UNITED STATES SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

SCHEDULE 14A

INFORMATION REQUIRED IN PROXY STATEMENT

SCHEDULE 14A INFORMATION

PROXY STATEMENT PURSUANT TO SECTION 14(a) OF THE SECURITIES
EXCHANGE ACT OF 1934 (AMENDMENT NO.       )

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Harsco Corporation

(Name of Registrant as Specified In Its Charter)

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Notice of

2007 Annual

Meeting and Proxy

Statement

 

Harsco Corporation

 

 

Harsco Corporation

350 Poplar Church Road

Camp Hill, PA 17011 USA

Mail: P.O. Box 8888

Camp Hill, PA 17001-8888 USA

 

Telephone: 717.763.7064

Fax: 717.763.6424

Web: www.harsco.com

 

March 22, 2007

 

To Our Stockholders:

 

You are cordially invited to attend the 2007 Annual Meeting of Stockholders of your Company, which will be held on Tuesday, April 24, 2007, beginning at 10:00 a.m. at the Radisson Penn Harris Hotel and Convention Center, Camp Hill, Pennsylvania.

 

Information about the Annual Meeting, including a listing and discussion of the various matters on which you, as our stockholders, will act, may be found in the formal Notice of Annual Meeting of Stockholders and Proxy Statement included with this mailing. We look forward to greeting as many of our stockholders as possible.

 

The Company is providing you with the opportunity to vote your shares by calling a toll-free number, by mailing the enclosed Proxy Card or via the Internet as explained in the instructions on your Proxy Card.

 

Whether you plan to attend the Annual Meeting or not, we urge you to fill in, sign, date and return the enclosed Proxy Card in the postage-paid envelope provided, or vote by telephone or via the Internet, in order that as many shares as possible may be represented at the Annual Meeting. The vote of every stockholder is important and your cooperation in returning your executed Proxy Card promptly will be appreciated.

 

Sincerely,

 

Derek C. Hathaway

Chairman and Chief

Executive Officer

 

This document is intended to be mailed to stockholders on or about March 22, 2007.

 

TABLE OF CONTENTS

 

HARSCO CORPORATION

350 Poplar Church Road

Camp Hill, Pennsylvania 17011 USA

Mail: P.O. Box 8888

Camp Hill, Pennsylvania 17001-8888 USA

 

 

The Annual Meeting of Stockholders of Harsco Corporation will be held on Tuesday, April 24, 2007, at 10:00 a.m. at the Radisson Penn Harris Hotel and Convention Center, Camp Hill, Pennsylvania to consider and act upon the following matters:

 

 

The Board of Directors has fixed the close of business on March 2, 2007 as the record date for the determination of stockholders who are entitled to notice of, and to vote at, the Annual Meeting and at any adjournments thereof. Proxies will be accepted continuously from the time of mailing until the closing of the polls at the Annual Meeting.

 

Stockholders who do not expect to attend the Annual Meeting in person are requested to fill in, sign, date and return the enclosed proxy card in the envelope provided, or vote by telephone or via the Internet, as explained in the instructions on your proxy card.

 

By Order of the Board of Directors,

 

Mark E. Kimmel

General Counsel and Corporate Secretary

March 22, 2007

PROXY STATEMENT

 

This Proxy Statement has been prepared in connection with the solicitation by the Board of Directors of Harsco Corporation, a Delaware corporation (the “Company”), of proxies in the accompanying form to be used at our Annual Meeting of Stockholders, to be held April 24, 2007, or at any adjournment or adjournments of the Annual Meeting.

 

The following information relates to the Annual Meeting and the voting of your shares at the meeting:

 

 

The Company has declared a two-for-one stock split payable on March 26, 2007 to shareholders of record on February 28, 2007. The numbers shown above and all share information in this Proxy Statement reflect ownership of our stock on a pre-split basis, and all votes at the Annual Meeting will be tallied and a quorum will be established based on the number of shares of our common stock issued and outstanding as of the Record Date, on a pre-split basis.

 

All shares of common stock entitled to vote at the Annual Meeting are of one class, with equal voting rights. Each share of common stock held by a stockholder is entitled to cast one vote on each matter voted on at the Annual Meeting. In order for the Annual Meeting to be valid and the actions taken binding, a quorum of stockholders must be present at the meeting, either in person or by proxy. A quorum is a majority of the issued and outstanding shares of common stock as of the Record Date. Assuming that a quorum is present, the affirmative vote by the holders of a plurality of the votes cast at the Annual Meeting will be required to act on the election of directors and the affirmative vote of the holders of at least a majority of the outstanding common stock present in person or by proxy and entitled to vote on the matter at the Annual Meeting will be required for the ratification of PricewaterhouseCoopers LLP as independent auditors for the current fiscal year. The vote required to act on all other matters to come before the Annual Meeting will be in accordance with the voting requirements established by our Restated Certificate of Incorporation and By-Laws.

 

The shares of common stock represented by each properly submitted proxy received by the Board of Directors will be voted as follows at the Annual Meeting:

 

If instructions are provided, in accordance with such instructions specified, or

 

If no instructions are provided, those shares of common stock will be voted (1) FOR the election of eleven nominees for Directors; (2) FOR the ratification of the appointment of PricewaterhouseCoopers LLP as independent auditors for the current fiscal year; and (3) in accordance with the best judgment of the named proxies on any other matters properly brought before the Annual Meeting.

 

Any proxy granted pursuant to this solicitation or otherwise, unless coupled with an interest, may be revoked by the person granting the proxy at any time before it is voted at the Annual Meeting. Proxies may be revoked by (i) delivering to the Secretary of the Company a written notice of revocation bearing a later date than the proxy, (ii) duly executing and delivering a later dated written proxy relating to the same shares, or (iii) attending the Annual Meeting and voting in person. If you hold your shares through a bank, broker or other nominee holder, only they can revoke your proxy on your behalf.

 

In certain circumstances, a stockholder will be considered to be present at the Annual Meeting for quorum purposes but will not be deemed to have cast a vote on a matter. That occurs when a stockholder is present but specifically withholds a vote or abstains from voting on a matter or when shares are represented at the Annual Meeting by a proxy conferring authority to vote only on certain matters (“broker non-votes”). In accordance with Delaware law, votes withheld and broker non-votes will not be treated as votes cast with respect to election of directors, and therefore will not affect the outcome of director elections. With respect to the ratification of auditors, abstentions will be treated as negative votes and broker non-votes will not be counted in determining the outcome.

 

The Board of Directors knows of no other business to come before the Annual Meeting. However, if any other matters are properly presented at the Annual Meeting, or any adjournment of the Annual Meeting, the persons voting the proxies will vote them in accordance with their best judgment.

 

We have a long-standing commitment to good corporate governance practices. These practices come in many different forms and apply at all levels of our organization. They provide the Board of Directors and our senior management with a framework that defines responsibilities, sets high standards of professional and personal conduct and promotes compliance with our various financial, ethical, legal and other obligations and responsibilities.

