UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

SCHEDULE 14A

INFORMATION REQUIRED IN PROXY STATEMENT

SCHEDULE 14A INFORMATION

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EMERSON ELECTRIC CO.

(Name of Registrant as Specified in Its Charter)

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

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NOTICE OF ANNUAL MEETING

OF STOCKHOLDERS

 

St. Louis, Missouri

December 11, 2009

TO THE STOCKHOLDERS OF

  EMERSON ELECTRIC CO.:

 

The Annual Meeting of the Stockholders of Emerson Electric Co. will be held at the office of the Company, 8000 West Florissant Avenue, St. Louis, Missouri 63136 on Tuesday, February 2, 2010, commencing at 10:00 a.m. Central Standard Time, at which meeting only holders of the common stock of record at the close of business on November 24, 2009 will be entitled to vote, for the following purposes:

 

 

EMERSON ELECTRIC CO.

 

Chairman of the Board,

Chief Executive Officer and

President

 

Secretary

 

Even though you may plan to attend the meeting in person, please vote by telephone or the Internet, or execute the enclosed proxy card and mail it promptly. A return envelope (which requires no postage if mailed in the United States) is enclosed for your convenience. Telephone and Internet voting information is provided on your proxy card. Should you attend the meeting in person, you may revoke your proxy and vote in person.

 

IMPORTANT

Please note that a ticket is required for admission to the meeting. If you plan to attend in person and are a stockholder of record, please check the box on your proxy card and bring the tear-off admission ticket with you to the meeting. If your shares are held by someone else (such as a broker) please bring with you a letter from that firm or an account statement showing you were a beneficial holder on November 24, 2009.

 

EMERSON ELECTRIC CO.
8000 WEST FLORISSANT AVENUE, ST. LOUIS, MISSOURI 63136

PROXY STATEMENT
FOR ANNUAL MEETING OF STOCKHOLDERS TO BE HELD FEBRUARY 2, 2010

 

This proxy statement is furnished to the stockholders of Emerson Electric Co. in connection with the solicitation of proxies for use at the Annual Meeting of Stockholders to be held at 10:00 a.m. Central Standard Time on February 2, 2010 at the office of the Company, 8000 West Florissant Avenue, St. Louis, Missouri 63136 and at all adjournments thereof, for the purposes set forth in the accompanying Notice of Annual Meeting of Stockholders. This proxy statement and the enclosed form of proxy are first being mailed to stockholders on or about December 11, 2009. A copy of the Company’s Annual Report to Stockholders for the fiscal year ended September 30, 2009 accompanies this proxy statement.

 

If you plan to attend and have a disability which requires accommodation at the meeting, please call 314-553-2197. Requests must be received by January 15, 2010. If you have questions regarding admission or directions to the Annual Meeting of Stockholders, please call 314-553-2197.

 

Stockholders can simplify their voting and save Emerson expense by voting by telephone or by Internet. If you vote by telephone or Internet, you need not mail back your proxy card. Telephone and Internet voting information is provided on your proxy card. A Control Number, located on the proxy card, is designed to verify your identity and allow you to vote your shares and confirm that your voting instructions have been properly recorded.

 

If your shares are held in the name of a bank or broker, follow the voting instructions on the form you receive from that firm. The availability of telephone or Internet voting will depend on that firm’s voting processes. If you choose not to vote by telephone or Internet, please return your proxy card, properly signed, and the shares represented will be voted in accordance with your directions. You can specify your choices by marking the appropriate boxes on the proxy card. If your proxy card is signed and returned without specifying choices, the shares will be voted FOR the nominees for Director in Proposal 1, FOR the re-approval of the performance measures under the Emerson Electric Co. Annual Incentive Plan in Proposal 2, FOR the ratification of the appointment of KPMG LLP as our independent registered public accounting firm in Proposal 3, and otherwise in the discretion of the proxies. The Company knows of no reason why any of the nominees for Director named herein would be unable to serve. In the event, however, that any nominee named should, prior to the election, become unable to serve as a Director, your proxy (unless designated to the contrary) will be voted for such other person or persons as the Board of Directors of the Company may recommend.

 

You may revoke your proxy at any time before it is voted (in the case of proxy cards) by giving notice to the Secretary of the Company or by executing and mailing a later-dated proxy. To revoke a proxy given, or change your vote cast, by telephone or Internet, you must do so by telephone or Internet, respectively (following the directions on your proxy card), by 11:59 p.m. Eastern Standard Time on February 1, 2010.

 

The close of business on November 24, 2009 was fixed by the Board of Directors as the record date for the determination of stockholders entitled to vote at the Annual Meeting of Stockholders. As of the record date, there were outstanding and entitled to be voted at such meeting 752,278,293 shares of our common stock, par value $0.50 per share. The holders of the common stock will be entitled on each matter to one vote for each share of common stock held of record on the record date. There is no cumulative voting with respect to the election of Directors.

 

This proxy is solicited by the Board of Directors of the Company. The solicitation will be by mail and the expense thereof will be paid by the Company. The Company has retained Morrow & Co., LLC to assist in the solicitation of proxies at an estimated cost of $9,000 plus expenses. In addition, solicitation of proxies may be made by telephone or electronic mail by Directors, officers or regular employees of the Company.

 

Important Notice Regarding the Availability of Proxy Materials for the Annual Meeting of Stockholders to Be Held on February 2, 2010. This proxy statement, form of proxy and our Annual Report to Stockholders are available at www.proxyvote.com. You will need to input the Control Number, located on the proxy card, when accessing these documents.

 

I. ELECTION OF DIRECTORS

 

Nominees and Continuing Directors

 

The Board of Directors is divided into three classes, with the terms of office of each class ending in successive years. Six Directors of the Company are to be elected for terms ending at the Annual Meetings specified below, or until their respective successors have been elected and have qualified. Certain information with respect to the nominees for election as Directors proposed by the Company, as well as the other Directors whose terms of office as Directors will continue after the Annual Meeting, is set forth below. The Board of Directors unanimously recommends a vote “FOR” each nominee indicated below.

 

 

 

 

Each of the nominees and continuing Directors has had the same position or other executive positions with the same employer during the past five years, except as follows:

 

 

Stock Ownership of Directors and Executive Officers

 

The following table shows the number of shares of the Company’s common stock that are beneficially owned by the Directors, by each of the named executive officers in the Summary Compensation Table, and by all Directors and executive officers as a group as of September 30, 2009. No person reflected in the table owns more than 0.5% of the outstanding shares of Emerson common stock.

 

 

 

 

 

Corporate Governance

 

The Company’s Corporate Governance Principles and Practices and the charters of all Board Committees are available on the Company’s website at www.Emerson.com, Investor Relations, Corporate Governance. The foregoing documents are available in print to stockholders upon written request delivered to Emerson Electric Co., 8000 West Florissant Avenue, St. Louis, Missouri 63136, Attn: Secretary.

 

There were nine meetings of the Board of Directors during fiscal 2009. All of the Directors attended at least 75% of the meetings of the Board and committees on which they served, except Mr. Fernandez. Mr. Fernandez was unable to attend two Board meetings and one committee meeting on November 3-4, 2008 due to his required participation in urgent Grupo Modelo business matters. Mr. Fernandez’s attendance record at Board and committee meetings has averaged 91% during his tenure as a Director of the Company, and his attendance in fiscal 2009 would have exceeded that average but for the special circumstances described above, which are not expected to recur. Directors are strongly encouraged to attend the Annual Meeting of Stockholders unless extenuating circumstances prevent them from attending, although the Company has no formal, written policy requiring such attendance. In 2009, fourteen Directors attended the Annual Meeting of Stockholders.

 

The Board of Directors has appointed a Discussion Leader who chairs regularly scheduled meetings of non-management Directors, as provided in the Company’s Corporate Governance Principles and Practices. The Discussion Leader position rotates annually among the Chairs of each of the independent Board Committees. Stockholders and other interested persons may contact the Discussion Leader in writing c/o Emerson Electric Co., 8000 West Florissant Avenue, St. Louis, Missouri 63136, Attn: Secretary. All such letters will be forwarded promptly to the Discussion Leader.

