SCHEDULE 14A
(Rule 14a-101)
INFORMATION REQUIRED IN PROXY STATEMENT
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GARDNER DENVER, INC.

(Name of Registrant as Specified In Its Charter)

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

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March 21, 2011

 

TO OUR STOCKHOLDERS:

 

You are cordially invited to attend the 2011 Annual Meeting of Stockholders on Tuesday, May 3, 2011 at 1:30 p.m. (local time), at the Embassy Suites Philadelphia-Valley Forge, 888 Chesterbrook Boulevard, Wayne, PA 19087.

 

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

 

The Notice of Annual Meeting and Proxy Statement for the annual meeting are being made available to our stockholders on or about March 21, 2011 on the Internet, electronically by email for stockholders who have previously consented to delivery or who have requested to receive the proxy materials by email or, upon request, in printed form by mail.

 

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

 

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

 

Your support is appreciated, and we hope that you will be able to join us at the May 3^rd meeting.

 

Cordially,

 

Frank J. Hansen
Chairman of the Board

GARDNER DENVER, INC.
1500 Liberty Ridge Drive, Suite 3000
Wayne, Pennsylvania 19087

 

NOTICE OF 2011 ANNUAL MEETING OF STOCKHOLDERS

 

The 2011 Annual Meeting of Stockholders of Gardner Denver, Inc. (the “Company”) will be held at the Embassy Suites Philadelphia-Valley Forge, 888 Chesterbrook Boulevard, Wayne, PA 19087 on Tuesday, May 3, 2011 at 1:30 p.m. (local time) for the following purposes:

 

1. To elect Donald G. Barger, Jr., Raymond R. Hipp and David D. Petratis, each of whom has been nominated by the Board of Directors, to serve a three-year term expiring at the Company’s annual meeting of stockholders to be held in 2014;

 

2. To ratify the appointment of KPMG LLP as our independent registered public accounting firm for 2011;

 

3. To cast an advisory vote on executive compensation;

 

4. To cast an advisory vote on the frequency of future advisory votes on executive compensation; and

 

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

 

The Notice of Annual Meeting and Proxy Statement for the annual meeting are being made available to our stockholders on or about March 21, 2011 on the Internet, electronically by email for stockholders who have previously consented to delivery or who have requested to receive the proxy materials by email or, upon request, in printed form by mail.

 

Stockholders of record at the close of business on March 4, 2011 are entitled to notice of, and to vote at, the annual meeting and any adjournments or postponements thereof. If you are the beneficial owner of shares of our common stock held in street name, you will receive voting instructions from your broker, bank or other nominee (the stockholder of record). The voting instructions will provide details regarding how to vote these shares. Additionally, you may vote these shares in person at the annual meeting if you have requested and received a legal proxy from your broker, bank or other nominee giving you the right to vote the shares at the annual meeting, and you complete the legal proxy and present it to us at the annual meeting. Stockholders of record may vote over the Internet, by telephone, by mail if you received a printed set of proxy materials or in person at the annual meeting.

 

Pursuant to the New York Stock Exchange rules, if you hold your shares in street name, nominees will not have discretion to vote these shares on the election of directors, and the matters pertaining to executive compensation. Accordingly, if your shares are held in street name and you do not submit voting instructions to your broker, bank or other nominee, these shares will not be counted in determining the outcome on Proposals 1, 3 and 4 set forth in this Proxy Statement at the annual meeting. We encourage you to provide voting instructions to your broker, bank or other nominee if you hold your shares in street name so that your voice is heard on these proposals.

 

FOR THE BOARD OF DIRECTORS

 

Brent A. Walters
Vice President, General Counsel,
Chief Compliance Officer and Secretary

 

Wayne, Pennsylvania

March 21, 2011

 

TABLE OF CONTENTS

 

GARDNER DENVER, INC.

1500 Liberty Ridge Drive, Suite 3000

Wayne, Pennsylvania 19087

 

PROXY STATEMENT

 

This Proxy Statement and related proxy materials are being made available to our stockholders on or about March 21, 2011 on the Internet, electronically by email for stockholders who have previously consented to electronic delivery or who have requested to receive our proxy materials by email or, upon request, in printed form by mail.

 

 

 

 

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

 

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

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

 

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

 

 

The policy provides that a substantial majority of our Board should be independent based on the independence standards of the NYSE with varied and complementary backgrounds. Directors may serve on the boards of directors of no more than four for-profit organizations, including the Company, and members of our Audit and Finance Committee (“Audit Committee”) may serve on the audit committees of no more than three for-profit organizations, including the Company. The policy specifies that a director who has a material change in his or her primary employment or professional responsibilities must submit a letter of resignation, which the Board may accept or reject.

 

Directors who are employees of the Company must retire as a director at the next regular Board meeting following termination of employment. In addition, the policy also specifies that at the regularly scheduled Board meeting prior to a nonemployee director’s 70th birthday and each year thereafter, nonemployee directors will submit their resignation to our Nominating and Corporate Governance Committee (“Governance Committee”). The Governance Committee will make an evaluation and recommendation for a decision by the full Board as to whether to accept or reject the director’s resignation based on the director’s contributions and the Board’s needs at the time. A nonemployee director must retire as a director at the next regularly scheduled meeting of the Board following the date he or she attains 75 years of age. A nonemployee director is also eligible to retire at the end of any elected term or at the discretion of the Board following review by the Governance Committee. The policy also requires that at any one time, no less than 50% of the number of nonemployee directors must be actively engaged in business as an employee, consultant, director (other than for the Company) or in a similar capacity for a minimum of 250 hours per year.

 

For 2010, all of our directors, including the director nominees seeking re-election, have complied with our Corporate Governance Policy.

 

Our Board currently consists of nine directors and is divided into three classes. One class is elected at each annual meeting to serve for a three-year term. With the exception of our Chief Executive Officer, all of our Board members, including our Chairman of the Board, are independent as determined in accordance with the NYSE listing standards as described under the “Director Independence” section of this Proxy Statement set forth below. There are no family relationships among any of the Company’s executive officers, directors or director nominees. The current composition of our Board is as follows:

NOMINEES FOR ELECTION AT THE ANNUAL MEETING

 

Terms Expiring at the 2011 Annual Meeting of Stockholders

 

 

DIRECTORS WHOSE TERMS OF OFFICE WILL CONTINUE AFTER THE MEETING

 

Terms Expiring at the 2012 Annual Meeting of Stockholders

 

 

Terms Expiring at the 2013 Annual Meeting of Stockholders

 

 

Our Board held eight meetings and took one action by unanimous written consent during 2010. Our nonemployee directors met in executive session without any management directors or employees five times during 2010. Mr. Hansen, our independent Chairman, presided over these meetings. In addition to our full Board meetings, directors attended meetings of the committees on which they serve. Pursuant to our Corporate Governance Policy, each director is expected to attend our annual stockholder meeting. Each director attended at least 75% of the aggregate of the Board meetings and meetings of committees of which he or she was a member.

 

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

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

 

Committee Membership
During 2010

 

 

 

 

The Audit and Finance Committee. Our Audit Committee held nine meetings during 2010, including five telephonic meetings prior to the release of earnings and regulatory filings. Our Audit Committee assists our Board (with particular emphasis on the tone at the top of the Company) in fulfilling its oversight responsibilities with respect to the integrity of our financial statements and financial information provided to stockholders and others, our compliance with legal and regulatory requirements including our compliance policies and procedures, and the effectiveness of our internal and external audit processes. The Audit Committee is directly responsible for ensuring the independence and qualifications of our independent registered public accounting firm (sometimes referred to herein as our “independent auditor”). The committee performs these functions by: (i) overseeing our financial reporting process; (ii) selecting and overseeing our independent auditor; (iii) reviewing the scope of audits performed by our independent and internal auditors, as well as the results of such audits; (iv) monitoring our disclosure and internal controls; (v) overseeing our compliance program; and (vi) overseeing our risk assessment and management practices. Our Board has determined that all of the members of our Audit Committee meet the independence and other requirements for audit committee membership of the NYSE listing standards and SEC requirements. The Board has also determined that Donald G. Barger, Jr. and Charles L. Szews are both audit committee financial experts, as that term is defined in the SEC rules. The Audit Committee’s report is set forth below.

