UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

SCHEDULE 14A

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

Filed by the Registrant þ
Filed by a Party other than the Registrant o
Check the appropriate box:
o		Preliminary Proxy Statement
o		Confidential, for Use of the Commission Only (as permitted by Rule 14a-6(e)(2))
þ		Definitive Proxy Statement
o		Definitive Additional Materials
o		Soliciting Material Pursuant to §240.14a-12

FEDERAL SIGNAL CORPORATION

(Name of Registrant as Specified In Its Charter)

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

Payment of Filing Fee (Check the appropriate box):
þ		No fee required.
o		Fee computed on table below per Exchange Act Rules 14a-6(i)(1) and 0-11.
		(1)		Title of each class of securities to which transaction applies:
		(2)		Aggregate number of securities to which transaction applies:
		(3)		Per unit price or other underlying value of transaction computed pursuant to Exchange Act Rule 0-11 (set forth the amount on which the filing fee is calculated and state how it was determined):
		(4)		Proposed maximum aggregate value of transaction:
		(5)		Total fee paid:
o		Fee paid previously with preliminary materials.
o		Check box if any part of the fee is offset as provided by Exchange Act Rule 0-11(a)(2) and identify the filing for which the offsetting fee was paid previously. Identify the previous filing by registration statement number, or the Form or Schedule and the date of its filing.
		(1)		Amount Previously Paid:
		(2)		Form, Schedule or Registration Statement No.:
		(3)		Filing Party:
		(4)		Date Filed:

     

1415 West 22nd Street
Oak Brook, Illinois 60523

 

Notice of Annual Meeting of Stockholders
To Be Held on April 26, 2011

 

To the Stockholders of
Federal Signal Corporation:

 

The Annual Meeting of Stockholders of Federal Signal Corporation will be held at the Oak Brook Marriott, 1401 West 22nd Street, Oak Brook, Illinois 60523 on Tuesday, April 26th, 2011 at 2:30 p.m. local time, for the following purposes:

 

• To elect one (1) Class I director, one (1) Class II director and three (3) Class III directors;

 

• To approve an advisory resolution relating to our executive compensation;

 

• To recommend, by advisory vote, the frequency of future advisory votes on executive compensation;

 

• To ratify Ernst & Young LLP’s appointment as our independent registered public accounting firm for 2011; and

 

• To transact such other business that may properly come before the meeting or any adjournment(s) or postponement(s) of such meeting.

 

The Board of Directors has fixed the close of business on March 18, 2011 as the record date for the meeting. This means that if you owned shares of our common stock on that date, you are entitled to receive this notice, and to vote at the meeting or any adjournment(s) or postponement(s) of the meeting.

 

The Board of Directors recommends that you vote “FOR” the nominees for director proposed by the Board; “FOR” the advisory resolution relating to our executive compensation; “1 YEAR” for the advisory vote on the frequency of future advisory votes on executive compensation; and “FOR” the ratification of Ernst & Young LLP as our independent registered public accounting firm for 2011.

 

Important Notice Regarding the Availability of Proxy Materials for the Annual Meeting of Stockholders to be Held on April 26, 2011
The following materials, also included with this Notice, are available to be viewed, downloaded, and printed, at no charge, by accessing the following Internet address: http://www.federalsignal.com.
1. Proxy Statement for the Annual Meeting of Stockholders, and
2. 2010 Annual Report to Stockholders

 

YOUR VOTE IS IMPORTANT! Whether or not you expect to attend the meeting, you are urged to vote as promptly as possible in one of the following ways:

 

 

Any proxy may be revoked at any time prior to its exercise at the Annual Meeting.

 

Instructions for voting are contained on the enclosed proxy card. If you have any questions or need assistance in voting your shares of our common stock, please call the Corporate Secretary at (630) 954-2008 or email us at info@federalsignal.com.

 

By order of the Board of Directors,

 

Jennifer L. Sherman

Corporate Secretary

 

March 25, 2011

 

TABLE OF CONTENTS

 

 

1415 West 22nd Street
Oak Brook, Illinois 60523

 

Proxy Statement for Annual Meeting of Stockholders
To Be Held on April 26, 2011

 

The Board of Directors of Federal Signal Corporation is furnishing this proxy statement to you in order to solicit your proxy for use at the Annual Meeting of Stockholders to be held at the Oak Brook Marriott, 1401 West 22nd Street, Oak Brook, Illinois 60523 on Tuesday, April 26, 2011 at 2:30 p.m. local time, and any adjournment(s) or postponement(s) of such meeting. The purpose of the Annual Meeting of Stockholders is:

 

 

The Board of Directors recommends that you vote “FOR” the nominees for director proposed by the Board; “FOR” the advisory resolution relating to our executive compensation; “1 YEAR” for the advisory vote on the frequency of future advisory votes on executive compensation; and “FOR” the ratification of Ernst & Young LLP as our independent registered public accounting firm for 2011.

 

This proxy statement and the accompanying proxy card were first mailed to stockholders on or about March 25, 2011.

 

You may vote on the above matters in the following ways:

 

 

You will be entitled to vote at the Annual Meeting only if you held shares of our common stock of record at the close of business on March 18, 2011, the “record date.” You will be entitled to one vote for each share you owned on the record date for each of the five directorships to be elected and on each other matter presented at the meeting. On the record date, there were 62,117,077 shares of our common stock issued and outstanding.

 

Our By-Laws provide that a majority of the outstanding shares, present in person or by proxy, will constitute a quorum at the Annual Meeting. For purposes of determining if a quorum is present, we will count all shares that are voted on any proposal as well as those shares that are designated as “withholding authority” to vote for a nominee or nominees or “abstaining” from any proposal as shares represented at the Annual Meeting and counted toward establishing the presence of a quorum.

You can direct how your shares will be voted at the Annual Meeting by signing, dating and returning the enclosed proxy card. If you return a proxy card, but no specific voting instructions are given with respect to a proposal, your shares will be voted “for” the Class I nominee, “for” the Class II nominee and “for” each of the three Class III nominees named on the proxy card; “for” the advisory resolution relating to our executive compensation; “1 year” for the advisory vote on the frequency of future advisory votes on executive compensation; and “for” the ratification of the appointment of Ernst & Young LLP as our independent registered public accounting firm for 2011.

 

If you hold your shares in more than one account, you will receive a proxy card for each account. To ensure that all of your shares are voted, please vote by telephone or Internet for each account, or sign, date and return a proxy card for each account in the postage-paid envelope provided.

 

Under the rules that govern brokers who have record ownership of shares that they hold in street name for clients who beneficially own such shares, a broker may vote such shares in its discretion on “routine” matters if the broker has not received voting instructions from its client, but a broker cannot exercise its discretion to vote such shares on “non-routine” matters absent voting instructions from its client. When a broker votes a client’s shares on some but not all of the proposals presented at the meeting, each non-routine proposal for which the broker cannot vote because it has not received a voting instruction from the client is referred to as a “broker non-vote.” Proposals 1, 2 and 3 are non-routine matters. Therefore, if your shares are held in street name and you do not provide instructions as to how your shares are to be voted on Proposals 1, 2 and 3, your broker will not be able to vote your shares on these proposals. Your vote is important — we urge you to provide instructions to your broker so that your votes may be counted.

 

Our By-Laws provide that, in an uncontested election, as is the case in this election, a nominee for director shall be elected to the Board if the votes cast “for” such nominee’s election exceed the “withhold authority” votes cast with respect to such nominee’s election (Proposal 1).

 

Approval of the advisory resolution relating to our executive compensation requires the affirmative vote of a majority of the shares of our common stock cast in person or by proxy on the proposal (Proposal 2).

 

The frequency of the advisory vote (every one, two or three years) on executive compensation that receives the greatest number of votes will be considered our stockholders’ advice on the frequency issue (Proposal 3).

 

The affirmative vote of a majority of the shares of our common stock cast in person or by proxy on the proposal is required to ratify the appointment of the auditors (Proposal 4).

 

In tabulating the voting result for any particular proposal, shares that constitute broker non-votes and, pursuant to our By-Laws, abstentions are not considered votes cast on that proposal. Accordingly, broker non-votes and abstentions will not affect the outcome of any matter being voted on at the Annual Meeting.

 

On March 18, 2011, our 401(k) Plan, which is called the Federal Signal Corporation Retirement Savings Plan, held 1,346,656 shares of our common stock in the name of Vanguard Fiduciary Trust Company, as trustee of the 401(k) Plan. If you are a participant in the 401(k) Plan, you may instruct Vanguard how to vote shares of common stock credited to your 401(k) Plan account by indicating your instructions on your proxy card and returning it by April 20, 2011. A properly executed proxy card will be voted by Vanguard as directed. If no proper voting direction is received, Vanguard, in its capacity as the 401(k) Plan Trustee, will vote your shares held in the 401(k) Plan in the same proportion as votes received from other participants in the 401(k) Plan.

 

You may revoke your proxy at any time before it is voted by:

 

 

 

The Securities and Exchange Commission has adopted rules that permit companies and intermediaries such as brokers to satisfy delivery requirements for annual reports and proxy statements with respect to two or more stockholders sharing the same address by delivering a single annual report and/or proxy statement addressed to those stockholders. This process, which is commonly referred to as “householding,” potentially provides extra convenience for stockholders and cost savings for companies. We and some brokers may household annual reports and proxy materials, delivering a single annual report and/or proxy statement to multiple stockholders sharing an address unless contrary instructions have been received from the affected stockholders.

 

Once you have received notice from your broker or us that they or we will be householding materials to your address, householding may continue until you are notified otherwise or until you revoke your consent. You may request to receive at any time a separate copy of our annual report or proxy statement, by sending a written request to Federal Signal Corporation, 1415 West 22nd Street, Suite 1100, Oak Brook, IL 60523, Attn: Corporate Secretary, or calling 630-954-2008.

 

If, at any time, you no longer wish to participate in householding and would prefer to receive a separate annual report and/or proxy statement in the future, please notify your broker if your shares are held in a brokerage account or us if your shares are registered in your name. You can notify us by sending a written request to Federal Signal Corporation, 1415 West 22nd Street, Suite 1100, Oak Brook, IL 60523, Attn: Corporate Secretary, or calling 630-954-2008. If, at any time, you and another stockholder sharing the same address wish to participate in householding and prefer to receive a single copy of our Annual Report and/or proxy statement, please notify your broker if your shares are held in a brokerage account or us if your shares are registered in your name. You can notify us by sending a written request to Federal Signal Corporation, 1415 West 22nd Street, Suite 1100, Oak Brook, IL 60523, Attn: Corporate Secretary, or calling 630-954-2008.

 

We will bear the costs of solicitation of proxies for the Annual Meeting. Following the original solicitation of proxies by mail, certain of our directors, officers and employees may solicit proxies by correspondence, telephone, e-mail, or in person, but will not receive any extra compensation for such solicitation work. We will reimburse brokers and other nominee holders for their reasonable expenses incurred in forwarding the proxy materials to the beneficial owners. The Company does not presently intend to retain professional proxy solicitation assistance.

 

If you have any questions about the Annual Meeting or if you need additional copies of this proxy statement or the enclosed proxy card, please contact us by sending a written request to Federal Signal Corporation, 1415 West 22nd Street, Suite 1100, Oak Brook, IL 60523, Attn: Corporate Secretary or calling 630-954-2008.

 

The following table sets forth information as of March 18, 2011 with respect to beneficial ownership of our common stock by:

 

 

BENEFICIAL OWNERS OF MORE THAN FIVE PERCENT OF OUR COMMON STOCK

 

 

 

 

EACH DIRECTOR, DIRECTOR NOMINEE AND NAMED EXECUTIVE OFFICER,
AND ALL DIRECTORS AND EXECUTIVE OFFICERS AS A GROUP (1, 2)

 

 

 

 

Our Company’s Board of Directors currently consists of eight directors divided into three classes. Class I currently consists of two members and each of Classes II and III currently consist of three members. In connection with the 2010 Annual Meeting of Stockholders, the Board of Directors reconstituted the Board of Directors from ten (10) directors to nine (9) directors. As part of this reconstitution, we reassigned one (1) Class III director from Class III to Class II so that each of the Board’s classes would be nearly as equal as possible, as required by Section 3.2 of our By-Laws. Additionally, we stated at the time of this reconstitution that the new Class II director would stand for re-election at the 2011 Annual Meeting, in addition to the Class III director nominees. On April 27, 2010, the Board reassigned Charles R. Campbell from Class III to Class II, and Mr. Campbell will stand for re-election at this year’s Annual Meeting. In connection with Mr. Osborne’s resignation as a director of the Company effective October 29, 2010, the Board of Directors reconstituted the Board of Directors from nine (9) directors to the current eight (8) directors.

 

On March 4, 2011, our Nominating and Corporate Governance Committee recommended, and our Board of Directors subsequently determined, that it is in the best interests of our Company to reconstitute the Board of Directors effective with this year’s Annual Meeting to increase the number of directors of the Board from eight (8) to nine (9) persons pursuant to Section 3.2 of our By-Laws. As noted above, Section 3.2 of our By-Laws requires the number of directors in each class to be nearly as equal as possible. As such, the additional directorship created from this reconstitution will be assigned to Class I so that each of the Board’s classes will consist of three directors.

 

At the 2010 Annual Meeting, our stockholders approved an amendment to our Certificate of Incorporation, which amendment phases-in the declassification of our Board of Directors and provides for the annual election of directors beginning at this year’s Annual Meeting. Pursuant to this amendment, Class III directors will stand for election at this year’s Annual Meeting for one year terms expiring at the 2012 Annual Meeting of Stockholders. All other directors will continue to hold office until the end of the terms for which they were elected. This means that James E. Goodwin and Joseph R. Wright, each of whom currently serve as Class I directors, will serve until the 2012 Annual Meeting of Stockholders or until their successors are elected and qualified. Richard R. Mudge and Dominic A. Romeo, who currently serve as Class II directors, will serve until the 2013 Annual Meeting of Stockholders or until their successors are elected and qualified.

 

As a result of the above-referenced amendment to our Certificate of Incorporation, the Class I nominee, if elected, will serve until the 2012 Annual Meeting of Stockholders, which constitutes the unexpired portion of the term currently associated with Class I directors, or until his successor is elected and qualified. The Class II nominee, if elected, will serve until the 2013 Annual Meeting of Stockholders, which constitutes the unexpired portion of the term currently associated with Class II directors, or until his successor is elected and qualified. Finally, each Class III nominee for director at this year’s Annual Meeting, if elected, will serve a term of one year to expire at the 2012 Annual Meeting or until his or her successor is elected and qualified. Our Board of Directors has nominated, for election at the Annual Meeting, William F. Owens as a Class I director, Charles R. Campbell as a Class II director and Paul W. Jones, Dennis J. Martin, and Brenda L. Reichelderfer as Class III directors. Each of these nominees has been recommended for nomination by the Board of Directors acting on the recommendation of the Nominating and Governance Committee of the Board of Directors, which consists solely of independent members of the Board of Directors.

 

Mr. Owens, the Class I nominee, was recommended as a potential director nominee to the Nominating and Governance Committee by a stockholder of the Company as part of the search process initiated by the Board of Directors, which also solicited potential director nominees from other stockholders. In addition, the Nominating and Governance Committee engaged a third party firm, JWC Partners to assist it in identifying potential director nominees. The Nominating and Governance Committee reviewed the credentials and conducted personal interviews of a number potential director nominees, including Mr. Owens. After this process was complete, the Nominating and Governance Committee determined to nominate Mr. Owens as a director candidate to the Board for election at the 2011 Annual Meeting. The Board has determined that Mr. Owens is an independent director candidate and is not to be considered the stockholder’s designee or proxy on the Board.

 

The stockholder who recommended Mr. Owens as a potential director nominee also presented his own credentials as a potential director nominee and subsequently submitted a notice under the Company’s By-Laws of his intention to nominate himself as a director at the Company’s 2011 Annual Meeting. The stockholder was notified of the Nominating and Governance Committee’s intent to nominate Mr. Owens as a director candidate in the Board’s slate of nominees and if elected appoint him to the Nominating and Governance Committee. Subsequently, the stockholder informed the Board that he intended to withdraw his notice of intent to nominate a candidate at the 2011 Annual Meeting. The stockholder requested, and the Board has agreed, to pay his reasonable out-of-pocket expenses in connection with his candidacy.

 

Pursuant to our By-Laws, in an uncontested election, as is the case in this election, a nominee for director shall be elected to the Board if the votes cast “for” such nominee’s election exceed the “withhold authority” votes cast

with respect to such nominee’s election. Each of the nominees has consented to being named in this proxy statement and to serve if elected. If any of the nominees should decline or be unable to serve as a director, the persons named as proxies in the accompanying proxy card will vote the proxy for such other person(s) as the Nominating and Governance Committee may nominate as director so as to provide for a full Board.

 

The Board of Directors recommends a vote “FOR” the election of William F. Owens as a Class I director, “FOR” the election of Charles R. Campbell as a Class II director, and “FOR” the election of Paul W. Jones, Dennis J. Martin and Brenda L. Reichelderfer as Class III directors.

 

Qualifications of the Board of Directors  When identifying nominees to serve as director, our Nominating and Governance Committee considers candidates with diverse professional experience, skills, gender and ethnic background, as appropriate, in light of the current composition and needs of our Board. As part of its evaluation of a candidate’s business and professional experience, the Nominating and Governance Committee considers a variety of characteristics including, but not limited to, core competencies, experience, independence, level of commitment, Board and Company needs and considerations, and personal characteristics. The Nominating and Governance Committee may also engage a third party to assist it in identifying potential director nominees. In 2010, the Nominating and Governance Committee engaged JWC Partners to assist it in selecting director nominees. The Company paid JWC Partners $75,000 plus expenses for these services.

 

The composition of our current Board reflects diversity in business and professional experience, skills and gender. When considering whether directors and nominees have the experience, qualifications, attributes and skills, taken as a whole, to enable our Board to satisfy its oversight responsibilities effectively in light of our Company’s business and structure, the Nominating and Governance Committee and the Board focused primarily on the information discussed in each of the individual biographies below. In particular, the Nominating and Governance Committee and the Board considered the following individual attributes:

 

 

In addition, the Nominating and Governance Committee actively seeks directors who provide our Board with a diversity of perspectives and backgrounds.

 

 

 

 

The Board of Directors has determined that all of its directors and all of the Board-recommended nominees for director, other than Mr. Martin, qualify as independent. In making this determination, the Board of Directors considered the rules of the New York Stock Exchange and the Securities and Exchange Commission, and reviewed information provided by the directors and nominees in questionnaires and other certifications concerning the relationships that we may have with each director or nominee (including each director’s immediate family members and other associates), including any charitable contributions that we may have made in the past and/or continue to make to organizations with which such director or nominee is affiliated.

 

We separate the roles of Chief Executive Officer and Chairman of the Board. Separating these positions allows our Chief Executive Officer to focus on our day-to-day leadership and performance of our Company, while allowing the Chairman of the Board to lead the Board in its fundamental role of providing advice to and independent oversight of management. Our Board believes that having separate positions, with an independent outside director serving as Chairman, is the appropriate leadership structure for our Company at this time and demonstrates our commitment to good corporate governance.

 

Our Board of Directors has responsibility for the oversight of risk management. Our Board of Directors, either as a whole or through its Committees, regularly discusses with management our major risk exposures, their potential impact on our Company, and the steps we take to monitor and control such exposures.

 

While our Board is ultimately responsible for risk oversight at our Company, our Board Committees assist the Board in fulfilling its oversight responsibilities in certain areas of risk. In particular, the Audit Committee focuses on the management of financial and accounting risk exposures. The Nominating and Governance Committee focuses on the management of risks associated with Board organization, membership and structure, and the organizational and governance structure of our Company. Finally, the Compensation and Benefits Committee assists our Board in fulfilling its oversight responsibilities with respect to the management of risks arising from our compensation policies and programs.

 

Pursuant to our By-Laws, we have established standing Audit, Nominating and Governance, Compensation and Benefits and Executive Committees. In addition, in 2009 we established a temporary Finance Committee which was dissolved effective December 2, 2010. The Finance Committee had principal oversight responsibility with

respect to our Company’s material investment and finance matters including capital investment and funding determinations and the repositioning and/or restructuring of the Company’s business lines and assets. The Finance Committee’s responsibilities returned to the full Board of Directors upon its dissolution.

 

Descriptions of our standing committees follow:

 

Audit Committee  The Audit Committee of the Board of Directors is responsible for monitoring:

 

 

In fulfilling its role, the Audit Committee reviews the design and operation of internal control processes and the manner in which we control our major financial risk exposures. The Audit Committee has direct and regular access to our financial executives, including the Vice President of Internal Audit and the Senior Vice President and Chief Financial Officer. Additionally, the Audit Committee has direct and regular access to the independent registered public accounting firm. The Audit Committee has the sole authority to appoint or replace our independent registered public accounting firm, and is directly responsible for overseeing the work of, and determining the appropriate compensation for, our independent registered public accounting firm. In addition, the Audit Committee considers and approves the performance of non-audit services by our independent registered public accounting firm, taking into consideration the effect that the performance of non-audit services may have upon the independence of the independent registered public accounting firm.

 

The Board of Directors has determined that all of the members of the Audit Committee are independent as defined under the applicable New York Stock Exchange and Securities and Exchange Commission rules. The members of the Audit Committee are Charles R. Campbell (Chairman), Richard R. Mudge and Dominic A. Romeo. Robert M. Gerrity and Robert S. Hamada were members of the Audit Committee until April 27, 2010, when their terms as directors expired. The Board of Directors has determined that Mr. Campbell qualifies as an “audit committee financial expert” as defined by the Securities and Exchange Commission. None of the Audit Committee members serves on more than three public companies’ audit committees (including our Company).

 

The Board of Directors has adopted a Charter for the Audit Committee to comply with the requirements of the New York Stock Exchange and the Sarbanes-Oxley Act of 2002, a copy of which is available on our website at http://www.federalsignal.com.

 

Nominating and Governance Committee  The Nominating and Governance Committee is responsible for recommending guidelines to the Board of Directors for corporate governance, including the structure and function of our Board of Directors, its Committees and the management of our Company, as well as identification and recommendation to the Board of Directors of candidates to be elected as directors. The Nominating and Governance Committee also advises the Board of Directors as to appropriate compensation for serving as a member of our Board of Directors.

 

Stockholders may recommend individuals for the Nominating and Governance Committee to consider as potential directors by giving written notice to our Corporate Secretary at least 90 days, but not more than 120 days, prior to the first anniversary of the preceding year’s Annual Meeting, along with the specific information required by our By-Laws including, but not limited to, the name and address of the nominee; the number of shares of our common stock beneficially owned by the stockholder (including associated persons) nominating such nominee; and a consent by the nominee to serve as a director, if elected, that would be required for a nominee under the Securities and Exchange Commission rules. If you would like to receive a copy of the provisions of our By-Laws setting forth all of these requirements, you should write to our executive offices, Attn: Corporate Secretary. The Nominating and Governance Committee has not adopted any specific procedures for considering the recommendation of director nominees by stockholders, but will consider stockholder nominees on the same basis as other nominees.

 

The Nominating and Governance Committee has set no specific minimum qualification for a nominee to the Board of Directors although under our revised Corporate Governance Guidelines, no person may stand for election as director: (i) after attaining age 72 without a waiver from the Board; (ii) if he or she serves on more than six boards of publicly traded companies; or (iii) if he or she is the chief executive officer of a publicly traded company, he or she may not serve on more than three publicly traded company boards.

The Company’s Corporate Governance Guidelines include a director resignation policy that requires each director nominee who is standing for re-election, prior to each election of directors at an annual meeting, to submit to the Board an irrevocable letter of resignation from the Board which will become effective if that director does not receive the necessary votes and the Board determines to accept such resignation. In such circumstances, the Board’s Nominating and Governance Committee will evaluate and make a recommendation to the Board with respect to the submitted resignation. The Board will take action on the recommendation within 180 days following the stockholders’ meeting at which the election occurred. In such circumstances, we will publicly disclose the Board’s decision including, if applicable, the reasons for rejecting a resignation.

 

The Board of Directors has determined that all of the members of our Nominating and Governance Committee are independent as defined under the applicable New York Stock Exchange rules. The members of the Nominating and Governance Committee are Paul W. Jones (Chairman), Richard R. Mudge, James E. Goodwin and Brenda L. Reichelderfer. Robert S. Hamada and Robert M. Gerrity were members of our Nominating and Governance Committee until April 27, 2010, when their terms as directors expired. Mr. Hamada also chaired the Nominating and Corporate Governance Committee until his term as director expired.

 

The Board of Directors has adopted a Charter for the Nominating and Governance Committee to comply with the requirements of the New York Stock Exchange and the Sarbanes-Oxley Act of 2002, a copy of which is available on our website at http://www.federalsignal.com.

 

Compensation and Benefits Committee  The Compensation and Benefits Committee is responsible for the establishment and oversight of our Company’s compensation and benefits philosophy. With respect to our executive officers, the Compensation and Benefits Committee has the authority to establish the objectives of compensation, to determine the components of compensation and to establish and evaluate performance goals. The functions of the Compensation and Benefits Committee are further described in this proxy statement under the heading “Compensation Discussion and Analysis” beginning at page 19. The Board of Directors has determined that all of the members of our Compensation and Benefits Committee are independent as defined under the applicable New York Stock Exchange rules. The members of the Compensation and Benefits Committee are Brenda L. Reichelderfer (Chairman), Paul W. Jones and Joseph R. Wright. John McCartney was a member of our Compensation and Benefits Committee until April 27, 2010, when his term as a director expired. Mr. McCartney also chaired the Compensation and Benefits Committee until his term as a director expired.

 

The Board of Directors has adopted a Charter for the Compensation and Benefits Committee to comply with the requirements of the New York Stock Exchange and the Sarbanes-Oxley Act of 2002, a copy of which is available on our website at http://www.federalsignal.com.

 

Executive Committee  The Executive Committee generally exercises the power and authority of the Board in the intervals between full Board meetings. The members of the Executive Committee are James E. Goodwin (Chairman), Charles R. Campbell, Paul W. Jones, Dennis J. Martin and Brenda L. Reichelderfer. Robert S. Hamada and John McCartney were members of this Committee until April 27, 2010, when their terms as directors expired. William H. Osborne was a member of this Committee until his resignation effective October 29, 2010.

 

During 2010, our Board of Directors held a total of 9 meetings. The Compensation and Benefits Committee held 6 meetings; the Nominating and Governance Committee held 5 meetings; the Audit Committee held 6 meetings; the Executive Committee held no meetings; and the Finance Committee held 7 meetings. Our Corporate Governance Guidelines require each director to regularly attend meetings of the Board of Directors and all Board Committees upon which the director serves. All directors attended at least 75% of meetings of the Board and Committees of which he or she was a member.

 

The following table sets forth information concerning compensation earned by our non-employee directors in fiscal year 2010. Mr. Martin, our President and Chief Executive Officer, has served on our Board of Directors since 2008. Since becoming our President and Chief Executive Officer on October 30, 2010, Mr. Martin has not received any additional compensation for serving on our Board or any Committees. Mr. Martin’s compensation as a director for January 1, 2010 through October 29, 2010 is included in the table immediately below, while his compensation as an executive officer from October 30, 2010 through December 31, 2010 is set forth in the Summary Compensation Table on page 34. Until his resignation as our President and Chief Executive Officer effective October 29, 2010, Mr. Osborne also served on our Board of Directors, although he received no additional compensation for serving on our Board or any Committees. Mr. Osborne’s compensation as an executive officer of our Company in 2010 is set forth in the Summary Compensation Table on page 34.

 

Non-Employee Director Compensation in Fiscal Year 2010

 

 

 

 

The Nominating and Governance Committee of our Board of Directors advises our Board on the annual compensation for our non-employee directors. In order to set competitive compensation for our non-employee directors, our Nominating and Governance Committee may consult third party advisors, generally available source material, proxy statements and data from peer companies.

 

Our non-employee directors receive both cash and equity compensation as detailed below. Our Chairman, based on his key role and time commitment, receives additional compensation in cash on a per diem basis for other time spent on Board matters.

 

In February 2011, the director stock ownership program was revised to increase the required common stock holdings of the non-employee directors from a value of three times the annual retainer paid to non-employee directors to a value of five times the annual retainer. Until such time as this target ownership is met, each non-employee director is required to receive at least 50% of the annual director compensation fees earned in any given year in shares of our common stock. Additionally, the policy prohibits non-employee directors from selling shares of our common stock until the holding requirement is met, although tendering shares to pay taxes upon the vesting of shares of restricted stock or for the exercise price upon the exercise of stock options is allowed. Stock ownership value is calculated annually using the average stock price of our common stock for the prior six month period; provided, however, that once a determination has been made that the target ownership has been achieved, a decrease in the value of our common stock will not impact that determination. Finally, the new policy provides that after achieving the ownership target, each director is required to hold 50% of the net shares received from exercised options or vested shares of common stock (over and above the target ownership level) for at least two years from the date of exercise or vesting.

Cash Compensation

 

The following table sets forth our Company’s cash compensation fees payable to our directors during 2010. Directors are also reimbursed for their out-of-pocket expenses relating to attendance at meetings.

 

 

 

 

Equity Compensation

 

Upon appointment or election to our Board, each non-employee director receives an initial stock option grant to purchase 5,000 shares of our common stock, all of which vest on the third anniversary of the date of grant. Messrs. Mudge and Romeo, elected to our Board on April 27, 2010, each received an initial stock option grant on April 27, 2010 at an exercise price of $9.58 per share, the closing stock price of our common stock on the date of grant. The table below sets forth our Company’s equity award compensation issued to our directors during 2010. These awards are made on the date of our Annual Meeting of Stockholders.

 

 

The common stock awards for service as a director were made on the date of our 2010 Annual Meeting of Stockholders, April 27, 2010. Pursuant to our Director Compensation Policy, the number of shares of the common stock awarded was determined by dividing the amount of the award by the closing market price of our common stock on the date of grant, which was $9.58 per share. Accordingly, for 2010, each non-employee director (excluding the Chairman) on the date of our Annual Meeting of Stockholders received a common stock award of 6,263 shares and the Chairman received a common stock award of 7,829 shares.

 

We are committed to good corporate governance. We believe that the foundation of our corporate governance is the independence of our directors, the separation of the roles of our Chief Executive Officer and Chairman of the Board, responsible corporate citizenship, and a commitment to the interests of our stockholders. In accordance with the requirements of the New York Stock Exchange and the Sarbanes-Oxley Act of 2002, our Board of Directors has adopted Corporate Governance Guidelines as well as charters for the Audit Committee, the Nominating and Governance Committee and the Compensation and Benefits Committee. These guidelines and charters, as well as our Company Policy for Business Conduct and Policy for Business Conduct-Directors (together, the “Business Conduct Policies”) and a Code of Ethics, which is applicable to our Chief Executive Officer and our senior financial officers, are available for review on our website at http://www.federalsignal.com.

 

The non-employee directors of the Board meet in executive session without management, as appropriate. The Chairman of the Board of Directors presides over executive sessions. Directors may be contacted as a group, by Committee, or individually, and the presiding director or the non-employee directors as a group may be contacted on an anonymous and/or confidential basis by addressing a letter to Federal Signal Corporation, 1415 West 22nd Street, Suite 1100, Oak Brook, IL 60523, Attn: Corporate Secretary. All such letters will be forwarded to the directors. We encourage our directors to attend the 2011 Annual Meeting of Stockholders. Excluding two of our directors who were not standing for re-election in 2010, all of our directors attended the 2010 Annual Meeting of Stockholders.

 

There were no compensation committee interlocks or insider participation on the part of the members of our Compensation and Benefits Committee. The members and functions of our Compensation and Benefits Committee are set forth above under “Committees of the Board of Directors.”

 

During the year ended December 31, 2010, it was determined that none of our directors, Board-proposed nominees for director, executive officers, stockholders owning more than 5% of our common stock, or immediate family members of any such persons engaged in a transaction with us in which such director, nominee for director, executive officer, stockholder owning more than 5% of our common stock, or immediate family member of such

persons had a direct or indirect material interest that required disclosure under applicable Securities and Exchange Commission rules.

 

We maintain various policies and procedures relating to the review, approval or ratification of transactions in which our Company is a participant and in which any of our directors, executive officers, 5% stockholders (if any) or their family members have a direct or indirect material interest. Our Business Conduct Policies, which are available on our website at http://www.federalsignal.com, prohibit our directors and employees, including our executive officers, and in some cases their family members, from engaging in certain activities without prior written consent. These activities typically relate to situations where a director, executive officer or employee, and in some cases an immediate family member, may have significant financial or business interests in another company competing with or doing business with our Company, or who stands to benefit in some way from such a relationship or activity. Specifically, our Business Conduct Policies include certain prohibitions against the following: receiving or giving gifts or prizes above a nominal value from or to customers or suppliers; working for a customer or supplier or engaging in outside profit-making activities in any area of business in which our Company operates; representing any outside commercial interest during normal business hours or when traveling on Company business; lending or borrowing money from individuals affiliated with an entity with whom the Company conducts business; owning any part of any customer’s or supplier’s business (excluding routine investments in publicly traded companies); using Company property, information or positions for improper personal gain or benefit; and engaging in Company business with any entity in which a family member has an executive position or a significant financial interest unless approved in advance. Since all types of prohibited transactions cannot be listed, we encourage our employees to seek advice before proceeding if there is any doubt regarding the appropriateness of an arrangement under our Business Conduct Policies.

 

Pursuant to our Business Conduct Policies and the Audit Committee Charter, the Chairman, Chief Financial Officer and General Counsel implement our Business Conduct Policies, and the Audit Committee reviews, approves, ratifies and makes recommendations to our Board of Directors regarding related person transactions.

 

Additionally, each year we require our directors, nominees for director and executive officers to complete a questionnaire which identifies, among other things, any transactions or potential transactions with our Company in which a director, an executive officer, or one of their family members or associated entities has an interest. We also require that directors and executive officers notify our Corporate Secretary as soon as possible of any changes during the course of the year to the information provided in the annual questionnaire.

 

We believe that the foregoing policies and procedures collectively ensure that all related person transactions requiring disclosure under applicable Securities and Exchange Commission rules are appropriately reviewed.

 

Presented below is a summary of our 2010 business highlights and recent 2011 developments, which provides context for our 2010 pay actions and changes thus far to our 2011 executive compensation program.

 

2010 Highlights and Recent 2011 Developments

 

The continuing difficult economic environment in 2010, including the persistent weakness in the global public spending sector, was challenging for our Company as well as many other companies. However, we took significant actions during the 2010 year intended to grow our industrial businesses, integrate our technology group businesses and generate cash flow from continuing operations.

 

In 2010, our Company continued its strategy of investing in growth opportunities in the technology segment. For example, in March 2010, our Company acquired VESystems, LLC for approximately $33 million, which offers complete system operations in electronic toll collection, and Sirit Inc. for approximately $73.4 million, which specializes in radio frequency identification. The addition of VESystems and Sirit further strengthens our presence in the Intelligent Transportation Systems (“ITS”) market.

 

In the second quarter of 2010, the Company formed Federal Signal Technologies Group (“FSTech”), a new segment to be focused on ITS solutions. FSTech is comprised of recently acquired Diamond Consulting, Sirit and VESystems as well as the Company’s PIPS Technology and Federal APD units.

 

In 2010, we continued an initiative to reduce corporate costs by consolidating a number of the Company’s manufacturing and distribution operations into the University Park, IL plant. This initiative included workforce

reductions into the first quarter of 2010, as well as the incurrence of costs associated with closing facilities and relocating operations and personnel.

 

In May 2010, we closed on a public offering of 12,075,000 shares of our common stock, netting $71,000,000 in proceeds that were used to pay down our debt.

 

In October 2010, the Company, in striving for continued growth and development, made a change in leadership by hiring Dennis J. Martin as President and Chief Executive Officer. Mr. Martin has served on our Board of Directors since 2008 and will continue to serve on our Board along with serving as our President and Chief Executive Officer. Mr. Martin entered into a standard Tier I Executive Change-in-Control Severance Agreement. Mr. Martin has no other employment agreements.

 

In December 2010, after two successful verdicts in June and July, 2010 involving a total of 18 plaintiffs, the Company reached a settlement with counsel to 1,125 firefighters in connection with hearing loss claims. Under the settlement agreement, the Company will make a maximum payment of $3,800,000, reduced by the percentage of the 1,125 firefighters who do not participate in the settlement. The settlement requires the participation of not less than 93% of designated firefighters. The Company expects the settlement to substantially reduce its litigation expenses going forward.

 

In January 2011, we consolidated a number of corporate functions, which resulted in the elimination of positions and reduced corporate overhead.

 

Executive Compensation Program in 2010

 

A number of actions were taken in 2010 with respect to our compensation and benefits programs, including the following:

 

 

 

Executive Compensation Program in 2011

 

Our Company continues to manage our executive compensation program under difficult market conditions. Beginning in 2011, we have made the following decisions with respect to our executive compensation program:

 

 

 

 

Our executive compensation and benefits programs are designed to drive and reinforce our business goals and strategies for success in the marketplace and to enable growth, thus motivating management to maximize total stockholder return. As a key component of our executive compensation system, we have adopted a financial performance-based philosophy which includes individual objectives that emphasize entrepreneurship, innovation, teamwork, creativity, and rewards employees who think and act like owners. This program also encourages collaboration and the maximization of long-term stockholder value, which in turn supports the attraction, motivation, and retention of the best global talent. Our executive compensation philosophy can be summarized as follows:

 

 

Our Compensation and Benefits Committee establishes and oversees our general compensation and benefits philosophy, and approves compensation and benefits for our executive officers. Specifically, our Compensation and Benefits Committee is charged in its charter with the authority and responsibility to:

 

 

The President and Chief Executive Officer annually reviews the performance of each executive officer. Recommendations based on these reviews, including those with respect to base salary adjustments, annual incentives and long-term incentives, are presented to the Compensation and Benefits Committee. The Compensation and Benefits Committee can exercise its discretion in modifying any recommended adjustments or awards to these executive officers. The compensation of the President and Chief Executive Officer is determined by the Compensation and Benefits Committee, meeting in executive session without the President and Chief Executive Officer present.

 

Our Company carefully monitors compensation levels to ensure they reflect an appropriate balance of pay-for-performance within acceptable risk parameters. Based on current and evolving best practices guidance, our Compensation and Benefits Committee conducted a compensation risk assessment of the various elements of our Company’s overall compensation program (including incentive compensation programs). In its analysis, the Compensation and Benefits Committee reviewed, with input from management, our Company’s compensation programs, including appropriate internal controls to mitigate or reduce risk. Based on its review, the Compensation and Benefits Committee determined that our Company’s compensation programs and policies do not create excessive and unnecessary risk taking. Our Company and the Compensation and Benefits Committee will continue to maintain proper policies and procedures to ensure ongoing management and assessment of compensation practices as they relate to risk.

 

Prior to 2010, the Compensation and Benefits Committee used Watson Wyatt Worldwide as its outside compensation consultant to assist it in its annual review of our Company’s executive compensation programs. Similarly, before 2010, Towers Perrin provided human resources consulting and other services to the Company. As a result of the merger of Watson Wyatt and Towers Perrin to form Towers Watson & Co. effective as of January 1, 2010, our providers of executive compensation services and human resources consulting and other services are now combined as one company.

 

For 2010, Towers Watson & Co. assisted the Compensation and Benefits Committee in its annual review of our Company’s executive compensation programs. Towers Watson & Co. reviewed and evaluated the elements of our executive compensation program, including base salaries, target bonus levels and equity ownership, provided proxy advice, attended certain meetings of the Compensation and Benefits Committee and, upon request, provided its views on proposed actions by the Compensation and Benefits Committee. The aggregate fees paid to Towers Watson & Co. for services to the Compensation and Benefits Committee in 2010 totaled $125,700. Towers Watson & Co. also provided human resources consulting and other services to the Company during 2010 at the request of Company management (the “Additional Services”). The aggregate fees for the Additional Services totaled $136,100 for 2010.

 

The Additional Services provided by Towers Watson & Co. were not pre-approved by the Compensation and Benefits Committee or the Board of Directors. Management and the Compensation and Benefits Committee believe that Towers Watson & Co. provided objective advice for the following reasons:

 

 

Compensation levels for our executives are compared to the compensation paid to executives at the peer companies specified below. The market for experienced talent is highly competitive. Our objective is to attract and retain the most highly qualified executives to manage our business functions. In doing so, we draw upon a pool of talent that is highly sought after by large and established companies. We draw upon a market that is global in scope.

 

To that end, in October 2009, Watson Wyatt (now part of Towers Watson & Co.) assisted us in updating our comparator group of companies and in collecting relevant market data from those companies. This update was made, in part, to eliminate the large variances in size among the companies comprising our comparator group. We determined that it was more appropriate to limit the revenue ranges among the companies in the comparator group to those with revenues from 0.5 times to 2.5 times our Company’s revenue with a median closer to $1 billion (actual median was $977 million). Additionally, to accommodate our change in business strategy to grow our recent acquisitions, our Company added comparable technology companies to the group.

Accordingly, since October 2009, the following 23 companies have been included in our comparator group:

 

 

We use comparator group data to determine the appropriate mix of fixed and variable compensation and to link the achievement of key strategic and financial performance measures to short and long-term awards. We also use published survey data to supplement the determination of competitive levels of compensation in the marketplace.

 

Our compensation program consists of five components: (i) base salary; (ii) annual cash incentives; (iii) long-term equity incentives; (iv) retirement and health and welfare benefits; and (v) perquisites and other personal benefits. Our programs balance individual, business unit and Company-wide goals and achievements.

 

Base Salaries

 

Base salary levels for our executive officers, including our President and Chief Executive Officer, are based primarily on external market data and on the individual performance of each executive officer during the previous year. Base salaries are targeted to be at the 50th percentile (median) of competitive market data. In 2010, actual base salaries for named executive officers ranged from 82% to 105% of market midpoint targets. In addition to the executive’s individual performance, the Compensation and Benefits Committee also considers the following factors in setting base salaries and in recommending annual base salary adjustments: (i) the executive’s current base salary relative to the targeted level; (ii) the executive’s level of responsibility and performance in the position; (iii) the executive’s prior experience and breadth of knowledge; and (iv) market factors.

 

Annual Cash Incentive Payments

 

Annual cash incentive payments are paid under the Company’s Short-Term Incentive Bonus Plan (“STIP”). The STIP determines bonuses based upon the achievement of both financial measures and individual objectives. Financial measures are based upon earnings and cash flow at our Company, business group and division levels, depending upon each participant’s position within our Company.

 

Bonus compensation under the STIP links to our Company’s annual operating plan, with 50% based on earnings and 20% based on cash flow measures determined in accordance with generally accepted accounting principles. The remaining 30% is based on individual objectives, with 18% based on performance goal ratings and 12% based on behavior ratings as measured by a numeric score received in the annual performance review process. The Compensation and Benefits Committee approves all awards to named executive officers. The Compensation and Benefits Committee can use its discretion to reduce award amounts to executive officers. The STIP limits the total bonus paid (financial and individual performance portions) to an individual participant to twice his or her target bonus opportunity. Typically, annual cash incentive payments are approved in February and paid in a lump sum in March.

 

The STIP focuses on financial performance as well as individual objectives. This allows us to reward outstanding individuals with a bonus, including in years where our overall financial performance may be below the Company’s operating plan. The Compensation and Benefits Committee believes that rewarding employees upon the successful achievement of individual objectives will increase individual accountability and encourage excellence. The STIP is based upon goals that are easily understood and can be modified each year to reflect our current business plan and market conditions.

At the Company level, the 50% earnings component is based on consolidated income before income taxes. As tax adjustments are largely impacted by external factors outside of the control of the participants, the Compensation and Benefits Committee determined that tax adjustments should not factor into the calculation. At the Company level, the 20% cash flow financial measure is based on consolidated net cash provided from continuing operations. At the business group level, the 50% earnings component is based on earnings before interest and taxes, thereby excluding taxes and debt, neither of which are generally impacted by participants at this level. Except for FSTech, which was formed as a segment in 2010, the business group cash flow measure, weighted at 20%, is based on average primary working capital as a percentage of sales (the sum of accounts receivable and inventory less accounts payable and customer deposits divided by net sales for the year).

 

In the beginning of each year, the executive officers agree upon individual objectives with the Chief Executive Officer. The Compensation and Benefits Committee approves all individual objectives for our executive officers, including those of the Chief Executive Officer. The Compensation and Benefits Committee reviews performance against these objectives to differentiate among executives and emphasize the link between personal performance and compensation. After the end of the year, the Compensation and Benefits Committee determines the individual performance-based bonus payouts by considering: (i) input from the Chief Executive Officer; (ii) personal observations on performance; and (iii) the achievement of individual objectives. In addition, the Compensation and Benefits Committee can use its discretion to reduce award amounts to executive officers. Individual objectives consist of: (i) pre-set behaviors that are considered for all executives; and (ii) personal objectives that are specific to each executive. Behaviors include, among others, business acumen, customer focus, ethics and values, and strategic agility. Specific personal objectives may relate to financial or strategic initiatives such as expense reduction, acquisitions or divestitures, sales targets, or product quality.

 

Each named executive officer is given a numerical rating as measured by our Company’s Performance Excellence Process (“PEP”). This performance appraisal process has both objective and subjective components, and is subject to the discretion of our Chief Executive Officer and the Compensation and Benefits Committee. The STIP provides that each participant’s individual performance award shall take into consideration the PEP score received. The Compensation and Benefits Committee also has discretion in determining the allocation of the individual performance portion of the bonus in terms of the assessment of the level of performance of the individual participant and the resulting amount of bonus payable to that participant. The Compensation and Benefits Committee has the discretion to further reward executives who consistently demonstrate certain additional competencies. The total individual performance award is limited, however, to twice the target of the individual performance component of the bonus.

 

The incentive compensation under the STIP for our President and Chief Executive Officer, Senior Vice President and Chief Financial Officer, and Senior Vice President, Chief Administrative Officer and General Counsel is based 70% on the achievement of our Company financial measures and 30% on individual objectives. The incentive compensation for our other named executive officers is based on the achievement of our Company and business group financial measures weighted 28% for achievement of Company goals, 42% for achievement of applicable business group goals, and 30% for achievement of individual objectives. The Compensation and Benefits Committee believes that this weighting encourages executives to collaborate across business groups and functions in order to achieve business objectives at the enterprise level as well as in their own business group. The incentive compensation for our executives is based on threshold, target and maximum goals for business groups and for our Company as a whole.

 

Subject to the discretion of the Compensation and Benefits Committee, the achievement of the threshold, target and maximum goals results in a cash incentive award equal to a pre-set percentage of the executive’s base salary. The target percentages of base salary to be paid out upon the achievement of various levels of goal achievement are determined based on competitive market data for each executive position. Results that fall in between the threshold, target and maximum goals are extrapolated from those points to determine the actual cash incentive award for the executive. Performance goals for executive officers under the STIP are determined in the first quarter of the year.

 

Payments under the STIP are subject to a “clawback” policy under which our Company will require, to the extent practicable upon the occurrence of specified events, a named executive officer to repay a portion of his or her performance bonus payment plus a reasonable rate of interest. The clawback policy is triggered by: (i) an accounting restatement or a determination by our Board that the performance results were materially inaccurate; and (ii) a determination that the amount of such performance-based bonus would have been less than the amount previously paid to such named executive officer, taking into account the restated financial results or otherwise corrected performance results.

Long-Term Equity Incentives

 

Equity ownership plays a key role in aligning the interests of executives with our stockholders. Our long-term incentive plan provides a means through which our Company may attract the best talent to become our employees, to encourage our employees to engage in the business strategy and success of our Company, and to provide a retention tool through vesting requirements for executives. Accordingly, the Compensation and Benefits Committee has granted equity awards to our executives on an annual basis under our long-term incentive plan. Equity grants are also periodically made to new employees and to existing employees in connection with promotions. In order to ensure continued ownership of the equity granted under the long-term incentive grants, we have instituted stock ownership guidelines for our executive officers as discussed on page 32 under the caption “Stock Ownership Guidelines for Executive Officers.”

 

In March 2011, our Compensation and Benefits Committee implemented several fundamental changes for 2011 with respect to annual equity awards to be granted under our long-term incentive plan for our executive officers. Historically, including with respect to the equity awards granted in 2010, the Compensation and Benefits Committee has structured the long-term equity incentive program such that the awards consist of three components: options to purchase shares of our common stock, restricted stock awards, and performance-based restricted stock units. With respect to 2010 awards, the overall value of the long-term incentive was allocated one-third to each of the three components. Although this mix of awards aligns each executive’s goals with the intermediate and long-term goals of our stockholders and provides an incentive to the executive to drive long-term performance over the vesting and payment periods embedded in the award, our Compensation and Benefits Committee restructured the mix of awards in 2011 for our executive officers to further emphasize pay for performance. Specifically, the mix of equity awards under the long-term incentive program was restructured for 2011 to eliminate annual time-based restricted stock awards for our executive officers. The 2011 annual awards under this program for our executive officers will consist of two components: options to purchase shares of our common stock; and performance-based restricted stock units. The overall value of the long-term incentive will be allocated one-half to each of these two components. We believe this restructuring of the mix of awards for our executive officers for 2011 places greater importance on our Company’s profitable performance because both stock options and performance-based restricted stock units only have value if our share price appreciates. The Compensation and Benefits Committee plans to evaluate the 2011 annual grant program prior to the issuance of the 2012 annual grants.

 

Options awarded under the plan prior to the modifications, as well as options awarded under the modified plan, will vest annually in equal installments over a three-year period and have an exercise price equal to the closing price of our common stock on the date of grant.

 

As noted above, for annual grants issued in 2011, we are discontinuing the use of annual time-based restricted stock awards for our executive officers. Previously granted time-based restricted stock awards, including those granted in 2010, vest in full on the third anniversary of the date of grant and are valued using the closing price of our common stock on the date of grant. Restricted stock awards are subject to forfeiture and cancellation if the named executive officer’s employment is terminated prior to vesting.

 

Performance-based restricted stock units awarded prior to the 2011 modifications to our long-term incentive plan for our executive officers vest in full on the third anniversary of the date of grant and are valued using the closing price of our common stock on the date of grant. These awards are subject to forfeiture or cancellation if the named executive officer’s employment is terminated prior to vesting and are tied to the achievement of a pre-determined three-year relative performance metric approved by the Compensation and Benefits Committee based upon Total Shareholder Return (“TSR”) relative to the comparator group of companies listed on page 24. The formula to determine TSR follows:

 

TSR = Change in Stock Price plus dividends paid over the performance period

Beginning Stock Price

 

 

At the conclusion of the performance period, our Company’s TSR is calculated for that period and compared to the TSR achieved by the publicly-traded companies included in our comparator group. Our Company’s percentile

rank is then assigned based on its relative TSR achievement. At the end of the three-year performance period, each executive officer will be awarded shares, if any, equal to a percentage of the pre-determined target shares for that executive ranging from 0% to 200% as determined by our percentile rank against the comparator group. For the period 2008 to 2010, the TSR achieved through December 31, 2010, the third performance year, was negative 0.39; this was below the 25th percentile and means no shares were awarded. For the period 2009 to 2011, the TSR achieved through December 31, 2010, the second performance year, was negative 0.16; this was under the 25th percentile of the comparator group. For the period 2010 to 2012, the TSR achieved through December 31, 2010, the first performance year, was 14.0%; this is between the 25th and 50th percentile of the comparator group.

 

As a result of the recent modifications to the long-term incentive program with respect to annual equity awards to be granted to our executive officers in 2011, annual performance-based restricted stock units are now tied to the achievement of a new performance metric — Earnings per Share (“EPS”) from continuing operations over a one year period. Annual performance-based restricted stock units awarded under the modified design continue to vest in full on the third anniversary of the grant date and are subject to forfeiture or cancellation if the named executive officer’s employment is terminated prior to vesting. These awards are valued using the closing price of our common stock on the date of grant.

 

We believe the change from relative TSR to EPS from continuing operations is consistent with our turnaround strategy by setting one year goals and focusing on absolute, rather than relative, share price appreciation. Additionally, we believe this modification recognizes the urgency and importance of 2011 by putting all shares awarded to executive officers under this component of the long-term incentive program at risk based on 2011 performance.

 

The Compensation and Benefits Committee may grant other equity incentives, on a case-by-case basis, as deemed appropriate. For example, the Compensation and Benefits Committee may award restricted stock units to our employees, international executives in particular, in substitution for one or more components of the standard grant described above to promote long-term performance and employee retention. Award value and type of grant will take into account applicable law, administrative issues and competitive market data for the specific country at issue.

 

For a general description of the award agreement provisions setting forth certain Company payment obligations with respect to specified termination events including death, disability, retirement and change in control, please see page 41 of this proxy statement in the section titled “Executive Compensation in the Last Fiscal Year” under the heading titled “Other Potential Post-Employment Payments.”

 

Retirement and Health and Welfare Benefits

 

We recognize that our employees are the driving force behind the profitable growth of our Company and that our ability to sustain our success is dependent on each individual’s well-being. To that end we offer a competitive package of Company-sponsored health and welfare benefits to all eligible employees, including our executive officers.

 

 

The Retirement Savings Plan is a defined contribution plan that combines a 401(k) plan with a points-weighted Company contribution. Under this plan, an executive receives a Company-paid retirement contribution that is based on years of service, age and employee status, and is paid as a percentage between 1% and 4% of his or her eligible compensation. Generally, an executive is eligible to receive a Company-matching contribution of up to 50% of the first 6% of his or her compensation that he or she voluntarily determines to contribute to the plan. This Company-matching contribution was suspended in 2009, but reinstated effective January 1, 2010.

 

Upon a voluntary employee deferral, the non-qualified Savings Restoration Plan restores Company contributions limited under the Internal Revenue Code through a notional Company contribution and notional earnings from investments.

 

Based upon age and years of service as of December 31, 2006, Ms. Sherman and Messrs. Janek and Weber received a supplemental transitional contribution equal to 2% of their eligible compensation in 2009 and 2008 to the Retirement Savings Plan and the Savings Restoration Plan.

 

Perquisites and Other Personal Benefits

 

We provide executives with perquisites and other personal benefits that the Compensation and Benefits Committee feels are reasonable and consistent with its overall compensation program to better enable us to attract and retain the best talent for key executive positions. The Compensation and Benefits Committee periodically reviews the levels of perquisites provided. Perquisites provided may include:

 

 

The Compensation and Benefits Committee may approve additional perquisites on an individual basis at its discretion.

 

The specific compensation decisions made for each of the named executives for 2010 and year-to-date in 2011 reflect our management’s and our Compensation and Benefits Committee’s assessments of performance against market benchmarks, performance relative to Company and business group financial and operational measurements and achievement of individual performance objectives. Our compensation actions for our named executive officers are summarized below.

 

With respect to the final compensatory arrangement for Mr. Osborne, please also see the sections titled “Executive Compensation in the Last Fiscal Year” under the headings “Additional Information about the Compensation Paid to the Named Executive Officers” and “Other Potential Post-Employment Payments,” beginning on pages 37 and 41, respectively, of this proxy statement.

 

Base Salary

 

In determining base salary increases, the Compensation and Benefits Committee reviews performance, level of responsibility and actual salary as compared to the targeted level (50th percentile) of competitive market data as represented by our comparator group. The base salaries of our executive officers were generally set at the 50th percentile of competitive market data or above in 2010, although Ms. Sherman’s 2010 ending salary was 7% below the 50th percentile when compared to other similar positions in the comparator group and Mr. Janek’s 2010 salary was 18% below the 50th percentile when compared to similar positions in the comparator group. Due to economic position and our overall financial performance, the Compensation and Benefits Committee approved modest annual base salary adjustments for 2010 as shown in table below (see the Summary Compensation Table on page 34 for actual base salary compensation paid in 2010).

 

 

 

 

 

In connection with Mr. Martin’s appointment as an executive officer of the Company, his initial base salary of $650,000 was determined based upon his experience and information regarding comparable positions in our comparator group.

 

For 2011, the base salaries of our executive officers were generally set at the 50th percentile of competitive market data and range within 5% of the 50th percentile, except for Mr. Janek, whose base salary is 15% below the 50th percentile. Mr. Janek was promoted to his new role in March 2010. In February 2011, the Compensation and Benefits Committee approved increases in base salaries for the named executive officers for fiscal 2011, as shown in the table below.

 

 

 

Annual Cash Incentive Payments — Short-Term Incentive Bonus Plan

 

Financial-Based Incentive Compensation  The Compensation and Benefits Committee approves all awards to named executive officers. The Compensation and Benefits Committee can use its discretion to reduce award amounts to executive officers. For 2010, the earnings component under the STIP at the Company level was based on consolidated income before income taxes. Our Company’s cash flow financial measure was based on consolidated net cash provided from continuing operations. The threshold, target and maximum goals along with the Company’s actual performance with respect to these goals are set forth in the tables below. Consistent with our pay for performance philosophy, and in light of the poor financial results achieved at the Company level, none of our named executive officers will receive bonus payments based on Company financial performance for 2010. In keeping with our goal of rewarding Business Unit achievement, Messrs. Janek and Weber each received a financially-based bonus reflecting the solid performances by the business segments for which they serve as Presidents.

 

At the business group level, the earnings component was based on earnings before interest and taxes. The business group cash flow measure was based on average primary working capital as a percentage of sales (the sum of accounts receivable and inventory less accounts payable and customer deposits divided by net sales for the year). In fiscal 2009, the Board determined that each business group would also be required to show improved primary working capital from year-end 2009 to year-end 2010 as an additional business group financial measure.

 

As shown in the tables below, the Environmental Solutions Group achieved in excess of the maximum goal under the earnings measure and achieved between the target and maximum goals with respect to the cash flow measure resulting in a bonus payment to Mr. Weber in the amount of $155,012. The Safety and Security Systems Group achieved earnings and cash flows between the threshold and target goals resulting in a bonus payment to Mr. Janek in the amount of $45,169. Additionally, primary working capital improved dollar-for-dollar from 2009 to 2010 in each of these groups, which satisfied the threshold requirement for bonus eligibility for Messrs. Weber and Janek.

2010 STIP — Financial-Based Incentive Earnings Measures and Actual Performance
(dollars in millions)

 

 

2010 STIP — Financial-Based Incentive Cash Flow Measures and Actual Performance
(dollars in millions)

 

 

Mr. Osborne resigned as our President and Chief Executive Officer effective October 29, 2010. Mr. Osborne received certain severance payments pursuant to an agreement entered into with our Company, as more fully described in the section titled “Executive Compensation in the Last Fiscal Year” under the headings “Additional Information about the Compensation Paid to the Named Executive Officers” and “Other Potential Post-Employment Payments,” beginning on pages 37 and 41, respectively, of this proxy statement.

 

Individual Performance-Based Incentive Compensation  For 2010 under the STIP, the Compensation and Benefits Committee, in determining the individual performance-based bonuses for our named executive officers, considered: (i) input from the Chief Executive Officer; (ii) personal observations on performance; and (iii) the named executive officer’s achievement of individual objectives as measured by our Company’s PEP system. In addition, the Compensation and Benefits Committee can use its discretion to reduce award amounts to executive officers. The Compensation and Benefits Committee also has the discretion to further reward outstanding contributors who demonstrate certain additional competencies.

 

Aggregate Targets and Actual Incentive Compensation  As set forth below, for fiscal 2010, the target annual bonus opportunity for Messrs. Martin and Osborne were set at 100% of their base salary and the target opportunities for Messrs. Barker, Janek and Weber were set at 60% of their base salaries. Ms. Sherman’s target annual bonus opportunity was set at 55% of her base salary.

 

2010 STIP — Aggregate Targets

 

The annual incentive bonuses paid to our executive officers for 2010 performance under the financial-based and individual performance-based measures were as follows:

 

2010 STIP — Aggregate Payments

 

 

 

For fiscal 2011, the target annual bonus opportunity for Mr. Martin remained at 100% of his base salary. The target annual bonus opportunities for Messrs. Barker, Janek and Weber remained the same as 2010 at 60% of their base salaries. Ms. Sherman’s target annual bonus opportunity increased from 55% of her base salary in 2010 to 60% of her base salary in 2011.

 

Long-Term Equity Incentives

 

In April 2010, the Compensation and Benefits Committee granted equity incentive awards in the form of one-third options, one-third restricted stock and one-third performance-based restricted stock units as specified below.

 

 

All equity incentive awards granted to Mr. Osborne during 2010 were forfeited in connection with his resignation as President and Chief Executive Officer effective October 29, 2010. In connection with his appointment as our President and Chief Executive Officer, on October 30, 2010, Mr. Martin received options to purchase 90,875 shares of our common stock at an exercise price of $5.39 per share, the closing price on the date of grant. The options vest in three equal annual installments on the first three anniversaries of the date of the grant. Mr. Martin was also granted a restricted stock award of 31,076 shares of our common stock, which shares vest fully on the third anniversary of the date of grant.

 

The Compensation and Benefits Committee has not yet granted equity awards for 2011. The Company determined to delay these awards in order to: (i) complete a market analysis of our executive officer compensation practices to ensure our equity distributions are aligned with the market; and (ii) explore a new mix of alternative long-term incentive awards for our executive officers. As a result, for 2011, the Compensation and Benefits Committee has restructured the mix of annual long-term incentive awards for our executive officers to consist of

50% options to purchase shares of our common stock and 50% performance-based restricted stock units for our executive officers. Time-based restricted stock will not be granted in 2011 to our executive officers pursuant to the long-term equity plan for annual equity grants. The new mix of awards as well as other changes to the long-term equity incentive program are more fully described in the section titled “Long-Term Equity Incentives” beginning on page 26 of this proxy statement.

 

Perquisites and Other Benefits

 

Vehicle Allowances  In 2010, Messrs. Martin, Osborne and Janek received vehicle allowances totaling $2,300, $11,500 and $11,000, respectively. Each of the other named executive officers received a vehicle allowance of $11,400 in 2010.

 

Financial/Tax Preparation Services  Pursuant to his employment agreement, Mr. Osborne was reimbursed for the services of a financial and estate planning advisor in the amount of $6,725 in 2010.

 

Club Membership Fees  During 2010, Messrs. Martin, Osborne and Weber received reimbursement for certain club membership fees in the aggregate amounts of $475, $1,350 and $350, respectively.

 

Miscellaneous Allowances  During 2010, Mr. Weber was reimbursed for expenses relating to approved spousal travel in the amount of $482.

 

Our executive officers are required to own substantial holdings of our common stock while employed by us. Individual stock ownership targets are based on a multiple of between two and five times the executive’s base salary. Until the target ownership is met, our executive officers are not permitted to sell shares of our common stock, although tendering of shares to pay taxes upon the vesting of shares of restricted stock or for the exercise price upon the exercise of stock options is allowed along with sales of common stock held in the Company’s Retirement Savings Plan and the Savings Restoration Plan. Shares held beneficially, shares held under Company plans and unvested shares of restricted stock will count toward the ownership target. Stock ownership value is calculated annually using the average stock price of our common stock for the prior six month period; provided, however, that once a determination has been made that the target ownership has been achieved, a decrease in the value of our common stock will not impact that determination. In February 2011, our policy was modified to provide that each executive officer is required to hold 50% of the net shares received from exercised options or vested shares of common stock (over and above the target ownership level) for at least two years from the date of exercise or vesting.

 

In 2009, our Board adopted a compensation policy regarding tax gross-up payments and limitations of severance benefits. This compensation policy provides, among other things:

 

 

This compensation policy will not alter the terms of any agreement or compensation or benefit plan in effect on the date of adoption of the policy.

 

Section 162(m) of the Internal Revenue Code provides that compensation in excess of $1 million paid to the chief executive officer and the other most highly compensated executive officers of a public company will generally be nondeductible for federal income tax purposes, subject to certain exceptions. The Compensation and Benefits

Committee intends to structure compensation arrangements in a manner that will avoid the deduction limitations imposed by Section 162(m) in appropriate circumstances. However, the Compensation and Benefits Committee believes that it is important and necessary that the Compensation and Benefits Committee retain the right and flexibility to provide and revise compensation arrangements, such as base salary and cash bonus incentive opportunities, that may not qualify under Section 162(m) if, in the Compensation and Benefits Committee’s view, such arrangements are in the best interests of our Company and our stockholders.

 

The responsibilities of the Compensation and Benefits Committee are provided in its charter, which has been approved by our Board of Directors.

 

In fulfilling its oversight responsibilities with respect to the Compensation Discussion and Analysis included in this Report, the Compensation and Benefits Committee, among other things, has:

 

 

SUBMITTED BY THE COMPENSATION AND BENEFITS COMMITTEE

 

BRENDA L. REICHELDERFER, CHAIRMAN

 

 

Notwithstanding anything set forth in any of our previous filings under the Securities Act of 1933 or the Securities Exchange Act of 1934 that might incorporate future filings, including this proxy statement, in whole or in part, the preceding report shall not be deemed incorporated by reference in any such filings.

 

The following table sets forth information concerning compensation earned during the fiscal years ended December 31, 2008, 2009 and 2010 for Dennis J. Martin, our President and Chief Executive Officer appointed October 30, 2010; William H. Osborne, our former President and Chief Executive Officer who resigned effective October 29, 2010; William G. Barker, III, our Senior Vice President and Chief Financial Officer; and the three other most highly compensated executive officers of our Company who were serving as executive officers at the end of fiscal 2010. Mr. Osborne is entitled to certain severance payments pursuant to an agreement entered into with our Company, as more fully described in the section titled “Executive Compensation in the Last Fiscal Year” under the headings “Additional Information about the Compensation Paid to the Named Executive Officers” and “Other Potential Post-Employment Payments,” beginning on pages 37 and 41, respectively, of this proxy statement.

 

Summary Compensation Table for Fiscal Years 2008, 2009 and 2010