Notice Of Annual Meeting Of Shareholders

 

 

March 16, 2010

 

 

Dear Fellow Shareholder:

 

You are cordially invited to attend our Annual Meeting of Shareholders at Eaglewood Resort, 1401 Nordic Road, Itasca, Illinois 60143, on May 6, 2010, at 1:00 p.m. local time, to be held for the following purposes:

 

 

All holders of record at the close of business on March 9, 2010 are entitled to vote at the meeting or any adjournments thereof. We urge you to vote your shares as soon as possible.

 

 

By authority of the board of directors,

 

JOSEPH W. SCHMIDT

       Secretary

 

PROXY STATEMENT

 

TABLE OF CONTENTS

 

 

www.dovercorporation.com
280 Park Avenue
New York, New York 10017

 

 

PROXY STATEMENT

 

 

We are providing this proxy statement to our shareholders in connection with the solicitation of proxies by the board of directors for use at our 2010 Annual Meeting of Shareholders (the “Meeting”).

 

The record date for determining shareholders eligible to vote at the Meeting is March 9, 2010. As of the close of business on that date, we had outstanding 187,263,168 shares of common stock. Each share of common stock is entitled to one vote on each matter.

 

We have made available to you over the internet or delivered paper copies of our proxy statement, a proxy card and our Annual Report to Shareholders (of which our 2009 Annual Report on Form 10-K is a part) in connection with the Meeting. We are using the SEC’s rules that allow companies to furnish their proxy materials over the internet. As a result, we are mailing to many of our shareholders a notice about the internet availability of the proxy materials instead of a paper copy of the proxy materials. All shareholders receiving the notice will have the ability to access the proxy materials over the internet and to request a paper copy by mail by following the instructions in the notice. In addition, the notice contains instructions for electing to receive proxy materials over the internet or by mail in future years.

 

For purposes of the Meeting, there will be a quorum if the holders of a majority of the outstanding shares of our common stock are present in person or by proxy.

 

Most shareholders of our common stock hold their shares through a stockbroker, bank or other nominee rather than directly in their own name. As summarized below, there are some differences between shares held of record and those owned beneficially.

 

If your shares are registered directly in your name with our transfer agent, for those shares you are considered the shareholder of record, and the notice or proxy materials are being sent directly to you. As a shareholder of record, you have the right to grant your voting proxy directly to the persons named as proxy holders or to vote in person at the Meeting. If you received or requested printed copies of the proxy materials, Dover has enclosed a proxy card for you to use. You may also vote on the internet or by telephone, as described in the proxy card.

 

If your shares are held in a stock brokerage account or by a bank or other nominee, you are considered the beneficial owner of the shares held in “street name”, and these proxy materials are

being forwarded to you by your broker or nominee who is considered, for those shares, the shareholder of record. As the beneficial owner, you have the right to direct your broker on how to vote and are also invited to attend the Meeting. However, since you are not the shareholder of record, you may not vote these shares in person at the Meeting unless you have a proxy, executed in your favor, from the holder of record of your shares. Your broker or nominee has enclosed a voting instruction card for you to use in directing your broker or nominee as to how to vote your shares. We strongly encourage you to instruct your broker or nominee how you wish to vote.

 

There are two proposals scheduled to be voted on at the Meeting:

 

 

A majority of the votes cast at the Meeting is required to elect directors. This means that the number of votes cast “FOR” a director must exceed the number of votes cast “AGAINST” that director in order for that director to be elected. Proposal 2 will require the affirmative vote of a majority of shares present in person or by proxy and entitled to vote at the Meeting. Our organizational documents do not provide for cumulative voting.

 

If you are a shareholder of record and sign and return your proxy card or vote electronically without making any specific selection, then your shares will be voted FOR Proposals 1 and 2.

 

If you specify that you wish to “abstain” from voting on an item, then your shares will not be voted on that particular item. Abstentions will not affect the outcome of the vote on Proposal 1. However, they will have the same effect as a vote against Proposal 2.

 

If you are a beneficial owner and hold your shares through a broker or other nominee, and do not provide your broker or nominee with voting instructions, the broker or nominee will determine if it has the discretionary authority to vote on the particular matter. Under applicable rules, brokers have the discretion to vote on routine matters but cannot vote on non-routine matters. Only Proposal 2 will be considered a routine matter for the Meeting. If your broker or nominee does not receive instructions from you on how to vote your shares on a non-routine matter, the broker or nominee will inform us that it does not have the authority to vote on that matter with respect to your shares. This is generally referred to as a “broker non-vote”. Broker non-votes will not affect the outcome on the vote on Proposal 1.

 

Abstentions and broker non-votes will be counted for purposes of determining if a quorum is present.

 

If you are a shareholder of record, you may vote in person at the Meeting, over the internet, by telephone, or by mail by following the instructions provided in our notice or proxy materials. If you hold your shares in “street name” through a broker or other nominee, you must follow the instructions provided by your broker or nominee to vote your shares.

 

If you are a shareholder of record, whether you give your proxy over the internet, by telephone or by mail, you may revoke it at any time before it is exercised. You may enter a new vote by using the internet or the telephone or by mailing a new proxy card bearing a later date so it is received prior to the Meeting.

 

SEC rules permit us to deliver only one copy of the proxy statement or the notice of internet availability of the proxy statement to multiple shareholders of record who share the same address and have the same last name, unless we have received contrary instructions from one or more of the shareholders. This delivery method, called “householding”, reduces our printing and mailing costs. Shareholders who participate in householding will continue to receive or have internet access to separate proxy cards.

 

If you are a shareholder of record and wish to receive a separate copy of the proxy statement, now or in the future, at the same address, or you are currently receiving multiple copies of the proxy statement at the same address and wish to receive a single copy, please write to or call the Corporate Secretary, Dover Corporation, 280 Park Avenue, New York, NY 10017, telephone: (212) 922-1640.

 

Beneficial owners sharing an address who are currently receiving multiple copies of the proxy materials or notice of internet availability of the proxy materials and wish to receive a single copy in the future, or who currently receive a single copy and wish to receive separate copies in the future, should contact their bank, broker or other holder of record to request that only a single copy or separate copies, as the case may be, be delivered to all shareholders at the shared address in the future.