 

The Management Development and Compensation Committee. Our Compensation Committee held five meetings and acted by unanimous written consent two times during 2010. Our Compensation Committee assists our Board in fulfilling its oversight responsibilities with respect to executive selection, retention and compensation and succession planning. The committee performs this function by: (i) evaluating our executive officers’ performance, including our Chief Executive Officer, and establishing and reviewing their compensation, including incentive equity and cash compensation, other benefits, and corporate goals relevant to executive compensation; (ii) administering our compensation plans for all eligible employees; (iii) reviewing and consulting with our Chief Executive Officer concerning the selection of executive officers, management succession planning, executive performance, organizational structure and matters related thereto; (iv) the recruiting of candidates for the Chief Executive Officer in the event the position becomes vacant. Pursuant to its Charter, the Compensation Committee may delegate to a subcommittee all or such portion of its power and authority as the Compensation Committee deems appropriate; (v) monitoring executive stock ownership guidelines in accordance with the Company’s stock ownership guidelines, and (vi) reviewing compensation risk to determine whether compensation policies and practices for employees are reasonably likely to have a material adverse effect on the Company. Our Board has determined that all of the members of our Compensation Committee meet the independence requirements of the NYSE listing standards. The Compensation Committee’s report is set forth below.

The Nominating and Corporate Governance Committee. The Governance Committee held four meetings during 2010. The Governance Committee assists our Board in fulfilling its oversight responsibilities with respect to the selection of director nominees for the Board, overall effectiveness of the Board and its practices and corporate governance practices and principles. The committee performs this function by: (i) reviewing and evaluating the overall effectiveness of the organization of our Board, including our Chairman of the Board, our incumbent directors, size and composition, committee membership, and the conduct of its business, and making appropriate recommendations to our Board with regard thereto; (ii) establishing and reviewing director compensation; (iii) reviewing criteria and process for the identification and recruitment of Board nominees; (iv) identifying, recruiting, and recommending qualified Board nominees; (v) developing, recommending and reviewing corporate governance principles applicable to the Company; and (vi) reviewing and assessing related person transactions and the independence of our directors. Our Governance Committee reviews with our Board, on at least an annual basis, the requisite qualifications, independence, skills and characteristics of Board candidates, Board members and our Board as a whole. Our Board has determined that all of the members of our Governance Committee meet the independence requirements of the NYSE listing standards.

 

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

 

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

 

Our Board separated the roles of Chairman of the Board and Chief Executive Officer by appointing Frank J. Hansen, a non-executive, independent director, as Chairman of the Board in May 2008. Mr. Hansen has been an independent director of Gardner Denver since June 1997 and served as Lead Nonemployee Director from November 2002 until his appointment as Chairman of the Board.

 

The separation of roles was implemented to allow our Chief Executive Officer, Mr. Pennypacker, to focus on the management and day to day operations of the Company and our independent Chairman to focus on the Board’s oversight responsibilities and long-term sustainability of the Company. Our Chairman works to develop a high-performing Board by working with Company management to ensure the Board has timely and adequate information, supporting and mentoring the Chief Executive Officer and ensuring effective stockholder communications.

 

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

 

 

 

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

 

 

 

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

 

Our Board has adopted a written policy governing the approval of related person transactions for directors and executive officers. Pursuant to this policy, our Governance Committee reviews and approves relationships and transactions between the Company and our directors and executive officers, or their immediate family members, to determine whether such persons have a direct or indirect material interest therein.

 

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

the transaction), the transaction will be submitted to the Governance Committee for consideration at its committee meeting.

 

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

 

 

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

 

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

 

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

 

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

 

Stockholders and other interested persons seeking to communicate with our directors should submit their written comments to our Corporate Secretary at 1500 Liberty Ridge Drive, Suite 3000, Wayne, Pennsylvania 19087. Such persons who prefer to communicate by e-mail should send their comments to corporatesecretary@gardnerdenver.com. Our Corporate Secretary will then forward all such communications (excluding routine advertisements and business solicitations) to each member of our Board, or the applicable individual director(s) and/or committee chairperson(s). Our Chairman of the Board will receive copies of all appropriate stockholder communications, including those addressed to individual directors and/or committee chairpersons, unless such communications address allegations of misconduct or mismanagement on the part of the Chairman of the Board. In such event, our Corporate Secretary will first consult with and receive the approval of our Audit Committee Chairperson before disclosing or otherwise discussing the communication with our Chairman of the Board.

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

 

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

 

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

 

The Governance Committee periodically assesses the appropriate size and composition of the Board, and whether any vacancies on the Board are expected. In the event that vacancies are anticipated or otherwise arise, the Governance Committee will review and assess potential director candidates. The Governance Committee utilizes various methods for identifying and evaluating candidates for director. Candidates may come to the attention of the Governance Committee through recommendations of Board members, management, stockholders or professional search firms.

 

When identifying and evaluating candidates for Board membership, our Governance Committee considers individuals from various and diverse backgrounds. Although we do not have a formal diversity policy in place for the Board nomination process, an important factor in our Governance Committee’s consideration and assessment of a candidate is the diversity of the candidate’s background, viewpoints, training, professional experience, education and skill set. While the selection of qualified directors is a complex and subjective process that requires consideration of many intangible factors, our Governance Committee believes that candidates generally should, at a minimum, possess the following criteria:

 

 

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

 

Our Governance Committee will consider stockholder recommendations for candidates for our Board, provided such candidates meet the minimum criteria stated above. Any stockholder wishing to submit a candidate for our Governance Committee’s consideration should send the following information to the Corporate Secretary at 1500 Liberty Ridge Drive, Suite 3000, Wayne, Pennsylvania 19087:

 

 

 

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

 

Stockholder proposals intended to be included in our proxy materials for the 2012 Annual Meeting of Stockholders must be received by us at our principal executive offices (Attention: Corporate Secretary) on or before November 22, 2011. Such proposals must comply with SEC regulations under Rule 14A-8 regarding the inclusion of stockholder proposals in Company-sponsored proxy materials.

 

Any stockholder desiring to nominate a director or propose other business at our 2012 Annual Meeting of Stockholders without including the stockholder’s nomination or other business in our proxy materials for that meeting must provide timely notice to the Company of the nomination or other business in the form provided by our Bylaws. Please refer to our Bylaws for a description of the required form and content of this notice. To be timely, the notice must ordinarily be delivered to our principal executive offices (Attention: Corporate Secretary) no later than the close of business on the 90^th day, nor earlier than the 120^th day, prior to the first anniversary date of the preceding year’s annual stockholder meeting (i.e., stockholder proposals or nominations for director for inclusion in the 2012 Annual Meeting must be delivered to our principal executive offices no earlier than January 4, 2012 and no later than February 3, 2012), or such proposal will be considered untimely. However, in the event that the date of the annual meeting of stockholders is more than 30 days before or more than 60 days after the first anniversary of the previous year’s annual meeting of stockholders, then the notice must be delivered not earlier than the close of business on the 120^th day prior to such annual meeting and not later than the close of business on the later of the 90^th day prior to the date of such annual meeting or the 10^th day following the day on which public announcement of the date of such annual meeting is first made by the Company.