 

Stockholders may communicate with any of our Directors by sending a letter to the Director, c/o Emerson Electric Co., 8000 West Florissant Avenue, St. Louis, Missouri 63136, Attn: Secretary. All such letters will be forwarded promptly to the relevant Director.

 

Director Independence

 

The Board of Directors has determined that the following of its members are independent, as that term is defined under the general independence standards in the listing standards of the New York Stock Exchange: C. A. H. Boersig, A. A. Busch III, C. Fernandez G., A. F. Golden, H. Green, R. B. Horton, W. R. Johnson, V. R. Loucks, Jr., J. B. Menzer, J. W. Prueher, R. L. Ridgway and R. L. Stephenson. D. C. Farrell retired from the Board of Directors at the 2009 annual meeting. During his term on the Board, Mr. Farrell was determined to be an independent Director. All Directors identified as independent in this proxy statement meet the categorical standards adopted by the Board to assist it in making determinations of Director independence. A copy of these standards is set forth under the caption “Emerson Director Independence Standards” in Appendix A attached to this proxy statement and is available on the Company’s website at www.Emerson.com, Investor Relations, Corporate Governance.

In the course of the Board’s determination regarding independence of each non-management Director, it considered any transactions, relationships and arrangements as required by the Company’s independence standards. In particular, with respect to each of the three most recently completed fiscal years, the Board considered for:

 

 

Review, Approval or Ratification of Transactions with Related Persons

 

We review all transactions and relationships in which the Company and any of our Directors, nominees for Director or executive officers, or any of their immediate family members, are participants, so as to determine whether any of these individuals have a direct or indirect material interest in any such transaction. We have developed and implemented processes and controls to obtain information from the Directors and executive officers about related person transactions, and for then determining, based on the facts and circumstances, whether a related person has a direct or indirect material interest in any such transaction. Transactions that are determined to be directly or indirectly material to a related person are disclosed as required.

 

Pursuant to these processes, all Directors and executive officers annually complete, sign and submit a Directors’ and Officers’ Questionnaire and a Conflict of Interest Questionnaire that are designed to identify related person transactions and both actual and potential conflicts of interest. We also make appropriate inquiries as to the nature and extent of business that the Company conducts with other companies for whom any of our Directors or executive officers also serve as directors or executive officers. Under the Company’s Code of Business Ethics, if an actual or potential conflict of interest affects an executive officer, he or she is to immediately disclose all the relevant facts and circumstances to the Company’s Ethics and Environmental Policy Committee. If the Committee determines that there is a conflict, it will refer the matter to the Board of Directors, which will review the matter to make a final determination as to whether a conflict exists, and, if so, how the conflict should be resolved. If an actual or potential conflict of interest affects a Director, he or she is to immediately disclose all the relevant facts and circumstances to the Board of Directors, which likewise will review the matter to make a final determination as to whether a conflict exists, and, if so, how it should be resolved.

 

The Company has a written Code of Business Ethics applicable to all Directors and executive officers of the Company that prohibits Directors and executive officers from entering into transactions, or having any relationships, that would result in a conflict of interest with the interests of the Company. Waivers of the Code of Business Ethics for Directors and executive officers may only be granted by the Board of Directors. The Code of Business Ethics can be found on the Company’s website at www.Emerson.com, Investor Relations, Corporate Governance.

 

Certain Business Relationships and Related Party Transactions

 

Based on the review described above, there were no transactions from October 1, 2008 through the date of this proxy statement, and there are no currently proposed transactions, in which the Company was or is to be a participant, in which the amount involved exceeded $120,000 and in which any of the Company’s Directors or executive officers or any of their immediate family members either had or will have a direct or indirect material interest.

Board of Directors and Committees

 

The members of the Board are elected to various committees. The standing committees of the Board (and the respective Chairmen) are: Executive Committee (Farr), Audit Committee (Busch), Compensation Committee (Loucks), Corporate Governance and Nominating Committee (Golden) and Finance Committee (Horton).

 

Audit Committee

 

The Audit Committee met four times in fiscal 2009. The members of the Audit Committee are A. A. Busch III, Chairman, H. Green, R. B. Horton, J. B. Menzer and R. L. Ridgway, all of whom are independent. The functions of the Audit Committee are described under “Report of the Audit Committee” at page 13 below. The Board has determined that all of the Audit Committee members are independent, as that term is defined under the enhanced independence standards for audit committee members in the Securities Exchange Act of 1934 (the “Exchange Act”) and rules thereunder, as incorporated into the listing standards of the New York Stock Exchange. The Board has also determined that J. B. Menzer and H. Green are Audit Committee Financial Experts as that term is defined in the rules issued pursuant to the Sarbanes-Oxley Act of 2002. See the “Report of the Audit Committee” at page 13 below.

 

Compensation Committee

 

The Compensation Committee met six times in 2009. The Compensation Committee Charter requires that the Committee be comprised of at least three Directors. The current Compensation Committee members are V. R. Loucks, Jr., Chairman, C. A. H. Boersig, W. R. Johnson, J. W. Prueher and R. L. Stephenson. The Board has determined that, as required by the Committee Charter, each of the members of the Compensation Committee meets applicable independence requirements, including those of the New York Stock Exchange, and qualifies as an “outside director” under Section 162(m) of the Internal Revenue Code and as a “non-employee director” under Rule 16b-3 of the Exchange Act.

 

The Compensation Committee discharges the Board’s responsibilities relating to compensation of the Company’s executives and produces the Committee’s report on executive compensation included in the Company’s annual proxy statement.

 

Specifically, the Committee:

 

 

The Compensation Committee operates under a written charter that details the scope of authority, composition and procedures of the Committee. The Committee may, when appropriate in its discretion, delegate authority with respect to specific matters to one or more members, provided that all decisions of any such members are presented to the full Committee at its next scheduled meeting. For a discussion of delegations of authority the Committee has made to the Chief Executive Officer, see “Compensation Discussion and Analysis — Equity Compensation Grant Practices” at page 25 below. The Committee reports to the Board of Directors regularly, reviews and reassesses the adequacy of its Charter at least annually and conducts an annual evaluation of its performance.

 

Role of Executive Officers and the Compensation Consultant

 

Executive Officers

 

The Chief Executive Officer makes recommendations to the Committee regarding total compensation to be paid to the Company’s executive officers other than himself, including salary, annual bonus, stock awards and benefits, as appropriate. Management makes recommendations to the Committee regarding salaries, at or above a level established by the Committee, to be paid to non-executive officer employees of the Company, its divisions and subsidiaries, including the officers of divisions and subsidiaries of the Company who are not officers of the Company, and salaries of all Division Presidents.

 

Management develops and presents to the Committee recommendations for the design of compensation programs, including stock or other incentive-based programs and other programs designed to attract and retain key employees.

 

The Committee has unrestricted access to management and may also request the participation of management in any discussion of a particular subject at any meeting. Committee meetings are regularly attended by the Chief Executive Officer, who generally attends all meetings except meetings in executive session and discussions of Chief Executive Officer compensation, and the Vice President-Executive Compensation, who is responsible for leading some of the discussions regarding the Company’s compensation programs and is responsible for recording the minutes of the meetings.

 

The Compensation Committee also meets in executive session without any members of management. The Committee may request the participation of management or outside consultants as it deems necessary or appropriate. The Committee regularly reports to the Board on compensation matters and annually reviews the Chief Executive Officer’s compensation with the Board in executive session of non-management Directors only.

