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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Littelfuse, Inc.

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Littelfuse, Inc.

O’Hare Plaza

8755 West Higgins Road, Suite 500

Chicago, Illinois 60631

 

 

Notice of Annual Meeting of Stockholders

 

April 29, 2011

 

The 2011 annual meeting of the stockholders of Littelfuse, Inc. (the “Company”) will be held at Chicago Marriott O’Hare, 8535 West Higgins Road, Chicago, Illinois 60631, on Friday, April 29, 2011 at 9:00 a.m., local time, for the following purposes as described in the attached Proxy Statement:

 

1. To elect seven directors to serve a term of one year or until their successors are elected;

 

2. To approve and ratify the appointment by the Audit Committee of the Board of Directors of the Company of Ernst & Young LLP as the Company’s independent auditors for the fiscal year of the Company ending December 31, 2011;

 

3. To conduct an advisory vote on the compensation of our named executive officers;

 

4. To conduct an advisory vote on the frequency of future advisory votes on the compensation of our named executive officers; and

 

5. To transact such other business as may properly come before the annual meeting or any postponement or adjournment thereof.

 

Stockholders of record of the Company at the close of business on February 28, 2011 will be entitled to vote at the meeting.

 

Please complete, sign, date and return your proxy in the enclosed envelope.

 

Mary S. Muchoney

Secretary

 

March 17, 2011

 

 

 

 

Proxy Statement

for

Annual Meeting of Stockholders

To Be Held On

 

April 29, 2011

 

We are furnishing this Proxy Statement to the stockholders of Littelfuse, Inc. in connection with the solicitation by the Board of Directors of Littelfuse, Inc. (the “Board”) of proxies to be voted at our annual meeting of stockholders to be held on April 29, 2011. The annual meeting will be held at the Chicago Marriott O’Hare, 8535 West Higgins Road, Chicago, Illinois 60631, at 9:00 a.m., local time, and at any postponements or adjournments of that meeting.

 

When used in this Proxy Statement, the terms “we,” “us,” “our,” “the Company” and “Littelfuse” refer to Littelfuse, Inc.

 

Any stockholder giving a proxy will have the right to revoke it at any time prior to the time it is voted. A proxy may be revoked by written notice to us sent to the attention of our Corporate Secretary at O’Hare Plaza, 8755 West Higgins Road, Suite 500, Chicago, Illinois 60631, execution of a subsequent proxy, voting on the Internet or by telephone or attendance at the annual meeting and voting in person. Mere attendance at the annual meeting will not automatically revoke the proxy. All shares represented by effective proxies will be voted at the annual meeting or at any postponements or adjournment thereof.

 

We will bear the cost of soliciting proxies. In addition to solicitation by mail, our officers and employees may solicit proxies by telephone or in person.

 

Under Securities and Exchange Commission rules, this Proxy Statement, our 2010 Annual Report to Stockholders, including our Annual Report on Form 10-K for the fiscal year ended January 1, 2011, and other proxy materials are available online at www.proxyvote.com. We encourage you to access and review all of the important information in the proxy materials before voting. The Notice of Internet Availability of Proxy Materials is first being mailed to stockholders on or about March 17, 2011.

 

The Board of Directors recommends a vote FOR ALL the nominees for director named in Proposal 1, a vote FOR the approval and ratification of the appointment of Ernst & Young LLP as independent auditors as discussed in Proposal 2, a vote FOR the approval of the compensation of our named executive officers as discussed in Proposal 3 and a vote of every 1 YEAR for the frequency of future stockholder votes on the compensation of our named executive officers as discussed in Proposal 4.

 

Forward-Looking Information

 

Statements in this Proxy Statement not based on historical facts are considered “forward-looking” and, accordingly, may involve risks and uncertainties that could cause actual results to differ materially from those discussed. Although such forward-looking statements have been made in good faith and are based on reasonable assumptions, there is no assurance that the expected results will be achieved. These statements include (without limitation) statements as to future expectations, beliefs, plans, strategies, objectives, events, conditions and financial performance. These statements are intended to constitute “forward-looking” statements in connection with the “safe harbor” provisions of the Private Securities Litigation Reform Act of 1995. We are providing this cautionary statement to disclose that there are important factors that could cause actual results to differ materially from those anticipated. See our Annual Report on Form 10-K for the year ended January 1, 2011 (the “2010 Form 10-K”) filed with the Securities and Exchange Commission (the “SEC”) for a list of such factors in Item 1A. “Risk Factors.”