AUDIT COMMITTEE MATTERS

 

Management of the Company is responsible for our internal controls and the financial reporting process. KPMG LLP (“KPMG”), our independent registered public accounting firm for the fiscal year ended December 31, 2010, was responsible for performing an independent audit of our consolidated financial statements in accordance with the standards of the Public Company Accounting Oversight Board (the “PCAOB”) and issuing a report thereon. Our Audit Committee’s responsibility is to monitor and oversee these processes with a particular emphasis on the tone at the top of the Company and report its findings to the Board. Our Audit Committee’s function is more fully described in its charter, which has been approved by our Board and is available on our website at www.gardnerdenver.com. Our Audit Committee reviews its charter on an annual basis.

 

In this context, our Audit Committee has met and held discussions with management and KPMG. Management represented to our Audit Committee that our consolidated financial statements for the fiscal year ended December 31, 2010 were prepared in accordance with U.S. generally accepted accounting principles. Our Audit Committee has reviewed and discussed the audited consolidated financial statements with management and with KPMG. Our Audit Committee has discussed with KPMG the matters required to be discussed by Statement on Auditing Standards No. 61, as amended (AICPA, Professional Standards, Vol. 1 AU section 380), as adopted by the PCAOB in Rule 3200T.

 

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

 

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

 

Based on its review and discussions with the Company’s management and KPMG, our Audit Committee recommended to our Board that the audited financial statements be included in our Annual Report on Form 10-K for the period ended December 31, 2010 for filing with the SEC.

 

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

 

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

 

In accordance with its charter, our Audit Committee appointed KPMG to serve as our independent registered public accounting firm and audit our consolidated financial statements for fiscal years 2009 and 2010. Pursuant to our Audit and Finance Committee Services Approval Policy, our Audit Committee approved all the audit and non-audit services performed by KPMG in 2010 and 2009. The following summarizes the aggregate fees KPMG billed to the Company for services relating to the years ended December 31, 2010 and December 31, 2009.

Audit Fees. $3,274,000 (for the fiscal year ended December 31, 2010) and $3,560,000 (for the fiscal year ended December 31, 2009) for professional services rendered for the audit of our annual financial statements included in our Form 10-K and review of quarterly financial statements included in our Forms 10-Q or services that are normally provided in connection with statutory and regulatory filings or engagements for those fiscal years.

 

Audit-Related Fees. $0 (for the fiscal year ended December 31, 2010) and $0 (for the fiscal year ended December 31, 2009) for acquisition due diligence, employee benefit plan audits, and other audit services that are reasonably related to the performance of the audit or review of our financial statements, but which are not included under “Audit Fees” above.

 

Tax Fees. $355,000 (for the fiscal year ended December 31, 2010) and $585,000 (for the fiscal year ended December 31, 2009) for tax compliance, tax advice and tax planning services.

 

All Other Fees. $0 (for the fiscal year ended December 31, 2010) and $0 (for the fiscal year ended December 31, 2009) for all products and services provided by KPMG other than those described above.

 

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

 

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

 

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

 

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

 

During fiscal 2010, all services by KPMG were approved by the Audit Committee in accordance with this policy.

 

In accordance with its charter, our Audit Committee appointed KPMG to serve as our independent registered public accounting firm and audit our consolidated financial statements for fiscal 2010. Our Audit Committee annually selects its independent registered public accounting firm for the current year in February. A representative of KPMG is expected to be present at the annual meeting to respond to appropriate questions and will have the opportunity to make a statement if the representative desires to do so.

COMPENSATION COMMITTEE MATTERS

 

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

 

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

 

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

 

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

 

None of the members of our Compensation Committee or Governance Committee is or has been an officer or employee of the Company or any of our subsidiaries. In addition, none of the members of our Compensation Committee or Governance Committee has or had any relationships with the Company or any other entity that would require disclosure under Item 404 of Regulation S-K. During fiscal 2010, none of our executive officers served on the compensation committee (or equivalent) or board of another entity whose executive officers served on our Compensation Committee, Governance Committee, or Board.

 

In February 2011, the Compensation Committee undertook an assessment of the risk profile of its executive and non-executive compensation programs. As a result of this assessment, the Compensation Committee believes that the Company’s compensation policies and practices do not create risks that are reasonably likely to have a material adverse effect on the Company.

 

The Company maintains stock ownership requirements for its nonemployee directors, executive officers and other key employees. Under these requirements, each nonemployee director is expected to maintain an equity interest in the Company equal to three times his or her annual cash compensation, including compensation for Board and Committee meeting attendance, but excluding the value of equity compensation granted pursuant to the Amended and Restated Gardner Denver, Inc. Long-Term Incentive Plan (the “Incentive Plan”) or amounts we contributed on behalf of such director to our Phantom Stock Plan. The director ownership requirements are to be achieved by the end of the directors’ first three years of service. These requirements also require that the Chief Executive Officer maintain an equity interest equal to five times his annual base salary and each executive officer and corporate vice president maintain an equity interest in the Company equal to three times their annual base salary. The management ownership requirements are to be achieved by the fifth anniversary of each individual’s appointment as an officer. Common stock held directly by the director or officer or their respective immediate

family members, and indirectly for the benefit of the director or officer in an IRA account, family trust, the Retirement Savings Plan and/or the related Excess Contribution Plan, are considered in determining compliance with these requirements. In the case of nonemployee directors, phantom stock units acquired through the director’s deferral of cash compensation are also considered in determining compliance with our stock ownership requirement. Failure to meet these requirements within the allotted time will be taken into consideration when evaluating the individual’s commitment to a continuing relationship with the Company.

 

The following table sets forth information, as of March 4, 2011, with respect to the beneficial ownership of our Common Stock by: (a) each of our directors and director nominees; (b) each of our other “named executive officers” set forth in the Summary Compensation Table below; and (c) all of our current directors and executive officers as a group.

 

 

 

 

 

The following table lists all persons known to be the beneficial owner of more than 5% of our outstanding Common Stock as of December 31, 2010.

 

 

 

 

The following table sets forth information as of December 31, 2010, with respect to shares of our Common Stock that may be issued under the Amended and Restated Gardner Denver, Inc. Long-Term Incentive Plan.

 

 

 

 

Section 16(a) of the Securities Exchange Act of 1934, as amended, requires our directors and executive officers, and persons who own more than 10% of a registered class of our equity securities to file with the SEC initial reports of ownership and reports of changes in ownership of our Common Stock and other equity securities of the Company. Our insiders are required by SEC regulations to furnish us with copies of all Section 16(a) forms they file, including Forms 3, 4 and 5. As a practical matter, we assist our directors and executive officers by monitoring transactions and completing and filing Section 16(a) forms on their behalf. We believe that all reports required to be filed by insiders during the fiscal year ended December 31, 2010, were filed in a timely manner.

 

The Board has nominated each of Donald G. Barger, Jr., Raymond R. Hipp and David D. Petratis as directors to serve for a three-year term expiring in 2014. Our Board believes Messrs. Barger, Hipp and Petratis are experienced, well-qualified incumbent directors who have the expertise to direct and oversee our business and will continue to represent the long-term interests of our stockholders. Biographical information on each of these nominees is set forth above.

 

Each of the nominees has agreed to be named in this proxy statement and serve as a director of the Company, if elected. If any one of the nominees becomes unavailable or unwilling to stand for election or serve as a director before the annual meeting, the accompanying proxy will be voted for the election of such other person, if any, as

shall be nominated by the Board, unless the Board resolves to reduce the number of directors to serve on the Board and thereby reduce the number of directors to be elected at the annual meeting. The Company has no reason to believe that any nominee will be unavailable or unwilling to stand for election or serve as a director.

 

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

 

The Audit Committee has appointed KPMG as our independent registered public accounting firm for the 2011 fiscal year. Although the Company is not required to seek ratification of the Audit Committee’s appointment of KPMG as our independent registered public accounting firm for the 2011 fiscal year, the Board seeks ratification from our stockholders for the appointment of KPMG as a matter of good corporate governance.

 

KPMG has been our independent auditor since 2002 and no relationship between the Company and KPMG exists other than the usual relationship between independent auditor and client. A representative of KPMG is expected to be present at the annual meeting to respond to appropriate questions and will have the opportunity to make a statement if the representative desires to do so.

