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INFORMATION REQUIRED IN PROXY STATEMENT
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GARDNER DENVER, INC.

(Name of Registrant as Specified In Its Charter)

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

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March 17, 2010

 

TO OUR STOCKHOLDERS:

 

You are cordially invited to attend the 2010 Annual Meeting of Stockholders on Tuesday, May 4, 2010 at 1:30 p.m. (local time), at the Quincy Country Club, 2410 State Street, Quincy, Illinois 62301.

 

After the transaction of formal business, a question and answer period will follow.

 

The Notice of Annual Meeting and Proxy Statement for the annual meeting are being made available to our stockholders on or about March 17, 2010 on the Internet, electronically by email for stockholders who have previously consented to delivery or who have requested to receive the proxy materials by email or, upon request, in printed form by mail.

 

We look forward to a significant vote of our common stock, either in person or by proxy. We are offering three convenient ways to vote your shares: over the Internet, by toll-free telephone or by mailing a proxy card. Voting via the Internet, by telephone or by written proxy will ensure your representation at the annual meeting if you do not attend in person. Please review the instructions you received regarding these three voting options.

 

Voting over the Internet or by telephone is fast and convenient and your vote is immediately tabulated. By using the Internet or telephone, you help Gardner Denver reduce the cost of postage and proxy tabulations. Regardless of your method of voting, you may revoke your proxy as provided in the Proxy Statement.

 

Your support is appreciated, and we hope that you will be able to join us at the May 4^th meeting.

 

Cordially,

 

Frank J. Hansen

Chairman of the Board

GARDNER DENVER, INC.
1800 Gardner Expressway
Quincy, Illinois 62305

 

NOTICE OF 2010 ANNUAL MEETING OF STOCKHOLDERS

 

The 2010 Annual Meeting of Stockholders of Gardner Denver, Inc. (the “Company”) will be held at the Quincy Country Club, 2410 State Street, Quincy, Illinois 62301 on Tuesday, May 4, 2010 at 1:30 p.m. (local time), for the following purposes:

 

1. to elect Frank J. Hansen, Diane K. Schumacher and Charles L. Szews, each of whom has been nominated by the Board of Directors, to serve a three-year term expiring at the Company’s annual meeting of stockholders to be held in 2013;

 

2. to ratify the appointment of KPMG LLP as our independent registered public accounting firm for 2010;

 

3. to consider and vote upon the approval of the Company’s Executive Annual Bonus Plan;

 

4. to consider and vote upon a stockholder proposal requesting that the Company amend its written equal employment opportunity policy to explicitly prohibit discrimination based on sexual orientation and gender identity and substantially implement the policy, if properly presented at the annual meeting; and

 

5. to transact such other business as may properly come before the annual meeting or any adjournments or postponements thereof.

 

The Notice of Annual Meeting and Proxy Statement for the annual meeting are being made available to our stockholders on or about March 17, 2010 on the Internet, electronically by email for stockholders who have previously consented to delivery or who have requested to receive the proxy materials by email or, upon request, in printed form by mail.

 

Stockholders of record at the close of business on March 5, 2010 are entitled to notice of, and to vote at, the annual meeting and any adjournments or postponements thereof. If you are the beneficial owner of shares of our common stock held in street name, you will receive voting instructions from your broker, bank or other nominee (the stockholder of record). The voting instructions will provide details regarding how to vote these shares. Additionally, you may vote these shares in person at the annual meeting if you have requested and received a legal proxy from your broker, bank or other nominee giving you the right to vote the shares at the annual meeting, and you complete the legal proxy and present it to us at the annual meeting. Stockholders of record may vote over the Internet, by telephone, by mail if you received a printed set of proxy materials or in person at the annual meeting.

 

Pursuant to recent amendments to the New York Stock Exchange rules, if you hold your shares in street name, beginning this year nominees will not have discretion to vote these shares on the election of directors. Accordingly, if your shares are held in street name and you do not submit voting instructions to your broker, bank or other nominee, these shares will not be counted in determining the outcome of the election of directors at the annual meeting. We encourage you to provide voting instructions to your broker, bank or other nominee if you hold your shares in street name so that your voice is heard in the election of directors.

 

FOR THE BOARD OF DIRECTORS

 

Brent A. Walters

Vice President, General Counsel,

Chief Compliance Officer and Secretary

 

Quincy, Illinois

March 17, 2010

 

TABLE OF CONTENTS

 

GARDNER DENVER, INC.
1800 Gardner Expressway
Quincy, Illinois 62305

 

PROXY STATEMENT

 

This Proxy Statement and related proxy materials are being made available to our stockholders on or about March 17, 2010 on the Internet, electronically by email for stockholders who have previously consented to electronic delivery or who have requested to receive our proxy materials by email or, upon request, in printed form by mail.

 

QUESTIONS AND ANSWERS ABOUT THE ANNUAL MEETING

 

 

 

 

Our Corporate Governance Policy, charters of our Board committees, Director Independence Standards, Related Party Transactions Policy, Code of Ethics and Business Conduct and Environmental and Safety Policy provide the framework for our corporate governance and are designed to ensure that our Company is managed for the long-term benefit of our stockholders. We routinely evaluate our corporate governance policies, standards and practices to ensure that they comply with SEC rules and regulations and the corporate governance listing standards of the NYSE, the exchange on which our Common Stock is currently listed.

 

Our Corporate Governance Policy, our Audit and Finance Committee Charter, Management Development and Compensation Committee Charter and Nominating and Corporate Governance Committee Charter, Director Independence Standards, Related Party Transactions Policy, Code of Ethics and Business Conduct and

Environmental and Safety Policy are available on our website at www.gardnerdenver.com. Information on our website does not constitute a part of this proxy statement.

 

Our Board has adopted a policy regarding corporate governance. The objective of this policy is to help ensure that our Board maintains its independence, objectivity and effectiveness in fulfilling its responsibilities to our stockholders. The policy establishes the criteria and requirements for:

 

 

The policy provides that a substantial majority of our Board should be independent based on the independence standards of the NYSE with varied and complementary backgrounds. Directors may serve on the boards of directors of no more than four for-profit organizations, including our Company, and members of our Audit and Finance Committee (“Audit Committee”) may serve on the audit committees of no more than three for-profit organizations, including our Company. The policy specifies that at the regularly scheduled Board meeting prior to a nonemployee director’s 70th birthday and each year thereafter, nonemployee directors will submit their resignation to our Nominating and Corporate Governance Committee (“Governance Committee”). The Governance Committee will make an evaluation and recommendation for a decision by the full Board as to whether to accept or reject the director’s resignation based on the director’s contributions and the Board’s needs at the time. A nonemployee director must retire as a director at the next regularly scheduled meeting of the Board following the date he or she attains 75 years of age. A nonemployee director is also eligible to retire at the end of any elected term or at the discretion of the Board following review by the Governance Committee. The policy also requires that at any one time, no less than 50% of the number of nonemployee directors must be actively engaged in business as an employee, consultant, director (other than for our Company) or in a similar capacity for a minimum of 250 hours per year.

 

Mr. Thompson submitted his resignation to the Governance Committee pursuant to our Corporate Governance Policy prior to his 70th birthday. The Board evaluated Mr. Thompson’s contributions and continuing interest in serving on the Board and unanimously concluded to accept the Governance Committee’s recommendation that Mr. Thompson continue to serve as a member of the Board as outlined in our Corporate Governance Policy.

 

For 2009, all of our directors, including the director nominees seeking re-election, have complied with our Corporate Governance Policy.

 

Our Board currently consists of nine directors and is divided into three classes for purposes of election. One class is elected at each annual meeting to serve for a three-year term. With the exception of our Chief Executive Officer, all of our Board members, including our Chairman of the Board, are independent as determined in accordance with the NYSE listing standards as described under “Director Independence” on page 12. The current composition of our Board is as follows:

NOMINEES FOR ELECTION AT THE ANNUAL MEETING

 

Terms Expiring at the 2010 Annual Meeting of Stockholders

 

DIRECTORS WHOSE TERMS OF OFFICE WILL CONTINUE AFTER THE MEETING

 

Terms Expiring at the 2011 Annual Meeting of Stockholders

 

 

Terms Expiring at the 2012 Annual Meeting of Stockholders

 

 

Our Board held five meetings, including four regularly scheduled meetings and one strategic planning meeting, during 2009. Our nonemployee directors met in executive session without any management directors or employees five times during 2009. Mr. Hansen, our independent Chairman, presided over these meetings. In addition to our full Board meetings, directors attended meetings of the committees on which they serve. Pursuant to our Corporate Governance Policy, each director is expected to attend our annual stockholder meeting. Each director, with the exception of Mr. Arnold who was not appointed to our Board until June 2009, attended our 2009 annual stockholder meeting and at least 75% of the Board meetings and meetings of committees of which he or she was a member. Mr. Arnold attended all of the Board meetings that occurred following his appointment.

 

Our Board has three standing committees composed exclusively of independent nonemployee directors: the Audit Committee, the Management Development and Compensation Committee (“Compensation Committee”) and the Governance Committee. Each of the standing committees operates under a written charter adopted by the Board. All of the committee charters are available on our website at www.gardnerdenver.com. Our committees have

the authority to retain outside advisors to assist each committee in meeting its obligations, as necessary and appropriate, and to ensure that we provide appropriate funding to pay the fees and expenses of such advisors.

 

Committee Membership
During 2009

 

 

 

 

The Audit and Finance Committee. Our Audit Committee held ten meetings during 2009, including six telephonic meetings prior to the release of earnings and regulatory filings. Our Audit Committee assists our Board (with particular emphasis on the tone at the top of our Company) in fulfilling its oversight responsibilities with respect to the integrity of our financial statements and financial information provided to stockholders and others, our compliance with legal and regulatory requirements including our compliance policies and procedures, and the effectiveness of our internal and external audit processes. The Audit Committee is directly responsible for ensuring the independence and qualifications of our independent registered public accounting firm (sometimes referred to herein as our “independent auditor”). The committee performs these functions by: (i) overseeing our financial reporting process; (ii) selecting and overseeing our independent auditor; (iii) reviewing the scope of audits performed by our independent and internal auditors, as well as the results of such audits; (iv) monitoring our disclosure and internal controls; (v) overseeing our compliance program; and (vi) overseeing our risk assessment and management practices. Our Board has determined that all of the members of our Audit Committee meet the independence and other requirements for audit committee membership of the NYSE listing standards and SEC requirements. The Board has also determined that Donald G. Barger, Jr. and Charles L. Szews are both audit committee financial experts, as that term is defined in the SEC rules. The Audit Committee’s report is on page 16.