 

Voting

 

Stockholders of record on the books of the Company at the close of business on February 28, 2011, the record date for the annual meeting, will be entitled to notice of and to vote at the meeting. A list of the

stockholders entitled to vote at the meeting will be available for examination by any stockholder for any purpose germane to the meeting during ordinary business hours for a period of at least ten days prior to the meeting at our headquarters located at O’Hare Plaza, 8755 West Higgins Road, Suite 500, Chicago, Illinois 60631 and at Wells Fargo Bank, N.A., our transfer agent, at 161 North Concord Exchange South, St. Paul, Minnesota 55075. On February 28, 2011, we had outstanding 21,907,140 shares of our common stock, par value $.01 per share. Each outstanding share of common stock entitles the holder to one vote on each matter submitted to a vote at the meeting.

 

The shares represented by proxies will be voted as directed in the proxies. In the absence of specific direction, the shares represented by proxies will be voted FOR ALL of the nominees for director, for the approval and ratification of the appointment of Ernst & Young LLP as independent auditors, FOR the approval of the compensation of our named executive officers and for a frequency of every 1 YEAR for future stockholder votes on the compensation of our named executive officers. In the event any nominee for director is unable to serve, which is not now contemplated, the shares represented by proxies may be voted for a substitute nominated by the Board. If any matters are to be presented at the annual meeting other than the matters referred to in this Proxy Statement, the shares represented by proxies will be voted at the discretion of the named proxies.

 

Our bylaws provide that a majority of all of the shares of common stock entitled to vote, whether present in person or represented by proxy, constitutes a quorum for the transaction of business at the meeting. Votes for and against, abstentions and “broker non-votes” will each be counted as present for purposes of determining the presence of a quorum. To determine whether a specific proposal has received sufficient votes to be passed, for shares deemed present, an abstention will have the same effect as a vote “against” the proposal, while a broker non-vote will not be included in vote totals and will have no effect on the outcome of the vote. The affirmative vote by the holders of a majority of the shares present (whether in person or by proxy) at the meeting will be required for the ratification of Ernst & Young LLP as independent auditors. With respect to the election of directors, the seven nominees who receive the most votes at the meeting will be elected. With respect to approval of the compensation of our named executive officers, the affirmative vote by the holders of a majority of the shares present (whether in person or by proxy) at the meeting will be required to approve the proposal. With respect to the proposal regarding the frequency of future stockholder votes on the compensation of our named executive officers, the option that acquires a plurality of the vote will be considered the frequency selected by our stockholders. The stockholder votes with respect to approval of the compensation of our named executive officers and regarding the frequency of future stockholder votes on the compensation of our named executive officers are advisory in nature and will not be binding on the Company. However, our Board of Directors and our Compensation Committee value the opinions of our stockholders and will consider the outcomes of the advisory votes when making future decisions regarding executive compensation.

Ownership of Littelfuse, Inc. Common Stock

 

The following table sets forth certain information with respect to the beneficial ownership of our common stock as of February 28, 2011, by each person known by us to be the beneficial owner of more than 5% of our outstanding common stock, by each director, by each executive officer named in the Summary Compensation Table and by all of our directors and executive officers as a group. Information concerning persons known to us to be beneficial owners of more than 5% of our common stock is based upon the most recently available reports furnished by such persons on Schedule 13G as filed with the SEC. Of the shares reported, none are subject to pledge or lien in a margin account or pursuant to a loan agreement.

 

 

 

 

Section 16(a) Beneficial Ownership Reporting Compliance

 

Section 16(a) of the Securities Exchange Act of 1934, as amended (the “Exchange Act”) requires our executive officers, directors and holders of more than 10% of our common stock to file with the SEC initial reports of ownership and reports of changes in ownership of our common stock and other equity securities. Based solely on our review of the copies of these reports and on information provided by the reporting persons, we believe that during the fiscal year ended January 1, 2011, our directors, executive officers and owners of more than 10% of our common stock complied with all applicable filing requirements.

 

Proposal No. 1

 

Election of Directors

 

We are asking our stockholders to elect seven directors at the annual meeting to serve a term of one year or until their successors have been elected. The nominees for director, all of whom are now serving as directors, are listed below together with certain biographical information as of March 17, 2011.

 

The Board of Directors recommends that the stockholders vote FOR ALL of the nominees listed below as directors.

 

Tzau-Jin (T. J.) Chung, age 48, has been a director of Littelfuse since July 2007. Mr. Chung is President and CEO of Navman Wireless, a market leader in fleet management solutions and GPS technologies. Mr. Chung assumed his position in early 2007 upon the acquisition of Navman Wireless from the New Technologies Division of Brunswick Corporation. Previously, Mr. Chung served as President of the New Technologies Division of Brunswick Corporation from 2002 to 2007. Prior to that, he served as Vice President — Strategy of Brunswick Corporation, where he was responsible for corporate-wide strategic planning, mergers and acquisition and information technology. Mr. Chung earned his bachelor’s degree in science, electrical and computer engineering from the University of Texas — Austin. He also holds a Master of Science degree in computer science from North Carolina State University and a Master of Business Administration degree from the Fuqua School of Business at Duke University. Mr. Chung has been determined by the Board to be “independent” under the listing standards of the Nasdaq Global Select Market (“NASDAQ”). In nominating Mr. Chung for election as a director, our Board focused on his past experience in developing new products and his experience with operations in Asia as important attributes for his continuing to serve as one of our directors.

 

John P. Driscoll, age 75, has been a director of Littelfuse since February 1998. Mr. Driscoll has been President of Jack Driscoll Enterprises, Inc., a management consulting firm, since 1998. In June 1998, Mr. Driscoll retired as Executive Vice President of Murata Electronics North America, Inc. where he was responsible for corporate policy and strategy and oversaw government and industry relations. Mr. Driscoll joined Murata Electronics in 1979 as Vice President of Marketing and Sales, was appointed Senior Vice President Marketing and Sales in 1985 and assumed the position of Executive Vice President in 1995. Mr. Driscoll is a former Vice President of the Components Group of the Electronic Industry Alliance, and a twenty-year member of its Board of Governors. He was also affiliated with the Electronics Component and Technology Conference and the Japan American Society. Mr. Driscoll has been determined by the Board to be “independent” under NASDAQ listing standards. In nominating Mr. Driscoll for election as a director, our Board waived for one year the mandatory retirement age of 75 for members of the Board and focused on his past experience with sales and distribution in the electronics industry, his ability to work well with all of the members of the Board and the knowledge of the Company that he has gained and shared from serving as a director since 1998 as important attributes for his continuing to serve as one of our directors.

 

Anthony Grillo, age 55, has been a director of Littelfuse since December 1991. Mr. Grillo is the founder and Chief Executive Officer of American Securities Advisors, LLC, an advisory and investment firm established in 2005. Mr. Grillo also serves as Chairman of the Board of The Rutgers University Foundation. From January 2005 through September 2005, Mr. Grillo served as Chief Executive Officer of CricketHill Associates, LLC, a boutique advisory firm providing financial advisory services to distressed companies. From 2001 through 2004, Mr. Grillo was a Senior Managing Director of Evercore Partners, Inc., an investment banking boutique providing advisory services to multinational corporations on significant mergers, acquisitions, divestitures, restructurings and other strategic corporate transactions, where he founded the restructuring practice for the firm. From 1999 through 2001, Mr. Grillo was a Senior Managing Director of Joseph Littlejohn & Levy, Inc., a private equity firm. From 1991 through 1999, Mr. Grillo was a Senior Managing Director of the Blackstone Group L.P., an investment banking firm. During those years, Mr. Grillo was the co-founder of Blackstone’s Restructuring and Reorganization Group, Chief Operating Officer of the firm’s mergers and acquisition practice and a member of its Investment Committee. Mr. Grillo served as Chairman of the Board of Silicon Graphics, Inc. and as the Chairman of its Compensation Committee. Mr. Grillo has been determined by the Board to be “independent” under NASDAQ listing standards. In nominating Mr. Grillo for

election as a director, our Board focused on his past experience in the financial markets, his experience with corporate acquisitions, his value as an audit committee financial expert and the knowledge of the Company that he has gained and shared from serving as a director since 1991 as important attributes for his continuing to serve as one of our directors.

 

Gordon Hunter, age 59, has been a director of Littelfuse since June 2002 and became our Chairman of the Board, President and Chief Executive Officer in January 2005. Mr. Hunter became our Chief Operating Officer in November 2003. Prior to joining Littelfuse, Mr. Hunter was Vice President, Intel Communications Group, and General Manager, Optical Products Group. Mr. Hunter was responsible for managing Intel’s access and optical communications business segments within the Intel Communications Group. Prior to joining Intel in February 2002, he served as President of Elo TouchSystems, a subsidiary of Raychem Corporation. Mr. Hunter also served in a variety of positions during a 20-year career at Raychem Corporation, including Vice President of Commercial Electronics and a variety of sales, marketing, engineering and management positions. Mr. Hunter currently serves on the Council of Advisors of Shure Incorporated, the Board of Directors of Veeco Instruments, Inc., where he serves on the Compensation Committee and the Strategic Planning Committee, and recently was elected to the Board of Directors of CTS Corporation. Mr. Hunter holds a BS in electrical engineering from the University of Liverpool, England, and an MBA from London Business School. In nominating Mr. Hunter for election as a director, our Board focused on his leadership, vision and execution as our Chief Executive Officer in growing and reshaping the Company and setting and communicating the proper cultural and behavioral tone as important attributes for his continuing to serve as one of our directors.