 

If KPMG’s appointment is not ratified by our stockholders, the Audit Committee will consider whether it is appropriate to select another independent registered public accounting firm for the 2012 fiscal year. Additionally, even if the appointment is ratified, the Audit Committee, in its discretion, may direct the appointment of a different independent registered public accounting firm at any time during the 2011 fiscal year if it determines that such a change would be in the best interests of the Company and our stockholders.

 

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

 

We are seeking an advisory vote from our stockholders to approve the compensation paid to our named executive officers, as disclosed in this proxy statement pursuant to Item 402 of Regulation S-K.

 

Gardner Denver is a performance-driven company that has a track record of delivering increased stockholder value. Rigorous execution of our business plan and a commitment to the Gardner Denver Way are pillars of our

management team and management process. As a result, we have achieved the following total stockholder return over the past five years:

 

 

Our executive compensation program, with its pay-for-performance philosophy, is a part of our consistent and rigorous management process. We believe it has effectively motivated and rewarded our named executive officers to meet the challenges of our global business, embrace the Gardner Denver Way and deliver stockholder value.

 

We believe a significant amount of total compensation should be in the form of short-term and long-term incentive awards to align compensation with our financial and operational performance goals as well as individual performance goals; and we continually evaluate the individual elements of our executive compensation program in light of market conditions and governance requirements and make changes where appropriate for Gardner Denver’s business. We believe that the core of our executive compensation program provides opportunities to reward superior individual and Company performance and drives the creation of sustainable stockholder value.

 

You have the opportunity to vote “FOR” or “AGAINST” or to “ABSTAIN” from voting on the following non-binding resolution relating to executive compensation:

 

“Resolved, that the stockholders approve, on a non-binding, advisory basis, the compensation paid to Gardner Denver’s named executive officers as disclosed in Gardner Denver’s proxy statement for the 2011 Annual Meeting of Stockholders pursuant to Item 402 of Regulation S-K, including the compensation discussion and analysis, the compensation tables, and the narrative discussion.”

 

In deciding how to vote on this proposal, you are encouraged to consider the Company’s executive compensation philosophy and objectives and the elements of the Company’s executive compensation program as contained in the Compensation Discussion and Analysis section below.

 

The Compensation Committee, which is responsible for determining the compensation of our executive officers, is comprised solely of outside directors who satisfy the independence requirements of the NYSE and will continue to emphasize responsible compensation arrangements that attract, retain, and motivate high caliber executive officers to achieve the Company’s business strategies and objectives.

 

While your vote on this proposal is advisory and will not be binding on the Compensation Committee, the Board of Directors or Gardner Denver, the Compensation Committee values the opinions of Gardner Denver’s stockholders on executive compensation matters and will take the results of this advisory vote into consideration when making future decisions regarding Gardner Denver’s executive compensation program.

The Board believes that the approval of Gardner Denver’s executive compensation is in the best interests of our stockholders and, accordingly, recommends a vote FOR this proposal.

 

We are seeking an advisory vote from our stockholders on the recommended frequency for which Gardner Denver is to hold future advisory votes on executive compensation. Stockholders may indicate whether they recommend, on an advisory basis, an advisory vote on executive compensation once every one, two or three years, or they may abstain from voting on this proposal.

 

For the reasons set forth below, the Board of Directors recommends that our stockholders select a frequency of three years.

 

 

Stockholders are not voting to approve or disapprove the recommendation of the Board of Directors that the advisory vote on Gardner Denver’s executive compensation occur every three years.

 

While your vote on this proposal is advisory and will not be binding on the Compensation Committee, the Board of Directors or Gardner Denver, the Compensation Committee values the opinions of Gardner Denver’s stockholders and will take the results of this advisory vote into consideration when making future decisions regarding the frequency of future advisory votes on executive compensation.

 

We are required to hold an advisory vote on the frequency of future advisory votes on our executive compensation at least once every six years.

 

The Board recommends a vote, on an advisory basis, of “three” years with respect to this proposal.

 

The Governance Committee annually reviews and recommends to our Board for approval the non-employee directors’ compensation. In 2010, the Governance Committee retained Meridian Compensation Partners, LLC (“Meridian”), an independent compensation consultant, to evaluate the appropriateness of the nonemployee directors’ compensation program, including the mix of annual cash retainers and meeting fees and equity compensation to ensure that the program compensates the nonemployee directors for the level of responsibility the Board has assumed in today’s corporate governance environment and to remain competitive relative to our custom peer group (as further discussed in the Compensation Discussion and Analysis section of this proxy statement).

 

Based upon Meridian’s analyses, the level of responsibility the Board has assumed in today’s corporate governance environment, and the performance of the nonemployee directors, the Governance Committee recommended, and the Board approved, an aggregate increase of approximately $15,000 in the following components:

 

 

 

All other components of the Company’s nonemployee directors’ compensation program remained unchanged in 2010. Accordingly, the Company’s 2010 nonemployee directors’ compensation program included the following components:

 

 

 

 

Members of the Board of Directors who also serve as an officer or employee of the Company do not receive additional compensation for their service on the Board. The only officer or employee of the Company who served as a director during 2010 was Mr. Pennypacker.

 

Phantom Stock Plan

 

The Phantom Stock Plan for nonemployee directors, which is an unfunded plan, was originally established in 1996. Prior to 2010, we annually credited each nonemployee director $7,000 in phantom stock units under the Phantom Stock Plan, in equal quarterly amounts. As discussed above, beginning in May 2010 we eliminated the annual phantom stock awards to simplify the director compensation program and align it with the Company’s peer group.

 

Each nonemployee director may continue to elect to defer all or a portion of his or her annual retainers and meeting fees into phantom stock units under the Phantom Stock Plan. Upon election, the phantom stock units are credited to the nonemployee director’s account in equal quarterly amounts based on the average closing price per share of our common stock during the 30 trading days immediately preceding (but not including) the last business day of the fiscal quarter as reported on the composite tape of the NYSE. Dividend equivalents are credited to the nonemployee director’s account on the dividend record date as dividends are declared by the Board. Each phantom stock unit represents the right to receive the fair market value of one share of our common stock.

 

The fair market value of a nonemployee director’s account will be distributed as a cash payment to the nonemployee director, or his or her beneficiary, on the first business day of the month following the month in which the nonemployee director ceases to be a director for any reason. Alternatively, a nonemployee director may elect to have the fair market value of his or her account distributed in twelve or fewer equal monthly installments, or in a single payment on a predetermined date within one year after he or she ceases to be a director, but without interest on the deferred payments. The fair market value of a nonemployee director’s account is determined by reference to

the average closing price of our common stock during the 30 trading days immediately preceding the date he or she ceases to be a director.

 

The following table summarizes the aggregate number of phantom stock units credited to each nonemployee director’s account as of March 4, 2011.

 

 

Long-Term Incentive Plan

 

For 2010, pursuant to the Incentive Plan, each of the nonemployee directors received equity incentives consisting of 2,500 stock options and 1,000 RSUs, on the day following the 2010 Annual Stockholders Meeting.

 

The 2010 stock options were granted at the closing price of our common stock on the date of grant, become exercisable on the one-year anniversary of the date of grant, and terminate on the five-year anniversary of the date of grant. If a person ceases to be a nonemployee director by virtue of disability or retirement, after having completed at least one three-year term, outstanding options generally remain exercisable for a period of five years but not later than the expiration date of the options. If a person ceases to be a nonemployee director by virtue of death or dies during the five-year exercise period after disability or retirement described above, outstanding options generally remain exercisable for a period of one year but not later than the expiration date of the options. If a nonemployee director’s service terminates for any other reason, options not then exercisable are canceled and options that are exercisable may be exercised at any time within ninety days after such termination but not later than the expiration date of the options.