 

Compensation Consultant

 

The Committee has sole discretion, at Company expense, to retain and terminate independent advisors, including sole authority to approve the fees and retention terms for such advisors, if it shall determine the services of such advisors to be necessary or appropriate. Any Committee member may request the participation of independent advisors in any discussion of a particular subject at any meeting. The Company engages Frederic W. Cook & Co., Inc. to assist the Company in its executive compensation program design and competitive pay analysis. The Committee reviews this information in determining compensation for its named executive officers. In recent years, the Committee has also engaged Towers Perrin and Ernst & Young regarding various compensation matters. In fiscal 2009, the Committee engaged Towers Perrin to review our comparator group of companies and the reasonableness of the compensation of our Chief Executive Officer, and engaged Ernst & Young to review our comparator group of companies and our competitive long-term grant levels for the 2010 performance shares program. For competitive market pay information provided by Frederic W. Cook & Co., see “Compensation Discussion and Analysis” beginning at page 15 below.

 

Corporate Governance and Nominating Committee

 

The Corporate Governance and Nominating Committee met four times in fiscal 2009. The members of the Committee are A. F. Golden, Chairman, C. Fernandez G., H. Green, V. R. Loucks, Jr., R. L. Ridgway and R. L. Stephenson, all of whom are independent. The Corporate Governance and Nominating Committee reviews the Company’s corporate governance matters and principles and independence standards; oversees the annual self-evaluation by the Board and its committees; discharges the Board’s responsibilities related to compensation of Directors; identifies and evaluates individuals for Board and committee membership and Chairs; makes recommendations to the Board concerning the selection of Director nominees; makes recommendations as to the size and composition of the Board and its committees; and approves and/or reviews the Company’s conflict of interest policies, codes of ethics, political activities and compliance with laws and

regulations, and oversees management’s implementation thereof. For a description of the process used by the Committee in evaluating and recommending Director nominees, see “Nomination Process” below.

 

Nomination Process

 

The Corporate Governance and Nominating Committee regularly reviews the appropriate size and composition of the Board and anticipates future vacancies and needs of the Board. In the event the Committee recommends an increase in the size of the Board or a vacancy occurs, the Committee may consider nominees submitted by several sources, including current Board members, management of the Company, director search firms, stockholders or other persons.

 

In evaluating possible Director nominees, the Committee considers the knowledge, experience, integrity and judgment of possible candidates, their potential contribution to the diversity of backgrounds, experience and skills of the Board, and their ability to devote sufficient time and effort to their duties as Directors. The Company’s Statement of Corporate Governance Principles and Practices sets forth the minimum qualifications for Director nominees which include, among other criteria determined by the Board, senior management experience in business, government and/or other relevant organizations. Important experience includes the field of manufacturing, international exposure and Board membership with major organizations. Pursuant to the Company’s Bylaws, a Director may not stand for election or re-election as a Director after attaining the age of 72, provided that the Bylaws permit Mr. Loucks and Ms. Ridgway to each serve as a member of the Board for an additional one-year term ending at the Company’s annual meeting on February 1, 2011.

 

The Committee evaluates Director nominees at regular or special Committee meetings pursuant to the criteria described above and reviews qualified Director nominees with the Board. The Committee evaluates candidates that meet the Director criteria, and the Committee selects nominees that best suit the Board’s current needs and recommends one or more of such individuals for election to the Board. Mr. Boersig, who is standing for election to the Board for the first time, was recommended to the Committee by a non-management Director and the Chief Executive Officer. From time to time, the Company retains an independent search firm to assist the Committee in identifying potential candidates for Board membership and in evaluating their qualifications and availability.

 

The Committee will consider candidates recommended by stockholders, provided the names of such persons, accompanied by relevant biographical information, are properly submitted in writing to the Secretary of the Company in accordance with the manner described for stockholder nominations in “V. Stockholders’ Proposals” at page 41 below. The Secretary will send properly submitted stockholder recommendations to the Committee. Individuals recommended by stockholders in accordance with these procedures will receive the same consideration received by individuals identified to the Committee through other means. The Committee also may, in its discretion, consider candidates otherwise recommended by stockholders without accompanying biographical information, if submitted in writing to the Secretary.

 

In addition, the Company’s Bylaws permit stockholders to nominate Directors at an annual meeting of stockholders or at a special meeting at which Directors are to be elected in accordance with the notice of meeting. The procedures for making such nominations are discussed in “V. Stockholders’ Proposals” at page 41 below.

 

Processes and Procedures for Determination of Director Compensation

 

The Corporate Governance and Nominating Committee annually reviews compensation of the Company’s Directors, as well as the Company’s compensation practices for Directors, and makes recommendations to the Board regarding these matters. The Board makes the final determinations as to Director compensation and compensation practices.

 

To assist the Committee in performing these duties, Company management periodically engages Towers Perrin, an outside consultant, to prepare a study of outside director compensation trends and best practices in the competitive market, and to make recommendations as to the compensation of the Company’s non-management Directors. Management, including the Chief Executive Officer, presents these recommendations to the Committee for its consideration.

 

Director Compensation

 

Directors who are employees of the Company do not receive any compensation for service as Directors. Each non-management Director is currently paid an annual retainer, a portion of which is paid in cash and a portion of which is paid in restricted stock and/or restricted stock units, and fees of $1,500 plus expenses for attendance at each Board meeting. The cash portion of the annual retainer, which is paid on a monthly basis, was $70,000 in fiscal year 2009. The amount of the annual retainer paid in restricted stock and/or restricted stock units each year is determined by or upon the

recommendation of the Corporate Governance and Nominating Committee. For fiscal 2009, non-management Directors received $115,000 in restricted stock. See footnote (2) to the Director Compensation table below.

 

The restricted stock and restricted stock unit awards generally do not vest and cannot be sold until the last day of a Director’s final term after the age of 72 or earlier death, disability or a change of control of the Company. If a Director’s tenure on the Board ends for any other reason, the vesting of the award is in the discretion of the Committee. If the restrictions on the awards do not lapse, such awards will be forfeited to the Company. As a result of these restrictions, the amount of restricted stock held by a Director reflects the length of time that a Director has served on the Board. Non-management Directors receive dividends with respect to restricted stock or, in the case of restricted stock units, dividend equivalents which may be paid out regularly or deferred until final settlement, with interest compounded quarterly as determined by the Committee, but in any event no greater than 120% of the applicable federal long-term rate. Restricted stock awards are entitled to voting rights; restricted stock units are not.

 

Each committee Chairman is currently paid an annual retainer of $12,000, except for the Chairman of the Audit Committee who is paid an annual retainer of $15,000, and each committee member is paid $1,500 plus expenses for attendance at each committee meeting.

 

Directors may elect to defer all or a part of their cash compensation under the Company’s Deferred Compensation Plan for Non-Employee Directors. Under the plan, which has existed since 1982, such deferred amounts are credited with interest quarterly at the prime rate charged by Bank of America, N.A. Under the rules of the SEC, interest on deferred compensation is considered above-market only if the rate of interest exceeds 120% of the applicable federal long-term rate, which is the rate applying to debt instruments with a term of more than 9 years published monthly by the Internal Revenue Service. During fiscal 2009, the Bank of America prime rate ranged from 3.25% to 5%, while 120% of the applicable federal long-term rate ranged from 3.5% to 5.22%. A. A. Busch, A. F. Golden and R. L. Stephenson currently participate in this deferral program. There were no above-market earnings on deferred compensation for each of these Directors in fiscal 2009. In the alternative, Directors may elect to have deferred fees converted into units equivalent to shares of Emerson common stock and their accounts credited with additional units representing dividend equivalents. Regardless of the election, all deferred amounts are payable only in cash.

 

For Directors who assumed office on or after June 4, 2002, the Company has eliminated its Continuing Compensation Plan for Non-Management Directors. Non-management Directors in office on that date who are not fully vested continue to vest in the plan. A non-management Director who assumed office prior to June 4, 2002, and who served as a Director for at least five years will, after the later of termination of service as a Director or age 72, receive for life a percentage of the annual $30,000 cash retainer for non-management Directors in effect on June 4, 2002. This percentage is 50% for five years service and an additional 10% for each year of service to 100% for ten or more years of service. In the event that service as a covered Director terminates because of death, the benefit will be paid to the surviving spouse for five years. Amounts relating to the aggregate change in the actuarial present value of the accumulated benefit for fiscal year 2009 pursuant to the Company’s Continuing Compensation Plan for Non-Management Directors are set forth in the Director Compensation table.