 

Corporate Governance Principles

 

The Board has adopted corporate governance principles that, along with the charters of the Board committees, provide the framework for our Board of Director’s operation and governance.

The Board’s Nominating and Corporate Governance Committee is responsible for overseeing and reviewing our corporate governance principles at least annually and recommending any proposed changes to the Board for approval. The corporate governance principles are available on our website at www.harsco.com in the Corporate Governance section.

 

We have adopted a code of business conduct applicable to our employees, officers and directors. The code of business conduct is issued in booklet form and an online training program facilitates new employee orientation and individual refresher training. In 2006 a comprehensive update of our code of business conduct was developed and distributed throughout our operations. Our update was produced in nearly 20 languages. The code of business conduct, including any amendments thereto or waivers thereof, can be viewed at the Corporate Governance section of our website at www.harsco.com.

 

Information contained on our website is not incorporated by reference into this Proxy Statement, and you should not consider information contained on our website as part of this Proxy Statement. Copies of our corporate governance principles, code of business conduct and charters of the Board’s committees are available in print to any stockholder who requests such copies from us.

 

The Board of Directors has a formal process for stockholders and interested parties to communicate directly with the chairman, lead independent director, the non-management directors or with any individual member of the Board of Directors. Stockholders and interested parties can contact the Board through the Chairman and Chief Executive Officer, who is located at our headquarters in Camp Hill, Pennsylvania. In addition, stockholders and interested parties may contact any member of the Board, including the lead independent director, Dr. Robert Wilburn, by writing to the specific Board member in care of our Corporate Secretary at our Corporate Headquarters (350 Poplar Church Road, Camp Hill, PA 17011). Our Corporate Secretary will forward any such correspondence to the applicable Board member; provided, however, that any such correspondence that is considered by our Corporate Secretary to be improper for submission to the intended recipients will not be provided to such Directors. In addition, Board members, including the lead independent director, can be contacted by e-mail at BoardofDirectors@harsco.com.

 

The following standards, which are also posted to the Corporate Governance section of our website at www.harsco.com, have been applied by the Board of Directors in determining whether individual directors qualify as “independent” under the Rules of the New York Stock Exchange. The Board has affirmatively determined that the following eight Directors are independent: Messrs. Jasinowski, Pierce, Scheiner, Sordoni, Viviano, and Wilburn and Ms. Eddy and Ms. Scanlan. References to us include our consolidated subsidiaries.

 

 

 

5. No director can be independent:

 

 

 

 

 

 

Independent directors regularly meet in executive sessions without management. Our named lead director, Dr. Wilburn, who is a non-management director, presides over each session of the independent directors. During the 2006 fiscal year, the independent directors held three meetings.

 

It is our policy to request that all Board members attend the Annual Meeting of Stockholders. However, we also recognize that personal attendance by all Directors is not always possible. All eleven Directors did attend the 2006 Annual Meeting of Stockholders.

 

Information regarding the structure of our Board of Directors:

 

Current size:		11 members
Size of Board of Directors authorized in the By-Laws:		Not less than five nor more than 12
Number of Independent Directors:		Eight members
Size of Board of Directors established by:		Board of Directors
Lead Director:		R. C. Wilburn

 

The Board of Directors held nine meetings during the fiscal year ended December 31, 2006. All Directors attended at least 75% of the total Board and committee meetings on which they served, and the average attendance by Directors at all Board and committee meetings was 98.86%. The Independent Directors held 3 meetings during 2006. We have standing Audit, Executive, Management Development and Compensation, and Nominating and Corporate Governance Committees.

 

 

 

The following performance graph compares the yearly percentage change in the cumulative total stockholder return (assuming the reinvestment of dividends) on our common stock against the cumulative total return of the Standard & Poor’s MidCap 400 Index and the Dow Jones Industrial-Diversified Index for the past five years. The graph assumes an initial investment of $100 on December 31, 2001 in our common stock or in the underlying securities which comprise each of those market indices. The information contained in the graph is not necessarily indicative of our future performance.

 

COMPARISON OF 5 YEAR CUMULATIVE TOTAL RETURN

 

Among Harsco Corporation, The S&P MidCap 400 Index
And The Dow Jones US Diversified Industrials Index(1)(2)
Fiscal Year Ending December 31

 

 

 

 

The Nominating Committee of the Board of Directors is responsible for overseeing the selection of qualified candidates to serve as members of the Board of Directors and guiding our corporate governance philosophy and practices. The Nominating Committee is composed of five directors each of whom is “independent” under the rules of the New York Stock Exchange. The Nominating Committee operates according to a charter that complies with the guidelines established by the New York Stock Exchange.

 

The Nominating Committee has not adopted formal procedures in selecting individuals to serve as members of the Board of Directors. Instead, it utilizes general guidelines that allow it to adjust the process to best satisfy the objectives established for any director search. The first step in the general process is to identify the type of candidate the Nominating Committee may desire for a particular opening. This may involve identifying someone with a specific background, skill set or set of experiences. Once identified, the Nominating Committee next determines the best method of finding a candidate who satisfies the specified criteria. The Nominating Committee may consider candidates recommended by management, by other members of the Nominating Committee or the Board of Directors, by stockholders, or it may engage a third party to conduct a search for possible candidates. The Nominating Committee will consider all nominees in the same manner regardless of the source of the recommendation of such nominee. The Nominating Committee will consider recommendations for director candidates from stockholders if such recommendations are in writing and set forth the following information:

 

 

 

This information must be submitted as provided under the heading “STOCKHOLDER PROPOSALS AND NOMINATIONS FOR PRESENTATION AT 2008 ANNUAL MEETING OF STOCKHOLDERS.”

 

There have been no material changes to the procedures relating to stockholder nominations during 2006. The Nominating Committee believes that these procedural requirements are intended solely to ensure that it has a sufficient basis on which to assess potential candidates and are not intended to discourage or interfere with appropriate stockholder nominations. The Nominating Committee does not believe that any such requirements subject any stockholder or stockholder nominee to any unreasonable burden. The Nominating Committee and the Board reserve the right to change the above procedural requirements from time to time and/or waive some or all of the foregoing requirements with respect to certain nominees, but any such waiver shall not preclude the Nominating Committee from insisting upon compliance with any and all of the above requirements by any other recommending stockholder or proposed nominees.

 

Once candidates are identified, the Nominating Committee conducts an evaluation of the candidate. The evaluation generally includes interviews and background and reference checks. There is no difference in the evaluation process of a candidate recommended by a stockholder as compared to the evaluation process of a candidate identified by any of the other means described above. While the Nominating Committee has not established minimum criteria for a candidate, it has established important factors to consider in evaluating a candidate. These factors include: strength of character, mature judgment, business experience, availability, attendance, career specialization, relevant technical skills, diversity and the extent to which the candidate would fill a present need on the Board of Directors.

