Ashland DEF 14A 2009
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SCHEDULE 14A INFORMATION
PROXY STATEMENT PURSUANT TO SECTION 14(a)
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Dear Ashland Inc. Shareholder:
On behalf of your Board of Directors and management, I am pleased to invite you to attend the 2010 Annual Meeting of Shareholders of Ashland Inc. The meeting will be held on Thursday, January 28, 2010, at 10:30 a.m. (EST), at the Metropolitan Club, 50 E. RiverCenter Boulevard, Covington, Kentucky.
You may have noticed changes in the way we are providing proxy materials to our shareholders in connection with our 2010 Annual Meeting. Where possible, we have elected to provide access to our proxy materials over the Internet under the Securities and Exchange Commissions notice and access rules. We believe that providing our proxy materials over the Internet reduces the environmental impact of our Annual Meeting without limiting our shareholders access to important information about Ashland.
Whether or not you plan to attend the meeting, we encourage you to vote promptly.
We appreciate your continued confidence in Ashland, and we look forward to seeing you at the meeting.
James J. OBrien
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
To be held January 28, 2010
To our Shareholders:
Ashland Inc. will hold its Annual Meeting of Shareholders on Thursday, January 28, 2010, at 10:30 a.m. (EST) at the Metropolitan Club, 50 E. RiverCenter Boulevard, Covington, Kentucky. Ashlands shareholders will act on the following matters at the Annual Meeting or any adjournment of that meeting:
In order that your Ashland Common Stock may be represented at the Annual Meeting, please vote your shares by proxy using one of the following methods: (a) vote by telephone or via the Internet using the instructions on your Notice or proxy card or (b) if you received printed proxy materials, you may complete, sign, date and return your proxy card in the postage-paid envelope provided.
By Order of the Board of Directors,
LINDA L. FOSS
Assistant General Counsel
and Corporate Secretary
December 4, 2009
Table of Contents
QUESTIONS AND ANSWERS ABOUT THE MEETING
All shares represented by validly executed proxies will be voted at the Annual Meeting, and such shares will be voted in accordance with the instructions provided. If no voting specification is made on your signed and returned proxy card, James J. OBrien or Linda L. Foss, as individuals named on the proxy card, will vote FOR the election of the three director nominees and FOR the ratification of PwC.
Abstentions and broker non-votes (i.e., when a broker does not have authority to vote on a specific issue) will be treated as present for the purpose of determining a quorum but as unvoted shares for the purpose of determining the approval of any matter submitted to the shareholders for a vote.
ASHLAND COMMON STOCK OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
The following table sets forth information with respect to each person known to Ashland to beneficially own more than 5% of the outstanding shares of Ashland Common Stock as of September 30, 2009.
AND EXECUTIVE OFFICERS OF ASHLAND
The following table shows as of October 30, 2009, the common stock ownership of all directors and executive officers of Ashland named in the Summary Compensation Table on page 41 of this proxy statement and common stock ownership of the directors and executive officers of Ashland as a group.
Common Stock Ownership
None of the listed individuals owned more than 1% of Ashlands Common Stock outstanding as of the Record Date. All directors and executive officers as a group owned 1,111,917 shares of Ashland Common Stock, which equaled 1.4% of the Ashland Common Stock outstanding on the Record Date. Shares of Ashland Common Stock outstanding on the Record Date include shares deemed to be outstanding for computing the percentage ownership of the applicable person, but are not deemed to be outstanding for computing the percentage ownership of any other person.
ELECTION OF DIRECTORS
Board of Directors
The Board of Directors is currently made up of eleven directors, divided into three classes. The three individuals nominated for election as Class III directors at the 2010 Annual Meeting are Mark C. Rohr, Theodore M. Solso and Michael J. Ward. The nominees to Class III will be elected to serve a three-year term until the 2013 Annual Meeting. The Governance and Nominating Committee (G&N Committee) has confirmed that all three nominees will be available to serve as directors upon election and recommends that shareholders vote for them at the Annual Meeting.
Under Article XII of Ashlands Articles of Incorporation, as amended, in an uncontested election the affirmative vote of a majority of votes cast with respect to a director nominee is required for the nominee to be elected. Therefore, the number of votes cast for a nominee must exceed those cast against a nominee for the nominee to be elected to the Board of Directors.
Pursuant to the Board of Directors resignation policy in Ashlands Corporate Governance Guidelines (published on Ashlands website (http://www.investor.ashland.com)), any nominee who is serving as a director at the time of an uncontested election who fails to receive a greater number of votes for his or her election than votes against his or her election will tender his or her resignation within ten days following the certification of the shareholder vote for consideration by the Board of Directors. The Board will decide, through a process managed by the G&N Committee, whether to accept the resignation within 90 days following the date of the shareholder meeting. The Company will then promptly disclose the Boards decision and reasons therefore. As a condition to his or her nomination, each person nominated by the G&N Committee must agree in advance to abide by the policy. Mark C. Rohr, Theodore M. Solso and Michael J. Ward, the three nominees to Class III, have each agreed to abide by the policy.
If no voting specification is made on a properly returned or voted proxy card, James J. OBrien or Linda L. Foss (proxies named on the proxy card) will vote FOR the three nominees named in this proxy statement. If any of the nominees should be unable or unwilling to stand for election at the time of the Annual Meeting, the proxies may vote for a replacement nominee recommended by the Board of Directors, or the Board may reduce the number of directors to be elected at the Annual Meeting. At this time, the Board knows of no reason why any of the nominees may not be able to serve as a director if elected.
The Board of Directors recommends a vote FOR Mark C. Rohr, Theodore M. Solso and Michael J. Ward for election as Class III directors at the 2010 Annual Meeting.
Class III Directors
(Term expiring in 2013)
Class I Directors
(Term expiring in 2011)
Continuing Directors Not Up for Election at the 2010 Annual Meeting (continued)
Class II Directors
(Term expiring in 2012)
Continuing Directors Not Up for Election at the 2010 Annual Meeting (continued)
Director Compensation Table
The following table is a summary of compensation information for the fiscal year ended September 30, 2009, for Ashlands non-employee directors as of September 30, 2009. Compensation paid to Mr. OBrien, Chairman of the Board and Chief Executive Officer, is disclosed in the Summary Compensation Table to this proxy statement and is not included in this table.
Each non-employee director received a grant of 12,121 restricted stock units of Ashland Common Stock in the Directors Deferral Plan on January 29, 2009, with a grant date market value of $100,000. Each restricted stock unit is equivalent to a share of Ashland Common Stock. The restricted stock units vest as described in the Restricted Shares/Units section of this proxy statement. The amounts in column (c) represent $408,383 for each director recognized as an expense in fiscal 2009 for financial accounting purposes under FAS 123R.
Each non-employee director is granted 1,000 shares of restricted Ashland Common Stock upon becoming a director. This grant vests as described in the Restricted Shares/Units section of this proxy statement. The
amounts in this column (c) also include the amount recognized as an expense in fiscal 2009 for financial accounting purposes under FAS 123R as follows: as to Ms. Ligocki, $8,790; Mr. Manager, $9,352; Mr. Perry, $13,452; Mr. Rohr, $9,352; and Mr. Turner, $13,056. For restricted stock, the grant date fair value is calculated using the closing price of Ashland Common Stock as reported on the NYSE on the date of grant.
As of September 30, 2009, the following table identifies the aggregate amount of outstanding stock and option awards granted to each current non-employee director.
Ashlands non-employee director compensation program provides: (a) an annual retainer of $90,000 for each director; (b) an additional annual retainer of $20,000 for the Lead Independent Director; (c) an additional annual retainer of $15,000 for the Chair of the Audit Committee and $7,500 for Audit Committee members; and (d) an additional annual retainer of $7,500 for other Committee Chairs.
Non-employee directors may elect to receive all retainers in cash or as shares of Ashland Common Stock. They may also elect to have a portion or all retainers deferred and paid through the Directors Deferral Plan. The directors who make an election to defer retainers may have the deferred amounts held as stock units (share equivalents) in the hypothetical Ashland Common Stock Fund or invested under the other available hypothetical investment options under the plan. The payout of the deferred annual retainer occurs upon termination of service by a director. Directors may elect to have the payout in a single lump sum or in installments, not to exceed 15 years. For deferrals before January 1, 2005, upon a change in control of Ashland (as defined in the Directors Deferral Plan), amounts in the directors deferral accounts will be automatically distributed as a lump sum in cash to the director. For deferrals on and after January 1, 2005, distributions for such deferrals will be made pursuant to each directors election and valued at the time of the distribution.
Pursuant to Ashlands incentive plans, upon election to the Board of Directors, a new director receives 1,000 restricted shares of Ashland Common Stock. The restricted shares may not be sold, assigned, transferred or otherwise encumbered until the earliest to occur of: (i) retirement from the Board of Directors; (ii) death or disability of the director; (iii) a 50% change in the beneficial ownership of Ashland; or (iv) voluntary early retirement to enter governmental service. The G&N Committee has discretion to limit a directors forfeiture of these shares if he or she leaves the Board of Directors for reasons other than those listed above.
Each non-employee director also receives an annual award of deferred restricted stock units in the Directors Deferral Plan with a grant date value of $100,000. The restricted stock units will vest one year after date of grant or upon the date of the next annual shareholder meeting, if earlier. Dividends on restricted stock units are reinvested in additional restricted stock units. Upon a change in control, the restricted stock units immediately vest. A director may elect before the restricted stock units vest to have his or her vested units paid in shares of Ashland Common Stock or in cash after the director terminates from service.
Stock Ownership Guidelines for Directors
The Board of Directors considers Ashland Common Stock ownership by directors to be of utmost importance. The Board believes that such ownership enhances the commitment of directors to Ashlands future and aligns their interests with those of Ashlands other shareholders. The Board has therefore established minimum stock ownership guidelines for non-employee directors which require each director to own the lesser of (i) 12,500 shares or units of Ashland Common Stock, or (ii) Ashland Common Stock having a value of at least five times their base annual retainer of $90,000. In addition, any director who acquires Ashland shares via option exercise for options granted after February 2005 must retain 50% of the net shares acquired for at least 12 months or such earlier time as the individual ceases to be a director of Ashland. Each newly elected director has five years from the year elected to reach this ownership level. All of Ashlands current directors have attained the minimum stock ownership levels based on holdings as of October 31, 2009.