 

The Management Development and Compensation Committee. Our Compensation Committee held six meetings during 2009, including two special meetings. Our Compensation Committee assists our Board in fulfilling its oversight responsibilities with respect to executive selection, retention and compensation and succession planning. The committee performs this function by: (i) evaluating our executive officers’ performance, including our Chief Executive Officer, and establishing and reviewing their compensation, including incentive equity and cash compensation, other benefits, and corporate goals relevant to executive compensation; (ii) administering our compensation plans for all eligible employees; (iii) reviewing and consulting with our Chief Executive Officer concerning the selection and performance of executive officers, management succession planning, executive performance, organizational structure and matters related thereto; and (iv) the recruiting of candidates for the Chief Executive Officer in the event the position becomes vacant. Our Board has determined that all of the members of our Compensation Committee meet the independence requirements of the NYSE listing standards. The Compensation Committee’s report is on page 18.

 

The Nominating and Corporate Governance Committee. The Governance Committee held three meetings during 2009. The Governance Committee assists our Board in fulfilling its oversight responsibilities with respect to the selection of director nominees for the Board, overall effectiveness of the Board and its practices and corporate governance practices and principles. The committee performs this function by: (i) reviewing and evaluating the

overall effectiveness of the organization of our Board, including our Chairman of the Board, our incumbent directors, size and composition, committee membership, and the conduct of its business, and making appropriate recommendations to our Board with regard thereto; (ii) establishing and reviewing director compensation; (iii) reviewing criteria and process for the identification and recruitment of Board nominees; (iv) identifying, recruiting, and recommending qualified Board nominees; (v) developing, recommending and reviewing corporate governance principles applicable to our Company; and (vi) reviewing and assessing related person transactions and the independence of our directors. Our Governance Committee reviews with our Board, on at least an annual basis, the requisite qualifications, independence, skills and characteristics of Board candidates, Board members and our Board as a whole. Our Board has determined that all of the members of our Governance Committee meet the independence requirements of the NYSE listing standards.

 

At the Governance Committee’s direction, we retained Crist/Kolder Associates (“Crist”), an independent third-party search firm, to assist us in the search process for a new Board member with international business expertise. Crist specializes in the placement of board members and executive-level employees for financial and operational positions. From the search conducted by Crist, the Governance Committee and our Chief Executive Officer interviewed several candidates, including Mr. Arnold. Based upon Mr. Arnold’s qualifications and his independence, the Governance Committee recommended that Mr. Arnold be appointed to the Board. The Board subsequently appointed Mr. Arnold to the Board and the Compensation Committee on June 1, 2009.

 

Board’s Role in Risk Oversight

 

Our Board is responsible for the Company’s risk-oversight function. The Board, with the assistance of its standing committees, Chief Executive Officer, Chief Financial Officer, General Counsel, and Director of Internal Audit, identifies, evaluates and discusses the material enterprise risks that could impact the Company’s operations and tactical and strategic decisions. These enterprise risks include operational, financial, legal, regulatory, market and reputational risks. In 2009, our Board implemented an enhanced enterprise risk management process (the “ERM Process”) to assist the Board in identifying and evaluating its material enterprise risks. As part of the ERM Process, the Board will periodically survey Board members and senior management requesting independent evaluations and opinions of the Company’s material enterprise risks, together with a description of any mitigation strategies associated with such risks. The evaluations are then reported to the Board where they are considered, weighted and prioritized by the Board and senior management. Certain more highly weighted or prioritized risks may be specifically assigned to a risk manager within the Company who is responsible for management and reporting of that risk, including development of mitigation strategies. The ERM Process is designed, in part, to (i) inform the Board of the Company’s material enterprise risks, (ii) inform the Board how Company management addresses such risks, and (iii) permit the Board to discuss and evaluate how these risks interrelate and affect the Company’s ongoing operations and tactical and strategic decisions, so that the Board is able to fulfill its oversight obligations. We believe our Board leadership structure further promotes the ERM Process as further described below.

 

In addition to the ERM Process, the Board’s standing committees routinely monitor the various risks that fall under their respective purview as set forth in each Board committee’s charter. Each Board committee routinely reports its actions to the full Board, enabling the Board and its committees to coordinate the risk oversight role, particularly with respect to risk interrelationships.

 

Our Board separated the roles of Chairman of the Board and Chief Executive Officer with the retirement of the Company’s long-tenured Chief Executive Officer in May 2008. At that time, Frank J. Hansen, a non-executive, independent director, was appointed Chairman of the Board. Mr. Hansen has been an independent director of Gardner Denver since June 1997 and served as Lead Nonemployee Director from November 2002 until his appointment as Chairman of the Board.

 

The separation of roles was implemented to allow our newly appointed Chief Executive Officer, Mr. Pennypacker, to focus on the management of the Company and our independent Chairman to focus on the continued development of a high-performing Board, including (i) developing Board agendas, (ii) working with Company management to ensure the

Board has timely and adequate information, (iii) coordinating Board committee activities, (iv) supporting and mentoring the Chief Executive Officer and (v) ensuring effective stakeholder communications.

 

Among the duties and responsibilities of our independent Chairman are the following:

 

 

In accordance with the NYSE listing standards and applicable SEC rules and guidelines, our Board assesses the independence of its members from time to time. As part of this assessment, the following steps are taken:

 

 

 

Applying the NYSE listing standards for independence, our Board determined that Michael C. Arnold, Donald G. Barger, Jr., Frank J. Hansen, Raymond R. Hipp, David D. Petratis, Diane K. Schumacher, Charles L. Szews and Richard L. Thompson are independent. Mr. Pennypacker is not independent due to his employment relationship with our Company.

 

Our Board adopted a written policy governing the approval of related party transactions for directors and executive officers. Pursuant to this policy, our Governance Committee reviews and approves relationships and transactions between our Company and our directors and executive officers, or their immediate family members, to determine whether such persons have a direct or indirect material interest. A related party includes directors and executive officers, a person owning more than 5% of our Common Stock, their immediate family members or an

entity in which any of the foregoing persons is employed, is a partner or principal, or in a similar position or which such person has a beneficial ownership interest.

 

Prior to entering into a potential related party transaction, the related party must notify our General Counsel of the relevant facts and circumstances, including the related party’s interest in the transaction and the value of the proposed transaction. The General Counsel will confer with the relevant business unit leader to confirm and supplement the information in the notice, and determine whether the transaction is subject to this policy. If the transaction is subject to our policy and involves an aggregate amount in excess of $120,000 (over the entire term of the transaction), the transaction will be submitted to the Governance Committee for consideration at its committee meeting.

 

The Governance Committee reviews all relevant facts and circumstances available and approves only those transactions with related persons that it determines in good faith to be in, or to not be inconsistent with, the best interests of our Company and our stockholders. The Governance Committee considers, among other things, the following in evaluating such proposed transactions:

 

 

Transactions are approved or denied in our Governance Committee’s sole discretion. The Governance Committee retains the flexibility to condition any approval upon requiring additional actions or non-actions by our Company or the related person. Conditions will be considered on a case by case basis with a focus on the aspects of the transaction that gives rise to a conflict of interest or otherwise causes the transaction not to be in the best interest of our Company. Conditions may include limiting the duration of the transaction, limiting the monetary amount of the transaction, modifying other material terms of the transaction, requiring periodic reporting, and appointing an independent Company representative to monitor various aspects of the transaction.

 

We are not aware of any relationships or related party transactions that require disclosure under the proxy rules and regulations promulgated by the SEC.

 

We have adopted a Code of Ethics and Business Conduct Policy (“Code of Ethics”) that applies to all members of our Board and all executive officers and employees of our Company. In addition, under the charter of our Audit Committee, the Chief Executive Officer and Chief Financial Officer, among others, are required to certify annually their adherence to our Code of Ethics. We intend to satisfy the SEC’s disclosure requirement regarding amendments to or waivers of our Code of Ethics by posting such information on our website at www.gardnerdenver.com.

 

Our Board has adopted the following procedures for our stockholders and all other interested parties to send communications to our entire Board, non-management or independent directors, Board committees, or individual directors.

 

Stockholders and other interested persons seeking to communicate with our directors should submit their written comments to our Corporate Secretary at 1800 Gardner Expressway, Quincy, Illinois 62305. Such persons who prefer to communicate by e-mail should send their comments to corporatesecretary@gardnerdenver.com. Our

Corporate Secretary will then forward all such communications (excluding routine advertisements and business solicitations) to each member of our Board, or the applicable individual director(s) and/or committee chairperson(s). Our Chairman of the Board will receive copies of all stockholder communications, including those addressed to individual directors and/or committee chairpersons, unless such communications address allegations of misconduct or mismanagement on the part of the Chairman of the Board. In such event, our Corporate Secretary will first consult with and receive the approval of our Audit Committee Chairperson before disclosing or otherwise discussing the communication with our Chairman of the Board.

 

If a stakeholder communication is addressed exclusively to our nonemployee directors, our Corporate Secretary will first consult with and receive the approval of the Chairperson of our Governance Committee before disclosing or otherwise discussing the communication with directors who are members of management.

 

We reserve the right to screen materials sent to our directors for potential security risks and/or harassment purposes.

 

Stockholders also have an opportunity to communicate with our Board at our annual meeting of stockholders. Pursuant to our Corporate Governance Policy, each director is expected to attend the annual meeting in person and be available to address questions or concerns raised by stockholders, subject to occasional excused absences due to illness or unavoidable conflicts.