 

If the Nominating Committee determines that a candidate should be nominated as a candidate in the Proxy Statement, the candidate’s nomination is then recommended to the Board of Directors, who may in turn conduct its own review to the extent it deems appropriate. When the Board of Directors has agreed upon a candidate to be nominated at an Annual Meeting of Stockholders, that candidate is then recommended to the stockholders for election at an Annual Meeting of Stockholders.

 

All of our current directors are standing for reelection. Each of these directors has been recommended by the Nominating Committee to the Board of Directors for election as our directors at the 2007 Annual Meeting of Stockholders and the Board has approved the recommendation. We did not engage a third party search firm to assist with the selection of the director candidates for the 2007 Annual Meeting of Stockholders. During 2006, we received no recommendation for directors from any stockholders.

 

The first proposal to be voted on at the Annual Meeting is the election of the following eleven Directors, each of whom is recommended by the Board of Directors. Biographical information about each of these nominees is included below.

 

The Board of Directors Recommends that Stockholders Vote ‘‘FOR’’ the Election of Each of the Following Nominees:

 

The information set forth below states the name of each nominee for Director, his or her age (as of March 2, 2007), a listing of present and previous employment positions, the year in which he or she first became a Director of the Company, other directorships held and the committees of the Board on which the individual serves.

 

 

The general policy of our Board is that compensation for non-employee Directors should be a mix of cash and equity-based compensation. Our Compensation Committee has the primary responsibility to review and consider any revisions to Director Compensation. As part of this responsibility, the Committee annually reviews market data regarding comparable director compensation rates. This data is prepared by management utilizing several broad board compensation studies completed within one year of the Board’s review. Annual compensation for non-employee Directors for 2006 was comprised of the following components: cash compensation, consisting of an annual retainer; meeting and committee fees; and equity compensation, consisting of Restricted Stock Unit awards. The current fees for non-employee directors, effective January 1, 2006, are as follows:

 

 

Directors who are actively employed by us receive no additional compensation for serving as Directors and by policy, we do not pay consulting or professional service fees to Directors.

 

 

The table below details the compensation earned by our non-employee Directors in 2006.

 

 

 

The following table sets forth, as of March 2, 2007, information with respect to the beneficial ownership of our outstanding voting securities, stock options and other stock equivalents by:

 

(a) Our Chief Executive Officer, Chief Financial Officer and our three most highly compensated executive officers other than the Chief Executive Officer and Chief Financial Officer, who we refer to collectively as our Named Executive Officers,

 

(b) each Director,

 

(c) all Directors and executive officers as a group, and

 

(d) certain beneficial owners holding more than 5% of the common stock.

 

All of our outstanding voting securities are common stock.

 

 

 

 

Except as otherwise stated, each individual has sole voting and investment power over the shares set forth opposite his or her name. As of March 2, 2007, Mr. Hathaway beneficially owned .63% of our common stock. None of the other Directors and executive officers individually beneficially owned more than 1% of our common stock, and our Directors and executive officers as a group beneficially owned approximately 1.42% of our outstanding common stock. The mailing address for our Directors and executive officers is c/o Harsco Corporation Corporate Secretary, 350 Poplar Church Road, Camp Hill, PA 17011.

 

 

The Audit Committee of the Board of Directors (the “Audit Committee”) is composed of five Directors each of whom is considered independent under the rules of the New York Stock Exchange and the Securities and Exchange Commission (“SEC”). The Audit Committee, has, as part of its membership, an individual who satisfies the definition of a “financial expert,” as promulgated by the SEC. Ms. Kathy Eddy, a certified public accountant and former Chairman of the American Institute of Certified Public Accountants has been a member of the Audit Committee since September 28, 2004 and serves as the Audit Committee’s “financial expert.”

 

The Audit Committee operates pursuant to a written charter which was adopted in 1992 and which was most recently amended in February of 2007. A copy of the Audit Committee Charter can be viewed at the Corporate Governance section of our website at www.harsco.com.

 

The Audit Committee has adopted a policy for pre-approval of audit, non-audit and tax services by the independent auditors. The Audit Committee may pre-approve services, such as the annual audit fee and statutory audits. The services to be provided are to be reviewed with the Audit Committee and approval is given for a specific dollar amount and for a period of not greater than 12 months. Services that are not pre-approved in this manner must be pre-approved on a case-by-case basis throughout the year. Additionally, if the pre-approved fee is to be exceeded, approval of the Audit Committee must be obtained. In making its decision regarding the approval of services, the Audit Committee will consider whether such services are consistent with the SEC’s rules on auditor independence, whether the independent auditor is best positioned to provide such services and whether the services might enhance our ability to manage or control risk or improve audit quality. No services were provided during the last two fiscal years pursuant to the de minimis safe harbor exception from the pre-approval requirements.

 

The Audit Committee reports to and acts on behalf of the Board of Directors by monitoring our financial reporting processes and system of internal controls, and monitoring our internal auditors and overseeing the independence and performance of the independent auditors. In carrying out these responsibilities, the Audit Committee meets with members of management, our independent auditors and our internal auditors on a regular basis or as may otherwise be needed. The Audit Committee Chairman or his designee meets with management and with the independent auditors

each quarter to review and discuss our Quarterly Report on Form 10-Q or Annual Report on Form 10-K prior to its filing with the SEC.

 

While the Audit Committee and Board of Directors monitor our financial record keeping and controls, it is our management that is ultimately responsible for our financial reporting process, including our system of internal controls, disclosure control procedures and the preparation of the financial statements. The independent auditors support the financial reporting process by performing an audit of our financial statements and issuing a report thereon.

 

The Audit Committee has reviewed and discussed with management and the independent auditors the audited consolidated financial statements for the year ended December 31, 2006 and related periods. These discussions focused on the quality, not just the acceptability, of the accounting principles used by us, key accounting policies followed in the preparation of the financial statements and the reasonableness of significant judgments made by management in the preparation of the financial statements and alternatives that may be available.

 

The Audit Committee also discussed with our internal auditors and independent auditors the overall scope and plans for their respective audits of our financial statements. In addition, the Audit Committee discussed with the independent auditors the matters required to be discussed by Statement on Auditing Standards No. 61 (Communication with Audit Committees), as modified or supplemented, including the quality of our accounting principles, the reasonableness of significant judgments and the clarity of disclosures in the financial statements. The Audit Committee also discussed with PricewaterhouseCoopers LLP, our independent auditors, matters relating to its independence, including a review of audit and non-audit fees and the written disclosures and letter received by the Audit Committee from our independent auditors required to be delivered by Independence Standards Board Standard No. 1 (Independence Discussions with Audit Committees).

 

Based on the review and discussions referred to above, the Audit Committee’s review of the representations of management and the report of the independent auditors, the Audit Committee recommended to our Board of Directors that our audited financial statements be included in our Annual Report on Form 10-K for the fiscal year ended December 31, 2006 for filing with the SEC.

 

SUBMITTED BY THE AUDIT COMMITTEE OF THE BOARD OF DIRECTORS:

 

     J. I. Scheiner, Chairman

     K. G. Eddy

     D. H. Pierce

     C. F. Scanlan

     J. P. Viviano

 

The following table sets forth the amount of audit fees, audit-related fees, tax fees and all other fees billed or expected to be billed by PricewaterhouseCoopers LLP, our principal auditor for the fiscal years ended December 31, 2006 and December 31, 2005.

 

 

The Audit Committee has considered the possible effect of non-audit services on the auditors’ independence and pre-approved the type of non-audit services that were rendered.

 

The Audit Committee has designated PricewaterhouseCoopers LLP as independent auditors to audit our financial statements for the fiscal year ending December 31, 2007. This firm has audited the financial statements of the Company and its predecessors since 1929. Although not required to do so by law or otherwise, the Audit Committee desires that stockholders ratify its selection of PricewaterhouseCoopers LLP as our independent auditors. Therefore, the Audit Committee’s choice of independent auditors will be submitted for ratification or rejection at the Annual Meeting. In the absence of contrary direction from stockholders, all proxies that are submitted will be voted in favor of the confirmation of PricewaterhouseCoopers LLP as our independent auditors. A representative of PricewaterhouseCoopers LLP will attend the Annual Meeting, with the opportunity to make a statement and answer questions of stockholders.

 

If this proposal is not ratified by a majority of the shares entitled to vote at the Annual Meeting, the appointment of the independent auditors will be reevaluated by the Audit Committee. Due to the difficulty and expense of making any substitution of auditors, it is unlikely that their appointment for the audit of the financial statements for the fiscal year ending December 31, 2007 would be changed. However, the Audit Committee may review whether to seek new independent auditors for the fiscal year ending December 31, 2008.

 

The Audit Committee, at its meeting held on November 13, 2006, reviewed and approved the fee estimate for the annual audit of our fiscal 2006 financial statements and, taking into consideration the possible effect of non-audit services on the auditors’ independence, also reviewed specific non-audit services to be rendered for income tax services.

 

The Board of Directors Recommends a Vote FOR the Ratification of the Appointment of PricewaterhouseCoopers LLP as our Independent Auditors.

 

EXECUTIVE COMPENSATION

 

Overview of Compensation Program

 

Our executive compensation program is carried out through several compensation methods. Each has its own purpose, but together they work to create a compensation package that both fairly compensates the individual for the services rendered to us and the results achieved and provides appropriate value to us for the payments we have made. Depending upon the purpose of a particular item of compensation, our Compensation Committee may evaluate offering the particular compensation item to an executive in conjunction with other items of compensation. The primary goals of our executive compensation program are to (1) fairly compensate individuals for services

rendered, (2) provide selective incentives that encourage employee conduct that results in our achievement of specific short-term objectives, our long-term growth and an increase in stockholder value, and (3) provide a fringe benefit package that is competitive and permits the applicable executives to address health, disability and retirement needs.

 

The primary compensation methods that we use and the manner in which they are administered include the following:

 

 

 

In establishing the weight of these various compensation components, our management believes that employees in higher ranks should have a higher proportion of their total compensation delivered through pay-for-performance cash incentives and long-term equity compensation; as a result, their compensation will be more significantly correlated, both upward and downward, to our financial performance. We also believe that as executives rise to positions that can have a greater impact on our performance, the compensation program should place more emphasis on the value of our common stock.

 

General Compensation Philosophy

 

In administering our executive compensation program, we look to accomplish the following goals:

 

 

This philosophy is reflected in our key strategic compensation goals discussed above.

 

Other Key Guiding Principles

 

In addition to the above goals, we, through our Compensation Committee, administer our executive compensation programs with these guiding principles in mind:

 

 

Compensation Consultants

 

Our Compensation Committee has the authority under its charter to engage the services of outside advisors, experts and others to assist the Committee. The Compensation Committee has not directly engaged a compensation consultant but does utilize information provided by both Stern Stewart & Company with regard to our annual EVA incentive plan and Towers Perrin with respect to most other compensation matters. Stern Stewart & Company was selected by us because of their expertise in working with economic value added programs, both from an operating and from a compensation standpoint. Towers Perrin also provides pension and actuarial consulting services to us and was chosen to provide compensation services to us because of their broad level of expertise in the compensation and benefits area and their expansive knowledge of relevant market data in these areas. Specifically, Towers Perrin develops the annual compensation review of our top senior executives for our Compensation Committee. Stern Stewart & Company and Towers Perrin have in the past attended Compensation Committee meetings upon invitation from our Compensation Committee, though neither consultant attends Compensation Committee meetings on a regular basis.

 

Total Compensation

 

In establishing total cash compensation, our Committee reviews each aspect of direct compensation (i.e., salary, annual bonus and RSU awards) on both an individual component and a combined basis. Many of the other benefits that we offer, such as health benefits, disability benefits and retirement benefits, are now offered on the same basis to all similarly situated employees (for example, to all U.S. employees). Specific consideration of the level of these benefits is not generally included in the review. Benefits specific to an individual executive, such as change in control agreements, are reviewed on a regular basis, but not necessarily as part of the annual compensation review. During the review of compensation for 2007, which was completed in 2006, and in connection with the preparation of this report, our Compensation Committee did review all aspects of compensation which might be paid to an executive, whenever earned in his or her career. In order for this review to occur information was provided to the Committee in various ways, none of which may qualify as a “tally sheet,” as that term is generally understood.

 

Program Components

 

A substantial amount of our Compensation Committee’s annual cycle of work relates to the determination of compensation for Harsco’s executive officers, including the Chief Executive Officer. In November of each year, our Committee makes determinations of base salaries for executive officers and other employees for the following calendar year. At this meeting, the Committee also determines the appropriate level for the annual bonus program as well as determines whether adjustments are appropriate prospectively for the target level of RSU grants. During January of the following year, our Committee makes determinations of annual incentive cash payments and grants of RSUs for executive officers and other employees based on our performance during the previous calendar year in relation to the performance goals established at the beginning of the performance cycle. Our Compensation Committee also reviews incentive targets for the annual incentive plan and the equity incentive plan so that they are finalized and established within the first 90 days of the performance cycle. Our Committee has established the 2007 and

2008 performance goals for EVA under the annual incentive plan and for earnings per share and cash flow under the equity incentive plan. We believe that the goals when established require our executives and the Company to perform at a high level in order to achieve target payout. Our outstanding performance over the past several years has resulted in above-target payouts under the annual incentive plan and payouts at the target/maximum level for the equity incentive plan. The excellent prior years’ results have made it likely that the pre-established equity plan performance targets (earnings per share and operating cash flow) for 2007 and 2008 will be reached. Prior years’ performance will not impact the achievability of the 2007 EVA^® incentive plan target.

