UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

SCHEDULE 14A

Proxy Statement Pursuant to Section 14(a) of the Securities
Exchange Act of 1934 (Amendment No.  )

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Harsco Corporation

 (Name of Registrant as Specified In Its Charter)

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

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Notice of

2010 Annual

Meeting and Proxy

Statement

 

Harsco Corporation

 

Harsco Corporation

350 Poplar Church Road

Camp Hill, PA 17011 USA

 

Telephone: 717.763.7064

Fax: 717.763.6424

www.harsco.com

 

 

March 26, 2010

 

To Our Stockholders:

 

You are cordially invited to attend the 2010 Annual Meeting of Stockholders of Harsco Corporation (the “Company”), which will be held on Tuesday, April 27, 2010, beginning at 10:00 a.m., local time, at the Radisson Penn Harris Hotel and Convention Center, Camp Hill, Pennsylvania.

 

Information about the Annual Meeting, including a listing and discussion of the various matters on which you, as our stockholders, will act, may be found in the formal Notice of Annual Meeting of Stockholders and Proxy Statement included with this mailing. We look forward to greeting as many of our stockholders as possible.

 

The Company is providing you with the opportunity to vote your shares by calling a toll-free number, by mailing the enclosed Proxy Card or via the Internet as explained in the instructions on your Proxy Card.

 

Whether you plan to attend the Annual Meeting or not, we urge you to fill in, sign, date and return the enclosed Proxy Card in the postage-paid envelope provided, or vote by telephone or via the Internet, in order that as many shares as possible may be represented at the Annual Meeting. The vote of every stockholder is important and your cooperation in returning your executed Proxy Card promptly will be appreciated.

 

Sincerely,

 

 

Salvatore D. Fazzolari

Chairman and Chief Executive Officer

 

This document is intended to be mailed to stockholders on or about March 26, 2010.

 

TABLE OF CONTENTS

 

HARSCO CORPORATION

 

350 Poplar Church Road

Camp Hill, Pennsylvania 17011 USA

 

 

The Annual Meeting of Stockholders of Harsco Corporation (the “Company”) will be held on Tuesday, April 27, 2010, at 10:00 a.m., local time, at the Radisson Penn Harris Hotel and Convention Center, Camp Hill, Pennsylvania to consider and act upon the following matters:

 

 

G. D. H. Butler,
K. G. Eddy,
S. D. Fazzolari,
S. E. Graham,
T. D. Growcock,
H. W. Knueppel,
D. H. Pierce,
J. I. Scheiner,
A. J. Sordoni, and
R. C. Wilburn;

 

 

The Board has fixed the close of business on March 2, 2010 as the record date for the determination of stockholders who are entitled to notice of, and to vote at, the Annual Meeting and at any adjournments thereof. Proxies will be accepted continuously from the time of mailing until the closing of the polls at the Annual Meeting.

 

Stockholders who do not expect to attend the Annual Meeting in person are requested to fill in, sign, date and return the enclosed Proxy Card in the envelope provided, or vote by telephone or via the Internet, as explained in the instructions on your Proxy Card.

 

By Order of the Board,

 

Mark E. Kimmel

Senior Vice President, Chief Administrative Officer,

General Counsel and Corporate Secretary

March 26, 2010

 

PROXY STATEMENT

 

This Proxy Statement has been prepared in connection with the solicitation by the Board of Directors (the “Board”) of Harsco Corporation, a Delaware corporation (the “Company”), of proxies in the accompanying form to be used at our Annual Meeting of Stockholders, to be held on April 27, 2010, or at any adjournment of the Annual Meeting.

 

The following information relates to the Annual Meeting and the voting of your shares at the meeting:

 

Type of shares entitled to vote at the Annual Meeting:		Our common stock, par value $1.25
Record date for stockholders entitled to notice of, and to vote at, the Annual Meeting (“Record Date”):		Close of business on March 2, 2010
Shares of common stock issued and outstanding as of the Record Date (does not include treasury shares, which are not entitled to be voted at the Annual Meeting):		80,505,994 shares
Proxy Statements, Notice of Annual Meeting and Proxy Cards are intended to be mailed to stockholders:		On or about March 26, 2010
Location of our executive offices:		350 Poplar Church Road, Camp Hill, Pennsylvania 17011

 

To obtain directions to attend the meeting and vote in person, please contact Kenneth D. Julian, Senior Director — Corporate Communications, by telephone at (717) 730-3683 or by e-mail at kjulian@harsco.com.

 

Information contained on our website is not incorporated by reference into this Proxy Statement, and you should not consider information contained on our website as part of this Proxy Statement. Copies of our corporate governance principles, code of business conduct and charters of the Board’s committees are available in print to any stockholder who requests such copies from us.

 

The Notice of 2010 Annual Meeting and Proxy Statement, our Proxy Card and our 2009 Annual Report are available free of charge at http://bnymellon.mobular.net/bnymellon/hsc.

 

All shares of common stock entitled to vote at the Annual Meeting are of one class, with equal voting rights. Each share of common stock held by a stockholder is entitled to cast one vote on each matter voted on at the Annual Meeting. In order for the Annual Meeting to be valid and the actions taken binding, a quorum of stockholders must be present at the meeting, either in person or

by proxy. A quorum is a majority of the issued and outstanding shares of common stock as of the Record Date. Assuming that a quorum is present, the affirmative vote by the holders of a plurality of the votes cast at the Annual Meeting will be required to act on the election of directors, and the affirmative vote of the holders of at least a majority of the outstanding common stock present in person or by proxy and entitled to vote on matters at the Annual Meeting will be required for ratification of PricewaterhouseCoopers LLP as independent auditors for the current fiscal year. The vote required to act on all other matters to come before the Annual Meeting will be in accordance with the voting requirements established by our Restated Certificate of Incorporation and By-Laws, each as amended to date.

 

Stockholder votes will be tabulated by an independent inspector of election for the Annual Meeting. The shares of common stock represented by each properly submitted proxy received by the Board of Directors will be voted as follows at the Annual Meeting:

 

If instructions are provided, in accordance with such instructions, or

 

If no instructions are provided, (1) FOR the election as Directors of the ten nominees of the Board of Directors, (2) FOR the ratification of the appointment of PricewaterhouseCoopers LLP as independent auditors for the current fiscal year, and (3) in accordance with the best judgment of the named proxies on any other matters properly brought before the Annual Meeting.

 

Any proxy granted pursuant to this solicitation or otherwise, unless coupled with an interest, may be revoked by the person granting the proxy at any time before it is voted at the Annual Meeting. Proxies may be revoked by (i) delivering to the Secretary of the Company a written notice of revocation bearing a date later than that of the proxy, (ii) duly executing and delivering a later dated written proxy relating to the same shares, or (iii) attending the Annual Meeting and voting in person. If you hold your shares through a bank, broker or other nominee holder, only that bank, broker or other nominee holder can revoke your proxy on your behalf.

 

In certain circumstances, a stockholder will be considered to be present at the Annual Meeting for quorum purposes but will not be deemed to have cast a vote on a matter. That occurs when a stockholder is present but specifically withholds a vote or abstains from voting on a matter, or when shares are represented at the Annual Meeting by a proxy conferring authority to vote only on certain matters (“broker non-votes”). In accordance with Delaware law, votes withheld will not be treated as votes cast with respect to the election of directors, and therefore will not affect the outcome of director elections. With respect to the ratification of auditors, abstentions will be treated as negative votes and broker non-votes will not be counted in determining the outcome.

 

The Board of Directors knows of no other business to come before the Annual Meeting. However, if any other matters are properly presented at the Annual Meeting, or any adjournment of the Annual Meeting, the persons voting the proxies will vote them in accordance with their best judgment.

 

We have a long-standing commitment to good corporate governance practices. These practices come in many different forms and apply at all levels of our organization. They provide

the Board of Directors and our senior management with a framework that defines responsibilities, sets high standards of professional and personal conduct and promotes compliance with our various financial, ethical, legal and other obligations and responsibilities.

 

The Board has adopted corporate governance principles that, along with the charters of the Board committees, provide the framework for our Board of Directors’ operation and governance. The Board’s Nominating and Corporate Governance Committee is responsible for overseeing and reviewing our corporate governance principles at least annually and recommending any proposed changes to the Board for approval. The corporate governance principles are available on our website at www.harsco.com/insight-on-harsco in the Corporate Governance section.

 

We have adopted a code of business conduct applicable to our employees, officers and directors worldwide. The code of business conduct is issued in booklet form and an online training program facilitates new employee orientation and individual refresher training. Our code of business conduct is produced in over 20 languages. The code of business conduct, including any amendments thereto or waivers thereof, can be viewed at the Corporate Governance section of our website at www.harsco.com/insight-on-harsco.

 

The Board of Directors has a formal process for stockholders and interested parties to communicate directly with the Chairman and CEO, lead independent director, the non-management directors or with any individual member of the Board of Directors. Stockholders and interested parties may contact any member of the Board, including the lead independent director, Dr. Robert Wilburn, and the Chairman and CEO, by writing to the specific Board member in care of our Corporate Secretary at our Corporate Headquarters (350 Poplar Church Road, Camp Hill, PA 17011). Our Corporate Secretary will forward any such correspondence to the applicable Board member; provided, however, that any such correspondence that is considered by our Corporate Secretary to be improper for submission to the intended recipients will not be provided to such Directors. In addition, Board members, including the lead independent director and the Chairman and CEO, can be contacted by e-mail at BoardofDirectors@harsco.com.

 

The following NYSE Euronext standards, which are also posted under the Corporate Governance section of our website at www.harsco.com/insight-on-harsco, have been applied by the Board of Directors in determining whether individual directors qualify as “independent.” References to us include our consolidated subsidiaries.

 

 

 

 

 

 

 

 

The Board has affirmatively determined that the following eight Directors who are standing for reelection are independent: Messrs. Graham, Growcock, Knueppel, Pierce, Scheiner, Sordoni, and Wilburn and Ms. Eddy. In addition, the Board affirmatively determined that Ms. Scanlan and Mr. Jasinowski were independent within the meaning of the NYSE Euronext listing standards during their tenure.

 

Independent Directors regularly meet in executive sessions without management. Our named lead director, Dr. Wilburn, who is a non-management director, presides over each session of the independent Directors. During the 2009 fiscal year, the independent Directors held three meetings as a complete group (i.e., all eight independent Directors) and commencing in September 2009, meet as a group after every Board Meeting.

 

It is our policy to request that all Board members attend the Annual Meeting of Stockholders. However, we also recognize that personal attendance by all Directors is not always possible. The ten individuals who are standing for election as Directors in 2010 attended the 2009 Annual Meeting of Stockholders.

 

Information regarding the current structure of our Board of Directors:

 

Current size:		10 members
Size of Board of Directors authorized in the By-Laws:		Not less than five nor more than 12
Number of Independent Directors:		Eight members
Size of Board of Directors established by:		Board of Directors
Lead Director:		R. C. Wilburn

 

We currently combine the position of Chairman and Chief Executive Officer. Our Board formally reviewed this structure in 2007 and determined, after much deliberation and after a review of several studies, both U.S. and international, that this structure was the appropriate leadership structure for Harsco, as it provides the most efficient and effective leadership model for us by enhancing the Chairman and Chief Executive Officer’s ability to provide perspective and direction with regard to business strategies and plans to both the Board and management, thus avoiding the creation of two centers of authority which could potentially dilute the CEO’s ability to lead the organization. The Board believes Harsco can most effectively execute its business strategies and plans if the Chairman is also a member of the management team, such that ultimate leadership and accountability rest in a single position. This allows for unified leadership and focus.

 

Another key component of our leadership structure is our strong governance practices, which ensure that the Board effectively carries out its responsibility for the oversight of management. All Directors, with the exception of the Chairman and Mr. Butler, are independent. This heavy weighting of our Board in favor of independent directors, combined with the position of Lead Director, provides a strong counterbalance to the role of management on the Board. We believe that the role of Lead Director is a key mechanism for strengthening board independence. The Lead Director has broad responsibilities, including chairing regular meetings of the independent Directors and presiding as chair in the absence of the Chairman. In addition, the Lead Director serves as the liaison between the independent Directors and the Chairman. The Lead Director regularly consults with the Chairman and is involved in discussing meeting agendas and in reviewing information that is sent to the Board and all critical communications to the Board. The Lead Director has the ability to call a meeting of the independent Directors as required, and the independent Directors meet after nearly every Board meeting in executive session. Members of management do not attend these meetings.

 

Our management is responsible for assessing and managing our exposure to risk. We have established an enterprise risk management process to identify, assess and manage the most significant risks facing the Company. The executive oversight of this process is through a committee comprised of the Chairman and CEO, the CFO and the Chief Administrative Officer. As part of this process, we provide periodic updates to and receive feedback from the Board regarding the risks identified by the enterprise risk management process. In addition, the Audit Committee has oversight responsibility for financial risks. Our Audit Committee regularly meets with and discusses with management and our independent auditors major financial risks and the steps management has taken to monitor and control these risks. The financial risks are regularly discussed with the Board by management and through the reports of the Audit Committee to the Board. The Company believes that its leadership structure, discussed in detail above, supports the risk oversight function of the Board.

 

The Board of Directors held seven meetings during the fiscal year ended December 31, 2009. All Directors who served during the fiscal year ended December 31, 2009 attended at least 95.8% of the total Board meetings and meetings of the committee on which they served, and the average attendance by such Directors at all Board and committee meetings was 99.20%. The independent Directors held three meetings during 2009. We have standing Audit, Management Development and Compensation, and Nominating and Corporate Governance Committees. The Executive Committee was dissolved in April 2009.

 

 

 

 

 

 

 

[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]

 

 

The following performance graph compares the yearly percentage change in the cumulative total stockholder return (assuming the reinvestment of dividends) on our common stock against the cumulative total return of the Standard & Poor’s MidCap 400 Index and the Dow Jones Industrial-Diversified Index for the past five years. The graph assumes an initial investment of $100 on December 31, 2004 in our common stock or in the underlying securities which comprise each of those market indices. The information contained in the graph is not necessarily indicative of our future performance.

 

COMPARISON OF 5 YEAR CUMULATIVE TOTAL RETURN*

 

Among Harsco Corporation, The S&P MidCap 400 Index
And The Dow Jones US Diversified Industrials Index

 

 

 

Copyright^© 2010 S&P, a division of The McGraw-Hill Companies Inc. All rights reserved.
Copyright^© 2010 Dow Jones & Co. All rights reserved.

 

 

The Nominating Committee of the Board of Directors is responsible for overseeing the selection of qualified candidates to serve as members of the Board of Directors and guiding our corporate governance philosophy and practices. The Nominating Committee is composed of five directors, each of whom is “independent” under the rules of the NYSE Euronext. The Nominating Committee operates according to a charter that complies with the guidelines established by the NYSE Euronext.

 

The Nominating Committee has not adopted formal procedures in selecting individuals to serve as members of the Board of Directors. Instead, it utilizes general guidelines that allow it to adjust the process to best satisfy the objectives established for any director search. The first step in the general process is to identify the type of candidate the Nominating Committee may desire for a particular opening. This may involve identifying someone with a specific background, skill set or set of experiences. Once identified, the Nominating Committee next determines the best method of finding a candidate who satisfies the specified criteria. The Nominating Committee may consider candidates recommended by management, by other members of the Nominating Committee or the Board of Directors, by stockholders, or it may engage a third party to conduct a search for possible candidates. The Nominating Committee has used independent search firms in the past to assist in the identification and evaluation of possible candidates.

 

In addition to the above, at our January 2010 Board meeting, we initiated a process for the full Board to review and determine our Directors’ and nominees’ qualifications. As part of this process, we solicited a self-assessment in the form of a skills matrix from each Director, pursuant to which we asked each Director to personally assess their ability to meet the requirements described in this section and in our charter, and to allow us to periodically assess our current Board, and, as we consider additional candidates for the Board, to determine whether there are particular attributes which we should particularly focus on with those candidates and that we would most benefit from adding to our Board. Based on the compiled results of these responses, we and the Board have determined that, in light of our business structure, we currently have the right mix of Directors for the strategic path of the Company.

 

Many of the attributes set forth in this section are self-explanatory. The Board also considers diversity, as noted below, when considering Director nominees, taking into consideration not only diversity of national origin, gender, age and race, but also of profession and geographic experience. Although diversity is included as a selection criteria under our Nominating and Corporate Governance charter, our Board has not at this time adopted a separate diversity policy.

 

The Nominating Committee will consider all nominees in the same manner regardless of the source of the recommendation of such nominee. The Nominating Committee will consider recommendations for director candidates from stockholders if such recommendations are in writing and set forth the following information:

 

 

 

This information must be submitted as provided under the heading “STOCKHOLDER PROPOSALS AND NOMINATIONS FOR PRESENTATION AT 2011 ANNUAL MEETING OF STOCKHOLDERS.”

 

There have been no material changes to the procedures relating to stockholder nominations during 2009. The Nominating Committee believes that these procedural requirements are intended solely to ensure that it has a sufficient basis on which to assess potential candidates and are not intended to discourage or interfere with appropriate stockholder nominations. The Nominating Committee does not believe that any such requirements subject any stockholder or stockholder nominee to any unreasonable burden. The Nominating Committee and the Board reserve the right to change the above procedural requirements from time to time and/or waive some or all of the foregoing requirements with respect to certain nominees, but any such waiver shall not preclude the Nominating Committee from insisting upon compliance with any and all of the above requirements by any other recommending stockholder or proposed nominees.

 

Once candidates are identified, the Nominating Committee conducts an evaluation of the candidate. The evaluation generally includes interviews and background and reference checks. There is no difference in the evaluation process of a candidate recommended by a stockholder as compared to the evaluation process of a candidate identified by any of the other means described above. While the Nominating Committee has not established minimum criteria for a candidate, it has established important factors to consider in evaluating a candidate. These factors include the following (although candidates need not possess all of the following characteristics, and not all factors are weighted equally):

 

 

 

If the Nominating Committee determines that an individual should be nominated as a candidate, the individual’s nomination is then recommended to the Board of Directors, who may in turn conduct its own review to the extent it deems appropriate. When the Board of Directors has agreed upon a candidate to be nominated at an Annual Meeting of Stockholders, that candidate is then recommended to the stockholders for election at an Annual Meeting of Stockholders.

 

All of our current directors are standing for reelection. Each of the directors standing for reelection has been recommended by the Nominating Committee to the Board of Directors for election as our directors at the 2010 Annual Meeting of Stockholders and the Board has approved the recommendation. We did not engage a third party search firm to assist with the selection of director candidates for the 2010 Annual Meeting of Stockholders. During 2009, we received no recommendations for directors from any stockholders.

 

The first proposal to be voted on at the Annual Meeting is the election of the following ten Directors, each of whom is recommended by the Board of Directors. If elected, the Directors will hold office from election until the next annual meeting or until their successors are elected or appointed and qualified. Biographical information about each of these nominees is included below.

 

The Board of Directors recommends that stockholders vote “FOR” the election of each of the following nominees:

 

The information set forth below states the name of each nominee for Director, his or her age (as of March 2, 2010), a listing of present and recent employment positions, the year in which he or she first became a Director of the Company, other directorships held, the nominee’s specific experience, qualifications, attributes or skills that qualify him or her to serve as a Director of the Company and the committees of the Board on which the individual serves.

 

The general policy of our Board is that compensation for non-employee Directors should be a mix of cash and equity-based compensation. Our Compensation Committee has the primary responsibility to review and consider any revisions to Director compensation. As part of this responsibility, the Committee annually reviews market data regarding comparable director compensation programs. This data is prepared by management utilizing several broad board compensation studies completed within one year of the Board’s review.

 

Annual compensation for non-employee Directors for 2009 was comprised of the following components: cash compensation, consisting of an annual retainer; meeting and committee fees; and equity compensation, consisting of restricted stock unit awards. The current compensation amounts for non-employee directors, effective for fiscal year 2009, are as follows:

 

 

 

 

The Deferred Compensation Plan for Non-Employee Directors allows each non-employee Director to defer all or a portion of his or her director compensation until some future date selected by the Director. Pursuant to the Director’s election, the accumulated deferred compensation is held in either an interest-bearing account or a Harsco phantom share account. The interest-bearing deferred account accumulates notional interest on the account balance at a rate equal to the five-year United States Treasury Note yield rate in effect from time to time. Contributions to the phantom stock account are recorded as notional shares of Harsco common stock. Deferred amounts are credited to the Director’s account quarterly on the 15th of February, May, August and November. The number of phantom shares recorded is equal to the number of shares of common stock that the deferred compensation would have purchased at the market price of the stock on the day the account is credited. Dividends earned on the phantom shares are credited to the account as additional phantom shares. All phantom shares

are non-voting and payments out of the account are made solely in cash based upon the market price of the common stock on the date of payment selected by the Director. Under certain circumstances, the accounts may be paid out early upon termination of directorship following a change in control. This plan has been amended to operate in accordance with the provisions of the American Jobs Creation Act of 2004 and to ensure compliance with Internal Revenue Code Section 409A.

 

Directors who are actively employed by us receive no additional compensation for serving as Directors and we do not pay consulting or professional service fees to Directors.

 

 

The table below details the compensation earned by our non-employee Directors for 2009:

 

 

 

The following table sets forth, as of March 2, 2010, information with respect to the beneficial ownership of our outstanding voting securities, stock options and other stock equivalents by:

 

(a) Our Chief Executive Officer, Chief Financial Officer and the other four executive officers named in the 2009 Summary Compensation Table, who we refer to collectively as our named executive officers,

 

(b) each Director,

 

(c) all Directors and executive officers as a group, and

 

(d) certain beneficial owners holding more than 5% of the common stock.

 

All of our outstanding voting securities are common stock.

 

 

 

 

Except as otherwise stated, each individual or entity has sole voting and investment power over the shares set forth opposite his, her or its name. None of the Directors and executive officers individually beneficially owned more than 1% of our common stock, and our Directors and executive officers as a group beneficially owned approximately .70% of our outstanding common stock. The mailing address for our Directors and executive officers is c/o Harsco Corporation, Corporate Secretary, 350 Poplar Church Road, Camp Hill, PA 17011.

 

The Audit Committee of the Board of Directors (the “Audit Committee”) is composed of four Directors, each of whom is considered independent under the rules of the NYSE Euronext and the Securities and Exchange Commission (“SEC”). The Audit Committee, has, as part of its membership, an individual who satisfies the definition of a “financial expert,” as promulgated by the SEC. Ms. Kathy Eddy, a certified public accountant and former Chairman of the American Institute of Certified Public Accountants, has been a member of the Audit Committee since September 28, 2004 and serves as the Audit Committee’s “financial expert.”

 

The Audit Committee operates pursuant to a written charter which was adopted in 1992 and which was most recently amended in February of 2010. A copy of the Audit Committee Charter can be viewed at the Corporate Governance section of our website at www.harsco.com/insight-on-harsco.

 

The Audit Committee reports to and acts on behalf of the Board of Directors by monitoring our financial reporting processes and system of internal controls, and monitoring our internal auditors and overseeing the independence and performance of the independent auditors. In carrying out these responsibilities, the Audit Committee discussed with our internal auditors and independent

auditors the overall scope and plans for their respective audits of our financial statements. The Audit Committee also meets with members of management, our independent auditors and our internal auditors on a regular basis or as may otherwise be needed. The Audit Committee Chairman or her designee meets with management and with the independent auditors each quarter to review and discuss our Quarterly Report on Form 10-Q or Annual Report on Form 10-K prior to its filing with the SEC.

 

While the Audit Committee and Board of Directors monitor our financial record keeping and controls, it is our management that is ultimately responsible for our financial reporting process, including our system of internal controls, disclosure control procedures and the preparation of the financial statements. The independent auditors support the financial reporting process by performing an audit of our financial statements and issuing a report thereon.

 

The Audit Committee has reviewed and discussed with management and the independent auditors the audited consolidated financial statements for the year ended December 31, 2009 and related periods. These discussions focused on the quality, not just the acceptability, of the accounting principles used by us, key accounting policies followed in the preparation of the financial statements and the reasonableness of significant judgments made by management in the preparation of the financial statements and alternatives that may be available.

 

In addition, the Audit Committee has discussed with the independent auditors the matters required to be discussed pursuant to Statement on Auditing Standards No. 61, as amended (AICPA, Professional Standard, Vol. 1. AU section 380), as adopted by the Public Company Accounting Oversight Board in Rule 3200T, including the quality of our accounting principles, the reasonableness of significant judgments and the clarity of disclosures in the financial statements. The Audit Committee has also received the written disclosures and the letter from the independent auditors required by applicable requirements of the Public Company Accounting Oversight Board regarding the independent auditors’ communications with the audit committee concerning independence, and has discussed with the independent auditors the independent auditors’ independence.

 

Based on the review and discussions referred to above, the Audit Committee’s review of the representations of management and the report of the independent auditors, the Audit Committee recommended to our Board of Directors, and our Board of Directors approved, that our audited financial statements be included in our Annual Report on Form 10-K for the fiscal year ended December 31, 2009 for filing with the SEC.

 

SUBMITTED BY THE AUDIT COMMITTEE OF THE BOARD OF DIRECTORS:

 

     K. G. Eddy, Chairman

     S E. Graham

     H. W. Knueppel

     A. J. Sordoni, III

 

The following table sets forth the amount of audit fees, audit-related fees, tax fees and all other fees billed or expected to be billed by PricewaterhouseCoopers LLP, our principal auditor for the fiscal years ended December 31, 2009 and December 31, 2008.

 

 

 

The Audit Committee has considered the possible effect of non-audit services on the auditors’ independence and pre-approved the type of non-audit services that were rendered. The Audit Committee has adopted a policy for pre-approval of audit, non-audit and tax services by the independent auditors. The Audit Committee may pre-approve services, such as the annual audit fee and statutory audits. The services to be provided are to be reviewed with the Audit Committee and approval is given for a specific dollar amount and for a period of not greater than 12 months. Services that are not pre-approved in this manner must be pre-approved on a case-by-case basis throughout the year. Additionally, if the pre-approved fee is to be exceeded, approval of the Audit Committee must be obtained. In making its decision regarding the approval of services, the Audit Committee will consider whether such services are consistent with the SEC’s rules on auditor independence, whether the independent auditor is best positioned to provide such services and whether the services might enhance our ability to manage or control risk or improve audit quality. No services were provided during the last two fiscal years pursuant to the de minimis safe harbor exception from the pre-approval requirements. All of the fees included in the table above under Audit-Related Fees, Tax Fees and All Other Fees, were pre-approved by the Audit Committee, or, if the pre-approval amount was exceeded, approval of the Audit Committee was obtained in accordance with the procedure above.

 

The Audit Committee has designated PricewaterhouseCoopers LLP as independent auditors to audit our financial statements for the fiscal year ending December 31, 2010. This firm has audited the financial statements of the Company and its predecessors since 1929. Although not required to do so by law or otherwise, the Audit Committee desires that stockholders ratify its selection of PricewaterhouseCoopers LLP as our independent auditors. Therefore, the Audit Committee’s choice of independent auditors will be submitted for ratification or rejection at the Annual Meeting. In the absence of contrary direction from stockholders, all proxies that are submitted will be voted in favor of the confirmation of PricewaterhouseCoopers LLP as our independent auditors. A representative of PricewaterhouseCoopers LLP will attend the Annual Meeting, with the opportunity to make a statement and answer questions of stockholders.

If this proposal is not ratified by a majority of the shares entitled to vote at the Annual Meeting, the appointment of the independent auditors will be reevaluated by the Audit Committee. Due to the difficulty and expense of making any substitution of auditors, it is unlikely that their appointment for the audit of the financial statements for the fiscal year ending December 31, 2010 would be changed. However, the Audit Committee may review whether to seek new independent auditors for the fiscal year ending December 31, 2011.

 

The Audit Committee, at its meeting held in June 2009, reviewed and approved the fee estimate for the annual audit of our fiscal 2009 financial statements and, taking into consideration the possible effect of non-audit services on the auditors’ independence, also reviewed specific non-audit services to be rendered for income tax services.

 

The Board of Directors recommends a vote FOR the ratification of the appointment of PricewaterhouseCoopers LLP as our independent auditors.

 

Executive Summary

 

In the following pages, we discuss and analyze how our CEO, CFO, and four other most highly compensated executive officers (who we refer to as our named executive officers) were compensated for fiscal 2009, and describe how this compensation fits within our executive compensation philosophy. We also describe certain changes to our executive compensation programs for fiscal 2010 and later years.

 

Harsco Corporation is a diversified industrial services company serving global industries that are fundamental to worldwide economic growth, including infrastructure, metals, railways and energy. As with most global companies, through 2009, as compared to the first three quarters of 2008, we experienced extreme economic turbulence, and we saw the world’s financial and economic conditions deteriorate significantly. As a consequence of the global crisis, our full year’s economic value added, or EVA^®, results for most of our segments and for the Company as a whole were below established targets for 2009. Only our Harsco Rail business unit, which provides worldwide track maintenance services, reached its maximum EVA payout for 2009. The only other units that earned sufficient EVA to warrant any annual incentive bonus payouts in 2009 were our Harsco Industrial Air-X-Changers business unit, the leading manufacturer of air-cooled heat exchangers for the natural gas industry, our Harsco Industrial Patterson-Kelly business unit, an internationally recognized market leader and major producer of heat transfer equipment, including hot water boilers and water heaters for institutional and commercial building applications, and our Harsco Minerals business unit, which generates value through its specialty expertise for capturing and processing industrial co-products to serve specific commercial applications. As discussed further below, the vast majority of individuals within the Company earned little or no annual incentive bonus, including all of our named executive officers except Galdino Claro, who is guaranteed a bonus under his employment offer letter, and Rich Neuffer, who heads the Harsco Rail and the Harsco Industrial business units. For our long-term performance goal of corporate EVA, we met our established 2006-2008 targets, which payout is reflected in the 2009 Summary Compensation Table and 2009 Grants of Plan-Based Awards Table, but did not meet our established 2007-2009 targets for grants which would have been paid in 2010 and therefore no long-term incentive was paid to any executive or other employee in the Company for 2007-2009 performance period. Galdino Claro, who is guaranteed certain long-term incentive pay in accordance with the terms of his employment offer letter, received a separate RSU grant in 2009, a portion of which was paid out

in January 2010. Mr. Claro, who is our newest named executive officer, joined us in June 2009 and serves as CEO of our Harsco Metals and Harsco Minerals Groups. Prior to joining the Company, among other positions, he served as CEO — Aleris Americas for Aleris International, a global leader in the production of aluminum rolled and extruded products, recycled aluminum and special alloys, from 2008 to 2009. Before joining Aleris International, Mr. Claro served as President and CEO of the Heico Metals Processing Group, a diversified conglomerate with operations in the U.S., Canada and Europe.

 

Our executive officer pay determinations in 2009 were based in significant part on our above-mentioned financial performance. In addition to the direct compensation issues relating to payment of annual and long-term incentives, the top issues considered by the Company and our Compensation Committee during 2009 included the following:

 

 

General Compensation Philosophy

 

Our compensation programs are structured to align the long-term interests of our executives and our stockholders. They are designed to reflect our goal of fair, but conservative wages, while both ensuring that we attract, retain and motivate a premier management team to sustain our competitive advantage in the marketplace and providing a framework that encourages outstanding financial results over the long term. In administering our executive compensation program, we look to accomplish the following:

 

 

In addition to these goals, we, through our Compensation Committee, administer our executive compensation programs with the following guiding principles in mind:

 

 

Overview of Compensation Program

 

Our executive compensation program is carried out through several compensation methods. Each has its own purpose, but together they work to create a compensation package that both fairly compensates the individual for the services rendered to us and the results achieved and provides appropriate value to us for the payments we have made.

 

The primary compensation methods that we use and the manner in which they are administered include the following:

 

 

In allocating these various compensation components, our management believes that employees in higher ranks should have a higher proportion of their total compensation delivered through pay-for-performance-based cash incentives and long-term equity compensation. As a result, their compensation will be more significantly connected to our financial performance. We also believe that as executives rise to positions that can have a greater impact on our performance, the compensation program should place more emphasis on the value of our common stock. In all cases, however, we strive to ensure that there is a clear correlation between our performance and the compensation of our employees, such that a difficult year for the Company, such as 2009, will result in a reduction in total compensation for our employees who work for affected segments of our business. We believe this best aligns our compensation interests and the investment interests of our stockholders, and allows our Board to responsibly perform their duties as they relate to compensation.

 

Compensation Policies and Practices as They Relate to Risk Management

 

We have reviewed our compensation policies and practices for all employees and concluded that any risks arising from our policies and programs are not reasonably likely to have a material adverse effect on the Company. In addition, the Committee reviews the relationship between our

risk management policies and practices and the incentive compensation we provide to our named executive officers and other key employees to confirm that our incentive compensation does not encourage unnecessary and excessive risks.

 

It is our view that:

 

 

Furthermore, as described in our Compensation Discussion and Analysis, compensation decisions include subjective considerations, which restrain the influence of formulae or objective factors on excessive risk taking.

 

Compensation Consultants

 

Our Compensation Committee has the authority under its charter to engage the services of outside advisors, experts and others to assist the Committee. Exercising this authority during 2009, the Committee directly engaged Pearl Meyer & Partners as its independent compensation consultant.

 

The Compensation Committee utilizes the following information provided by the following, management-engaged consultants and by its directly engaged compensation consultant:

 

 

Stern Stewart & Co. was selected and engaged by management because of their expertise in working with economic value-added programs, both from an operating and compensation standpoint. Towers Watson was chosen by management to provide compensation services to us because of their broad level of expertise in the compensation and benefits area and their expansive knowledge of relevant market data in these areas. Pearl Meyer & Partners was selected and engaged by the Committee because of their broad expertise in many executive compensation issues as well as their fit with the philosophy and personality of the Committee. Stern Stewart & Co. and Towers Watson have in the past attended Compensation Committee meetings upon invitation from our Compensation Committee, though neither consultant attends Compensation Committee meetings on a regular basis. Pearl Meyer attends Compensation Committee meetings on a regular basis.

 

In 2009, Towers Watson received aggregate fees in the amount of $117,892 for compensation-related services it provided to management and the Compensation Committee. Towers Watson also provides pension plan-related advice to our Human Resources group and has also assisted in due diligence reviews of potential acquisition candidates, and in 2009 was compensated for these services in the amount of $1,418,180. The decision to engage Towers Watson for these non-compensation related services was made by management. The Compensation Committee and the Board did not approve these services. No other compensation consultant received in excess of $120,000 during 2009 for non-compensation related services.

 

Peer Group and Market Data

 

To ensure that total compensation for the named executive officers is aligned with the market, the Compensation Committee benchmarks salaries, total cash compensation (in other words, salary plus annual cash incentives) and total direct compensation (in other words, salary plus annual cash incentives and long-term incentive awards) annually against survey data provided by Towers Watson during Towers Watson’s annual review of executive compensation for our senior executive officers. In addition, for the first time, in 2009, the Committee also looked at benchmark data developed by Pearl Meyer. Pearl Meyer developed a smaller group of fourteen publicly-traded companies that the Committee and management agreed were peer companies, when looking at factors including lines of business, total revenues and global revenues (in other words, their multinational status). As we are a diversified industrial services company, no other company perfectly matches our profile. Companies included in the Pearl Meyer survey, therefore, are

companies that had one or more business aspects that correspond with one or more aspects of our business. The fourteen peer group companies are:

 

 

Performance and compensation data for the peer group was tracked by Pearl Meyer and provided to the Committee as part of the annual executive compensation review process. The Committee also, on a periodic basis, reviews the competitiveness of aspects of the Company’s benefits package.

 

In preparing the compensation survey data it provides to the Compensation Committee, Towers Watson, in contrast, utilizes a broad industry-wide benchmarking database of approximately 760 companies. In completing its analysis for each of our named executive officers, Towers Watson begins by screening its database for compensation data related to positions with duties and responsibilities similar to those of the executives. Towers Watson then subjects that data to a regression analysis (which helps define the relationship between revenue and an executive’s compensation). The regression analysis is then used to calculate a compensation level for the executive consistent with our total revenues. In this way, Tower Watson’s use of regression analysis adjusts the data in its benchmarking database.

 

Benchmarking and Impact of Individual Performance

 

Initial Benchmarking

 

In reviewing salaries, total cash compensation and total direct compensation, the Compensation Committee initially considers how each named executive officer’s compensation compares to the 50th percentile. We chose to target the 50th percentile based on our belief that our executive officers should be compensated at neither the high nor the low end of compensation as compared to their peers, but should receive a reasonable level of compensation based on both our performance and their individual performance when they perform at the target level.

 

For 2009, our named executive officers’ established compensation was determined to be above or below the 50th percentiles of the Towers Watson benchmark group as follows:

 

 

Our Compensation Committee then sets final compensation amounts either above or below the initial benchmarks, taking into account additional factors such as:

 

 

 

Individual Performance

 

As described above, the Compensation Committee considers our overall corporate performance when making compensation decisions for the named executive officers. To a lesser extent, the Compensation Committee considers individual performance by each of the named executive officers during the course of the year, as evaluated by the Compensation Committee in the case of the CEO, and by the CEO and the Compensation Committee in the case of our other named executive officers, as further discussed below. The Compensation Committee also considers the performance of our divisions in the case of the named executive officers who lead such divisions. Individual performance generally has an impact on compensation decisions in only two ways, both of which involve the significant use of discretion on the part of the Compensation Committee.

 

First, if applicable, the Compensation Committee considers individual performance when determining the named executive officers’ base salaries. In such cases, certain non-quantifiable factors may be considered by the Compensation Committee when establishing executives’ salaries, including the executives’ performance in leading improvements in the financial performance of poorly performing businesses or divisions, or addressing specific and major Company events or issues outside the ordinary course of business (for example, acquisitions, divestitures, financings or restructurings). Many of these “other” factors are clearly not established, “hard and fast” performance goals, but are qualitative individual performance factors that, if and when taken into consideration, would generally have a significant impact on our performance for the year and the individual officer’s success in his or her position.

 

Second, if applicable, the Compensation Committee also generally considers individual performance when determining our named executive officers’ long-term incentive compensation awards. When determining the equity awards to be paid out to the named executive officers, the Compensation Committee will first look at our overall performance with respect to the pre-established financial goal or goals. If our overall goals are satisfied, the Compensation Committee next looks to the financial performance of the division for which the officer is responsible, and then to the officer’s individual and non-quantifiable contributions to the Company during the applicable performance period. If the Compensation Committee does not believe that a named executive officer has adequately contributed to our overall performance during the fiscal year, the Compensation Committee may reduce the number of RSUs awarded to the officer (assuming that Company-wide performance targets have been achieved such that RSU payouts would have otherwise been approved). The Compensation Committee did not exercise this type of discretion when determining equity payouts for 2009 specifically because no equity payouts for 2009 were earned due to the Company’s failure to meet its performance goals.

 

For 2009, the Compensation Committee specifically considered the following individual performance and other quantifiable and non-quantifiable factors (including financial performance factors involving particular divisions within a named executive officer’s area of responsibility) when making compensation decisions for the following named executive officers:

 

 

 

The Compensation Committee did not specifically structure its compensation decisions to create notable disparity between the compensation elements paid to our named executive officers. Instead, the differences between the amounts paid to our named executive officers result from the standard application of our compensation policies and formulae, and specifically from the above-noted considerations.

 

Role of Management in the Compensation Process

 

As noted above, our Chairman and CEO plays several roles in our compensation process. In general, he reviews our proposed overall budget increases for executive officer salaries and approves, on an individual basis, recommendations made by management regarding year-to-year executive compensation increases. More specifically, for 2009, our Chairman and CEO reviewed both (1) benchmark compensation materials and other related information provided by Towers Watson and Pearl Meyer and (2) recommendations submitted by members of our senior management team, before submitting management’s recommendations to the Compensation Committee regarding salary increases and changes to bonus percentages and equity compensation awards for members of our senior management team, as well as the reasons for these recommended changes. Our Chairman and CEO also generally provides factual support to the Committee with regard to recommendations to the Committee of senior management salary and incentive where discretion is utilized by the Committee.