 

The Governance Committee periodically assesses the appropriate size and composition of the Board, and whether any vacancies on the Board are expected. In the event that vacancies are anticipated or otherwise arise, the Governance Committee will review and assess potential director candidates. The Governance Committee utilizes various methods for identifying and evaluating candidates for director. Candidates may come to the attention of the Governance Committee through recommendations of Board members, management, stockholders or professional search firms. When identifying and evaluating candidates for Board membership, our Governance Committee considers individuals from various and diverse backgrounds. Although we do not have a formal diversity policy in place for the Board nomination process, an important factor in our Governance Committee’s consideration and assessment of a candidate is the diversity of the candidate’s background, viewpoints, training, professional experience, education and skill set. While the selection of qualified directors is a complex and subjective process that requires consideration of many intangible factors, our Governance Committee believes that candidates generally should, at a minimum, possess the following criteria:

 

 

In evaluating candidates, the Governance Committee seeks to achieve a balance of knowledge, experience and capability on the Board.

 

As discussed above, our Governance Committee will consider stockholder recommendations for candidates for our Board, provided such candidates meet the minimum criteria stated above. Any stockholder wishing to

submit a candidate for our Governance Committee’s consideration should send the following information to the Corporate Secretary at 1800 Gardner Expressway, Quincy, Illinois 62305:

 

 

Our Corporate Secretary will promptly forward director nominations by stockholders to the Chairperson of our Governance Committee and to our Chairman of the Board. The same criteria apply with respect to our Governance Committee’s evaluation of all candidates for membership to our Board, including candidates recommended by stockholders. However, separate procedures will apply, as provided in our Bylaws, if a stockholder wishes to submit at an annual meeting a director candidate who is not approved by our Governance Committee or our Board.

 

Stockholder proposals intended to be included in our proxy materials for the 2011 Annual Meeting of Stockholders must be received by us at our principal executive offices (Attention: Corporate Secretary) on or before November 17, 2010. Such proposals must comply with SEC regulations under Rule 14A-8 regarding the inclusion of stockholder proposals in Company-sponsored proxy materials. Upon receipt of any such proposal, we will determine whether or not to include such proposal in our proxy statement in accordance with the regulations governing the solicitation of proxies.

 

Any stockholder desiring to nominate a director or propose other business at our 2011 Annual Meeting of Stockholders without including the stockholder’s nomination or other business in our proxy materials for that meeting must provide timely notice to the Company of the nomination or other business in the form provided by our Bylaws. Please refer to our Bylaws for a description of the required form and content of this notice. To be timely, the notice must ordinarily be delivered to our principal executive offices (Attention: Corporate Secretary) no later than the close of business on the 90^th day, nor earlier than the 120^th day, prior to the first anniversary date of the preceding year’s annual stockholder meeting (i.e., stockholder proposals or nominations for director for inclusion in the 2011 Annual Meeting must be delivered to our principal executive offices no earlier than January 4, 2011 and no later than February 3, 2011), or such proposal will be considered untimely. However, in the event that the date of the annual meeting of stockholders is more than 30 days before or more than 60 days after the first anniversary of the previous year’s annual meeting of stockholders, then the notice must be delivered not earlier than the close of business on the 120^th day prior to such annual meeting and not later than the close of business on the later of the 90^th day prior to the date of such annual meeting or the 10^th day following the day on which public announcement of the date of such annual meeting is first made by the Company.

AUDIT COMMITTEE MATTERS

 

Management of our Company is responsible for our internal controls and the financial reporting process. KPMG LLP (“KPMG”), our independent registered public accounting firm, is responsible for performing an independent audit of our consolidated financial statements in accordance with the standards of the Public Company Accounting Oversight Board (the “PCAOB”) and issuing a report thereon. Our Audit Committee’s responsibility is to monitor and oversee these processes with a particular emphasis on the tone at the top of our Company and report its findings to the Board. Our Audit Committee’s function is more fully described in its charter, which has been approved by our Board and is available at our website at www.gardnerdenver.com. Our Audit Committee reviews its charter on an annual basis.

 

In this context, our Audit Committee has met and held discussions with management and KPMG. Management represented to our Audit Committee that our consolidated financial statements for the fiscal year ended December 31, 2009 were prepared in accordance with U.S. generally accepted accounting principles. Our Audit Committee has reviewed and discussed the audited consolidated financial statements with management and with KPMG. Our Audit Committee has discussed with KPMG the matters required to be discussed by Statement on Auditing Standards No. 61, as amended (AICPA, Professional Standards, Vol. 1 AU section 380), as adopted by the PCAOB in Rule 3200T.

 

The Audit Committee has received the written disclosures and letter required by applicable requirements of the PCAOB regarding KPMG’s communications with the Audit Committee concerning independence, and has discussed with KPMG its independence.

 

While members of our Audit Committee perform their own diligence, they are not professionally engaged in the practice of auditing or accounting and are not experts with respect to auditor independence. Therefore, they must rely substantially on the information provided to them and on the representations made by management and KPMG. Accordingly, our Audit Committee’s considerations and discussions referred to above do not assure that the audit of our financial statements has been carried out in accordance with U.S. generally accepted auditing standards, that the financial statements are presented in accordance with U.S. generally accepted accounting principles or that our auditors are in fact “independent.”

 

Based on its review and discussions with our Company’s management and KPMG, our Audit Committee recommended to our Board that the audited financial statements be included in our Annual Report on Form 10-K for the period ended December 31, 2009 for filing with the SEC.

 

Audit and Finance Committee
Donald G. Barger, Jr., Chairperson
Raymond R. Hipp
David D. Petratis
Charles L. Szews

 

The information above in the Report of the Audit Committee shall not be deemed to be “soliciting material” or to be “filed” with the SEC or subject to Regulation 14A or 14C or to the liabilities of Section 18 of the Exchange Act, nor shall it be deemed to be incorporated by reference into any filing under the Securities Act of 1933 (the “Securities Act”) or the Exchange Act, except to the extent that our Company specifically requests that the information be treated as soliciting material or specifically incorporates the information by reference.

 

Pursuant to our Audit and Finance Committee Services Approval Policy, our Audit Committee approved all the audit and non-audit services performed by KPMG in 2009 and 2008. The following summarizes the aggregate fees KPMG billed to our Company for services relating to the years ended December 31, 2009 and December 31, 2008.

Audit Fees. $3,560,000 (for the fiscal year ended December 31, 2009) and $3,946,000 (for the fiscal year ended December 31, 2008) for professional services rendered for the audit of our annual financial statements included in our Form 10-K and review of quarterly financial statements included in our Forms 10-Q or services that are normally provided in connection with statutory and regulatory filings or engagements for those fiscal years.

 

Audit-Related Fees. $0 (for the fiscal year ended December 31, 2009) and $0 (for the fiscal year ended December 31, 2008) for acquisition due diligence, employee benefit plan audits, and other audit services that are reasonably related to the performance of the audit or review of our financial statements, but which are not included under “Audit Fees” above.

 

Tax Fees. $585,000 (for the fiscal year ended December 31, 2009) and $510,000 (for the fiscal year ended December 31, 2008) for tax compliance, tax advice and tax planning services.

 

All Other Fees. $0 (for the fiscal year ended December 31, 2009) and $0 (for the fiscal year ended December 31, 2008) for all products and services provided by KPMG other than those described above.

 

Policies and Procedures for Pre-Approval of Audit and Non-Audit Services

 

Pursuant to the Audit Committee’s Services Approval Policy, the Audit Committee is required to approve all audit and non-audit services performed by the Company’s independent registered public accounting firm in order to assure that the provision of any services does not impair the registered accounting firm’s independence. With limited exception for non-audit services under certain conditions, services require either general or specific pre-approval.

 

The Audit Committee has generally pre-approved audit, audit-related, tax and other services that are specifically identified in the Services Approval Policy. The Audit Committee periodically revises the list of pre-approved services specified in this policy, based on subsequent determinations. The term of any general pre-approval is 12 months from the date of pre-approval, unless the Audit Committee specifically provides for a different period. Unless a type of service to be provided by the independent registered public accounting firm has received general pre-approval, it requires specific pre-approval by the Audit Committee. Services that require specific pre-approval include, but are not limited to, the annual audit services engagement terms and fees, certain tax services and non-routine or non-recurring services.

 

The fee levels for all pre-approved services are established periodically by the Audit Committee. Any proposed service that may exceed the pre-approved fee levels requires specific approval by the Audit Committee.

 

The Audit Committee does not delegate to management its responsibilities to approve services performed by the independent registered public accounting firm. However, it may delegate pre-approval authority to one or more of its members. The member or members to whom such authority is delegated must report any pre-approval decisions to the Audit Committee at its next scheduled meeting.

 

During fiscal 2009, all services by KPMG were approved by the Audit Committee in accordance with this policy.

 

In accordance with its charter, our Audit Committee appointed KPMG to serve as our independent registered public accounting firm and audit our consolidated financial statements for fiscal 2009. Our Audit Committee annually selects its independent registered public accounting firm for the current year in February. A representative of KPMG is expected to be present at the annual meeting to respond to appropriate questions and will have the opportunity to make a statement if the representative desires to do so.

COMPENSATION COMMITTEE MATTERS

 

The purpose of our Compensation Committee is to assist our Board in discharging its responsibilities relating to executive selection, retention and compensation and succession planning. Our Compensation Committee’s function is more fully described in its charter, which has been approved by our Board and is available at our website at www.gardnerdenver.com. Our Compensation Committee reviews its charter on an annual basis.

 

The Compensation Committee has reviewed and discussed the Compensation Discussion and Analysis required by Item 402(b) of Regulation S-K with management. Based on its review and discussion with management, the Compensation Committee recommended to our Board of Directors that the Compensation Discussion and Analysis be included in this proxy statement, filed pursuant to Section 14(a) of the Securities Exchange Act of 1934, as amended.

 

Management Development and Compensation Committee
Richard L. Thompson, Chairperson
Michael C. Arnold
Frank J. Hansen
Diane K. Schumacher

 

The information above in the Report of our Compensation Committee shall not be deemed to be “soliciting material” or to be “filed” with the SEC or subject to Regulation 14A or 14C or to the liabilities of Section 18 of the Exchange Act, nor shall it be deemed to be incorporated by reference into any filing under the Securities Act or the Exchange Act, except to the extent that our Company specifically requests that the information be treated as soliciting material or specifically incorporates the information by reference.