 

Salaries

 

Our goal with regard to the establishment of salaries is to provide a salary level that fairly compensates the individual for the services they perform and that is competitive with applicable going market rates. In making its decisions regarding salary, our Committee utilizes information from the Towers Perrin CDB Executive Compensation Database, which is a broad-based survey of companies, participation in which is on a voluntary basis, and which is not limited to the companies within the Dow Jones Industrial-Diversified Index referenced elsewhere in the Proxy Statement, though some of those companies may have been included in the survey. Utilizing benchmark data, such as the Towers Perrin survey, helps to assure our Committee that we are not paying too much or too little for a given position and therefore can attract and retain appropriately qualified personnel for the given position. In general, we strive to maintain salary levels that range from moderately below to moderately above the industry medians.

 

We, through our Compensation Committee, annually review and approve the base salaries of executive officers, taking into consideration the following factors:

 

 

Our Compensation Committee completed its annual review of officer salaries for calendar year 2006 at its November 14, 2005 meeting. In establishing 2006 salaries, our Compensation Committee considered information developed by Towers Perrin, as well as the overall operating results that have been achieved by us and each individual division, the progress made by each individual on our key strategic goals which they can impact, any change in the overall level of their responsibilities over the past year and the recommendations of senior management which are based on many of the factors stated above.

 

Annual increases in the base salary levels of the named executive officers range from 0% to 8.23% over the prior year’s salary. Base salary generally comprises 30% to 45.8% of the total

compensation of our named executive officers. The average level of salary increases for non-executive officers throughout our business was 4.78% and ranged from 2 to 14.4 percent.

 

Annual Incentive Compensation Plan

 

The annual incentive bonus program applies to employees across our business, generally at the manager level and above. The general application of the program is consistent across all participants, although payouts differ based on the target bonus percentage and the actual performance of the operating unit in which the individual is employed. We implemented the EVA program in 2002 as a financial operating system that not only addresses operating results, but also considers the impact of the capital used to achieve those results. EVA is an operating mindset that is instilled in our employees and is utilized in the way we operate our businesses. In light of this, it was deemed the appropriate measure by which to judge results for incentive purposes. EVA is calculated by subtracting from net operating profit after tax (which is similar to operating earnings less taxes) a charge for capital employed in the particular business (which is the product of the amount of capital utilized multiplied by the particular cost of capital assigned to that business).

 

Payments for named executive officers under the 1995 Incentive Plan for calendar year 2006 were dependent upon achievement of EVA objectives for the business units in the case of Mr. Butler and Mr. Neuffer, and the achievement of an EVA objective for the Company, in the case of the other named executive officers. These EVA objectives were established by our Compensation Committee prior to the beginning of the year.

 

Payments of annual incentives under the 1995 Incentive Plan are a function of the executive’s annual salary multiplied by the applicable bonus percentage, which in turn is multiplied by a performance percentage. The bonus percentage is determined for each individual executive and is a function of the individual’s level of responsibilities and his or her ability to impact the overall results of the Company. The percentage is calculated by multiplying the individual’s salary grade by .02. The .02 is a factor which ties the various salary grades used by us to an appropriate incentive range.

 

The performance percentage is determined based on achievement of EVA objectives and can range from 0 to 200%. The target bonus is at 100% performance. Zero and 200% were set as outer limits based on recommendations by our consultant, Stern Stewart & Company, and our desire to keep incentive payments within a certain range. Because of the way the incentive system is structured, it is unlikely that either an award of zero or 200% will be achieved, with the probability being approximately 15% of either result being attained. In the past, certain divisional officers have achieved zero payouts as well as 200% payouts. The target bonus percentage for Mr. Hathaway in 2006 was 80% and the target bonus percentages for the other executive officers ranged from 64% to 42%. At its November 2006 meeting, the Compensation Committee revised Mr. Hathaway’s target bonus percentage for 2007 to 100% and increased various other executives’ salary grades so that their target bonus percentages for 2007 now range from 70% to 46%. The EVA objectives include minimum, target and maximum levels. The 2006 EVA objectives were developed by Stern Stewart & Company based on the required increase in EVA that the Company and each division must obtain for the year to meet the growth expectations that are inherent in our stock price. Performance below the minimum performance level results in a zero performance percentage and, therefore, no incentive payments are made. The performance percentage increases above zero once the minimum performance level is obtained and increases as results increase above the minimum level. For 2006, the performance percentage for achieving the target level of EVA performance results was 100%. If the maximum performance level is obtained or surpassed, the performance percentage is capped at 200%.

 

We, with the input of Stern Stewart & Company, have established minimum, target and maximum objectives for overall EVA performance for 2007 and allocated that target objective among the divisions. Thus, the annual incentive compensation awards of the corporate officers are closely related to the overall performance of the divisions against their EVA goals. Goals are recommended by Stern Stewart to the Committee, and senior management has very limited input into the establishment of the EVA targets.

 

After the end of each fiscal year, management presents to our Compensation Committee a summary and recommendation for management incentive bonuses. Since the annual incentive system is based on a formula payout, the recommendations are simply the result of calculating the formula. The presentation includes:

 

 

Our Compensation Committee then reviews the information and recommendations with management, and makes a decision as to the awards to be made. Since the annual incentive program is formula driven and the formula is approved at the same time as the annual performance targets, our Committee only has discretion to reduce the recommended awards for the Named Executive Officers.

 

Based on each named executive officer’s business units’ achievements against the established EVA targets, Mr. Butler attained 135% of target achievement and Mr. Neuffer attained 200% of target achievement. The other three Named Executive Officers attained 143% of target achievement for 2006 based on the overall Company EVA achievement. The amounts of the awards to the Named Executive Officers under the Plan are summarized in the Summary Compensation Table.

 

Equity Compensation

 

Until 2002, we utilized stock options in the equity portion of our compensation program. In 2002, our Compensation Committee, upon recommendation of management, suspended the issuance of stock options for all employees. This was the result of concerns that were being raised in the marketplace regarding the appropriateness of using stock options as a compensation tool and the belief among senior management and our Compensation Committee that the stock option program was not achieving the overall goals that an equity program should realize. No equity compensation was issued in 2003 or 2004 to any employee. During 2004, our Compensation Committee worked with management to develop an equity compensation program that they believed better achieved the objectives our Compensation Committee wanted from an equity compensation program. The RSU program was developed and the first grants were made in January 2005. Our Compensation Committee and our Board of Directors determined that restricted stock unit grants based on our performance encouraged executives to focus on our achievement of specific financial objectives that are aimed at driving stockholder value and are consistent with our strategic plan and growth initiatives.

