UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

SCHEDULE 14A

Filed by the Registrant þ
Filed by a Party other than the Registrant o

Check the appropriate box:

o		Preliminary Proxy Statement
o		Confidential, for Use of the Commission Only (as permitted by Rule 14a-6(e)(2))
þ		Definitive Proxy Statement
o		Definitive Additional Materials
o		Soliciting Material Pursuant to §240.14a-12

 

Ferro Corporation

(Name of Registrant as Specified In Its Charter)

 

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

Payment of Filing Fee (Check the appropriate box):

þ		No fee required.
o		Fee computed on table below per Exchange Act Rules 14a-6(i)(1) and 0-11.

	(1)		Title of each class of securities to which transaction applies:
	(2)		Aggregate number of securities to which transaction applies:
	(3)		Per unit price or other underlying value of transaction computed pursuant to Exchange Act Rule 0-11 (set forth the amount on which the filing fee is calculated and state how it was determined):
	(4)		Proposed maximum aggregate value of transaction:
	(5)		Total fee paid:

o		Fee paid previously with preliminary materials.
o		Check box if any part of the fee is offset as provided by Exchange Act Rule 0-11(a)(2) and identify the filing for which the offsetting fee was paid previously. Identify the previous filing by registration statement number, or the Form or Schedule and the date of its filing.

	(1)		Amount Previously Paid:
	(2)		Form, Schedule or Registration Statement No.:
	(3)		Filing Party:
	(4)		Date Filed:

 

 

 

 

March 29, 2010

 

Dear Shareholder:

 

I cordially invite you to attend the 2010 Annual Meeting of Shareholders of Ferro Corporation, which will be held on Friday, April 30, 2010. The meeting will be held at our corporate offices located at 1000 Lakeside Avenue in Cleveland, Ohio, and will begin at 10:00 a.m. (Eastern Time). At the 2010 Annual Meeting, shareholders will (i) vote on the election of three Directors, (ii) vote on the approval of the 2010 Long-Term Incentive Plan, (iii) vote on the ratification of the appointment of Deloitte & Touche LLP as Ferro’s independent registered public accounting firm for the fiscal year ending December 31, 2010, (iv) vote on a proposal to amend Ferro’s Code of Regulations to permit the Board of Directors to amend Ferro’s Code of Regulations to the extent permitted by Ohio law, (v) vote on a shareholder proposal, if properly presented at the Annual Meeting, and (vi) transact such other business as may properly come before the Annual Meeting or any adjournment or postponement thereof. The following Proxy Statement contains information about the Directors, a description of our corporate governance practices, information about our relationship with Deloitte & Touche LLP, a description of the proposed 2010 Long-Term Incentive Plan, a description of the proposed amendment to our Code of Regulations, a description of the shareholder proposal and other relevant information about our Company and the Annual Meeting.

 

Regardless of the number of shares you own, your participation is important. I urge you to vote as soon as possible by telephone, the Internet or mail, even if you plan to attend the meeting. You may revoke your proxy at any time before the meeting regardless of your voting method. If you choose, you may also vote your shares personally at the meeting. In any case, your vote is important.

 

I look forward to seeing you at the Annual Meeting.

 

Very truly yours,

 

James F. Kirsch

Chairman, President and

Chief Executive Officer

Who is soliciting my proxy with this Proxy Statement?

 

The Board of Directors of Ferro is soliciting your proxy in connection with Ferro’s Annual Meeting of Shareholders.

 

Where and when will the meeting be held?

 

This year’s meeting will be held on April 30, 2010, at the Company’s corporate headquarters located at 1000 Lakeside Avenue in Cleveland, Ohio. The meeting will begin at 10:00 a.m. (Eastern Time). Parking is available at nearby facilities.

 

What will be voted on at the meeting?

 

At the meeting, shareholders will vote on the election of three Directors for terms ending in 2013, vote on the approval of the 2010 Long-Term Incentive Plan, vote on the ratification of the appointment of Deloitte & Touche LLP as the Company’s independent registered public accounting firm for 2010, vote on a proposal to amend the Company’s Code of Regulations to permit the Board of Directors to amend the Company’s Code of Regulations to the extent permitted by Ohio law, vote on a shareholder proposal, if properly presented at the Annual Meeting, and transact such other business as may properly come before the Annual Meeting or any adjournment or postponement thereof.

 

What if I wish to attend the meeting?

 

If you wish to attend the meeting, you should so indicate on the enclosed attendance response card and return the card to Ferro. This will assist with meeting preparations and expedite your admission to the meeting.

 

Who is entitled to vote at the meeting?

 

The record date for this meeting is March 5, 2010. On that date, we had 86,228,869 shares of Common Stock (which have a par value of $1.00 per share) and 203,282 shares of Series A ESOP Convertible Preferred Stock (which have no par value) outstanding. Each of these shares will be entitled to one vote at the meeting. (The Common Stock and Series A ESOP Convertible Preferred Stock will vote together as a single class.)

 

How do I vote?

 

If you are a registered shareholder, you may cast your vote in person at the meeting or by any one of the following ways:

 

By Telephone:  You may call the toll-free number (1-888-652-8683) printed on your proxy card. Follow the simple instructions and use the personalized control number printed on your proxy card to vote your shares. You will be able to confirm that your vote has been properly recorded. Telephone voting is available 24 hours a day. Telephone voting is available through 11:59 p.m. Eastern Time on April 29, 2010. If you vote by telephone, you do not need to return your proxy card.

 

Over the Internet:  You may visit the Web site (www.investorvote.com/FOE) printed on your proxy card. Follow the simple instructions and use the personalized control number printed on your proxy card to vote your shares. You will be able to confirm that your vote has been properly recorded. Internet voting is available 24 hours a day. Internet voting is available through 11:59 p.m. Eastern Time on April 29, 2010. If you vote over the Internet, you do not need to return your proxy card.

 

By Mail:  You may mark, sign and date the enclosed proxy card and return it in the enclosed postage-paid envelope.

 

If you are a beneficial holder (your shares are held through your bank or broker), you will receive instructions on how to vote your shares with these proxy materials.

 

What if I change my mind before the meeting?

 

If you change your mind, you may revoke your proxy by giving us notice, either in writing before the meeting to: Secretary, Ferro Corporation, 1000 Lakeside Avenue, Cleveland, Ohio 44114-1147 USA or at the meeting itself. (If you do revoke your proxy during the meeting, it will not, of course, affect any vote that has already been taken.)

What if I submit a proxy without giving specific voting instructions?

 

If you properly submit a proxy without giving specific voting instructions, the individuals named as proxies on the proxy card will vote your shares:

 

 

Will my shares be voted if I do not provide my proxy?

 

If you are a registered shareholder and do not submit a proxy, you must attend the meeting in order to vote your shares.

 

If you hold shares through an account with a bank or broker, your shares may be voted even if you do not provide voting instructions to your bank or broker. Banks and brokers have the authority under the rules of the New York Stock Exchange, or NYSE, to vote shares for which their customers do not provide voting instructions on certain routine matters. The ratification of the appointment of Deloitte & Touche LLP as the Company’s independent registered public accounting firm is considered a routine matter for which banks and brokers may vote without specific instructions from their customers. You must provide voting instructions to your bank or broker for your shares to be voted on all other matters presented at the Annual Meeting.

 

PROXY STATEMENT

 

This document is the Notice of Meeting and the Proxy Statement of the Board of Directors of Ferro Corporation (the “Board”) in connection with the Annual Meeting of Shareholders to be held on April 30, 2010, at 10:00 a.m. (Eastern Time).

