This excerpt taken from the NDSN DEF 14A filed Jan 18, 2008.
Section 162(m) of the Internal Revenue Code generally prevents a publicly held corporation from claiming federal income tax deductions for compensation in excess of $1 million paid to certain of its senior executives. Compensation is exempt from this limitation, however, if it qualifies as performance-based compensation.
The Incentive Plan is designed to provide for compensation that will qualify as performance-based compensation under Section 162(m). The Board of Directors has determined that it is advisable to amend the Incentive Plan to adjust the manner in which incentive awards are calculated. Shareholders must approve the Incentive Plan, as amended, in order for incentive awards granted in fiscal year 2009 and later to continue to comply with the performance-based compensation exception. In the event that our shareholders do not approve the Incentive Plan, as amended, no incentive awards will be made under the plan in fiscal year 2009 and later. Nonetheless, we retain the discretion to make awards outside of the Incentive Plan without regard to whether such awards would be deductible under Section 162(m).
The favorable vote of the holders of a majority of the common shares present in person or by proxy at the Annual Meeting is required to approve the Incentive Plan, as amended. The Board of Directors recommends that shareholders vote For Proposal No. 3.