
  •   We do not pay lump sum, non-forfeitable cash severance payments.
 
  •   Departing executives sign extended non-competition, non-solicitation and confidentiality agreements, or reaffirm existing agreements on these matters.
 
  •   As permitted under stockholder-approved plans, departing plan participants, including named executive officers, may have additional time to exercise previously granted stock options, with accelerated vesting for retirees. However, the additional time cannot exceed the time permitted in the original grants.
 
  •   The Committee may also allow continuation (without accelerated vesting) of previously granted long-term performance shares or restricted stock awards, which would be paid if and when the Company achieves specified performance targets or time vesting requirements are met.
 
  •   Executives forfeit these awards if they breach their non-competition, non-solicitation or confidentiality agreements.
 
In 2006, the Committee adopted an Executive Officer Severance Policy, reflecting these principles. In addition to the foregoing principles, the Executive Officer Severance Policy provides that the Company shall not implement individual severance or change of control agreements providing certain benefits (as described in the Policy) to any of the named executive officers in excess of 2.99 times the sum of the officer’s then current base salary and most recently earned cash bonus without stockholder ratification. The Executive Officer Severance Policy can be found on the Company’s website at www.Emerson.com, Investor Relations, Corporate Governance.


27


 

Change of Control
 
Emerson has no employment agreements, severance agreements or golden parachute agreements with the named executive officers. If a change of control occurs, we protect all employees who participate in long-term stock plans, the Savings Investment Restoration Plan and the Pension Restoration Plan as described under “Potential Payments Upon Termination or Change of Control” at page 38 below. To provide this protection, we accelerate vesting of stock awards and pay accrued benefits under the Savings Investment Restoration Plan and the Emerson Pension Restoration Plan. We do not credit additional years of service under any plans, or continue medical or other benefits. We do not make additional cash payments related to stock compensation plans, although stock awards vest upon a change of control. We do not increase payouts to cover payment of taxes and do not provide tax gross-ups.
 
Security and Perquisites
 
We provide security services to help ensure the safety of all employees while they are on Company business. Due to increased security risks that are inherent in senior executive positions, we provide the named executive officers with residential security monitoring and personal security as needed. The Company’s security policy and the Committee require that the CEO use the Company aircraft for all business and personal travel. On a very limited basis, other named executive officers have access to Company aircraft for personal use subject to reimbursement at first class rates. The Company also provides leased cars, club memberships and financial planning for executives. These are long-standing perquisites which assist in retaining and attracting executives and which we believe are similar to those generally provided to executives at other similarly-sized companies. Named executive officers and other employees may receive Company tickets for sporting or other local events. The Committee reviews these perquisites annually. Total perquisite costs and related information appear in the Summary Compensation Table at page 30 below. The Company does not provide any reimbursement for taxes on perquisites provided to its named executive officers.
 
Other Benefits
 
The named executive officers are eligible for medical, life and disability insurance, and other Company-provided benefits that are generally available to all other employees, including the Company’s charitable matching gifts program. Retirement plans for U.S. employees may be qualified defined-benefit pension plans, 401(k) plans and/or profit-sharing plans as determined by each business unit’s competitive market. The Company continues to maintain a defined-benefit pension plan for a majority of U.S. employees. These other benefits are available to the named executive officers, as follows:
 
  •   A qualified 401(k) savings plan and a non-qualified savings plan which allows participating executives to defer up to 20 percent of their cash compensation and continue to receive the Company match after they reach the Internal Revenue Service (“IRS”) qualified plan limits.
 
  •   A qualified defined-benefit pension plan and a non-qualified defined-benefit pension plan (the “Pension Restoration Plan”) which provides benefits based on the qualified plan without regard to IRS limits and does not provide additional credited years of service. Participation in the Pension Restoration Plan is by award and based on the executive’s individual contributions and long-term service to the Company.
 
  •   A group term life insurance policy under the same terms as other employees and a term life insurance policy which was converted from the former split dollar program.
 
  •   A voluntary annual physical paid for by the Company.
 
Regulatory Considerations
 
Section 162(m) of the Internal Revenue Code of 1986, as amended, imposes a $1 million limit on the amount that a public company may deduct for compensation paid to the Company’s CEO or any of the Company’s other named executive officers, other than the Chief Financial Officer, who are employed as of the end of the fiscal year. This limitation does not apply to compensation that meets the requirements under Section 162(m) for “qualifying performance based” compensation (i.e., compensation paid only if the individual’s performance meets pre-established objective goals based on performance criteria approved by stockholders). The Company’s incentive compensation plans are designed to qualify under Internal Revenue Code Section 162(m) to ensure tax deductibility. However, restricted stock awards do not qualify under Section 162(m) and the Committee retains the flexibility to design and administer compensation programs that are in the best interests of Emerson and its stockholders.


28


 

Annual bonuses for our named executive officers are discretionary, subject to maximum bonus amounts based on the achievement of the Section 162(m) performance objectives established by the Committee annually. These objectives are selected by the Committee from among the performance objectives in the annual incentive plan but are not communicated to participants as individual performance targets. For fiscal 2010, the performance objective was earnings per share and the maximum amount of bonus that could be paid to each covered named executive officer was $6 million. The Committee may exercise “negative discretion” to reduce the award based on an assessment of Company and individual performance. For 2010 the Committee awarded less than the maximum amount. We have also adopted amendments to our compensation plans to comply with the requirements of Internal Revenue Code Section 409A, which requires that nonqualified deferred compensation arrangements must meet specific requirements.
 
In accordance with FASB ASC Topic 718, for financial statement purposes, we expense all equity-based awards over the period earned based upon their estimated fair value at grant date, or subsequently, depending on the terms of the award. FASB ASC Topic 718 has not resulted in any significant changes in our compensation program design.
 
Equity Compensation Grant Practices
 
The Committee approves all grants of equity compensation, including performance shares, stock options and restricted stock, to executive officers of the Company, as defined in Section 16 of the Exchange Act. All elements of executive officer compensation are reviewed by the Committee annually at its October meeting. Generally, the Company’s awards of performance shares, stock options and restricted stock are made at that meeting, but may be made at other meetings of the Committee. The Committee meeting date, or the next business day if the meeting falls on a non-business day, is the grant date for stock option, performance share and restricted stock awards. The Company may also make awards of stock options in connection with acquisitions or promotions, or for retention purposes. Under the Company’s stock option plans, the Committee may delegate to the Company’s CEO the authority to grant stock options to any employees of the Company other than executive officers of the Company as that term is defined in Section 16 of the Exchange Act. The Committee has exercised this authority and delegated to the CEO the ability to make stock option grants in connection with retention and acquisitions, which he uses on an infrequent basis. This delegation of authority does not extend to executive officers or other officers who are subject to the Company’s trading blackout policy.
 