 

The 2010 RSUs vest three years from the date of grant; provided that the nonemployee director continues to serve as a member of our Board on such date and has continuously served on our Board since the date of grant. Except as provided below, all RSUs (and any shares of restricted stock held by a nonemployee director) that have not previously vested will be forfeited on the date that the non-employee director’s service to the Company terminates. However, if a person ceases to be a nonemployee director by virtue of death, disability or retirement, the RSUs (and any restricted stock) will vest immediately and become free of all transfer restrictions.

 

Upon the occurrence of a change of control, as defined in the Incentive Plan, (a) options granted to nonemployee directors will be canceled in exchange for a cash payment equal to the appreciation in value of the options over their respective exercise price and (b) restricted stock and RSUs will be deemed fully vested. For a further description of the change in control provision under the Incentive Plan, please see the “Potential Payments Upon Termination or Change in Control” section of this proxy statement set forth below.

2010 DIRECTOR COMPENSATION TABLE

 

The following table presents compensation earned by each nonemployee director for 2010. Compensation information for Mr. Pennypacker is contained in the Summary Compensation Table set forth below. Mr. Pennypacker did not receive any compensation for service on the Board.

 

 

 

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

 

Our nonemployee directors have been previously granted equity awards in the form of stock options, restricted stock and RSUs pursuant to the Incentive Plan. The following table presents information regarding outstanding stock options, restricted stock and RSUs as of December 31, 2010.

 

 

 

 

 

 

 

2011 Nonemployee Director Compensation

 

In February, 2011, the Governance Committee reviewed our nonemployee director compensation program and determined that it was appropriate to retain the 2010 compensation levels for 2011, the details of which are discussed above.

 

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

 

Overview

 

Gardner Denver is a performance-driven company that has a track record of delivering increased stockholder value. Rigorous execution of our business plan and a commitment to the Gardner Denver Way are pillars of our management team and management process. As a result, we have achieved the following total stockholder return over the past five years:

 

 

Our executive compensation program, with its pay-for-performance philosophy, is a part of our consistent and rigorous management process. We believe it has effectively motivated and rewarded Gardner Denver executives to meet the challenges of our global business, embrace the Gardner Denver Way and deliver stockholder value.

 

We continually evaluate the individual elements of our executive compensation program in light of market conditions and governance requirements and make changes where appropriate for Gardner Denver’s business. We believe that the core of our executive compensation program provides opportunities to reward superior individual and Company performance and drives the creation of sustainable stockholder value.

 

Executive Summary

 

Our executive compensation program is designed to meet three principal objectives:

 

 

We believe these objectives collectively link compensation to overall Company performance, which helps to ensure that the interests of our executive officers are aligned with the interests of our stockholders.

In the past few years, our named executive officers reacted quickly and decisively to changing economic circumstances to protect the Company and to deliver value to our stockholders. Our named executive officers responded to challenging economic conditions by continuing to embrace the Gardner Denver Way and focusing on executing the Company’s business plan. The Compensation Committee believes that our executive compensation program has played a significant role in our ability to drive strong financial results and the creation of stockholder value, which is demonstrated by the accomplishments of our named executive officers over the last fiscal year.

 

In setting the CEO’s and other named executive officers’ compensation, the Compensation Committee considered, among other things, the Company’s financial performance, the competitive pay data provided by Meridian and/or the contributions made by each executive to the Company’s operational improvements. When considering financial performance, the Compensation Committee reviews changes in revenues, earnings and cash flow year over year as well as progress toward the strategic goals established by management and approved by the Board.

 

The Compensation Committee discussed the 2010 goals that had been set for the CEO and each named executive officer, noting the following accomplishments:

 

 

Executive Management Changes in 2010

 

Michael M. Larsen joined the Company as Vice President and Chief Financial Officer in October 2010. Mr. Larsen succeeded Helen W. Cornell, who had served as our Chief Financial Officer since 2004. Mrs. Cornell remained with the Company until her retirement in November 2010 in order to assist in the orderly transition of her responsibilities to Mr. Larsen.

 

Barry L. Pennypacker, Michael M. Larsen, Helen W. Cornell, Brent A. Walters, Armando L. Castorena and T. Duane Morgan, who are all listed in the Summary Compensation Table set forth below, were our named executive officers for 2010.

 

Compensation Philosophy and Elements

 

The fundamental philosophy underlying our executive compensation program is to:

 

 

 

Our executive compensation program includes incentive arrangements that align participants’ objectives with the Company’s critical business values, strategies and performance objectives, and are clear and simple to understand. This understanding focuses the executives’ efforts on the performance objectives that drive Gardner Denver’s success and encourages them to make long-term commitments to the Company.

 

The program offers a balanced approach to compensation and consists of the following primary elements:

 

 

Role of Compensation Consultants

 

The Compensation Committee retained Meridian Compensation Partners, LLC (“Meridian”) in 2010 to evaluate and provide independent advice and consultation regarding our executive compensation program. At the Compensation Committee’s direction, Meridian:

 

 

In 2010, Meridian did not provide any services to the Company, or receive any payments from the Company, other than in their capacity as a consultant to the Compensation Committee and the Nominating and Corporate Governance Committee. See “Compensation of Directors” above for a description of the services provided by Meridian to the Nominating and Corporate Governance Committee.

 

Competitive Market Pay Information and Philosophy

 

In 2010, the Compensation Committee engaged Meridian to assist it in evaluating our executive compensation program. In determining the compensation for our Chief Executive Officer (“CEO”) and our other named executive officers, the Compensation Committee reviews a competitive pay analysis prepared by Meridian. Meridian conducted an external market study of compensation levels for senior executive management employees, including our named executive officers. The review included the value of the following components of compensation: (a) base salary; (b) target annual cash bonuses; and (c) target long-term incentives.

 

Meridian compiled the competitive pay data from U.S. Total Compensation Measurement (“TCM”), a proprietary database developed and maintained by Hewitt Associates LLC. The TCM database was established in 1981 and contains competitive pay data on approximately 800 large industrial, financial and service organizations, including program designs of total direct compensation for more than 300 executive management positions.

Meridian compiled the competitive pay data for a custom peer group and a general industry group. For 2010, the custom peer group was comprised of the following companies:

 

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

 

The companies in the custom peer group are either direct business competitors, capital markets competitors or labor market competitors, and have similarities to the Company in terms of size, revenues, relative capital intensity and industry sector. The companies comprising the custom peer group had median annual revenues of $2.5 billion.

 

The general industry group was comprised of approximately 100 companies included in the TCM database, exclusive of retail, financial and utility companies, with median annual revenues of $2.7 billion. The general industry group consists of companies that are similar in size to the Company and against which the Compensation Committee believed that the Company competes for executive talent.

 

The Compensation Committee used the custom peer group as its primary source in analyzing the competitiveness of our named executive officers’ compensation and used the general industry peer group as supplementary information and to provide a comparison on a general industry basis.

 

Meridian, with the assistance of the Compensation Committee, annually reviews the companies comprising the custom peer group and the general industry group in order to maintain its appropriateness for compensation comparison purposes. There were no changes in the custom peer group composition from 2009 to 2010.

 

In assessing the competitiveness of our executive compensation program, Meridian provided the Compensation Committee with information regarding the compensation levels and programs at the 50^th percentile for the custom peer group and the general industry group. In general, the Compensation Committee aims to set each named executive officer’s base salary, target annual cash bonus, target annual cash compensation (i.e., base salary and target annual cash bonus), target long-term incentives, and target total direct compensation (i.e., target annual cash compensation and target long-term incentives) at the 50^th percentile of the custom peer group.