 

We will pay the reasonable and actual costs of printing, mailing and soliciting proxies, but we will not pay a fee to any of our officers or employees or to officers or employees of any of our subsidiaries as compensation for soliciting proxies. We have retained Morrow & Co. to solicit brokerage houses and other custodians, nominees or fiduciaries, and to send proxies and proxy materials to the beneficial owners of such shares, for a fee of $9,000 plus expenses.

 

There are eleven nominees for election to our board at this Meeting, each for a period of one year. If any nominee for election becomes unavailable to serve as a director before the Meeting, an event which we do not anticipate, the persons named as proxies will vote for a substitute nominee or nominees as may be designated by our board of directors. Directors will be elected by a majority of the votes cast for and against them. All of the nominees for director for election at the Meeting currently serve on our board and are being proposed by our board. Each director elected at the Meeting will serve until the election and qualification of his or her successor. Thomas J. Derosa, who joined the board in 2007, has notified us that he will not stand for re-election at the Meeting. Mr. Derosa felt that increasing demands of his primary occupation left insufficient time for him to devote to Dover board matters. The board is in the process of identifying additional candidates for appointment to the board.

 

The board, in part through its delegation to the governance and nominating committee, seeks to recommend qualified individuals to become members of the board. The board selects individuals as director nominees who, in the opinion of the board, demonstrate the highest personal and professional integrity, who have demonstrated exceptional ability and judgment, who can serve as a sounding board for our CEO on planning and policy, and who will be most effective, in connection with the other nominees to the board, in collectively serving the long-term interests of all our shareholders. The board prefers nominees to be independent of the company, but believes it is desirable to have on the board a representative of current management. In considering diversity in selecting director nominees, the governance and nominating committee gives weight to the extent to which candidates would increase the effectiveness of the board by broadening the mix of experience,

knowledge, backgrounds, skills, ages and tenures represented among its members. Given the global reach and broad array of types of businesses operated by Dover companies, the board considers multi-industry and multi-geographic experience a significant plus.

 

 

All of our directors, with the exception of Mr. Livingston who is the management representative, satisfy all the criteria for being “independent” members of our board. This includes the criteria established by the SEC and the New York Stock Exchange Listing Standards (“NYSE Listing Standards”), as well as our standards for classification as an independent director (the “Dover Independence Standards”) which are available on our website at www.dovercorporation.com. In addition, our board of directors has determined that all members of the audit committee qualify as “audit committee financial experts” as defined in SEC rules. Our board of directors met six times during 2009. Our board has three standing committees — the audit committee, the compensation committee, and the governance and nominating committee. In 2009, the audit committee held eight meetings, the compensation committee held five meetings, and the governance and nominating committee held four meetings. Each director attended at least 75% of the meetings of our board of directors and the standing committees of which he or she was a member in 2009. The table below sets forth a summary of our committee structure and membership information.

 

 

 

 

Audit Committee

 

The primary functions of the audit committee consist of:

 

 

 

The audit committee’s responsibilities, authority and resources are described in greater detail in its written charter. For additional information, see “Items to be Voted Upon — Proposal 2 — Ratification of Appointment of Independent Registered Public Accounting Firm — Audit Committee Report” elsewhere in this proxy statement.

 

Compensation Committee

 

The compensation committee, together with our other independent directors, approves compensation for our chief executive officer. The compensation committee also:

 

 

The compensation committee’s responsibilities, authority and resources are described in greater detail in its written charter.

 

Governance and Nominating Committee

 

The governance and nominating committee develops and recommends corporate governance principles to our board. In addition, the governance and nominating committee identifies and recommends to our board candidates for election as directors and any changes it believes desirable in the size and composition of our board. For a discussion of the committee’s procedures for selecting nominees to our board, see “Items to be Voted Upon — Proposal 1 — Election of Directors — Qualifications and Nominations of Directors”. The committee also makes recommendations to our board concerning the structure and membership of our board’s committees. The governance and nominating committee’s responsibilities, authority and resources are described in greater detail in its written charter.

 

We are committed to conducting our business in accordance with the highest level of ethical and corporate governance standards. Our board periodically reviews Dover’s corporate governance practices and takes other actions to address changes in regulatory requirements, developments in governance best practices and matters raised by shareholders. The following describes some of the actions taken to help ensure that our conduct earns the respect and trust of shareholders, customers, business partners, employees and the communities in which we live and work.

 

Governance Guidelines and Codes

 

Our board of directors has adopted written corporate governance guidelines that set forth the responsibilities of our board and the qualifications and independence of its members and the members of its standing committees. In addition, our board has adopted a code of business conduct and ethics setting forth standards applicable to all of our companies and their employees, a code of

ethics for our chief executive officer and senior financial officers, and charters for each of its standing committees. All of these documents (referred to collectively as governance materials) are available on our website at www.dovercorporation.com. Each of our segments and operating companies has a written code of conduct that meets or exceeds the standards of our code of business conduct and ethics.

 

Director Independence

 

Our board has determined that at least two-thirds of its members and all of the members of its audit, compensation, and governance and nominating committees must be independent from management and must meet all of the applicable criteria for independence established by the NYSE, the SEC and Dover. Our board makes an annual determination of the independence of each nominee for director prior to his or her nomination for (re)election. No director may be deemed independent unless the board determines that he or she has no material relationship with Dover, directly or as an officer, shareholder or partner of an organization that has a material relationship with Dover.

 

Our board has determined that each of the current members of the board, except for Robert A. Livingston, who is the current management representative on our board, has no material relationship with Dover and meets the independence requirements in the NYSE Listing Standards and the independence requirements of the SEC. In addition, all members of our board, except for Mr. Livingston, meet the Dover Independence Standards, which are available on our website.

 

Majority Standard for Election of Directors

 

Under our by-laws and corporate governance guidelines, the voting standard in director elections is a majority of the votes cast. Under the majority standard, a director must receive more votes in favor of his or her election than votes against his or her election. Abstentions and broker non-votes do not count as votes cast with respect to a director’s election. In contested director elections (where there are more nominees than available seats on the board), the plurality standard will apply.

 

For an incumbent director to be nominated for re-election, he or she must submit an irrevocable, contingent resignation letter. The resignation will be contingent on the nominee not receiving a majority of the votes cast in an uncontested election and on the board’s acceptance of the resignation. If an incumbent director fails to receive a majority of the votes cast in an uncontested election, the governance and nominating committee will make a recommendation to our board concerning the resignation. Our board will act on the resignation within 90 days following certification of the election results, taking into account the committee’s recommendation. The board will publicly announce its decision and, if the resignation is rejected, the rationale for its decision.

