Notice Of Annual Meeting Of Shareholders

 

 

March 24, 2009

 

Dear Fellow Shareholder:

 

You are cordially invited to attend our Annual Meeting of Shareholders at Embassy Suites Palm Desert, 74-700 Highway 111, Palm Desert, California 92260, on May 7, 2009, at 1:00 p.m. local time, to be held for the following purposes:

 

 

All holders of record at the close of business on March 10, 2009 are entitled to vote at the meeting or any adjournments thereof. We urge you to vote your shares as soon as possible.

 

By authority of the board of directors,

 

Joseph W. Schmidt

Secretary

 

PROXY STATEMENT

 

 

TABLE OF CONTENTS

 

www.dovercorporation.com

280 Park Avenue

New York, New York 10017

PROXY STATEMENT

GENERAL INFORMATION ABOUT THE ANNUAL MEETING

 

We are providing this proxy statement to our shareholders in connection with the solicitation of proxies by the board of directors for use at our 2009 Annual Meeting of Shareholders (the “Meeting”).

 

As of the close of business on March 10, 2009, the record date for determining shareholders eligible to vote at the Meeting, we had outstanding 186,013,418 shares of common stock. Each share of common stock is entitled to one vote on each matter.

 

We have made available to you over the Internet or delivered paper copies of our proxy statement, a proxy card and our Annual Report (of which our 2008 Annual Report on Form 10-K is a part) in connection with the Meeting. This year, we are pleased to be using the SEC’s rules that allow companies to furnish their proxy materials over the Internet. As a result, we are mailing to many of our shareholders a notice about the Internet availability of the proxy materials instead of a paper copy of the proxy materials. All shareholders receiving the notice will have the ability to access the proxy materials over the Internet and to request a paper copy by mail by following the instructions in the notice. In addition, the notice contains instructions for electing to receive proxy materials over the Internet or by mail in future years.

 

The shares covered by your proxy will be voted in accordance with your voting instructions. If you vote by proxy card and sign the card without giving specific instructions, the shares covered by your proxy will be voted as follows:

 

 

For purposes of the Meeting, there will be a quorum if the holders of a majority of the outstanding shares of our common stock are present in person or by proxy. Abstentions and broker non-votes will be included in determining whether a quorum exists. A majority of the votes cast at

the Meeting is required to elect directors. This means that the number of votes cast “FOR” a director must exceed the number of votes cast “AGAINST” that director in order for that director to be elected. Abstentions and broker non-votes will not count as a vote cast with respect to that director and will have no effect on the outcome of the vote. Proposals 2, 3, 4 and 5 will require the affirmative vote of a majority of shares present in person or by proxy and entitled to vote at the Meeting. For Proposals 2, 3, 4 and 5, abstentions and broker non-votes will have the same effect as a vote against the proposal. Our organizational documents do not provide for cumulative voting.

 

You may vote over the Internet, by telephone, or by mail by following the instructions provided in the notice or the printed copy of the proxy materials. If you hold your shares in “street name” through a broker or other nominee, you must follow the instructions provided by your broker or nominee to vote your shares. If you are a shareholder of record, whether you give your proxy over the Internet, by telephone or by mail, you may revoke it at any time before it is exercised. You may enter a new vote by using the Internet or the telephone or by mailing a new proxy card bearing a later date so it is received prior to the Meeting.

 

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

 

If you are a shareholder of record and wish to receive a separate copy of the proxy statement, now or in the future, at the same address, or you are currently receiving multiple copies of the proxy statement at the same address and wish to receive a single copy, please write to or call the Corporate Secretary, Dover Corporation, 280 Park Avenue, 34W, New York, NY 10017, telephone: (212) 922-1640.

 

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

 

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

 

There are twelve nominees for election to our board at this meeting. If any nominee for election becomes unavailable to serve as a director before the meeting, an event which we do not anticipate, the persons named as proxies will vote for a substitute nominee or nominees as may be designated by our board of directors. Directors will be elected by a majority of the votes cast for and against them. All of the nominees for director for election at the Meeting currently serve on our board and are being proposed by our board. Each director elected at the Meeting will serve until the election and qualification of his or her successor.

 

 

THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS A VOTE “FOR” EACH OF THE NOMINEES.

 

 

Our board of directors met eight times during 2008. Our board has three standing committees — the audit committee, the compensation committee and the governance and nominating committee. Each of these committees has a written charter which is available on our website at www.dovercorporation.com. In 2008, each director attended at least 75% of the meetings of our board of directors and the standing committees of which he or she was a member.

 

Audit Committee

 

The audit committee is currently composed of four directors. All of its members satisfy all the criteria for being “independent” members of our board and the audit committee established by the SEC and the New York Stock Exchange Listing Standards (“NYSE Listing Standards”) and also our standards for classification as an independent director (the “Dover Independence Standards”) which are available on our website at www.dovercorporation.com. In addition, our board of directors has determined that all members of the audit committee qualify as “audit committee financial experts” as defined in SEC rules. The primary functions of the audit committee consist of:

 

 

The audit committee’s responsibilities, authority and resources are described in greater detail in its written charter. In 2008, the audit committee held eight meetings. The members of the audit committee are Mary A. Winston (Chair), Thomas J. Derosa, Bernard G. Rethore and Michael B. Stubbs. See “Items to be Voted Upon — Proposal 5 — Ratification of Appointment of Independent Registered Public Accounting Firm — Audit Committee Report” elsewhere in this proxy statement.

 

Compensation Committee

 

The compensation committee is composed of five directors. All of its members satisfy all the criteria for being “independent” members of our board established by the SEC and the NYSE

Listing Standards, as well as the Dover Independence Standards. The compensation committee, together with our other independent directors, approves compensation for our chief executive officer. The compensation committee also:

 

 

As noted above, the compensation committee annually reviews the performance of our chief executive officer and recommends his compensation for review and revision or approval by our independent directors acting as a group. The compensation of the executive officers who report directly to the chief executive officer is recommended by the chief executive officer to the committee, which reviews and revises or approves the recommendations as the committee deems appropriate. In making its executive compensation decisions, the committee utilizes tally sheets prepared by its benefits consultant, detailing all compensation payable to each senior executive officer, including potential post-termination benefits.

 

The compensation committee has the authority and discretion to retain external compensation consultants as it deems appropriate. The compensation committee has retained Mercer (US) Inc. (“Mercer”) to serve as its compensation consultant to provide information and analyses regarding executive compensation. The Mercer consultant who performs these services reports directly to the committee chair and follows Mercer guidelines to assure objectivity. The compensation committee generally does not ask its consultants to develop recommendations for the compensation of individual executive officers. Rather, the compensation committee looks to its consultant to periodically review and advise regarding the adequacy and appropriateness of our overall executive compensation plans, programs and practices and, from time to time, to answer specific questions raised by the committee or management. Compensation decisions are made by, and are the responsibility of, the compensation committee and our board, and may reflect factors and considerations other than the information and recommendations provided by the committee’s consultants. The compensation committee’s compensation consultant performs substantially no other services for us.

 

The compensation committee’s responsibilities, authority and resources are described in greater detail in its written charter. In 2008, the compensation committee held six meetings. The members of the compensation committee are Richard K. Lochridge (Chair), Robert W. Cremin, Jean-Pierre M. Ergas, Peter T. Francis and Kristiane C. Graham. See “Executive Compensation — Compensation Committee Report” elsewhere in this proxy statement.

 

Governance and Nominating Committee

 

The governance and nominating committee is composed of four directors. All of its members satisfy all the criteria for being “independent” members of the board established by the SEC and the NYSE Listing Standards, as well as the Dover Independence Standards. The governance and nominating committee develops and recommends corporate governance principles to our board. In addition, the governance and nominating committee identifies and recommends to our board candidates for election as directors and any changes it believes desirable in the size and composition of our board. For a discussion of the committee’s procedures for selecting nominees to our board, see “Items to be Voted Upon — Proposal 1 — Election of Directors — Qualifications and Nominations of Directors” elsewhere in this proxy statement. It also makes recommendations to our board concerning the structure and membership of our board’s committees. The governance and nominating committee’s responsibilities, authority and resources are described in greater detail in its written charter. The governance and nominating committee held four meetings in 2008. The

members of the governance and nominating committee are Robert W. Cremin (Chair), David H. Benson, Kristiane C. Graham and James L. Koley.

 

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

 

Governance Guidelines and Codes

 

Our board of directors has adopted written corporate governance guidelines that set forth the responsibilities of our board and the qualifications and independence of its members and the members of its standing committees. In addition, our board has adopted a code of business conduct and ethics setting forth standards applicable to all of our companies and their employees, a code of ethics for our chief executive officer and senior financial officers, and charters for each of its standing committees. All of these documents (referred to collectively as governance materials) are available on our website at www.dovercorporation.com and in print to any shareholder who requests them. Requests should be directed to the Corporate Secretary at Dover Corporation, 280 Park Avenue, New York, NY 10017. Each of our segments and operating companies has a written code of conduct that meets or exceeds the standards of our code of business conduct and ethics.