 

PROPOSAL ONE: ELECTION OF DIRECTORS

 

At the Annual Meeting, shareholders will consider the election of three Directors for terms ending in 2013. In December 2009, the Board voted to increase the number of Directors and elected Richard C. Brown, Gregory E. Hyland and Ronald P. Vargo to the Board. The Directors are divided into three classes with each class having a minimum of three directors. The Directors in each class are elected for terms of three years so that the term of office of one class of Directors expires at each Annual Meeting. The following pages contain information about Ferro’s Directors (including the nominees for re-election, the Directors whose terms will not expire at this meeting and the Directors whose term expires at the Annual Meeting and will not stand for re-election).^*

 

The terms of office of Perry W. Premdas and Michael H. Bulkin expire on the day of this Annual Meeting and they are not standing for re-election. In addition, Michael F. Mee resigned from the Board effective March 3, 2010. To comply with the Company’s Code of Regulations, which requires that each class of directors have a minimum of three Directors, and the New York Stock Exchange’s listing standards, which require that each class of directors be of approximately equal size, the Board has added Ronald P. Vargo to the class of directors nominated for election at the Annual Meeting.

 

Nominees for Election at this Annual Meeting

 

The current terms of office of Richard C. Brown, Gregory E. Hyland and Ronald P. Vargo will expire on the day of this Annual Meeting (as soon as they or their successors are elected). The Board has nominated each of these incumbents for re-election at this Annual Meeting. Following is information about the three Directors nominated for re-election at this Annual Meeting:

 

 

Biographical Information:

 

Mr. Brown was elected to the Board in December 2009.

 

Mr. Brown currently serves as the Chief Executive Officer of Performance Fibers, a global leader in high-performance industrial fibers and related materials. Mr. Brown has worked in chemical and chemical-related businesses for the majority of his career and has strong international experience. Prior to joining Performance Fibers, Mr. Brown was Vice President and President of the Performance Chemicals Business of W.R. Grace & Co. from 2005 until 2007. Prior to his position with W.R. Grace & Co., Mr. Brown spent 19 years at General Electric Company, where he served as the President & Global Business Unit Leader of GE Advanced Materials and Silicones from 2003 until 2005 and President and General Manager of General Electric Sealants and Adhesives from 1999 until 2003.

 

Mr. Brown also serves as a director of Kraton Polymers LLC.

 

 

 *      For each of the Directors, the number of shares reported as “Common Stock Owned” is as of March 5, 2010, and includes shares that the Director owns beneficially, deferred shares and deferred stock units that are converted to Common Stock after a one-year vesting period. The number of shares reported as “Common Stock Under Option” is as of March 5, 2010, but includes shares subject to options that would be issued if the Director exercised all stock options vested within 60 days after March 5, 2010, the record date for the Annual Meeting.

 

Biographical Information:

 

Mr. Hyland was elected to the Board in December 2009.

 

Mr. Hyland has comprehensive operations, sales, and international experience in multiple industries. Mr. Hyland currently serves as Chairman, President and Chief Executive Officer of Mueller Water Products, Inc. Prior to joining Mueller Water Products, Inc., Mr. Hyland served as Chairman, President and Chief Executive Officer of Walter Industries, Inc. from September 2005 until December 2006. Prior to that time, Mr. Hyland served as President, U.S. Fleet Management Solutions of Ryder System, Inc. from June 2005 to September 2005. He served as Executive Vice President, U.S. Fleet Management Solutions of Ryder from October 2004 to June 2005.

 

 

Biographical Information:

 

Mr. Vargo was elected to the Board in December 2009.

 

Mr. Vargo has extensive experience in treasury, investor relations, business strategy, acquisitions and divestitures, finance, and operations in global corporations. On March 1, 2010, Mr. Vargo was named Vice President and Chief Financial Officer of ICF International effective April 1, 2010. Prior to joining ICF International, Mr. Vargo served as the Executive Vice President and Chief Financial Officer of Electronic Data Systems (“EDS”) and served as a member of the EDS Executive Committee. Mr. Vargo joined EDS in 2004 as Vice President and Treasurer and was promoted to Co-Chief Financial Officer in March 2006. Before joining EDS, Mr. Vargo served as Corporate Treasurer and Vice President of Investor Relations at TRW Inc., now part of Northrop Grumman, until 2003.

Messrs. Brown, Hyland and Vargo have each agreed to stand for re-election. While we have no reason to believe that any of these nominees will be unable or unwilling to serve at the time of the Annual Meeting, in the unlikely event any of them does not stand for re-election, the shares represented by proxy at the Annual Meeting may be voted for the election of a substitute nominee named by the Board.

 

Vote Required

 

The three nominees who receive the greatest number of votes cast by the shares present, in person or by proxy, and entitled to vote will be elected Directors. Abstentions and broker non-votes will not be considered as shares voted for or against the election of the nominees. If you return a proxy without giving specific voting instructions, then your shares will be voted for the election of Messrs. Brown, Hyland and Vargo. If you own your shares through a bank or broker and do not provide specific voting instructions to the bank or broker or do not obtain a proxy to vote those shares, then your shares will not be voted in the election of Directors.

 

If the election of Directors is by cumulative voting (see page 52 below), the persons appointed by your proxy intend to cumulate the votes represented by the proxies they receive and distribute such votes in accordance with their best judgment to elect as many of the Board nominees as possible.

 

Board Recommendation

 

The Board recommends that you vote “FOR” the election of Messrs. Brown, Hyland and Vargo. Unless you instruct otherwise on your proxy card or by telephone or Internet voting instructions, your proxy will be voted in accordance with the Board’s recommendation.

 

Directors Continuing in Office

 

The following are the Directors who will continue in office after the Annual Meeting:

 

 

Biographical Information:

 

Mr. Kirsch was elected Chairman of Ferro’s Board of Directors in December 2006. He was appointed Chief Executive Officer and a Director in November 2005. Mr. Kirsch joined Ferro in October 2004 as its President and Chief Operating Officer.

 

Prior to joining Ferro, Mr. Kirsch served as President of Premix Inc. and Quantum Composites, Inc., manufacturers of thermoset molding compounds, parts and sub-assemblies for the automotive, aerospace, electrical and HVAC industries. Prior to that, from 2002 through 2004, he served as President of Quantum Composites, Inc. From 2000 through 2002, he served as President and director of Ballard Generation Systems and Vice President for Ballard Power Systems in Burnaby, British Columbia, Canada.

 

Mr. Kirsch started his career with The Dow Chemical Company, where he spent 19 years and held various positions of increasing responsibility, including global business director of Propylene Oxide and Derivatives and Global Vice President of Electrochemicals.

 

Mr. Kirsch also serves as a director of Cliff Natural Resources Inc. (an international mining and natural resources company).

 

 

Biographical Information:

 

Ms. Crayton is a Managing Director with Alvarez and Marsal, a professional services firm. Ms. Crayton joined the firm in January 2006. Prior to that, Ms. Crayton was President and Chief Executive Officer of PhyServ, LLC, a health care billing, collections, receivables and information company.

 

Ms. Crayton was appointed Senior Vice President and General Manager of the Medical/Surgical and Psychiatry Management Centers of University Hospitals of Cleveland in 1988. From 1990 to 1994, she served as Executive Vice President and Chief Operating Officer of The University of Chicago Hospitals. In 1994, she was appointed President of Caremark Clinical Management Services, a division of Caremark Rx, Inc. In 1995, Ms. Crayton was named President of Caremark Physician Services, a division of Caremark, Inc., which provides physician practice management services. Between 1997 and 1999, Ms. Crayton was President and Chief Executive Officer of Sedona Health Care Group, Inc. In 1999, she became President and Chief Executive Officer of PhyServ LLC and retired from that position in 2001, when the company was acquired.

 

Ms. Crayton formerly served as a director of Gambro AB (a medical technology and healthcare company) and NCCI Holdings, Inc. (a workers’ compensation database management firm).

 

 

Biographical Information:

 

Mr. Hipple is the Chairman of the Board, President and Chief Executive Officer of Brush Engineered Materials Inc., a manufacturer of high-performance engineered materials. Mr. Hipple has served as Chairman of the Board and Chief Executive Officer of Brush since May 2006 and President of Brush since May 2005. Mr. Hipple was Vice President of Strip Products of Brush from July 2001 until May 2002, when he became President of Alloy Products of Brush.

 

Prior to joining Brush, Mr. Hipple was President of LTV Steel Company, a business unit of the LTV Corporation.