Ashland is committed to adhering to sound corporate governance practices. The information described below is published on Ashlands website (http://investor.ashland.com). These documents are also available for free in print to any shareholder who requests them. Among the corporate governance practices followed by Ashland are the following:
Director Independence and Certain Relationships
The Board of Directors has adopted the Standards to assist in its determination of director independence. To qualify as independent under these Standards, the Board must affirmatively determine that a director has no material relationship with Ashland, other than as a director.
Pursuant to the Standards, the Board of Directors undertook a review of director independence in November 2009. During this review, the Board considered relationships and transactions between each director, any member of his or her immediate family, and his or her affiliates, and Ashland and its subsidiaries and affiliates.
As provided for in the Standards, the purpose of the review was to determine whether any such relationships or transactions were inconsistent with a determination that the director is independent.
As a result of the review, the Board of Directors affirmatively determined that Messrs. Hale, Manager, Perry, Rohr, Schaefer, Solso, Turner and Ward and Dr. Healy and Ms. Ligocki are each independent of Ashland and its affiliates. Mr. OBrien, Ashlands Chief Executive Officer, is the only director determined not to be independent of Ashland.
In the normal course of business, Ashland had transactions with other corporations where certain directors are executive officers. None of the transactions were material in amount as to Ashland and none were reportable under the federal securities laws. Ashlands Board of Directors has concluded that the following relationships between Ashland and the director-affiliated entities are immaterial pursuant to the Standards and the G&N Committee has determined that the transactions are not Related Person Transactions, as defined in the Related Person Transaction Policy.
Mark C. Rohr, a director of Ashland, is Chairman of the Board and Chief Executive Officer of Albemarle Corporation (Albemarle). During fiscal 2009, Ashland paid Albemarle approximately $5.5 million and Albemarle paid Ashland approximately $5.9 million for certain products and/or services.
Theodore M. Solso, a director of Ashland, is Chairman of the Board and Chief Executive Officer of Cummins Inc. (Cummins). During fiscal 2009, Ashland paid Cummins approximately $109,000 for certain products and services, and Cummins paid Ashland approximately $30.0 million for goods and services. The monies paid to Ashland by Cummins were primarily paid for the initial fill of engines with oil and lubricants, as well as for lubricants supplied to Cummins and its distributors. Additionally, Valvoline, a division of Ashland, and Cummins are partners in joint ventures in Argentina, Brazil, China and India. The joint ventures market lubricants for servicing heavy duty engines and equipment.
Michael J. Ward, a director of Ashland, is Chairman of the Board and Chief Executive Officer of CSX Corporation (CSX). During fiscal 2009, Ashland paid CSX and its subsidiaries approximately $6.4 million for transportation services, and CSX paid Ashland approximately $250,000 for certain products and/or services.
Related Person Transaction Policy
Federal securities laws require Ashland to describe any transaction, since the beginning of the last fiscal year, or any currently proposed transaction, in which Ashland was or is to be a participant and the amount involved exceeds $120,000, and in which any related person had or will have a direct or indirect material interest. Related persons are directors and executive officers, nominees for director and any immediate family members of directors, executive officers or nominees for director. Ashland is also required to describe its policies and procedures for the review, approval or ratification of any related person transaction.
Pursuant to the Related Person Transactions Policy (the Policy), the G&N Committee is responsible for reviewing the material facts of all transactions that could potentially be transactions with related persons. The Policy covers any transaction, arrangement or relationship or series of similar transactions, arrangements or relationships (including any indebtedness or guarantee of indebtedness) in which (1) the aggregate amount involved will or may be expected to exceed $120,000 in any fiscal year, (2) Ashland is a participant, and (3) any related person has or will have a direct or indirect interest (other than solely as a result of being a director or a less than 10% beneficial owner of another entity). Transactions between Ashland and any firm, corporation or entity in which a related person is an executive officer or general partner, or in which any related persons collectively hold more than 10% of the ownership interest, are also subject to review under the Policy.
Under the Policy, Ashlands directors and executive officers are required to annually identify potential transactions with related persons or their firms that meet the criteria set forth in the Policy, and management is
required to forward all such disclosures to the G&N Committee. The G&N Committee reviews each disclosed transaction to determine if it is a transaction with a related person. The G&N Committee has discretion to approve, disapprove or otherwise act if a transaction is deemed to be a related person transaction. Only disinterested members of the G&N Committee may participate in the determinations made with regard to a particular transaction. If it is impractical to convene a meeting of the G&N Committee, the Chairman of the G&N Committee is authorized to make a determination and promptly report such in writing to the other G&N Committee members. All determinations made under the Policy are required to be reported to the full Board of Directors.
Certain transactions have been determined by the Board of Directors to NOT be related person transactions, and therefore fall outside the scope of the Policy, even if such transactions exceed $120,000 in a fiscal year. Those exceptions are:
Communication with Directors
The Board of Directors has established a process by which shareholders and other interested parties may communicate with the Board. Persons interested in communicating with the Board, or with a specific member or Committee of the Board, may do so by writing to the Lead Independent Director in care of the General Counsel of Ashland, 50 E. RiverCenter Boulevard, P.O. Box 391, Covington, Kentucky 41012-0391. Communications directed to the Lead Independent Director will be reviewed by the General Counsel and distributed to the Lead Independent Director as well as to other individual directors, as appropriate, depending on the subject matter and facts and circumstances outlined in the correspondence. Communications that are not related to the duties and responsibilities of the Board, or are otherwise inappropriate, will not be forwarded to the Lead Independent Director, although all communications directed to the Board will be available to any director upon request.
Attendance at Annual Meeting
Ashland has a policy and practice of strongly encouraging all directors to attend the Annual Meeting. Each of Ashlands then current directors were present at the Annual Meeting held on January 29, 2009.
Executive Sessions of Directors
The non-employee directors meet in executive session at each regularly scheduled meeting of the Board, and at other times as they may determine appropriate. The Audit and P&C Committees of the Board meet in executive session during every Committee meeting. Other Board Committees meet in executive session at the discretion of the Committee members.
Shareholder Recommendations for Directors
The G&N Committee considers director candidates recommended by other directors, employees and shareholders, and is authorized, at its discretion, to engage a professional search firm to identify and suggest director candidates. Written suggestions for director candidates should be sent via registered, certified, or express mail to the Corporate Secretary of Ashland at 50 E. RiverCenter Boulevard, P.O. Box 391, Covington, Kentucky 41012-0391. Such suggestions must be received no later than September 1, 2010, to be considered by the G&N Committee for inclusion as a director nominee for the 2011 Annual Meeting. Suggestions for director candidates should include all information required by Ashlands By-laws, and any other relevant information, as to the proposed candidate. The G&N Committee selects each director nominee based on the nominees skills, achievements and experience. The G&N Committee will review all director candidates in accordance with its charter and Ashlands Corporate Governance Guidelines, and it will identify qualified individuals consistent with criteria approved by the Board of Directors. The G&N Committee shall select individuals as director nominees who exhibit the highest personal and professional integrity, who have demonstrated exceptional ability and judgment and who shall be most effective in serving the interests of Ashlands shareholders. Additionally, the G&N Committee shall seek director candidates who exhibit the following personal and professional qualifications: (1) significant experience in either the chemical or consumer marketing industries; (2) product or process innovation experience; (3) international business expertise; (4) diverse experience in policy-making in business, government, education and/or technology, or in areas that are relevant to Ashlands global business and strategy; (5) an inquisitive and objective nature, practical wisdom and mature judgment; and (6) the ability to work with Ashlands existing directors and management. Individuals recommended by shareholders in accordance with these procedures will be evaluated by the G&N Committee in the same manner as individuals who are recommended through other means.
Shareholder Nominations of Directors
In order for a shareholder to nominate a director at an Annual Meeting who is not otherwise nominated by the G&N Committee, Ashlands By-laws require that a shareholder provide written notice of intent to nominate a director not later than 90 days prior to the Annual Meeting (if the Annual Meeting is held on the last Thursday in January). For an Annual Meeting held earlier than the last Thursday in January, notice must be given within 10 days of the first public disclosure of the date of the Annual Meeting. Public disclosure may include a public filing with the SEC.
The notice must contain the following information:
The chairman of any meeting of shareholders to elect directors and the Board of Directors may refuse to acknowledge any nomination that is not made in compliance with the procedure described above or if the shareholder fails to comply with the representations set forth in the notice.
COMMITTEES AND MEETINGS OF THE BOARD OF DIRECTORS
The Board of Directors has five committees: Audit Committee; Environmental, Health and Safety Committee; Finance Committee; G&N Committee; and P&C Committee. All Committees are composed entirely of independent directors. During fiscal 2009, nine meetings of the Board were held. Each current director attended at least 75% of the total meetings of the Board and the Committees on which he or she served. Overall attendance at Board and Committee meetings was 91%. The following table describes the members of each of the Committees, its primary responsibilities and the number of meetings held during fiscal 2009.
Personnel and Compensation Committee Interlocks and Insider Participation
The members of the P&C Committee for fiscal 2009 were Theodore M. Solso (Chairman), Kathleen Ligocki, Vada O. Manager, Barry W. Perry and Michael J. Ward. There were no impermissible interlocks or inside directors on the P&C Committee.
Principles and Objectives of Ashlands Executive Compensation Program
Ashlands executive compensation program is designed to attract, motivate and retain individuals with the skills required to formulate and drive our strategic direction and achieve annual and long-term performance goals necessary to create shareholder value. The program is designed to reflect the individual executives contribution and the performance of Ashland. The core principles of Ashlands approach to executive compensation design and evaluation are as follows:
The 2009 global economic recession affected existing programs and created the need to take additional actions. Below is a listing of the key actions taken in fiscal 2009:
Other actions taken in 2009, which are described further in this Compensation Discussion and Analysis include:
This Compensation Discussion and Analysis describes the overall executive compensation policies and practices at Ashland and specifically analyzes the total compensation for the following named executive officers:
The Personnel & Compensation (P&C) Committees Role
The P&C Committee is composed of independent directors and is responsible for the approval and administration of compensation programs for executive officers and certain other employees of Ashland. The P&C Committee regularly reviews Ashlands compensation practices, and when making decisions considers:
The P&C Committees primary responsibilities are to:
The P&C Committee may form and delegate authority to subcommittees with regard to any of the above responsibilities.
In determining and administering the executive compensation programs the P&C Committee takes into consideration:
The P&C Committee meets in executive session for a portion of each meeting.