 

The primary purpose of our long-term incentive compensation program, as evidenced by grants of RSUs, is to drive maximum stockholder return by directly aligning the interests of management and stockholders and motivating key executives to remain with us. Our Committee also decided it was appropriate to utilize a different performance measure from EVA, and thus

selected earnings per share because of its importance to the marketplace. After further review of the performance goals for the RSU program, our Committee added operating cash flow as a second performance measure for cycles ending December 31, 2007 and 2008, because of its belief in the importance of operating cash flows to our long-term success. In September 2006, our Compensation Committee requested management to work with appropriate consultants to review the operation of the RSU program and report to our Committee on its findings. Several of the questions that are to be answered include the appropriate performance measure for the RSU program in the future, the appropriate level of participation throughout the organization and the payout scheme that should be utilized. Preliminary results were presented to our Committee at its November meeting, and our Committee asked management to provide further information on the possibility of adjusting the RSU program to be complementary to the annual incentive program, where the payout is based on EVA achievement. Further work is being carried out based on our Committee’s instructions and findings and recommendations will be made in March 2007.

 

Our stockholders, at our 2004 Annual Meeting, approved an amendment to the 1995 Incentive Plan which was intended to qualify future grants of restricted stock or RSUs as performance-based compensation under Section 162(m) of the Internal Revenue Code.

 

Under the restricted stock unit program, performance goals for a given year have historically been established at least one year in advance by our Compensation Committee. Earnings per share goals for calendar years 2004, 2005 and 2006 were established by our Compensation Committee in early 2004. Our Compensation Committee approved the 2007 goals of earnings per share and cash flow at its January 2005 meeting and approved 2008 earnings per share and cash flow goals at its November 14, 2005 meeting. At its meeting in November 2006, our Committee increased these goals for the 2007 and 2008 years for the expected level of earnings per share and operating cash flow resulting from the Hünnebeck and Brambles acquisitions that occurred in late 2005. The amount of the increase was 15.6% to 13.3% for earnings per share and 16.7% to 15% for operating cash flow. In years where two performance measures are utilized, each measure has equal weighting. As discussed above, our Compensation Committee is reviewing various aspects of the RSU program, but performance objectives for the program will be established in the first 90 days of 2007, as is its practice. In light of the timing of our Committee meeting in March, and the finalization and mailing of our proxy statement, it is unlikely that the goals will be established in time for their inclusion in this Proxy Statement.

 

Performance goals for earning per share and free cash flow are recommended by management to the Committee and are based upon expectations regarding the targeted growth in these measures over the performance period. The recommended objectives are consistent with the objectives discussed with the investment community by management for the longer term periods.

 

Long-term incentive compensation comprises 35% to 51.3% of the total compensation of executive officers. Grants of restricted stock units are made at the January meeting subsequent to the end of the performance period if the performance goals for the applicable period are achieved.

 

Our Compensation Committee has complete discretion on whether to grant and the amount (i.e., discretion to reduce the maximum grant by any amount, even to zero) of any grant of RSUs that may be made annually to any officer. In making this determination, our Committee focuses on whether the individual did, in fact, make an appropriate contribution to our overall achievements, since the objectives for this award are based on the overall performance of our Company. If shares are granted, they must be held by the individual for a period of three years for grants made in 2005 and 2006. For grants made in 2007 and beyond, the shares granted will vest on a pro-rata basis over a three-year period. If the individual leaves employment with us during this period, except as a

result of death, disability or retirement, the stock units are forfeited. The vesting of the shares is also accelerated in the event of a change-of-control. We have established the vesting period as a retention vehicle for senior executives and have established the exceptions to these vesting requirements because we believe these events are generally not within the individual’s control and it would be inappropriate and a penalty to forfeit these shares upon their occurrence in light of the fact that the performance goals have been previously achieved. Performance goals for 2006 were achieved and our Compensation Committee did make grants of restricted stock units to Messrs. Butler, Fazzolari, Neuffer and Kimmel as well as certain other of our officers based on 2006 performance. As was described in a Form 8-K filing made by us on January 24, 2007, our Compensation Committee and the Board approved a grant of restricted stock units to Mr. Hathaway that was paid out in cash. Mr. Hathaway’s current stock holdings and outstanding stock options and the stage of his career with us were considered in making this determination. Mr. Hathaway’s cash payment was equal to $1,584,900 and was based on the average of the high and low sales price of our common stock on January 23, 2007 and 20,000 shares.

 

The amounts shown in the Summary Compensation Table reflect the dollar amount recognized for financial statement reporting purposes for the fiscal year ended December 31, 2006, in accordance with FAS 123(R), of RSU awards under the 1995 Incentive Plan. As a result, the Summary Compensation Table includes amounts from awards granted in and prior to 2006 and does not include the RSU awards made in January 2007 based on 2006 performance measures, which are discussed in this section.

 

The RSUs granted as our long-term incentive compensation were granted under our 1995 Incentive Plan. The 1995 Incentive Plan was approved by the stockholders in 1995, was amended and re-approved by the stockholders in 1998, 2001 and 2004, and has been used to make grants of options and RSUs to corporate officers and key employees, including division officers as well as the executive officers. On September 27, 2006, the Board approved changes to future RSU award agreements. As a result of these changes, RSUs granted in 2007 and beyond will vest on a pro-rata basis over three years, and the specified retirement age has been reduced from age 65 to age 62. The maximum stock option award as provided in the 1995 Incentive Plan is 150,000 shares for any single participant in a calendar year, although the issuance of stock options has been suspended since 2002. The 1995 Incentive Plan was amended in 2004 in order that the 150,000 share limit will also apply to awards of restricted stock, deferred stock and stock grants which may be issued under the 1995 Incentive Plan.

 

Other Aspects of the Executive Compensation Program

 

We have in place the following broad-based employee benefit plans in which the U.S. executive officers participate on the same terms as U.S. non-executive employees:

 

 

In addition, the executive officers other than Mr. Butler participate in the Supplemental Retirement Benefit Plan (“SERP”) as described under the section “Retirement Plans” on page 38 of this Proxy Statement, which supplements the qualified pension plan, and in the non-qualified

Retirement Savings and Investment Plan (“RSIP”), which supplements our 401(k) Savings Plan with respect to contributions that could not be made because of Internal Revenue Service compensation and contribution limitations. During 2003, we amended most of our defined-benefit pension plans, including the Harsco Employee Pension Plan (“HEPP”) in which most U.S. executive officers participate, to end further accruals under the plans for additional service with us. This change was made to address the cost and volatility of our defined benefit pension plans and to allow us to establish a more stable and predictable method of providing retirement benefits to our employees. The Supplemental Retirement Benefit Plan was also amended to eliminate further accruals under the plan, although the balances of the SERP participants will continue to increase due to capital gains and dividend payments. After 2003, benefits paid under these amended qualified plans only take into account future salary increases of participants. To replace the frozen pension benefit under the HEPP, we instituted the Retirement Savings Income Security Plan, a 401(k) that has increased our matching obligations from those made under the previous 401(k) plan in which the executive officers and other employees participated. In addition to the new RSIP program, we also instituted a nonqualified RSIP which provides for benefits which are lost under the RSIP because of income and contribution limitations under the Internal Revenue Code. While contributions to the SERP were invested in phantom stock, contributions to the new non-qualified RSIP plan may be invested in a range of investment funds currently available under the RSIP. The RSIP and the non-qualified RSIP are offered on the same basis to executive and non-executive officers who meet the qualifications for participation. Qualification for participation generally allows for the inclusion of those individuals who had their HEPP benefits frozen or were hired after the HEPP was frozen.