 

 

Biographical Information:

 

Dr. Hwang has over 30 years of experience in materials, electronics, chemicals and coatings through her management and/or ownership of businesses. She has served as the President of H-Technologies Group since 1994, encompassing international business, worldwide manufacturing services, intellectual property management and joint ventures. Dr. Hwang is an invited guest columnist for Global Solar Technology magazine. Dr. Hwang was also the Chief Executive Officer of International Electronic Materials Corporation (a manufacturing company she founded, which was later acquired). Prior to establishing these companies, Dr. Hwang held various senior executive positions with Lockheed Martin Corp., SCM Corp. and The Sherwin-Williams Company.

 

Dr. Hwang holds a Ph.D. in engineering and two M.S. degrees in liquid crystals and chemistry. She has served as National President of the Surface Mount Technology Association and in other global leadership positions and is a worldwide speaker and author of more than 300 publications and several internationally-used textbooks on leading technologies and global market thrusts. Dr. Hwang has been elected to the National Academy of Engineering and International Hall of Fame (Women in Technology).

 

Dr. Hwang is a board member of Singapore Asahi Chemical Industries, Pte. Ltd. (a Singapore chemical company) and Case Western Reserve University and formerly served on the board of Second Bancorp, Inc.

 

 

Biographical Information:

 

Before the sale of TRW Inc. to Northrop Grumman in December 2002 and his retirement from TRW in February 2003, Mr. Lawrence served as TRW’s Executive Vice President, General Counsel & Secretary. TRW was a provider of advanced technology products and services for the global automotive, aerospace and information systems markets.

 

Mr. Lawrence first joined TRW in 1976 as counsel specializing in securities and finance. He held positions of increasing responsibility within the TRW law department until his appointment as TRW’s Executive Vice President of Planning, Development and Government Affairs in 1989 and a member of TRW’s Management Committee. In 1997, Mr. Lawrence was named to the additional position of Executive Vice President, General Counsel & Secretary.

 

Mr. Lawrence also serves as a director of Brush Engineered Materials Inc. (a manufacturer of high-performance engineered materials).

 

 

Biographical Information:

 

Mr. Sharp serves as a consultant to various private equity groups.

 

In 2001, Mr. Sharp retired as President of North American Tire for The Goodyear Tire & Rubber Company, a tire, engineered rubber products and chemicals manufacturer.

 

Mr. Sharp began his career with Goodyear in 1964. Following various assignments in the United States and abroad, he was named Director of European Tire Production in 1984. He was appointed Vice President of Tire Manufacturing in 1987 and later Executive Vice President of Product Supply in 1991. In 1992, he became President and General Manager of Goodyear’s European Regional Operations. He was elected President of Goodyear Global Support Operations in 1996 and served as President of North American Tire of Goodyear from 1998 until his retirement in 2001.

 

Mr. Sharp is also a director of Jiangsu Xingda Tyre Cord Co. Ltd. (a Chinese tire component supplier), Exceed Company Ltd. (a designer and distributor of footwear, apparel and accessories), 2020 ChinaCap Acquirco, Inc. (a special purpose entity, which was acquired by Exceed Company Ltd. in October 2009) and Theotino, Inc. (a specialty IT outsourcing company dedicated to servicing small and medium enterprises worldwide).

 

 

Biographical Information:

 

Mr. Sullivan retired as Executive Vice President of Parker-Hannifin Corporation, a producer of motion and control components for commercial, industrial and aerospace markets, in 2003. Mr. Sullivan began his career with Parker-Hannifin in 1960. He became Group Vice President in 1972, President of the Fluid Connectors Group in 1976, Corporate Vice President in 1978, President of the Fluidpower Group in 1979 and President of the Industrial Sector in 1980. He became an Executive Vice President of Parker-Hannifin in 1981.

 

Mr. Sullivan was formerly a director of Parker-Hannifin and of KeyCorp (a bank-based financial services company).

 

The Corporate Governance Principles provide that, unless the Board specifically requests otherwise, a Director is expected to retire from the Board at the annual meeting following his or her 70th birthday. Prior to the 2009 Annual Meeting, Mr. Sullivan turned 70 years of age; however, the Board requested that he continue his service on the Board until his successor was identified. Mr. Sullivan is expected to retire from the Board following the 2010 Annual Meeting.

 

Directors Not Standing for Re-Election

 

The following are the Directors whose term expires and will not stand for re-election at the Annual Meeting:

 

 

Biographical Information:

 

Mr. Bulkin is a private investor. In 1965, he joined McKinsey & Company, Inc. (an international management consulting firm). He became a principal in 1970 and was elected a director in 1976. While serving with McKinsey & Company, Mr. Bulkin held several leadership positions including Managing Director of various offices, Chairman of the Partner Evaluation and Compensation Committee and member of the Shareholders Committee, Executive Committee, Strategy Development Committee, Professional Personnel Committee and Partner Election Committee. Mr. Bulkin retired from McKinsey & Company in 1993.

 

Mr. Bulkin also serves as a director of Bunge Limited (a global food and agribusiness company operating in the farm-to-consumer food chain).

 

The Corporate Governance Principles provide that, unless the Board specifically requests otherwise, a Director is expected to retire from the Board at the annual meeting following his or her 70th birthday. Prior to the 2009 Annual Meeting, Mr. Bulkin turned 70 years of age; however, the Board requested that he continue his service on the Board until his successor was identified.

 

 

Biographical Information:

 

From 1999 to 2004, Mr. Premdas served as the Chief Financial Officer and a member of the Board of Management of Celanese AG, a worldwide leader in chemical products, acetate fiber, technical polymers and performance products headquartered in Germany. From 1976 to 1998, Mr. Premdas held management and financial positions of increasing responsibility with Celanese Corporation and Hoechst AG, including Chief Financial Officer roles at Hoechst Celanese Corporation and Centeon LLC.

 

Mr. Premdas is also a director of Compass Minerals International, Inc. (a salt and specialty fertilizer company), Balchem Corporation (a developer, manufacturer and marketer of specialty performance ingredients and products for the nutritional, feed and medical sterilization industries), and Fresenius Kabi Pharmaceuticals Holding, Inc. (a subsidiary of Fresenius SE active in the field of injectable pharmaceutical products).

 

Board Meetings and Attendance

 

During 2009, the Board met 13 times and each Director attended at least 75% of the total number of meetings of the Board and the committees on which he or she served except Ms. Crayton. (Messrs. Brown, Hyland and Vargo, who were elected to the Board late during the year, did not attend meetings prior to their election.) In accordance with Ferro’s Corporate Governance Guidelines, the Directors are encouraged to attend the Annual Meeting of Shareholders. All of the Directors who were in office at the time attended the 2009 Annual Meeting held on April 24, 2009.

Director Compensation

 

In 2009, Directors (other than Mr. Kirsch, who is an employee of the Company) were paid a quarterly retainer of $16,250 ($65,000 per annum) and in February 2009 were awarded 3,800 deferred stock units. (Messrs. Brown, Hyland and Vargo, who joined the Board in December 2009, did not receive deferred stock units in 2009.) The non-employee Directors do not receive a fee for attending meetings unless the total number of meetings a non-employee Director attends in a given year exceeds 24, in which case the non-employee Director would be paid $1,500 for each meeting in excess of 24. (In 2009, all non-employee Directors except Ms. Crayton and Messrs. Brown, Bulkin, Hyland and Vargo attended more than 24 meetings.) In 2009, the Chair of the Audit Committee was paid an additional quarterly fee of $5,000 ($20,000 per annum) and the Chairs of the Compensation, Finance and Governance & Nomination Committees were each paid an additional quarterly fee of $2,500 ($10,000 per annum). Directors’ fees and other compensation for 2009 were:

 

Directors’ Compensation Table

 

 

 

Directors may defer their fees and Common Stock issuable upon settlement of the deferred stock units into the Ferro Director Deferred Compensation Plan. Amounts so deferred are invested in shares of Common Stock, and dividends on those shares are reinvested in additional shares of Common Stock. Ferro distributes the shares of Common Stock and any dividends credited to a Director’s deferred account after he or she ceases to be a Director.