 

None of the members of our Compensation Committee or Governance Committee is or has been an officer or employee of our Company or any of our subsidiaries. In addition, none of the members of our Compensation Committee or Governance Committee has or had any relationships with our Company or any other entity that would require disclosure under Item 404 of Regulation S-K. During fiscal 2009, none of our executive officers served on the compensation committee (or equivalent) or board of another entity whose executive officers served on our Compensation Committee, Governance Committee, or Board.

 

Risk — Related Compensation Policies and Practices

 

In February 2010, the Compensation Committee undertook an assessment of the risk profile of its executive and non-executive compensation programs. With the assistance of the Chief Executive Officer, Chief Financial Officer, General Counsel, Director of Internal Audit and Vice President, Human Resources, the Compensation Committee developed a framework to assist the Compensation Committee in ascertaining any potential material risks associated with its executive compensation program, including: external market reference; pay mix; range and sensitivity of performance-based variable plans; selection of performance metrics; goal-setting process; and the Company’s checks and balances on the payment of compensation. This process enabled the Compensation Committee to consider if any of the Company’s current compensation programs, practices or procedures should be altered in order to ensure that an appropriate balance between competitive pay and prudent risk is maintained. As a result of this analysis, the Compensation Committee identified the following risk mitigating factors:

 

 

 

As a result of the above assessment, the Compensation Committee determined that the Company’s policies and procedures largely achieved a proper balance between prudent business risk and competitive compensation. Based on this analysis, the Company believes that its compensation policies and practices do not create risks that are reasonably likely to have a material adverse effect on the Company.

 

The following table sets forth information, as of March 5, 2010, with respect to the beneficial ownership of our Common Stock by: (a) each of our directors and director nominees; (b) each of our other “named executive officers” set forth in the Summary Compensation Table below; and (c) all of our current directors and executive officers as a group.

 

 

 

 

Beneficial Ownership

 

The following table lists all persons known to be the beneficial owner of more than 5% of our outstanding Common Stock as of December 31, 2009.

 

 

 

 

Section 16(a) of the Securities Exchange Act of 1934, as amended, requires our directors and executive officers, and persons who own more than 10% of a registered class of our equity securities to file with the SEC initial reports of ownership and reports of changes in ownership of our Common Stock and other equity securities of our Company. Our insiders are required by SEC regulations to furnish us with copies of all Section 16(a) forms they file, including Forms 3, 4 and 5. As a practical matter, we assist our directors and executive officers by monitoring transactions and completing and filing Section 16(a) forms on their behalf. We believe that all reports required to be filed by insiders during the fiscal year ended December 31, 2009, were filed in a timely manner.

 

The Board has nominated Frank J. Hansen, Diane K. Schumacher and Charles L. Szews as directors to serve for a three-year term expiring in 2013. Our Board believes Messrs. Hansen and Szews and Ms. Schumacher are experienced, well-qualified incumbent directors who have the expertise to direct and oversee our business and will continue to represent the long-term interests of our stockholders. Biographical information on each of these nominees is set forth above on page 6.

 

Each of the nominees has agreed to be named in this proxy statement and serve as a director of the Company, if elected. If any one of the nominees becomes unavailable or unwilling to stand for election or serve as a director before the annual meeting, the accompanying proxy will be voted for the election of such other person, if any, as shall be nominated by the Board, unless the Board resolves to reduce the number of directors to serve on the Board and thereby reduce the number of directors to be elected at the annual meeting. The Company has no reason to believe that any nominee will be unavailable or unwilling to stand for election or serve as a director.

 

The Board believes that the election of these director nominees is in the best interests of our stockholders and, accordingly, recommends a vote FOR the election of these nominees.

 

The Audit Committee has appointed KPMG LLP as our independent registered public accounting firm for the 2010 fiscal year. Although the Company is not required to seek ratification of the Audit Committee’s appointment of KPMG as our independent registered public accounting firm for the 2010 fiscal year, the Board seeks ratification from our stockholders for the appointment of KPMG as a matter of good corporate governance.

 

KPMG has been our independent auditor since 2002 and no relationship exists other than the usual relationship between independent auditor and client. A representative of KPMG is expected to be present at the annual meeting to respond to appropriate questions and will have the opportunity to make a statement if the representative desires to do so. If KPMG’s appointment is not ratified by our stockholders, the Audit Committee will consider whether it is appropriate to select another independent registered public accounting firm for the 2011 fiscal year. Additionally, even if the appointment is ratified, the Audit Committee, in its discretion, may direct the appointment of a different independent registered public accounting firm at any time during the 2010 fiscal year if it determines that such a change would be in the best interests of the Company and our stockholders.

 

The Board believes that the ratification of KPMG LLP as our independent registered public accounting firm is in the best interests of our stockholders and, accordingly, recommends a vote FOR this proposal.

 

The Company’s current Executive Annual Bonus Plan (the “Annual Bonus Plan”) approved by our stockholders on May 3, 2005 will expire on December 31, 2010. Subject to the approval of our stockholders, the Board, upon recommendation from our Compensation Committee, approved a new Annual Bonus Plan (the “New Annual Bonus Plan”). If approved by our stockholders, the New Annual Bonus Plan will be effective January 1, 2011. The Board has directed that the New Annual Bonus Plan be submitted to our stockholders for approval so that payments under the New Annual Bonus Plan may qualify for the performance-based compensation exemption from the $1 million executive compensation deduction limitations imposed by Section 162(m) of the Internal Revenue Code, as amended (“Section 162(m)”).

 

All awards under the New Annual Bonus Plan will be paid in cash.

 

The New Annual Bonus Plan is intended to provide the Company a means by which it can engender and sustain a sense of personal commitment on the part of our senior executive officers in the continued growth, development

and financial success of the Company and encourage them to remain with and devote their best efforts to the business of the Company, thereby advancing the interests of the Company and our stockholders.

 

The Board believes that it is in the best interests of the Company and our stockholders to ensure that annual bonus awards paid to our senior executive officers under the New Annual Bonus Plan can qualify for exemption from the executive compensation deduction limitations of Section 162(m). Generally, Section 162(m) prevents a company from receiving a federal income tax deduction for compensation paid to its Chief Executive Officer and certain other highly-compensated officers in excess of $1 million in any year, unless that compensation is “performance-based.” One of the requirements of “performance-based” compensation for purposes of Section 162(m) is that the compensation be paid pursuant to a plan that has been approved by the company’s stockholders.

 

If the New Annual Bonus Plan is not approved by our stockholders, the Company will not grant any cash bonus awards under the plan. However, the Company may grant annual cash bonus awards to our senior executive officers outside of the New Annual Bonus Plan that may or may not be deductible by the Company for federal income tax purposes.

 

Summary of the New Annual Bonus Plan

 

A summary of the material provisions of the New Annual Bonus Plan is provided below. This summary does not purport to be complete and is qualified in its entirety by reference to the full text of the New Annual Bonus Plan attached as Appendix A to this proxy statement.

 

Administration

 

The New Annual Bonus Plan will be administered by the Compensation Committee, including the final determination of awards to each participant. Determinations of the Compensation Committee in administrating the New Annual Bonus Plan will be final and binding upon all participants.

 

Participation

 

Participation in the New Annual Bonus Plan is limited to our senior executive officers, which includes our Chairman, Chief Executive Officer, President, any Executive Vice President, any Senior Vice President, any senior officer reporting directly to the Chief Executive Officer and any other Vice President or senior executive or officer designated by the Chief Executive Officer. Participants will be selected for participation annually by the Compensation Committee no later than ninety (90) days after the commencement of the applicable performance period (or at such other time or times as the Compensation Committee may determine). Currently, there are seven (7) persons who would be eligible to participate in the New Annual Bonus Plan, which includes our named executive officers, our Vice President, General Counsel, Chief Compliance Officer and Secretary, and our Vice President, Chief Information Officer.

 

Awards, Performance Goals and Measures

 

Awards under the New Annual Bonus Plan will be paid in cash.

 

In general, the Compensation Committee will establish in writing, no later than ninety (90) days after the commencement of the applicable performance period, performance goals for each performance period. The performance goals may be identical for all participants or, as may be determined by the Compensation Committee, different for individual participants to reflect more appropriate measures of individual performance. The criteria used in establishing performance goals may, as determined by the Compensation Committee, include one or any combination of the following (which may be applied to an individual, a subsidiary, a business unit, division or group, or the Company and any one or more of its groups, divisions, business units or subsidiaries taken as a whole):

 

 

 

Performance goals shall include a threshold level of performance below which no award will be payable and a maximum award opportunity for each participant. The targeted performance goals with respect to such performance criteria may be established at such levels and in such terms as the Compensation Committee may determine, including in absolute terms, as a goal relative to performance in prior periods, or as a goal compared to the performance of one or more comparable companies or an index covering multiple companies. The Compensation Committee is authorized to make adjustments in the method of calculating attainment of performance goals in recognition of (i) extraordinary or nonrecurring items, (ii) changes in tax laws, (iii) changes in generally accepted accounting principles or changes in accounting policies, (iv) charges related to restructured or discontinued operations, (v) restatement of prior period financial results, (vi) any other unusual, non-recurring gain or loss that is separately identified and quantified in the Company’s financial statements, and (vii) changes relating to acquisitions and dispositions or other extraordinary business transactions. Notwithstanding the preceding sentence, unless the Compensation Committee determines otherwise, any adjustments that may be taken into account with respect to an award that is intended to qualify as “performance-based compensation” under Section 162(m) will be permitted only to the extent that such adjustment would not cause the award to fail to so qualify as “performance-based compensation.”

 

Payment of awards to participants under the New Annual Bonus Plan will occur only after the Compensation Committee has certified in writing that the applicable performance goals have been achieved for the applicable performance period and the amounts payable pursuant to the resulting awards. Notwithstanding the attainment of the performance goals, the Compensation Committee may, in its sole discretion, make downward adjustments to annual bonus awards for any participant based on its assessment of the participant’s performance. The maximum annual bonus award that may be granted to a participant under the New Annual Bonus Plan for any performance period may not exceed $3,000,000 or, if less, three (3) times the participant’s base salary as of the last day of the performance period.