 

As part of the Company’s overall charitable contributions practice, the Company may, in the sole and absolute discretion of the Board and its Committees, make a charitable contribution in the names of Emerson and a Director upon his or her retirement from the Board (as determined by the Board and its Committees), taking into account such Director’s tenure on the Board, his or her accomplishments and service on the Board, and other relevant factors.

The table below sets forth amounts for non-management Director compensation for fiscal 2009.

 

Director Compensation

 

 

 

 

 

Code of Ethics

 

The Company has adopted a Code of Ethics that applies to the Company’s chief executive officer, chief financial officer, chief accounting officer, and controller; has posted such Code of Ethics on its website; and intends to satisfy the disclosure requirement under Item 5.05 of Form 8-K by posting such information on its website at www.Emerson.com, Investor Relations, Corporate Governance. The Company has adopted a Code of Business Ethics for Directors, officers and employees, which is available at the same location on the Company’s website. Printed copies of the foregoing documents are available to stockholders upon written request delivered to Emerson Electric Co., 8000 West Florissant Avenue, St. Louis, Missouri 63136, Attn: Secretary.

 

Compensation Committee Interlocks and Insider Participation

 

The functions and members of the Compensation Committee are set forth above under “Board of Directors and Committees — Compensation Committee.” All Committee members are independent and none of the Committee members has served as an officer or employee of the Company or a subsidiary of the Company.

 

Section 16(a) Beneficial Ownership Reporting Compliance

 

The Company’s Directors and executive officers are required, pursuant to Section 16(a) of the Exchange Act, to file statements of beneficial ownership and changes in beneficial ownership of common stock of the Company with the SEC and the New York Stock Exchange, and to furnish copies of such statements to the Company. Based solely on a review of the copies of such statements furnished to the Company and written representations that no other such statements were required, the Company believes that during fiscal year 2009 its Directors and executive officers complied with all such requirements.

 

Report of the Audit Committee

 

The Audit Committee assists the Board in providing oversight of the systems and procedures relating to the integrity of the Company’s financial statements, the Company’s financial reporting process, its systems of internal accounting and financial controls, the internal audit process, risk management, the annual independent audit process of the Company’s annual financial statements, the Company’s compliance with legal and regulatory requirements and the qualification and independence of the Company’s independent registered public accounting firm. The Audit Committee reviews with management the Company’s major financial risk exposures and the steps management has taken to monitor, mitigate and control such exposures. Management has the responsibility for the implementation of these activities. In fulfilling its oversight responsibilities, the Committee reviewed and discussed with management the audited financial statements in the Company’s Annual Report on Form 10-K for the fiscal year ended September 30, 2009, including a discussion of the quality and the acceptability of the Company’s financial reporting and controls.

 

The Company’s independent registered public accounting firm is responsible for expressing an opinion on the conformity of those audited financial statements with U.S. generally accepted accounting principles and on the effectiveness of the Company’s internal control over financial reporting. The Committee reviewed with the independent registered public accounting firm the firm’s judgments as to the quality and the acceptability of the Company’s financial reporting and such other matters as are required to be discussed with the Committee under auditing standards of the Public Company Accounting Oversight Board (PCAOB) (United States), including the matters required to be discussed by PCAOB Interim Auditing Standard AU Section 380, Communication with Audit Committees. In addition, the Committee has discussed with the independent registered public accounting firm the firm’s independence from management and the Company, including the impact of non-audit-related services provided to the Company and the matters in the independent registered public accounting firm’s written disclosures required by Rule 3526 of the Public Company Accounting Oversight Board (United States), as may be modified or supplemented.

 

The Committee also discussed with the Company’s internal auditors and the independent registered public accounting firm in advance the overall scope and plans for their respective audits. The Committee meets regularly with the internal auditor and the independent registered public accounting firm, with and without management present, to discuss the results of

their examinations, their evaluations of the Company’s internal controls, and the overall quality of the Company’s financial reporting.

 

In reliance on the reviews and discussions referred to above, the Committee recommended to the Board of Directors that the audited financial statements be included in the Company’s Annual Report on Form 10-K for the fiscal year ended September 30, 2009 for filing with the Securities and Exchange Commission. The Committee also reappointed KPMG LLP as the Company’s independent registered public accounting firm for fiscal 2010.

 

Audit Committee

 

  A. A. Busch III, Chairman

  H. Green

  R. B. Horton

  J. B. Menzer

  R. L. Ridgway

 

Fees Paid to KPMG LLP

 

The following are the fees of KPMG LLP, the Company’s independent registered public accounting firm, for services rendered in 2008 and 2009 ($ in millions):

 

		2008				2009
Audit Fees		$	26.4			$	25.6
Audit-Related Fees			2.8				3.0
Tax Fees			2.0				1.6
All Other Fees			0				0
Total KPMG LLP Fees		$	31.2			$	30.2

 

Audit Fees primarily represent the cost for the audit of the Company’s annual financial statements, reviews of SEC Forms 10-Q and 10-K and statutory audit requirements at certain non-U.S. locations.

 

Audit-Related Fees are primarily related to acquisition and divestiture due diligence, audits of employee benefit plans and statutory filings.

 

Tax Fees are primarily related to tax compliance services, which represented $1.5 million and $1.9 million in 2009 and 2008, respectively. The remaining tax fees related to tax consulting services and represented $0.1 million in each of 2009 and 2008.

 

The Audit Committee approved in advance all services provided by KPMG LLP. The Audit Committee’s pre-approval policies and procedures are included within the Audit Committee Charter, which can be found on the Company’s website at www.Emerson.com, Investor Relations, Corporate Governance.

 

EXECUTIVE COMPENSATION

 

Compensation Discussion and Analysis

 

Overview

 

Emerson is a global technology leader with diversified businesses that report in five segments: Process Management, Industrial Automation, Network Power, Climate Technologies, and Appliance and Tools. We design and supply advanced products and deliver engineered solutions to industrial, commercial and consumer markets worldwide. Managing these diverse global businesses requires a team of committed, talented and experienced executives.

 

Our executive compensation philosophy is straightforward and consistent — we pay for performance — and is primarily focused on long term sustainability. Our executives are accountable for the performance of the businesses they manage and are compensated based on that performance. The Emerson executive compensation program, which is substantially unchanged since 1977, attracts, retains, motivates and rewards our executives for achieving outstanding operational and financial performance. This performance, in turn, builds value for our stockholders.

 

Summary of Fiscal Year 2009

 

In late 2008, after delivering record sales and earnings for the fiscal year ended September 30, 2008, the Company confronted a deep and protracted global recession that severely impacted virtually all the markets the Company serves, and all the Company’s global competitors. As a result, in fiscal 2009, the Company experienced a significant year-to-year sales decline and a corresponding decrease in earnings. Emerson’s senior executives responded to this challenge by taking decisive restructuring actions costing $295 million and impacting 20,000 employees out of the Company’s total global employment base of 141,000. These actions protected our short-term profitability and cash flow, and at the same time significantly enhanced our global best cost position, which will strengthen our recovery abilities as the global recovery takes shape in 2010. Our senior executives did this without sacrificing the Company’s continued investment in acquisitions, technology innovation and global positioning. The Company’s fiscal 2009 financial results and the individual performance of our named executive officers are discussed under “Setting Total Compensation” beginning on page 17.

 

Emerson’s executive compensation program has proven effective for the Company and its stockholders for more than 30 years, both in good and bad economic times. This program enables us to consistently and appropriately motivate our senior executives to provide superior performance, while taking into account the realities of the economic environment. Accordingly, in this Compensation Discussion and Analysis, you will see the following for fiscal 2009:

 

 

 

 

This Compensation Discussion and Analysis describes Emerson executive compensation policies and programs and how they apply to our named executive officers (the senior executives included in the Summary Compensation Table at page 27 below). This section also describes the actions and decisions of the Compensation Committee of the Board of Directors (the “Committee”), which oversees the executive compensation program and determines the compensation of the named executive officers.