 

The benefits offered under the health, disability and life insurance programs are offered to U.S.-based executive officers on the same basis as they are offered to U.S.-based non-executive employees. Mr. Butler receives a supplemental health program paid for by us, which supplements the benefits offered under the government-sponsored programs in the U.K. This is a benefit that is only offered to a limited number of management level employees in the U.K. Mr. Butler also receives a life and disability benefit which is in addition to these types of benefits offered to other employees in the U.K.

 

We also provide other benefits to certain executives including a change in control severance policy described below. Certain Named Executive Officers, namely Messrs. Hathaway, Butler, Fazzolari and Neuffer, are entitled to cars provided by us or a cash allowance alternative, and the Board of Directors has approved a policy regarding Mr. Hathaway’s and Mr. Fazzolari’s personal use of our aircraft. Corporate aircraft are used primarily for business travel and the Board policy includes a limitation on annual personal use unless the additional use is approved by the Lead Director of the Board. Messrs. Hathaway and Fazzolari are taxed on the imputed income attributable to personal aircraft use and do not receive tax assistance from us with respect to those amounts.

 

Our philosophy is to position the aggregate of these elements of compensation at a level that is competitive with our size and performance relative to other leading peer companies, as well as a larger group of general industry companies. We further believe that these other aspects of the executive compensation program are reasonable, competitive and consistent with the overall executive compensation program in that they help us attract and retain the best leaders.

 

Interaction of Elements of Compensation

 

Many of the benefits that we offer are either directly or indirectly impacted by the executive’s level of salary. The annual EVA incentive program is directly tied to the level of the individual’s salary because the payment is based on a percentage of salary. As discussed above, the percentage of salary that is received as an annual incentive bonus is a function of the level of achievement of the

EVA target and the individual’s salary grade. The level of RSU grants is not a direct function of salary, as target grants are established by our Compensation Committee based on a number of other factors, including the individual’s ability to impact long-term results, his or her performance history and his or her level of salary. The relative amount of life insurance and disability insurance is a function of the individual’s salary, as is the amount contributed to the individual’s 401(k) account, although that is also a function of the percentage of salary that the individual chooses to contribute to the plan and IRS maximum contribution limitations. Since the payout of the annual incentive plan is based on EVA and the RSU grants are based on the achievement of earnings per share and operating cash flow goals, there is no direct correlation between the measures; however, there are interrelations among these measures such that the positive or negative performance as to one of the measures will likely be reflected in positive or negative performance of the others. For example, one of the components of EVA is net operating profit after tax. While this is not the same as the net income used in determining earnings per share, there is a strong correlation such that the failure to achieve an earnings per share target, depending upon the level at which it was established, may also be reflected in a lower EVA award because of a lower net operating profit after taxes.

 

Change in Control Severance Agreements

 

On June 21, 2005 the Board of Directors authorized us to amend employment agreements then in place with Messrs. Hathaway, Fazzolari and Butler and to enter into similar forms of agreements with certain of our corporate officers, including Mr. Kimmel (together with Messrs. Hathaway, Fazzolari and Butler, the “CIC Officers”), which provide that in the event of a change in control, each such officer will remain in our employ for a period of three years from the date of the change in control (or to such officer’s normal retirement date, if earlier), subject to the CIC Officers’ right to resign during a thirty-day period commencing one year from the date of the change in control or for good reason. The CIC Agreements contain an initial term of three years and automatically extend for an additional year on each one year anniversary of the same beginning with June 20, 2006, resulting in a current term that expires on June 19, 2009. If a change in control occurs, the change in control agreements will expire on the last day of the protection period.

 

As part of its periodic review of compensation arrangements and based on the recommendation of our Compensation Committee, the Board of Directors authorized the CIC Agreements in recognition of the importance to us and our stockholders of assuring that we have the continued dedication and full attention of certain key employees prior to and after the consummation of a change in control event. In addition to the foregoing, the CIC Agreements are intended to ensure that, if a possible change in control should arise and a CIC Officer should be involved in deliberations or negotiations in connection with the possible change in control, such officer would be in a position to consider as objectively as possible whether the possible change in control transaction is in our best interests and those of our stockholders, without concern for his position or financial well-being. The amendments approved in 2005 resulted from a review of the change in control agreements and a recommendation by management that the benefits offered under the prior agreements were excessive. While the benefits were consistent with industry norms, senior management and the Board of Directors felt that potential payments of three times the executive’s salary and bonus upon an officer’s termination or involuntary departure following the occurrence of a change of control were not consistent with our philosophy with respect to severance payments in general. The Board of Directors therefore reduced the amount to only three times the executive’s annual salary. Our Committee also considered whether other members of management should be covered by CIC Agreements and, as a result, added Mr. Kimmel and certain other executive officers, though at only one times annual salary.

 

The CIC Officers are entitled to certain severance benefits as detailed above if a change in control occurs and their employment terminates during the protection period. For purposes of the CIC Agreements, a “change in control” would be deemed to have occurred if

 

 

In order to receive payment under the CIC Agreements for any termination of the CIC Officers during the protection period other than for cause, disability or death, or if the executive terminates his employment for good reason during the protection period, such CIC Officer must sign and return our standard release agreement (the “Release Agreement”) pursuant to which such executive will waive any claims against us. At our sole discretion, the executive may be bound by non-competition and non-solicitation provisions in connection with such Release Agreement, with the terms of the same to be determined by us at the time the executive terminates his employment.

 

The Chief Executive Officer’s 2006 Compensation

 

We believe that the pay-for-performance goals of the executive compensation program are exemplified in the compensation of our CEO.

 

Mr. Hathaway’s 2006 salary was determined by our Compensation Committee utilizing the same factors as are explained in the “Salaries” section above. Our Compensation Committee particularly considered the significant accomplishments achieved by us in 2005, including:

 

 

In 2005 and again in 2006, Mr. Hathaway informed the Compensation Committee of his desire to decline any increase in his base salary for 2006 and 2007 even though the Committee determined that an increase was warranted based on Mr. Hathaway’s performance and the peer group data reviewed by the Committee. The Compensation Committee complied with Mr. Hathaway’s request for no increase in his base salary, and Mr. Hathaway’s base salary has remained set at $1,000,000, allowing any increase in his total compensation to be tied directly to the Company’s performance, exemplifying the pay-for-performance goals we are striving to achieve.