 

Advance Notice Provisions for Shareholder Proposals and Nominations of Directors

 

Our bylaws require advance notice of shareholder proposals and nominations of directors. In 2008, our board reduced the period in advance of a shareholder meeting by which the shareholder must notify us of proposals or nominations the shareholder intends to present at the meeting. Our shareholders must now notify us of such proposals or board nominations not earlier than 120 days and not later than 90 days (reduced from 150 days and 120 days) prior to the date of the first anniversary of the prior year’s meeting. If a shareholder wants to have a proposal included in our proxy statement for a meeting, the shareholder must comply with the requirements, including deadlines, of the SEC’s proxy rules.

 

Majority Standard for Election of Directors

 

In 2007, our board amended our by-laws and corporate governance guidelines to change the voting standard in director elections from a plurality to a majority of the votes cast. Under the majority standard, a director must receive more votes in favor of his or her election than votes against his or her election. Abstentions and broker non-votes do not count as votes cast with respect to a director’s election. In contested director elections (where there are more nominees than available seats on the board), the plurality standard will continue to apply.

 

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

Director Attendance at Shareholders Meetings

 

In 2008, our board of directors implemented a policy that directors are expected to attend the annual shareholders meeting. All but one of the directors attended the Annual Meeting of Shareholders held on May 1, 2008.

 

Director Stock Ownership

 

Our board has adopted a policy that directors are expected to hold at any time an amount of shares at least equal to the aggregate number of shares they received as the stock portion of their annual retainer during the past five years, net of an assumed 30% tax rate.

 

Director Independence

 

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

 

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

 

Directors’ Meetings; Self-evaluations

 

Our directors meet at regularly scheduled executive sessions without management representatives. Mr. Koley, as Chairman of the Board of Directors, has presided and will preside at these sessions. Our board and its committees conduct annual self-evaluations of their performance. Many independent directors periodically attend meetings of our segment boards and company presidents. At least one independent director serves as an advisory (non-voting) director of each of the four segments, and at least one independent director usually attends the segments’ regular board and company presidents’ meetings.

 

Audit Committee Procedures; Disclosure Controls and Procedures Committee

 

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

Complaints “Hotline”; Communication with Directors

 

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

 

Procedures for Approval of Related Person Transactions

 

We generally do not engage in transactions in which our senior executive officers or directors, any of their immediate family members or any of our 5% shareholders have a material interest. Should a proposed transaction or series of similar transactions involve any such persons and an amount that exceeds $120,000, it would be subject to review and approval by the governance and nominating committee in accordance with a written policy and the following procedures adopted by our board:

 

 

The written policy and procedures adopted by the board for related person transactions is available with the governance materials on our website. There were no related party transactions in or since 2008.

 

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

 

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

 

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

 

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

 

Non-employee director compensation for 2008 consisted of the following components:

 

 

 

The table below sets forth the compensation paid to our directors (other than Messrs. Hoffman and Livingston) for services in 2008.

 

 

 

 

The following table sets forth certain information regarding the beneficial ownership, as of March 10, 2009 (except as otherwise stated), of our common stock by:

 

 

The beneficial ownership set forth in the table is determined in accordance with the rules of the SEC. The percentage of beneficial ownership is based on 186,013,418 shares of common stock outstanding on March 10, 2009. In computing the number of shares beneficially owned by any shareholder and the percentage ownership of such shareholder, shares of common stock subject to options or stock settled stock appreciation rights (“SSARs”) held by that person that are currently exercisable or exercisable within 60 days of the record date are deemed to have been exercised and to be outstanding. Such shares, however, are not deemed to have been issued and to be outstanding for purposes of computing the percentage ownership of any other person. Shares held in the Dover Corporation Retirement Savings Plan (the “401(k) plan”) are reported as of March 10, 2009.

 

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

 

 

 

 

 

Section 16(a) of the Exchange Act requires that our directors and certain of our officers file reports of ownership and changes of ownership of our common stock with the SEC and the NYSE. Based solely on copies of such reports provided to us, we believe that all directors and officers filed on a timely basis all such reports required of them with respect to stock ownership and changes in ownership during 2008 except that Mr. Ralph Coppola was late in reporting an open market sale of shares and Ms. Kristiane C. Graham was late in reporting sales by one trust of which she is a beneficiary.

 

Our board of directors has unanimously approved, subject to shareholder approval, amendments to our 2005 plan. If approved by our shareholders, the amendments to the plan would:

 

 

If the shareholders do not approve the amendments to the plan, the current terms of the 2005 plan will remain in effect.

 

The full text of the 2005 plan, as amended by this proposal, is attached to this proxy statement as Appendix A. The material features of the 2005 plan are summarized below, but this summary is qualified in its entirety by reference to the full text of the 2005 plan.

 

The purpose of the 2005 plan is to promote our long-term success by providing long-term incentives that will assist in retaining and motivating our officers and other key employees of Dover and our subsidiaries who are in a position to affect materially our profitability and growth and on whom major responsibility rests for our present and future success.

 

The compensation committee intends grants and awards under the 2005 plan to incentivize behavior that will produce the greatest increase in value for shareholders over a performance period of three or more years. The proposed amendments are intended to enhance the compensation committee’s flexibility to select the best award structure to improve shareholder return and to increase the extent to which our executive compensation is performance-based. The amendments will also allow the compensation committee to structure awards based on our performance relative to that of our peers. The structure of the compensation committee’s proposed awards for 2009 and the performance targets relating to those awards are discussed in “Executive Compensation — Compensation Discussion and Analysis.”

 

The 2005 plan has a predetermined term of 10 years and will terminate on January 31, 2015. The compensation committee may make grants and awards at any time or from time to time before January 31, 2015, provided that no incentive stock options (“ISOs”) may be granted after February 11, 2014.

 

Our board may amend or terminate the 2005 plan as it deems advisable, except that approval of our shareholders is required for any amendment that would increase the maximum number of shares covered by the plan or change the class of employees eligible to receive awards; reduce the exercise price of any option or base price of any SSAR below its fair market value at the time of grant; extend to more than 10 years the maximum period from the date of option or SSAR grant to the

date of exercise; or make any other amendment or modification to the 2005 plan which requires shareholder approval pursuant to any applicable law or regulation or rule of the New York Stock Exchange.

 

The compensation committee, which currently consists of five independent members of the board who are also “outside directors” within the meaning of Section 162(m) of the Internal Revenue Code, administers the plan.

 

Officers and other key employees of Dover and our subsidiaries, as selected by the compensation committee, are eligible to participate in the 2005 plan.

 

Types of Awards

 

The 2005 plan provides for stock options and SSAR grants, restricted stock awards, cash performance awards and, subject to shareholder approval, performance share awards. A maximum of 20,000,000 shares of common stock may be issued under the 2005 plan, of which 12,832,804 currently remain available for grants, and of which only 10% (i.e. 2,000,000 shares) may be granted as restricted shares or performance shares. The maximum aggregate number of shares issuable under the plan is subject to adjustments resulting from stock dividends, stock splits, recapitalizations, reorganizations and other similar changes. The total original number of shares granted under any award under the 2005 plan that is exercised, vests or held until payment continues to count against the aggregate maximum number of shares available under the 2005 plan, even if such an award is settled in whole or in part in any way other than by the delivery of our common stock to a participant (including any netting or withholding of any shares to satisfy tax withholding obligations).

 

Stock Options and Stock-Settled Stock Appreciation Rights.  The compensation committee may grant SSARs and options under the 2005 plan. Grants of options under the plan may be ISOs or non-qualified stock options and permit the participant to acquire shares of common stock at an exercise price fixed on the date of grant during the life of the award. SSARs granted under the plan are “freestanding,” meaning they are granted separately from options and the exercise of SSARs is not linked in any way to the exercise of options. A SSAR allows the plan participant to receive the increase, if any, in the fair market value of the number of shares of common stock underlying the award during the life of the award over a base price set on the date of grant. The amount payable upon the exercise of the SSAR will be paid to the plan participant in shares of common stock.

 

The compensation committee determines the exercise price for options and the base price of SSARs, which may not be less than the closing price of our common stock on the NYSE on the date of grant. The compensation committee may not grant a single recipient options and SSARs covering more than 600,000 shares in any year.

 

The compensation committee determines any conditions to the exercisability of options and SSARs, including requirements of a period of continuous service by the participant (time vesting) or performance or other criteria. Options and SSARs may not generally be exercised prior to the third anniversary of the date of grant. The committee also determines the term of each award, provided that the maximum term of any option or SSAR is ten years from the date of grant. All options and SSARs granted under the 2005 plan have a 10-year term and are not exercisable for the first three years of that term.

 

A plan participant may pay the exercise price of an option in cash or by transfer of shares of our common stock owned by the participant or by a combination of these methods.

Stock options and SSARs are not transferable except by bequest or by inheritance, except that non-qualified options may be transferred to members of the holder’s immediate family (or a trust for the benefit of one or more of such family members), but any such transferred options cannot be further transferred by the transferee during the transferee’s lifetime.

 

Restricted Stock.  The compensation committee may make restricted stock awards to employees under the 2005 plan. The compensation committee may not grant a single recipient more than 600,000 shares of restricted stock in any year.

 

The compensation committee determines the vesting period, of not less than one year or more than five years, with respect to a restricted stock award and whether other restrictions, including the satisfaction of any performance targets, are applicable to the restricted stock award. The compensation committee also determines whether a holder of restricted stock is entitled to exercise voting rights with respect to such restricted stock during the restriction period and whether dividends payable with respect to restricted stock will be reinvested in additional shares of restricted stock for the account of the holder or distributed in cash to the holder of such stock.

 

Shares of restricted stock are not transferable, and may not be sold, assigned, transferred, pledged or otherwise encumbered, except as otherwise provided in the applicable award agreement.

 

Cash Performance Awards.  Under the 2005 plan, the compensation committee may grant a participant the opportunity to earn a cash performance award conditional upon the satisfaction, over a performance period of not less than three years, of certain pre-established objective performance targets based on specified performance criteria.

 

The compensation committee establishes a percentage of the value created at the relevant business unit (or our company as a whole) during the performance period that the maximum total payout for that business unit (or our company as a whole) may not exceed. The compensation committee determines such percentages and dollar amounts annually when the performance targets are established for the performance period beginning with that year. A cash performance payout for a performance period to a single recipient may not exceed $5 million for the relevant period.

 

Performance Share Awards.  Subject to shareholder approval of this Proposal 2, the compensation committee may grant performance share awards to employees that will become payable in shares of our common stock upon the achievement of objective pre-established performance targets based on specified performance criteria over a performance period of not less than three years. Awards may set a specific number of performance shares that may be earned, or a range of performance shares that may be earned depending on the degree of achievement of the pre-established performance targets. Shares of common stock in payment of performance shares will be issued only if the compensation committee has certified after the end of the performance period that the required performance targets have been met and the amount of the award. The maximum number of shares of our common stock that may be paid to a single participant in respect of performance shares for any performance period may not exceed 600,000.

 

Performance Criteria

 

Performance share awards will be, and other awards may be, made subject to performance criteria. The compensation committee establishes performance targets based on the plan’s performance criteria that include objective formulas or standards for determining the amount of the performance award that may be payable to a participant when the targets are satisfied. The performance targets do not need to be the same for all participants.

 

The 2005 plan, prior to the amendments, included the performance criteria of earnings per share, operating earnings, return on equity and return on investment, which criteria applied only to CP awards. The amendments add additional performance criteria and provide a uniform set of performance criteria from which the compensation committee may select for any performance-based awards under the plan. The performance criteria under the plan, as amended by this proposal,

consist of the following: earnings before interest, taxes, depreciation and amortization (“EBITDA”); cash flow; earnings per share; operating earnings; return on equity; return on investment; total shareholder return (“TSR”) or internal total shareholder return (“iTSR”); sales or revenues; expense targets; targets with respect to the value of our common stock; margins; pre-tax or after-tax net income; market penetration; geographic goals; business expansion goals; or goals based on operational efficiency. Performance targets will be set each year by the compensation committee for that year’s awards (payable three years later) based on one or more of the performance criteria for our company as a whole, or for a subsidiary, division or business unit.

 

The compensation committee has the discretion to decrease the amount payable under any award upon attainment of the performance target, provided that a decrease for one participant does not result in an increase in the amount payable to a “covered employee” under Section 162(m) of the Internal Revenue Code. The compensation committee may not increase the amount payable to a participant in the case of a payment intended to constitute qualified performance-based compensation within the meaning of Section 162(m). To the extent permitted by Section 162(m), the compensation committee may take into account the effect of any unusual, non-recurring circumstance.

 

The compensation committee has the discretion to approve proportional or adjusted awards to address situations where participants are hired, transfer or are promoted within our organization during a performance period, but only to the extent that such discretion would not cause an award intended to meet the requirements of Section 162(m) to fail to so qualify.

 

The compensation committee may elect to make a discretionary payment to a permanently disabled participant or to the participant’s estate in the case of death or upon a change in control without regard to actual attainment of the performance targets and whether or not payment of such award would be deductible under Section 162(m) of the Internal Revenue Code.

 

For a discussion of the treatment of awards granted under the 2005 plan upon a participant’s termination of employment, death or disability or upon a change in control of our company, see “Executive Compensation — Potential Payments upon Termination or Change in Control” elsewhere in this proxy statement.

 

The following is a summary of the principal U.S. federal income tax consequences to participants and us with respect to awards under the 2005 plan. It is for general informational purposes only and does not describe all federal income tax consequences under the 2005 plan, nor does it discuss state, local, or foreign tax consequences. In addition, the information is based upon current federal income tax rules and therefore is subject to change when those rules change.

 

Tax Consequences to the Participants

 

Nonqualified Stock Options and Incentive Stock Options.  The grant of a stock option will not result in any income tax consequences for a U.S. participant at the time of grant. The participant will have no taxable income for regular income tax purposes upon exercising an ISO, although the participant may incur alternative minimum tax liability in the year of exercise. Upon exercising a non-qualified stock option, the participant will recognize ordinary income in the amount by which the fair market value of our common stock on the date of exercise exceeds the option exercise price. The treatment to a participant of a disposition of shares acquired through the exercise of an option is dependent upon the length of time the shares have been held and on whether such shares were acquired by exercising an ISO or a non-qualified stock option. In the event a participant’s employment terminates other than by reason of death, any ISOs held by the participant may be

taxed as non-qualified stock options upon exercise if exercised more than three months (one year in the case of disability) following such termination of employment.

 

Stock Appreciation Rights and Performance Share Awards.  The grant of an SSAR or a performance share award will not result in income tax consequences for the participant at the time of grant. The value of shares received in payment of SSARs or performance share awards is taxable to the participant as ordinary income at the time such shares are transferred to the participant.

 

Restricted Stock.  The award of shares of restricted stock generally will not result in income tax consequences to the participant at the time of the award so long as such shares are not transferable and are subject to a substantial risk of forfeiture. Dividends paid with respect to restricted stock prior to the lapse of forfeiture restrictions applicable to such stock will be taxable as compensation to the participant if such dividends are payable in cash to the participant or the participant otherwise has the right to receive such dividends. Generally, a participant will recognize ordinary income at the first time restricted stock becomes transferable or is no longer subject to a substantial risk of forfeiture, in an amount equal to the fair market value of our common stock on the date the forfeiture restrictions lapse. A participant, however, may elect within 30 days of the date that restricted stock is granted to recognize ordinary income upon the date the restricted stock was awarded (instead of on the date the forfeiture restrictions lapse) based on the fair market value of our common stock on the date of grant. In addition, dividends paid with respect to restricted stock as to which such an election has been made will be treated as dividend income, rather than compensation income, the participant will not recognize additional taxable income when the forfeiture restrictions applicable to his or her restricted stock award lapse, and the dividends paid during the restriction period will not be deductible by us.

 

Cash Performance Awards.  A grant to a participant under the cash incentive portion of the 2005 plan, consisting of contingent future rights to cash after the completion of the performance period, will not result in taxable income to the participant at the time of the initial grant. At the time we pay a cash award, the amount of the cash will constitute compensation taxable to the individual as ordinary income.

 

Tax Consequences to Dover

 

To the extent that a recipient of an award under the 2005 plan recognizes ordinary income as described above, we generally will be entitled to a corresponding federal income tax deduction provided that, among other things, the income meets the test of reasonableness, is an ordinary and necessary business expense, is not an “excess parachute payment” within the meaning of Section 280G of the Internal Revenue Code, is not disallowed by the $1 million deduction limitation on certain executive compensation under Section 162(m) of the Internal Revenue Code, and we have met certain income tax withholding and reporting requirements with respect to such award. Generally, amounts taxable to a participant as ordinary income will subject the participant and us to social security and Medicare tax in the year taxable, subject to statutory limitations.

 

 

Because the compensation committee may grant awards under the 2005 plan through January 31, 2015, it is not possible to determine at this time all the awards which may be granted under the 2005 plan. The following table sets forth the aggregate dollar value of cash performance award potentials and the numbers of options and SSARs granted under the 2005 plan from 2005

through December 31, 2008 for each of the NEOs, the NEOs and our other current executive officers as a group and our non-executive officer employees as a group:

 

 

The table below provides information about our equity compensation plans at December 31, 2008:

 

We have three compensation plans under which our equity securities have been authorized for issuance and have been issued to employees and to non-employee directors. These are the 1995 Incentive Stock Option Plan and 1995 Cash Performance Program (the “1995 plan”), the 2005 plan and the 1996 Non-Employee Directors’ Stock Compensation Plan (the “directors’ plan”). The table above does not reflect shares eligible for issuance under the directors’ plan, which does not specify a maximum number of shares issuable under it. For a discussion of the directors’ plan, see “Items to be Voted Upon — Proposal 1 — Election of Directors — Directors’ Compensation” elsewhere in this proxy statement.

 

Information on the 2005 plan appears on the preceding pages. The 1995 plan was adopted in 1995 (replacing its predecessor plan which expired in January 1995) and provided for stock options, restricted stock awards and cash performance awards. The 1995 plan expired in January 2005, but column (a) of the table above includes options that remain outstanding under it.

 

Options granted under the 1995 plan were all designated as non-qualified stock options. The exercise price of options granted under the 1995 plan is the fair market value on the date of grant as determined in good faith by the compensation committee. Options granted under the 1995 plan may not be sold, transferred, hypothecated, pledged or otherwise disposed of by any of the holders except by will or by the laws of descent and distribution, except that a holder may transfer options to members of the holder’s immediate family, or to one or more trusts for the benefit of such family members, provided that the holder does not receive any consideration for the transfer.

 

THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS A VOTE “FOR” APPROVAL OF THE AMENDMENTS TO THE 2005 EQUITY AND CASH INCENTIVE PLAN.

 

 

Our executive compensation program includes annual cash bonuses to executive officers based upon satisfaction of performance targets under our Executive Officer Annual Incentive Plan (“annual bonus plan”). Our board of directors has approved, subject to shareholder approval, additional performance criteria under the plan. The performance criteria that the compensation committee can choose from under the plan currently are net income, earnings per share, operating earnings and return on investment or equity. This Proposal 3 would add additional performance criteria, including earnings before interest, taxes, depreciation and amortization; cash flow; TSR and iTSR; sales and revenues, expenses targets, margins and other operational criteria. As with the proposed amendments to the 2005 plan, the proposed amendments to the annual bonus plan are intended to give the compensation committee greater flexibility in selecting the best performance targets to drive creation of shareholder value.

 

Section 162(m) of the Internal Revenue Code limits our ability to take an income tax deduction for annual compensation paid to each of our chief executive officer and certain other highly-compensated officers in any year in excess of $1 million unless the material terms under which the compensation is paid, including the performance goals, are disclosed to and approved by shareholders and, before payment of such compensation, a committee of independent directors certifies that pre-established objective performance goals and other material terms were satisfied. In order for compensation to be exempt from the $1 million annual deductibility limit under Section 162(m), our shareholders must re-approve the plan’s performance criteria at least every five years, and approve any changes to such performance criteria. Our shareholders most recently re-approved the performance criteria at last year’s annual shareholders’ meeting. The board of directors is seeking shareholder approval to amend the plan to provide for additional performance criteria as summarized above.

 

If our shareholders do not approve the amendments to the plan, the current terms of the annual bonus plan will remain in effect. The full text of the annual bonus plan, as amended by this

proposal, is attached to this proxy statement as Appendix B. The material features of the annual bonus plan, as amended by this proposal, are summarized below.

 

Dover established the annual bonus plan to make annual bonus amounts paid to certain senior executive officers fully deductible by Dover for federal income tax purposes as qualified performance-based compensation under Section 162(m). The plan provides for the payment of annual bonuses to senior executive officers who are in a position to make material contributions to our success and who are selected each year by the compensation committee. These annual bonuses are intended to motivate participants and reward the achievement of annual performance targets established each year by the committee, as described in “Executive Compensation — Compensation Discussion and Analysis” elsewhere in this proxy statement.

 

The annual bonus plan does not have a predetermined term. Our board may at any time suspend or terminate the plan, or make modifications to it for future performance periods as it may deem advisable. However, the board may not make any amendments which are expected to materially increase amounts payable under the plan unless appropriate measures have been taken to cause the increased benefits to meet the requirements for qualified performance-based compensation under Section 162(m). In addition, the board may not add additional performance criteria without shareholder approval.

 

The compensation committee, which currently consists of five members of the board who are “outside directors” within the meaning of Section 162(m), administers the plan. These five directors are also independent under the standards of the SEC, the NYSE Listing Standards and the Dover Independence Standards.

 

The compensation committee in its sole discretion determines the executive officers eligible to participate in the annual bonus plan each year. For this purpose, executive officer means our chief executive officer, our chief operating officer, if any, each other executive who reports directly to either our chief executive officer or our chief operating officer, if any, any other of our executives or executives of our affiliates selected by the compensation committee, or any person who is an executive officer of ours under applicable SEC definitions. For 2008, each of the NEOs participated in the annual bonus plan.

 

Performance Period and Performance Goals

 

An executive officer designated to participate in the annual bonus plan may earn an annual cash bonus conditioned upon the attainment of pre-established performance targets measured over each calendar year. The performance target must be established in writing by the compensation committee within the first 90 days of each year on the basis of one or more of the performance criteria specified under the plan. The performance criteria under the plan, as amended by this proposal, consist of the following, as applied to Dover as a whole, or to a subsidiary, a division or a business unit: EBITDA; cash flow; earnings per share; operating earnings; return on equity; return on investment; TSR or iTSR; net earnings; sales or revenues; expense targets; targets with respect to the value of our common stock; margins; pre-tax or after-tax net income; market penetration; geographic goals; business expansion goals; or goals based on operational efficiency.

Certain Adjustments

 

The compensation committee has the discretion to reduce or eliminate any amounts otherwise payable under the plan. However, the committee may not authorize payments under the plan in excess of the amounts determined in accordance with the plan’s provisions.

 

Payment of Incentive Compensation

 

The compensation committee makes the determination of whether any amount is payable under the plan. The compensation committee will certify, in writing and before any amount under the plan is paid, the amount that is payable with respect to each participant for performance during the prior calendar year. All payments are made in cash within two and one half months after the close of the year. The maximum annual cash bonus payable under the plan to any covered individual with respect to any performance period may not in any circumstances exceed $5 million.

 

Because amounts payable under the annual bonus plan are based on performance goals each year determined at the discretion of the compensation committee, it cannot be determined at this time what benefits or amounts, if any, will be received by or allocated to any person or group of persons under the plan. For a discussion of the performance targets and payouts for 2008 for the NEOs, see “Executive Compensation — Compensation Discussion and Analysis” elsewhere in this proxy statement.

 

THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS A VOTE “FOR” APPROVAL OF THE AMENDMENTS TO THE EXECUTIVE OFFICER ANNUAL INCENTIVE PLAN.

 

 

Dover has been notified by Calvert Asset Management Company, Inc., 4550 Montgomery Avenue, Bethesda, Maryland 20814, that on behalf of various of its funds it intends to present the following proposal for consideration at the Annual Meeting. The Board of Directors unanimously recommends a vote against this proposal for the reasons stated after the proposal.

 

Whereas in 2007, the Intergovernmental Panel on Climate Change’s Fourth Assessment Report stated it is “very likely” that anthropogenic greenhouse gas emissions have heavily contributed to global warming. Furthermore, “there is substantial economic potential for the mitigation of global greenhouse gas emissions over the coming decades, that could offset the projected growth of global emissions or reduce emissions below current levels.”

 

Whereas, the 2006 Stern Review on the Economics of Climate Change, led by the former chief economist at the World Bank, “... estimates that if we don’t act, the overall costs and risks of climate change will be equivalent to losing at least 5% of global GDP each year, now and forever.” Yet, investment of 1% global GDP each year is enough for appropriate mitigation.

 

Whereas, increasingly investors believe that there is an intersection between climate change and corporate financial performance. According to a February, 2007 report by Lehman Brothers, The Business of Climate Change, “companies which are aware of the impact their business practices have on the overall environment, including climate change, and proactively take actions to mitigate any unfavorable impact, may create a significant competitive advantage compared with companies which, through a lack of awareness, become blindsided by regulations.”

Whereas, information from corporations on their greenhouse gas emissions and climate change policy is essential to investors as they assess the strengths of corporate securities in the context of climate change and the need for greenhouse gas emissions reductions.

 

Whereas, the Carbon Disclosure Project (CDP) representing 385 institutional investors with trillions of dollars in assets under management requested corporations to disclose their greenhouse gas emissions in 2007 and 2008.

 

Whereas, in 2007 and 2008, Dover Corporation did not respond to the CDP and disclose investment-relevant information concerning its greenhouse gas emissions and climate change.

 

Whereas, more than 250 S&P 500 companies responded to the CDP, including other manufacturers such as 3M, Ingersoll Rand, and Eaton.

 

Whereas, leading companies such as Johnson Controls, DuPont, and UPS have recognized the advantages a forward-looking approach to climate change may provide and have disclosed strategies such as carbon sequestration, alternative fuel use, efficient product distribution, and process efficiency improvements, to save energy and reduce emissions.

 

Whereas, companies such as General Electric and Baxter International have described the opportunity of addressing climate change in a responsible manner, as resulting in new product development, external recognition, rewards and energy savings.

 

Resolved:

 

Shareholders request that within 6 months of the 2009 annual meeting, the Board of Directors provide a report to shareholders, prepared at reasonable cost and omitting proprietary information, describing how Dover is assessing the impact of climate change on the corporation, and the corporation’s plans to disclose this assessment to shareholders.

 

 

The Board of Directors recommends a vote “AGAINST” the proposal for the following reasons:

 

The impact of climate change on Dover’s businesses and Dover’s impact on the environment are matters taken seriously within Dover. In 2007 and 2008, Dover reported in its proxy statements on numerous sustainability initiatives undertaken by its operating companies that protect the long term well-being of the environment while assisting its customers in similar efforts and creating competitive advantages which resulted in economic value for Dover’s shareholders. Additional reporting on such initiatives appears on Dover’s website at www.dovercorporation.com.

 

Dover’s commitment to the environment is reflected in the selected initiatives described below and on its website. While this is an area of focus for Dover and its companies, the board believes that a company-wide collection of detailed statistical information at each of the Dover companies’ hundreds of sites, as contemplated by the proponents and the Carbon Disclosure Project they cite, cannot be prepared at reasonable cost and is not an effective use of shareholder resources for the reasons described below. We believe our shareholders share this view. More than 68% of our shareholders who voted at last year’s annual meeting did not support this proposal.

 

Dover operates through more than 35 operating companies which, together with their divisions, constitute approximately 100 separate businesses located in more than 35 countries around the world. These businesses produce many highly diverse products and have different manufacturing processes. Each of these businesses requires and adheres to different operating practices and policies appropriate for its business, and each faces different climate change risks and opportunities. For example, an evaluation of climate change risks and opportunities for a company that makes miniature microphones for hearing aids would be very different from one for a company that makes

refrigeration equipment or tank trailers. An analysis of any of these businesses taken individually would not provide meaningful information about Dover as a whole. Similarly, aggregating these analyses to generate a company-wide assessment would produce information so general that it would not be illuminating about Dover or any individual business. As applied to Dover, the proposal would in essence require a full study and separate report for each of Dover’s companies. The board believes this is unnecessary in light of Dover’s existing disclosure obligations and that the substantial sums and management time that would have to be expended on these reports would be more productively used on initiatives that could have a direct impact on climate change, produce an economic advantage or help abate the potential risks of climate change to Dover companies.

 

Dover companies are aware of and have increasingly focused on the risks and opportunities climate change could present for their businesses. They incorporate these considerations into their planning and practices because it makes good business sense to do so. The following account illustrates how some Dover companies already are investing shareholder assets toward these objectives and incorporating climate change concerns into their operations.

 

HillPHOENIX, an industry leader in developing energy efficient approaches to supermarket refrigeration, was the first United States manufacturer to develop supermarket cases that use a primary refrigerant that does not produce greenhouse gases. This technology, called Second Nature^®, has enabled HillPHOENIX customers to dramatically reduce their output of fluorocarbons and other greenhouse gases. HillPHOENIX was also one of the first in its industry to redesign low-temperature cases to improve significantly their energy efficiency. In 2007, HillPHOENIX was one of the founding members of the U.S. Environmental Protection Agency’s GreenChill Advanced Refrigeration Partnership, an initiative that promotes refrigeration technologies that reduce emissions of ozone-depleting substances and greenhouse gases and seeks to obtain the commitment of retail food establishments and refrigeration equipment manufacturers to go beyond meeting regulatory requirements in reducing those emissions. HillPHOENIX has in the past several years significantly reduced its own greenhouse gas and volatile organic compound emissions, reduced metal consumption and landfill waste, decreased energy consumption and increased recycling of scrap metal and cardboard.

 

Marathon Equipment Company, a leading manufacturer of on-site waste compaction and recycling systems, which play important roles in sustainability, developed the GreenBuilt^tm line of compactors, which feature solar panels that produce up to 100% of the compactors’ power requirements, biodegradable oils and hydraulic fluids, and power units that use 50% less power than other units of comparable speed and performance. Marathon was proud to announce earlier this year that Arizona State University, home to the nation’s first School of Sustainability, chose GreenBuilt^tm compactors for its campus needs. Marathon has also achieved meaningful reductions in its own electricity usage and volatile organic compound emissions.

 

OPW Fueling Components, the global leader in commercial and retail fueling equipment, manufactures nozzles that collect vapors emitted during the refueling of automobiles and return them to gasoline storage tanks. The vapors that accumulate in the tanks are separated into liquid gasoline and clean air using a membrane technology OPW developed called Vaporsaver^tm. This allows liquid gasoline to be recovered in the tanks and only fresh air to be released into the atmosphere. Absent this process, the gasoline vapors that accumulate in the tanks would eventually seep out of the tanks, releasing hydrocarbons into the environment.

 

K & L Microwave, which designs and manufactures a full line of RF and microwave filters, duplexers and subassemblies, was recognized by the Environmental Protection Agency as the first company in Maryland to enroll in the voluntary national partnership for environmental priorities and praised for its successful recycling program and use of energy efficient equipment. K&L has been an ISO 14001 registered company since 2003 and is widely respected for its commitment to finding new and innovative ways to reduce pollution and for taking steps to go above and beyond environmental compliance. K&L is actively engaged in a metals recycling program, has reduced its

plating operation’s waste water discharge to zero and has installed energy efficient equipment to reduce its consumption of electric power.

 

These are just a few of the many examples within Dover where its operating companies are addressing climate change concerns as an integral part of their business operations. While Dover companies are committed to these initiatives, the board believes that the significant resources that would be required to conduct a special review and prepare an extensive technical report addressing the impact of climate change on each of Dover’s many businesses would not be an effective or prudent use of shareholder assets.

 

THE BOARD UNANIMOUSLY RECOMMENDS A VOTE “AGAINST” ADOPTION OF THIS SHAREHOLDER PROPOSAL.

 

 

The audit committee has appointed the independent registered public accounting firm of PwC to audit the annual accounts of Dover and its subsidiaries for 2009. PwC also audited the financial statements for 2008, 2007 and 2006. Representatives of PwC are not expected to be present at the Meeting.

 

Although shareholder ratification of PwC’s appointment is not required by Dover’s bylaws or otherwise, our board of directors is submitting the ratification of PwC’s appointment for the year 2009 to Dover’s shareholders. If the shareholders do not ratify the appointment of PwC, the audit committee will reconsider whether or not to retain PwC as Dover’s independent registered public accounting firm for the year 2009 but will not be obligated to terminate the appointment. Even if the shareholders ratify the appointment of PwC, the audit committee in its discretion may direct the appointment of a different independent registered public accounting firm at any time during the year if the audit committee determines that such a change would be in Dover’s interests.

 

THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS A VOTE “FOR” RATIFICATION OF THE APPOINTMENT OF PRICEWATERHOUSECOOPERS LLP AS OUR INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM FOR THE YEAR 2009.

 

 

The audit committee of Dover’s board of directors consists of four directors, all of whom are independent in accordance with the NYSE Listing Standards, the rules of the SEC applicable to audit committee members and the Dover Independence Standards. The board of directors has adopted a written charter for the audit committee, a copy of which may be found at Dover’s website. In accordance with the requirements of the Sarbox Act, the related SEC rules and the NYSE Listing Standards, the audit committee engaged the independent registered public accounting firm PwC to audit the annual accounts of Dover and its subsidiaries for 2008.

 

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

 

Pursuant to its oversight responsibilities, the audit committee discussed with PwC the overall scope and plans for the audit of Dover’s 2008 financial statements. The audit committee met with

PwC, with and without Dover management present, to discuss the results of PwC’s examination, their assessment of Dover’s internal controls and the overall quality of Dover’s financial reporting.

 

The audit committee reviewed and discussed, with both the management of Dover and PwC, Dover’s 2008 audited financial statements, including a discussion of critical accounting policies, the quality, not just the acceptability, of the accounting principles followed, the reasonableness of significant judgments reflected in such financial statements and the clarity of disclosures in the financial statements.

 

The audit committee also (1) discussed with PwC the matters required to be discussed by Statement on Auditing Standards No. 61, as amended, as adopted by the Public Company Accounting Oversight Board in Rule 3200T, and (2) reviewed the written disclosures and the letter from PwC required by the applicable requirements of the Public Company Accounting Oversight Board regarding the independent accountant’s communications with the audit committee concerning independence, and discussed with PwC its independence, including any relationships or permitted non-auditing services described below under “Items to be Voted Upon — Proposal 5 — Ratification of Appointment of Independent Registered Public Accounting Firm — Relationship with Independent Registered Public Accounting Firm,” that might impact PwC’s objectivity and independence.

 

The audit committee reviewed and had input on each of the four quarterly earnings releases related to 2008 financial information. The chair of the audit committee also participated on behalf of the committee in five meetings of Dover’s disclosure controls and procedures committee, one before each of the four quarterly earnings releases and one before the filing of Dover’s Annual Report on Form 10-K for 2008. In addition, the audit committee held eight meetings in which it reviewed 2008 financial information. Four of these meetings were held in connection with the Dover board’s regular quarterly meetings. The other four were held to review Dover’s Quarterly Report on Form 10-Q for each of the first three quarters and Dover’s Annual Report on Form 10-K for the full year just prior to their filing with the SEC.

 

Based upon the review and discussions referred to above, the audit committee recommended that the audited financial statements for the year ended December 31, 2008 be included in Dover’s Annual Report on Form 10-K.

 

 

As discussed above, the independent registered public accounting firm of PwC is the independent registered public accounting firm selected by the audit committee to audit our annual accounts and those of our subsidiaries for 2009.

 

Fees Paid to Independent Registered Public Accounting Firm

 

Audit Fees.  Audit fees include fees for audit or review services in accordance with generally accepted auditing standards and fees for services that generally only independent auditors provide, such as statutory audits and review of documents filed with the SEC. Audit fees also include fees paid in connection with services required for compliance with Section 404 of the Sarbox Act. The aggregate fees, rounded to the nearest thousand dollars, paid to, or accrued for, PwC for consolidated auditing services to us and our subsidiaries for the years ended December 31, 2008 and December 31, 2007 were $9,275,000 and $9,408,000, respectively.

Audit-Related Fees.  For the years ended December 31, 2008, and December 31, 2007, no fees were paid to or accrued for PwC for audit-related services to us or our subsidiaries.

 

Tax Fees.  Tax fees include fees for services that are performed by professional tax staff other than in connection with the audit. These services include tax compliance services. The aggregate fees, rounded to the nearest thousand dollars, paid to, or accrued for, PwC for tax services to us and our subsidiaries for the years ended December 31, 2008 and December 31, 2007 were $931,000 and $921,000, respectively.

 

All Other Fees.  All other fees include, for the year ended December 31, 2008, fees for services in connection with a fraud prevention compliance program and a foreign license project. All other aggregate fees, rounded to the nearest thousand dollars, paid to, or accrued for, PwC to us and our subsidiaries for the years ended December 31, 2008 and December 31, 2007 were $269,000 and $0, respectively.

 

Consistent with its charter and applicable SEC rules, our audit committee pre-approves all audit and permissible non-audit services provided by PwC to us and our subsidiaries. With respect to certain services which PwC has traditionally provided, the audit committee has adopted specific pre-approval policies and procedures. In developing these policies and procedures, the audit committee considered the need to ensure the independence of PwC while recognizing that, in certain situations, PwC may possess the expertise and be in the best position to advise us and our subsidiaries on issues and matters other than accounting and auditing.

 

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

 

All audit-related and non-audit-related services of PwC during 2008 listed above under “Items to be Voted Upon — Proposal 5 — Relationship with Independent Registered Public Accounting Firm — Fees Paid to Independent Registered Public Accounting Firm” were pre-approved specifically or pursuant to the procedures outlined above.

 

This Compensation Discussion and Analysis reviews the compensation objectives, policies and decisions of our Compensation Committee (the “committee”) with respect to our NEOs.

 

Under the oversight of the committee, we maintain an executive compensation program for our executives, including our NEOs, that is heavily focused on performance. The design and operation of the program reflect the following objectives:

 

 

 

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

 

 

Our NEOs for 2008 consist of executives at our corporate and segment levels. Mr. Hoffman, our chief executive officer through November 30, 2008, and Mr. Kuhbach, our chief financial officer, held positions at the corporate level, and their 2008 compensation was aligned with our overall performance, as reported to shareholders. Mr. Livingston, our current CEO, became our president and chief operating officer in July 2008 and our chief executive officer effective December 1, 2008. However, at the beginning of 2008, when the committee established 2008 performance-based compensation targets, Mr. Livingston was the president and chief executive officer of Dover Engineered Systems, one of our business segments, and, accordingly, his compensation for 2008 was aligned with the performance of Dover Engineered Systems, rather than our company as a whole. Our remaining NEOs for 2008 were at the segment level and their 2008 compensation was aligned with the performance of their respective business segments.

 

We provide the following compensation and benefits components to our executive officers, including our NEOs.

 

 

In 2008, our compensation committee retained Mercer to review our long-term incentive compensation program, the 2005 plan, to provide competitive data and provide recommendations related to potential changes in our program. As a result of that process, which was undertaken as part of an overall company strategy review, we have adopted, subject to shareholder approval, a new framework for our long-term incentive compensation. The amendments to the 2005 plan in Proposal 2 are designed to provide our compensation committee with greater flexibility in selecting incentive compensation components to best enhance creation of shareholder value. Beginning with awards for 2009, subject to shareholder approval, the compensation committee intends to focus on TSR and iTSR for two components of our performance-based long-term incentive compensation.

 

We have traditionally offered our executive officers incentive compensation under the 2005 plan in two forms. The first form is cash performance awards, which are paid, if earned, three years after award, depending on the financial performance of the executive officer’s applicable business unit over the three-year period. The second form is equity awards consisting of SSARs, which are not exercisable until three years after grant, and are thereafter exercisable for seven years, for a total term of 10 years.

 

Under the 2005 plan as proposed to be revised, we will continue to provide three-year cash performance awards. However, the payout of such awards will be based on satisfaction of iTSR targets. iTSR measures the internal performance of a company or business unit, defined as the change in the entity value (based on a multiple of EBITDA) plus free cash flow, over the performance period. We will also continue to award long-term incentive compensation in the form of SSARs. However, subject to shareholder approval, for our executive officers, we will provide a portion of the equity incentive opportunity in the form of performance shares in lieu of SSARs. Like cash performance awards, the payment of the performance shares will depend on the satisfaction of performance targets over a three-year period. In the case of performance shares, the performance criteria will be our corporate TSR over the performance period relative to our peer group of companies discussed below. TSR is the change in stock price plus dividends paid over the performance period. Performance share award payments will be in the form of our common stock. The compensation committee plans to grant only one performance share for each four SSARs that it

otherwise would grant. If we fail to meet threshold performance after three years, no payout of performance shares will be made, and the payout level could be up to 200% of the granted number of performance shares if the actual three year TSR meets or exceeds the 75th percentile of our peer group.

 

The following table summarizes the components of our long-term incentive compensation plan and the related performance criteria.

 

 

To reinforce a stock ownership culture among our executive officers, the compensation committee is also implementing minimum share ownership guidelines in 2009. Under the guidelines, each executive officer at the corporate, segment or platform subsidiary level will be required to own shares having a fair market value equal to a multiple of his or her salary within a specified number of years, subject to limited exceptions. Under the guidelines, the executive officers will be required to hold the net after-tax shares acquired through our 2005 plan until they have satisfied the applicable guidelines.

 

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

 

 

In addition, we have also adopted, subject to shareholder approval, amendments to the performance criteria for our annual bonus plan, making the performance criteria for that plan consistent with the performance criteria for the 2005 plan, as amended. These amendments will

provide the committee greater flexibility in designing incentive compensation targets to drive our annual financial and operating objectives.

 

Pay Mix

 

We have designed our executive compensation programs for our NEOs and other senior executive officers to emphasize performance-based compensation. Fixed compensation elements, although essential to a competitive compensation program, are not the focus point of our executive compensation programs. Under both our current, pre-amendment program and our proposed modified program, the majority of our NEOs’ compensation is at risk (i.e., performance-based).

 

Annual Review

 

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

 

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

 

Competitor Data

 

We believe that a competitive pay package is an important tool in our efforts to attract and retain qualified executives with manufacturing industry experience. To ensure that the compensation we offer remains competitive, we compare it to that offered by other manufacturers with whom we compete for a limited pool of executive talent.

 

Given the wide diversity of the businesses we own and the many different end-markets they serve, we believe it is useful to assess our executives’ compensation using data from a broad range of manufacturing companies. To accomplish this, we generally compare our executive compensation to that offered by the manufacturing companies in the Total Compensation Management database, a proprietary database designed by Hewitt Associates (the “TCM database”). The TCM database currently includes almost 200 public manufacturing companies, including Dover.

 

We have utilized the TCM database because it includes a broad range of manufacturing companies and because we and the other companies in the database are comparable in other ways, including the following:

 

 

 

In assessing the appropriateness of compensation for a particular executive, we use the TCM manufacturing companies data adjusted for revenues similar to those of the executive’s unit. For example, in considering the compensation of a segment head, we use the adjusted data for divisions of TCM manufacturing companies. We then generally use the 62nd percentile of pay for a comparable position at the companies in that subset as a reference point in determining compensation for the position.

 

In 2008, in connection with the review of our 2005 plan, we identified a group of 38 companies as our new peer group. We used this group of companies for purposes of comparing the performance of our stock in our performance graph included in our annual report to shareholders and, subject to shareholder approval of our proposed 2005 plan amendments, will use it for determining our relative TSR for purposes of payout of performance shares. In addition, beginning with compensation for 2009, we will use compensation data from this peer group, in addition to the TCM database, in considering compensation for our NEOs.

 

Our peer group consists of the companies listed below. This group of companies was selected because they collectively represent our mix of businesses in the following sectors: industrial machinery, construction and farm machinery, electrical and electronic equipment, oil and gas equipment, aerospace and defense, building products and consumer goods. In addition, the median revenue of the group roughly matches that of Dover.

 

 

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

 

1.  Salary

 

We set salaries of our executive officers at levels that are intended to motivate and reward annual achievements and continued service to us. As discussed above, we generally use the 62nd percentile of the TCM database as a reference point in determining compensation. We also take into account the officer’s assigned responsibilities, individual performance, business unit performance and the individual’s skills, experience and background as well as overall economic conditions. Salaries are reviewed annually and adjusted as appropriate to realign them with market levels after taking into

account the factors indicated above. Beginning with salaries for 2009, we will also consider compensation data from our peer group in making salary decisions for our NEOs. Mr. Livingston’s salary was increased during 2008 to reflect his promotion to our president and chief operating officer and then chief executive officer. All other salary increases for 2008 reflect increases to remain competitive with general market levels. For 2009, given the significant adverse economic conditions, management recommended that there be no increases in the salaries of our NEOs, which the compensation committee endorsed. Effective March 1, 2009, Mr. Livingston took a reduction in his salary for the remainder of the year of 15%, and his direct reports took a 10% reduction.

 

 

We offer incentive compensation on an annual and longer-term basis. There are four forms of awards:

 

 

 

Our executives who participate in the annual bonus plan (including, for 2008, all of the NEOs) are awarded annual bonuses to reward their achievement of preset annual financial performance goals that vary depending upon the executive officer’s business unit. The annual bonus plan is designed to satisfy the requirements of Section 162(m) of the Internal Revenue Code so that we may deduct for federal income tax purposes the full amount of the annual bonus awards to participants.

 

At the beginning of each year, the compensation committee determines which executive officers will participate in the annual bonus plan that year. At that time, the compensation committee also selects the performance criteria by which each participant will be measured for that year, the numerical performance target for each such criterion, and a target dollar bonus amount for each participant. The compensation committee sets the numerical performance targets at levels it believes provide a reasonable bonus opportunity, with an incentive for substantial upside for achievement of greater than 100% of the target. It is generally anticipated that performance will fall between 75% and 100% of the target. The compensation committee has decided that no credit will be given for performance less than 50% of a performance target, and that no additional credit will be given for performance above 150% of a performance target.

 

After the end of the year, the percentage of achievement of the performance target is determined and the potential bonus for each participant is calculated. The compensation committee then considers all other factors in the annual performance of each participant. These factors include the participant’s individual contributions with respect to strategic objectives, such as acquisitions and divestitures, global expansion initiatives, overall leadership and effectiveness, efficiency and productivity efforts, attracting, retaining and developing the skills and talents of high-caliber employees, developing succession plans for themselves and their direct reports and fostering a culture of compliance with laws and our ethical standards. Considering these factors, the compensation committee has discretion to set the amount of a participant’s annual bonus, provided that under the annual bonus plan the compensation committee may not award an amount greater than that calculated in accordance with the annual bonus plan. The bonuses paid under the annual bonus plan are almost always less than the maximum possible bonus calculated in accordance with the plan.

For 2008, the performance criteria for participants were based on our earnings per share for corporate executives and operating earnings for segment executives. These criteria were considered to be most likely to have a direct, positive impact on shareholder returns.

 

The table below provides the specific performance targets, level of achievement, and annual bonus payment for each named executive officer for 2008:

 

 

 

 

 

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

 

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

 

2005 plan awards are a combination of an equity grant and a cash performance award, both of which are performance-based. The award for an individual is calculated by multiplying the individual’s salary by a multiple appropriate for his or her level. These multiples were established by the compensation committee on the advice of a compensation consultant. The same multiple applies to all executive officers at the same level or in the same category of employees. The compensation committee reviews these multiples from time to time. It may, and infrequently does, change multiples, usually with advice from a compensation consultant. After an individual’s salary is multiplied by the appropriate multiple, the resulting dollar value is allocated between SSARs and a cash performance award, based on the executive’s responsibility across our organization. Increasingly higher percentages are allocated to reward potential through equity awards for persons

who are in positions to most materially affect our overall profitability and growth. The table below shows how each NEO’s long-term incentive compensation opportunities were determined and allocated for 2008.

 

Long-term Incentive Compensation Opportunities for 2008

 

 

 

 

Cash Performance Awards.  The portion of the total award to be applied to the cash performance award becomes the target amount of that award. Cash performance awards are made annually for the three-year performance period commencing with the year of the award. Any payout of cash performance awards will occur three years later, conditional upon the level of achievement of pre-set financial performance targets by the participant’s business unit over the three-year period. For example, payouts of cash performance awards made in February 2009 are scheduled for payment in February 2012, depending on the level of achievement of the performance criteria for the three years 2009, 2010 and 2011, compared to the actual performance in the base year 2008. The actual cash payout, if any, is equal to the cash performance award target amount multiplied by a percentage which is derived from a performance matrix or table.

 

Cash Performance Awards for 2008 under Current Program.  For awards made in 2008 and prior years, including awards which were paid out in February 2009, the performance matrix used a combination of the following performance criteria, using in each case the average of each factor over the three-year performance period compared to the base year:

 

 

As noted above, at the time the cash performance award for 2008 was granted, Mr. Livingston was the president and chief executive officer of one of our segments. Accordingly, the performance criteria applicable to his 2008 award were average three-year real growth in operating earnings and after-tax return on investment for that segment.

 

The matrix matches every percent of average after-tax return on equity (or investment, as the case may be) equal to or more than 10% with every percent of three-year average inflation-adjusted

growth in earnings above zero. The following is an excerpt from the matrix included here to illustrate selected combinations of these measures and the percent payouts they produce:

 

 

In determining an executive’s payout, the average return on equity (investment) actually achieved over a three-year period is matched on the matrix with the average growth in earnings achieved over that three-year period to arrive at a multiplier, which is then multiplied by the individual’s cash performance award target (fixed three years earlier as described above) to determine the payment. The matrix, using the applicable parameters, is applied to plan participants across all business units within Dover, providing a transparent, objective and egalitarian performance award system.

 

The matrix theoretically can be extended out to a very wide range. However, there are realistic and reasonable limits on any payouts. First, as a practical matter, very high average returns on investment or equity and very high earnings growth rates are difficult to attain on average over a three-year period. More importantly, the 2005 plan as in effect through 2008 has maximums built in which place the real limits on payouts. The maximum multiplier in the matrix is 1562%. The payouts to all individuals in a unit may not exceed 30% of the average annual earnings growth of the unit over the three-year period. In addition, the payment to any individual may not exceed $2,000,000, no matter how well the unit or we performed over that time. There is no payout if the three-year average growth in earnings is below zero or if the three-year average return on equity or return on investment is less than ten percent.

 

Because the plan is performance-based, the payouts rise and fall with the performance of a participant’s unit. Each of the six NEOs had an opportunity for a payout in each of the past five years or a total of 30 opportunities. Of those 30 opportunities, in 6 cases the payout was zero, in 2 cases the payout was $2,000,000 (the maximum under the plan), and the average payout was $707,106.

 

Cash Performance Awards for 2009 under Proposed Program.  Subject to shareholder approval, beginning with awards for the three-year performance period 2009-2011, the cash performance program will use iTSR over the performance period as the performance criteria.

 

Payouts of cash performance awards will be made on a sliding scale using the following formula. This formula will take the place of the matrix discussed above.

 

 

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

 

Assuming shareholder approval of the change in performance criteria for the cash performance program, participants in the 2005 plan will receive any cash performance payouts for the

performance period 2009 through 2011 measured under this proposed iTSR formula. Any payout of cash performance awards to our NEOs and other participants subject to Section 162(m) for the performance periods of 2007 through 2009 and 2008 through 2010 will continue to be based on the terms as described above with respect to the 2008 awards.

 

In the event that our shareholders do not approve the use of iTSR as a performance criterion, cash performance award payouts for all performance periods will continue to be based on the matrix described above under “Executive Compensation — Compensation Discussion and Analysis — Compensation Components — Performance-Based Compensation — Cash Performance Awards for 2008 under Current Program.”

 

Equity Awards.  Once the dollar value to be applied to the equity grant is determined, that value is converted into a number of equity awards. For 2008, all equity awards were made in the form of SSARs, the number of which was determined by dividing the dollar value to be applied to the equity grant by the Black-Scholes value of our stock on the date of grant. As noted above, subject to shareholder approval, we have added performance shares as a new type of equity award under the plan. Assuming shareholder approval of the use of performance shares, beginning with the awards granted in February 2009, we will use a combination of SSARs and performance shares to reflect the equity portion of 2005 plan awards for corporate, segment and platform executive officers. Executive officers at those levels, including all of our NEOs, will receive 25% of the equity portion of the award in the form of performance shares. For purposes of determining the value of the awards granted, the committee used the assumption that each performance share was the equivalent of four SSARs.

 

We have made alternative awards, contingent on whether our shareholders approve the proposed amendments to the 2005 plan. In the event that the shareholders approve the amendments, we have awarded our executive officers at the corporate, segment and platform levels the equity portion of their 2005 plan award in SSARs and performance shares. In the event that our shareholders do not approve the amendments to the 2005 plan, such executive officers will receive all of the equity portion of their 2005 plan award in the form of SSARs.

 

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

 

Performance Shares.  Beginning in 2009, subject to shareholder approval, equity awards under the 2005 plan will include performance shares. Performance shares represent potential payments of common stock based on our relative TSR versus that of our peer group over the performance period.

 

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

 

 

Other Equity Awards.  The 2005 plan also provides for stock option grants and a limited number of restricted stock awards. However, we generally do not award restricted stock except in connection with special or unusual circumstances. No restricted stock awards have been made in recent years and none of our executive officers holds restricted stock. Since the 2005 plan was amended to make SSARs available, no options have been granted, and it is presently expected that none will be granted.

3.  Retirement Programs and Other Benefits

 

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

 

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

 

Limited Availability Plans.  We offer two non-qualified deferred compensation plans with participation generally limited to executive officers. These are the Supplemental Executive Retirement Plan (“SERP”) and the deferred compensation plan. The purpose of these plans is to permit executive officers to earn and put aside, on a tax-deferred basis, greater amounts than are permitted under our qualified plans. Both the 401(k) plan and the tax-qualified pension plan have significant contribution limitations established by law that significantly restrict the ability of highly compensated employees to save for retirement within those plans. The compensation committee believes that the ability to save for retirement on a tax-deferred basis is a significant factor in our efforts to hire and retain talented executives. The SERP in particular is intended to encourage executive officers to remain with us and enhance our long-term strength, growth and profitability. The opportunity to earn increased retirement benefits alleviates participants’ concerns about funding their retirement and enables enhanced focus on our business. The compensation committee was advised by a benefits consultant in adopting and setting the terms of the SERP. In certain instances, in order to facilitate the hiring of experienced, mid-career executives, participants are credited with a portion of years of service prior to their actual years of service with Dover for purposes of determining their benefits under the plan. Until March 1, 2009, in order to facilitate the hiring of experienced, mid-career executives, such persons could qualify for credit for service prior to joining Dover. The compensation committee recognizes the value of SERP participation to the executive officers and considers that value in setting the levels of their other compensation. For more information about this plan, see “Executive Compensation — Pension Benefits Through 2008” elsewhere in this proxy statement.

 

The deferred compensation plan allows participants to elect to defer their receipt of up to 50% of salary and 100% of bonus and any payout of a cash performance award. This affords tax planning benefits to participants. We do not consider the deferred compensation plan to play a major role in our compensation program, as it merely permits executive officers to defer receipt of part of their compensation to later periods, usually post-retirement. We do not match any amounts deferred or guarantee any particular return on such amounts. See “Executive Compensation — Nonqualified Deferred Compensation in 2008” elsewhere in this proxy statement for a detailed description of this plan. We offer this plan to assist in attracting and retaining executives in a competitive environment at little expense to us.

 

Change in Control Arrangements.  Although we do not have executive employment contracts, we do have double-trigger change-in-control agreements with each of the NEOs and certain other executive officers designed to encourage each such officer to continue to carry out his or her duties with our companies in the event of a change in control. The agreements, all of which are identical, provide that if both (1) there is a change in control of Dover and (2) within eighteen months following the change in control the officer’s employment is terminated either by Dover for other than “cause,” “disability” or death, or by such officer for “good reason” (all as defined in the

agreements), then such officer will receive a lump sum payment equal to three times the salary in effect prior to that time plus the average annual bonus earned by the officer during the three prior years.

 

Under the terms of various of our benefit plans, a change in control will cause acceleration of the availability and payout of benefits, including that all outstanding cash performance awards and performance share awards will immediately vest and be paid and all outstanding stock options and SSARs will immediately vest and become exercisable. The treatment of our NEOs under these plans is the same as the treatment of all other participants in the plans, subject to potential delays in payments to our 50 most highly compensated officers required under Section 409A of the Internal Revenue Code.

 

The compensation of our chief executive officer is determined in the same manner and pursuant to the provisions of the same plans as the other executive officers. There are no special agreements, plans or other arrangements with the chief executive officer. The overall compensation of the chief executive officer is higher than that of the other executive officers due to his greater breadth of responsibilities and his ultimate responsibility, subject to board oversight, for the strategic business plan and the performance of the company. Due to the provisions of some plans, the chief executive officer’s higher salary and bonus can cause other elements of compensation to be higher, such as the number of SSARs or performance shares granted and change in retirement benefits. The compensation committee and the independent directors take this into consideration in setting the chief executive officer’s salary and bonus.

 

Mr. Hoffman retired as our chief executive officer effective November 30, 2008. In connection with Mr. Hoffman’s retirement, after considering, among other factors, Mr. Hoffman’s service to our company, including his leadership in refocusing the alignment of our companies, re-evaluating our capital allocation priorities and embedding operational excellence through the PerformanceCOUNTS program, the compensation committee awarded him a bonus for 2008 of $2,930,000, which was paid in December 2008. The committee also determined that previously awarded options and SSARs would continue to vest and be exercisable by Mr. Hoffman until the earlier of an award’s normal expiration date and November 30, 2013, that Mr. Hoffman will be entitled to receive any payments under his three outstanding cash performance plan awards if and when they become due based on actual performance (payment dates being February 2009, 2010 and 2011), and that Mr. Hoffman will be permitted to participate in our health and welfare program, at his expense, under COBRA until he reaches age 65.

 

When Mr. Livingston, our chief executive officer, was promoted on July 1, 2008 from the head of one of our segments to be our president and chief operating officer, his salary was increased from $710,000 to $810,000. When he was promoted to be our chief executive officer on December 1, 2008, his salary was increased to $900,000. There were no other changes in his compensation at those times. Effective March 1, 2009, Mr. Livingston took a reduction in his salary for the remainder of the year of 15%.

 

Employment contracts and severance agreements

 

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

Perquisites

 

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

 

Shareholding Guidelines

 

We believe that our executives will most effectively pursue the long-term interests of our shareholders if they are shareholders themselves. We have not historically had formal share ownership requirements for our executive officers, although senior executive officers were generally expected to hold the net shares they acquired upon exercise of options or SSARs for the duration of employment. As noted above, the compensation committee is adopting formal share ownership guidelines for our executives to reinforce our culture of share ownership, define minimum levels of share ownership and provide our executives with greater flexibility in their personal financial planning once the ownership guidelines are met. These guidelines will be implemented in 2009.

 

Under these guidelines, our chief executive officer must hold shares of common stock equal in value to five times his annual salary. Other senior executive officers (including other NEOs and those executives who report directly to the chief executive officer) are required to own shares equal in value to three times their annual salary, with our remaining executives having a minimum share ownership set at two times their annual salary. The compensation committee may grant exceptions from the guidelines for significant personal events, such as the purchase of a house. In addition, the compensation committee may reduce or waive the requirements for persons as they approach retirement age.

 

Each person will have five years from the implementation date or the date of hire or promotion to a covered position to meet the applicable guidelines. Anyone who fails to meet or to make satisfactory progress toward the share ownership guidelines within that time period may receive a portion of his or her annual bonus or any cash performance program payments in stock, until such time as he or she satisfies the guidelines.

 

Tax Deductibility; Section 162(m)

 

We take into consideration applicable tax, securities laws and accounting regulations in structuring and modifying our compensation arrangements and employee benefit plans and, as we deem appropriate, making individual compensation decisions.

 

As discussed above in “Items to be Voted Upon — Proposal 3 — Proposal to Approve Amendments to the Executive Officer Annual Incentive Plan,” Section 162(m) of the Internal Revenue Code limits our ability to deduct, in calculating our income tax, compensation in excess of $1 million to specified executive officers unless the compensation is paid under a shareholder-approved plan and meets the requirements for performance-based compensation. Our annual bonus plan, cash performance awards and performance share awards covered under our 2005 plan are designed to satisfy the requirements of Section 162(m).

 

Most of our NEOs’ compensation other than salary qualifies as performance-based and is therefore deductible under Section 162(m). All salaries up to $1 million are also deductible. We consider tax deductibility to be an important, but not the sole or primary, consideration in setting executive compensation. Accordingly, the compensation committee has the authority to approve, and in specific situations has approved, the payment of compensation that may not be deductible when it believes such payments are in the best interest of our shareholders. In February 2008 when the independent directors set Mr. Hoffman’s 2008 salary at $1,225,000, they anticipated that the amount above $1,000,000 would not be deductible, but they believed that this amount was justifiable given Mr. Hoffman’s service to us.

 

We reviewed and discussed with management the Compensation Discussion and Analysis for the year ended December 31, 2008.

 

Based on the review and discussions referred to above, we recommended to the board of directors that this Compensation Discussion and Analysis be included in this proxy statement and in Dover’s Annual Report on Form 10-K for the year ended December 31, 2008.

 

 

The Summary Compensation Table and notes below show all remuneration for 2008 provided to:

 

 

The determination of the most highly compensated executive officers is based on total compensation paid or accrued for 2008, excluding changes in the actuarial value of defined benefit plans and earnings on nonqualified deferred compensation balances.