 

CORPORATE GOVERNANCE

 

Ferro’s Board has long followed, both formally and informally, corporate governance principles designed to assure that the Board, through its membership, composition and committee structure, is able to provide informed, competent and independent oversight of the Company. Below is a description of the corporate governance measures in place to assure that objective is met. Further information about the Ferro’s corporate governance policies may be found on Ferro’s Web site: www.ferro.com.

 

Corporate Governance Principles

 

The Board has adopted Corporate Governance Principles. These Corporate Governance Principles, which may be found on Ferro’s Web site (www.ferro.com), are intended to assure that Ferro’s Director qualifications, Committee structure and overall Board processes provide good corporate governance and independent oversight of the Company’s management.

 

Director Independence

 

The Board has also adopted formal Guidelines for Determining Director Independence, which are available on Ferro’s Web site (www.ferro.com). The purpose of these Guidelines is to assist the Board in its evaluation of and determination as to the independence of members of the Board. The Guidelines meet or exceed in all respects the standards set forth in section 303A of the New York Stock Exchange listing standards, and the Board has determined that all Directors, other than Mr. Kirsch, qualify as “independent” under such standards.

 

Board Committees

 

The Board of Directors has four committees, which are the Audit Committee, the Compensation Committee, the Finance Committee and the Governance & Nomination Committee.

 

Audit Committee

 

The Audit Committee assists the Board with oversight of the integrity of Ferro’s financial statements, compliance with legal and regulatory requirements relating to Ferro’s financial reports, Ferro’s independent registered public accounting firm’s qualifications, independence, and performance, the performance of the internal audit and risk management functions, compliance with legal and ethical policies and accounting practices and systems of internal controls. The Audit Committee is not, however, responsible for conducting audits, preparing financial statements or the accuracy of any financial statements or filings, all of which remain the responsibility of management and the Company’s independent registered public accounting firm. The Audit Committee’s charter may be found on Ferro’s Web site (www.ferro.com).

 

Dr. Hwang and Messrs. Lawrence, Premdas, Sharp and Sullivan served on the Audit Committee throughout 2009, with Mr. Sharp serving as the Chair. Each member of the Audit Committee is “independent” as required under section 301 of the Sarbanes-Oxley Act of 2002, as well as under the standards contained in section 303A of the New York Stock Exchange’s listing standards and the Company’s Guidelines for Determining Director Independence. The Board has determined, in its best judgment, that more than one member of the Audit Committee has the accounting and related financial management experience and expertise to qualify as an audit committee “financial expert” as defined in section 407 of the Sarbanes-Oxley Act and the Securities and Exchange Commission’s (the “SEC”) rules under that statute. The Board has designated Mr. Premdas as the Audit Committee’s named financial expert. (Mr. Premdas’ biography is on page 8 above.) Each member of the Audit Committee has the requisite financial literacy required under section 303A of the New York Stock Exchange (the “NYSE”) listing standards to serve on the Audit Committee.

 

The Audit Committee charter provides that an Audit Committee member may not simultaneously serve on more than two other audit committees of public companies without the prior approval and authorization of the Board. Mr. Premdas serves on the audit committees of Balchem Corporation, Compass Minerals International and Fresenius Kabi Pharmaceuticals Holding, Inc. Before Mr. Premdas joined the audit committee of Fresenius Kabi

Pharmaceuticals Holding, Inc., in 2008, the Board determined that the simultaneous service on these audit committees would not impair Mr. Premdas’ ability to effectively serve on Ferro’s Audit Committee.

 

The Audit Committee met seven times in 2009. The Audit Committee’s report is on page 47 below.

 

Compensation Committee

 

The Compensation Committee is responsible for recommending policies for compensation of Directors and setting the compensation of the Senior Management Committee, which is comprised of the Company’s executive officers. The Compensation Committee also oversees the various compensation and benefit plans and policies of the Company generally. The Compensation Committee’s charter may be found on Ferro’s Web site (www.ferro.com).

 

The Compensation Committee has retained Towers Perrin, a nationally-recognized executive compensation consulting firm, to provide support to the Compensation Committee and management. Towers Perrin assists with the design of pay plans and reviewing the effectiveness and competitiveness of the Company’s compensation programs. Towers Perrin also provides the Compensation Committee and management with market data on the compensation programs of peer companies. To ensure that Towers Perrin’s consulting services are independent and objective, the Compensation Committee and Towers Perrin take the following steps: (i) Towers Perrin reports directly to the Compensation Committee Chair; (ii) Towers Perrin informs the Compensation Committee Chair of any substantive work requested by management and seeks prior approval of such work; (iii) at least annually, the Compensation Committee conducts a review of Towers Perrin’s performance; (iv) the Towers Perrin consultant that works with the Compensation Committee does not serve as the “account director” for any non-executive compensation services provided to the Company by Towers Perrin; and (iv) Towers Perrin’s fees are not linked to the size of the Company’s executive compensation programs. During 2009, Towers Perrin received an aggregate of $126,632 for executive compensation services it provided to the Compensation Committee.

 

In September 2008, Towers Perrin was selected in a competitive process conducted by the Ferro Procurement and Information Solutions teams to provide consulting assistance to the Company’s Information Solutions team on a global implementation of the SAP Human Capital Management module. After recommendation by the Ferro Procurement team, this selection was reviewed and approved by management. This engagement was not reviewed and approved by the Compensation Committee or the Board because at the time of the engagement the nature and scope was not one that was typically reviewed and approved by the Compensation Committee or the Board. The Towers Perrin team worked on this project from October 2008 through May 2009 and received an aggregate of $983,757 in fees, all of which were paid in 2009. In May 2009, Towers Perrin divested their SAP Human Capital Management practice in North America to ROC Systems Consulting Ltd. (“ROC”) and neither Towers Perrin nor ROC are providing any on-going services in this area. Other than the engagement described above, Towers Perrin has provided only nominal services to the Company since its engagement by the Compensation Committee in 2005. Currently, Towers Perrin does not provide the Company any services outside of those that support the Compensation Committee. Effective January 4, 2010, Towers Perrin and Watson Wyatt were merged to form Towers Watson.

 

The Chief Executive Officer (“CEO”) and Vice President, Human Resources make recommendations regarding compensation of the Senior Management Committee (other than for the CEO) based on the competitive market data, internal pay equity, responsibilities and performance. The Compensation Committee makes all final determinations regarding executive compensation, including salary, bonus targets, equity awards and related performance goals. From time to time, the Compensation Committee delegates to the CEO and Vice President, Human Resources authority to carry out certain administrative duties regarding the compensation programs, including grants of equity awards to non-executive employees and new hires. For more information on how executive compensation decisions are made, see the “Executive Compensation Discussion & Analysis” section beginning on page 16 below.

 

Messrs. Bulkin, Hipple, Lawrence, Mee and Sharp served on the Compensation Committee during 2009, with Mr. Bulkin serving as the Chair. All members of this Committee meet the “independence” standards contained

in section 303A of the NYSE’s listing standards and the Company’s Guidelines for Determining Director Independence.

 

The Compensation Committee met seven times in 2009. The Compensation Committee’s report is on page 23 below.

 

Finance Committee

 

The Finance Committee has oversight responsibilities with respect to reviewing the Company’s capital structure, worldwide capital needs, major capital allocations, financial position and related financial covenants and recommending to the Board financial programs and plans for implementing such programs. The Finance Committee’s charter may be found on Ferro’s Web site (www.ferro.com).

 

Ms. Crayton and Messrs. Hipple, Mee, Premdas and Sharp served on the Finance Committee throughout 2009. Mr. Mee served as the Chair of the Finance Committee during 2009 and until his resignation effective March 3, 2010. All members of this Committee meet the “independence” standards contained in section 303A of the NYSE’s listing standards and the Company’s Guidelines for Determining Director Independence.

 

The Finance Committee met 13 times in 2009.

 

Governance & Nomination Committee

 

The Governance & Nomination Committee is responsible for recommending to the Board corporate governance principles, overseeing adherence to the corporate governance principles adopted by the Board, recommending to the Board criteria and qualifications for new Board members, recommending to the Board nominees for appointment or election as Directors and recommending to the Board the composition and chairs of each committee. The Governance & Nomination Committee’s charter may be found on Ferro’s Web site (www.ferro.com).

 

In its role as the nominating body for the Board, the Governance & Nomination Committee reviews the credentials of potential Director candidates (including potential candidates recommended by shareholders), conducts interviews and makes formal recommendations to the Board for the annual and any interim election of Directors. In making its recommendations, pursuant to the Company’s Corporate Governance Principles, the Governance & Nomination Committee considers a variety of factors, including skills, independence, background, experience, diversity and compatibility with existing Board members. Other than the foregoing, there are no stated minimum criteria for Director nominees, and the Governance & Nomination Committee may also consider such other factors as it deems appropriate in the best interests of the Company and its shareholders. The Governance & Nomination Committee does not have a policy specifically focused on the consideration of diversity; however, diversity is one of the factors that the Governance & Nomination Committee considers when identifying potential Director candidates and making its recommendation to the Board.

 

The Governance & Nomination Committee identifies nominees by first evaluating the current members of the Board willing to continue in service. If any Board member is of retirement age or does not wish to continue in service or if the Governance & Nomination Committee or the Board decides not to nominate a member for re-election, then the Committee identifies the desired skills and experience in light of the criteria outlined above. The Governance & Nomination Committee then establishes a pool of potential Director candidates from recommendations from the Board, senior management and shareholders. During 2009, the Governance & Nomination Committee also retained a third party search firm to assist in the identification of Director candidates. The third party search firm identified Messrs. Brown and Hyland as Director candidates. Mr. Vargo was identified by the Chair of the Governance & Nomination Committee as a Director candidate.

 

Each of the members of the Board were chosen to be a Director or nominee because the Board and the Governance & Nomination Committee believe that each Director has demonstrated leadership experience, specific industry or manufacturing experience and familiarity with global operations. Every director holds or has held executive officer positions in organizations that have provided experience in operations, management, risk management and leadership development. The Board and the Governance & Nomination Committee believes that

these skills and qualifications combined with each Director’s diverse background and ability to work in a positive and collegial fashion benefit Ferro and Ferro’s shareholders by creating a strong and effective Board. Set forth below are the conclusions reached by the Governance & Nomination Committee with respect to each member of the Board or nominee:

 

Mr. Kirsch brings to the Board an extensive understanding of Ferro’s business and has experience working as a senior officer for major organizations with international operations. As the Chief Executive Officer since 2005 and the Chairman of the Board since 2006, Mr. Kirsch has played an integral role in shaping Ferro’s strategic direction.

 

Mr. Brown’s distinguished career in chemical and chemical-related businesses and strong international experience provide the Board with an extraordinary resource of relevant knowledge that will aid Ferro’s future success. In addition, Mr. Brown has demonstrated leadership experience and currently serves as the chief executive officer of an industrial fibers company and a member of the board of another publicly traded company.

 

Mr. Bulkin brings management and leadership skills to the Board from his long career in management consulting. During his tenure at McKinsey & Company, Inc., Mr. Bulkin served as Managing Director, Chairman of the Partner Evaluation and Compensation Committee and member of the Shareholders Committee, Executive Committee, Strategy Development Committee, Professional Personnel Committee and Partner Election Committee. In addition, Mr. Bulkin also serves on the board of another publicly traded company.

 

Ms. Crayton has experience serving in senior management positions in both the public and private sector and is currently the managing director of Alvarez and Marsal, a professional services firm. In addition, Ms. Crayton has served as a director of the Company since 1994 and has extensive knowledge of the Company’s industry and its strategic challenges.

 

Mr. Hipple has leadership and management experience with a business that produces and supplies high performance engineered materials globally. Mr. Hipple currently serves as chairman of the board, chief executive officer and president of a publicly-traded company and provides the board with insight and experience leading a company similar to Ferro.

 

Dr. Hwang has over 30 years experience in materials, electronics, chemicals and coatings through her management and/or ownership of businesses. She has served in a number of senior management positions, including president and chief executive officer. In addition, she frequently attends director continuing education programs and has served on the board of both public and private companies and non-profit organizations.

 

Mr. Hyland has comprehensive operations, sales and international experience in multiple industries, which will benefit the Company’s diverse business units. In addition, Mr. Hyland currently serves as the chairman, chief executive officer and president of another publicly traded company.

 

Mr. Lawrence has experience with legal compliance, risk assessment, government relations and business development in global automotive, aerospace and information systems markets. Mr. Lawrence served as secretary and general counsel of a Fortune 500 company and has extensive experience dealing with corporate governance issues. In addition, Mr. Lawrence also serves as a member of the board of another publicly traded company.

 

Mr. Premdas has a background in corporate finance and management in the global chemical products, fibers, polymers and performance products industry. In addition, Mr. Premdas has been the chief financial officer of three companies and serves as a member of the board and audit committee of three other publicly traded companies.

 

Mr. Sharp has extensive experience in international operations. He served in senior management positions in the United States and abroad, which provides the Board with global perspective. In addition, Mr. Sharp serves as a member of the board of both public and private international companies.

 

Mr. Sullivan’s distinguished career, including his senior management positions, with Parker-Hannifin Corporation provides him with significant leadership skills in manufacturing, which greatly benefit the Company’s

manufacturing operations. In addition, Mr. Sullivan has served as a member of the board of two other publicly traded companies.

 

Mr. Vargo has extensive experience in treasury, investor relations, business strategy, acquisitions and divestitures, finance and operations in global corporations. In addition, Mr. Vargo has served in senior management positions at other publicly traded companies and, on March 1, 2010, Mr. Vargo was named chief financial officer of a publicly traded company effective April 1, 2010.

 

The Governance & Nomination Committee will consider candidates for Director who are recommended by shareholders. Shareholder recommendations should be submitted in writing to: Secretary, Ferro Corporation, 1000 Lakeside Avenue, Cleveland, Ohio 44114-1147 USA. The recommendation letter should include the shareholder’s own name, address and the number of shares owned and the candidate’s name, age, business address, residence address and principal occupation, as well as the number of shares, if any, the candidate owns. The letter should provide all of the information that would need to be disclosed in the solicitation of proxies for the election of directors under federal securities laws. Finally, the shareholder should also submit the recommended candidate’s written consent to be elected and commitment to serve if elected. Ferro may also require a candidate to furnish additional information regarding his or her eligibility and qualifications.

 

Ms. Crayton, Dr. Hwang and Messrs. Lawrence and Sullivan served on the Governance & Nomination Committee throughout 2009, with Mr. Lawrence serving as the Chair. All members of this Committee meet the “independence” standards contained in section 303A of the NYSE’s listing standards and the Company’s Guidelines for Determining Director Independence.

 

The Governance & Nomination Committee met six times in 2009.

 

Board Leadership Structure

 

Ferro’s board leadership structure is comprised of a combined Chief Executive Officer and Chairman of the Board of Directors and a lead Director. Currently, Mr. Kirsch serves as the Chief Executive Officer and Chairman of the Board of Directors. Ferro believes that a combined Chief Executive Officer and Chairman of the Board role is appropriate because it ensures that the Board of Directors’ agenda aligns with Ferro’s strategic objectives and challenges, that the Board of Directors is presented with information required for it to fulfill its responsibilities and that Board of Directors’ meetings are as productive and effective as possible.

 

Ferro’s non-management Directors, all of whom are independent, meet at regularly scheduled executive sessions several times each year. These meetings are chaired by a lead Director selected from among the committee Chairs on a rotating basis. Mr. Bulkin, the Chair of the Compensation Committee, currently serves as the lead Director. Following the Annual Meeting, the Board will appoint a new lead Director. Neither the CEO nor any other member of management attends these meetings except in limited circumstances if requested by the Directors. Following each executive session, the lead Director shares with the CEO such observations, comments or concerns as he and the other non-management Directors deem appropriate.

 

The independent Directors have access to Ferro management as they deem necessary or appropriate. In addition, the Chairs of the Audit Committee, Governance & Nomination Committee and Compensation Committee meet periodically with members of senior management.

 

Board’s Role in Risk Management Oversight

 

The Board oversees the Audit Committee and the Finance Committee, which have the primary role in risk management oversight. The Board receives periodic reports from the Audit Committee and the Finance Committee with respect to its discussions with management regarding Ferro’s guidelines and policies governing the assessment and management of risks, any major risk exposures and steps management has taken to monitor and control such exposures and Ferro’s use of certain financial instruments. Each of the CEO, Chief Financial Officer (“CFO”), the Director of Internal Audit and the General Counsel of the Company periodically report to the Audit

Committee with respect to risk management. In addition, each of the CFO and the Treasurer periodically report to the Finance Committee with respect to financial risk management and Ferro’s use of certain financial instruments.

 

Other Corporate Governance Measures

 

Finally, Ferro has adopted a series of policies dealing with business conduct and ethics. These policies apply to all Ferro Directors, officers and employees. A summary of these policies may be found on Ferro’s Web site (www.ferro.com), and the full text of the policies is available in print, free of charge, by writing to: Secretary, Ferro Corporation, 1000 Lakeside Avenue, Cleveland, Ohio 44114-1147 USA. The Audit Committee is responsible for the review and oversight of the Company’s ethical policies. The Audit Committee must approve any exception, amendment or waiver to these policies. In addition, a description of any exception, amendment or waiver to these policies with respect to the CEO, CFO and the Company’s principal accounting officer, controller or persons performing similar functions will be posted on the Company’s Web site within four business days following the date of the exception, amendment or waiver. Ferro also maintains a hotline that allows employees throughout the world to report confidentially any detected violations of these legal and ethical conduct policies consistent with local legal requirements and subject to local legal limitations. In addition, the Governance and Nomination Committee is responsible for reviewing and approving any related party transaction. Any shareholder or other interested party who wishes to communicate directly and confidentially with the lead Director or the non-management Directors as a group may contact the non-management Directors at the following Web site: www.ferrodirectors.com. The non-management Directors will handle such communications confidentially.

 

EXECUTIVE COMPENSATION DISCUSSION & ANALYSIS

 

Set forth below is a description of the process by which the Company, through its Compensation Committee, set the compensation of its Chief Executive Officer and other members of the Senior Management Committee for 2009. (The Senior Management Committee is composed of the Company’s executive officers. See page 15 of the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2009.)

 

Compensation Actions in 2009 Related to Economic Conditions

 

In response to the dramatic impact of the global recession on the Company’s sales and earnings in late 2008 and 2009, the Company implemented a number of cost-cutting actions that reduced the 2009 compensation of employees, including the CEO and executive officers. Specific actions impacting the compensation of executive officers in 2009 included the following:

 

 

The actions listed above contributed to actual annual compensation levels that were well below the median of market for executive officers. In addition, the steep decline in stock price combined with only modest increases in grant awards, resulted in significant reductions in the estimated value of 2009 long-term incentive grants as shown in the table on page 28.

 

Compensation Philosophy and Objectives

 

The primary objectives of the Company’s executive compensation program are:

 

 

Compensation Committee Oversight

 

The Compensation Committee of the Board (the “Committee”) is responsible for establishing, implementing and monitoring adherence to the Company’s compensation philosophy for the CEO and the other members of the Senior Management Committee. The Committee sets the compensation of the Company’s executive officers,

recommends to the Board compensation for the Directors and committee Chairs and oversees compensation and benefit plans and policies of the Company generally.

 

In carrying out its oversight responsibilities, the Compensation Committee is supported by external executive compensation consultants and management. The Committee has the sole authority to retain (and terminate) any executive compensation consulting firms used to evaluate the Company’s executive management compensation.

 

The nature of this support is summarized below:

 

Role of External Compensation Consultants.  The Compensation Committee has retained Towers Perrin, a nationally-recognized executive compensation consulting firm, to provide expertise to management and the Committee on the design of appropriate pay plans, analysis of the effectiveness of existing plans and the market-competitiveness of base salary, annual incentive levels and long-term incentive awards.

 

In fulfilling this role, Towers Perrin provides the Committee with competitive market data from two main sources. Compensation data is collected and analyzed from the proxies for Ferro’s peer group of specialty chemical companies in the S&P index and from other Mid Cap companies. The peer group is selected based on factors including company size (e.g., revenues and employees), products, end-use markets and level of global operations. Ferro’s peer group of companies that Towers Perrin analyzed for 2009 was updated to reflect Ferro’s growth in sales since the prior peer group was established in 2005. The 2008 sales for the new peer group companies generally ranged from one-half to two times Ferro’s sales and they overlapped significantly with Ferro’s businesses and end-use markets. Ferro’s peer group of companies for 2009 included the following:

 

A. Schulman, Inc.		Nalco Company
Albemarle Corporation		PolyOne Corporation.
Arch Chemicals		RPM International Inc.
Cabot Corporation		Rockwood Holdings, Inc.
Chemtura Corporation		Sensient Technologies Corporation
Cytec Industries Inc.		Sigma-Aldrich Corporation
FMC Corporation		Stepan Company
H.B. Fuller Company		Tronox Inc.
Hercules Inc.		Valhi, Inc.
The Lubrizol Corporation		Valspar Corporation

 

In addition to reviewing the proxies of peer group companies, Towers Perrin reviews data obtained from nationally recognized compensation surveys that include hundreds of companies comparable in revenues to Ferro but from a broader range of industries. These additional data help confirm results found in the proxies of Ferro’s peers and represent the broader market within which the Company competes for senior executives. Data from both sources are used to develop “competitive” base salaries, annual bonuses, total cash compensation (salary plus bonus), long-term incentives and total direct compensation (cash compensation plus long-term incentives) for the CEO and other executive officers. These results serve as a basis for the annual review of the Company’s pay programs done by Towers Perrin for the Committee and for advising the Committee with respect to the effectiveness and competitiveness of the pay program. The Committee and the CEO use this information to establish base salaries, annual incentives and long-term incentive awards. The Compensation Committee approves all pay decisions related to the Senior Management Committee.

 

Role of Management.  Management of the Company supports the Committee in its assessment of executive compensation, implements decisions made by the Committee and ensures that the Company’s compensation plans are administered in accordance with the provisions of the plans. The Company’s Vice President, Human Resources and Director, Compensation provide Towers Perrin with information concerning executives’ responsibilities, compensation, benefits and Company financial data and business goals as necessary for them to complete their work for the Committee. The CEO and Vice President, Human Resources participate in an advisory capacity in the Committee’s meetings, including the annual compensation review in February each year, provide the Committee with data and analyses and make recommendations with respect to awards under the long-term incentive program. The Committee makes its decisions with respect to the compensation of the CEO in executive session.

Current Compensation Program

 

The Company’s current compensation program includes a base salary, an annual incentive, long-term incentives, retirement benefits, a deferred compensation plan and an executive allowance. In addition, the Company provides its executives with protection in the event of fundamental changes in the Company’s ownership and control through change in control agreements. The total compensation and the individual elements of compensation are periodically reviewed by the Committee based upon data provided by Towers Perrin on market practices of peers, as well as other companies comparable in size to Ferro. The competitive market provides a larger range of companies and more information regarding the compensation of officers than the data from Ferro’s peer companies because certain officers’ information is not available in the public disclosure by these companies. Each element of the Company’s compensation program is discussed below.

 

Base Salary.  An executive’s base salary is cash compensation that is generally not at risk and is paid to the executive regardless of the performance of the Company in a particular year. The amount of base salary is reviewed on an annual basis and adjusted, if warranted, to reflect scope of responsibilities, individual performance and external market conditions. The Company targets base salary at the 50th percentile of the competitive market but considers other factors, including individual performance and experience, internal pay equity and scope and influence of the position, in setting an individual’s base salary and overall compensation level. This helps ensure the Company’s ability to compete in the market for executive talent.