 

Compensation Objectives and Elements

 

Emerson’s executive compensation program is designed to support the interests of stockholders by rewarding executives for achievement of the Company’s specific business objectives, such as growth in earnings per share and improvement in trade working capital and cash flow. The fundamental principles underlying the program are:

 

 

 

Our executive compensation program includes incentive plans that communicate to participants the Company’s critical business values, strategies and performance objectives, and are clear and simple to understand. This understanding focuses their efforts on the performance objectives that drive Emerson’s success and encourages them to make career commitments to the Company. The program offers a balanced approach to compensation and consists of the primary components illustrated below. Taken together, we refer to these components as “total compensation.” Individual compensation packages and the mix of base salary, annual cash bonus opportunity and long-term stock compensation for each named executive officer vary depending upon the executive’s level of responsibilities, potential, performance and tenure with the Company. The at-risk portion of total compensation generally increases as an executive’s level of responsibilities increases. The chart below is not to scale for any particular named executive officer.

 

 

 

* These percentage ranges are based on annualized total compensation values and do not necessarily correspond to, and are not a substitute for, the values disclosed in the Summary Compensation Table and supplemental tables. Annualized

values for long-term stock compensation are based on the grant date value of awards annualized over the three-year award cycle for performance shares and options and over the vesting terms for restricted stock, based on data provided by our compensation consultant. We use these annualized values because competitive data is calculated in the same manner.

 

Competitive Market Pay Information and Philosophy

 

In determining total compensation levels and mix for our Chief Executive Officer (“CEO”) and our other named executive officers, the Committee reviews market trends in executive compensation and a competitive analysis prepared by Frederic W. Cook & Co. which is derived from the most recent proxy data of the companies in the comparator group described below. The analysis compares the total compensation (cash and long-term stock compensation) of each of our named executive officers with the median range of total compensation for comparable positions at the comparator group companies. The Company’s compensation philosophy is to target total compensation in the median range of this competitive data, as adjusted based on revenue, which we refer to as the “median range”, with actual pay delivered dependent on Company and individual performance. Equity awards are valued at grant and annualized over their award frequency. This approach is consistent with long-standing Company practices.

 

In fiscal 2009, the Committee established a new comparator group of 25 companies to assist the Committee in making its compensation decisions. These companies were selected by the Committee based on one or more of the following criteria: (1) companies in the primary industry segments in which the Company operates, (2) companies with annual revenues greater than $5 billion, (3) companies with profiles similar to the Company’s based on business complexity, industries or markets served, innovation and technology, customers targeted, investor profiles and global strategy, and (4) companies with which we compete for executive talent. This group reflects many of the same characteristics as the companies reviewed by the Committee in prior years for competitive pay analysis. In the comparator group selection process, the Committee reviewed a special study and screening process prepared by Frederic W. Cook & Co. that uses numeric screening (industry classifications, size and scope, and financial metrics) of potential comparator group companies. Then the qualitative criteria described above were applied to determine the appropriate comparator companies. The Committee also incorporated input from Ernst & Young in its selection of the comparator group. To assist the Committee in its compensation reviews, Frederic W. Cook & Co. also provided analysis of competitive pay (cash and long term) at the median for the proxy reported positions of the companies in the comparator group.

 

The comparator group companies are as follows:

 

 

The Committee considers this comparator group competitive pay analysis as a frame of reference in making its pay decisions. The pay decisions are not formulaic and the Committee exercises judgment in making them. This analysis is not used to establish performance goals in the compensation programs.

 

Setting Total Compensation

 

Each year as part of the Company’s continuing, disciplined management development and succession planning process, management meets with division and corporate executives to evaluate the individual performance and leadership potential of our key executives. Our CEO uses these performance and leadership evaluations to develop individual pay recommendations to the Committee for senior executives, including the named executive officers (other than himself). The Committee reviews the performance evaluations and pay recommendations for the named executive officers and the other senior executives. The Committee separately meets in executive session without the CEO present to review the CEO’s performance and set his compensation.

 

In setting the CEO’s compensation, the Committee first considers the Company’s financial results. The Committee compared the Company’s financial performance in fiscal 2009 with the Company’s record fiscal 2008 results, with particular focus on the following:

 

 

 

 

When comparing current and prior year results, the Committee looks at the Company’s financial performance in totality, without mechanically weighting individual factors. Sales, earnings and cash flow are key factors considered, but the other factors shown above are considered as well. The Committee does not set specific financial targets related to cash compensation. The Committee does set performance objectives used to establish maximum bonus amounts for compliance with Section 162(m) of the Internal Revenue Code (see “Regulatory Considerations” at page 25 below).

 

In addition to financial performance, the Committee evaluates the CEO’s day-to-day performance and leadership. In setting the CEO’s compensation, the Committee noted that in his ninth year as CEO Mr. Farr continued to provide strong, consistent leadership for the Company’s long-term success in a challenging global economic environment. In addition to executing the financial performance described above, Mr. Farr, leading his executive team:

 

 

The Committee uses the competitive pay analysis for the comparator group to compare Mr. Farr’s total compensation to the median range for total compensation of CEOs in the comparator group. The Committee also reviews the relative internal compensation relationships between the CEO and the other named executive officers, as compared to the pay relationships in the Frederick W. Cook & Co. survey data. While the Committee monitors these pay relationships, it does not target any specific pay ratios. The Committee notes that Mr. Farr’s responsibilities as CEO are greater than those of the other named executive officers.

 

The Committee also receives and reviews a summary for the CEO showing all elements of his compensation, including base salary, annual cash bonus, long-term stock compensation, retirement and other benefits and perquisites. The summary shows compensation that may be paid upon voluntary or involuntary termination of employment, retirement, death or disability, or upon a change of control. This CEO compensation summary is also annually reviewed and discussed with the non-management Directors in a private session. Mr. Farr does not have an employment agreement with the Company.

 

The Committee reviewed alternatives for delivering the appropriate level of total compensation for Mr. Farr based on the Company’s and his performance, as described above. These alternatives took into account current values of cash compensation and the value of long-term awards allocable to the current year, based on annualization of the grant date

fair value over the award cycle or vesting period of the award. These alternatives reflected that fiscal 2010 is an award year for performance shares. Towers Perrin reviewed these compensation alternatives and determined that they were reasonable, but made no specific compensation recommendations.

 

In setting compensation for the other named executive officers, the Committee follows a similar process. The Committee first considered the financial performance of the Company for fiscal 2009. The Committee reviewed the competitive pay analysis at the median range for each named executive officer as compared to the comparable positions at the companies in the comparator group as a frame of reference in exercising its judgment regarding pay decisions. The Committee then reviewed the CEO’s evaluations of the individual performance of each named executive officer, which in each case he determined to be outstanding. The Committee also took into account its own evaluations of the named executive officers based on their frequent interactions with and presentations to the members of the Board of Directors. The Committee considered the following accomplishments:

 

 

None of the named executive officers has an employment agreement with the Company.

 

For the named executive officers, the Committee made its annual pay decisions for each of the compensation components as outlined below.

 

Annual Cash Compensation

 

The Committee targets total annual cash compensation in the median range of market total cash compensation, while placing more emphasis on the at-risk annual cash bonus than on base salary.