 

In setting the compensation of our named executive officers, a number of different internal and external factors can, from time to time, affect appropriate levels of executive compensation, including, without limitation individual performance, Company performance, scope of responsibilities, tenure with the Company, time in position and desired pay mix. Based upon one or more of these other factors, base salaries, target annual cash bonus, target annual cash compensation, target long-term incentives and/or target total direct compensation of each named executive officer could be +/-15% of the 50^th percentile of the custom peer group. The Compensation Committee believes it has achieved the objectives of the Company’s compensation philosophy in setting the compensation of our named executive officers.

 

Notwithstanding the above, Mr. Larsen joined the Company after Meridian completed its 2010 competitive pay analysis. Mr. Larsen’s 2010 compensation was ultimately based upon competitive pay data and advice provided by Meridian.

Setting Total Compensation

 

Annually, the Compensation Committee establishes the compensation of our named executive officers, including their performance goals and bonus opportunities. The Compensation Committee works with the Chief Executive Officer (“CEO”), Chief Financial Officer, Vice President of Human Resources, and General Counsel to, among other things, enable the Compensation Committee to formulate the specific plan and award designs, performance goals, and performance levels (i.e., threshold, target, and maximum) necessary to align the Company’s executive compensation program with the Company’s business strategies and goals. In particular, the Compensation Committee considers the CEO’s review of the performance of the other named executive officers.

 

In 2010, the Compensation Committee held private discussions with Mr. Pennypacker, our CEO, concerning the other named executive officers’ individual performance. The Compensation Committee takes Mr. Pennypacker’s evaluations of the other named executive officers into account when setting their compensation and performance goals. The Compensation Committee conducts its own performance evaluation of the CEO and no management recommendation is made with regard to his compensation. The Compensation Committee’s assessment of the named executive officers’ individual performance is a subjective evaluation of their accomplishments and contributions to the Company.

 

All final decisions regarding the compensation of the named executive officers are made by the Compensation Committee. While members of management attend the Compensation Committee’s meetings upon invitation, they do not attend either executive sessions or portions of any other meetings of the Compensation Committee where executive compensation determinations are made by the Compensation Committee.

 

CEO Compensation. In setting the CEO’s compensation, the Compensation Committee considered the competitive pay data provided by Meridian, the contributions made by Mr. Pennypacker to the Company’s operational improvements and his tenure with the Company. Specifically, the Compensation Committee evaluated the CEO’s day-to-day performance and leadership, noting that in his third year as CEO, Mr. Pennypacker has transformed the Company’s culture to be more performance driven, implemented lean manufacturing principles, driven the Gardner Denver Way into the fabric of the Company, and provided strong leadership resulting in excellent performance during the continuing difficult economic environment.

 

Other Named Executive Officer Compensation. In setting compensation for the other named executive officers (except for Mr. Larsen), the Compensation Committee considered competitive pay data, tenure with the Company, and the CEO’s evaluations of their individual accomplishments and contributions to the Company. The Compensation Committee also took into account its own evaluations of such executive officers based on their frequent interactions with the Board of Directors. The Compensation Committee considered the following accomplishments and contributions:

 

 

2010 Executive Compensation Decisions

 

The Compensation Committee reviews and considers each pay component before making any executive compensation decisions. Each year as the Compensation Committee determines executive compensation, it reviews tally sheets prepared by the Vice President of Human Resources for each of the named executive officers. The tally sheets detail each component of executive compensation, including, base salary, target annual cash bonuses, target long-term incentives, retirement benefits and other perquisites. The tally sheets also reflect the current value of all outstanding equity awards, deferred compensation accounts, and estimated retirement benefit values. The Compensation Committee uses the tally sheets to (a) understand all obligations for present and future compensation; (b) confirm that compensation is consistent with the philosophy and objectives of the Company’s executive compensation program, and (c) understand the total value of the Company’s compensation and benefit programs when considering changes in compensation components, program design and pay mix. In 2010, the Compensation Committee did not make any specific adjustments to the named executive officers’ compensation as a result of its review of tally sheets.

 

The Compensation Committee made its annual pay decisions for each of the compensation components as outlined below.

 

Annual Cash Compensation.

 

Base Salary: We provide the named executive officers with a base level of income for the expertise, skills, knowledge and experience they offer to the Company’s management team.

 

In 2010, our named executive officers received the following base salary increases:

 

 

Messrs. Pennypacker, Walters, Castorena and Morgan each received the above merit increases to closer align their base salaries with the 50th percentile of the custom peer group and in recognition of their individual accomplishments and contributions discussed above. Each named executive officer’s base salary fell below the 50^th percentile of the custom peer group. The Compensation Committee subjectively determined this to be appropriate in light of the named executive officer’s tenure with the Company and/or time in their current position with the Company.

 

Annual Cash Bonus. For 2010, the Compensation Committee established annual cash bonus opportunities to focus the named executive officers on the achievement of critical, short-term financial and individual goals that are intended to drive sustainable stockholder value over time. The annual cash bonus opportunities are comprised of (a) a cash bonus based upon the achievement of certain performance goals of the Company under our Executive Annual Bonus Plan (the “Annual Bonus Plan”) and (b) a cash bonus based upon the achievement of certain breakthrough goals of individual performance (the “Breakthrough Goals”). Historically, except for 2009 and 2010, there was only one annual cash bonus opportunity that was based upon the achievement of pre-determined performance goals of the Company. However, in 2009 and 2010, in an effort to incentivize the achievement of specific individual performance goals by our named executive officers, the Compensation Committee created the second bonus opportunity based upon the Breakthrough Goals.

Under the terms of Mr. Larsen’s offer letter, his minimum annual cash bonus for 2010 was negotiated to be $140,000, which was the estimated bonus he was no longer going to receive as a result of his resignation from his prior employer.

 

Annual Cash Bonus under the Annual Bonus Plan.

 

In February 2010, the Compensation Committee established the performance goals and the maximum, target, and threshold achievement levels for each of the named executive officers (except for Mr. Larsen who joined the Company in October 2010) under the Annual Bonus Plan. Messrs. Pennypacker, Walters and Castorena and Mrs. Cornell’s performance goals were based on the Company’s 2010 “Company adjusted net income” (weighted at 48%) and “Company adjusted operating cash flow” (weighted at 32%), as such terms are defined below. Mr. Morgan’s performance goals were based on the Engineered Product Group’s “group adjusted operating earnings” (weighted at 50%) and “group adjusted operating cash flow” (weighted at 10%), as such terms are defined below, as well as Company adjusted net income and Company adjusted operating cash flow (weighted at 12% and 8%, respectively).

 

“Company adjusted net income” is defined as the Company’s income before taxes, excluding impairment charges and restructuring charges in excess of budget, less taxes which exclude the tax effect of the excluded items and non-recurring tax-related adjustments.

 

“Company adjusted operating cash flow” is defined as the Company’s net cash provided by operating activities, excluding excess tax benefits from stock-based compensation.

 

“Group adjusted operating earnings” is defined as the Engineered Product Group’s operating earnings excluding impairment charges, corporate allocations, other non-operational items and restructuring charges in excess of budget.

 

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

 

Adjusted net income was set as a performance goal to reflect the effect of management’s performance on stockholder return. Adjusted operating cash flow was set as a performance goal to reflect the continued importance of cash flow in providing funds to pursue our growth strategies, accelerate our debt repayment, and maintain our dividend policy. Adjustments to the financial measurements were made by the Compensation Committee to avoid volatile, inflation or deflation of the cash bonus due to either unusual items in the performance period or items that are not indicative of the core operating performance of the Company or group, as applicable.

 

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

 

Under the terms of the Annual Bonus Plan, the Compensation Committee may, in its discretion, reduce or eliminate entirely the amount of any annual cash bonus payable to any named executive officer upon attainment of the performance goals, but any such reduction may not increase the awards of another named executive officer. In 2010, the Compensation Committee did not exercise its discretion to decrease any portion of the named executive officers’ cash bonus payout under the Annual Bonus Plan.

 

Annual Cash Bonus under the Breakthrough Goals.

 

In February 2010, the Compensation Committee established the Breakthrough Goals (weighted at 20%) and the maximum, target, and threshold achievement levels for each of the named executive officers (except for Mr. Larsen who joined the Company in October 2010).

 

In establishing the Breakthrough Goals, the Compensation Committee asked Mr. Pennypacker to develop individual goals for each of the other named executive officers that were directly related to our strategic plan and

would better position the Company once the economy improved. The Compensation Committee, with input from the Chairman and Mr. Pennypacker, developed Mr. Pennypacker’s Breakthrough Goals, which were also directly related to our strategic plan. Each of our named executive officer’s Breakthrough Goals included operational improvements in their respective areas of responsibility. Throughout 2010, the named executive officers reported quarterly to the Board on the progress being made in the achievement of their goals.

 

Mr. Pennypacker’s Breakthrough Goals included:

 

 

Mr. Walters’ Breakthrough Goals included managing the Company’s world-wide legal budget, improving the quality of the legal department’s service to the Company’s operations, further enhancing the Company’s compliance program, managing the Company’s litigation portfolio, and further enhancing the Company’s environmental, health and safety program.

 

Mr. Castorena’s Breakthrough Goals included creating leadership development programs, implementing human resources processes and internal communications that drive a performance-based culture, reducing management and administration costs, further implementing automated human resources processes, assisting the Company in hiring world-class employees, developing and executing a competitive total rewards strategy, and assisting with the Company’s compliance with applicable labor laws.

 

Mr. Morgan’s Breakthrough Goals included growing aftermarket sales, achieving material cost reductions, driving new product sales, improving delivery time performance, growing sales in emerging markets, developing growth strategy for key businesses, and improving inventory turns.

 

Mrs. Cornell’s Breakthrough Goals included reducing costs throughout the finance organization, overseeing the Company’s selective acquisitions, improving efficiency in the finance organization and continuing to consolidate our legal entities worldwide.

 

In 2010, the Compensation Committee set each named executive officer’s total cash payout under the Annual Bonus Plan and Breakthrough Goals at targets ranging from 45-90% of his or her respective base salary, and payments can be increased to a maximum range of 200% of target for maximum performance and decreased to 40% of target for threshold performance. Bonus payments increase as performance levels increase. With respect to the total cash payout for 2010, the Compensation Committee established the following target percentages of base salary for our named executive officers:

 

 

Set forth below is the 2010 annual cash bonus opportunities for Messrs. Pennypacker, Walters and Castorena and Mrs. Cornell with respect to the total cash payout under the Annual Bonus Plan and Breakthrough Goals.

 

 

Set forth below is the 2010 annual cash bonus opportunities for Mr. Morgan with respect to the total cash payout under the Annual Bonus Plan and Breakthrough Goals.

 

 

Set forth below are the 2010 Company performance goals under the Annual Bonus Plan and the Company’s actual performance.

 

2010 ANNUAL BONUS PLAN CORPORATE CRITERIA

 

 

In February 2011, the Compensation Committee evaluated and determined the degree to which the performance goals under the Annual Bonus Plan for 2010 had been met. To the extent the Company’s actual performance falls between the threshold, target and maximum achievement levels, the cash bonus is linearly interpolated. Based on this analysis, the Compensation Committee awarded Messrs. Pennypacker, Walters, Castorena, and Morgan, and Mrs. Cornell a cash bonus of $1,113,475, $196,532, $205,308, $228,146, and $334,912, respectively, under the Annual Bonus Plan. Mrs. Cornell’s payout was prorated based on the date of her retirement.

 

In February 2011, the Compensation Committee subjectively evaluated and determined the degree to which the Breakthrough Goals for 2010 had been met. Based on this analysis, the Compensation Committee awarded Messrs. Pennypacker, Walters, Castorena, and Morgan, and Mrs. Cornell $216,000, $34,312, $45,137, $66,250, and $43,313, respectively, for achievement of the Breakthrough Goals. Mrs. Cornell’s amount was prorated based on the date of her retirement.

 

For 2010, the total cash payout under the Annual Bonus Plan and Breakthrough Goals to Messrs. Pennypacker, Walters, Castorena, and Morgan, and Mrs. Cornell were $1,329,475, $230,844, $250,445, $294,396 and $378,225, respectively. Pursuant to the terms of Mr. Larsen’s offer letter, he received a minimum cash bonus of $140,000 for 2010. In 2010, each of the named executive officer’s target annual cash bonus, as well as their annual cash compensation (i.e., base salary and target annual cash bonus) fell below the 50^th percentile of the custom peer group.

The Compensation Committee subjectively determined this to be appropriate in light of the named executive officer’s tenure with the Company and/or time in their current position with the Company.

 

Long-Term Incentive Compensation

 

Under the Incentive Plan, the named executive officers are eligible to receive awards in the form of stock options, RSUs and a long-term cash bonus. Generally, these awards are granted annually at our February Compensation Committee meeting, which occurs after the presentation of our annual financial results. The purpose of these awards is to promote the Company’s long-term financial interests by encouraging the named executive officers to acquire an ownership position in the Company and to provide incentives for specific individual performance.

 

The allocation of the 2010 target long-term incentives for the named executive officers (other than Mr. Larsen) was as follows:

 

 

This allocation is based on the target long-term cash bonus opportunity and the grant date fair value of the stock options and RSUs granted to the named executive officers in February 2010. The amount of Mr. Larsen’s 2010 stock option and RSU awards were intended to be equal to the value of forfeited awards from his prior employer as a result of Mr. Larsen joining the Company in October 2010.

 

Long-Term Equity Incentives. In 2010, our named executive officers received long-term equity incentives consisting of stock options and RSUs, with such equity incentives constituting a material portion of their total direct compensation.

 

Stock options are designed to encourage the named executive officers to increase stockholder value as stock options only have value when the price of our common stock increases over the stock option’s exercise price. RSUs are designed to encourage retention of the named executive officers as they are contractual rights to receive a specified number of shares of our common stock in the future. Generally, (a) stock options have an exercise price equal to the closing sale price of our common stock on the date of grant and become exercisable in one-third annual increments commencing on the one-year anniversary of the option’s grant date and (b) RSUs vest at one time, three years from the date of grant.

 

The Compensation Committee believes that using stock options and RSUs creates a better balance between risk and reward than stock options alone and further strengthens retention, reinforces incentives for performance, and encourages an ownership interest in the Company.

The Compensation Committee awarded the following equity incentive awards to our named executive officers in 2010:

 

 

 

 

Except for Mr. Larsen, the specific number of stock options and RSUs granted to the named executive officers were based primarily upon competitive pay data and the advice and counsel of Meridian and Mr. Pennypacker (except with respect to his own long-term equity incentives). The Compensation Committee also considered the individual accomplishments and contributions discussed above, the scope of such named executive officer’s responsibilities, and tenure with the Company. The allocation of the 2010 equity awards between stock options and RSUs was based upon competitive pay data and the advice and counsel of Meridian.

 

Long-Term Cash Bonus Awards. Under the Incentive Plan, the Compensation Committee may also grant long-term cash bonus awards to the named executive officers. Long-term cash bonuses are tied to the achievement of Company performance targets over a pre-determined performance period, which historically has been three years.

 

The long-term cash bonus awards are based on any one or more of the following performance measures:

 

 

The Compensation Committee believes that the long-term cash bonus awards provide a strong incentive for the named executive officers to achieve the Company’s long-term strategic and financial goals that ultimately drive the creation of sustainable stockholder value. The Incentive Plan permits the cash bonuses to be denominated in either cash or restricted stock awards. Historically, the Compensation Committee has paid the bonuses in cash to appropriately balance the named executive officers’ long-term compensation opportunities between cash and equity. These awards also encourage retention among the named executive officers.