 

Annual Incentives.  The Company’s Annual Incentive Plan (the “AIP”) provides an executive with an opportunity to earn additional cash compensation based upon the achievement of pre-determined financial goals for the year. Target incentive opportunities, performance metrics and performance goals are established by the Committee after reviewing and discussing management’s recommendations and communicated to participants near the beginning of each year. These AIP goals are linked to the financial goals in the annual operating plan approved by the Board of Directors. At the Committee’s discretion, AIP payments earned by the CEO and each Senior Management Committee member may be adjusted upward or downward by as much as 20% to reflect individual performance in a given year. In addition, the Committee may adjust AIP performance results to account for certain one-time items in exceptional or extraordinary circumstances where the effects of the item are auditable.

 

Long-Term Incentives.  In November 2006, the Company’s shareholders approved the 2006 Long-Term Incentive Plan (the “2006 LTIP”). The 2006 LTIP replaced the earlier 2003 Long-Term Incentive Compensation Plan (the “2003 LTIP”). (The 2003 LTIP and the 2006 LTIP constitute the Company’s Long-Term Incentive Plan and are collectively referred to as the “LTIP” in this Executive Compensation Discussion & Analysis.) The terms of the two plans are substantially the same. Grants in 2009 were made under the 2006 LTIP. The Company also has outstanding option awards under the Employee Stock Option Plan adopted in 1985, although this plan is no longer available for future awards.

 

The LTIP is a critical component of the compensation program. It is designed to promote Ferro’s long-term financial interests and growth by attracting, retaining and motivating high-quality key employees and Directors and aligning their interests with those of the Company’s shareholders. The LTIP is administered by the Committee. Management proposes to the Committee the employees who will participate in the program and the number of shares to be granted to each participant. The Committee reviews, discusses and approves the types and number of awards to be made to each participant and approves the terms, conditions and limitations applicable to each award. The Committee delegates authority to the CEO, within pre-established limitations, to make awards to newly-hired employees who are not executive officers during the course of the year.

 

The LTIP allows the Company to award six different types of long-term incentives, i.e., stock options, stock appreciation rights, restricted shares, performance shares, other common stock-based awards (such as phantom common stock units and deferred common stock units) and dividend equivalent rights. In 2009, the Committee authorized two types of LTIP awards — stock options and restricted shares. The basic terms of those awards are described below:

 

 

 

Performance shares, which historically have been part of the mix of long-term incentive awards to executive officers, were not granted in 2009 due to the difficulty in establishing the three-year financial goals by which performance would be measured.

 

The Committee generally makes all LTIP awards at its meeting on a pre-determined date in February. The value of any awards, including stock option strike price, is determined by the closing price of Ferro Common Stock on the NYSE on the date the Committee approves the grants. From time to time during the year, the Committee (or the CEO pursuant to the authority delegated to him by the Committee) may award shares to a new hire or, under unusual circumstances, to a current employee. In such cases, the value of the grant is based on the closing price of the Ferro Stock on the NYSE on the date the award is granted which, in the case of new hires, is the first date he or she is employed.

 

Retirement Benefits.  In previous years, the Company offered its employees a defined benefit plan, known as the Ferro Corporation Retirement Plan (the “DB Plan”), and, for executive employees, a supplemental defined benefit program, known as the Ferro Corporation Supplemental Defined Benefit Plan for Executive Employees (the “Supplemental DB Plan”). The DB Plan and the Supplemental DB Plan provided employees annuity payments in retirement according to pre-determined formulas. Effective March 31, 2006, the DB Plan and the Supplemental DB Plan were “frozen” for purposes of future accruals. The plans have been frozen as to new entrants since July 1, 2003. Mr. Thomas, who was hired prior to July 1, 2003, is the only executive officer who has earned a benefit under the DB Plan and under the Supplemental DB Plan.

 

Consequently, the primary retirement benefits for executive officers in 2009 and going forward are a qualified defined contribution 401(k) plan, the Ferro Corporation Savings and Stock Ownership Plan (the “401(k) Plan”) and its companion non-qualified defined contribution plan, the Ferro Corporation Supplemental Defined Contribution Plan for Executive Employees (the “Supplemental 401(k) Plan”). The Supplemental 401(k) Plan provides participants with Company contributions that would have been made to their 401(k) and basic pension contribution accounts under the 401(k) Plan, were it not for tax law limitations. In March 2009, the Company announced that it was temporarily suspending matching contributions under the 401(k) Plan and supplemental matching contributions under the Supplemental 401(k) Plan for all non-union employees effective with the first pay period on or after March 15, 2009. In December of 2009, the Company announced that the matching contributions would be reinstated in April of 2010.

 

Deferred Compensation Plan.  Senior Management Committee members are eligible to participate in the Ferro Corporation Deferred Compensation Plan for Executive Employees (the “Deferred Compensation Plan”). Under the Deferred Compensation Plan, participants may elect to defer a percentage of their annual salary, as well as their annual bonus and/or performance share payout, to be paid at a certain time specified by the participant and consistent with the terms of the plan. No executive officers currently participate in this plan.

 

Executive Allowance and Other Benefits.  During 2009, the Company provided an annual executive allowance to the CEO and other Senior Management Committee members in lieu of providing benefits such as personal use of the Company aircraft, financial planning, tax preparation and club memberships. The executive allowance is paid in cash in April of each year. The amount of the allowance is set by the Committee and targeted

at providing sufficient funds to pay for the discontinued executive benefits. For 2009, this amount was $35,000 for the CEO and $9,600 for other Senior Management Committee members. In 2009, the Committee decided to eliminate the Executive Allowances effective in 2010 and to make appropriate salary adjustments at that time. Additionally, during 2010, the Committee intends to adopt a severance policy for executive officers, consistent with recommended compensation practices and policies.

 

Change in Control Agreements.  For many years, the Board has recognized that, as is the case with many publicly-held corporations, there is always a possibility of a fundamental change in the Company’s ownership and control through a “change in control.” Any such threatened or actual change in control would create uncertainties and raise questions that could result in the departure or distraction of management personnel to the detriment of the Company and its shareholders. In light of these facts, the Board determined that appropriate steps needed to be taken to reinforce and encourage the continued attention and dedication of members of the Company’s management to their assigned duties without distraction in the face of potentially disturbing circumstances arising from the possibility of a change in control. Consequently, the Company has entered into change in control agreements with each of the executive officers. These agreements were revised effective January 1, 2009, for the primary purpose of compliance with IRS Section 409A. For a discussion of payments to executive officers as a result of a change in control, see discussion under Employment Agreements and Termination and Change in Control Payments beginning on page 32 below.

 

Executive Compensation Process in 2009

 

In 2008, the Committee modified the long-term incentive program to increase the emphasis on retention of the executive officers through the use of restricted shares. At that time, a portfolio approach was implemented consisting of 50% stock options, 30% performance shares and 20% restricted shares. The restricted share portion of the 2008 grant was front-loaded, to include the 20% restricted share portion that would otherwise have been granted in 2009 and 2010, and long-term incentive grants for 2009 and for 2010 were to be reduced accordingly. The restricted shares vest only if the executive is employed by the Company at the end of the three-year vesting period or his or her employment ends due to death, disability or a change in control during that period. At the end of the vesting period, the executive receives shares of the Company’s Common Stock (minus shares retained by the Company to satisfy any tax withholding obligations) plus a cash payment for the amount of dividends paid on such shares during the three-year vesting period. The executive is then obliged to hold the shares an additional two years after such shares vest. The target opportunity for long-term incentive compensation remained at the 50th percentile of the competitive market.

 

The onset of the recession and the associated drop in sales and earnings that occurred beginning in the fourth quarter of 2008 caused the Committee to reconsider its approach for long-term incentive awards for 2009. Goal setting was particularly difficult during this period as a result of extraordinary levels of economic uncertainty. In addition, the Committee was concerned about retaining the management team in light of the recent decline in the Company’s stock price, which resulted in an “underwater” position of prior stock options grants and a reduction in expected payouts for outstanding performance share grants because of the unlikelihood of meeting performance targets. After discussing these concerns with Towers Perrin and considering other factors such as share availability, burn rate and the desire to avoid potential windfall pay gains as the economy improved, the Committee decided to modify the mix of long-term incentive awards granted to executive officers in 2009 to consist of only stock options and restricted shares. The Committee decided not to grant performance shares due to the difficulty of setting multi-year performance goals in an uncertain economic environment.

 

Accordingly, at its February 25, 2009, meeting, the Committee made long-term incentive grants to the CEO and Senior Management Committee, split between stock options and restricted shares. Mr. Kirsch was awarded 230,000 stock options and 53,500 restricted shares; Ms. Bailey was awarded 60,000 stock options and 12,500 restricted shares; Messrs. Murry and Thomas were each awarded 40,000 stock options and 12,500 restricted shares; and Ms. Killian was awarded 35,000 stock options and 8,000 restricted shares. The grant date value of these awards was well within the bottom quarter of the competitive market because of the significant decline in the Company’s Common Stock price.

 

Also, at its February 25, 2009, meeting, the Committee reviewed current levels of pay for the Senior Management Committee. Due to the economic environment and salary freezes that had been announced for Ferro

employees, the Committee did not increase the base pay of the Senior Management Committee in 2009. Based on market data provided by Towers Perrin, the Committee decided to increase the AIP target percentages for Ms. Bailey from 50% to 60%, for Messrs. Murry and Thomas from 50% to 55% and for Ms. Killian from 45% to 50%. These changes brought officers’ target bonuses and target cash compensation levels in line with the median of competitive market data, consistent with the Company’s pay philosophy.

 

Likewise, Mr. Kirsch’s base salary rate was not increased and therefore remained below the 25th percentile of the competitive market data. As with the Company’s other Senior Management Committee members, Mr. Kirsch’s AIP target was also increased from 80% to 100%, consistent with the median of market data.

 

Due to the uncertain business environment and the difficulty in forecasting for the 2009 fiscal year, the Committee determined that 2009 goals for AIP participants worldwide, including the named executive officers, would be established and earned on a quarterly basis rather than an annual basis. The 2009 plan was based on the following performance metrics, each weighted 20%: (i) accounts receivable; (ii) inventory; (iii) gross margin; (iv) operating margin; and (v) operating profit. Threshold, target and maximum levels for each metric were to be established and communicated at the beginning of each quarter. Each quarter’s attainment would be weighted 25% and the final incentive score for the year would be based on the sum of the four quarters. These metrics were selected to focus management’s efforts on reducing overall corporate debt through working capital management and cost control while maintaining the quality of operating earnings. Incentive compensation could be earned on a quarterly basis; however, payouts would be made after the end of the year. A participant would have to remain employed through the end of the fiscal year to be eligible for a payout.

 

The first quarter goals were approved and communicated to participants early in 2009. However, in April of 2009, due to the continued recession and requirements under the Company’s credit facility, management decided to suspend incentive payments for 2009. As a consequence, goals were not established for subsequent quarters.

 

On February 25, 2010, the Committee reviewed for each quarter of 2009 the Company’s performance as compared to the metrics that had been established in early 2009. The results were as follows:

 

 

 

Based on the strong performance as measured by these metrics in the second half of 2009, as well as the management team’s navigation of the Company through the recessionary environment and the strengthening of the Company’s balance sheet, including a successful equity offering completed in 2009, the Committee decided to authorize an AIP payout of 50% of target for participants for 2009. Accordingly, the Committee approved the following AIP payouts: Ms Bailey’s approved payout was $109,500, Mr. Murry’s approved payout was $100,375, Mr. Thomas’ approved payout $89,375, and Ms. Killian’s approved payout was $77,500. Likewise, the Committee approved an AIP payout for Mr. Kirsch of $362,500.

 

Total annual cash compensation for 2009 for Mr. Kirsch and the other executive officers, was significantly below targeted levels as a result of the salary freezes, total incentive compensation was below target levels because of a reduction in long-term incentive grant values and below-target incentive payments and, as a result, total compensation was below targeted levels.

Stock Ownership Guidelines

 

Ferro has had stock ownership guidelines for its Directors and executive officers since 1998 reinforcing one of the key objectives of the Company’s pay program, the alignment of pay with the interests of shareholders. The guidelines are reviewed and updated periodically to ensure they achieve their intended purpose. The current guidelines require the CEO and other Senior Management Committee members to achieve target ownership levels of 150,000 shares and 30,000 shares, respectively, by December 31, 2011. Officers are expected to meet 15% of the applicable guideline as of December 31, 2009, and 30% of the applicable guideline as of December 31, 2010. For non-executive Directors, the stock ownership guideline is 10,000 shares. As of December 31, 2009, Messrs. Kirsch, Murry, Thomas and Ms. Bailey exceeded 100% of their full ownership guideline, and Ms. Killian was at 95% of the full ownership guideline.

 

For non-executive directors, the stock ownership guideline is 10,000 shares. New non-executive Directors have five years from the date of election to achieve the target ownership level. All non-employee directors except Messrs. Brown, Hyland and Vargo, who were elected to the Board on December 11, 2009, have achieved the target ownership level.

 

Shares of Common Stock deemed to be owned by each executive and Director include shares owned outright with no restrictions, restricted share grants, shares owned in the 401(k) Plan, shares deemed to be invested in Ferro Common Stock through the Company’s deferred compensation and supplemental defined contribution plans, 20% of vested options that are “in-the-money” by more than 30%, and shares represented by deferred stock units granted to non-executive Directors.

 

Section 162(m) Limitation

 

Section 162(m) of the Internal Revenue Code generally provides that certain compensation in excess of $1.0 million per year paid to a company’s chief executive officer and any of its three highest paid executive officers is not deductible by a company unless the compensation qualifies for an exception. Section 162(m) provides an exception for performance-based compensation if certain procedural requirements, including shareholder approval of the material terms of the performance goals, are satisfied. The LTIP contains the provisions necessary to qualify certain awards under the LTIP under the Section 162(m) exception and preserve the tax deductibility to the Company of compensation paid to executives under these plans in the future.

 

 

 

 

Compensation Policies and Practices as Related to Risk Management

 

The Compensation Committee and management do not believe that the Company maintains compensation policies or practices that are reasonably likely to have a material adverse effect on Ferro. However, as part of a larger enterprise risk management review, during 2010 Ferro will review its compensation policies and practices with respect to executive and non-executive employees to ensure that Ferro’s compensation program continues to align the interests of Ferro’s employees with those of Ferro’s shareholders and does not create excessive risk.

 

Compensation Committee Interlocks and Insider Participation

 

During 2009, no officer or employee of Ferro served as a member of the Compensation Committee. Also, during 2009, there were no interlocking relationships (as described in Item 407(e)(4) of SEC Regulation S-K) between members of the Compensation Committee and Ferro.

Plans Described in This Proxy Statement

 

2009 EXECUTIVE COMPENSATION

 

The following table shows the elements of compensation paid or earned during 2009, 2008 and 2007 to the Chief Executive Officer and the Chief Financial Officer during 2009, and to the Company’s other three highest-paid executive officers as of December 31, 2009:

 

Summary Compensation Table

 

 

 

 

 

Grants of Plan-Based Awards

 

The following table sets forth information regarding 2009 awards under the AIP and under the LTIP, i.e., awards of performance shares, restricted shares and stock options to each of the executives named in the Summary Compensation Table:

 

Grants of Plan-Based Awards

 

 

 

Outstanding Equity Awards, Option Exercises and Vesting of Stock Awards

 

The following table sets forth information with respect to each of the executives named in the Summary Compensation Table regarding vested and unvested options and stock awards held as of December 31, 2009:

 

Outstanding Equity Awards