 

Base salary: For the named executive officers, the Committee awards base salary increases (if any) after reviewing the Company’s performance, individual performance, and competitive market compensation. As described in last year’s proxy statement, in October 2008 each of the named executive officers received a normal merit increase for fiscal 2009 based on fiscal 2008 financial performance and individual responsibilities, performance and potential. However, in response to the economic downturn that began in late 2008, the base salary rate for each of the named executive officers was reduced effective January 1, 2009. Mr. Farr’s base salary rate was reduced to his fiscal 2007 rate of $1,150,000. The base salary rates for Messrs. Galvin, Monser, Peters and Steeves were reduced to their respective fiscal 2008 rates of $710,000, $600,000, $540,000 and $560,000. The actual earned base salary amounts for fiscal 2009 in the Summary Compensation Table showed a decrease for Mr. Farr and a slight increase for each of the other named executive officers due to the timing and magnitude of their respective base salary rate decreases. No merit increases were planned for fiscal 2010; however, the Committee decided to restore the previously approved and reported fiscal 2009 base salary rates effective April 1, 2010, assuming business conditions are consistent with our current fiscal year 2010 expectations.

 

Annual bonus: The determination of individual bonus amounts for the named executive officers is discretionary, subject to the Section 162(m) limitation established by the Committee (see “Regulatory Considerations” on page 25), but is based on the Company’s financial performance and the individual performance factors referred to above. The Committee did not assign individual weights to any of these factors but used them collectively to make its compensation determinations. As discussed above, fiscal 2009 financial performance declined sharply compared to fiscal 2008 financial results. The

Committee considered the Company’s sales and earnings declines, gross profit margin and free cash flow relative to the sales decline, return on capital, and return to stockholders. The Committee took these factors into account and exercised its discretion to determine the bonus amounts for fiscal 2009 as shown in the table below:

 

 

 

(1) Not comparable as Mr. Steeves joined the Company in March 2007.

 

Total cash compensation: As a result of base salary reductions and the lower bonus payout, total cash compensation also declined for 2009.

 

Long-Term Stock Compensation

 

The Committee may make long-term stock compensation awards to the Company’s executives, including the named executive officers. Executives participate in these programs based on their: (1) ability to make a significant contribution to the Company’s financial results, (2) level of responsibility, (3) performance and (4) leadership potential. No executive is entitled to participate automatically based on title, position or salary level. We require participants to accept confidentiality, non-competition and non-solicitation obligations. In general, we target long-term stock compensation in the median range of market long-term compensation, with more emphasis on at-risk equity compensation.

 

Our long-term compensation consists of three programs: performance shares, stock options and restricted stock. We allocate the largest portion to performance shares, which are the primary incentive for delivery of superior longer-term financial performance, with a small portion allocated to stock options and the remainder through the selective use of restricted stock. We make awards of stock options and performance shares periodically, generally every three years, instead of annually, and restricted stock awards have no set award cycle. For purposes of its analysis, the Committee considers values of these awards based on the grant date value annualized over the three-year award cycle for performance shares and options and over the vesting terms for restricted stock, because the values are consistent with competitive data considered by the Committee. These estimates do not necessarily correspond to and are not a substitute for, the values described for the awards in the Summary Compensation Table or in the tables that follow it.

 

Performance Shares Program. Our performance shares program is the primary element of long-term stock compensation for our named executive officers. This plan is the linchpin of the Company’s pay for performance philosophy and is used to align the interests of participants and stockholders and for retention and succession purposes. For over thirty years, the program has reinforced the Company’s long-term financial objective, enhancing stockholder value. We limit participation in the programs to individuals who can most directly influence our long-term success. The long-term stock compensation opportunities for our senior executives are heavily weighted towards performance shares, which generally represent approximately 45-55% of total compensation and 70-80% of long-term stock compensation.

 

Unlike many companies, Emerson awards performance shares every three years rather than annually, and the payout is based on four-year performance. Awards of performance shares are made in share units. Participants can earn from 0-100% of the awarded units depending upon the Company’s financial results at the end of the performance period measured against the pre-established target. Participants cannot earn greater than 100%, regardless of the extent to which actual Company performance exceeds the target. For performance in excess of the targets, participants benefit only to the extent that performance results in increases in the price of the Emerson stock received upon payout of the performance shares.

 

As a result of the three year award cycle for performance share awards, certain years involve an “overlap” in which two sets of awards will be in effect as illustrated below. For example, fiscal 2010 will be an “overlap” year, both the final year

of the 2007 program performance period, which will end on September 30, 2010, and the first year of the 2010 program performance period, which began on October 1, 2009 and ends on September 30, 2013.

 

 

Payout for a performance period is made as soon as practicable after the achievement of the performance target, provided that the Committee may establish additional vesting conditions for retention purposes. For the 2007 and 2010 performance shares programs, the Committee specified that 60% of any earned performance share units would be paid at the end of the four-year performance period, and the remaining 40% would be paid one year later, subject to continued service. The 40% holdback periods for both the 2007 and 2010 performance share programs are shown above.

 

To earn a 100% payout, the performance target under the 2007 and the 2010 programs requires the Company’s compounded average growth rate in earnings per share to exceed by three percentage points the compounded average growth rate in the U.S. Gross National Product over the relevant four-year performance period. We target earnings per share growth exceeding the growth in the economy because we believe this focus on above market growth over the long-term performance period drives participants in the program to produce superior financial returns for our stockholders. The payout is made primarily in common stock, with a portion paid in cash to cover tax obligations of participants.

 

Cash dividend equivalents are paid on 40% of the award during the performance period and on the 40% portion of the earned award during the one-year holdback period. Payment of the cash dividend equivalents during the performance period is a key feature of this program, as it promotes executive behavior that inures to the long-term benefit of our stockholders, and reinforces our pay-for-performance philosophy. Program participants’ interests are aligned with the interests of our stockholders: the achievement of the plan’s performance objective historically has rewarded both with higher stock value and increased dividends. During the four-year performance period and three-year award cycle described above, this feature encourages continued participant engagement and focus on the plan’s long-term performance objectives. The Committee considered eliminating this feature, but concluded that doing so would dilute the effectiveness of the Company’s primary long-term stock program that has served our stockholders well for more than 30 years.

 

No performance share awards were made to the named executive officers in fiscal 2009. During fiscal 2009, the named executive officers continued to participate in the 2007 performance shares program, for which awards were made in October 2006, the beginning of fiscal 2007. These performance share units are subject to the achievement of the performance target over the four-year performance period ending at the completion of fiscal 2010 and are set forth in the Outstanding Equity Awards at Fiscal Year-End table on page 30.

 

Awards Under the 2010 Performance Shares Program

 

In October 2009, the beginning of fiscal 2010, as part of the three year award cycle for performance share awards, the Committee made performance awards under the 2010 performance shares program as follows: D. N. Farr-450,000 units; E. L. Monser-175,000; C. A. Peters-135,000; and F. L. Steeves-110,000. These performance share units are subject to the achievement of the performance target over the four-year performance period. These awards reflected the Committee’s judgment that these named executive officers’ leadership, performance and their potential to enhance long-term stockholder value would continue to be significant factors in the Company’s future success. The Committee also determined that these awards were consistent with targeting 45-55% of total compensation and 70-80% of long-term stock compensation in the form of performance shares.

 

Stock Options Program. Our stock option awards provide long-term focus and are the primary form of long-term stock compensation for a broader group of key employees. Although an important incentive, stock options represent a smaller portion of long-term stock compensation for the named executive officers, and generally represent 5-10% of their total compensation. In February 2009, the Committee approved special retention stock option awards for approximately 70% of

the broader group of key employees typically eligible for option awards. The purpose of the award was to recognize the individuals who will continue to contribute to the Company’s success during these difficult economic times. Messrs. Galvin, Monser, Peters and Steeves received 100,000, 80,000, 80,000 and 65,000 stock options, respectively. No award was made to the CEO by the Committee.

 

Restricted Stock Program. Our restricted stock program is designed to retain key executives and future leaders of the Company and participation in the program is highly selective. The Committee views this program as an important management succession planning, retention and recognition tool. The objective is to lock in top executives and their potential replacements identified through the succession planning process. Restricted stock, along with stock options, supplement performance shares to achieve the target of long-term compensation in the median range of market compensation, and in some cases may provide compensation above the median range. Restricted stock generally represents 5-20% of the named executive officers’ total compensation. Restricted stock provides participants with dividends and voting rights beginning on the award date. There is no set frequency of restricted stock awards, and they are granted with long-term cliff vesting periods of up to ten years and no less than three years.

 

As reported in last year’s proxy statement, in early fiscal 2009, Messrs. Farr, Galvin, Monser and Peters were awarded 100,000, 10,000, 10,000 and 20,000 shares of restricted stock, respectively. In making these awards, the Committee took into account the continued financial success of the Company under these key leaders, their valuable and seasoned experience and the challenges the Company faces in its efforts to continue the Company’s financial success in the future.

 

Succession planning and retention continue to be key considerations of the Committee in its review of the total compensation of the named executive officers. In early fiscal 2010, Mr. Farr was awarded 80,000 shares of restricted stock in recognition of his outstanding leadership. Also in early fiscal 2010, Mr. Galvin was awarded 150,000 shares of restricted stock in recognition of his promotion to Vice Chairman and continued commitment to the Company. The Committee believes these awards help meet the Company’s retention and succession planning needs.

 

Total Compensation

 

In the Committee’s judgment, Mr. Farr’s total compensation reflects the Company’s performance under his leadership as well as his individual performance, and his total compensation is in the median range of competitive market pay. The combination of the performance share awards, stock option awards and annual cash bonus represents at-risk compensation of approximately 74% of Mr. Farr’s total compensation. For the other named executive officers, the combination of the performance shares, stock option awards and annual cash bonus awarded by the Committee represents at-risk compensation for the named executive officers of approximately 73-78% of their total compensation. These at-risk incentives, and the way we allocate them, reward the named executive officers for the achievement of outstanding long-term Company performance, which builds stockholder value.

 

The table below illustrates how total compensation for our named executive officers for fiscal 2009 was allocated between performance-based and fixed components, how performance-based compensation is allocated between annual and long-term components, and how total compensation is allocated between cash and equity components. These percentages are based on annualized total compensation values and do not necessarily correspond to, and are not a substitute for, the values disclosed in the Summary Compensation Table and supplemental tables.

 

 

 

Total amounts and amounts for salary and bonus for fiscal 2009 reflect the Company’s 2009 financial performance and the other factors described above. The amounts shown for fiscal 2009 in the Stock Awards and Total columns of the Summary Compensation Table on page 27, as compared to those shown for fiscal 2008 and 2007, vary primarily for the following reasons. For fiscal 2007, these columns represent the FAS 123R financial statement expense for all of the performance share awards under both the 2004 and 2007 performance share programs, as more fully described on pages 20 and 21. For fiscal 2008, these columns represent FAS 123R expense for all of the performance share awards under the 2007 performance share program, but only for the 40% portion of the earned awards under the 2004 performance share program that was held back for one year and paid out at the end of fiscal 2008. For fiscal 2009, these columns only include FAS 123R expense for performance share awards under the 2007 performance shares program. The change in the Company’s year-end per share stock price also impacted these amounts. See footnote (2) to the Summary Compensation Table on page 27 for additional detail. The amounts shown for fiscal 2009 in the Change in Pension Value and Non-Qualified Deferred Compensation column of the Summary Compensation Table reflect the reduction from 6.5% to 5.5% in the applicable discount rate used to value pension plan liabilities. See footnote (4) to the Summary Compensation Table on page 28 for additional detail.

 

Alignment with Stockholder Interests

 

We believe our balanced executive compensation program, coupled with our stock ownership guidelines and “clawback” policy, aligns the interests of our executives with stockholders by encouraging long-term superior performance, without encouraging excessive or unnecessary risk taking.

 

Our long standing compensation philosophy is a key component of our history of sustainable growth, which demonstrates an alignment of the interests of participants and stockholders and rewards each with increased value over the longer term. As shown in the Fiscal 2009 Total Compensation Mix table above, our compensation for our senior management is primarily based on performance over a longer-term period. Under the performance shares program, earnings per share performance over the four-year performance period is required to earn compensation, which drives long term decision making, eliminates adverse risk taking that may occur due to year-over-year performance measurements, and rewards for growth over the long term. Our restricted stock and option awards have long vesting terms that reward participants for increased value over the vesting terms. Annual cash amounts are limited and subject to Committee discretion, which discourages short-term risk-taking.

 

The significant stock ownership of our named executive officers reflects their commitment to the Company for the long term. Our executive stock ownership guidelines provide that our Chief Executive Officer should generally hold Emerson stock, including share equivalents and shares in retirement accounts and restricted stock, equal to at least five times base salary. For our Chief Financial Officer the amount is three times, and for other named executive officers the amount is one time. Named executive officers generally have five years from the later of the date of the policy or becoming named executive officers to meet the guidelines. The Committee has discretion to adjust the guidelines for executives who are age 60 or over. The Compensation Committee monitors the stock ownership of the named executive officers, which substantially exceeds the guidelines. Based on beneficial ownership of Emerson stock, as shown on page 5, and the closing stock price at fiscal year end, the named executive officers’ holdings of Emerson stock are valued at multiples of between approximately 25 and 75 times their respective base salaries other than for Mr. Steeves, who joined the Company in 2007. Our stock trading policy also requires elected Company officers to obtain written permission from two other senior executives before engaging in transactions in Emerson stock.

 

Our clawback policy further aligns the interests of our executives with stockholders. Under the policy, our Board may in certain cases reduce or cancel, or require recovery of, any executive’s annual bonus or long-term incentive compensation award, or portions thereof, if the Board determines that such award should be adjusted because an executive officer has engaged in intentional misconduct that has led to a material restatement of the Company’s financial statements.

Security and Perquisites

 

We provide security services to help ensure the safety of all employees while they are on Company business. Due to increased security risks that are inherent in senior executive positions, we provide the named executive officers with residential security monitoring and personal security as needed. The Company’s security policy and the Committee require that the CEO use the Company aircraft for all business and personal travel. On a very limited basis, other named executive officers have access to Company aircraft for personal use subject to reimbursement at first class rates. The Company also provides leased cars, club memberships and financial planning for executives. These are long-standing perquisites which we believe are similar to those generally provided to executives at other similarly-sized companies. Named executive officers and other employees may receive Company tickets for sporting or other local events. The Committee reviews these perquisites annually. Total perquisite costs and related information appear in the Summary Compensation Table at page 27 below. The Company does not provide any reimbursement for taxes on perquisites provided to its named executive officers.

 

Severance, Executive Termination and Retirement

 

Emerson does not provide employment agreements, severance agreements, or golden parachute agreements for the named executive officers. The terms of all executive terminations and retirements are determined individually based on specific facts and circumstances at the time of such events, and not on formulaic rules. In general, we follow these principles:

 

 

In 2006, the Committee adopted an Executive Officer Severance Policy, reflecting these principles. In addition to the foregoing principles, the Executive Officer Severance Policy provides that the Company shall not implement individual severance or change of control agreements providing certain benefits (as described in the Policy) to any of the named executive officers in excess of 2.99 times the sum of the officer’s then current base salary and most recently earned cash bonus without stockholder ratification. The Executive Officer Severance Policy can be found on the Company’s website at www.Emerson.com, Investor Relations, Corporate Governance.

 

Change of Control

 

Emerson has no employment agreements, severance agreements or golden parachute agreements with the named executive officers. If a change of control occurs, we protect all employees who participate in long-term stock plans, the Savings Investment Restoration Plan and the Pension Restoration Plan as described under “Potential Payments Upon Termination or Change of Control” at page 34 below. To provide this protection, we accelerate vesting of stock awards and pay accrued benefits under the Savings Investment Restoration Plan and the Emerson Pension Restoration Plan. We do not credit additional years of service under any plans, or continue medical or other benefits. We do not make additional cash payments related to stock compensation plans, although stock awards vest upon a change of control. We do not increase payouts to cover payment of taxes and do not provide tax gross-ups.

Other Benefits

 

The named executive officers are eligible for medical, life and disability insurance, and other Company-provided benefits that are generally available to all other employees, including the Company’s charitable matching gifts program. Retirement plans for U.S. employees may be qualified defined-benefit pension plans, 401(k) plans and/or profit-sharing plans as determined by each business unit’s competitive market. The Company continues to maintain a defined-benefit pension plan for a majority of U.S. employees. These other benefits are available to the named executive officers, as follows:

 

 

Regulatory Considerations

 

Section 162(m) of the Internal Revenue Code of 1986, as amended, imposes a $1 million limit on the amount that a public company may deduct for compensation paid to the Company’s CEO or any of the Company’s other named executive officers, other than the Chief Financial Officer, who are employed as of the end of the fiscal year. This limitation does not apply to compensation that meets the requirements under Section 162(m) for “qualifying performance-based” compensation (i.e., compensation paid only if the individual’s performance meets pre-established objective goals based on performance criteria approved by stockholders). The Company’s incentive compensation plans are designed to qualify under Internal Revenue Code Section 162(m) to ensure tax deductibility. However, restricted stock awards do not qualify under Section 162(m) and the Committee retains the flexibility to design and administer compensation programs that are in the best interests of Emerson and its stockholders.

 

Annual bonuses for our named executive officers are discretionary, subject to maximum bonus amounts based on the achievement of the Section 162(m) performance objectives established by the Committee annually. These objectives are selected by the Committee from among the performance objectives in the annual incentive plan but are not communicated to participants as individual performance targets. For fiscal 2009, the performance objective was earnings per share and the maximum amount of bonus that could be paid to each covered named executive officer was $2 million, except for the CEO for whom the maximum amount was $6 million. The Committee may exercise “negative discretion” to reduce the award based on an assessment of Company and individual performance. For 2009 the Committee awarded less than the maximum amount. For additional information regarding our annual incentive plan, please see “II. Re-Approval of the Performance Measures Under the Emerson Electric Co. Annual Incentive Plan” at page 39.

 

Internal Revenue Code Section 409A, which was enacted in 2004, requires that nonqualified deferred compensation arrangements must meet specific requirements. Failure to meet these requirements results in immediate taxation of certain deferred amounts, as well as an additional tax equal to 20% of such deferred amounts and an interest penalty. The term “nonqualified deferred compensation plan” is defined broadly in the regulations issued under Section 409A to potentially include equity-based compensation such as equity-based bonuses and stock options. We have adopted amendments to our compensation plans to comply with the requirements of Section 409A.

 

In accordance with FAS 123R, for financial statement purposes, we expense all equity-based awards over the period earned based upon their estimated fair value at grant date, or subsequently, depending on the terms of the award. FAS 123R has not resulted in any significant changes in our compensation program design.

 

Equity Compensation Grant Practices

 

The Committee approves all grants of equity compensation, including performance shares, stock options and restricted stock, to executive officers of the Company, as defined in Section 16 of the Exchange Act. All elements of executive

officer compensation are reviewed by the Committee annually at its October meeting. Generally, the Company’s awards of performance shares, stock options and restricted stock are made at that meeting, but may be made at other meetings of the Committee. The Committee meeting date, or the next business day if the meeting falls on a non-business day, is the grant date for stock option, performance share and restricted stock awards. The Company may also make awards of stock options in connection with acquisitions or promotions, or for retention purposes. Under the Company’s stock option plans, the Committee may delegate to the Company’s CEO the authority to grant stock options to any employees of the Company other than executive officers of the Company as that term is defined in Section 16 of the Exchange Act. The Committee has exercised this authority and delegated to the CEO the ability to make stock option grants in connection with retention and acquisitions, which he uses on an infrequent basis. This delegation of authority does not extend to executive officers or other officers who are subject to the Company’s trading blackout policy.

 

Compensation Committee Report

 

The Compensation Committee of the Board of Directors acts on behalf of the Board to establish and oversee the Company’s executive compensation program in a manner that serves the interests of the Company and its stockholders. For a discussion of the Compensation Committee’s policies and procedures, see “Compensation Committee” at page 8 above.

 

Management of the Company has prepared the Compensation Discussion and Analysis describing the Company’s compensation program for senior executives, including the named executive officers. See “Compensation Discussion and Analysis” beginning on page 15 above. The Compensation Committee has reviewed and discussed the Compensation Discussion and Analysis for fiscal year 2009 (included in this proxy statement) with the Company’s management. Based on this review and discussion, the Compensation Committee recommended to the Board of Directors of the Company that the Compensation Discussion and Analysis be included in the Company’s proxy statement for the fiscal year ended September 30, 2009, for filing with the Securities and Exchange Commission.

 

Compensation Committee

 

V. R. Loucks, Jr., Chairman
C. A. H. Boersig
W. R. Johnson
J. W. Prueher
R. L. Stephenson

Summary Compensation Table

 

The following information relates to compensation received or earned by our Chief Executive Officer, our Chief Financial Officer and each of our other three most highly compensated executive officers for the last fiscal year (the “named executive officers”).

 

																												Change in
																												Pension Value
																												and
																												Nonqualified
																												Deferred
																							Option					Compensation					All Other
			Fiscal															Stock Awards					Awards					Earnings					Compensation
Name and Principal Position			Year					Salary ($)					Bonus ($)(1)					($)(2)					($)(3)					($)(4)					($)(5)					Total ($)
D. N. Farr				2009					1,168,750					1,500,000					4,561,091					726,667					3,598,000					496,237					12,050,745
Chairman of the Board,				2008					1,200,000					3,000,000					6,139,432					726,666					1,219,000					472,485					12,757,583
Chief Executive Officer and President(6)				2007					1,150,000					2,700,000					16,077,732					527,500					1,343,000					383,302					22,181,534
W. J. Galvin				2009					716,250					800,000					1,835,306					399,000					2,131,000					145,627					6,027,183
Vice Chairman and				2008					710,000					1,175,000					2,478,278					1,417,000					994,000					143,610					6,917,888
Chief Financial Officer(6)				2007					680,000					1,025,000					6,251,132					358,700					1,081,000					114,840					9,510,672
E. L. Monser				2009					606,250					600,000					1,139,759					319,200					428,000					139,440					3,232,649
Chief Operating Officer				2008					600,000					850,000					1,636,020					1,090,000					211,000					137,007					4,524,027
				2007					575,000					725,000					4,252,004					211,000					406,000					141,285					6,310,289
C. A. Peters				2009					546,250					585,000					1,011,331					463,083					977,000					114,830					3,697,494
Senior Executive Vice				2008					540,000					835,000					1,364,469					363,333					310,000					163,117					3,575,919
President(6)				2007					515,000					725,000					3,483,368					211,000					1,390,000					79,761					6,404,129
F. L. Steeves				2009					565,000					500,000					627,167					361,365					33,000					70,284					2,156,816
Senior Vice President, Secretary and General Counsel				2008					560,000					600,000					833,715					307,333					16,000					148,290					2,465,338

 

 

 

 

 

Name			Perquisites(a)					Savings Plan(b)					Life Insurance(c)					Charitable Match(d)					Total
D. N. Farr				$372,198					$103,021					$11,018					$10,000					$496,237
W. J. Galvin				$68,510					$46,542					$20,575					$10,000					$145,627
E. L. Monser				$77,574					$35,781					$17,085					$9,000					$139,440
C. A. Peters				$59,934					$33,969					$10,927					$10,000					$114,830
F. L. Steeves				$22,922					$28,542					$8,820					$10,000					$70,284

 

 

 

 

 

 

Grants of Plan-Based Awards

 

The following table provides information about equity awards granted to the named executive officers in fiscal 2009. There are no amounts in the table under “Estimated Future Payouts Under Equity Incentive Plan Awards” because there were no performance share awards granted to the named executive officers in fiscal 2009.

 

 

 

 

Outstanding Equity Awards at Fiscal Year-End

 

The following table provides information on the holdings of stock options, performance shares and restricted stock by our named executive officers at the end of fiscal 2009. This table includes unexercised stock options, unvested restricted stock and performance shares with performance conditions that have not been met.