 

If the Company is required to restate all or a portion of its financial statements for any period, and if the Board or the Compensation Committee determines that such restatement is attributable in whole or in significant part to fraud on the part of a participant or known to the participant then, subject to applicable law, the Board or the Compensation Committee has the right to require the participant to reimburse the Company for the amount of any incentive compensation paid to him or her, if and to the extent that (i) the amount of such incentive compensation was based upon the achievement of certain financial results that are subsequently revised due to such restatement, and (ii) the amount of the incentive compensation that would have been paid or provided to the participant if the financial results had been properly reported would have been lower than the amount that is actually paid or provided.

 

The Company and its subsidiaries have expressly reserved the right under the New Annual Bonus Plan, at any time, to terminate the employment of any participant free from any liability under the New Annual Bonus Plan; except that a participant who was actively employed as of the last day of the applicable performance period will be eligible to receive payment of his or her award, even though the participant is no longer an active employee of the

Company at the time the Compensation Committee actually pays the award under the New Annual Bonus Plan for the applicable performance period. Subject to certain tax law limitations, the Compensation Committee also has the ability to grant eligibility to a participant to receive an award notwithstanding the fact that such participant is no longer employed by the Company at the end of the applicable performance period.

 

Change in Control

 

Pursuant to the terms of the New Annual Bonus Plan, immediately upon a “change in control,” participants will receive a prorated payment of their respective award payable under the New Annual Bonus Plan at the target performance goal level and we will generally make such payments in cash within ten (10) days after the effective date of the change in control.

 

Deferrals

 

The Compensation Committee has the right to permit participants to defer receipt of all or a portion of an award under administrative policies established by the Company from time to time, which will be in compliance with Sections 162(m) and 409A of the Code.

 

Amendment, Modification, Suspension and Termination

 

The Board may amend, modify, suspend or terminate the New Annual Bonus Plan at any time except that no amendment will be effective prior to approval by the Company’s stockholders to the extent such approval is then required by law or pursuant to Section 162(m). Further, no amendment to the New Annual Bonus Plan will be effective without stockholder approval that would (i) increase the maximum amount that can be paid to a participant under the New Annual Bonus Plan, (ii) change the performance criteria set forth in the New Annual Bonus Plan, or (iii) modify the eligibility requirements of participants.

 

Material Federal Income Tax Consequences

 

The following is a brief description of the U.S. federal income tax consequences generally arising with respect to cash bonus payments under the New Annual Bonus Plan. This discussion is intended for the information of our stockholders in considering how to vote on the New Annual Bonus Plan at the annual meeting and not as tax guidance to our senior executive officers who may participate in the New Annual Bonus Plan. This summary does not address the effects of other federal taxes or taxes imposed under state, local or foreign tax laws.

 

Generally, Section 162(m) prevents a company from receiving a federal income tax deduction for compensation paid to its Chief Executive Officer and certain other highly-compensated officers in excess of $1 million in any year, unless that compensation is performance-based. One of the requirements of “performance-based” compensation for purposes of Section 162(m) is that the compensation be paid pursuant to a plan that has been approved by the company’s stockholders. If approved by our stockholders, the New Annual Bonus Plan provides a means for the Company to pay performance-based bonuses to certain of our senior executive officers without being subject to the deduction limitation provisions of Section 162(m).

 

Under current U.S. federal income tax law, participants will generally realize ordinary income equal to the amount of the payment received under the New Annual Bonus Plan in the year of such receipt. In general, the Company will be entitled to a tax deduction for the amount constituting ordinary income to the participant, as long as the participant’s total compensation is below the limit established by Section 162(m) or the plan payment satisfies the requirements of the performance-based exception of Section 162(m). The Company intends that, upon approval by the Company’s stockholders, bonuses paid pursuant to the New Annual Bonus Plan may qualify for the performance-based compensation exemption from the $1 million executive compensation deduction limitations of Section 162(m).

New Plan Benefits

 

The annual bonus awards that will be granted in the future under the New Annual Bonus Plan are subject to the discretion of the Compensation Committee and, therefore, are not determinable at this time. The following table sets forth information regarding the annual bonus awards that would have been paid under the New Annual Bonus Plan had the plan been in effect for 2009.

 

 

 

 

Equity Compensation Plan Information

 

The following table sets forth information as of December 31, 2009 with respect to shares of our Common Stock that may be issued under the Amended and Restated Gardner Denver, Inc. Long-Term Incentive Plan.

 

 

 

 

The Board believes that the approval of the New Annual Bonus Plan is in the best interests of our stockholders and, accordingly, recommends a vote FOR this proposal.  Our senior executive officers may receive compensation under the New Annual Bonus Plan and, therefore, may be deemed to have a substantial interest in an affirmative vote for this proposal.

 

Calvert Asset Management Company, Inc., 4550 Montgomery Avenue, Bethesda, MD 20814, on behalf of the Calvert Social Index Fund, which owns 851 shares of our Common Stock, and Trillium Asset Management Corporation, 711 Atlantic Avenue, Boston, Massachusetts 02111, on behalf of its client, Margaretta L. Belin, who owns 350 shares of our Common Stock, as co-sponsor, notified us that they intend to present the following proposal and supporting statement at the annual meeting.

 

The text of the stockholder proposal and supporting statement appears exactly as received by the Company. All statements contained in the stockholder proposal and the supporting statement are the sole responsibility of the proponent and co-sponsor. The stockholder proposal is required to be voted upon at the annual meeting only if properly presented at the annual meeting.

 

THE BOARD RECOMMENDS A VOTE AGAINST THE FOLLOWING STOCKHOLDER PROPOSAL BASED ON THE BROADER POLICY REASONS SET FORTH BELOW IN THE COMPANY’S OPPOSITION STATEMENT.

 

Stockholder Proposal

 

GARDNER DENVER, INC. NONDISCRIMINATORY POLICY

 

Whereas: Gardner Denver, Inc. does not explicitly prohibit discrimination based on sexual orientation and gender identity (or gender expression) in its written employment policy;

 

Over 87% of the Fortune 500 companies have adopted written nondiscrimination policies prohibiting discrimination on the basis of sexual orientation, as have more than 97% of Fortune 100 companies, according to the Human Rights Campaign. Nearly 70% of the Fortune 100 and over 40% of the Fortune 500 now prohibit discrimination based on gender identity or expression;

 

We believe that corporations that prohibit discrimination on the basis of sexual orientation and gender identity or expression have a competitive advantage in recruiting and retaining employees from the widest talent pool;

 

According to a June 2008 survey by Harris Interactive and Witeck-Combs, 65% of gay and lesbian workers in the United States reported facing some form of job discrimination related to sexual orientation. An earlier survey found that almost one out of every 10 gay or lesbian adults also reported that they had been fired or dismissed unfairly from a previous job, or pressured to quit a job, because of their sexual orientation;

 

Twenty-one states, the District of Columbia, and more than 180 cities and counties, have laws prohibiting employment discrimination based on sexual orientation; 12 states, the District of Columbia, and more than 104 cities and counties have laws prohibiting employment discrimination based on sexual orientation and gender identity or expression;

 

Minneapolis, San Francisco, Seattle and Los Angeles have adopted legislation restricting business with companies that do not guarantee equal treatment for gay and lesbian employees;

 

Our company is based in Illinois where at least 189 major employers have sexual orientation nondiscrimination policies and at least 52 include gender identity or expression in their nondiscrimination policies.

 

Our Company has operations in and makes sales to institutions in states and cities that prohibit discrimination on the basis of sexual orientation;

 

National public opinion polls consistently find more than three quarters of the American people support equal rights in the workplace for gay men, lesbians and bisexuals. In a Gallup poll conducted in May 2007, 89% of respondents favored equal opportunity in employment for gays and lesbians.

Resolved: The Shareholders request that Gardner Denver amend its written equal employment opportunity policy to explicitly prohibit discrimination based on sexual orientation and gender identity or expression and substantially implement the policy.

 

Supporting Statement: Employment discrimination on the basis of sexual orientation and gender identity diminishes employee morale and productivity. Because state and local laws are inconsistent with respect to employment discrimination, our company would benefit from a consistent, corporate-wide policy to enhance efforts to prevent discrimination, resolve complaints internally, access employees from the broadest talent pool, and ensure a respectful and supportive atmosphere for all employees. Gardner Denver will enhance its competitive edge by joining the growing ranks of companies guaranteeing equal opportunity for all employees.

 

The Company’s Statement in Opposition to Proposal No. 4

 

The Board recommends you vote AGAINST this stockholder proposal for the following reasons:

 

As an equal opportunity employer, the Company is firmly committed to operating our business in full compliance with applicable employment laws and providing each of our employees with a workplace free from unlawful discrimination or harassment of any kind. We make all employment-related decisions based on merit and without regard of characteristics protected by law.

 

Our global Code of Ethics and Business Conduct, which is located at www.gardnerdenver.com, expressly prohibits discrimination and harassment based on characteristics protected by law, such as race, color, national origin, religion, gender, age, marital status, disability, veteran status or citizenship status. We reinforce the importance of our commitment to a workplace free from unlawful discrimination or harassment by annually distributing our Code of Ethics and Business Conduct to all employees, periodic employee communications and training, and workplace postings.

 

We believe our employment record supports our commitment to being an equal opportunity employer. In a company with more than 6,000 employees operating in 33 countries, the Board and executive officers of the Company are not aware of a single complaint of discrimination based on sexual orientation or gender identity being reported through our ethics hotline established pursuant to our Code of Ethics and Business Conduct filed with any city, state or federal agency.

 

While we are committed to maintaining and enforcing an equal employment opportunity workplace, we do not believe that the resolution proposed by the proponent and co-sponsor is a needed addition to our existing policy on discrimination and harassment.

 

Our Governance Committee annually reviews and establishes the compensation of our nonemployee directors and makes a recommendation to our Board for final approval. In 2006, our Governance Committee retained Hewitt Associates, LLC, an independent compensation consultant (“Hewitt”), to evaluate the appropriateness of our nonemployee directors’ compensation plan, including the mix of annual cash retainers and meeting fees and equity compensation to ensure that our program compensates our nonemployee directors for the level of responsibility our Board has assumed in today’s corporate governance environment and to remain competitive relative to our custom peer group (as further discussed in the Compensation Discussion and Analysis section of this proxy statement). In determining compensation levels for 2009, our Governance Committee considered the compensation data, received input from Hewitt, and reviewed the performance of our nonemployee directors. Our Board, upon recommendation of our Governance Committee, approves annual compensation for nonemployee directors. Our nonemployee

director compensation for 2009, except for the additional annual retainer for the Chairman of the Board, has been in effect since May 2007 and included the following compensation elements:

 

 

 

 

Members of the Board of Directors who also serve as officers or employees of the Company do not receive additional compensation in their capacity as directors. The only officer or employee of the Company who served as a director during 2009 was Mr. Pennypacker.

 

Phantom Stock Plan

 

Our Phantom Stock Plan for nonemployee directors, which is an unfunded plan, was originally established in 1996 to more closely align the interests of our nonemployee directors with our stockholders by increasing each nonemployee director’s proprietary interest in our Company by awarding such directors phantom stock units. Under our Phantom Stock Plan, we credit the equivalent of $7,000 annually, in equal quarterly amounts, to the phantom stock unit account of each nonemployee director. Each phantom stock unit is equal to the right to receive the fair market value of one share of our Common Stock. Phantom stock units are credited in equal quarterly amounts divided by the average closing price per share of our Common Stock during the 30 trading days immediately preceding (but not including) the last business day of such fiscal quarter as reported on the composite tape of the NYSE. Each nonemployee director may also elect to defer all or a portion of his or her annual director’s fees under the Phantom Stock Plan and have such amount credited on a quarterly basis as phantom stock units, based on the average closing price per share of our Common Stock during the 30 trading days immediately preceding (but not including) the last business day of such fiscal quarter as reported on the composite tape of the NYSE. Dividend

equivalents are credited to each nonemployee director’s account on the dividend record date as and when dividends are declared by the Board.

 

The fair market value of a director’s account will be distributed as a cash payment to the director, or his or her beneficiary, on the first business day of the month following the month in which the director ceases to be a director for any reason. Alternatively, a director may elect to have the fair market value of his or her account distributed in twelve or fewer equal monthly installments, or in a single payment on a predetermined date within one year after he or she ceases to be a director, but without interest on the deferred payments. The fair market value of a director’s account is determined by reference to the average closing price per share for our Common Stock during the 30 trading days immediately preceding the date the director ceases to be a director. The following table summarizes the aggregate number of phantom stock units credited to each nonemployee director as of March 5, 2010.

 

 

Long-Term Incentive Plan

 

Pursuant to the Gardner Denver, Inc. Amended and Restated Long-Term Incentive Plan (the “Incentive Plan”), for 2009, each nonemployee director who was serving on the Board following the Annual Meeting of Stockholders received equity incentives consisting of 4,400 stock options and 1,800 RSUs, on the day following the 2009 Annual Stockholders Meeting. Mr. Arnold was appointed as a nonemployee director on June 1, 2009 and received 3,200 stock options and 1,400 RSUs on July 27, 2009.

 

Stock options granted to our nonemployee directors in 2009 were granted at the closing price of our Common Stock on the date of grant, become exercisable on the first anniversary of the date of grant and terminate upon the expiration of five years from such date. If a person ceases to be a nonemployee director by virtue of disability or retirement, after having completed at least one three-year term, outstanding options generally remain exercisable for a period of five years but not later than the expiration date of the options. If a person ceases to be a nonemployee director by virtue of death or dies during the five-year exercise period after disability or retirement described above, outstanding options generally remain exercisable for a period of one year but not later than the expiration date of the options. If a nonemployee director’s service terminates for any other reason, options not then exercisable are canceled and options that are exercisable may be exercised at any time within ninety days after such termination but not later than the expiration date of the options.

 

The RSUs granted to our nonemployee directors vest three years from the date of grant provided the nonemployee director continues to serve as a member of our Board on such date, and has continuously served on our Board since the date of grant. Previously, holders of RSUs did not have any voting or dividend rights with respect to RSUs; however, commencing in 2010, the holders of RSUs will be entitled to any dividends declared by the Company at the same rate as the holders of our Common Stock. All of the shares of restricted stock, which have similar vesting requirements as RSUs, and RSUs which have not previously become transferable by the director shall be forfeited on the date on which the director’s service to our Company terminates. If a person ceases to be a nonemployee director by virtue of death, disability or retirement, the restricted stock and RSUs will vest immediately and become free of all transfer restrictions.

Upon the occurrence of a change of control, as defined in the Incentive Plan, options granted to nonemployee directors will be canceled in exchange for a cash payment equal to the appreciation in value of the options over their respective exercise price. Additionally, upon the occurrence of a change of control, as defined in the Incentive Plan, options, restricted stock and RSUs will be deemed fully vested. For a further description of the change in control provision under the Incentive Plan, please see the “Potential Payments Upon Termination or Change in Control” discussion beginning on page 56.

 

2010 Nonemployee Director Compensation

 

After the 2009 year-end, Hewitt spun off its executive compensation practice into a stand-alone entity, Meridian Compensation Partners LLC, which is a separate independent compensation consultant (“Meridian”). In order to maintain a consistent process and representation, in January 2010 the Governance Committee retained Meridian to evaluate the appropriateness of the nonemployee directors’ compensation program. Meridian’s evaluation included a review of the mix of annual cash retainers and meeting fees and equity compensation we pay our nonemployee directors relative to our custom peer group. Based upon Meridian’s analysis, the level of responsibility our Board has assumed in today’s corporate governance environment and the performance of our nonemployee directors, our Governance Committee recommended, and the Board approved, modifications to our nonemployee director compensation plan for 2010. The 2010 modifications include deleting the annual phantom stock awards in accordance with current market trends of using full value shares. Our 2010 nonemployee director compensation includes the following elements:

 

 

2009 DIRECTOR COMPENSATION TABLE

 

The following table presents compensation earned by each nonemployee member of our Board of Directors for 2009. Compensation information for Mr. Pennypacker is contained in the Summary Compensation Table on page 48. Mr. Pennypacker did not receive any compensation in his capacity as a director of the Company.

 

 

 

 

 

OUTSTANDING EQUITY AWARDS AT FISCAL YEAR-END OWNED BY
NONEMPLOYEE DIRECTORS

 

Our nonemployee directors have been previously granted equity awards in the form of stock options, restricted stock and RSUs pursuant to our Incentive Plan. The following table presents information regarding outstanding stock options, restricted stock and RSUs as of December 31, 2009.

 

 

 

 

 

 

 

 

 

The following information contains statements regarding future individual and company performance measures, targets and other goals. These goals are disclosed in the limited context of our Company’s executive compensation program and should not be understood to be statements of management’s expectations or estimates of results or other guidance. We specifically caution investors not to apply these statements to other contexts.

 

An Overview of our Executive Compensation Program

 

The caliber of our senior executives is instrumental to our overall performance and the creation and retention of long-term stockholder value. To attract, retain and motivate high-performing executives with strong leadership abilities, we have developed an executive compensation program that strives to provide competitive pay, reward achievement of our Company’s financial and strategic objectives and align the interests of our executives with those of our stockholders. The following principles provide the basis for our compensation program: (a) compensation levels should be sufficiently competitive to attract, motivate and retain high caliber executives; (b) appropriate levels of reward for performance should be tied to and vary with our financial and operational performance, as well as individual performance; (c) a significant amount of total compensation should be in the form of short-term and long-term incentive awards to align compensation with our operational and performance goals as well as individual performance goals; (d) long-term incentive awards should constitute a large portion of our total incentive awards to encourage executives to focus on our long-term growth and prospects; and (e) equity incentive awards should constitute a material portion of total compensation to encourage long-term focus on stockholder value and directly and materially link compensation to financial performance and growth of our Company. To achieve these objectives in 2009, we used a combination of compensation elements consisting of base salary, annual cash bonuses, long-term incentives in the form of stock options, RSUs and cash bonuses, and retirement benefits and other perquisites, all of which are discussed in further detail below.

 

Our Compensation Committee regularly reviews our compensation practices and market trends in executive compensation to ensure we are accomplishing our compensation objectives. Annually, our Compensation Committee reviews and establishes the compensation and benefits of our named executive officers.

 

Messrs. Pennypacker, Castorena, Morgan, and Shull and Mrs. Cornell, who are all listed in the 2009 Summary Compensation Table on page 48, were our named executive officers for 2009.

 

Role of Compensation Consultants

 

In 2009, our Compensation Committee retained Hewitt to evaluate and provide independent advice and consultation regarding our executive compensation program. At our Compensation Committee’s direction, Hewitt:

 

 

Hewitt then evaluated and made recommendations to our Compensation Committee regarding the compensation levels of our named executive officers, including our Chief Executive Officer.

 

Role of Management

 

Annually, our Compensation Committee establishes the compensation of our named executive officers, including establishing their performance goals and bonus opportunities. In 2009, our Compensation Committee also held private discussions with Mr. Pennypacker, our Chief Executive Officer, concerning the other named executive officers’ performance and their strengths and weaknesses of executive management. Our Compensation Committee took into account input from Mr. Pennypacker in setting the other named executive officers’ compensation and performance goals.

Determining Compensation for our Chief Executive Officer in 2009

 

Our Chief Executive Officer is evaluated by the Board on both Company and individual performance metrics. In February 2010, the Board reviewed the Compensation Committee’s assessment of Mr. Pennypacker’s individual goals, which were established in February 2009, and his performance against those goals. Mr. Pennypacker’s goals focused on both short-term and long-term initiatives with emphasis for 2009 on our restructuring projects and continuing to drive the Gardner Denver Way into the fabric of our organization to allow us to emerge from the economic downturn with a leaner, more efficient organization. Long-term initiatives included developing the Company’s presence in emerging markets, product development, and expansion of our acquisition strategy, as well as developing management bench strength.