 

In February 2010, the Compensation Committee granted a long-term cash bonus award tied to a compound growth rate of earnings before taxes (“EBT”) (subject to adjustment as provided under the Incentive Plan) for our industrial businesses, during the three-year period beginning January 1, 2010 through December 31, 2012. The threshold, target, and maximum achievement levels that must be met by the end of the performance period are based upon the following compound growth rates of EBT (subject to adjustment as provided under the Incentive Plan) for our industrial businesses over the performance period.

 

The Compensation Committee believes the specific performance targets are appropriately challenging and consistent with achieving the Company’s long-term growth and profitability goals. In particular, the threshold, target, and maximum achievement levels are set so that the relative difficulty of meeting the target level is believed to be consistent from year to year. The specific performance targets for EBT are considered competitively sensitive information and disclosure thereof would reveal the Company’s tactical operations, sales and marketing initiatives resulting in a significant disadvantage for the Company in the marketplace. Since the Compensation Committee began granting long-term bonus award opportunities in 2001, the Company has achieved performance in excess of the maximum level five times and did not achieve threshold performance three times, including in 2010.

 

Assuming that at least the threshold achievement level is met, the long-term cash bonus is calculated by multiplying: (a) the product of (i) the respective named executive officer’s base salary (at the end of the performance period) by (ii) such officer’s respective base salary factor (as set forth below); by (b) the applicable achievement level met (i.e., threshold (50%), target (100%) or maximum (200%)) at the end of the three-year measurement period. With respect to the 2010 long-term cash bonus award that is potentially payable in 2013, the Compensation Committee established the following base salary factors for the named executive officers:

 

 

The Compensation Committee determined the above base salary factors based on advice from Meridian and with the intention that such factors would result in a long-term cash bonus opportunity equaling approximately one-third of each respective named executive officer’s target long-term incentives.

 

The Compensation Committee believes growth in EBT provides an appropriate and objective measure of the Company’s long-term performance because it is closely tied to the creation and retention of stockholder value. The Compensation Committee’s objective is to set an achievable, yet challenging target (100% payout).

 

In February 2011, the Compensation Committee evaluated and determined the degree to which the criteria for long-term cash bonus award opportunities granted in 2008 to the eligible named executive officers (i.e., Messrs. Pennypacker, Walters, Castorena and Morgan and Mrs. Cornell) under the Incentive Plan (the “2008 L-T Bonus”) had been met. Any 2008 L-T Bonus earned by Messrs. Walters and Castorena would be pro rated based upon their time of service with the Company. The criteria for the 2008 L-T Bonus was tied to the compound growth rate of EBT (as may be adjusted) for our industrial businesses, which excluded petroleum products, during the period January 1, 2008 through December 31, 2010. Based on its analysis of the Company’s performance, the Compensation Committee determined that the threshold level of growth in EBT was not achieved and no bonuses were paid to participating executives under the 2008 L-T Bonus Opportunity.

 

In 2010, each of the named executive officer’s target long-term incentives, as well as target total direct compensation (i.e., base salary, target annual cash bonus and target long-term incentives), fell below the 50th percentile of the custom peer group. The Compensation Committee subjectively determined this to be appropriate in light of the named executive officers’ tenure with the Company and/or time in their current position with the Company. Mr. Larsen’s 2010 total direct compensation was based upon competitive pay data and advice provided by Meridian.

 

Retirement Benefits

 

The Company provides its employees, including the named executive officers, with various retirement benefits. The retirement plans are designed to assist employees, including the named executive officers, in planning for retirement and securing appropriate levels of income during retirement. The purpose of the retirement plans is to attract and retain quality employees as these types of benefits are typically offered by the Company’s competitors.

Pension Plan. The Company maintains a Pension Plan and previously maintained a Supplemental Excess Defined Benefit Plan for the benefit of certain employees as defined in the Pension Plan. Effective November 1, 2006, the Company implemented certain revisions to the Pension Plan and future service credits under the Pension Plan ceased effective October 31, 2006. Also at this time, the Supplemental Excess Defined Benefit Plan was merged into the Supplemental Excess Defined Contribution Plan. All of the named executive officers except for Messrs. Pennypacker, Larsen, Walters, and Castorena, are fully vested in the Pension Plan and the benefit while covered under the Supplemental Excess Defined Benefit Plan. Messrs. Pennypacker, Larsen, Walters and Castorena joined the Company after November 1, 2006 and will not receive any benefits under the Pension Plan or as a participant under the former Supplemental Excess Defined Benefit Plan.

 

Retirement Savings Plan. The Retirement Savings Plan is a tax-qualified retirement savings plan. All full-time or eligible part-time U.S. employees, including the named executive officers, are eligible to participate in the Retirement Savings Plan. Employees may contribute from 1% to 100% of compensation tax deferred to the plan up to the applicable IRS limit. We match employee contributions on the first 3% of employee compensation ($1 for each $1) and on the second 3% of employee compensation ($0.50 for each $1). The Company match is contributed in the form of our common stock. Participants may transfer out of our common stock to one of twenty investment funds at any time. Beginning November 1, 2006, employees at certain eligible locations also receive a non-elective Company contribution equal to the former Pension Plan credits. The non-elective Company contribution is equal to 4% of total compensation paid, up to the Social Security wage base for the year, plus 8% of total compensation paid in excess of the Social Security wage base up to the IRS annual compensation limit. For purposes of the non-elective Company contribution, total compensation is cash remuneration paid during the year by the Company to or for the benefit of a participant, including base salary for the current year, annual cash bonus earned during the prior year but paid in the current year for our named executive officers and the long-term cash bonus opportunity earned over the prior three-year period but paid in 2010. All employee and Company matching contributions are fully vested immediately and the non-elective Company contribution becomes fully vested after three years of employment. All of the named executive officers are fully vested in the non-elective Company contribution portion of the Retirement Savings Plan, except for Messrs. Larsen, Walters, and Castorena, who will fully vest on the third anniversary of their employment with the Company.

 

Supplemental Excess Defined Contribution Plan. In addition to the Retirement Savings Plan, employees receiving a base pay of $110,000 or higher, including the named executive officers, are eligible to participate in the Supplemental Excess Defined Contribution Plan which is funded by the Rabbi Trust. This plan provides executives with a similar level of benefits afforded to all other employees who are not subject to the limitations imposed by the IRS on our tax qualified Retirement Savings Plan.

 

Employees start contributing to the Supplemental Excess Defined Contribution Plan when they exceed the IRS pre-tax limits and the catch up limit for participants age 50 or over. The Company matches the first 3% of employee contributions $1 for each $1 and the second 3% of employee contributions $0.50 for each $1. Company matching contributions under the Supplemental Excess Defined Contribution Plan are contributed in the form of cash rather than our common stock. All employee and Company matching contributions are fully vested immediately.

 

The named executive officers are also credited with a non-elective Company contribution of 12% of recognized compensation in excess of the IRS limit. The Company non-elective contributions are also contributed in cash. The non-elective Company contribution becomes fully vested after three years of employment. All of the named executive officers are fully vested in the non-elective Company contribution portion of the Supplemental Excess Defined Contribution Plan, except for Messrs. Larsen, Walters, and Castorena, who will fully vest on the third anniversary of their employment with the Company.

 

Other Perquisites

 

Standard Employee Benefits. In addition to the compensation and retirement plans listed above, all of the Company’s U.S. employees, including the named executive officers, are eligible to receive health, dental, disability and life insurance coverage. Additionally, all employees are entitled to vacation, sick leave and other paid holidays. The commitment to provide employees with these benefits recognizes the Compensation Committee’s belief that the health and well-being of the Company’s employees directly impacts its overall success.

Perquisites. The Compensation Committee believes that the perquisites it provides conform to the overall executive compensation program and assist in recruiting and retaining key executives. The cumulative values of such perquisites are included in the “All Other Compensation” column of the Summary Compensation Table set forth below and are individually accounted for in the “All Other Compensation Table” set forth below.

 

The following perquisites are offered to the named executive officers: