UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

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SCHEDULE 14A

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Ferro Corporation

(Name of Registrant as Specified In Its Charter)

 

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March 24, 2009

 

Dear Shareholder:

 

I cordially invite you to attend the 2009 Annual Meeting of Shareholders of Ferro Corporation, which will be held on Friday, April 24, 2009. 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 2009 Annual Meeting, shareholders will vote on the election of three Directors and the ratification of the appointment of Deloitte & Touche LLP as Ferro’s independent registered public accounting firm for the fiscal year ending December 31, 2009. The following Proxy Statement contains information about the Directors standing for election and the Directors who will continue in office after the Annual Meeting, a description of our corporate governance practices, information about Ferro’s relationship with Deloitte & Touche LLP 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 our Annual Meeting of Shareholders.

 

Where and when will the meeting be held?

 

This year’s meeting will be held on April 24, 2009, 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 2012 and the ratification of the appointment of Deloitte & Touche LLP as the Company’s independent registered public accounting firm for 2009.

 

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 us with meeting preparations and enable us to expedite your admission to the meeting.

 

Who is entitled to vote at the meeting?

 

The record date for this meeting is March 2, 2009. On that date, we had 44,835,438 shares of Common Stock (which have a par value of $1.00 per share) and 216,488 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 (1-888-693-8683) 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. If you vote by telephone, you do not need to return your proxy card.

 

Over the Internet:  You may visit the website (www.cesvote.com) 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. 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 broker or dealer), 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.)

 

PROXY STATEMENT

 

This document is the Notice of Meeting and the Proxy Statement of the Board of Directors of Ferro Corporation in connection with the Annual Meeting of Shareholders to be held on April 24, 2009, 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 2012. Our Board has ten Directors 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 our Directors (both the nominees for re-election and the Directors whose terms will not expire at this meeting).^*

 

Nominees for Election at this Annual Meeting

 

The current terms of office of Dr. Jennie S. Hwang, James F. Kirsch, and William J. Sharp 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 these three Directors:

 

 

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 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) and is a board member of Singapore Asahi Chemical Industries, Pte. Ltd. (a Singapore chemical company) and Case Western Reserve University.

 

 

 

 *      For each of the Directors, the number of shares reported as “Common Stock Owned” is as of March 2, 2009, and includes shares that the Director owns beneficially, but not of record, deferred shares and deferred stock units that are converted to Common Stock after a one-year vesting period. (An individual is deemed to be the beneficial owner of shares over which he or she exercises or shares voting power or investment power.) The number of shares reported as “Common Stock Under Option” is as of March 2, 2009, but includes shares subject to options that would be issued if the Director exercised all stock options vested within 60 days after March 2, 2009, the record date for the Annual Meeting.

 

Biographical Information:

 

Mr. Kirsch was elected Chairman of Ferro’s Board of Directors on December 14, 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.

 

 

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. Mr. Sharp is also a director of Jiangsu Xingda Tyre Cord Co. Ltd. (a Chinese tire component supplier), 2020 ChinaCap Acquirco, Inc. (a special purpose acquisition company) and Theotino, Inc. (a software platform for online work collaboration and services trading).

Dr. Hwang and Messrs. Kirsch and Sharp 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, or there will be a vacancy available to be filled 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.

 

Board Recommendation

 

The Board recommends that you vote FOR the election of Dr. Hwang and Messrs. Kirsch and Sharp. 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.

 

If the election of Directors is by cumulative voting (see page 39 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.

Directors Continuing in Office

 

The following are the Directors who will continue in office after 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).

 

 

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 on June 1, 2001, when the company was sold.

 

 

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:

 

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:

 

At the time of his retirement in March 2001, Mr. Mee served as Executive Vice President and Chief Financial Officer of Bristol-Myers Squibb Company, a pharmaceutical and related health care products company.

 

Mr. Mee joined Bristol-Myers Squibb in 1994 as its Chief Financial Officer and later assumed additional responsibility for Corporate Development and Global Business Services. In 1999, he was made Executive Vice President and became a member of the Office of the Chairman in 2000.

 

Before joining Bristol-Myers Squibb, Mr. Mee was involved in the reorganization of Wang Laboratories as Chairman of the Board and earlier as Executive Vice President and Chief Financial Officer of the company. Prior to joining Wang Laboratories in 1990, Mr. Mee had positions of increasing responsibility with Norton Company, Monsanto Company and Chrysler Corporation. Mr. Mee also serves as a director of Lincoln National Corporation (an insurance and financial services company).

 

 

Biographical Information:

 

Mr. Premdas joined Ferro’s Board on February 23, 2007. 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).

 

 

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, on December 31, 2003. Mr. Sullivan began his career with Parker 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 in 1981. Mr. Sullivan was formerly a director of Parker Hannifin and of KeyCorp (a bank-based financial services company).

 

Board Meetings and Attendance

 

During 2008, the Board of Directors met 14 times. During 2008, each Director attended at least 75% of the total number of meetings of the Board and the committees on which he or she served. In accordance with our Corporate Governance Guidelines, our Directors are encouraged to attend the Annual Meeting of Shareholders. All of the Directors who were in office at the time except for Mr. Bulkin attended the 2008 Annual Meeting held on April 25, 2008.

Director Compensation

 

In 2008, 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 2008 were awarded 3,800 deferred stock units. 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 2008, all non-employee Directors except for Mr. Bulkin attended more than 24 meetings.) In 2008, 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 2008 were:

 

Directors’ Compensation Table

 

 

 

Directors may defer their fees and common stock issuable upon settlement of the deferred stock units into a Ferro Common Stock account. Amounts so deferred are invested in Ferro Common Stock, and dividends on those shares are reinvested in additional Ferro Common Stock. Ferro distributes the shares 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 Company’s corporate governance policies may be found at our website: www.ferro.com.

 

Corporate Governance Principles

 

The Board has adopted Corporate Governance Principles. These Corporate Governance Principles, which may be found on our website (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.

 

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 70^th birthday. Michael H. Bulkin and Dennis W. Sullivan are both 70 years of age. The Board has requested that each of Messrs. Bulkin and Sullivan continue his service on the Board until his successor is identified. The Board has retained a third party search firm to assist in identifying suitable candidates.

 

Director Independence

 

The Board has also adopted formal Guidelines for Determining Director Independence, which are available on our website (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, Ferro’s compliance with legal and regulatory requirements relating to its financial reports (including the annual Audit Committee report as required by the Securities Exchange Act of 1934), Ferro’s independent registered public accounting firm’s qualifications, independence, and performance, the performance of Ferro’s internal audit and risk management functions, compliance with Ferro’s legal and ethical policies and Ferro’s 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 independent registered public accounting firm. The Committee’s charter may be found on our website (www.ferro.com).

 

Dr. Hwang and Messrs. Lawrence, Sharp, Sullivan and Premdas served on the Audit Committee throughout 2008, 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 rules under that statute. The Board has designated Mr. Premdas as the Audit Committee’s named financial expert. (Mr. Premdas’ biography is on page 6 above.) Each member of the Audit Committee has the requisite financial literacy required under section 303A of the New York Stock Exchange 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 our Audit Committee.

 

The Audit Committee met 9 times in 2008. The Audit Committee’s report is on page 38 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. (See page 15 of the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2008.) The Committee also oversees the various compensation and benefit plans and policies of the Company generally. The Committee’s charter may be found on our website (www.ferro.com).

 

The Committee has retained Towers Perrin, a nationally-recognized executive compensation consulting firm, to provide support to the 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 Committee and management with market data on the compensation programs of peer companies. The Chief Executive Officer and Vice President, Human Resources make recommendations regarding compensation of the Senior Management Committee (other than for the Chief Executive Officer) based on the competitive market data, internal pay equity, responsibilities and performance. The Committee makes all final determinations regarding executive compensation, including salary, bonus targets, equity awards and related performance goals. From time to time, the Committee delegates to the Chief Executive Officer 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 13 below.

 

Messrs. Bulkin, Hipple, Lawrence, Mee and Sharp served on the Compensation Committee during 2008, with Mr. Bulkin serving as the Chair. All members of this Committee meet the “independence” standards contained in section 303A of the New York Stock Exchange’s listing standards and the Company’s Guidelines for Determining Director Independence.

 

The Compensation Committee met 4 times in 2008. The Compensation Committee’s report is on page 19 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. This Committee’s charter may also be found on our website (www.ferro.com).

 

Ms. Crayton and Messrs. Mee, Hipple, Premdas and Sharp served on the Finance Committee throughout 2008, with Mr. Mee serving as the Chair. All members of this Committee meet the “independence” standards contained in section 303A of the New York Stock Exchange’s listing standards and the Company’s Guidelines for Determining Director Independence.

 

The Finance Committee met 11 times in 2008.

 

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 Committee’s charter may be found on our website (www.ferro.com).

 

In its role as the nominating body for the Board, the 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, the 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 Committee may also consider such other factors as it deems appropriate in the best interests of Ferro and its shareholders.

 

The Committee identifies nominees by first evaluating the current members of the Board willing to continue in service. If any Board member does not wish to continue in service or if the 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 Committee then establishes a pool of potential Director candidates from recommendations from the Board, senior management and shareholders. The Committee has also retained a third party search firm to assist in the identification of Director candidates.

 

The 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 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 2008, with Mr. Lawrence serving as the Chair. All members of this Committee meet the “independence” standards contained in section 303A of the New York Stock Exchange’s listing standards and the Company’s Guidelines for Determining Director Independence.

 

The Governance & Nomination Committee met 4 times in 2008.

 

Other Corporate Governance Measures

 

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. Neither the Chief Executive Officer nor any other member of management attends these meetings. Following each executive session, the lead Director shares with the Chief Executive Officer 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.

 

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 website (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. Under the Audit Committee’s charter, the Committee is charged with responsibility to assure that all exceptions to and waivers of the Company’s ethical and internal control policies are properly disclosed, documented and approved by the Committee and that no employee is disciplined, punished or otherwise disadvantaged as a consequence of reporting in good faith violations of the Company’s policies. Exceptions, waivers and amendments of those policies may be made, if at all, only by the Committee and, in the event any such exceptions, waivers or amendments are granted, a description of the change or event will be posted on Ferro’s website within four business days. Finally, further to assure compliance, Ferro 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.

 

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 website: 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 2008. (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, 2008.)

 

Our Compensation Philosophy and Objectives

 

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

 

 

Compensation Committee Oversight

 

The Compensation Committee of the Board is responsible for establishing, implementing and monitoring adherence to the Company’s compensation philosophy for the Chief Executive Officer and the other members of the Senior Management Committee. The Compensation Committee sets the compensation of the Company’s executive officers, recommends to the Board compensation for the Directors and the Chairs and members of Board committees 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 competitiveness of base salary, annual incentive levels and long-term incentive awards with the competitive market.

 

In fulfilling this role, Towers Perrin provides the Committee with competitive market data from a variety of sources. Compensation data is supplied for companies that are chosen based on their participation in a similar industry and their comparable size (based on revenues). This market data includes information from the proxy statements of Ferro’s 14 peer companies, from 17 specialty chemical companies in the S&P index and from other Mid Cap companies with revenues from approximately $1 billion to $4 billion that are comparable to Ferro’s revenues. Towers Perrin also provides data from the surveys of nationally recognized human resources consulting

firms to supplement this information. The Ferro peer companies that Towers Perrin analyzed for 2008 included the following:

 

 

Towers Perrin also provides market data to the Chief Executive Officer and Vice President, Human Resources with respect to each of the Senior Management Committee positions. This information, along with internal equity, scope of responsibilities and performance, is considered by the Chief Executive Officer in making pay recommendations to the Compensation Committee for each member of the Senior Management Committee. The Compensation Committee approves all pay decisions related to Senior Management Committee members.