 

Our Chairman and CEO also provides the Compensation Committee with factual information on which it bases its decisions regarding his compensation. As an example, our Chairman and CEO meets with the Compensation Committee in executive session during each November meeting to review the progress made on key priorities as well as our results for that fiscal year. Our independent Directors participate in the November session. The Chairman and CEO has no decision-making involvement with respect to his own compensation, however. Instead, the Compensation Committee determines its recommendation regarding the Chairman and CEO’s compensation package for the subsequent fiscal year based on the facts gathered from its meeting with the Chairman and CEO, plus compensation survey information provided to us by Towers Watson and Pearl Meyer, and whatever other information and factors it chooses to consider from year-to-year.

The Chairman and CEO has the authority to call Compensation Committee meetings, but no such meetings have been called by the Chairman and CEO in the past two years. Additionally, the Chairman and CEO has the authority to call and hold meetings with each of Towers Watson and Stern Stewart & Co. We are aware of only one individual meeting between the Chairman and CEO and any of our compensation consultants in recent history, namely, a meeting between the Chairman and CEO and Pearl Meyer that took place in August 2009, during which the Chairman and CEO briefed Pearl Meyer on our strategy and human resources policy as part of Pearl Meyer’s orientation, as the newly appointed consultant to the Committee, to the role of advising the Committee, which is Pearl Meyer’s standard practice.

 

Components of 2009 Executive Compensation Program

 

Each component of direct and indirect compensation paid to our named executive officers for 2009 is summarized in the table below:

 

Analysis of 2009 Executive Compensation Decisions

 

Salaries

 

In determining annual salary levels for each of our named executive officers, our Compensation Committee took into consideration the following factors:

 

 

Of continuing importance for 2009 were the 2008 promotions experienced by our senior management team in light of the implementation of our senior management succession plan. As a result, our Compensation Committee, in reviewing salaries for 2009, took into account the continued expansion of the named executive officers’ roles during calendar year 2009. In late 2009, however, our management team, together with our Compensation Committee made the difficult decision to freeze salaries across the board at Harsco, including freezing the salaries of the named executive officers (with the exception of Galdino Claro, who was guaranteed an increase in salary under his employment offer letter, as discussed above). Our management team and the Committee made this difficult decision in light of current economic conditions and in keeping with our core values of tying compensation not only to individual performance but also to the performance of the Company as a whole.

 

Annual Incentive Compensation Plan

 

After the end of each fiscal year, management presents to our Compensation Committee a summary and recommendation for payouts of management incentive bonuses. The presentation includes the following:

 

 

The performance criteria under the 1995 Incentive Plan are periodically approved by our stockholders, and were last approved at our 2009 Annual Meeting.

 

Target Annual Incentive Payouts

 

Payments of annual incentives are a function of the executive’s annual salary multiplied by an applicable bonus percentage, which in turn is multiplied by a performance percentage. The bonus percentage is the executive’s annual incentive opportunity as determined by the Compensation

Committee for each individual executive and is a function of the individual’s level of responsibilities and his or her ability to impact our overall results.

 

The performance percentage is determined based on achievement of EVA objectives and can range from zero to 200%. A target bonus is awarded for 100% performance. Zero and 200% were set as outer limits based on recommendations by our consultant, Stern Stewart & Co., and our desire to keep incentive payments within a certain range. Because of the way the incentive system is structured, there is a 15% probability that either an award of zero or 200% will be achieved. In the past, certain divisional officers have achieved zero payouts as well as 200% payouts. Since the annual incentive program is formula driven and the formula is approved at the same time as the annual performance targets, our Committee only has discretion to reduce the recommended awards for the named executive officers.

 

The target bonus percentages for the named executive officers for 2009 were as follows:

 

 

Actual annual incentive award payouts to the named executive officers are detailed in the 2009 Summary Compensation Table. As was the case with many companies, we as a whole were impacted by the economic turmoil during calendar year 2009, and annual incentive bonuses were significantly below prior years’ levels. Most of our named executive officers, namely Messrs. Fazzolari, Butler, Schnoor and Kimmel, received zero incentive award payouts for 2009 due to our failure to achieve our EVA objectives. Our Harsco Minerals, Harsco Rail and Harsco Industrial business groups, however, performed very well and were only slightly impacted by the economic downturn; as a result, Mr. Neuffer earned a bonus at 185% of his target. Mr. Claro received a guaranteed bonus award in accordance with the terms of his employment offer letter.

 

Performance Metric for Annual Incentive Compensation Plan and Fiscal 2009 Performance Results

 

EVA is an operating mindset that is instilled in our employees and is utilized in the way we operate our businesses. In light of this, it was deemed the appropriate measure by which to judge results for incentive purposes. EVA is calculated by subtracting from net operating profit after tax (which is similar to operating earnings less taxes) a charge for capital employed in the particular business (which is the product of the amount of capital utilized multiplied by our cost of capital).

 

EVA improvement is a measure of the growth anticipated by stockholders. It represents the amount that EVA (calculated as described above) must improve each year in order for our current operations value (referred to as COV) to increase to the Company’s total market value. COV is calculated as the sum of our current EVA capital plus the value that would be produced if EVA was maintained at its current level (in other words, no growth in EVA) into perpetuity.

 

The 2009 EVA improvement target was developed by our compensation consultant, Stern Stewart & Co., based on the principles outlined above. The payout under the annual incentive bonus program is based on the amount of economic value created in the appropriate year, both for the Company as a whole and for the business units for which a named executive officer has responsibility. The EVA improvement target for 2009 for the Company as a whole was a negative

$7,400,000. The EVA improvement required for a target bonus payout for the business units for which Mr. Butler was responsible was a negative $2,345,000, the EVA improvement required for a target bonus payout for the business units for which Mr. Neuffer was responsible was a negative $5,055,000 and the EVA improvement required for a target bonus payout for the business units for which Mr. Claro was responsible was a negative $2,712,000.

 

In addition to the EVA improvement target, an EVA interval both above and below the EVA improvement target is also calculated. The EVA intervals serve as the guide for determining an officer’s performance bonus multiplier in terms of the amount of EVA improvement actually achieved. For example:

 

 

For 2009, the EVA interval for the Company as a whole was $39,000,000. The EVA interval for those business units for which Mr. Butler has responsibility was $33,700,000, the EVA interval for the business units for which Mr. Neuffer has responsibility was $13,600,000 and the EVA interval for the business units for which Mr. Claro has responsibility was $26,900,000.

 

An example of how the EVA system works may provide clarification. If we as a whole achieved a negative $7,400,000 in EVA improvement, those individuals paid on Company-wide performance would receive their target payout amount (100%). If, instead, we as a whole achieved $31,600,000 or more (that is, negative $7,400,000 plus $39,000,000) in EVA improvement, an individual paid on corporate performance would receive his or her maximum payout amount (200%). If the amount of EVA improvement achieved was less than negative $7,400,000 but more than a negative $46,400,000 (that is, negative $7,400,000 minus $39,000,000), then the officer would be entitled to a payout, but the payout would be an amount less than the target payout and calculated by interpolating the percent of the interval achieved. If the amount of EVA improvement achieved was more than negative $7,400,000 but less than $31,600,000, then the officer would be entitled to a payout in an amount more than the target payout, but calculated by interpolating the percent of the interval achieved.

 

In 2009, we as a whole produced negative $133,637,000 in EVA improvement ($126,237,000 below the applicable EVA target), which resulted in a bonus percentage of zero percent for those individuals whose bonuses were based on corporate performance. The business units for which Mr. Butler was responsible generated negative $127,139,000 in EVA improvement ($124,794,000 below the applicable EVA target), which resulted in a bonus percentage of zero percent for Mr. Butler. The business units for which Mr. Neuffer was responsible generated $6,556,000 in EVA improvement ($11,611,000 above the applicable EVA target), which resulted in a bonus percentage of 185% for Mr. Neuffer. The business units for which Mr. Claro was responsible generated negative $44,894,000 in EVA improvement ($42,182,000 below the applicable EVA target), which would have resulted in a bonus percentage of zero percent for Mr. Claro. Mr. Claro,

however, was guaranteed a target level payout under the annual incentive plan pursuant to the terms of his employment offer letter with the Company.

 

We, with the input of Stern Stewart, have established minimum, target and maximum objectives for overall EVA performance for 2010 and allocated that target objective among the divisions. Thus, the annual incentive compensation awards of the corporate officers are closely related to the overall performance of the divisions against their EVA goals. Goals are recommended by Stern Stewart & Co. to the Committee, and senior management has very limited input into the establishment of the EVA targets.

 

Equity Compensation

 

The primary purpose of our long-term incentive compensation program, as evidenced by grants of RSUs, is to drive maximum stockholder return by directly aligning the interests of management and stockholders and motivating key executives to remain with us. For our purposes, an RSU refers to an award of a share of deferred stock that is subject to a risk of forfeiture or performance conditions. We believe our long-term incentive program achieves this goal by:

 

 

Review of RSU Target Awards

 

During its November 2005 meeting, the Compensation Committee reviewed proposed RSU grants for each named executive officer for the three-year performance period ending December 31, 2008 (that is, RSUs that, if the performance criteria are met, would be granted in January 2009), as follows:

 

 

During its November 2006 meeting, the Compensation Committee reviewed proposed RSU grants for each named executive officer for the three-year performance period ending December 31, 2009 (that is, RSUs that, if the performance criteria are met, would be granted in January 2010), as follows:

 

Performance Metrics for RSUs

 

In furtherance of the Company’s pay-for-performance culture, payouts for RSUs are contingent upon satisfaction of certain pre-established performance goals spanning a three-year period. We believe performance-based RSUs are less commonly used among companies offering long-term equity incentives in the form of RSUs than time-based RSUs.

 

The performance goals for the 2006-2008 performance period were diluted earnings per share from continuing operations and cash flow from operating activities. These goals were approved for each of 2006, 2007 and 2008 by our full Board. The performance goals for the 2007-2009 performance period were cumulative EVA, which is more fully described on pages 35 and 36 of this Proxy Statement. Performance goals for EVA improvement are recommended by management to the Board and are based upon expectations regarding the targeted growth in these measures over the applicable performance periods. The recommended objectives were consistent with the objectives discussed with the investment community by management for the longer term periods.

 

Actual RSU Awards

 

RSUs Based on 2006-2008 Performance Criteria

 

The Compensation Committee determines final RSU payouts at the first Committee meeting at the beginning of the next fiscal year after the applicable performance period based on performance results for the covered period. The 2006-2008 performance criteria of diluted earnings per share from continuing operations and cash flow from operating activities were achieved during the applicable years, and as a result all of our named executive officers except for Mr. Butler received their full RSU payout for the 2006-2008 performance period. With regard to Mr. Butler, while the performance targets were satisfied, the Committee determined it appropriate to reduce his RSU payout in light of the performance of the operating segments for which he was responsible from 16,000 RSUs to 8,000 RSUs. Actual RSU awards to the named executive officers for the 2006-2008 performance period were settled in January 2009, and due to their three-year, service-based vesting requirements, are reflected in the 2009 Summary Compensation Table and the 2009 Grants of Plan-Based Awards Table below.

 

RSUs Based on 2007-2009 Performance Criteria

 

Due to the extreme turbulence experienced across the world’s economies during 2008 and 2009, our performance during those years was negatively impacted and the long-term incentive goal for the 2007-2009 RSU awards was not met. As a result, none of our named executive officers received any final RSU payout for the 2007-2009 performance period.

 

In accordance with the terms of his employment contract, however, Mr. Claro received a separate RSU payout in 2009. This RSU payout is also reflected in the 2009 Summary Compensation Table and the 2009 Grants of Plan-Based Awards Table below.

 

Stock Ownership Guidelines

 

In addition to the strong performance culture as well as holding periods for RSU grants, in 2007, we established stock ownership guidelines which apply to the named executive officers and certain other RSU plan participants, to encourage the retention of stock acquired through our RSU award program. These guidelines are based on a multiple of an individual’s base salary and were benchmarked against the stock ownership guidelines of similar companies and were also based on the Board’s determination of appropriate share ownership levels based on our compensation system. Under the guidelines, a participant is required to maintain certain share ownership levels of our common stock and is restricted from selling shares held by them until the restrictions have been

met. The share ownership levels (based on fair market value as measured periodically) for each named executive officer are as follows:

 

 

Individuals to whom the stock ownership guidelines apply have five years from the date they are first granted RSUs to comply with the guidelines in light of their recent establishment. All common stock held by the individual, whether acquired as a result of an RSU grant or otherwise, is included in determining whether a named executive officer has achieved the applicable ownership guideline. Stock options are not included in calculating whether the guidelines have been met. Failure to meet the guidelines within the applicable five-year period on the part of an individual could result in such individual being penalized by the Compensation Committee, whether through a reduction in future grants or otherwise.

 

Total Direct Compensation

 

The Compensation Committee believes the pay elements described above are consistent with our compensation philosophy of paying for performance, paying competitively and attracting and retaining key talent. Each pay element is designed to complement the other and reward the achievement of short-term and long-term objectives. In establishing total direct compensation, after review and consideration of market data, our Compensation Committee reviews each aspect of direct compensation (that is, salary, annual bonus and RSU awards) on both an individual component and a combined basis. The Compensation Committee intends that the total direct compensation combination will result in compensation at the market median.

 

Total direct compensation is further intended to be interrelated, such that the positive or negative performance in one area will directly or indirectly affect the performance of the other components. For example, the annual EVA incentive program is directly tied to the level of the individual’s salary because the payment is based on a percentage of salary. Also, as discussed above, the percentage of salary that is received as an annual incentive bonus is a function of the level of achievement of the EVA target and the individual’s target bonus percentage. The level of RSU grants is not a direct function of salary, as target grants are established by our Compensation Committee based on a number of other factors, including the individual’s ability to impact long-term results, his or her performance history and his or her level of salary.

 

During the review of compensation for 2009, which was completed in 2008, and in connection with the preparation of this report, our Compensation Committee did review and take into consideration all aspects of compensation which might be paid to an executive, whenever earned in his or her career.

 

The following table summarizes the direct compensation elements awarded to the named executive officers for the 2009 calendar year. Our performance during 2009 impacted our payouts under both the annual incentive plan and with regard to RSUs. The payouts under the annual incentive plan and with regard to RSUS are further analyzed on pages 34-38 of this Proxy Statement, including with regard to the details of our EVA performance for 2009 shown on pages 35-37 of this Proxy Statement. The RSU award numbers shown below differ from the

numbers shown in the 2009 Summary Compensation Table, as the numbers below reflect the RSU grant that would have been made in January 2010 based on the 2007 — 2009 performance period. As further detailed on page 38 of this Proxy Statement, none of our named executive officers received any final RSU payout for the 2007 — 2009 performance period, except that Mr. Claro received a separate RSU payout in accordance with the terms of his employment offer letter.

 

 

The conversion rate used for amounts included above with respect to Mr. Butler was £1.00 = $1.65.

 

As noted above, our performance during 2009 has impacted our payouts under the annual incentive plan and with regard to RSUs.

 

Proposed Changes to Compensation Plans

 

Long-Term Incentive Program

 

During 2009, the Committee continued its ongoing review of the Company’s long term incentive program as it relates to RSUs. The goal of the review was to bring the program more in line with market practices both from a participation standpoint and from a compensation standpoint. After several meetings throughout the year to review the Company’s program as well as other market plans, the Committee, with agreement from the Board, approved the following changes to the long term incentive plan, effective for the 2010-2012 performance cycle:

 

 

These changes will be effective starting with the 2010-2012 performance cycle.

 

At its February 2010 meeting the Compensation Committee recommended, and the Board subsequently approved, a new long-term equity incentive award for our global leadership team, including the named executive officers, covering the two-year period ending December 31, 2011.

The award is performance-based and payout will only occur if the EVA targets for that two-year period is achieved by us. The EVA performance targets were established by Stern Stewart & Co.

 

The Compensation Committee and the Board granted this award because of their concerns with regard to retention of key executives and senior level employees who will not likely receive long-term incentive payouts for a period of at least three years (in other words, no payout would conceivably be received until 2013), as a result of the significant negative impact our 2009 results will have on the achievement of current and future EVA targets relating to applicable three-year performance periods, which targets are 100% performance based with no time-based award component. The Board felt that without the new two-year program, we would be at a competitive employment disadvantage as compared with companies that base all or a portion of their long-term incentive awards on individual merit or on time-based vesting.

 

The Compensation Committee and the Board also took into account our low share utilization burn rate (.22% average for the three years ending December 31, 2008) and stock overhang (4.28% average for the three year period ending December 31, 2008) for our equity compensation plans when considering the new equity incentive award, and determined that it was very conservative.

 

Annual Incentive Program

 

The Committee also made several changes to the annual incentive program in order for the plan to better reflect several of the Company’s principal goals. The first change is that all participants will have at least 20% of their annual bonus based on the Company’s overall EVA performance. This is in furtherance of the Company’s “One Harsco” philosophy and of our globally integrated organization goals. The second change is that no individual will be entitled to an annual EVA bonus if he or she did not achieve at least a “Meets Objectives” rating on their individual performance appraisal. This is to promote a culture of discipline as well as to pay for performance, including individual performance. In the past, since the annual incentive program is based on EVA goals that may apply at some level of the organization and not at the individual level, it was possible for a participant to receive a bonus payout while having unsatisfactory individual performance. The Committee believes that this is no longer acceptable. These changes will be effective starting with the 2010 performance period.

 

Indirect Compensation Elements

 

We have in place the following broad-based employee benefit plans in which the U.S. executive officers participate on the same terms as U.S. non-executive employees:

 

 

Many of the above benefits are now offered on the same basis to all similarly situated employees (for example, to all U.S. employees). The relative amount of life insurance and disability insurance offered to a named executive officer is a function of the individual’s salary, as is the amount contributed to the individual’s 401(k) account, although that is also a function of the percentage of salary that the individual chooses to contribute to the plan and Internal Revenue Service maximum contribution limitations. In addition, the executive officers, other than Mr. Butler, are eligible to participate in the Supplemental Retirement Benefit Plan (which we refer to as the SERP) as described under the section “Retirement Plans” below, which supplements the qualified

pension plan, and in the non-qualified Retirement Savings and Investment Plan (referred to as the RSIP), which supplements our 401(k) Savings Plan with respect to contributions that could not be made because of Internal Revenue Service compensation and contribution limitations.

 

We also provide other benefits to certain executives including a change in control severance policy described below. Certain named executive officers, namely Messrs. Butler, Fazzolari and Neuffer, are entitled to cars provided by us or a cash allowance alternative, and the Board of Directors has approved a policy regarding the CEO’s personal use of our aircraft. Corporate aircraft are used primarily for business travel and the Board policy includes a limitation on annual personal use unless the additional use is approved by the Lead Director of the Board. The CEO is taxed on the imputed income attributable to personal aircraft use and does not receive tax assistance from us with respect to those amounts. For more information on the perquisites provided and to whom they apply, see the All Other Compensation Table which serves as a supplement to the 2009 Summary Compensation Table.

 

Our philosophy is to position the aggregate of these elements of compensation at a level that is competitive with our size and performance relative to other leading peer companies, as well as a larger group of general industry companies. We further believe that these other aspects of the executive compensation program are reasonable, competitive and consistent with the overall executive compensation program in that they help us attract and retain the best leaders.

 

Potential Payments upon Change in Control and Other Potential Post-Employment Payments

 

Change in Control Severance Agreements

 

On June 21, 2005, the Board of Directors authorized us to amend employment agreements then in place with Messrs. Fazzolari and Butler and one other officer who has since retired, and to enter into similar forms of agreement with certain of our corporate officers, including Messrs. Kimmel and Schnoor (together with Messrs. Fazzolari and Butler, referred to as the Change in Control Officers), which provide that in the event of a change in control, each such officer will remain in our employ for a period of three years from the date of the change in control (or to such officer’s normal retirement date, if earlier), subject to the Change in Control Officers’ right to resign during a thirty-day period commencing one year from the date of the change in control or for good reason. As a result of its reviews and analyses, the Compensation Committee also approved reductions in certain features of our change in control arrangements due to the fact that prior payment levels were no longer consistent with our philosophy regarding severance payments in general, which looks inward and to our overall employee severance arrangements rather than outward and toward a review of peer company policies. The Compensation Committee, following such review, determined that the remaining payment and benefit levels provided for under the change in control and other termination arrangements were consistent with our general severance philosophy. The change in control agreements were further amended in 2008 to ensure their compliance with Internal Revenue Code Section 409A. For more information, see Termination or Change in Control Arrangements and the corresponding tables below.

 

The Compensation Committee believes that the change in control agreements serve the following purposes:

 

 

 

The change in control arrangements are reviewed on a regular basis, but not necessarily as part of the annual compensation review. This is because we generally consider the change in control agreements as compensation elements separate and apart from the other elements of our compensation arrangements. More specifically, the payments or benefits available under the change in control agreements do not have any significant impact on the Compensation Committee’s general compensation decisions relating to salary and incentive payments. Instead, the Compensation Committee considers that the change in control agreements are in place to cover a specific and unlikely circumstance, namely if we are acquired and the executives lose their jobs. In this way, payments and benefits available under the change in control agreements are not viewed by the Compensation Committee as amounts that should impact the compensation amounts awarded on a year-to-year basis to the named executive officers for their ongoing management of the Company.

 

Other Potential Post Employment Payments

 

Upon certain types of terminations of employment not related to a change in control, payments under various Company policies and plans may be paid to the named executive officers. These events and amounts are more fully explained in the Termination or Change in Control Arrangements section below.

 

Policy Regarding Tax Impact on Executive Compensation

 

Deductibility of Executive Compensation

 

Section 162(m) of the Internal Revenue Code generally limits to $1 million the U.S. federal tax deductibility of compensation paid in one year by publicly-traded corporations to the chief executive officer and certain other executives named in the compensation table of the Proxy Statement. Performance-based compensation is not subject to the limits on deductibility of Section 162(m), provided such compensation meets certain requirements, including stockholder approval of material terms of compensation.

 

We intend, to the extent practicable, to preserve deductibility under the Internal Revenue Code of compensation paid to our executive officers while maintaining compensation programs that effectively attract and retain exceptional executives in a highly competitive environment and, accordingly, compensation paid under our incentive compensation plans is generally tax-deductible. However, on occasion it is not possible to satisfy all conditions of the Internal Revenue Code for deductibility and still meet our compensation needs, and in such limited situations, we may choose to pay compensation that would otherwise not be deductible under Section 162(m) if we believe that it is appropriate and in our best interest.

 

Personal Use of Corporate Aircraft

 

In connection with our allowing personal use of our corporate aircraft by certain of our named executive officers, a portion of our related expense is non-deductible under recent changes to U.S. federal income tax law. We treat such personal use as compensation, as reported in the “All Other Compensation” column of the 2009 Summary Compensation Table.

 

The Compensation Committee has reviewed and discussed the Compensation Discussion and Analysis with management. Based on this review and discussion, the Compensation Committee recommended to the Board of Directors that the Compensation Discussion and Analysis be

included in our Annual Report on Form 10-K for the fiscal year ended December 31, 2009 and our Proxy Statement for our 2010 Annual Meeting of Stockholders, for filing with the SEC.

 

SUBMITTED BY THE MANAGEMENT DEVELOPMENT AND COMPENSATION COMMITTEE OF THE BOARD OF DIRECTORS:

 

D. H. Pierce, Chairman

T. D. Growcock

J. I. Scheiner

R. C. Wilburn

 

The foregoing report shall not be deemed to be “soliciting material” or to be “filed” with the SEC or subject to Regulation 14A promulgated by the SEC or Section 18 of the Securities Exchange Act of 1934.

 

The following table presents the compensation provided to our named executive officers for services rendered to us in 2007, 2008 and 2009.

 

 

 

We also provide certain perquisites and other payments or benefits to the named executive officers. The following table summarizes the incremental cost of perquisites and other benefits for the named executive officers in 2009 and describes the other benefits included in the “All Other Compensation” column for 2009.

 

 

 

 

The following table sets forth information concerning plan-based awards to the named executive officers during 2009: