This excerpt taken from the DHR DEF 14A filed Mar 25, 2005.
Compensation Program Components
Executive officer compensation at the Company is comprised of three elements: base salary and perquisites, annual cash incentive compensation and equity-based compensation. Each of the components is designed to be consistent with the Companys compensation philosophy and to achieve the goals described above. Achievement of short-term objectives is rewarded through base salary and annual cash incentive compensation, while equity-based compensation awards encourage executives to focus on the Companys long-term goals as well. The Companys executive compensation program also accounts for individual performance, which enables the Committee to differentiate among executives and emphasize the link between personal performance and compensation. The Committee uses an external compensation consultant to benchmark compensation practices. The peer group used in the benchmarking survey encompasses publicly traded, diversified manufacturing companies that compete with the Company in one or more of the Companys various businesses and that compete with the Company for executive talent. Most of the companies included in the benchmarking survey peer group are also included in the peer group used for the Stock Performance Graph included in this Proxy Statement. The following is a discussion of each component of compensation and the items considered by the Committee when determining, for each of the executive officers, the level of each component to be provided.
Base Salary and Perquisites. In reviewing and approving the base salaries and perquisites of executive officers, the Committee considers:
The 2004 salaries of the most highly compensated executive officers of the Company are shown in the Summary Compensation Table. The executive officers are entitled to all benefits made generally available to Danaher associates. In addition, the perquisites provided to the executive officers consist primarily of term life insurance, reimbursement for certain club dues and tax preparation and financial planning services, parking, an automobile allowance, relocation costs, annual physical, and, with respect to the President and Chief Executive Officer and the Chief Financial Officer, personal use of the Company plane when not in use for business purposes. In addition, Messrs. Steven M. Rales and Mitchell P. Rales are permitted to make personal use of designated Company office space and secretarial, tax and accounting services. Messrs. Steven M. Rales and
Mitchell P. Rales receive an annual salary and perquisites as described above, but do not receive annual cash incentive compensation or equity awards. The Committee has reviewed and approved all perquisites provided to the Companys executive officers.
In addition, each executive officer (other than Messrs. Steven M. Rales and Mitchell P. Rales) participates in the Amended and Restated Danaher Corporation & Subsidiaries Executive Deferred Incentive Program, or EDIP. The EDIP is a shareholder-approved, non-qualified, unfunded deferred compensation program available to selected executive management associates of the Company and its subsidiaries. Contributions to the program take the form of both voluntary deferrals and annual Company contributions.
Annual Cash Incentive Compensation. An executive officers cash incentive compensation for a given year is based on the product of the following four components.
The annual incentive compensation awards payable to the Companys executive officers are subject to the overall performance goals and limitations set forth in the Danaher Corporation 2003 Incentive Plan, which was approved by the Companys shareholders in 2003. The Danaher Corporation 2003 Incentive Plan also limits the annual incentive compensation award payable to any executive officer in any year during the period 2003-2007 to $5,000,000. The Committee reviews and authorizes each executives actual incentive payments and has the discretion to change an executives incentive payment from the amount determined pursuant to the formula above. In establishing the target bonus percentages and determining the annual incentive compensation payments for the Companys executive officers, the Company also takes into account benchmarking data on incentive compensation awards and total compensation packages offered by peer companies, based on data provided by the external compensation consultant.
In determining executive incentive compensation awards for 2004, the Committee first determined that the 2004 performance criteria under the Danaher Corporation 2003 Incentive Plan had been satisfied and therefore incentive compensation could be paid under the Plan. In evaluating the personal factors for each executive officer and considering the amounts that would be paid pursuant to the incentive compensation formula described above, the Committee took into account, among other factors, the Companys 36% EPS growth in 2004 compared to 2003. The Committee also took into account a review of compensation paid for comparable positions at the Companys peer companies, and the recommendations of the President and Chief Executive Officer (other than with respect to his own incentive compensation) and the Chairman of the Board. In light of the impact of the
2004 financial factor on the formula-based compensation amounts, the Committee exercised its discretion to moderate the formula-based incentive compensation amounts. The Company approved an aggregate of $7,096,100 in annual incentive compensation awards for 2004 for the Companys executive officers, including the President and Chief Executive Officer. The specific amounts awarded to each of the named executive officers is shown in the bonus column of the Summary Compensation Table included in this Proxy Statement.
Equity Awards. To reward and retain employees in a manner that best aligns employees interests with stockholders interests, the Company uses stock options as its primary equity compensation vehicle. Stock options require Company common stock appreciation in order for the employees to receive any benefit, and therefore directly align stockholder and employee interests. Executives and other key employees who, in the opinion of the Committee, contribute to the growth, development and financial success of the Company are eligible to be awarded options to purchase Company Common Stock. The Committee grants stock options on an annual basis to existing employees and to new employees upon hire in amounts that take into account such factors as:
All stock option grants are made at the fair market value on the date of grant. The annual option grants normally vest over a five-year period. Special grants may also be authorized outside of the annual-grant framework, though a grantee who receives a special grant that exceeds the typical annual-grant level will generally not be eligible for annual grants for two to three years, unless the Committee determines otherwise.
In 2003, the Committee made an award of performance shares to the Companys President and Chief Executive Officer and beginning in 2004, began to make selected grants of restricted stock units to certain executive officers and other key employees of the Company. The Committee uses restricted stock units to achieve particular retention objectives. The Committee believes that under certain circumstances restricted stock units can offer greater retention incentives than stock options.