 

Role of Management.  Management of the Company supports the Compensation 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, executive allowances and Company financial data and business goals as necessary for them to complete their work for the Committee. The Chief Executive Officer and Vice President, Human Resources participate in an advisory capacity in the Compensation Committee’s meetings, including the annual compensation review in February each year, and provide the Committee with data and analyses as requested by the Committee. Management also proposes to the Committee the employees who will participate in the long-term incentive program and the number of shares to be granted. The Committee reviews, discusses and approves the types and number of awards to be made to each participant and the terms, conditions and limitations applicable to each award. The Committee makes its decisions with respect to the Chief Executive Officer in executive session.

 

Our Current Compensation Program

 

Our 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 against 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 Compensation Committee based upon data provided by Towers Perrin on market practices of peers, as well as other companies of comparable 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 our compensation program is discussed below.

 

Base Salary.  An executive’s base salary is cash compensation that is based on internal equity and external competitive market data comparisons. This portion of compensation is 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 50^th percentile of the competitive market, but considers other factors, including individual performance and experience, internal 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 Compensation Committee after reviewing and discussing Management’s recommendations and communicated to participants near the beginning of each year. These AIP goals are directly linked to the financial goals in the annual operating plan approved by the Board of Directors. At the Compensation Committee’s discretion, AIP

payments earned by the Chief Executive Officer 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 Compensation 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 referred to as the “LTIP” in this Proxy Statement.) The terms of the two plans are substantially the same. Grants in 2008 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 our shareholders. The LTIP is administered by the Compensation Committee. Management proposes to the Committee the employees who will participate in the program and the number of shares to be granted. 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 Compensation Committee delegates authority to the Chief Executive Officer 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 2008, the Compensation Committee authorized three types of LTIP awards — stock options, performance shares and restricted shares. The basic terms of those awards are described below:

 

 

The Compensation 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 New York Stock Exchange (NYSE) on the date the Compensation Committee approves the grants. From time to time during the year, the Compensation Committee (or the Chief Executive Officer pursuant to the authority delegated to him by the Compensation 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 had been frozen as to new entrants since July 1, 2003. Messrs. Thomas and Bays, who were hired prior to July 1, 2003, are therefore the only executive officers who have earned a benefit under the DB Plan and under the Supplemental DB Plan.

 

Consequently, the primary retirement benefits for executive officers in 2008 and going forward are a qualified defined contribution 401(k) plan, the Ferro Corporation Savings and Stock Ownership Plan (the “DC Plan”) and its companion non-qualified defined contribution plan, the Ferro Corporation Supplemental Defined Contribution Plan for Executive Employees (the “Supplemental DC Plan”). The Supplemental DC Plan provides participants with contributions that would have been made to their 401(k) and basic pension contribution accounts under the DC Plan, were it not for tax law limitations. In March 2009, the Company announced that it was temporarily suspending matching contributions under the DC Plan and supplemental matching contributions under the Supplemental DC Plan for all non-union employees.

 

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 2008, the Company provided an annual executive allowance to the Chief Executive Officer 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 Compensation Committee and targeted at providing sufficient funds to pay for the discontinued executive benefits. For 2008, this amount was $35,000 for the Chief Executive Officer and $9,600 for other Senior Management Committee members. Company-provided leased cars were eliminated for new Senior Management Committee hires as of April 1, 2006, and were phased out for the Chief Executive Officer and other Senior Management Committee members as of December 31, 2007. Finally, our executives are entitled to four weeks of vacation per year.

 

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 29 below.

 

Executive Compensation Process in 2008

 

In 2008, the Compensation Committee modified the long-term incentive program to increase the emphasis on retention of the executive team through the use of restricted shares. For 2008, a portion (20%) of the long-term incentive target grant value for 2008, 2009 and 2010, for which performance shares would otherwise be granted, was replaced by a grant of restricted shares with cliff vesting, three years from the date of grant. The shares vest only if the executive is employed by the Company at the end of the vesting period or his or her employment was ended due to death, disability or a change of control during that period. At the end of the vesting period, the executive receives shares of the Company’s Common Stock and the nominal amount of dividends paid on such shares during the three-year vesting period. The executive will be obliged to hold the shares remaining, after satisfying any tax withholding obligations, for a period of two years after the end of the vesting period. Long-term incentive grants for 2009 and 2010 would be reduced accordingly. The remaining long-term incentive grants consisted of stock options (50%) and performance shares (30%). The target opportunity for long-term incentive compensation remained at the 50th percentile of the competitive market.

 

Goals for the performance share grants awarded in connection with the 2008-2010 performance period were changed from cumulative EPS and Sales Revenues, to cumulative Earnings Before Interest, Taxes, Depreciation and Amortization (EBITDA) weighted at 70%, and Average Return on Invested Capital (ROIC) weighted at 30%. The EBITDA target was established at a level that would require an improvement over 2007 of approximately 8% per year while achievement of a maximum payout would require an improvement of EBITDA levels of approximately 11% per year. Threshold performance, the minimum EBITDA at which any payout would be due, was established at a level that would require an improvement of approximately 2% per year. The ROIC target was established at a level that would require an improvement of approximately 9% per year over 2007 performance while a maximum payout for ROIC would require an improvement of approximately 15% per year. Threshold performance was established at a level requiring an improvement of approximately 3% per year.

 

Accordingly, at their February 28, 2008, meeting, the Committee made long-term incentive grants to the Chief Executive Officer and Senior Management Committee at levels approximating the 50^th percentile of competitive market based on data provided by Towers Perrin, split among stock options, performance shares and restricted shares. Mr. Kirsch was awarded 146,000 stock options, 27,500 performance shares, and 48,000 restricted shares. Ms. Bailey was awarded 38,000 stock options, 7,150 performance shares, and 10,800 restricted shares; Messrs. Murry, Russell, Thomas and Bays were each awarded 25,000 stock options, 4,750 performance shares, and 7,200 restricted shares. (For the estimated performance share payouts to Messrs. Kirsch, Murry, Russell, Thomas and Bays and to Ms. Bailey for the 2006-2008 performance period, see Option Exercises and Stock Vested on page 26.)

 

For 2008, the Compensation Committee continued the approach to annual incentive compensation that had been established in 2006, focusing the efforts of the management team on the achievement of the most critical financial results for the year and increasing the linkage of payouts to achievement of the budgeted financial results. Goals for the 2008 AIP were corporate operating income and business unit operating profit. Target levels were set at the operating budget for the Company and business units. Threshold performance was set at 85% of the budgeted performance levels and maximum performance level was set at 120% of the budgeted performance levels. At threshold performance, the payout would be 25% of an individual’s target incentive and at maximum performance, the payout would be 200% of an individual’s target incentive. The 2008 goals for the Chief Executive Officer, Chief Financial Officer and Vice President & General Counsel were based solely on corporate operating income. Goals for the Operating Vice Presidents were weighted 30% on corporate operating income and 70% on the operating profit of the business unit for which they were responsible.

Also, at its February 28, 2008, meeting, the Committee reviewed current levels of pay for the Senior Management Committee and the recommendations of the Chief Executive Officer for increases. The Committee approved increases that were based on market salary movement (approximately 3%), competitive base salary data, and internal equity considerations. Ms. Bailey, whose salary was below the market median, received an increase of 4.3%. Mr. Bays, whose salary was at market median, received a 1.5% salary increase in addition to a $6,000 adjustment to compensate for the elimination of his company-provided leased car at year-end 2007. Mr. Murry, who was slightly above market median, received an increase of 2.5% in addition to a $6,000 adjustment to compensate for the elimination of his company-provided leased car at year-end 2007. Mr. Thomas, whose salary was slightly below his operating peers, received an increase of 6.2% in addition to a $6,000 adjustment to compensate for the elimination of his company-provided leased car. Mr. Russell, whose salary was slightly above market median, received an increase of 3.2%. Company-provided leased cars were eliminated for new executives prior to the employment of Ms. Bailey and Mr. Russell. The Committee also approved an increase in AIP target percentages for Messrs. Russell and Thomas from 45% to 50%. These compensation changes were made retroactive to January 1, 2008.

 

Mr. Kirsch’s base salary rate was increased from $700,000 to $725,000, retroactive to January 1, 2008. Mr. Kirsch was not provided with a salary adjustment to compensate for the elimination of his company-provided leased car. This increase resulted in a base salary for Mr. Kirsch that was between the 25th and 50th percentiles of the competitive market data as provided by Towers Perrin. The Committee also approved an increase in Mr. Kirsch’s AIP target percentage from 75% to 80%, consistent with the median of the competitive market data.

 

On February 25, 2009, the Committee reviewed the Company’s performance compared to goals for the AIP. The 2008 target performance for corporate operating income (defined as business unit operating profit less corporate unallocated expenses and excluding certain non-recurring items) had been established at $144.2 million, a 15.7% increase above the actual 2007 AIP performance, which included adjustments of $7.0 million related to the profit impact of a quality issue at the Evansville facility and a safety intervention at South Plainfield.

 

The actual corporate operating income calculated for 2008 AIP purposes was slightly below the established threshold of $122.6 million, resulting in a score of 0%. Mr. Murry’s score for Inorganic Specialties and Mr. Thomas’ score for Organic Specialties were also below the established thresholds. Accordingly, no AIP payments for 2008 were approved for Ms. Bailey or Messrs. Kirsch, Bays, Murry or Thomas. Mr. Russell’s performance score for Electronic Material Systems was 140% resulting in an approved AIP payment of $227,500. In addition, the Committee considered Mr. Russell’s special incentive opportunity of $100,000 for 2008 (provided to him at the time he joined the company in consideration of certain compensation he was forfeiting when he left his former employer). Since the Electronic Material Systems operating profit target was achieved in 2008, this special incentive of $100,000 was earned by Mr. Russell. The Committee also approved a payment of $25,000 that had not been paid to Mr. Russell in 2008 because the 2007 operating profit target for the Electronic Materials Systems had not been attained. At that time, the Committee decided to provide Mr. Russell with an opportunity to make up the $25,000 if the operating profit target was achieved in 2008.

 

Total annual cash compensation for 2008 for Mr. Kirsch and the other executive officers, with the exception of Mr. Russell, was significantly below targeted levels as a result of operating income and profit performance that were below threshold. Mr. Russell’s total annual cash compensation for 2008 was above targeted levels commensurate with the strong operating profit results for Electronic Material Systems.

 

Changes in Executive Compensation for 2009

 

Annual Incentives.  Due to the uncertain business environment and the difficulty in forecasting for the 2009 fiscal year, the Committee has determined that 2009 goals for AIP participants worldwide, including the named executive officers, will be established and earned on a quarterly basis rather than an annual basis. The 2009 plan is based on the following performance metrics, each of which is weighted 20%: accounts receivable; inventory; gross margin; operating margin, and operating profit. Threshold, target and maximum levels for each metric will be established and communicated at the beginning of each quarter. Each quarter’s attainment will be weighted 25% and the final incentive score for the year will 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 earnings.

Incentive compensation may be earned on a quarterly basis; however, payouts will be made after the end of the year. A participant must remain employed through the end of the fiscal year to be eligible for a payout.

 

Long-Term Incentives.  The Committee has determined that the uncertain business environment has also made it difficult to establish three-year performance goals that would typically be used in connection with performance share awards. Consequently, the Committee has 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.

 

Stock Ownership Guidelines

 

Ferro has had stock ownership guidelines for its Directors and executive officers since 1998. The current guidelines require the Chief Executive Officer 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.

 

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 DC 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 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 Committee Interlocks and Insider Participation

 

During 2008, no officer or employee of Ferro served as a member of the Compensation Committee. Also, during 2008, 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

 

2008 EXECUTIVE COMPENSATION

 

The following table shows the elements of compensation paid or earned during 2008, 2007 and 2006 to each person serving as the Chief Executive Officer and the Chief Financial Officer during 2008, to the other three highest-paid executive officers as of December 31, 2008, and to one executive officer whose service as an executive officer terminated as of September 30, 2008:

 

Summary Compensation Table

 

 

 

 

 

During 2006, 2007 and 2008, there was no personal use of Company aircraft by any of the executives in this table.

Grants of Plan-Based Awards

 

The following table sets forth information regarding 2008 awards under the AIP and under the LTIP, i.e., awards of performance shares (referred to in the table as “PS”), 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, 2008:

 

Outstanding Equity Awards