Management plays an important role in the process of setting compensation for executives, other than the Chief Executive Officer. The Chief Executive Officer (and the other members of the Executive Committee in certain instances), in consultation with the P&C Committees independent executive compensation consultant and the Vice President, Human Resources and Communications, develops compensation recommendations for the Committees consideration including:
The Chief Executive Officer takes various factors into consideration when making individual compensation recommendations including: the relative importance of the executives position within the organization; the individual tenure and experience of the executive; and the executives individual performance and contributions to Ashlands results.
Independent Executive Compensation Consultants Role
The P&C Committee directly engages Deloitte Consulting LLP (Deloitte) to serve as the outside advisor on executive compensation matters and to review Ashlands executive compensation program. The assessment consists of reviews of:
Deloittes engagement includes the following on-going work on behalf of the P&C Committee: review of competitive pay practices for outside board members; as needed, reviews of other components of Ashlands compensation programs including: benefits, perquisites, deferred compensation plans, severance policies and change in control provisions; updates regarding trends in executive and outside board compensation practices; updates regarding changes in regulatory and legislative developments; and reviews of the policies, procedures and charter of the P&C Committee to ensure the P&C Committee is compliant with corporate governance requirements.
In addition to the compensation services provided by Deloitte to the P&C Committee, Deloitte affiliates provided certain services to Ashland consisting of (i) tax services and other tax related services; (ii) merger and acquisition integration consulting services, and (iii) information technology consulting. The P&C Committee believes that, given the nature and scope of these projects, the additional assignments described above did not impair Deloittes ability to provide an independent perspective to the P&C Committees deliberations about executive compensation.
The P&C Committee annually reviews competitive compensation information in order to evaluate if executive pay levels are market competitive and consistent with the Companys stated compensation philosophy. The competitive compensation information is derived from multiple published survey sources and is based on competitive data for Chemical and general industry companies. Competitive pay data has gathered from the following published survey sources:
Competitive compensation information is comprised of both industry-specific and general industry company data because the Company competes for executive talent among a broad array of companies, both within and outside of the Chemical industry. The competitive data is size-adjusted based on statistical regression analysis that is consistent with the Corporate or Business Unit revenue responsibilities for each executive. The benchmarking scope that is used to develop competitive pay levels for Corporate and Distribution executives is reduced to account for the pass-through nature of Distributions business. As a result, pay levels for Corporate and Distribution executives are benchmarked using revenue levels that are less than their actual revenue responsibilities. The P&C Committees evaluation of pay levels is based on the adjusted revenue data.
Relative Performance Comparisons
To align Ashlands Executive Compensation Program with the interests of shareholders and to reinforce the concept of pay for performance, Ashland uses relative performance as compared to a select peer group (Performance Peer Group) for determination of awards under its Long-Term Incentive Program (LTIP) described on page 33 of this analysis. Return on Investment (ROI) and Total Shareholder Return (TSR) performance are the measures compared. Ashland must achieve median performance relative to the Performance Peer Group for eligible executives to earn a target award under the LTIP. The Performance Peer Group is a sub-set of the S&P Diversified and Specialty Chemical Indices. The peer group may be adjusted for each 3-year performance period depending on changes in the market capitalization of those companies in the S&P Diversified and Specialty Chemical Indices. Ashland believes that the use of published indices as the basis for developing the Performance Peer Group ensures a sufficient level of objectivity. The peer companies typically have a market capitalization between $0.4 billion and $20 billion. The P&C Committee has approved the following companies as the Performance Peer Group for the 2009-2011 LTIP grant, all of which have a market capitalization between $0.4 billion and $20 billion as of January 2009:
The Performance Peer Group has been updated for fiscal 2010 to reflect changes in the S&P Diversified and Specialty Chemicals Indices, which is consistent with Ashlands prior practice.
Individual Performance Evaluation: Chief Executive Officer
The P&C Committee evaluates the Chief Executive Officers performance based on Ashlands financial performance, the accomplishment of Ashlands long-term strategic objectives, and the accomplishment of annual objectives, and reviews its determination with the other independent members of the Board. The Chief Executive Officer reviews the status of performance against objectives with the Board at mid-year and again after the close of the fiscal year. The Chief Executive Officers individual performance against objectives is used for compensation purposes by the P&C Committee primarily in consideration of a merit adjusted, base salary increase.
Individual performance goals for the Chief Executive Officer include the following:
For fiscal 2009, employees eligible for incentive compensation participate in an individual performance pool designed to recognize outstanding individual performance. Mr. OBrien is not eligible to participate in the individual performance pool component of the incentive compensation plan. As a result, the determination of Mr. OBriens 2009 annual incentive payment was based entirely on predetermined financial measures. The annual incentive compensation plan is explained in further detail on page 30 of this analysis.
Individual Performance Evaluations: Named Executive Officers other than the Chief Executive Officer
At the beginning of each fiscal year each named executive officer (excluding the Chief Executive Officer) and certain other officers jointly set their annual, individual performance objectives with the Chief Executive Officer. Performance against objectives is reviewed throughout the year on a quarterly basis. At the end of the fiscal year the Chief Executive Officer conducts a final review with each of his direct reports, including each named executive officer and rates their performance using a scale of Greatly Exceeds Expectations to Does Not Meet Expectations. The Chief Executive Officer then submits to the P&C Committee a performance assessment and compensation recommendation for each of the named executive officers as well as for most other executive officers. The performance evaluations are based on factors such as achievement of Company and individual objectives and contributions to the financial performance of Ashland. Individual performance of the named executive officers is used by the Chief Executive Officer and P&C Committee primarily in consideration of individual merit base salary increases. In addition, individual performance is used in consideration of awards under the individual performance pool of the incentive compensation plan. None of the named executive officers received an individual performance award under this component of the incentive compensation plan in 2009.
Individual performance goals include the achievement of sales, operating income and working capital efficiency objectives compared to targeted goals. They also include specific goals related to: cost reduction, planned expansion into designated markets and geographical areas, organizational effectiveness, operational excellence and process improvement.
In January 2009, the P&C Committee reviewed the Compensation Tally Sheet for Mr. OBrien. The P&C Committee primarily uses the tally sheet information as an overview of the Chief Executive Officers total compensation including the value of benefits and perquisites paid, the value of equity holdings, an inventory of stock options and SARs, restricted shares and performance units, and as an analysis of the realized value of equity awards exercised. In addition, the P&C Committee reviews a summary of severance benefits that would be paid upon termination of Mr. OBriens employment under various scenarios to determine the appropriateness of such benefits. The scenarios included in the review are: termination without cause or for good reason after a change in control; termination by Ashland without cause in the absence of a change of control; and voluntary termination. The tally sheet analysis provides the P&C Committee a comprehensive overview of the primary executive compensation components and serves as background information for future compensation decisions. Based on the review of the tally sheets conducted in January 2009, the P&C Committee concluded that Ashlands executive compensation program was working as intended and that no significant changes were needed.
Elements of Ashlands Executive Compensation Program
The executive compensation program consists of the following elements of pay:
Annual Cash Compensation
Long-Term Incentive Compensation
Health and Welfare Benefits
Severance Pay Plan
Change in Control Agreements
Base salary represents a small (less than 20 percent) portion of the Chief Executive Officers target compensation and approximately 30 percent of other named executive officers target compensation. In fact, on average, at least 70 percent of annual compensation for Ashlands named executive officers varies each year based primarily upon Ashlands financial performance. The following charts show the 2009 Total Direct Compensation* mix (based on targeted compensation).
The components of the Ashland executive total compensation package are generally targeted at the median level of peer and non-peer companies (described under Factors Considered in Determining Executive Compensation), with the exception of the short-term (annual) incentive which is targeted at the top-quartile or 75th percentile of the market. Base salaries are generally targeted at the market median; annual incentive targets are set at the competitive 75th percentile; and long-term incentive opportunities are generally positioned between the median and 75 th percentile. The higher target opportunity for annual incentive drives financial performance and provides Ashland the ability to attract and retain executive talent during a period in which the Company is undergoing a strategic transformation.
Annual Cash Compensation
Annual cash compensation consists of market-competitive base salary and annual incentive compensation. Annual cash compensation for our named executive officers is aligned with the median of the competitive market based on achievement of median financial performance by Ashland.
Base salaries are the foundation for the compensation programs provided to named executive officers, as annual incentive payments, long-term incentive grants, and most employee benefits are linked to base salary. Base salary is designed to compensate executives for services rendered during the fiscal year and for their sustained performance. Base salaries are targeted at the 50th percentile of salaries for individuals having similar jobs in similarly-sized companies in the specialty chemical and general industries. Competitive salary ranges are established for executive positions (including each named executive officer) with the midpoint of the salary range representing the approximate median level of base pay in the competitive market for each position.
Ashland believes that base salary is within the range of competitive practice if it is 20% above or below the desired target. The executive compensation review conducted by Deloitte in November 2008 showed that the average base salary of the Ashlands executive officers, as a group, was approximately 0.9% above the 50th percentile.
Base salary increases are a reflection of individual performance and of an individuals pay relative to the salary range midpoint for his or her position. The merit increase process (merit guideline) that is used for most employees including the named executive officers provides for greater increases to the highest-performing employees, up to a maximum of 115% of the salary range midpoint. The merit guideline also provides for greater increases to employees who are below their salary range midpoint and are meeting acceptable performance levels. For 2009, a global salary freeze and furlough programs were implemented. Under the furlough program the base pay of all executive officers who were members of the Operating Committee was temporarily reduced during the furlough period by an amount equal to three weeks of pay, which represents 5.7% of annual base salary.
In years when a merit increase budget is established, the Chief Executive Officer uses the merit guideline as the basis for his salary increase recommendations for named executive officers (excluding himself) and other corporate officers. The Chief Executive Officer has the discretion to adjust merit increase recommendations from the guideline suggested amount based upon such factors as internal equity and individual performance. The P&C Committee reviews the market data provided by Deloitte and the individual performance evaluations and merit increase recommendations submitted by the Chief Executive Officer to approve salary increases for the named executive officers and other corporate officers.
The same merit guidelines are used by the P&C Committee when evaluating the merit increase for the Chief Executive Officer. After reviewing the merit guideline, the competitive market data and the Chief Executive Officers individual performance relative to pre-established objectives (including a review of the Chief Executive Officers self assessment), the P&C Committee, in executive session without management present, develops a recommended salary increase for the Chief Executive Officer. Final compensation actions for the Chief Executive Officer are approved by the independent Board members. Base salary increases for most salaried employees including the named executive officers are typically effective the first pay period in April.
Annual Incentive Compensation
The annual cash incentive is designed to compensate executives for the achievement of annual, primarily short-term performance goals. The named executive officers and approximately 240 additional senior employees participated in the 2009 incentive compensation plan. The plan provides an opportunity for each participant to earn a targeted percentage of base salary based on achievement of company-wide or business unit performance
targets. The target annual incentive opportunity is higher for the Chief Executive Officer relative to the other named executive officers based upon market competitive data. The table below reflects the targeted annual incentive opportunity:
In January 2009, the P&C Committee reviewed and approved measures and target performance levels for the 2009 incentive compensation. To insure that no payout would occur unless Ashland met its financial debt covenants, two minimum performance thresholds were established in order for the plan to be funded. The performance thresholds required Ashland to achieve a minimum of $700M in EBITDA and a maximum of 15.70% in Working Capital Efficiency* for any incentive compensation to be paid based on the established performance measures. The 2009 performance measures were Operating Income and Working Capital Efficiency. The Working Capital Efficiency measurement focused on three key cash flow drivers, which were accounts receivable, inventory and accounts payable, and was measured on a percentage of sales. This measurement was chosen because Working Capital Efficiency, like Operating Income, was viewed as a critical measure of Ashlands value given the economic downturn and tightening credit markets. The P&C Committee believes the use of both of these measures helps balance management decision-making on both profit growth and working capital management. It also believes that these objectives represent measures that are important to our shareholders. The weighting and business unit focus of the measures for each named executive officer is as follows:
For each of the measures previously listed, the P&C Committee established a minimum (hurdle), target and maximum performance level. The target annual incentive opportunity for each of the named executive officers is positioned at approximately the 75th percentile in order to drive financial performance and to attract and retain executive talent during a period in which the Company is undergoing a strategic transformation. To validate that the performance targets under the annual incentive plan are sufficiently difficult, the P&C Committee compared Ashlands 2009 performance targets to the actual fiscal 2008 results, the fiscal 2009 budget and the fiscal 2009 forecasts, to assess the rigors of the goals. Based on this review, the P&C Committee confirmed that Ashlands targeted level of performance required high levels of performance in order to achieve target-level incentive award payouts.
For executives who participated in the prior annual incentive plan of Hercules Incorporated (Hercules), a safety modifier continued to apply to their 2009 annual incentive compensation award.
Consistent with past practice and based on a core set of principles and adjustment criteria established at the beginning of the performance period, the P&C Committee adjusted the results on which 2009 incentives were
determined to account for the effect of certain items. The adjustments were intended to ensure that award payments represent the underlying performance of the business and are not artificially inflated or deflated due to such items. Adjustments are reviewed thoroughly as soon as practical after they are identified. For fiscal 2009, the P&C Committee adjusted operating income for certain gains on sales of assets, the impact of the cumulative effect of changes in accounting methodology, certain restructuring, the impact of fluctuations in foreign currencies and other special items.
Operating Income Performance and Incentive Compensation Scores
On an adjusted basis, actual operating income performance for fiscal 2009 relative to target was as follows:
On an adjusted basis, actual working capital efficiency performance for 2009 relative to target was as follows:
Working Capital Efficiency (WCE) Performance and Incentive Compensation Scores
Based on these results, the annual incentives earned for fiscal 2009 performance were as follows:
In addition, Mr. Harris received a discretionary bonus of $180,000 for his leadership of the successful integration of the former businesses of Hercules with Ashland businesses.
Long-Term Incentive Compensation
Ashlands long-term incentive compensation is designed to reward key employees for achieving and exceeding long-term goals and driving shareholder return. It is also designed to foster stock ownership among executives. The performance measures used in Ashlands long-term plan are different than those used in the annual incentive program. This is an intentional design element. The P&C Committee believes that shareholders interests are best served by balancing the focus of executives decisions between short-term and longer-term measures. Long-term incentive compensation is comprised primarily of two elements: performance units (LTIP) and stock appreciation rights (SARs). Restricted Stock is also a component of long-term compensation, but it is granted on a very selective basis, rather than annually.
An overall long-term incentive target opportunity is established based on competitive data, current base salaries and pay band or position. The long-term incentive targets for each of the named executive officers are generally positioned between the median and 75th percentiles of competitive practice. The target long-term incentive opportunity is expressed as a percentage of base salary or midpoint of the assigned pay band. Mr. OBriens total long-term incentive target relative to that of the other named executive officers is a reflection of the competitive market data for similarly situated executives. The total long-term incentive targets guidelines for Ashlands named executive officers for 2009 are as follows:
The total long-term incentive award opportunity is granted through a combination of performance units and SARs. The P&C Committee has the discretion to vary grant levels upward or downward based upon internal equity comparisons and individual performance. The targets for Messrs. Chambers and Harris were adjusted upwardly to 214% and 180% respectively in recognition of their increased level of job responsibility and the need to retain key talent.
Annual SAR and performance unit grants are typically made concurrent with the date of the P&C Committee meeting in November. Ashlands process for establishing the grant date well in advance provides assurance that grant timing is not being manipulated for employee gain.
Long-Term Incentive Program (LTIP)Performance Units
The LTIP for certain key employees is a long-term incentive tied to Ashlands overall financial and total shareholder return performance relative to the financial and total shareholder return performance of the Performance Peer Group. It is designed to encourage and reward executives for achieving longer-term financial that meets or exceeds the relative financial performance of peers. The P&C Committee and management believe that the focus on relative performance encourages management to make decisions that create shareholder value.
Awards under the LTIP are granted annually, with each award covering a three-year performance cycle. The number of performance units awarded is based on a targeted percentage of the employees base salary or midpoint of the assigned pay band and valued by the average of the closing prices of Ashland Common Stock for the last ten business days of the prior fiscal year. Awards under the LTIP are not adjusted for nor entitled to receive cash dividends during the performance period.
The following calculation showing how Mr. OBriens target 20092011 LTIP grant was determined is illustrative of the overall grant determination process:
Actual grants under the 20092011 LTIP for Ashland named executive officers were as follows:
In November 2008, the P&C Committee reviewed and approved measures and target performance levels for the 20092011 LTIP. The performance period for this LTIP began on October 1, 2008 and ends on September 30, 2011. For all participants including the named executive officers, the performance measures are Ashlands return on investment (ROI) and Ashlands total shareholder return (TSR) performance as compared to the Performance Peer Group over the three-year cycle. In choosing these measures the P&C Committee considered the performance measures used in the other components of Ashlands executive compensation programs. ROI and TSR are believed to represent an appropriate balance to the shorter-term earnings and working capital efficiency measures used in the annual incentive plan. By balancing the performance measures used, the overall program design encourages management to focus on the overall performance of Ashland and on value creation for our shareholders. ROI is a measurement of the effective use of capital. TSR is a measurement of shareholder value creation, and is defined as the change in Ashlands stock price plus aggregate dividend payments over the performance period divided by the stock price at the beginning of the performance period.
Each of the performance measures in the LTIP is weighted equally and evaluated separately. The performance hurdle is the minimum performance that must be achieved to earn a payout under the stated objectives. For the 20092011 LTIP the hurdle was set at the 35th percentile. If Ashlands performance is below the 35th percentile, no award is earned. To earn the target award, Ashlands performance must be at the 50 th percentile (median) relative to the peers. The performance maximum represents a level of performance that is at the 90th percentile or above, relative to the Performance Peer Group. If the maximum performance is achieved for both relative TSR and ROI, the award earned is 200% of the award opportunity at target. The following chart illustrates these award levels and the corresponding relative performance required:
In the event performance falls between hurdle and target or target and maximum, the performance units are calculated on a linear basis. The earned amount of the LTIP award is paid in Ashland Common Stock. The award is paid in February following the close of the three-year performance cycle.
Stock Appreciation Rights (SARs)
Ashlands SARs program is a long-term incentive plan designed to link executive compensation with increased shareholder value over time. The methodology for determining the number of SARs to be awarded utilizes a variable approach based on a target value determined as a percentage of an individuals actual base salary or midpoint of the assigned pay band. The actual number of SARs granted is then determined by taking the target value for each participant and dividing by the Black-Scholes value using the average of the closing prices of Ashland Common Stock for the last ten business days of the prior fiscal year as determined by the Black-Scholes method.
The following calculation showing how Mr. OBriens target 2009 SAR grant was determined is illustrative of the overall grant determination process:
Actual grants for 2009 for Ashland named executive officers were as follows:
All SARs are granted with an exercise price equal to the closing price of Ashland Common Stock on the NYSE on the date of grant and are not re-valued if the stock price declines below the exercise price. SARs expire on the tenth anniversary plus one month from the date of grant. SARs vest over a three-year period as follows: 50% vest on the 1st anniversary of the grant date; an additional 25% vest on the 2nd anniversary of the grant date; and the final 25% vest on the 3rd anniversary of the grant date.
The P&C Committee may award restricted shares of Ashland Common Stock to key employees. A restricted share award is intended to reward superior performance and encourage continued employment with Ashland. The restricted shares may not be sold, assigned, transferred or otherwise encumbered during the restricted period. Unvested restricted shares that have been deferred to the Ashland Deferred Compensation Plan will receive hypothetical dividends in the form of additional units of restricted stock. Executives who have been awarded unvested restricted shares of Ashland Common Stock receive quarterly dividend payments in the form of cash compensation.
The table below reflects the Restricted Stock grants to Messrs. Chambers and Harris during fiscal 2009. The grant to Mr. Chambers is part of a broader pay arrangement that provides him with a competitive compensation package designed to retain the key talent of the Chief Financial Officer. Mr. Harris grants were awarded to recognize his expanded responsibilities and for retention reasons. These grants were recommended by Mr. OBrien and approved by the P&C Committee.
Stock Ownership Guidelines
Equity compensation encourages executives to have a shareholders perspective in managing Ashland. Consistent with this philosophy, the P&C Committee has established stock ownership guidelines for Ashlands executive officers and designated key employees. Employees are subject to the stock ownership requirements if they are eligible to participate in Ashlands LTIP plan. Under these guidelines, each employee has five years from the date he or she becomes subject to a particular guideline to reach the minimum levels of Ashland Common Stock ownership identified by the P&C Committee. The current ownership guidelines are the lesser of the following two metrics:
Ashland Common Stock ownership includes the following: shares held in Ashlands 401(k) Plans and LESOP; equivalent shares held in the non-qualified Deferred Compensation Plan; unvested restricted stock that will vest within five years of the ownership guideline date; and shares held by employees outside of Ashland plans.
The P&C Committee reviews progress towards achieving the ownership guidelines for the covered employees on an annual basis. Based upon the 2009 review, all of the named executive officers had achieved their stock ownership requirements.
Any executive officer, who acquires Ashland stock by exercising options or SARs granted after February 2005, must retain 50% of the net shares acquired for at least 12 months or until such earlier time as the individual ceases to be an executive officer of Ashland.
At the request of the P&C Committee, Deloitte performed a risk assessment of Ashlands incentive plans. The incentive plans analyzed were the Incentive Compensation Plan and Long Term Incentive Plan, both described in this Compensation Discussion and Analysis, as well as the Total Rewards Variable Pay plan which is applicable to Ashlands broader employee population. The risk assessment was performed to identify potential areas that could encourage participants to take excessive risks, manipulate reported financial results, or to focus
on short-term results at the expense of long-term value creation. The assessment included the review of plan documents and communication materials, the analysis of performance measures and plan mechanics and interviews with key individuals involved in the incentive plan design and administration. Below are the key observations made during the assessment:
Deloitte concluded that the incentive plans incorporate a significant amount of rigor and oversight to discourage excessive risk taking or manipulating performance in order to increase incentive award payouts.
Executive Compensation Recovery Clawback Policy
Ashland has adopted an Executive Compensation Recovery Policy (Clawback Policy) effective for plan years beginning on or after October 1, 2009 for executive officers. This policy further strengthens the risk mitigation program by defining the economic consequences that misconduct has on the executive officers incentive-related compensation. In the event of a financial restatement due to fraudulent activity or intentional misconduct as determined by the Board of Directors, the culpable executive officer will reimburse Ashland for incentive-related compensation paid to him or her. In addition, the Board of Directors has the discretion to determine whether any of the named executive officers will be required to repay incentive-related compensation, whether or not such named executive officer was involved in the fraudulent activity or misconduct. Ashland has a period of three (3) years after the payment or award is made to seek reimbursement.
The named executive officers participate in the same qualified as well as nonqualified retirement plans that are offered to the majority of Ashlands qualifying U.S. employees.
Financial security in retirement is an important aspect of every employees compensation and this holds true for the named executive officers as well. The combination of tax qualified and non-qualified retirement plans are designed to assist the named executive officers in building savings for retirement over the term of their employment.
The companys pension and the savings plans are tax-qualified vehicles to provide retirement benefits to the named executive officers and their families. The benefits in these plans are available to most U.S. based employees. The benefits are funded through trusts and are separate from the assets of Ashland and by law are protected from Ashlands creditors. The pension plan provides a foundation for retirement security. Each named executive officer may build upon this foundation with his or her own savings and Ashland matching contributions through the savings plan.
The benefits that may be provided under these plans are limited by the Internal Revenue Code. Therefore, these plans standing alone cannot provide sufficient retirement income to the named executive officers when compared to their pay as an active employee. To make up for this gap in potential replacement income in retirement, Ashland also offers the named executive officers non-qualified retirement plans that complement each other and the tax-qualified plans.
The non-qualified excess plans are coordinated with the pension plan to provide the part of the pension benefit that would have been paid through the pension plan but for the limitations on the permissible benefit under the pension plan. The pension plan may not include named executive officers variable compensation in its formula, so a supplemental benefit is calculated using base compensation and incentive compensation. To avoid duplicative payments, the supplemental benefit is reduced by the benefits from the pension plan and the non-qualified excess plan.
The named executive officers contributions to the savings plan are also limited by law, which means their potential Ashland matching contributions are also limited. The Ashland match that could not be made to the savings plan will be paid to the named executive officers (as well as any affected employee) as additional compensation. Ashlands deferral plan allows the named executive officers to annually make a separate deferral election so that the named executive officers can save additional amounts from their own pay than they are allowed to save in the savings plans.
Health and Welfare Benefits
The health of all employees is important to Ashland as is the need to provide for financial security to the families of employees who may become ill, disabled, or die during active employment. To these ends, Ashland provides a wide variety of health and welfare benefit plans to a majority of its active United States workforce. These same plans are offered to the named executive officers for the same reasons as they are offered to the majority of the rest of the active workforce. These plans include medical, dental, vision, life, accidental death and dismemberment, business travel and accident coverage and long-term care insurance. These benefits are targeted at median competitive levels.
Perquisites do not comprise a major element of Ashlands executive compensation program. The perquisites Ashland provides to the named executive officers and other selected executives include financial planning (including tax preparation) and home security systems and monitoring.
Mr. OBrien and Mr. Hausrath participated in the financial planning and home security programs. The other named executive officers participated in only the financial planning program.
The P&C Committee reviews the perquisites provided to executive officers as part of their overall review of executive compensation. The P&C Committee has determined the perquisites to be within the appropriate range of compensation practices. Details about the named executive officers perquisites, including the cost to Ashland in fiscal 2009, are available in footnote (6) to the Summary Compensation Table.
Severance Pay Plan
The named executive officers are covered by the Salary Pay Plan that provides benefits in the event of a covered termination in absence of a change in control. A covered termination is the direct result of the permanent closing of a facility, job discontinuance, or other termination action of Ashlands initiative as determined by Ashland. The plan excludes certain terminations such as, but not limited to, termination for cause and voluntary resignation.
A detailed description of these agreements is included in the Potential Payments upon Termination or Change in Control section of this proxy statement.
Change in Control Agreements
Each named executive officer has a change in control agreement that sets forth the economic consequences and entitlements for a termination without cause or for good reason after a change in control.
The primary purpose of these protections is to align executive and shareholder interests by enabling the executives to assess possible corporate transactions without regard to the affect such transactions could have on their employment.
The form of change in control agreement was updated in July 2009. Agreements entered into after July 2009 will not include a conditional gross-up for excise and related taxes.
A detailed description of these agreements is included in the Potential Payments upon Termination or Change in Control section of this proxy statement.
Deductibility of Compensation
Ashland attempts to maximize the tax deductibility of the compensation paid to its executives. However, tax rules may limit the tax deductibility of certain types of non-performance based compensation paid to the named executive officers. As a result of these rules, it is expected that approximately $200,000 of named executive officer compensation paid in 2009 will be nondeductible.
Ashland considers the tax deductibility of compensation awarded to the named executive officers, and weighs the benefits of: (1) awarding compensation that may be nondeductible against and (2) contingencies required by the tax laws. The P&C Committee believes that in certain circumstances the benefit of awarding nondeductible compensation exceeds the benefit of awarding deductible compensation that is subject to contingencies derived from the tax laws instead of sound business discretion.
In addition, Ashland considers various other tax rules governing named executive officer compensation, including (but not limited to) tax rules relating to fringe benefits, qualified and non-qualified deferred compensation, and compensation triggered by a change in control.
PERSONNEL AND COMPENSATION COMMITTEE REPORT ON EXECUTIVE COMPENSATION
The P&C Committee has reviewed the Compensation Discussion and Analysis appearing on pages 22 through 39 of this proxy statement and discussed that Analysis with management. Based on its review and discussions with management, the P&C Committee recommended to the Board of Directors that the Compensation Discussion and Analysis be included in Ashlands Annual Report on Form 10-K for fiscal 2009 and Ashlands proxy statement for its 2010 Annual Meeting of Shareholders. This report is provided by the following independent directors who comprise the P&C Committee:
PERSONNEL AND COMPENSATION
Theodore M. Solso, Chairman
Vada O. Manager
Barry W. Perry
Michael J. Ward
Summary Compensation Table
The following table is a summary of compensation information for up to the last three fiscal years, the most recent of which ended September 30, 2009, for Ashlands Chief Executive Officer, Chief Financial Officer and each of the other three most highly compensated executive officers as of September 30, 2009.
For restricted stock grants, the grant date fair value is calculated using the closing price of Ashland Common Stock on the date of grant.
For LTIP grants, the accrual for performance units is based on a combined valuation of the original grant date and an updated estimate of the likely performance achievement for expense purposes under FAS 123R. Any amounts actually paid are dependent on Ashland and peer performance achievements within the awards applicable time period, which at this point are substantially uncertain. The LTIP is more particularly described in the Compensation Discussion and Analysis and under the Grants of Plan-Based Awards table in this proxy statement.
The present values at September 30, 2008 and September 30, 2009 were calculated based on the earliest age that a participant could receive an unreduced benefit (see the discussion under the Pension Benefits table in this proxy statement regarding the earliest retirement age under the various plans).
Grants of Plan-Based Awards
The following table sets forth certain information regarding the annual and long term incentive awards, SARs and restricted stock granted during fiscal 2009 to each of the named executive officers.
Annual Incentive Compensation
Incentive compensation for executives is awarded annually, contingent upon meeting applicable targets. After the beginning of each fiscal year, performance hurdle, target and maximum objectives are established for the upcoming year. Awards for the Chief Executive Officer and certain other executive officers are based upon overall Ashland performance as well as the performance of Ashlands business sectors. Awards for other executives and employees are based upon the performance of Ashlands wholly-owned divisions. Awards for division employees are based primarily on division performance.
To ensure that no payout under the program would occur unless Ashland met its financial debt covenants, two performance thresholds for Ashlands EBITDA and Working Capital Efficiency were established in order for the plan to be funded for fiscal 2009. The performance hurdle, target and maximum objectives for fiscal 2009 included measures of Operating Income and Working Capital Efficiency. The Compensation Discussion and Analysis section in this proxy statement discusses the fiscal 2009 performance goals as well as other aspects of this program.
Long-Term Incentive Program
The LTIP is available to certain key employees. It is a long-term incentive tied to Ashlands performance versus the performance of Ashlands peer group of companies. Awards are granted annually, with each award covering a three-year performance period.
After the beginning of the performance period, performance hurdle, target and maximum objectives are established for the performance period. The initial number of performance units awarded is based on the employees salary or midpoint of salary band depending on salary band. Target grants under the program range from 20% to 200% of an employees base salary. The Compensation Discussion and Analysis section in this proxy statement discusses the performance goals for outstanding LTIP awards.
Stock Appreciation Rights, Stock Options and Restricted Stock
Ashlands employee stock option and SARs program is a long-term plan designed to link executive compensation with increased shareholder value over time. In determining the amount of stock options or SARs to be granted annually to key employees, a target number of shares for each employee grade level is established. All stock options and SARs are granted with an exercise price equal to the fair market value of Ashland Common Stock on the date of grant. Vesting of stock options and SARs occurs over a period of three years, as more fully described in footnote (2) of the Outstanding Equity Awards at Fiscal Year-End table in this proxy statement. For accelerated vesting events, see the Stock Options, SARs, Incentive Compensation, Restricted Stock and LTIP subsection of the Potential Payments upon Termination or Change in Control section in this proxy statement. Stock options and SARs are not re-valued if the stock price declines below the grant price.
In addition, the P&C Committee may award restricted shares of Ashland Common Stock and/or restricted share equivalents to key employees. Restricted share awards are intended to reward superior performance and encourage continued employment with Ashland. The restricted shares may not be sold, assigned, transferred or otherwise encumbered during the restricted period. Dividends are paid on the restricted shares and the employee to whom the restricted shares were granted receives those dividends. For vesting periods applicable to restricted Ashland Common Stock granted to named executive officers, see footnote (3) of the Outstanding Equity Awards at Fiscal Year-End table in this proxy statement. For accelerated vesting events, see the Stock Options, SARs, Incentive Compensation, Restricted Stock and LTIP subsection of the Potential Payments upon Termination or Change in Control section in this proxy statement.
These programs are described in more detail in the Compensation Discussion and Analysis section in this proxy statement.
The following table sets forth certain information regarding stock options, SARs, restricted stock and LTIP performance units held by each of the named executive officers at September 30, 2009.
Option Exercises and Stock Vested
The following table sets forth certain information regarding the value realized by each named executive officer during fiscal 2009 upon the exercise of stock options/SARs and vesting of restricted stock and performance units.
For Mr. Chambers, the amount in column (d) includes 4,430 shares of restricted Ashland Common Stock units which vested in the Employee Deferral Plan on July 17, 2009 and 5,000 shares of restricted Ashland Common Stock which vested on July 28, 2009. For Mr. Chambers the amount in column (e) includes $125,723 for the units which vested on July 17, 2009 and $158,250 for the shares which vested on July 28, 2009, based on the closing prices of $28.38 and $31.65, respectively, per share of Ashland Common Stock as reported on the NYSE on those dates.
For Mr. Hausrath, the amount in column (d) includes 8,000 shares of restricted Ashland Common Stock which vested on January 29, 2009, and 3,784 shares of restricted Marathon Common Stock which vested on January 29, 2009. For Mr. Hausrath the amount in column (e) includes $66,000 for the restricted Ashland Common Stock and $107,162 for the restricted Marathon Common Stock, based on the closing prices of $8.25 per share of Ashland Common Stock and $28.32 per share of Marathon Common Stock, each as reported on the NYSE on January 29, 2009. Shares of restricted Marathon Common Stock were issued pursuant to the MAP transaction more fully described in footnote (1) of the Outstanding Equity Awards at Fiscal Year-End table in this proxy statement.
For Mr. Harris, the amount in column (d) represents 1,859 shares of Ashland Common Stock received in settlement of the 2006-2008 LTIP award. For Mr. Harris, the dollar amount in column (e) represents $17,641 for the 2006-2008 LTIP award (computed by multiplying the number of shares awarded for the plan period by $9.49, the closing price of Ashland Common Stock as reported on the NYSE on January 28, 2009, the date the P&C Committee approved the payment).
For Mr. Mitchell, the amount in column (d) includes 6,646 shares of restricted Ashland Common Stock units which vested in the Employee Deferral Plan on July 17, 2009 and 5,169 shares of Ashland Common Stock received in settlement of the 2006-2008 LTIP award. For Mr. Mitchell, the amount in column (e) includes $188,614 for the restricted units based on the closing price of $28.38 per share of Ashland Common Stock as reported on the NYSE on July 17, 2009 and $49,054 for the 2006-2008 LTIP award (computed as described above).
The following table shows the actuarial present value of the named executive officers accumulated benefit under each of Ashlands qualified and nonqualified pension plans, calculated as of September 30, 2009.
The present values of the accumulated benefits were calculated as of September 30, 2009 based on the earliest age a participant could receive an unreduced benefit.
Except for Messrs. Harris and Mitchell, the earliest age that an unreduced benefit is available under the qualified Pension Plan and the nonqualified Excess Plan is 62. For Messrs. Harris and Mitchell, age 55 is the earliest age they may receive unreduced benefits under the qualified Pension Plan and the nonqualified Excess Plan because their qualified Pension Plan benefits are calculated under the cash balance pension formula. All of the other named executive officers have their qualified Pension Plan benefits calculated under the traditional pension formula. Except for Messrs. Harris and Mitchell, all of the named executive officers are eligible for early retirement under each of these plans.
Under the SERP, the earliest age a named executive officer could receive an unreduced benefit is the earlier of age 55 or when the sum of the named executive officers age and service equals at least 80, provided that the officers have at least 20 years of service under the plan. All the named executive officers except Messrs. Harris and Mitchell have at least 20 years of service under the plan.
Except for Messrs. Harris and Mitchell, the named executive officers have a benefit in Ashlands qualified LESOP. The LESOP was completely allocated on March 31, 1996 and no additional benefits are accruing. The LESOP and qualified Pension Plan are in a floor-offset arrangement. The value of the shares allocated to a participants LESOP offset account reduces the value of the participants Pension Plan benefit. A participant may elect to transfer his or her LESOP offset account to the Pension Plan at the time of his or her termination in order to receive an unreduced Pension Plan benefit. The calculations in the Pension Benefits table assume that the named executive officers with a LESOP benefit elect to transfer their LESOP offset accounts to the Pension Plan.
The SERP provides an umbrella (or gross) benefit that is subject to certain reductions. The amount in the Pension Benefits table for the SERP benefit for each named executive officer is the net benefit under that plan, after applicable reductions. The reductions referred to in this paragraph are described in the Ashland Inc. Supplemental Early Retirement Plan for Certain Employees (SERP) section below.
The valuation method and all material assumptions applied in quantifying the present value of the accumulated benefit are incorporated by reference from Note O to Ashlands Notes to Consolidated Financial Statements in Ashlands 2009 Form 10-K.
Ashland Hercules Pension Plan (Pension Plan)
The Pension Plan is a tax-qualified defined benefit pension plan under Code §401(a). The plan provides retirement income for eligible participants.
The plan covers a wide range of employees sufficient to meet the coverage standards of Code §410(b). Eligible employees must be age 21 and have one year of service to participate. Participation is automatic once the requirements are met. Five years of service is required for a vested benefit.
The plan has two benefit formulasa traditional formula, referred to as the annuity benefit, and a cash balance formula, referred to as the retirement growth account. The traditional formula produces an annuity benefit at retirement based on a percentage of final average compensation multiplied by years of plan service (see the description in the Annuity Benefit section below). The cash balance formula produces a hypothetical account
balance based on the sum of contribution credits and interest on those contribution credits (see the description in the Retirement Growth Account Benefits below). In general, participants who were actively employed on June 30, 2003 with at least 10 years of service remained in the annuity benefit formula. All other participants moved to the retirement growth account formula. The formula under which a participants benefit is computed is a matter of plan design and not participant election.
Under this plan, for certain highly compensated employees, compensation only includes base compensation, up to the maximum allowed under Code §401(a)(17). For all other participants, compensation includes bonus amounts. This applies to both formulas under the plan. Final average compensation is the average for the 36 consecutive month period producing the highest average for the last 120 months of credited service.
The Pension Plan also contains provisions for benefits applicable only to individuals who were employees of Hercules prior to Ashlands acquisition of Hercules. These separate provisions do not apply to any of the named executive officers.
The annual annuity benefit formula is:
(1.08% x final average compensation up to $10,700) + (1.5% x final average compensation exceeding $10,700)
(years of credited service which means years as a participant in the plan up to a maximum of 35)
The normal form of benefit payment under the annuity benefit is a single life annuity. However, as required by federal law, the normal form of benefit for a married participant is a joint and survivor annuity, unless the spouse consents to a different benefit distribution. A participant may also elect a non-spousal joint and survivor annuity or a 10-year term certain annuity. All payment forms are actuarially equivalent.
The normal retirement age is 65, but an unreduced benefit is paid for retirement at age 62. A participant may retire early once the participant is either at least age 55 or when the sum of the participants age and service equals at least 80.
Retirement Growth Account Benefit
The retirement growth account formula grants annual credits as a percentage of compensation based on the sum of a participants age and years of service. This is illustrated in the following table:
Contribution credits are accumulated in a notional account. Interest credits are allocated to each participants account monthly. The interest rate is from a minimum of 4% to a maximum of 7% and is set at the beginning of each plan year. The interest rate for fiscal 2009 is 4.00%.
The accrued benefit under this formula is the balance in the retirement growth account. The benefit is payable in the same forms that apply to the annuity benefit formula or may be paid as a single lump sum.
The normal retirement age under the retirement growth account formula is also age 65. The earliest that a participant can receive a distribution is age 55 with at least five years of service.
If a participant has a benefit payable from the LESOP, then the participants LESOP offset account reduces the amount payable to the participant, regardless of the formula under which the participants benefit is paid. At termination from employment, the participant may elect to transfer the LESOP offset account to the Pension Plan and receive an unreduced Pension Plan benefit.
Years of service in addition to what is actually incurred under the Pension Plan cannot be granted. However, in the case of an acquisition, prior service with the acquired business is often counted for purposes of vesting and eligibility, but not for purposes of benefit accrual under the annuity benefit formula. These same rules apply equally to the Excess Plan described below.
The Pension Plan also contains provisions for benefits applicable only to individuals who were employees of Hercules prior to Ashlands acquisition of Hercules. These separate provisions do not apply to any of the named executive officers.
Ashland Inc. Nonqualified Excess Benefit Pension Plan (Excess Plan)
The Excess Plan is an unfunded, nonqualified plan of deferred compensation and covers employees (i) who are eligible for the Pension Plan and whose benefit under the Pension Plan is limited because of either Code §401(a)(17) or §415(b) and (ii) who are not terminated for cause as defined in the Excess Plan.
The benefit payable under the Excess Plan is the difference between the benefit under the Pension Plan in the absence of the tax Code limits (the gross benefit) and the actual benefit that would be payable under the Pension Plan. For purposes of computing the Excess Plan benefit, a participants compensation is defined the same as it is for the Pension Plan. However, the limits on the compensation under the Pension Plan that are imposed by the Code do not apply under the Excess Plan.
The benefit under the Excess Plan is payable in a lump sum and may be transferred to the Employees Deferral Plan. A benefit payable to a named executive officer and certain other highly compensated participants cannot be paid for six months following separation from service.
Ashland Inc. Supplemental Early Retirement Plan for Certain Employees (SERP)
The SERP is an unfunded, nonqualified plan of deferred compensation and covers a select group of highly compensated employees.
The benefit formula covering the named executive officers and certain other highly compensated participants provides a benefit of 25% of final average compensation multiplied by the participants years of service up to 20. For this purpose, final average compensation is total compensation (base plus incentive compensation) for the 36 months out of the 84 months before retirement that produces the highest average.
The named executive officers may retire on the earlier of age 55 with three years of service or when the sum of the executives age and service equals at least 80. The benefit produced by the above described formula is subject to proportionate reduction for each year of service credited to the participant that is less than 20 years of service. Additionally, the benefit is reduced by the sum of the following:
Except for Messrs. Harris and Mitchell, all of the named executive officers are eligible to retire and commence their SERP benefits. SERP benefits become vested upon attaining five years of service. All of the named executive officers have a vested benefit under the SERP.
The SERP benefit is payable in a lump sum and may be transferred to the Employees Deferral Plan. Distributions to the named executive officers cannot begin until six months after separation from service.
The SERP contains a non-compete provision. Any executive who, within a period of five years after his or her termination of employment, accepts a consulting or employment engagement that is in direct and substantial conflict with the business of Ashland will be deemed to have breached the SERP provisions. A breach in the SERP provisions requires the executive to reimburse Ashland for any distributed benefits and to forfeit benefits that have not yet been paid under the plan.
Ordinarily, years of service in addition to what is actually incurred are not granted. However, in the case of an acquisition, prior service with the acquired business is counted for purposes of vesting under the SERP.
Nonqualified Deferred Compensation
The following table sets forth certain information for each of the named executive officers regarding the Employees Deferral Plan for fiscal 2009.
Ashland Inc. Employees Deferral Plan
The Employees Deferral Plan is an unfunded, nonqualified deferred compensation plan for a select group of highly compensated employees. Participants may elect to have up to 50% of base pay and up to 100% of their incentive compensation and/or LTIP awards contributed to the plan. Elections to defer compensation must be made before the period for which the service relating to the particular kind of compensation is incurred.
Participants elect how to invest their account balances from among a diverse set of mutual fund offerings and a hypothetical Ashland Common Stock fund. No guaranteed interest or earnings are available and there are no above market rates of return on investments in the plan. Beginning October 1, 2000, investments in Ashland Common Stock units must remain so invested and must be distributed as Ashland Common Stock. In all other events, participants may freely elect to change their investments. Withdrawals are allowed for an unforeseeable emergency (single sum payment sufficient to meet the emergency), disability (lump sum payment), upon separation from employment (payable as lump sum or installments per election) and at a specified time (paid as single sum) and, for pre-2005 contributions, at the election of the participant paid in a lump sum (subject to a penalty of up to 10%).
Potential Payments upon Termination or Change in Control
The following table summarizes the estimated amounts payable to each named executive officer in the event of a termination from employment or change in control as of September 30, 2009. A narrative description follows the table. Different termination events are identified in columns (b)-(g). Column (a) enumerates the types of potential payments for each named executive officer. As applicable, each payment or benefit is estimated across the table under the appropriate column or columns.
These estimates are based on the assumption that the various triggering events occur on September 30, 2009, the last day of the 2009 fiscal year. We have noted below other material assumptions used in calculating the estimated compensation and benefits under each triggering event. The actual amounts that would be paid to a named executive officer upon certain terminations of employment or upon a change in control can only be determined at the time an actual triggering event occurs.
Potential Payments upon Termination or Change in Control Table
Severance Pay Plan
The named executive officers are covered by the Severance Pay Plan that provides benefits in the event of a covered termination from employment in absence of a change in control. A termination for which benefits under the plan will be considered include those directly resulting from the permanent closing of a facility; job discontinuance; or other termination at Ashlands initiative for which Ashland elects to provide benefits. Certain terminations are excluded from coverage by the Severance Pay Plan (for example, refusal to sign a severance agreement and release; discharge for less then effective performance, absenteeism or misconduct; or voluntary resignation).
In order for any executive to receive benefits and compensation payable under the Severance Pay Plan, the executive will agree to a general release of liability which relates to the period of employment or termination. In addition, the executive will agree to refrain from engaging in competitive activity against Ashland and refrain from soliciting persons working for Ashland, soliciting customers of Ashland or otherwise interfering with Ashlands business for a period of 24 months following the termination. The executive will also agree not to disclose Ashlands confidential information.
The benefit payable under the Severance Pay Plan to the Chief Executive Officer is 104 weeks of base pay and for all other named executive officers is 78 weeks of base pay. Payments will be made as payroll continuation in bi-weekly increments if the executive is retirement eligible (or would be at the end of the payroll continuation period). If the executive is not retirement eligible or paying the benefit as payroll continuation will not make the executive retirement eligible, the benefit is paid as a lump sum. Payment of such amounts may be subject to a six-month deferral in order to comply with Section 409A of the Code.
Any executive who receives payroll continuation may also remain in the medical, dental, vision, group life and pension plans for the executives benefit continuation period. The benefit continuation period in that case is two weeks for each completed year of service, with a maximum of 52 weeks. Any executive who receives a lump sum severance benefit will be eligible to elect COBRA continuation of coverage at active employee rates for a period of three months.
Executive Change in Control Agreements
The named executive officers and certain other executives, have change in control agreements with Ashland. These agreements describe the payments and benefits to which an executive is entitled if terminated after a change in control of Ashland.
If within two years after a change in control (see the Definitions section below) an executives employment is terminated without cause or the executive terminates employment for good reason (see the Definitions section below), the executive is entitled to the following:
As a condition to receiving the benefits and compensation payable under the agreement, the executive agrees for a period of 24 months following the termination, absent prior written consent of Ashlands General Counsel, to refrain from engaging in competitive activity against Ashland; and to refrain from soliciting persons working for Ashland, soliciting customers of Ashland or otherwise interfering with Ashlands business relationships. Pursuant to the agreement, the executive also agrees not to disclose confidential information. If the executive breaches the agreement, Ashland has the right to recover benefits that have been paid to the executive. Finally, the executive may recover legal fees and expenses incurred as a result of Ashlands unsuccessful legal challenge to the agreement or the executives interpretation of the agreement.
In addition, each agreement with the named executive officers provides a conditional gross-up for excise and related taxes in the event (and to the extent) the severance compensation and other payments or distributions to a named executive officer, whether pursuant to an employment agreement, stock option, SAR, restricted stock, LTIP award or otherwise would constitute excess parachute payments, as defined in Section 280G of the Code. In the event the aggregate parachute value of all severance and other change in control payments to the named
executive officer does not exceed the greater of (i) the maximum amount that may be paid under Section 280G of the Code without the imposition of an excise tax plus $50,000; or (ii) 110% of such maximum amount, the named executive officers payments under the agreement will be reduced to the extent necessary to avoid imposition of the excise tax on excess parachute payments. Change in control agreements entered into with executives after July 2009 will not include a provision for the conditional gross-up of excise and related taxes.
Cause is any of the following:
To be terminated for cause, the Board of Directors must pass a resolution by three quarters vote finding that the termination is for cause.
Good reason includes any of the following that occurs after a change in control:
Change in control is a complex definition, but may be summarized to include any of the following:
Stock Options, SARs, Incentive Compensation, Restricted Stock and LTIP
The following table summarizes what may happen to stock options/SARs, incentive compensation, restricted stock and LTIP grants upon termination from employment; death; disability or retirement; or in the event of a change in control.
For purposes of the above table, the term change in control is defined in the applicable plan and has substantially the same meaning as it does in the Executive Change in Control Agreements section in this proxy statement.
SERP, Excess Plan, Qualified Pension Plan and Employees Deferral Plan
For payments and benefits under the SERP, Excess Plan and qualified Pension Plan, except in the event of a change in control, see the Pension Benefits table and the narrative thereunder in this proxy statement. For payments and benefits under the Employees Deferral Plan, except in the event of a change in control, see the Nonqualified Deferred Compensation table and the narrative thereunder in this proxy statement.
The SERP contains a non-compete provision. Any executive who, within a period of five years after his or her termination of employment, accepts a consulting or employment engagement that is in direct and substantial
conflict with the business of Ashland will be deemed to have breached the SERP provisions. A breach in the SERP provisions requires the executive to reimburse Ashland for any distributed benefits and to forfeit benefits that have not yet been paid under the plan.
After a Change in Control
The term change in control is defined in the applicable plan and has substantially the same meaning as it does in the executive change in control agreements.
The occurrence of a change in control under the SERP for the named executive officers has the following consequences:
For the qualified Pension Plan and the Excess Plan, no enhanced benefit results from a change in control. Under the Employees Deferral Plan, a change in control results in an automatic lump sum distribution of the benefit for deferrals made before January 1, 2005. Deferrals made on and after January 1, 2005 will not be automatically distributed upon a change in control, but rather will be distributed pursuant to each employees election and valued at the time of the distribution.
Executive Compensation Recovery Clawback Policy
Ashland has adopted a Clawback Policy effective for plan years beginning on or after October 1, 2009 for executive officers. This policy defines the economic consequences that misconduct has on the executive officers incentive-related compensation. In the event of a financial restatement due to fraudulent activity or intentional misconduct as determined by the Board of Directors, the culpable executive officer will reimburse Ashland for incentive-related compensation paid to him or her. In addition, the Board has the discretion to determine whether any of the named executive officers will be required to repay incentive-related compensation, whether or not such named executive officer was involved in the fraudulent activity or misconduct. Ashland has a period of three (3) years after the payment or award is made to seek reimbursement.
AUDIT COMMITTEE REPORT
The Audit Committee is composed of five independent directors and operates under a written charter adopted by the Board of Directors. At its November 2009 meeting, the Board determined that all current Audit Committee membersMessrs. Hale, Rohr, Schaefer, and Dr. Healy and Ms. Ligockiare independent as defined by SEC rules, the listing standards of the New York Stock Exchange, which apply to Ashland, and Ashlands Standards. Each member of the Audit Committee is a financial expert as defined by SEC rules.
The Audit Committee assists in fulfilling the oversight responsibilities of the Board relating to Ashlands financial reporting process, its implementation and maintenance of effective internal control over financial reporting, the internal audit function, the independent registered public accounting firms qualifications and independence, its legal compliance programs and its risk management programs. During fiscal 2009, the Audit Committee met eight times. The Audit Committee also met on four occasions to discuss and review Ashlands quarterly earnings and the associated press releases.
The Audit Committee also discusses with Ashlands internal and independent auditors the overall scopes and plans for their respective audits. The Audit Committee meets with the internal auditors and the independent registered public accounting firm, with and without management present, to discuss the results of its examinations, its evaluations of Ashlands internal controls, and the overall quality of Ashlands financial reporting. The Audit Committee reviews Ashlands activities aimed at compliance with the Sarbanes-Oxley Act of 2002.
The following were among the other significant matters addressed by the Audit Committee during fiscal 2009:
Critical accounting policies and reserves;
Legal compliance report, processes and procedures;
New and emerging accounting standards;
Process for disclosure of material risks to Ashland;
Financial disclosure controls; and
Financial authorization controls.
PricewaterhouseCoopers (PwC), an independent registered public accounting firm, was engaged to audit Ashlands consolidated financial statements for fiscal 2009 and to issue an opinion on whether such statements present fairly, in all material respects, Ashlands consolidated financial position, results of operations and cash flows in conformity with U.S. generally accepted accounting principles. PwC was also engaged to audit and to issue an opinion on the effectiveness of Ashlands internal control over financial reporting. Prior to any engagement of PwC by Ashland, the engagement was approved by the Audit Committee in accordance with established policies and procedures. The Audit Committee reviewed and discussed with management and PwC the audited financial statements, managements assessment of the effectiveness of Ashlands internal control over financial reporting, and PwCs evaluation of Ashlands internal control over financial reporting. The Audit Committee further reviewed PwCs judgment as to the quality and acceptability of Ashlands accounting principles, financial reporting process and controls, and such other matters as are required to be discussed with the Audit Committee under the standards of the Public Company Accounting Oversight Board (United States) (the PCAOB). In addition, the Audit Committee reviewed PwCs independence from management and Ashland including the matters in the written disclosures required by the PCAOB.
In addition, the Audit Committee has adopted strict guidelines on the use of the independent registered pubic accounting firm to provide non-audit services. The Audit Committee must pre-approve any non-audit services performed by the independent registered public accounting firm. In fiscal 2009, approval was sought and granted to PwC to perform certain non-audit related services. The Audit Committee has considered whether the
provision of audit-related and other non-audit services by PwC is compatible with maintaining PwCs independence and has concluded that PwCs independence is not compromised by providing of such services.
PwCs fees for all services are budgeted, and both management and PwC are required to report the actual fees and any variance from budgeted fees, to the Audit Committee throughout the fiscal year. The Audit Committee recognizes that circumstances may arise that require the engagement of independent auditors to perform work beyond the scope of and not contemplated in the original pre-approval for audit related services in a fiscal year. In these instances, specific pre-approval of the additional services and the budget therefore is required prior to the engagement of the independent auditors for those services. In reliance on the reviews and discussions referred to above, the Audit Committee recommended to the Board of Directors (and the Board has approved) that Ashlands consolidated financial statements be accepted for inclusion in its Annual Report on Form 10-K for the year ended September 30, 2009, for filing with the SEC.
Roger W. Hale, Chairman
Bernadine P. Healy
Mark C. Rohr
George A. Schaefer, Jr.
The Audit Committee of the Board of Directors has recommended to the Board the appointment of PwC to audit Ashlands Consolidated Financial Statements and Internal Controls Over Financial Reporting for fiscal 2010, subject to ratification by the shareholders at the Annual Meeting. Fees (including out-of-pocket costs) paid to PwC for fiscal 2009 totaled $6,897,350 and those paid to Ashlands previous auditor, Ernst & Young LLP (E&Y), for fiscal 2008 totaled $8,389,000. The following table presents fees for professional services rendered by PwC and E&Y for fiscal years 2009 and 2008, respectively.
Representatives of PwC will attend the Annual Meeting to respond to questions from shareholders and will be given the opportunity to make a statement.
The appointment of PwC will be deemed ratified if votes cast in its favor exceed votes cast against it. Abstentions will not be counted as votes cast either for or against the proposal.
The Board of Directors recommends a vote FOR the ratification of PwC as Ashlands independent registered public accountants for fiscal 2010.
Section 16(a) Beneficial Ownership Reporting Compliance
Ashland believes that during fiscal 2009 its executive officers and directors have complied with Section 16(a) of the Exchange Act and the rules and regulations adopted thereunder.
Proxy Solicitation Costs
Ashland is soliciting the proxies being solicited by this proxy statement. All costs of soliciting proxies, including the cost of preparing and mailing the Notice and the proxy statement and any accompanying material, will be borne by Ashland. Expenses associated with this solicitation may also include charges and expenses of banks, brokerage houses and other custodians, nominees or fiduciaries for forwarding proxies and proxy materials to beneficial owners of shares. Solicitations may be made by mail, telephone, telegraph, telex, facsimile, electronic means and personal interview, and by officers and employees of Ashland, who will not be additionally compensated for such activity. Ashland has arranged for the services of Georgeson Shareholder Communications Inc. (Georgeson) to assist in the solicitation of proxies. Georgesons fees will be paid by Ashland and are estimated to be $15,000, excluding out-of-pocket expenses.
Shareholder Proposals for the 2011 Annual Meeting
Shareholders interested in presenting a proposal for consideration at the 2011 Annual Meeting may do so by following the procedures prescribed in Rule 14a-8 of the Exchange Act and Ashlands By-laws. To be eligible for inclusion in the proxy statement for the 2011 Annual Meeting, shareholder proposals must be received by Ashlands Corporate Secretary no later than August 12, 2010.
Ashlands By-laws provide that a shareholder must provide Ashland with written notice of a matter he or she wishes to bring before an annual meeting at least 90 days in advance of the meeting, if the meeting is held no earlier than the last Thursday in January. If the meeting is held earlier, the shareholder must provide Ashland with written notice within 10 days after the first public disclosure of the date of the meeting. The first public disclosure of that date may be a public filing with the SEC. Such notice must set forth as to each matter the shareholder proposes to bring before the annual meeting:
The By-laws further provide that no business shall be conducted at any annual meeting except in accordance with the foregoing procedures and that the chairman of any such meeting may refuse to permit any business to be brought before an annual meeting that is not made in compliance with the procedure described above or if the shareholder fails to comply with the representations set forth in the notice.
As of the date of this proxy statement, Ashland does not know of any business to be presented for consideration at the Annual Meeting, other than the items referred to in this proxy statement. In the event that any additional matter is properly brought before the meeting for shareholder action, properly voted proxies will be voted in accordance with the judgment of the named proxies.
Please vote by telephone or over the Internet, or fill in, sign and date the proxy card and return it in the accompanying prepaid envelope. If you attend the Annual Meeting and wish to vote your shares in person, you may do so. Your cooperation in giving this matter your prompt attention is appreciated.
LINDA L. FOSS
Assistant General Counsel
and Corporate Secretary
December 4, 2009
Subject Line: Please Vote Your Proxy
[Insert share information here]
Your Control Number:
Electronic Access Notification
Ashlands Annual Meeting of Shareholders will be held on Thursday, January 28, 2010 at 10:30 a.m. Eastern Standard Time at the Metropolitan Club, 50 E. RiverCenter Boulevard, Covington, Kentucky. As previously announced, participants in Ashlands Employee Savings Plan or the LESOP can view Ashlands Proxy Statement and Annual Report online. We encourage you to take advantage of this service.
Paper copies of the Proxy Statement and your proxy card or copies of the Annual Report can be requested by replying to this e-mail.
As a participant in Ashlands Employee Savings Plan or the LESOP, you may instruct the Trustees how to vote the Ashland Common Stock credited to your account by telephone or over the Internet. Your voting instructions also apply to the shares of Ashland Common Stock allocated to participant accounts for which voting instructions are not received on a timely basis by the Trustees (Non-Directed shares). Each participant who gives the Trustees instructions acts as a named fiduciary for the plan under the Employee Retirement Income Security Act of 1974, as amended. Any participant who wishes to vote the Non-Directed shares differently from the shares credited to his or her account or who wishes not to vote the Non-Directed shares at all may do so by requesting a separate voting instruction card from Corporate Election Services, P.O. Box 535600, Pittsburgh, PA 15253.
Votes cast by telephone or over the Internet are tabulated by our proxy tabulator and are confidential. Ashland does not have access to individual votes.
Even if you do not have regular Internet access at work, you will be able to view the Proxy Statement and Annual Report and vote online. If you are a dial-up user, we encourage you to access these documents and vote from your office or a local number.
In order for your instructions to the Trustees to be counted, you must vote before 6:00 a.m. Eastern Standard Time on January 26, 2010.
To access the Annual Report and Proxy Statement and vote:
To vote by telephone (you will need a touch tone telephone):
Telephone and Internet access is available 24 hours a day, 7 days a week.
In order to be counted in the final tabulation, your telephone or Internet vote must be received by 6:00 a.m. Eastern Standard Time on January 26, 2010 if you are a participant in The Ashland Inc. Employee Savings Plan, LESOP or Hercules SIP, or by 6:00 a.m. on January 28, 2010 if you are a registered shareholder.
Proxy card must be signed and dated below.
i Please fold and detach card at perforation before mailing. i
This proxy is solicited on behalf of the Board of Directors for the Annual Meeting of Shareholders on January 28, 2010.
The undersigned hereby appoints James J. OBrien and Linda L. Foss, and each of them as proxies for the undersigned, with full power of substitution, to act and to vote all the shares of Ashland Inc. Common Stock, that the undersigned is entitled to vote at the Annual Meeting of Shareholders to be held on January 28, 2010, and at any adjournment thereof.
Please sign, date, and return your proxy promptly in the enclosed envelope.
Proxy card must be signed and dated on the reverse side.
i Please fold and detach card at perforation before mailing. i
If you do not provide voting instructions, your proxy will be voted FOR proposals 1 and 2.
The Board of Directors recommends a vote FOR proposals 1 and 2.
In their discretion, the proxies are authorized to vote upon such other business as may properly come before the meeting.
(Continued and to be signed on the reverse side)