 

Board Leadership Structure and Risk Oversight

 

Our board has adopted a structure whereby the chairman of the board is an independent director. We believe that having a chairman independent of management provides strong leadership for the board and helps ensure critical and independent thinking with respect to our company’s strategy and performance. Our chief executive officer is also a member of the board of directors as the management representative on the board. We believe this is important to make information and insight directly available to the directors in their deliberations.

 

Our board believes that risk oversight is the responsibility of the board as a whole and not of any one of its committees. The board periodically reviews the processes established by management to identify and manage risks, communicates with management about these processes and receives reports from each of its committees concerning, among other things, risks arising within its areas of responsibility. In 2009, with the input and involvement of our board and the assistance of a consultant, management prepared a study of enterprise risks the company may face, with plans to mitigate identified risks.

Director Attendance at Shareholders Meetings

 

Our directors are expected to attend the annual shareholders meeting. Ten of the 12 directors attended the Annual Meeting of Shareholders held on May 7, 2009.

 

Director and Executive Officer Stock Ownership

 

Our board has adopted a policy that directors are expected to hold at any time an amount of shares at least equal to the aggregate number of shares they received as the stock portion of their annual retainer during the past five years, net of an assumed 30% tax rate. In 2009, we adopted executive officer stock ownership guidelines whereby our executive officers are expected to hold an amount of shares at least equal to a multiple of their annual salary. For a discussion of the executive officer share ownership guidelines, see “Executive Compensation — Compensation Discussion and Analysis — Other Compensation Policies”.

 

Directors’ Meetings; Self-evaluations

 

Our directors meet at regularly scheduled executive sessions without management representatives. Mr. Cremin, as Chairman of the Board of Directors, has presided since May 2009 and will continue to preside at these sessions. Our board and its committees conduct annual self-evaluations of their performance. Independent directors periodically attend meetings of our segment boards and company presidents.

 

Audit Committee Procedures; Disclosure Controls and Procedures Committee

 

The audit committee holds regular quarterly meetings at which it meets separately with each of our independent registered public accounting firm, PwC, the director of internal audit, management and the general counsel to assess certain matters, including the status of the independent audit process and management’s assessment of the effectiveness of internal control over financial reporting. In addition, the audit committee as a whole reviews and meets to discuss the contents of each Form 10-Q and Form 10-K (including the financial statements) prior to its filing with the SEC. Management has a disclosure controls and procedures committee, which includes among its members our chief financial officer, our controller, our director of internal audit and our general counsel, as well as the chief financial officers of our segments. This management committee meets at least quarterly to review our earnings release and quarterly or annual report, as the case may be, for the prior quarter and our disclosure controls and procedures.

 

Complaints “Hotline”; Communication with Directors

 

In accordance with the Sarbanes-Oxley Act of 2002 (the “Sarbox Act”), the audit committee has established procedures for (i) the receipt, retention and treatment of complaints regarding accounting, internal accounting controls or auditing matters (“accounting matters”), and (ii) the confidential, anonymous submission by employees of concerns regarding questionable accounting matters. Such complaints or concerns may be submitted to us care of the corporate secretary, or through the communications coordinator, an external service provider, by mail, fax, telephone or via the internet as published on our website. The communications coordinator forwards such communications to the chair of the audit committee and, in most circumstances, to Dover’s general counsel, in each case without disclosing the identity of the sender if anonymity is requested. Shareholders and other interested persons may also communicate with our board and the non-management directors in any of these same manners. Such communications are forwarded to the chair of the governance and nominating committee and our general counsel.

 

Procedures for Approval of Related Person Transactions

 

We generally do not engage in transactions in which our senior executive officers or directors, any of their immediate family members or any of our 5% shareholders have a material interest. There

were no related party transactions in or since 2009. Should a proposed transaction or series of similar transactions involve any such persons and an amount that exceeds $120,000, it would be subject to review and approval by the governance and nominating committee in accordance with a written policy and the following procedures adopted by our board:

 

 

The written policy and procedures adopted by the board for related person transactions are available with the governance materials on our website.

 

The governance and nominating committee considers and recommends to the board of directors nominees for election to, or for filling any vacancy on, our board in accordance with our by-laws, our governance guidelines, and the committee’s charter. The committee annually reviews the requisite skills and characteristics of board members as well as the size, composition, functioning and needs of our board as a whole. To be considered for board membership, a nominee for director must be an individual who has the highest personal and professional integrity, who has demonstrated exceptional ability and judgment, and who will be most effective, in conjunction with the other nominees to our board, in collectively serving the long-term interests of all our shareholders. The committee also considers members’ qualifications as independent (the board requires that at least two-thirds of its members be independent), the financial literacy of members of the audit committee, the qualification of audit committee members as “audit committee financial experts”, and the diversity, skills, background and experiences of board members in the context of the needs of the board.

 

The governance and nominating committee may also consider such other factors as it may deem to be in the best interests of Dover and its shareholders. Our board believes it appropriate and important that at least one key member of Dover’s management participate as a member of our board. In appropriate circumstances, this number may be increased to two.

Whenever the committee concludes, based on the reviews or considerations described above or due to a vacancy, that a new nominee to our board is required or advisable, it will consider recommendations from directors, management, shareholders and, if it deems appropriate, consultants retained for that purpose. In such circumstances, it will evaluate individuals recommended by shareholders in the same manner as nominees recommended from other sources. Shareholders who wish to recommend an individual for nomination should send that person’s name and supporting information to the committee, care of the corporate secretary or through our communications coordinator. Shareholders who wish to directly nominate an individual for election as a director, without going through the governance and nominating committee or using our proxy material, must comply with the procedures in our by-laws.

 

The compensation committee has the authority and discretion to retain external compensation consultants as it deems appropriate. The compensation committee retained Mercer (US) Inc. (“Mercer”), a wholly-owned subsidiary of Marsh & McLennan Companies, Inc. (“MMC”), to serve as its compensation consultant for 2009 to provide information and analyses regarding executive compensation. The Mercer consultant who performs these services reports directly to the committee chair and follows Mercer guidelines to assure objectivity. Mercer’s fees for executive compensation consulting to the compensation committee in 2009 were $605,200.

 

The compensation committee looks to its consultant to periodically review and advise regarding the adequacy and appropriateness of our overall executive compensation plans, programs and practices and, from time to time, to answer specific questions raised by the compensation committee or management. Compensation decisions are made by, and are the responsibility of, the compensation committee and our board, and may reflect factors and considerations other than the information and recommendations provided by the compensation committee’s consultant.

 

During 2009, Mercer and its MMC affiliates were retained to provide services unrelated to executive compensation. The aggregate fees paid for these other services were approximately $1,901,000, primarily relating to insurance brokerage services provided to us and our subsidiaries by Marsh, an MMC affiliate.

 

Because of the policies and procedures Mercer and the compensation committee have in place, the compensation committee is confident that the advice it receives from the individual executive compensation consultant is objective and not influenced by any other relationships Mercer or its affiliates may have with Dover. These policies and procedures include:

 

 

 

While it is necessary for the consultant to interact with management to gather information, the compensation committee has adopted protocols governing if and when the consultant’s advice and recommendations can be shared with management. These protocols are included in the consultant’s engagement letter. The compensation committee also determines the appropriate forum for receiving the consultant’s recommendations. Where appropriate, management invitees are present to provide context for the recommendations. This approach protects the compensation committee’s ability to receive objective advice from the consultant so that the compensation committee may make independent decisions about executive pay.

 

Under our 1996 Non-Employee Directors’ Stock Compensation Plan (the “directors’ plan”), non-employee directors receive annual compensation in an amount our board sets from time to time. The directors’ annual compensation is payable partly in cash and partly in common stock in an allocation our board may adjust from time to time. If any director serves for less than a full calendar year, the compensation to be paid to that director for the year will be pro-rated as deemed appropriate by the compensation committee.

 

Non-employee director compensation for 2009 consisted of the following components:

 

 

The table below sets forth the compensation paid to our directors (other than Mr. Livingston) for services in 2009.

 

 

 

 

For 2010, non-employee director compensation will be set as follows:

 

 

The following table sets forth certain information regarding the beneficial ownership, as of March 9, 2010 (except as otherwise stated), of our common stock by:

 

 

The beneficial ownership set forth in the table is determined in accordance with the rules of the SEC. The percentage of beneficial ownership is based on 187,263,168 shares of common stock outstanding on March 9, 2010. In computing the number of shares beneficially owned by any shareholder and the percentage ownership of such shareholder, shares of common stock subject to options or stock settled stock appreciation rights (“SSARs”) held by that person that are currently exercisable or exercisable within 60 days of the record date and have been included. Such shares, however, are not deemed to be outstanding for purposes of computing the percentage ownership of any other person. Shares held in the Dover Corporation Retirement Savings Plan (the “401(k) plan”) are reported as of March 9, 2010.

 

Unless otherwise indicated in the footnotes below, the persons and entities named in the table have sole voting and investment power as to all shares beneficially owned. Unless otherwise indicated, the business address for all directors and executive officers is c/o Dover Corporation, 280 Park Avenue, New York, NY 10017.

 

 

 

Section 16(a) of the Exchange Act requires that our directors and certain of our officers file reports of ownership and changes of ownership of our common stock with the SEC and the NYSE. Based solely on copies of such reports provided to us, we believe that all directors and officers filed on a timely basis all such reports required of them with respect to stock ownership and changes in ownership during 2009.

 

The audit committee has appointed the independent registered public accounting firm of PwC to audit the annual accounts of Dover and its subsidiaries for 2010. PwC has audited the financial statements for the company for more than three years. Representatives of PwC are not expected to be present at the Meeting.

Although shareholder ratification of PwC’s appointment is not required by Dover’s bylaws or otherwise, our board of directors is submitting the ratification of PwC’s appointment for the year 2010 to Dover’s shareholders. If the shareholders do not ratify the appointment of PwC, the audit committee will reconsider whether or not to retain PwC as Dover’s independent registered public accounting firm for the year 2010 but will not be obligated to terminate the appointment. Even if the shareholders ratify the appointment of PwC, the audit committee in its discretion may direct the appointment of a different independent registered public accounting firm at any time during the year if the audit committee determines that such a change would be in Dover’s interests.

 

THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS A VOTE “FOR” RATIFICATION OF THE APPOINTMENT OF PRICEWATERHOUSECOOPERS LLP AS OUR INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM FOR THE YEAR 2010.

 

In accordance with the requirements of the Sarbox Act, the related SEC rules and the NYSE Listing Standards, the audit committee engaged the independent registered public accounting firm PwC to audit the annual accounts of Dover and its subsidiaries for 2009.

 

The audit committee is responsible for the duties set forth in its charter but is not responsible for preparing the financial statements, implementing or assessing internal control or auditing the financial statements. Dover’s management is responsible for preparing the financial statements, maintaining effective internal control over financial reporting and assessing the effectiveness of internal control over financial reporting. Dover’s independent auditors are responsible for auditing the financial statements and expressing an opinion on the effectiveness of internal control over financial reporting. The review of the financial statements by the audit committee is not the equivalent of an audit.

 

Pursuant to its oversight responsibilities, the audit committee discussed with PwC the overall scope and plans for the audit of Dover’s 2009 financial statements. The audit committee met with PwC, with and without Dover management present, to discuss the results of PwC’s examination, their assessment of Dover’s internal control and the overall quality of Dover’s financial reporting.

 

The audit committee reviewed and discussed, with both the management of Dover and PwC, Dover’s 2009 audited financial statements, including a discussion of critical accounting policies, the quality, not just the acceptability, of the accounting principles followed, the reasonableness of significant judgments reflected in such financial statements and the clarity of disclosures in the financial statements.

 

The audit committee also (1) discussed with PwC the matters required to be discussed by Statement on Auditing Standards No. 61, as amended, as adopted by the Public Company Accounting Oversight Board in Rule 3200T, and (2) reviewed the written disclosures and the letter from PwC required by the applicable requirements of the Public Company Accounting Oversight Board regarding the independent auditor’s communications with the audit committee concerning independence, and discussed with PwC its independence, including any relationships or permitted non-auditing services described below under “Items to be Voted Upon — Proposal 2 — Ratification of Appointment of Independent Registered Public Accounting Firm — Relationship with Independent Registered Public Accounting Firm,” that might impact PwC’s objectivity and independence.

 

The audit committee reviewed and had input on each of the four quarterly earnings releases related to 2009 financial information. In addition, the audit committee held eight meetings in which it reviewed 2009 financial information. Four of these meetings were held in connection with the Dover board’s regular quarterly meetings. The other four were held to review Dover’s Quarterly Report on

Form 10-Q for each of the first three quarters and Dover’s Annual Report on Form 10-K for the full year just prior to their filing with the SEC.

 

Based upon the review and discussions referred to above, the audit committee recommended that the audited financial statements for the year ended December 31, 2009 be included in Dover’s Annual Report on Form 10-K.

 

Audit Committee:		Mary A. Winston (Chair)
		Thomas J. Derosa
		Bernard G. Rethore
		Michael B. Stubbs

 

As discussed above, the independent registered public accounting firm of PwC is the independent registered public accounting firm selected by the audit committee to audit our annual accounts and those of our subsidiaries for 2010.

 

Fees Paid to Independent Registered Public Accounting Firm

 

Audit Fees. Audit fees include fees for audit or review services in accordance with generally accepted auditing standards and fees for services that generally only independent auditors provide, such as statutory audits and review of documents filed with the SEC. Audit fees also include fees paid in connection with services required for compliance with Section 404 of the Sarbox Act. The aggregate fees, rounded to the nearest thousand dollars, paid to, or accrued for, PwC for consolidated auditing services to us and our subsidiaries for the years ended December 31, 2009 and December 31, 2008 were $7,945,000 and $9,275,000, respectively.

 

Audit-Related Fees. Audit-related fees include fees for assurance and related services that are reasonably related to the audit of our financial statements, such as due diligence services pertaining to potential business acquisitions and dispositions and consultations concerning the accounting or disclosure treatment of events and the impact of final or proposed rules and standards. For the years ended December 31, 2009, and December 31, 2008, no fees were paid to or accrued for PwC for audit-related services to us or our subsidiaries.

 

Tax Fees. Tax fees include fees for services that are performed by professional tax staff other than in connection with the audit. These services include tax compliance services. The aggregate fees, rounded to the nearest thousand dollars, paid to, or accrued for, PwC for tax services to us and our subsidiaries for the years ended December 31, 2009 and December 31, 2008 were $1,335,000 and $931,000, respectively.

 

All Other Fees. Other fees include fees for non-audit services not listed above that do not impair the independence of the auditor and are not prohibited by the SEC or Public Company Accounting Oversight Board. All other aggregate fees, rounded to the nearest thousand dollars, paid to, or accrued for, PwC for any services not listed above to us and our subsidiaries for the years ended December 31, 2009 and December 31, 2008 were $0 and $269,000, respectively. All other fees for 2008 include fees for services in connection with a fraud prevention compliance program and a foreign license project.

 

Consistent with its charter and applicable SEC rules, our audit committee pre-approves all audit and permissible non-audit services provided by PwC to us and our subsidiaries. With respect to certain services which PwC has traditionally provided, the audit committee has adopted specific pre-approval policies and procedures. In developing these policies and procedures, the audit committee considered the need to ensure the independence of PwC while recognizing that, in certain situations,

PwC may possess the expertise and be in the best position to advise us and our subsidiaries on issues and matters other than accounting and auditing.

 

The policies and procedures adopted by the audit committee allow the pre-approval by the audit committee of permissible audit-related services, non-audit-related services and tax services. Under the policies and procedures, pre-approval is generally provided for up to one year and any general pre-approval is detailed as to the particular services or category of services and is subject to a specific budget for each of them. The policies and procedures require that any other services be expressly and separately approved by the audit committee prior to such services being performed by the independent auditors. In addition, pre-approved services which are expected to exceed the budgeted amount included in a general pre-approval require separate, specific pre-approval. For each proposed service, the independent auditors and management are required to provide detailed information to the audit committee at the time of approval. The audit committee considers whether each pre-approved service is consistent with the SEC’s rules and regulations on auditor independence.

 

All audit-related and non-audit-related services of PwC during 2009 listed above under “Items to be Voted Upon — Proposal 2 — Ratification of Appointment of Independent Registered Public Accounting Firm — Relationship with Independent Registered Public Accounting Firm — Fees Paid to Independent Registered Public Accounting Firm” were pre-approved specifically or pursuant to the procedures outlined above.

 

This Compensation Discussion and Analysis reviews our compensation objectives, policies and decisions with respect to our NEOs.

 

Under the oversight of our Compensation Committee (the “committee”), we maintain a compensation program for our executive officers, including our NEOs, that is focused on performance. The design and operation of the program reflect the following objectives:

 

 

We seek to achieve these objectives through the following guiding compensation principles:

 

 

Recent Program Changes

 

Program Changes Affecting 2010 Compensation. In 2009, with the assistance of Mercer, the committee completed a comprehensive review of our executive compensation programs. As a result

of this review, the committee changed our practices to bring us into greater alignment with our peer companies and market practices and to provide greater transparency and consistency in how compensation is determined across our organization. In late 2009, the committee adopted changes to our pay practices with respect to salaries, annual incentive compensation, long-term compensation and executive retirement benefits to be effective for our 2010 compensation decisions. Among other changes, we modified our compensation philosophy and instituted an executive pay structure below the CEO that will be used to determine salary ranges, annual bonus opportunities and performance criteria. See the table below.

 

Program Changes Affecting 2009 Compensation. Prior to the 2009 overall executive compensation review, the committee retained Mercer in 2008 to review our long-term incentive compensation program to provide competitive data and provide recommendations related to potential changes in our program. As a result of that review, which was undertaken as part of an overall company strategy review, the committee adopted a new framework for long-term incentive compensation designed to provide it with greater flexibility in selecting incentive compensation components to best enhance creation of shareholder value and to reward our executive officers based on both value creation at the businesses over which they have the most influence and our company’s performance relative to that of our peers. To accomplish these objectives, the committee initiated the following changes, among others, affecting long-term incentive compensation awards in 2009 and subsequent years:

 

 

Compensation Components

 

Consistent with our guiding principles described above, we provide the following compensation and benefits components to our executive officers, including our NEOs. Our philosophy and practices will continue to evolve over time in response to changes in market conditions, legal requirements and/or other objective and subjective considerations, including risk management considerations.

 

Risk Assessment

 

As part of its oversight responsibilities, in 2009 the committee asked Mercer to assess the risk associated with Dover’s executive compensation programs, including programs in which our NEOs participate. The assessment encompassed such elements as appropriateness of incentive plan performance measures; mix of executive compensation among salary, annual bonus, and long-term incentive grants; incentive plan leverage; pay/performance alignment; and administrative and governance procedures.

 

Pay Mix

 

Our executive compensation program for senior executive officers is designed to emphasize performance-based compensation. Fixed compensation elements, such as salary, although essential to a competitive compensation program, are not the focal point of our program. The majority of our NEOs’ compensation is “at risk”, which means that it varies year to year depending on factors such as our earnings per share, earnings before interest and taxes (“EBIT”), revenue or the iTSR of an NEO’s business unit, our actual stock price performance and relative TSR versus that of our peers.

 

The charts below reflect the target pay mix of our chief executive officer and the average of our other NEOs based on 2009 actual salary and target incentive compensation for 2009 and long-term incentive awards made in 2009.

 

 

Annual Review

 

Compensation for executive officers is reviewed by the committee annually in January. We generally employ a “one-over-one” compensation review system in which an employee’s compensation is proposed by the employee’s supervisor and approved or revised by the person to whom the supervisor reports. The compensation of the executive officers who report directly to our chief executive officer is recommended by our chief executive officer and revised or approved by the committee. The compensation of our chief executive officer is recommended by the committee and approved or revised by all of our independent directors acting as a group (which includes all of the members of the committee).

 

In establishing compensation for our senior executive officers (consisting of our chief executive officer and the executive officers who report directly to our chief executive officer, including all NEOs), the committee considers the total compensation earned or potentially available for each such person. As part of this process, the committee reviews “tally sheets” for our NEOs and other senior executive officers. The tally sheets are intended to ensure that the committee has all compensation and benefits data regarding such officers in front of it as it makes compensation decisions. Accordingly, the tally sheets include all elements of remuneration, including salary, annual bonus, cash performance awards and payouts, equity-based incentive awards, aggregate value of outstanding equity-based incentive awards, retirement and termination benefits, hypothetical payments following various termination scenarios, health and welfare benefits and any perquisites.

 

Competitor Data

 

We believe that a competitive pay package is an important tool in our efforts to attract and retain qualified executives with manufacturing industry experience. In determining compensation for our NEOs and evaluating our relative TSR, we consider compensation and shareholder return data of a

peer group of 38 companies. Our primary screening criteria for the selection of the peer group were as follows:

 

 

The resulting peer group consists of 38 companies across nine sectors broadly matching Dover’s portfolio of companies:

 

 

We also refer generally to manufacturing companies’ compensation data from the Mercer US Global Premium Executive Remuneration Suite, Watson Wyatt Survey Report on Top Management Compensation and Hewitt Total Compensation Management surveys and databases. We utilize these surveys because they include a broad range of manufacturing companies that are comparable to us in many ways, including geographic diversity, substantial U.S. operations, comparable revenues and operations in many of the same manufacturing sectors.

 

Our NEOs’ remuneration consists of an annual salary, an annual bonus opportunity and long-term cash and equity based awards, as well as other customary benefits, such as participation in a health and welfare program and retirement benefits. We do not provide post-retirement health care benefits to our executive officers.

 

Salary

 

We set salaries of our executive officers at levels that are intended to motivate and reward annual achievements and continued service to us. Prior to 2010, we used the 62^nd percentile as a reference point in determining salaries, also taking into account the executive’s assigned responsibilities, individual performance, business unit performance and the individual’s skills, experience and background as well as overall economic conditions. As part of the committee review of our compensation program, beginning with 2010 compensation, the committee instituted an executive

pay structure to provide greater transparency and consistency across the organization. This structure uses the 50th percentile as a reference point in determining salaries, reflecting a philosophy that base compensation should be targeted at the market median, with above market compensation reflecting exceptional performance. This use of the 50^th percentile as a reference point is also consistent with current market practice.

 

For 2009, given the significant adverse economic conditions, management recommended that there be no increases in the salaries of our NEOs, which the committee endorsed. Effective March 1, 2009, Mr. Livingston took a 15% reduction in his salary for the remainder of the year and other senior executive officers, including the NEOs, took a 10% reduction in their salaries. During 2009, Mr. Giacomini was promoted to chief executive officer of Dover Industrial Products, Inc.; his salary was increased accordingly but was immediately subject to the 10% reduction. Salaries were restored to their previous levels as of the beginning of 2010. Our NEOs did not receive additional salary increases for 2010.

 

Performance-Based Compensation

 

We offer incentive compensation on an annual and longer-term basis.

 

Annual Bonus. We offer annual bonuses to our senior executive officers based largely on the achievement of preset annual financial performance goals that vary depending upon the executive officer’s business unit. The bonuses of executives who participate in the annual bonus plan (including, for 2009, all of the NEOs who held their positions in February 2009), satisfy the requirements of Section 162(m) of the Internal Revenue Code so that we may deduct for federal income tax purposes the full amount of the annual bonus awards to such executives.

 

For 2009, the performance criteria for NEOs were based on our earnings per share or operating earnings for executives whose business unit was corporate or segment, respectively. These criteria were considered to be most likely to have a direct, positive impact on shareholder returns. The committee has the discretion to set the amount of bonus to be paid to a senior executive officer at an amount lower than that calculated in accordance with the annual plan formula. In addition, the committee has the discretion to, and generally does, consider other factors in determining the actual amount of bonus to be paid. These factors may include the executive’s individual contributions with respect to strategic objectives, such as acquisitions and divestitures, global expansion initiatives, overall leadership and effectiveness, efficiency and productivity efforts, leadership skills, and fostering a culture of compliance with laws and our ethical standards.

 

The table below provides the specific performance targets, level of achievement, and annual bonus payment for each named executive officer for 2009:

 

 

 

Beginning with annual incentive opportunities for 2010, financial performance criteria for executive officers who participate in the annual incentive plan will be based on corporate earnings per share, EBIT and/or revenue for the business unit and, in each case, personal objectives. An executive may be awarded more or less than target depending on performance, with a potential for up to 200% of target in the event of extraordinary performance.

 

Long-Term Incentive Plan Compensation. We offer senior executive officers incentive compensation over periods of time longer than one year under our 2005 plan. The committee believes that compensation earned over a longer period helps retain highly qualified executive officers and motivates them toward longer term goals that will benefit shareholders. Only executives who are in a position to affect materially our profitability and growth are eligible for awards under the 2005 plan.

 

Awards under the 2005 plan are generally made only once each year, at the scheduled February committee meeting shortly after announcement of earnings for the prior year. Except in very limited circumstances, the committee does not grant awards under the 2005 plan at any other time during a given year. All option/SSAR grants, whenever made, have an exercise or base price equal to our stock’s closing price on the NYSE on the date of grant. Mid-year hires who participate in the long-term incentive plan usually receive their first grant the following February.

 

The following table summarizes the components of our long-term incentive compensation plan (“LTIP”) and the related performance criteria:

 

The framework for awards under the 2005 plan is designed to meet the following objectives:

 

 

The table below shows how each NEO’s long-term incentive compensation opportunities were determined and allocated for 2009:

 

Long-term Incentive Compensation Opportunities for 2009

 

 

 

 

The 2009 awards were calculated by multiplying an individual’s salary by a multiple applicable to his or her level. The resulting dollar value was allocated between SSARs and a cash performance award, based on the executive’s responsibility across our organization. For senior executive officers and certain other individuals, 25% of the SSAR value was awarded in the form of performance shares rather than SSARs as of the beginning of 2009.

 

Beginning with awards made in 2010, we provide a long-term incentive compensation opportunity based not on the executive’s base salary, but on a present value grant amount which is determined based on the executive’s position and responsibility. Executives with comparable positions and responsibilities will have similar long-term incentive compensation opportunities. We have made a small adjustment in the mix between cash and equity awards in order to meet our objective of improving alignment with current industry pay practices and shareholder interests.

 

Cash Performance Awards. We make cash performance awards annually for the three-year performance period commencing with the year of the award. Any payout of cash performance awards will occur three years later, conditional upon the level of achievement of preset iTSR targets by the participant’s business unit over the three-year period.

 

Payouts of cash performance awards are made on a sliding scale using the following formula:

 

 

No payouts will be made unless iTSR equals or exceeds 6%. The payout to any individual may not exceed $5,000,000 and total payouts for all participants for a business unit may not exceed 1.75% of the value created at that business unit over the three-year performance period.

 

Payouts in February 2010 of NEOs’ cash performance awards for the performance period 2007 to 2009 were based on an historical performance matrix that used a combination of the following performance criteria, using in each case the average of each factor over the three-year performance period compared to the base year:

 

 

In determining an executive’s payout, the average return on equity (investment) actually achieved over the 2007 to 2009 period was matched on the matrix with compound growth in earnings achieved over the three-year period to arrive at a multiplier, which was then multiplied by the individual’s cash performance award target (fixed three years earlier as described above) to determine the payment.

 

For a discussion of the 2009 payouts, see “— Summary Compensation Table” elsewhere in this proxy statement.

Equity Awards. Equity awards consist of SSARs and performance shares. For purposes of determining the value of the awards granted, the committee used the assumption that each performance share was the equivalent of four SSARs.

 

SSARs. All SSARs are granted with ten-year terms and are not exercisable until three years after their grant. The exercise or base price of all SSARs is the closing price of our stock on the date of grant.

 

Performance Shares. Performance shares represent potential payments of common stock based on our TSR relative to that of our peer group over the three-year performance period.

 

Actual payments may range from 0% to 200% of target grant, as follows:

 

 

Benefits and Perquisites

 

Broadly Available Plans. Our executive officers are able to participate in retirement and benefit plans generally available to our employees on the same terms as other employees. The levels of participation may depend on factors such as age, length of service with our companies and salary level. These plans serve a different purpose than traditional compensation, such as providing protection against financial loss arising from illness, disability or death, and building retirement security.

 

We and most of our companies offer a 401(k) plan to substantially all U.S.-based employees and provide a company matching contribution denominated as a percentage of the amount of salary deferred into the plan by a participant during the course of the year. Some of our U.S.-based employees, including most of our executive officers, also participate in a tax-qualified defined benefit pension plan. All of our U.S.-based employees are offered a health and welfare plan (including health, term life and disability insurance).

 

Limited Availability Plans. We offer two non-qualified plans with participation generally limited to individuals whose base salary and annual bonus earnings exceed the IRS limits applicable to our qualified plans: our Pension Replacement Plan (formerly our SERP) and our deferred compensation plan. The purpose of these plans is to permit individuals to earn and put aside, on a tax-deferred basis, greater amounts than are permitted under our qualified plans.

 

Effective January 1, 2010, our compensation committee approved certain amendments to our SERP, which was renamed the Pension Replacement Plan (“PRP”), to provide greater consistency in eligibility criteria, benefits, and benefit calculations with our pension plan. The formula for determining benefits accrued under the PRP after December 31, 2009 will be determined using the same benefit formula as under the pension plan, except that Internal Revenue Code’s limits on

compensation and benefits applicable to tax-qualified plans will not apply. These changes to our PRP, which will result in lower future benefits, are summarized in the table below:

 

 

 

Effective January 1, 2010, the PRP provides that, in the event a participant has engaged in conduct that constitutes cause, the participant’s retirement benefit is forfeited and, if any portion of the retirement benefit has already been distributed, the participant is required to repay such amount. Cause is defined as conduct that constitutes a felony and that can be expected to place a Dover company at substantial legal or other risk, or can be expected to cause substantial harm to the business, reputation or affairs of a Dover company or its relations with employees, suppliers, distributors or customers.

 

For more information about this plan and the recent amendments, see “— Pension Benefits Through 2009” elsewhere in this proxy statement.

 

We offer a deferred compensation plan to allow participants to elect to defer their receipt of up to 50% of salary and 100% of bonus and any payout of a cash performance award. We do not consider the deferred compensation plan to play a major role in our compensation program, as we do not match any amounts deferred or guarantee any particular return on deferrals. The plan merely permits executive officers to defer receipt of part of their compensation to later periods, usually post-retirement, and facilitates tax planning for the participants. See “— Nonqualified Deferred Compensation in 2009” elsewhere in this proxy statement for a detailed description of this plan and recent amendments to the plan.

 

Perquisites. In keeping with our decentralized management style, we have no formal executive perquisite program. Management and the committee believe that providing significant perquisites to executive officers would not be consistent with our overall compensation philosophy. Perquisites are determined on a case-by-case basis at the applicable segment or corporate headquarters level for the NEOs and have generally consisted of items such as club memberships, annual physicals and automobile usage. No NEO received significant perquisites in 2009, although several NEOs received reimbursement for relocation expenses in connection with our announced relocation of our corporate and segment headquarters to Illinois.

 

The compensation of our chief executive officer is determined in the same manner and pursuant to the provisions of the same plans as the other executive officers. There are no special agreements, plans or other arrangements with the chief executive officer. The overall compensation of the chief executive officer is higher than that of the other executive officers due to his greater breadth of responsibilities and his ultimate responsibility, subject to board oversight, for the strategic business plan and the performance of the company. The committee and the independent directors take this into consideration in setting the chief executive officer’s salary, bonus and long-term incentive opportunities.

 

Mr. Livingston did not receive a salary increase at the beginning of 2009. On March 1, 2009, Mr. Livingston took a voluntary reduction in his salary of 15% for the remainder of the year. The compensation review conducted later in 2009 indicated that Mr. Livingston’s salary before the reduction was below market and his long-term incentive opportunities were significantly below market. Effective January 1, 2010, however, Mr. Livingston’s salary was simply restored to the level at the beginning of 2009.

 

The independent directors each completed a written evaluation of Mr. Livingston’s performance for 2009, followed by discussions of that performance led by the chairs of the compensation committee and the board. The independent directors concluded that Mr. Livingston had demonstrated effective leadership in guiding the company to maintain solid operating margins and free cash flow despite the severe, worldwide economic recession and in initiating significant operational programs and other improvements that will benefit the company well into the future.

 

In light of the continued weak and uncertain global economic conditions, the compensation committee concurred with Mr. Livingston’s recommendation that there would be no NEO salary increases for 2010, even for Mr. Livingston to bring his salary more in line with market. However, the committee believed it appropriate to make Mr. Livingston’s long-term incentive compensation opportunities more consistent with market levels. Accordingly, based on the committee’s recommendation, the independent directors did not increase Mr. Livingston’s salary for 2010 but granted him a long-term incentive compensation award opportunity of $5,000,000 on a present value basis, an increase of $3,088,400 over the present value of his 2009 award. This award was allocated 60% to SSARs, 20% to a Cash Performance Program opportunity and 20% to performance shares. Mr. Livingston’s potential long-term incentive compensation remains performance based and heavily weighted towards equity.

 

 

Employment contracts and severance agreements

 

Our executive officers do not have employment contracts and we do not have a formal severance policy. Accordingly, other than benefits to be provided in accordance with the terms of compensation plans in connection with previously granted equity and cash performance awards, accrued retirement benefits and double-trigger change in control agreements described below, an executive officer’s severance or other benefits upon termination of employment are at the discretion of the compensation committee.

 

Change in Control Arrangements

 

We have adopted change in control agreements with select NEOs and certain other executive officers in order to keep them focused on the best interests of shareholders under circumstances that would otherwise likely cause lack of focus due to personal economic and business uncertainties. They are designed to provide some measure of protection for the officers so that they are not distracted by personal, professional and financial situations at a time when we need them to remain focused on their responsibilities, our best interests and those of our shareholders. These agreements have a “double trigger” so there will be a payout only in the event there is a change in control and,

within 18 months following the change in control, either Dover terminates the officer for reasons other than “cause,” “disability” or death, or the officer leaves for “good reason” (all as defined in the agreements). If the “double trigger” occurs, then the officer will receive a lump sum payment equal to three times the sum of the officer’s salary in effect prior to that time and the average annual bonus earned by the officer during the three prior years.

 

Potential payments to our named executive officers in the event of a change in control under these agreements or under our benefit plans are set forth in “— Potential Payments Upon Termination or Change in Control.”

 

Shareholding Guidelines

 

We believe that our executives will most effectively pursue the long-term interests of our shareholders if they are shareholders themselves. We have not historically had formal share ownership requirements for our executive officers, although senior executive officers were generally expected to hold the net shares they acquired upon exercise of options or SSARs for the duration of employment. Beginning in 2009, the compensation committee adopted formal share ownership guidelines (subject to exceptions that may be granted by the committee for significant personal events or retirement planning). We expect each officer to meet the relevant guidelines within five years after the guidelines become applicable to the officer. Accordingly, each of our current NEOs will have until 2014 to meet the requisite ownership level, as follows:

 

 

We reserve the right to provide a portion of cash-based bonus and/or LTIP awards in stock for any officer who fails to meet or make satisfactory progress toward satisfying the guidelines within five years.

 

Tax Deductibility; Section 162(m)

 

Our annual bonus plan, cash performance awards and performance share awards covered under our 2005 plan are designed to satisfy the requirements of Section 162(m) of the Internal Revenue Code which limit our ability to deduct from our corporate income tax compensation in excess of $1 million to specified executive officers unless the compensation is performance-based, among other requirements. We consider tax deductibility to be an important, but not the sole or primary, consideration in setting executive compensation. Accordingly, the committee has the authority to approve, and in specific situations has approved, the payment of compensation that may not be deductible when it believes such payments are in the best interest of our shareholders.

 

 

We reviewed and discussed with management the Compensation Discussion and Analysis for the year ended December 31, 2009.

 

Based on the review and discussions referred to above, we recommended to the board of directors that this Compensation Discussion and Analysis be included in this proxy statement and incorporated by reference in Dover’s Annual Report on Form 10-K for the year ended December 31, 2009.

Compensation Committee:		Richard K. Lochridge (Chair) Robert W. Cremin Jean-Pierre M. Ergas Peter T. Francis Kristiane C. Graham

 

The Summary Compensation Table and notes below show all remuneration for 2009 provided to:

 

 

The determination of the most highly compensated executive officers is based on total compensation paid or accrued for 2009, excluding changes in the actuarial value of defined benefit plans and earnings on nonqualified deferred compensation balances.