Compensation Committee Report
 
The Compensation Committee of the Board of Directors acts on behalf of the Board to establish and oversee the Company’s executive compensation program in a manner that serves the interests of the Company and its stockholders. For a discussion of the Compensation Committee’s policies and procedures, see “Compensation Committee” at page 10 above.
 
Management of the Company has prepared the Compensation Discussion and Analysis describing the Company’s compensation program for senior executives, including the named executive officers. See “Compensation Discussion and Analysis” beginning on page 17 above. The Compensation Committee has reviewed and discussed the Compensation Discussion and Analysis for fiscal year 2010 (included in this proxy statement) with the Company’s management. Based on this review and discussion, the Compensation Committee recommended to the Board of Directors of the Company that the Compensation Discussion and Analysis be included in the Company’s proxy statement for the fiscal year ended September 30, 2010, for filing with the Securities and Exchange Commission.
 
Compensation Committee
 
V. R. Loucks, Jr., Chairman
C. A. H. Boersig
W. R. Johnson
J. W. Prueher
R. L. Stephenson


29


 

 
Summary Compensation Table
 
The following information relates to compensation received or earned by our Chief Executive Officer, our current and former Chief Financial Officers and each of our other three most highly compensated executive officers for the last fiscal year (the “named executive officers”).
 
                                                                                           
                                    Change in
                 
                                    Pension Value
                 
                                    and
                 
                                    Nonqualified
                 
                                    Deferred
                 
                              Option
    Compensation
    All Other
          Three year
      Fiscal
                Stock Awards
    Awards
    Earnings
    Compensation
          average
Name and Principal Position     Year     Salary ($)     Bonus ($)(1)     ($)(2)     ($)(3)     ($)(4)     ($)(5)     Total ($)     ($)(6)
D. N. Farr
      2010         1,187,500         2,200,000         19,081,600                 1,862,000         474,865         24,805,965            
Chairman of the Board and       2009         1,168,750         1,500,000         3,735,000                 3,598,000         496,237         10,497,987            
Chief Executive Officer(7)       2008         1,200,000         3,000,000                 2,180,000         1,219,000         472,485         8,071,485            
                                                                                        14,458,479  
                                                                                           
W. J. Galvin
      2010         722,500         1,025,000         5,781,000                 1,435,000         125,056         9,088,556            
Vice Chairman and former       2009         716,250         800,000         373,500         399,000         2,131,000         145,627         4,565,377            
Chief Financial Officer(7)(8)       2008         710,000         1,175,000         1,554,900         1,417,000         994,000         143,610         5,994,510            
                                                                                        6,549,481  
                                                                                           
E. L. Monser
      2010         612,500         780,000         6,221,600                 390,000         122,833         8,126,933            
President and Chief       2009         606,250         600,000         373,500         319,200         428,000         139,440         2,466,390            
Operating Officer(9)       2008         600,000         850,000         538,350         1,090,000         211,000         137,007         3,426,357            
                                                                                        4,673,227  
                                                                                           
C. A. Peters
      2010         552,500         750,000         4,799,520                 736,000         96,366         6,934,386            
Senior Executive Vice       2009         546,250         585,000         747,000         319,200         977,000         114,830         3,289,280            
President(7)       2008         540,000         835,000                 1,090,000         310,000         163,117         2,938,117            
                                                                                        4,387,261  
                                                                                           
F. J. Dellaquila
      2010         428,333         590,000         4,402,960                 82,000         78,972         5,582,265            
Senior Vice President and Chief Financial Officer(8)                                                                                       N/A  
                                                                                           
F. L. Steeves
      2010         570,000         640,000         3,910,720                 35,000         69,189         5,224,909            
Senior Vice President,       2009         565,000         500,000                 259,350         33,000         70,284         1,427,634            
Secretary and General Counsel       2008         560,000         600,000         538,350                 16,000         148,290         1,862,640            
                                                                                        2,838,394  
                                                                                           
 
 
(1)  Represent bonus amounts paid after the end of the fiscal year with respect to that fiscal year’s performance.
 
(2)  The amounts relate to awards of performance shares and restricted stock made in the fiscal year and reflect the aggregate grant date fair value computed in accordance with FASB ASC Topic 718 and do not correspond to the actual value that will be realized by the named executive officers. For performance share awards, the grant date fair value included assumes the maximum award is earned. See Note 14 to the Company’s fiscal year 2010 financial statements in the Company’s Annual Report on Form 10-K for a discussion of the determination of these amounts under FASB ASC Topic 718. See the Grants of Plan-Based Awards table at page 32 below for information on performance shares and restricted stock granted in fiscal 2010.
 
(3)  The amounts relate to awards made in the fiscal year and reflect the aggregate grant date fair value computed in accordance with FASB ASC Topic 718 and do not correspond to the actual amount that will be realized upon exercise by the named executive officers. See Note 14 to the Company’s fiscal year 2010 financial statements in the Company’s Annual Report on Form 10-K for a discussion of the determination of these amounts under FASB ASC Topic 718.
 
(4)  Includes for each fiscal year the aggregate change in the actuarial present value of the named executive officers’ accumulated benefits under the Company’s defined benefit pension plans. For fiscal 2009, the applicable discount rate used to value pension plan liabilities was reduced from 6.5% to 5.5%, consistent with the overall decline in interest


30


 

  rates. This change in the discount rate caused pension values to increase significantly. The changes in pension values reported for 2009 above were approximately 70% higher as a result of this decrease in the discount rate than they would have been if the discount rate had not changed. No changes were made in the method of calculating benefits under the plans, and no additional benefits were awarded.
 
(5)  Includes the following amounts for 2010:
 
                                                   
Name      Perquisites(a)       Savings Plan(b)       Life Insurance(c)       Charitable Match(d)       Total(e) 
D. N. Farr
      $385,976         $67,109         $11,780         $10,000         $474,865  
W. J. Galvin
      $54,431         $38,037         $22,588         $10,000         $125,056  
E. L. Monser
      $64,001         $30,286         $18,546         $10,000         $122,833  
C. A. Peters
      $46,266         $28,411         $11,689         $10,000         $96,366  
F. J. Dellaquila
      $44,499         $21,634         $10,239         $2,600         $78,972  
F. L. Steeves
      $22,559         $26,729         $9,901         $10,000         $69,189  
                                                   
 
  (a)  The perquisites provided are: tax and financial planning, leased Company car, club dues, annual physical, tickets for sporting or other local events and costs related to personal security provided to each of the named executive officers under the Company’s security program. The Company’s security program and the Board of Directors require that the Chairman and Chief Executive Officer use Company aircraft for all business and personal air travel. The Company also provides limited personal use of Company aircraft outside of the security program requirements to the named executive officers, who reimburse the Company at first class rates. Amounts for personal use of Company aircraft represent the incremental cost to the Company, calculated based on the variable operating costs per hour of operation, which include fuel costs, maintenance, and associated travel costs for the crew, less any reimbursements. For Mr. Farr and Mr. Monser, the incremental amounts of personal use of Company aircraft were $325,488 and $30,618, respectively, which is included in the perquisites amount above.
 
  (b)  Contributions by the Company for the named executive officers to the Company’s savings plans.
 
  (c)  Premiums paid by the Company on behalf of the named executive officers for term life insurance.
 
  (d)  Matching contributions under the Company’s charitable matching gifts program which matches charitable gifts of up to $10,000 for all employees of the Company.
 
  (e)  None of these amounts was grossed up for taxes.
 
(6)  This number is the arithmetic average of total compensation for the three years displayed in the table.
 
(7)  Messrs. Farr, Galvin and Peters do not receive any separate compensation for service as Directors.
 
(8)  Mr. Dellaquila succeeded Mr. Galvin as Chief Financial Officer in February 2010.
 
(9)  Mr. Monser became President in October 2010.

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Grants of Plan-Based Awards
 
The following table provides information about equity awards granted to the named executive officers in fiscal 2010.
 
                                                                                 
            Estimated Future Payouts Under Equity
          All Other
           
            Incentive Plan Awards
          Option
          Grant
                              All Other
    Awards:
    Exercise
    Date Fair
                              Stock Awards:
    Number of
    or Base
    Value of
                              Number of
    Securities
    Price of
    Stock and
                              Shares of
    Underlying
    Option
    Option
      Grant
                      Stock or
    Options
    Awards
    Awards
Name     Date     Threshold (#)(1)     Target (#)(1)     Maximum (#)(1)     Units (#)(2)     (#)     ($/Sh)     ($)(3)
 D. N. Farr
      10/5/2009         N/A         450,000         450,000                                       15,998,400  
        10/5/2009                                       80,000                             3,083,200  
                                                                                 
 W. J. Galvin
      10/5/2009                                       150,000                             5,781,000  
                                                                                 
 E. L. Monser
      10/5/2009         N/A         175,000         175,000                                       6,221,600  
                                                                                 
 C. A. Peters
      10/5/2009         N/A         135,000         135,000                                       4,799,520  
                                                                                 
 F. J. Dellaquila
      10/5/2009         N/A         80,000         80,000                                       2,844,160  
        10/5/2009                                       20,000                             770,800  
        2/1/2010         N/A         20,000         20,000                                       788,000  
                                                                                 
 F. L. Steeves
      10/5/2009         N/A         110,000         110,000                                       3,910,720  
                                                                                 
 
 
(1)  Includes performance share awards granted in fiscal 2010 under the 2010 performance shares program (under our 2006 Incentive Shares Plan), which are subject to the achievement of the financial target for the performance period ending September 30, 2013. The target and maximum number of shares that can be earned under these awards are shown in these columns. Participants cannot earn greater than 100% of the maximum. Payout for a performance period is made as soon as practicable after the achievement of the performance target, provided that the Committee may establish additional vesting conditions for retention purposes. Earned performance shares are paid in stock, with a portion paid in cash to cover tax obligations of participants. Under the 2010 performance shares program, 60% of any earned performance share units will be paid at the end of the four-year performance period, and the remaining 40% will be paid one year later subject to continued service. See “Performance Shares Program” at page 23 above for additional information regarding the program and additional detail on performance shares.
 
(2)  Includes restricted stock granted in fiscal 2010 under the 2006 Incentive Shares Plan which cliff vests over 5, 3 and 10 years from the date of grant for Messrs. Farr, Galvin and Dellaquila, respectively. Please see “Restricted Stock Program” at page 25 above for additional information regarding restricted stock awards.
 
(3)  Includes the grant date fair value of awards of performance shares and/or restricted stock computed in accordance with FASB ASC Topic 718, applying the same valuation model and assumptions applied for financial reporting purposes. These amounts do not correspond to the actual value that will be realized by the named executive officers. For restricted stock, the aggregate amount that the Company would expense in its yearly financial statements over the vesting period is equal to the grant date fair value reported above. For performance awards, the grant date fair value included assumes the maximum award is earned. Amounts expensed for performance share awards in the Company’s annual financial statements during the performance period reflect the difference between the financial reporting value of the award at the beginning and the end of each fiscal year during the program term, which varies depending upon stock price and the probability that targets will be reached, and therefore will generally not be equal to the grant date fair value reported above. See Note 14 to the Company’s fiscal year 2010 financial statements in the Company’s Annual Report on Form 10-K for a discussion of the determination of these amounts.


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Outstanding Equity Awards at Fiscal Year-End
 
The following table provides information on the holdings of stock options, performance shares and restricted stock by our named executive officers at the end of fiscal 2010. This table includes unexercised stock options, unvested restricted stock and performance shares with performance conditions or service requirements that have not been satisfied.
 
                                                                                                 
                      Option Awards
                                    Stock Awards
                 
                                                                    Equity
         
                                                                    Incentive
         
                                                                    Plan
         
                                                                    Awards:
         
                                                                    Number of
         
                                                                    Unearned
      Equity
 
                                                                    Shares,
      Incentive Plan
 
                                                    Number of
              Units or
      Awards: Market
 
              Number of
      Number of
                            Shares or
      Market Value
      Other
      or Payout Value
 
              Securities
      Securities
                            Units of
      of Shares or
      Rights
      of Unearned
 
              Underlying
      Underlying
                            Stock That
      Units of
      That Have
      Shares, Units or
 
              Unexercised
      Unexercised
      Option
      Option
            Have Not
      Stock That
      Not
      Other Rights
 
      Date of
      Options (#)
      Options (#)
      Exercise
      Expiration
      Date of
    Vested
      Have Not
      Vested
      That Have Not
 
Name     Award       Exercisable(1)       Unexercisable(1)       Price ($)       Date       Award     (#)       Vested ($)(8)       (#)(10)       Vested ($)(8)  
 D. N. Farr
      1/16/02         250,000                   26.4150         1/16/2012       (7)       510,000 (7)       26,856,600                      
        10/5/04         250,000                   31.6275         10/5/2014       10/2/06       176,640 (9)       9,301,862                      
        10/1/07         133,333 (2)       66,667 (2)       53.8350         10/1/2017       10/5/09                           450,000         23,697,000  
                                                                                                 
 W. J. Galvin
      1/16/02         113,340 (3)                 26.4150         1/16/2012       (7)       260,000 (7)       13,691,600                      
        10/5/04         170,000 (4)                 31.6275         10/5/2014       10/2/06       76,800 (9)       4,044,288                      
        10/1/07         86,666 (2)       43,334 (2)       53.8350         10/1/2017                                                
        2/19/09         33,333 (6)       66,667 (6)       30.0250         2/19/2019                                                
                                                                                                 
 E. L. Monser
      1/16/02         40,000                   26.4150         1/16/2012       (7)       80,000 (7)       4,212,800                      
        10/5/04         100,000                   31.6275         10/5/2014       10/2/06       57,600 (9)       3,033,216                      
        10/1/07         66,666 (2)       33,334 (2)       53.8350         10/1/2017       11/7/06       3,840 (9)       202,214                      
        2/19/09         26,666 (6)       53,334 (6)       30.0250         2/19/2019       10/5/09                           175,000         9,215,500  
                                                                                                 
 C. A. Peters
      10/5/04         100,000                   31.6275         10/5/2014       (7)       120,000 (7)       6,319,200                      
        10/1/07         66,666 (2)       33,334 (2)       53.8350         10/1/2017       10/2/06       46,080 (9)       2,426,573                      
        2/19/09         26,666 (6)       53,334 (6)       30.0250         2/19/2019       10/5/09                           135,000         7,109,100  
                                                                                                 
 F. J. Dellaquila
      1/16/02         10,000                   26.4150         1/16/2012       (7)       30,000 (7)       1,579,800                      
        10/5/04         10,000                   31.6275         10/5/2014       10/2/06       20,736 (9)       1,091,958                      
        10/1/07         10,000         5,000 (2)       53.8350         10/1/2017       10/5/09                           80,000         4,212,800  
        2/19/09         5,000 (6)       10,000 (6)       30.0250         2/19/2019       2/1/10                           20,000         1,053,200  
                                                                                                 
 F. L. Steeves
      4/3/07         100,000 (5)                 42.9100         4/3/2017       (7)       10,000 (7)       526,600                      
        2/19/09                   43,334 (6)       30.0250         2/19/2019       4/3/07       34,560 (9)       1,819,930                      
                                                        10/5/09                           110,000         5,792,600  
                                                                                                 
 
 
(1)  Consists of stock options granted under the Company’s stock option plans.
 
(2)  The options became exercisable in three equal annual installments beginning on October 1, 2008.
 
(3)  Includes 56,660 options which were transferred to The Galvin Family Trust for estate planning purposes. See footnote (6) under Stock Ownership of Directors and Executive Officers.
 
(4)  Includes 160,520 options which were transferred to The Galvin Family Trust for estate planning purposes. See footnote (6) under Stock Ownership of Directors and Executive Officers.
 
(5)  The options became exercisable in three equal annual installments beginning on April 3, 2008.
 
(6)  The options become exercisable in three equal annual installments beginning on February 19, 2010.


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(7)   Consists of restricted stock for each of the named executive officers which vests as follows:
 
                                 
      Number of
    Vesting Term
           
Name     Shares     (in years)     Grant Date     Vesting Date
D. N. Farr
      120,000         10       10/2/2000     10/2/2010
        110,000         6       10/4/2005     10/4/2011
        100,000         10       10/1/2002     10/1/2012
        80,000         5       10/5/2009     10/5/2014
        100,000         10       10/7/2008     10/7/2018
                                 
W. J. Galvin
      20,000         10       10/2/2000     10/2/2010
        50,000         6       10/4/2005     10/4/2011
        30,000         4       11/5/2007     11/5/2011
        10,000         4       10/7/2008     10/7/2012
        150,000         3       10/5/2009     10/5/2012
                                 
E. L. Monser
      20,000         10       10/2/2000     10/2/2010
        20,000         10       11/4/2002     11/4/2012
        20,000         8       11/7/2006     11/7/2014
        10,000         8       10/1/2007     10/1/2015
        10,000         7       10/7/2008     10/7/2015
                                 
C. A. Peters
      60,000         10       10/2/2000     10/2/2010
        40,000         10       10/4/2005     10/4/2015
        20,000         10       10/7/2008     10/7/2018
                                 
F. J. Dellaquila
      10,000         10       10/7/2008     10/7/2018
        20,000         10       10/5/2009     10/5/2019
                                 
F. L. Steeves
      10,000         10       10/1/2007     10/1/2017
                                 
 
(8)   Based on the closing market price of the Company’s common stock of $52.66 on September 30, 2010.
 
(9)   Consists of performance share awards granted in fiscal 2007 under the 2007 performance shares program (under our 2006 Incentive Shares Plan) which were subject to the achievement of the financial target for the performance period ended September 30, 2010. The percentage earned was 96%. Amounts shown represent the 40% portions of the earned awards which remain subject to forfeiture as participants must remain employed by the Company for an additional year. The 60% portions of those awards earned at the end of the performance period were paid out in stock, with a portion paid in cash to cover tax obligations of participants, and are set forth in the Option Exercises and Stock Vested table. See “Performance Shares Program” at page 23 above for additional information regarding the program and additional detail on performance shares, including how the shares are earned.
 
(10)  Consists of performance share awards granted in fiscal 2010 under the 2010 performance shares program (under our 2006 Incentive Shares Plan), which are subject to the achievement of the financial target for the performance period ending September 30, 2013. The target and maximum number of shares that can be earned under these awards are shown in this column. Participants cannot earn greater than 100% of the maximum, regardless of the extent to which actual Company performance exceeds the target. Payout for a performance period is made as soon as practicable after the achievement of the performance target, provided that the Committee may establish additional vesting conditions for retention purposes. Earned performance shares are paid to participants in stock, with a portion paid in cash to cover tax obligations of participants. Under the 2010 performance shares program, 60% of any earned performance share units will be paid at the end of the four-year performance period, and the remaining 40% will be paid one year later, subject to continued service. See “Performance Shares Program” at page 23 above for additional information regarding the program and additional detail on performance shares, including how the shares are earned.
 
Option Exercises and Stock Vested
 
The following table provides information for fiscal 2010 for our named executive officers on (1) stock option exercises during fiscal 2010, including the number of shares acquired on exercise, (2) the earning of performance shares that are not


34


 

subject to additional service requirements, and (3) the vesting of restricted stock, and, in each case, the values realized therefrom.
 
                                         
      Option Awards       Stock Awards  
                      Number of Shares
         
      Number of Shares
      Value Realized
      Acquired
      Value Realized
 
      Acquired on
      on Exercise
      on Vesting
      on Vesting
 
Name     Exercise (#)       ($)(1)       (#)       ($)(4)  
 D. N. Farr
      300,000         6,497,110         264,960 (2)       14,714,554  
                            100,000 (3)       3,854,000  
                                         
 W. J. Galvin
      56,660         1,315,645         115,200 (2)       6,397,632  
                                         
 E. L. Monser
      10,000         240,487         92,160 (2)       5,118,106  
                                         
 C. A. Peters
      190,000         4,541,183         69,120 (2)       3,838,579  
                                         
 F. J. Dellaquila
      10,302         247,750         31,104 (2)       1,727,361  
                            20,000 (3)       770,800  
                                         
 F. L. Steeves
      21,666         487,702         51,840 (2)       2,878,934  
                                         
 
 
(1)  Values for stock options represent the difference between the exercise price of the options and the market price of the Company’s common stock at exercise, based on the average of the high and low market prices on the day of exercise.
 
(2)  Numbers reflect the earning of performance shares granted under the 2007 performance shares program. The performance shares were subject to the achievement of the financial target for the four-year period ended September 30, 2010, and the percentage earned was 96%. The performance shares shown are the 60% portions of the awards earned and paid out in stock, with a portion paid in cash to cover tax obligations of participants, after the end of fiscal 2010. Amounts shown exclude the 40% portions of the earned 2007 performance share awards which remain subject to forfeiture, as participants must remain employed by or in service to the Company for an additional year, and which are set forth in the Outstanding Equity Awards at Fiscal Year End table.
 
(3)  Represents the vesting of 100,000 and 20,000 shares of restricted stock with five-year and ten-year vesting terms for Messrs. Farr and Dellaquila, respectively.
 
(4)  Values realized for performance shares earned reflect the market value based on the average of the high and low market prices ($55.5350) on November 1, 2010, the date the Compensation Committee determined the payout for the performance period ended September 30, 2010. Value realized for restricted stock described in footnote (3) above reflects the market value based on the average of the high and low market prices on October 5, 2009, the date of vesting.
 
Pension Benefits
 
The table below presents information on the pension benefits for the named executive officers under each of the following pension plans.
 
Emerson Retirement Plan
 
The Emerson Electric Co. Retirement Plan is a tax-qualified retirement program that covered approximately 75,000 participants as of September 30, 2010. As applicable to the named executive officers, the plan provides benefits based primarily on a formula that considers the highest consecutive five-year average of the executive’s annual cash earnings (final average earnings). Earnings for this plan include base salary plus bonus payments, but may not exceed an IRS-prescribed limit applicable to tax-qualified plans ($245,000 for 2010).
 
The formula provides an annual benefit accrual for each year of service of 1.0% of final average earnings up to “covered compensation” and 1.5% of final average earnings in excess of “covered compensation,” limited to 35 years of service. When the employee has attained 35 years of service, the annual accrual is 1.0% of final average earnings. “Covered compensation” is based on the average of Social Security taxable wage bases, and varies per individual based on Social Security retirement age. A small portion of the accrued benefits payable from the Emerson Retirement Plan for


35


 

Messrs. Farr, Galvin, and Peters includes benefits determined under different but lesser pension formulas for periods of prior service at various Company divisions or subsidiaries.
 
The accumulated benefit that an employee earns over his or her career with the Company is payable upon retirement on the basis of an annuity on a monthly basis for life with a guaranteed minimum term of five years. The normal retirement age is defined for this plan as 65. Employees are eligible to retire early under the plan once they have attained age 55 and 10 years of service. As of September 30, 2010, Messrs. Farr, Galvin, Monser and Peters have met the eligibility requirements for early retirement under the Plan. In the event the employee retires before normal retirement age, the accrued benefit is reduced for the number of years prior to age 65 that the benefit commences (4% for each of the first 5 years that retirement precedes age 65, and 5% for each year thereafter). Employees vest in their accrued benefit after 5 years of service. The Plan provides for spousal joint and survivor annuity options. No employee contributions are required.
 
Benefits under the Emerson Retirement Plan are subject to the limitations imposed under Section 415 of the Internal Revenue Code (which in fiscal 2010 is $195,000 per year for a single life annuity payable at an IRS-prescribed retirement age). This ceiling may be actuarially adjusted in accordance with IRS rules for items such as other forms of distribution and different annuity starting dates.
 
Emerson Pension Restoration Plan
 
The Emerson Electric Co. Pension Restoration Plan is a non-qualified plan that is an unfunded obligation of the Company. Benefits are payable from the Company’s general operating funds. Participation in, and benefits payable from, the Plan are by award, subject to the approval of the Compensation Committee. Messrs. Farr, Galvin, Monser, and Peters have been selected to participate in the Plan. At age 65 or later termination of employment, the Plan will provide a benefit based on the same final average earnings formula as described above for the Emerson Retirement Plan, for all years of service at Emerson, and without regard to the IRS-prescribed limitations on benefits and compensation as described in the Emerson Retirement Plan. The benefit payable from the Pension Restoration Plan is reduced by the benefit received from the Emerson Retirement Plan. Benefits payable from the Pension Restoration Plan are generally payable in the same annuity form as the benefits paid from the Emerson Retirement Plan. In the event a named executive officer leaves the Company before normal retirement age, the benefit payable to the executive is determined in the discretion of the Committee. No pension benefits were paid to any of the named executive officers during the 2010 fiscal year.
 
The amounts reported in the table below equal the present value of the accumulated benefit at September 30, 2010 for the named executive officers under each plan based upon the assumptions described in footnote (2).
 
Pension Benefits
 
                                 
            Number
    Present
    Payments
            of Years Credited
    Value of Accumulated
    During Last
            Service
    Benefit
    Fiscal Year
Name     Plan Name     (#)(1)     ($)(2)     ($)
 D. N. Farr
    Emerson Electric Co. Retirement Plan     30       681,000          
      Emerson Electric Co. Pension Restoration Plan     30       10,746,000          
                                 
 W. J. Galvin
    Emerson Electric Co. Retirement Plan     38       1,276,000          
      Emerson Electric Co. Pension Restoration Plan     38       8,357,000          
                                 
 E. L. Monser
    Emerson Electric Co. Retirement Plan     9       268,000          
      Emerson Electric Co. Pension Restoration Plan     9       1,255,000          
                                 
 C. A. Peters
    Emerson Electric Co. Retirement Plan     34       667,000          
      Emerson Electric Co. Pension Restoration Plan     34       3,056,000          
                                 
 F. J. Dellaquila
    Emerson Electric Co. Retirement Plan     20       395,000          
                                 
 F. L. Steeves
    Emerson Electric Co. Retirement Plan     4       99,000          
                                 
 
 
(1)  The number of years of service credited under the plans is computed as of the same pension plan measurement date used for financial statement reporting purposes with respect to the Company’s financial statements for the last


36


 

  completed fiscal year. Mr. Monser has 29 years of service with the Company, but only 9 years of credited service under our Retirement Plan as he previously participated in a divisional profit sharing plan.
 
(2)  The accumulated benefit is based on service and earnings (as described above) considered by the plans for the period through September 30, 2010. The present value has been calculated assuming that the named executive officers will remain in service until age 65, the age at which retirement may occur without any reduction in benefits, and that the benefit is payable under the stated form of annuity. Except for the assumption that the executives remain in service and retire at age 65, the present value is based on the assumptions as described in Note 10 to the Company’s fiscal year 2010 financial statements in the Company’s Annual Report on Form 10-K.
 
Nonqualified Deferred Compensation
 
The Emerson Electric Co. Savings Investment Restoration Plan (“Savings Investment Restoration Plan”) is a nonqualified, unfunded defined contribution plan. The plan provides participants with benefits that would have been provided under the Emerson Electric Co. Employee Savings Investment Plan, the Company’s qualified 401(k) plan (the “ESIP”), but could not be provided due to Internal Revenue Code (“IRC”) qualified plan compensation limits.
 
Participants in the Savings Investment Restoration Plan are individuals who have been designated by the Compensation Committee. Under the Plan, participants may elect to defer up to 20% of compensation and the Company will make matching contributions for participants who elect to defer at least 5% of compensation in an amount equal to 50% of the first 5% of those deferrals (but not to exceed 2.5% of compensation) less the maximum matching amount the participant could have received under the ESIP. Compensation includes cash pay (base salary plus annual cash bonus) received by a participant and excludes any reimbursements, payments under incentive shares plans, stock option gains, any other stock-based awards and any severance payments. Amounts deferred under the plan (which are 100% vested) will be credited with returns based on the same investment alternatives selected by the participant under the ESIP, which include an Emerson common stock fund and 25 other mutual fund investment alternatives. The Company matching contributions vest 20% each year for the first 5 years of service, after which the participant is 100% vested. The matching contributions are credited to a book-entry account reflecting units equivalent to Emerson stock. There are no “above-market earnings” as all earnings are market-based consistent with the investment funds elected. All deferred amounts and the Company matching contributions are accounted for on the Company’s financial statements and are unfunded obligations of the Company which are paid in cash when benefit payments commence.
 
Generally, distribution of vested account balances occurs no later than one year following termination of employment in a lump sum. Upon retirement, or in other certain instances, participants may elect to receive their account balances in up to ten annual installments. Unvested matching contributions shall be fully vested in the event of (i) retirement with the approval of the Compensation Committee on or after the age of 55, (ii) death or disability, (iii) termination of the plan, or (iv) a change of control of the Company. All or a portion of any participant’s vested account balance may be distributed earlier in the event of an unforeseeable emergency, if approved by the Compensation Committee. For amounts deferred or vested as of December 31, 2004, a participant may receive a distribution of after-tax deferrals upon 30 days notice.
 
Non-Qualified Deferred Compensation
 
                                                   
                  Aggregate
           
      Executive
    Registrant
    Earnings
    Aggregate
     
      Contributions
    Contributions in
    in Last
    Withdrawals/
    Aggregate Balance at Last  
      in Last FY
    Last FY
    FY
    Distributions
    FYE
Name     ($)(1)     ($)(1)     ($)(1)     ($)     ($)(2)
 D. N. Farr
      134,219         60,984         557,004                 3,995,004  
 W. J. Galvin
      152,146         31,912         323,561                 3,369,078  
 E. L. Monser
      96,917         24,318         119,071                 906,449  
 C. A. Peters
      56,823         22,286         190,027                 1,281,384  
 F. J. Dellaquila
      94,453         15,509         77,596                 1,660,174  
 F. L. Steeves
      152,958         20,604         63,999                 624,688  
                                                   
 
 
(1)  Includes amounts contributed by each named executive officer and by the Company, respectively, to the Savings Investment Restoration Plan. Executive and Company contributions in the last fiscal year have been included in the


37


 

Salary and All Other Compensation columns, respectively, of the Summary Compensation Table. Aggregate earnings under the plan are not above-market and are not included in the Summary Compensation Table.
 
(2)  Includes amounts reported as compensation for the named executive officers in the Summary Compensation Table for previous years. For fiscal 2010, the amounts referred to in footnote (1) above are included in the Summary Compensation Table as described. The following aggregate amounts of executive and Company contributions were included in the Summary Compensation Table for fiscal 2009 and 2008, respectively (with the Company portion of the aggregate amount in parentheses): Mr. Farr-$303,313 ($97,271), $431,615 ($93,073); Mr. Galvin-$226,959 ($40,792), $203,543 ($38,459); Mr. Monser-$114,343 ($30,031), $122,516 ($28,099); Mr. Peters-$96,156 ($28,219), $79,609 ($26,536); and Mr. Steeves-$251,125 ($22,792), $94,500 ($10,500). For prior years, all amounts contributed by a named executive officer and by the Company in such years have been reported in the Summary Compensation Table in our previously filed proxy statements in the year earned, to the extent the executive was named in such proxy statements and the amounts were so required to be reported in such tables.
 
Potential Payments Upon Termination or Change of Control
 
As described in the Compensation Discussion and Analysis beginning on page 17, the named executive officers do not have any written or oral employment agreements with the Company and have no other agreements that contain severance or “golden parachute” provisions.
 
The information below generally describes payments or benefits under the Company’s compensation plans and arrangements that would be available to all participants in the plans, including the named executive officers, in the event of the participant’s termination of employment or of a Change of Control of the Company. Any such payments or benefits that a named executive officer has elected to defer would be provided in accordance with the requirements of Internal Revenue Code Section 409A. Payments or benefits under other plans and arrangements that are generally available to the Company’s employees on similar terms are not described.
 
Conditions and Obligations Applicable to Receipt of Termination/Change of Control Payments
 
In the event of any termination or Change of Control, all executives participating in stock options, performance shares, restricted stock or the Pension Restoration Plan have the following obligations to the Company.
 
Stock Options. Named executive officers awarded stock options are obligated to maintain the confidentiality of Company information, to assign to the Company intellectual property rights, and not to compete with, or solicit the employees of, the Company. If these obligations are breached, any unexercised portion of the option will be void and, for options exercised within twelve months prior to the breach, the named executive officer owes the Company the excess of (i) the fair market value of the shares acquired over (ii) the exercise price.
 
Performance Shares and Restricted Stock. Named executive officers awarded performance shares or restricted stock are obligated not to compete with, or solicit the employees of, the Company during and for two years after termination of employment.
 
Pension Restoration Plan. If any participating named executive officer is discharged for cause, enters into competition with the Company, interferes with the Company’s relations with a customer, or engages in any activity that would result in a decrease in or loss of sales by the Company, the named executive officer’s rights to benefits under this Plan will be forfeited, unless the Compensation Committee determines that the activity is not detrimental to the Company’s interests.
 
Additionally, upon retirement and involuntary termination, named executive officers generally execute letter agreements reaffirming their applicable confidentiality, non-competition and non-solicitation obligations and may enter into extended non-competition agreements with the Company.
 
Payments Made Upon Retirement
 
Upon retirement, the Company’s compensation plans and arrangements provide as follows:
 
  •   The Compensation Committee has the discretion to determine whether any annual cash bonus award, or any part of it, would be paid, subject to satisfaction of pre-established performance conditions;
 
  •   All unvested stock options would vest immediately, and all unexercised options could be exercised for a period of up to five years after retirement, but no longer than the original option term;


38


 

 
  •   Upon retirement after age 65, the named executive officer would receive a prorated payout of performance shares, as reasonably determined by the Compensation Committee, subject to satisfaction of pre-established performance conditions, to be paid after the end of the applicable performance period. Before age 65, the Compensation Committee has the discretion to determine whether the named executive officer would receive a prorated, other or no payout of performance shares, which payout would be made after the performance period, subject to the satisfaction of performance conditions;
 
  •   The Compensation Committee has the discretion to determine whether to allow the named executive officer to continue to vest in restricted stock following retirement, or to reduce the vesting period (to not less than three years);
 
  •   If not previously vested, the named executive officer would be vested in Company contributions to his or her Savings Investment Restoration Plan account if retirement occurs with the approval of the Compensation Committee on or after age 55; and
 
  •   Under the Company’s Pension Restoration Plan, a named executive officer’s benefit commences at age 65 (or retirement, if later) and is paid in the form of an annuity on a monthly basis (no lump sum distributions).
 
Payments Made Upon Death or Disability
 
Upon death or total disability, the Company’s compensation plans and arrangements provide as follows:
 
  •   The Compensation Committee has the discretion to determine whether any annual cash bonus award, or any part of it, would be paid, subject to satisfaction of pre-established performance conditions;
 
  •   All unvested stock options would vest immediately upon death, and all unexercised options could be exercised for a period of up to one year after death, but no longer than the original option term. Upon termination due to disability, the named executive officer would have up to one year, but no longer than the original option term, to exercise any previously vested options (no accelerated vesting);
 
  •   The Compensation Committee has the discretion to determine whether the named executive officer would receive full, partial or no payout of performance shares, subject to satisfaction of pre-established performance conditions;
 
  •   Awards of restricted stock will be prorated for the period of service during the restriction period and distributed free of restriction at the end of the vesting period and the Compensation Committee has the discretion to determine whether to reduce the vesting period to not less than three years;
 
  •   If not previously vested, the named executive officer would be vested in Company contributions to his or her Savings Investment Restoration Plan account;
 
  •   Upon the death of a named executive officer participating in the Pension Restoration Plan, the surviving spouse would receive, in the form of an annuity payment on a monthly basis commencing at the named executive officer’s date of death, benefits equal to 50% of the actuarially equivalent accrued benefit. Upon termination due to disability, benefits would start when the named executive officer reaches age 65 (or termination, if later) and be paid in the form of an annuity on a monthly basis; and
 
  •   Upon a named executive officer’s death, the beneficiaries would receive proceeds from term life insurance provided by the Company.
 
Payments Made Upon Other Termination
 
If the named executive officer’s employment terminates for a reason other than as described above (i.e., voluntary termination, termination for cause or involuntary termination), he or she would only receive:
 
  •   Payment of the vested portion of the named executive officer’s Savings Investment Restoration Plan account, which payment would be made after termination, in a single lump sum.
 
Under the Company’s compensation plans and arrangements, the Compensation Committee may also, in its discretion, determine whether any of the additional payments or benefits described below would be paid to the named executive officer. However, this exercise of discretion is unlikely to result in the payment of any additional benefits in the case of voluntary quit or termination for cause.
 
  •   The Compensation Committee has the discretion to determine whether any annual cash bonus award, or any part of it, would be paid, subject to satisfaction of pre-established performance conditions;


39


 

 
  •   If termination occurs with Company consent, the Compensation Committee may permit the named executive officer to have up to three months after termination, but no longer than the original option term, to exercise any previously vested stock options;
 
  •   The Compensation Committee has the discretion to determine whether the named executive officer would receive full, partial or no payout of performance shares, subject to satisfaction of pre-established performance conditions;
 
  •   The Compensation Committee has the discretion to determine whether to allow the named executive officer to continue to vest in restricted stock following termination, or to reduce the vesting period (to not less than three years); and
 
  •   Subject to the discretion of the Compensation Committee, a named executive officer participating in the Pension Restoration Plan would be eligible to receive his or her vested benefits starting at age 65 (or upon termination, if later), paid in the form of an annuity on a monthly basis.
 
The estimated amounts of the foregoing benefits, based on certain assumptions regarding the exercise of the Committee’s authority, are identified in the tables below.
 
Payments Made Upon Change of Control
 
Upon a Change of Control, the Company’s compensation plans and arrangements provide as follows:
 
  •   Annual cash bonus awards are not paid upon a Change of Control;
 
  •   All unvested stock options would vest immediately, and all unexercised options could be exercised for their remaining terms;
 
  •   Performance objectives of outstanding performance share awards would be deemed to be satisfied, with payout to be made immediately;
 
  •   All restricted stock awards would vest immediately;
 
  •   If not previously vested, the named executive officer would be vested in Company contributions to his or her Savings Investment Restoration Plan account, and the vested amount would be paid in a single lump sum; and
 
  •   A named executive officer participating in the Pension Restoration Plan would become fully vested and plan benefits would be paid immediately in a lump sum.
 
“Change of Control” Definition and Payment Approach
 
“Change of Control” generally means: (i) the acquisition of beneficial ownership of 20% or more of the Company’s common stock, (ii) individuals who currently make up the Company’s Board of Directors (or who subsequently become Directors after being approved for election by at least a majority of current Directors) ceasing for any reason to make up at least a majority of the Board, or (iii) approval by the Company’s stockholders of (a) a reorganization, merger or consolidation which results in the ownership of 50% or more of the Company’s common stock by persons or entities that were not previously stockholders; (b) a liquidation or dissolution of the Company; or (c) the sale of substantially all of the Company’s assets. With respect to participants who have deferred payment of earned awards under the 2006 Incentive Shares Plan, the Change of Control must also meet the requirements of Internal Revenue Code Section 409A and any transaction referenced in (iii) must have actually occurred, rather than merely have been approved; and, provided further that, with respect to the Company’s Pension Restoration Plan and Savings Investment Restoration Plan, a Change of Control refers to a change in the ownership or effective control of the Company or a change in the ownership of a substantial portion of the assets of the Company, as such terms are defined under Section 409A of the Internal Revenue Code and the regulations promulgated thereunder.
 
As described above, immediately upon a Change of Control, named executive officers may exercise all their outstanding stock options, all their outstanding performance shares will be paid out, and their restricted stock vests. This is the so-called “single” trigger treatment for outstanding equity awards, which does not require an additional, or “double” trigger for receiving the benefit, such as termination or significant change in the named executive officers’ duties as a result of a Change of Control. The Company has believed that “single” trigger treatment is appropriate for equity awards for the following reasons:
 
  •   It provides employees with the same opportunities as stockholders of the Company, who are free to sell their equity at the time of the Change of Control and to realize the value created at the time of the transaction.


40


 

 
  •   It ensures that continuing employees are treated the same as terminated employees.
 
  •   It is an effective retention device during Change of Control discussions, especially for more senior executives for whom equity represents a significant portion of their total pay.
 
  •   It is particularly appropriate for performance based equity, given the potential difficulty of replicating or meeting the performance goals after the Change of Control.
 
Although our current equity compensation plans contain a “single” trigger, the new 2011 Stock Option Plan, which has been submitted for approval in this proxy statement, contains a “double” trigger which provides that the options will be triggered if they are not appropriately assumed by an acquirer, but if they are so assumed, are only triggered if within two years of the change of control, the optionee is terminated other than for cause, his or her compensation, title, duties or responsibilities are substantially reduced or adversely affected, or he or she is required to relocate as a condition for continued employment.
 
Quantification of Payments and Benefits
 
The following tables quantify the potential payments and benefits upon termination or a Change of Control of the Company for each of the named executive officers, assuming the named executive officer’s employment terminated on September 30, 2010, given the named executive officer’s compensation and service level as of that date and, if applicable, based on the Company’s closing stock price of $52.66 on that date. Other assumptions made with respect to specific payments or benefits are set forth in applicable footnotes to the tables. Due to the number of factors that affect the nature and amount of any payments or benefits provided upon a termination or Change of Control, including, but not limited to, the date of any such event, the Company’s stock price and the named executive officer’s age, any actual amounts paid or distributed may be different. None of the payments set forth below would be grossed-up for taxes.
 
D. N. Farr
 
                                                             
Executive Benefits and
                      Voluntary or For
    Invol. Term. not
    Change of
Payments Upon Termination      Retirement ($)     Death ($)     Disability ($)     Cause Term. ($)     for Cause ($)     Control ($)
Annual Cash Incentive
      (1)         (1)         (1)         (2)         (1)         (3)  
                                                             
Stock Options
      (4)         (4)                                 (4)  
                                                             
Performance Shares
      9,689,400(5)(6)         9,689,400(5)(6)         9,689,400(5)(6)         (2)(5)         9,689,400(5)(6)         33,386,440(7)  
                                                             
Restricted Stock
      (8)         17,254,927(9)         17,254,927(9)         (8)         (8)         26,856,600(10)  
                                                             
Pension Restoration Plan
      N/A         N/A         N/A         N/A         N/A         (11)  
                                                             
Life Insurance Benefits
              200,000(12)                                  
                                                             
 
W. J. Galvin
 
                                                             
Executive Benefits and
                      Voluntary or For
    Invol. Term. not
    Change of
Payments Upon Termination     Retirement ($)     Death ($)     Disability ($)     Cause Term. ($)     for Cause ($)     Control ($)
Annual Cash Incentive
      (1)         (1)         (1)         (2)         (1)         (3)  
                                                             
Stock Options
      1,509,008(4)         1,509,008(4)                                 1,509,008(4)  
                                                             
Performance Shares
      4,212,800(5)(6)         4,212,800(5)(6)         4,212,800(5)(6)         (2)(5)         4,212,800(5)(6)         4,212,800(7)  
                                                             
Restricted Stock
      (8)         7,328,517(9)         7,328,517(9)         (8)         (8)         13,691,600(10)  
                                                             
Pension Restoration Plan
      N/A         N/A         N/A         N/A         N/A         (11)  
                                                             
Life Insurance Benefits
              200,000(12)                                  
                                                             


41


 

E. L. Monser
 
                                                             
Executive Benefits and
                      Voluntary or For
    Invol. Term. Not
    Change of
Payments Upon Termination     Retirement ($)     Death ($)     Disability ($)     Cause Term. ($)     for Cause ($)     Control ($)
Annual Cash Incentive
      (1)         (1)         (1)         (2)         (1)         (3)  
                                                             
Stock Options
      1,207,215(4)         1,207,215(4)                                 1,207,215(4)  
                                                             
Performance Shares
      3,370,240(5)(6)         3,370,240(5)(6)         3,370,240(5)(6)         (2)(5)         3,370,240(5)(6)         12,585,740(7)  
                                                             
Restricted Stock
      (8)         2,770,292(9)         2,770,292(9)         (8)         (8)         4,212,800(10)  
                                                             
Pension Restoration Plan
      N/A         N/A         N/A         N/A         N/A         (11)  
                                                             
Life Insurance Benefits
              200,000(12)                                  
                                                             
 
C. A. Peters
 
                                                             
Executive Benefits and
                      Voluntary or For
    Invol. Term. not
    Change of
Payments Upon Termination     Retirement ($)     Death ($)     Disability ($)     Cause Term. ($)     for Cause ($)     Control ($)
Annual Cash Incentive
      (1)         (1)         (1)         (2)         (1)         (3)  
                                                             
Stock Options
      1,207,215(4)         1,207,215(4)                                 1,207,215(4)  
                                                             
Performance Shares
      2,527,680(5)(6)         2,527,680(5)(6)         2,527,680(5)(6)         (2)(5)         2,527,680(5)(6)         9,636,780(7)  
                                                             
Restricted Stock
      (8)         4,423,440(9)         4,423,440(9)         (8)         (8)         6,319,200(10)  
                                                             
Pension Restoration Plan
      N/A         N/A         N/A         N/A         N/A         (11)  
                                                             
Life Insurance Benefits
              200,000(12)                                  
                                                             
 
F. J. Dellaquila
 
                                                             
Executive Benefits and
                      Voluntary or For
    Invol. Term. Not
    Change of
Payments Upon Termination     Retirement ($)     Death ($)     Disability ($)     Cause Term. ($)     for Cause ($)     Control ($)
Annual Cash Incentive
      (1)         (1)         (1)         (2)         (1)         (3)  
                                                             
Stock Options
      226,350(4)         226,350(4)                                 226,350(4)  
                                                             
Performance Shares
      1,137,456(5)(6)         1,137,456(5)(6)         1,137,456(5)(6)         (2)(5)         1,137,456(5)(6)         6,403,456(7)  
                                                             
Restricted Stock
      (8)         210,640(9)         210,640(9)         (8)         (8)         1,579,800(10)