 

Mr. Hathaway’s annual incentive payment is directly related to our overall EVA performance, as described above. As described above, Mr. Hathaway also received a grant of 20,000 restricted stock units in 2007 based on our 2006 performance, that was paid out in cash. This payment was based on the achievement of pre-established EPS goals by us. As discussed above, this RSU grant is not reflected in the Summary Compensation Table for 2006 due to the accounting treatment of this award under FAS 123(R). Instead, amounts from awards granted in and prior to 2006 are reflected in the Summary Compensation Table. Of the total $2,859,100 in cash compensation paid to Mr. Hathaway for 2006 as reflected in the Summary Compensation Table, 65% was contingent and dependent upon the achievement of the EVA and EPS performance objectives established by our Compensation Committee for the relevant time periods. This is consistent with our view that those executives most able to affect our performance should have a significant portion of their potential total compensation at risk and dependent upon our performance.

 

Policy Regarding Tax Impact on Executive Compensation

 

Deductibility of Executive Compensation

 

Section 162(m) of the Internal Revenue Code limits the deductibility of executive compensation for individuals in excess of $1 million per year paid by publicly traded corporations to the chief executive officer and the four other executives named in the compensation table of the Proxy Statement. We intend, to the extent practicable, to preserve deductibility under the Internal Revenue Code of compensation paid to our executive officers while maintaining compensation programs that effectively attract and retain exceptional executives in a highly competitive environment and, accordingly, compensation paid under our incentive compensation plans is generally tax-deductible. However, on occasion it is not possible to satisfy all conditions of the Internal Revenue Code for deductibility and still meet our compensation needs, and in such limited situations, certain compensation paid to some executives is not tax-deductible. Mr. Hathaway’s base salary of $1,000,000 could result in a minor portion of his compensation being exposed to non-deductibility of executive compensation expense under Section 162(m) in the 2006 tax year. We have considered the possibility of a portion of his compensation being non-deductible and based on the limited amounts that would be non-deductible and the determination of the appropriate level of compensation for Mr. Hathaway, we have concluded that it is in our best interest to pay Mr. Hathaway at the levels determined by the Board and our Compensation Committee. No compensation payable to any other executive officer for 2006 was non-deductible under Section 162(m).

 

While the tax deductibility of compensation paid is a key concern for us, it is not the only concern, and we will look at other factors to determine the appropriate compensation that should be paid to an individual and may choose to pay compensation that would otherwise not be deductible under Section 162(m) if we believe that it is appropriate and in our best interest.

 

Personal Use of Corporate Aircraft

 

In connection with our allowing personal use of our corporate aircraft by certain of our named executive officers, a portion of our related expense is non-deductible under recent changes to U.S. federal income tax law. We treat such personal use as compensation, as reported in the “All Other Compensation” column of the Summary Compensation Table.

 

Executive Development and Succession

 

The executive development process ensures continuity of leadership over the long-term, and it forms the basis on which we make ongoing executive assignments. Through the integration of the

performance assessment and executive development processes, position assignments are based on the most qualified and ready executives. Our future leaders are developed through these carefully selected assignments. We believe that consistent and ongoing application of this process meets the long-range requirements of the business and achieves competitive advantage.

 

During 2004 the Board of Directors, in connection with ongoing discussions with senior management, requested that a review of our talent pool be undertaken to assure that an appropriate level of qualified management candidates were available throughout our business to manage the significant growth that was taking place and was expected to continue to take place in the business. We undertook to develop an assessment process for our senior executives to determine the strengths and weaknesses of the leadership personnel within our business. Competencies that were believed to be key to a successful manager within our business were developed and then assessed. The results of these assessments were reviewed and discussed with each management participant and development plans were instituted. We are also in the process of developing a training program to help provide developmental training in each of these key competencies for selected high-potential management talent. During 2006, approximately 75 individuals attended four different training sessions, and continued training will occur in 2007 and beyond.

 

Each year, our Compensation Committee reviews our leadership talent development program to ensure good performance and alignment between business strategies and operating plans. The Board of Directors annually reviews the results of the leadership capability and succession process with the Chairman and Chief Executive Officer in executive session.

 

Conclusion

 

In addition to being consistent and linked to our performance, our compensation plans are competitive in the marketplace and allow us to attract and retain the best and brightest employees. In addition, we believe the design of our compensation plans and their relative mix successfully motivates our executive officers.

 

All aspects of compensation are performance driven and align both the short-term and long-term interests of employees and stockholders. We will in the future continue to focus on these factors and on maintaining a compensation system that will encourage maximization of long-term stockholder value.

 

The Compensation Committee has reviewed and discussed the Compensation Discussion and Analysis with management. Based on this review and discussion, the Compensation Committee recommended to the Board of Directors that the Compensation Discussion and Analysis be included in our Annual Report on Form 10-K for the fiscal year ended December 31, 2006 and our Proxy Statement for our 2007 Annual Meeting of Stockholders, for filing with the Securities and Exchange Commission.

 

SUBMITTED BY THE MANAGEMENT DEVELOPMENT AND COMPENSATION COMMITTEE OF THE BOARD OF DIRECTORS:

 

R. C. Wilburn, Chairman

J. J. Jasinowski

C. F. Scanlan

J. I. Scheiner

A. J. Sordoni, III

 

The foregoing report shall not be deemed to be “soliciting material” or to be “filed” with the Commission or subject to Regulation 14A promulgated by the Commission or Section 18 of the Securities Exchange Act of 1934.

 

The following table presents the compensation provided to Mr. Hathaway, Chief Executive Officer and Mr. Fazzolari, Chief Financial Officer, as well as the three other most highly compensated executive officers, for services rendered to us in 2006.

 

 

 

The grant date fair value of the 2005 RSU awards was $50.41 per unit, which was determined using the average of the high and low price of the stock on that day’s trading, less a discount for dividends not received during the vesting period. The grant date fair value of the 2006 RSU

awards was $67.70 per unit, which was determined using the average of the high and low price of the stock on that day’s trading, less a discount for dividends not received during the vesting period. The above information does not reflect an estimate for forfeitures, and none of these awards has been forfeited as of March 2, 2007.

 

 

We also provide certain perquisites to the executive officers. The following table summarizes the incremental cost of perquisites and other benefits for the Named Executive Officers in 2006 and describes the other benefits included in the “All Other Compensation” column.

 

 

 

 

The following table sets forth information concerning plan-based awards to the Named Executive Officers during fiscal year 2006 as well as estimated future payouts under such plans:

 

 

 

Annual Incentive Compensation Plan; Long-Term Compensation Plan

 

For additional details of our Annual Incentive Compensation Plan and Long-Term Compensation Plan payments please see the descriptions set forth on pages 24 and 25 of this Proxy Statement. For additional details about the relationship of salary, bonus and long-term compensation to total compensation please see the “Compensation Discussion and Analysis” section of this Proxy Statement.

Outstanding Equity Awards at 2006 Fiscal Year-End

 

The following table sets forth information concerning outstanding equity awards of the Named Executive Officers as of December 31, 2006.