 

In determining Mr. Pennypacker’s compensation, the Compensation Committee evaluated the value of Mr. Pennypacker to the Company and his specific accomplishments of: (i) successfully beginning the transformation of the Company’s culture to be more performance driven; (ii) developing and communicating to employees the Company’s mission statement, core values and strategy; (iii) implementing lean manufacturing principles; (iv) driving the Gardner Denver Way; (v) positioning the Company to initiate a dividend policy; and (vi) strong leadership and performance during the difficult economic environment.

 

Determining Compensation for our Other Named Executive Officers in 2009

 

The Compensation Committee with input from Mr. Pennypacker evaluates the performance of each named executive officer. Throughout the fiscal year, our named executive officers update the Board and the Compensation Committee on their individual accomplishments and challenges in their respective areas of responsibility. These regular updates ensure that our Board and Compensation Committee are fully apprised on each named executive officer’s performance throughout the year. At the Compensation Committee meeting in February, our Chief Executive Officer presents an annual assessment of each named executive officer’s performance to the Compensation Committee. The Compensation Committee evaluates each named executive officer’s performance based on the regular updates and Mr. Pennypacker’s annual assessment of individual and collective performances. The Compensation Committee reviews the market data presented by Hewitt together with the overall performance and establishes the compensation of our named executive officers, including establishing their performance goals and bonus opportunities. In 2009, our Compensation Committee concluded the following for each named executive officer (other than Mr. Pennypacker):

 

Helen W. Cornell. Mrs. Cornell has been our Chief Financial Officer since August 2004 and has been with our Company for more than 21 years. In determining Mrs. Cornell’s compensation, the Committee evaluated her role in our growth strategy and the achievement of our Company’s overall performance. Mrs. Cornell’s goals for 2009 included creating a more lean and efficient finance organization globally and strengthening our investor relations program. Mrs. Cornell exceeded the Compensation Committee’s expectation in streamlining our finance organization while ensuring high internal controls globally and has performed exceptionally well during the difficult economic environment. The Compensation Committee, with input from Mr. Pennypacker, also recognized Mrs. Cornell’s strong leadership throughout our Company.

 

Armando L. Castorena. Mr. Castorena has been the Vice President of Human Resources since his employment with us began on September 15, 2008. Upon joining our Company, Mr. Castorena was able to immediately assist our Chief Executive Officer with reorganizing the Company from five divisions into two product groups, develop a new leadership talent assessment and succession planning process and create a seamless interactive working relationship with the Compensation Committee. In determining Mr. Castorena’s compensation, the Compensation Committee evaluated his contributions and the terms of his 2008 offer of employment. The Compensation Committee, with input from Mr. Pennypacker, also recognized Mr. Castorena’s leadership during the difficult economic environment.

 

T. Duane Morgan. Mr. Morgan has been the President of our Engineered Products Group since its creation in January 2009 and has been with our Company for four years. Mr. Morgan previously served as the Vice President of the Fluid Transfer Division. In determining Mr. Morgan’s compensation, the Compensation Committee evaluated the value of his role as the President of our group with the most diverse products and customers, his leadership in creating a lean and collaborative group culture and increased innovation in the group’s products and distribution

channel. Mr. Morgan exceeded the Compensation Committee’s expectations in leading a lean and collaborative group culture. The Compensation Committee, with input from Mr. Pennypacker, also recognized Mr. Morgan’s global leadership within the group during the difficult economic environment.

 

J. Dennis Shull. Mr. Shull has been the President of our Industrial Products Group since its creation in January 2009 and has been with our Company for more than 34 years. Mr. Shull previously served as the Executive Vice President of the Compressor Division. In determining Mr. Shull’s compensation, the Compensation Committee evaluated the value of his role as the President of our largest group, his leadership in the integration of CompAir and his group’s overall performance. Mr. Shull’s goals for 2009 included leading a lean culture within his group, the continued integration of CompAir and increased innovation in the group’s products and distribution channel. Mr. Shull exceeded the Compensation Committee’s expectations in leading a lean and innovative group culture and the CompAir integration has progressed as scheduled. The Compensation Committee, with input from Mr. Pennypacker, also recognized Mr. Shull’s global leadership within the group during the difficult economic environment.

 

Benchmarking

 

Using the Hewitt report, our Compensation Committee reviewed the compensation practices at competitive companies to evaluate our executive compensation philosophy and compensation programs and awards. Hewitt conducted an external market study of compensation levels for seven senior executive management employees, including our named executive officers. The review included the value and distribution of the following components of compensation: (a) base salary; (b) target annual bonus or target short-term incentives; and (c) long-term incentives.

 

Hewitt compiled competitive pay data from a custom peer group and a general industry group. The primary information source used by Hewitt was their proprietary U.S. Total Compensation Measurement (“TCM”) database. The TCM database was established in 1981 and contains: (a) competitive analysis on approximately 800 large industrial, financial and service organizations who participate annually in this compensation database; and (b) data on values and program design for all areas of total compensation for more than 300 executive and management positions. The custom peer group is listed below.

 

• A. O. Smith		• Kennametal Inc.
• BorgWarner Inc.		• Mueller Water Products Inc.
• Briggs & Stratton Corporation		• Pactiv Corporation
• Cooper Industries, Ltd.		• Parker-Hannifin Corp.
• Donaldson Company, Inc.		• Pentair, Inc.
• Dover Corporation		• Roper Industries, Inc.
• Federal Signal Corporation		• Sauer-Danfoss Inc.
• Flowserve Corporation		• Steelcase Inc.
• FMC Technologies, Inc.		• Valmont Industries
• Ingersoll-Rand Co.		• Westinghouse Air Brake Technologies   Corporation
• ITT Industries, Inc.
		• Watts Water Technologies, Inc.
• Joy Global Inc.

 

In comparing our compensation levels to our market, Hewitt used a general industry group comprised of approximately 100 companies in their TCM database, exclusive of retail, financial and utility companies, with median annual revenues of $2.7 billion. The general industry group was used to confirm the appropriateness of the custom peer group and to provide a comparison on a general industry basis.

 

We believe both the custom peer group and the general industry group are generally comparable to our Company, based on size, revenues and industry. Information from proxy data and private survey data was used to calculate the competitive pay data, benchmark the compensation practices of our Company and develop compensation projections and recommendations for each of our named executive officers for 2009.

To assist in determining our overall compensation program, Hewitt provided our Compensation Committee with information regarding the compensation levels and programs at the 50^th percentile for our custom peer group and general industry group. Hewitt advised our Compensation Committee that it was important in analyzing their results to note that a number of different internal and external factors determine appropriate levels of compensation. Such adjustment factors include time in position, experience, individual performance, desired pay mix, business impact, internal equity and relative values, affordability, future potential, retention and attraction concerns, and tax, accounting and securities law considerations. In addition, we believe that certain of our executive job responsibilities tend to be broader than traditional market reference points. As a result of combining responsibilities, these roles may warrant additional compensation.

 

As described above, our Compensation Committee aims to set each named executive officer’s target annual cash compensation (base salary and annual cash bonus) at the 50th percentile, and total compensation opportunity at the 50^th percentile, of the competitive pay data.

 

Compensation Philosophy for 2009

 

Our Compensation Committee annually reviews our compensation philosophy to ensure that it is aligned with our business strategies and objectives. In November 2008, our Compensation Committee reassessed the appropriate executive compensation philosophy for the Company in light of our current size and strategic plan, market developments, the economic downturn and impact on the industries in which the Company competes, the history of the Company’s executive compensation philosophy and market trends. In addition, the Compensation Committee retained Hewitt to perform a review and assessment of our named executive officers’ individual pay components and total compensation. Based on our Compensation Committee’s assessment and Hewitt’s review, our Compensation Committee elected to modify our executive compensation philosophy for 2009.

 

Our compensation philosophy for 2009 was to (i) target our annual cash compensation opportunity (base salary and annual cash bonus) and our total compensation opportunity (annual cash compensation and long-term incentives) of our named executive officers to the 50^th percentile of the competitive pay data; and (ii) emphasize individual goals in the named executive officers respective areas of responsibility that would allow us to emerge from the economic downturn with a leaner, more efficient organization. In addition to the 50^th percentile market pay data, the Compensation Committee considered one or more of the following additional factors in setting each of the named executive officer’s target annual cash compensation opportunity and total compensation opportunity: tenure with the Company, level and scope of responsibilities, individual performance, business impact and desired pay mix. Based on the actual operational and financial performance of the Company, the actual individual performance of each named executive officer, and the above factors, the total compensation opportunity for our named executive officers could be +/-15% of the 50^th percentile of the competitive pay data.

 

We believe that the total compensation for our named executive officers in 2009 was consistent with our compensation philosophy for 2009. Elements of compensation for 2009 consisted of: (i) base salaries established at the 50^th percentile of the competitive pay data; (ii) using the 50^th percentile of the competitive pay data as the benchmark for the annual cash compensation opportunity, a reduced payout opportunity under the Annual Bonus Plan (which is based on corporate goals) and a new annual cash bonus opportunity based on individually determined breakthrough goals; and (iii) a long-term incentive compensation opportunity consisting of a long-term cash bonus and equity incentive awards, comprised of stock options and RSUs. In certain instances, the Compensation Committee modified the amount of certain named executive officer’s compensation elements on a case by case basis to achieve appropriate incentives within the total compensation opportunity. Our total executive compensation and the mix of our compensation elements in 2009 were consistent with our objectives of providing for competitive compensation, tie rewards with corporate and individual performance, provide both short-term and long-term incentives to promote long-term growth and prospects, and provide equity incentives to link compensation to financial performance and growth of our Company.

Components of Named Executive Officer Compensation

 

To promote a balance between short-term profitability and sustainable long-term financial and operational performance, our executive compensation program provides a combination of incentives with varying payouts including:

 

 

The total compensation paid to our named executive officers in 2009, excluding retirement benefits and other perquisites, was comprised approximately of thirty-seven percent (37%) base salary, thirty-five percent (35%) annual cash bonus and twenty-eight percent (28%) long-term incentives. The breakdown in the composition of the total compensation package illustrates our emphasis on long-term growth and profitability. We believe our emphasis on long-term incentives encourages our named executive officers to act strategically to ensure our sustainable long-term performance and enhance overall stockholder value.

 

In addition, our named executive officers are also eligible to receive benefits under our various retirement savings plans, standard employee benefit plans and perquisites as further described below.

 

When determining each element of compensation, our Compensation Committee takes into account the other elements of compensation to ensure that, on an overall basis, the compensation paid or awarded to our named executive officers is consistent with the philosophy and objectives of our executive compensation program.

 

Annual Cash Compensation

 

Our annual cash compensation comprised of base salary and annual cash bonus for our named executive officers is targeted at the 50^th percentile of the competitive pay data. The following is a summary of the components of our executive annual cash compensation.

 

Base Salary. In February 2009, our Compensation Committee established a base salary target for each named executive officer at approximately the 50^th percentile of the competitive pay data. The goal in establishing the base salaries was to position our Company for future growth, to increase our compensation program’s competitiveness and to enhance our ability to attract and retain executives. We provide our named executive officers with a base level of monthly income for the expertise, skills, knowledge and experience they offer to our management team.

 

In 2009, our named executive officers received the following base salary increase:

 

 

 

 

Annual Cash Bonus Opportunities

 

For 2009, our Compensation Committee established an annual cash bonus opportunity comprised of financial objectives under our Annual Bonus Plan and breakthrough goals bonus opportunity based on individual performance goals. Our Compensation Committee reduced the total potential payout under the Annual Bonus Plan, which is based on corporate goals, to create a bonus opportunity based on individually determined goals in order to incentivize the achievement of specific individual performance goals by our executives. Our Compensation Committee determined that this two-prong approach to our annual cash bonus opportunity would motivate our executives to achieve specific individual short-term objectives in their respective areas of responsibility that would further implement the Gardner Denver Way and allow us to emerge from the economic downturn with a leaner, more efficient organization.

 

Annual Bonus Plan. Our Annual Bonus Plan furthers our goal of linking executive compensation to our Company’s performance and stockholders’ interests as a whole.

 

Pursuant to our Annual Bonus Plan, our Compensation Committee is required to establish, no later than 90 days after the beginning of each year, performance goals for such year based upon one or more of the following corporate or group performance measures: (a) return on equity, assets, capital or investment; (b) pre-tax or after-tax profit, including net income, levels expressed in absolute dollars or earnings per share; and (c) operating cash flow or cash flow from operating activities. Performance goals may be identical for all participants or may be different to reflect more appropriate measures of individual performance. Performance goals must include a threshold level below which no award will be payable and a maximum award opportunity for each participant.

 

Our Compensation Committee may adjust the method of calculating attainment of performance goals in recognition of:

 

 

In addition, notwithstanding the attainment of the performance goals, annual cash bonuses may be denied or adjusted by our Compensation Committee, in its sole judgment, based on its assessment of the respective named executive officer’s performance. However, notwithstanding the above, an annual cash bonus may not be adjusted upward, if such adjustment results in the Company’s ability to deduct executive compensation being limited under Section 162(m) of the Internal Revenue Code of 1986, as amended (the “Code”).

 

In February 2009, our Compensation Committee established the target performance goals, as well as the threshold and maximum bonus opportunities for each of the named executive officers under the Annual Bonus Plan. Messrs. Pennypacker and Castorena and Mrs. Cornell’s performance goals were based on our Company’s 2009 “Company adjusted net income” (weighted at 48%) and “Company adjusted operating cash flow” (weighted at 32%), as such terms are defined below. Messrs. Morgan’s and Shull’s performance goals were based on their respective group’s “group adjusted operating earnings” (weighted at 50%) and “group adjusted operating cash flow” (weighted at 10%), as such terms are defined below, as well as Company adjusted net income and Company adjusted operating cash flow (weighted at 12% and 8%, respectively).

 

“Company adjusted net income” is defined as our Company’s income before taxes, excluding impairment charges and restructuring charges in excess of budget, less taxes which exclude the tax effect of the excluded items and non-recurring tax-related adjustments. “Company adjusted operating cash flow” is defined as our Company’s net cash provided by operating activities, excluding excess tax benefits from stock-based compensation. “Group adjusted operating earnings” is defined as the respective group’s operating earnings excluding impairment charges,

corporate allocations, other non-operational items and restructuring charges in excess of budget. “Group adjusted operating cash flow” is defined as the respective group’s net income adjusted for impairment charges, restructuring charges in excess of budget and the transfer of certain business units, plus the respective group’s depreciation and amortization and the cash effect of changes in receivables, advance payments and inventories.

 

Adjusted net income was set as a performance goal to reflect the effect of management’s performance on stockholder return. Adjusted operating cash flow was set as a performance goal to reflect the continued importance of cash flow in providing funds to pursue our growth strategies and accelerate our debt repayment. Adjustments to the financial measurements were made by the Compensation Committee to better reflect the actual performance of the Company or group, as applicable.

 

In establishing the performance goals for Messrs. Morgan and Shull, our Compensation Committee included both Company and group performance goals to provide incentives for operational performance over which they exert the greatest degree of short-term control, while ensuring overall accountability to corporate performance. We believe this incentive helps solidify our corporate culture and ensure our business units are working for the greater good of our Company.

 

Breakthrough Goals Bonus Opportunity. Previously, we only awarded annual cash bonuses under our Annual Bonus Plan. This year, as a result of organizational changes and new initiatives implemented at our Company, we wanted to focus on individually determined goals and incentivize our executive officers to further our goal of implementing the Gardner Denver Way throughout our organization so that we will emerge from the economic downturn with a leaner, more efficient organization. Beginning in 2009, our Compensation Committee implemented an annual cash bonus opportunity based on individual performance goals for each of our named executive officers (the “Breakthrough Goals Bonus”). The Compensation Committee maintained the flexibility so that if it determined that an executive officer surpassed his or her breakthrough goals and exceeded expectations, the Compensation Committee may award additional amounts in recognition of such exceptional service and performance.

 

In establishing the breakthrough goals for each of the named executive officers, the Compensation Committee asked Mr. Pennypacker to develop individual goals for each of the named executive officers that were directly related to our strategic plan and would better position the Company once the economy improved. The Compensation Committee, with input from the Chairman and Mr. Pennypacker, developed Mr. Pennypacker’s breakthrough goals, which were also directly related to our strategic plan. Each of the named executive officer’s breakthrough goals included operational improvements in their respective areas of responsibility with measurable performance metrics. Throughout 2009, our named executive officers reported quarterly to the Board on the progress being made in the achievement of their goals.

 

Mr. Pennypacker’s breakthrough goals included the successful implementation of our restructuring projects, continuing to drive the Gardner Denver Way into the fabric of our organization, building the Company’s market position in emerging markets, driving innovation led by the voice of the customer into our product development process, focusing on aftermarket growth, and developing leadership bench strength. In February 2010, the Compensation Committee evaluated Mr. Pennypacker’s achievement of his breakthrough goals and awarded him a bonus in the amount of $403,314, which included an additional amount of $151,314 awarded to Mr. Pennypacker in recognition of surpassing his breakthrough goals and his exceptional service and performance in 2009.

 

Mrs. Cornell’s breakthrough goals included the implementation of business management software solutions applications and financial consolidation systems, improving the cash concentration processes in international locations, and supporting the CEO in restructuring projects and other long-term strategic plans. In February 2010, the Compensation Committee evaluated Mrs. Cornell’s achievement of her breakthrough goals and awarded her a bonus in the amount of $182,219, which included an additional amount of $92,219 awarded to Mrs. Cornell in recognition of surpassing her breakthrough goals and her exceptional service and performance in 2009.

 

Mr. Castorena’s breakthrough goals included developing a leader succession planning process, implementation of the Gardner Denver Way aligning performance with rewards, improving recruiting and hiring processes, improving human resources processes and focusing on integration and synergies, and development of competitive

total rewards and benefits. In February 2010, the Compensation Committee evaluated Mr. Castorena’s achievement of his breakthrough goals and awarded him a bonus in the amount of $88,765, which included an additional amount of $40,795 awarded to Mr. Castorena in recognition of surpassing his breakthrough goals and his exceptional service and performance in 2009.

 

Mr. Morgan’s breakthrough goals included the implementation of restructuring plans, increasing new product sales, implementing costs reductions, focusing on acquisition strategy and aftermarket growth, increasing operating earnings in particular product groups, and improvement in inventory management. In February 2010, the Compensation Committee evaluated Mr. Morgan’s achievement of his breakthrough goals and awarded him a bonus in the amount of $159,685, which included an additional amount of $23,005 awarded to Mr. Morgan in recognition of surpassing his breakthrough goals and his exceptional service and performance in 2009.

 

Mr. Shull’s breakthrough goals included developing and executing a profitability improvement plan, increasing new product sales, implementing cost reductions, implementation of distribution strategies in specified locations and improvement in inventory management. In February 2010, the Compensation Committee evaluated Mr. Shull’s achievement of his breakthrough goals and awarded him a bonus in the amount of $197,822, which included an additional amount of $46,862 awarded to Mr. Shull in recognition of surpassing his breakthrough goals and his exceptional service and performance in 2009.

 

Our Compensation Committee reduced the total potential payout under the Annual Bonus Plan to account for the new potential payout for the Breakthrough Goals Bonus. In addition, our Compensation Committee reduced the percentage of payout upon achievement of the threshold objectives from 50% of target performance to 40% of target performance.

 

In 2009, the Compensation Committee set each named executive officer’s annual cash bonus at a target range of 45-120% of each respective officer’s base salary, which can be increased to a maximum range of 200% of the target bonus opportunity for maximum performance and decreased to 40% of the target bonus opportunity for threshold performance. Bonus payments increase as performance levels increase. With respect to the 2009 annual cash bonus, the Compensation Committee established the following target percentages of base salary for our named executive officers:

 

 

The chart below summarizes the target opportunities for Messrs. Pennypacker and Castorena and Mrs. Cornell for a combined cash bonus payout under the Annual Bonus Plan and the Breakthrough Goals Bonus.