 

John E. Major, age 65, has been a director of Littelfuse since December 1991. Mr. Major has been President of MTSG, a strategic consulting and investments company, since 2003. From 2003 to 2006, he served as CEO of Apacheta Corporation, a mobile wireless software company whose products are used to manage inventory and deliveries. From 2000 through 2003, he was Chairman and CEO of Novatel Wireless Inc., which provides wireless data access solutions for PDAs and notebook PCs. From 1998 through 1999, Mr. Major was Chief Executive Officer of Wireless Knowledge, a QUALCOMM and Microsoft joint venture that developed a unique solution to allow all Internet-enabled devices, including cell phones, to access critical corporate information such as email, contacts and calendar entries in a convenient and secure manner. Before joining Wireless Knowledge in 1998, Mr. Major served as Corporate Executive Vice President of QUALCOMM, Inc. and President of its Wireless Infrastructure Division, where he managed the high growth rate and global expansion of the company’s infrastructure business. Under his leadership, the division achieved a leading position in open interface, wireless systems and developed a new line of extremely compact base stations. Prior to joining QUALCOMM in 1996, Mr. Major served as Senior Vice President and Staff Chief Technical Officer at Motorola, Inc, where he directed a broad range of research initiatives and led Motorola’s efforts to develop world-class excellence in software. Mr. Major received a B.S. in Mechanical and Aerospace Engineering from the University of Rochester, an M.S. in Mechanical Engineering from the University of Illinois, an M.B.A. from Northwestern University and a J.D. from Loyola University. Mr. Major holds ten U.S. patents. Mr. Major serves as the Chairman of the Board of Directors of Broadcom Corporation and as a member of the Board of Directors of Lennox International Inc. and ORBCOMM, Inc. Mr. Major also previously served on the Board of Directors of Verilink Corporation until 2008. Mr. Major participates in several industry, research and educational organizations, including the Board of Governors’ Executive Committees of the Telecommunications Industry Association (TIA) and the Electronic Industries Association (EIA). He is a past chairman of both organizations. He serves on the University of California President’s Board on Science and Innovation, the Dean’s Advisory Committee of the University of Rocheseter Hajim School of Engineering and Applied Science and as Chairman of the University of Illinois at Chicago-Engineering School Advisory Board. Mr. Major also serves as Chairman of the Board of CommNexus, a nonprofit telecom industry group. Mr. Major has been determined by the Board to be “independent” under NASDAQ listing standards. In nominating Mr. Major for election as a director, our Board focused on his seasoned experience from having served as an executive officer and on the boards and board committees of varied technology companies, his vision and expertise in matters of corporate governance, his expertise in technical development and the knowledge of the Company that he has gained and shared as a director since 1991 as important attributes for his continuing to serve as one of our directors.

William P. Noglows, age 53, has been a director of Littelfuse since February 2007. Mr. Noglows is Chairman, President and Chief Executive Officer of Cabot Microelectronics Corporation (NASDAQ:CCMP), a leading worldwide supplier of consumable products used in the semiconductor manufacturing process. Mr. Noglows assumed his current position at Cabot Microelectronics Corporation in 2003. Prior to that, he was an Executive Vice President and General Manager at Cabot Corporation. Mr. Noglows was a primary founder of Cabot Microelectronics, which has been a fully independent, publicly-traded entity since 2000. While at Cabot Corporation, Mr. Noglows was responsible for identifying and encouraging the development of the CMP application. He received a bachelor’s degree in chemical engineering from the Georgia Institute of Technology. Mr. Noglows has been determined by the Board to be “independent” under NASDAQ listing standards. Mr. Noglows also serves on the Board of Directors of Aspen Aerogels, Inc. In nominating Mr. Noglows for election as a director, our Board focused on his experience as chief executive officer of a leading public company and his expertise in developing technology as important attributes for his continuing to serve as one of our directors.

 

Ronald L. Schubel, age 67, has been a director of Littelfuse since June 2002. In September 2007, Mr. Schubel retired as Corporate Executive Vice President and President of the Americas Region for Molex Incorporated, a global manufacturer of interconnect systems. He began his career with Molex in 1981, spending four years in Singapore as President of the Far East South Region. Prior to joining Molex, Mr. Schubel worked for General Motors for 15 years. His last position with General Motors was Director of Operations for the Packard Electronics Division. Mr. Schubel has been determined by the Board to be “independent” under NASDAQ listing standards. In nominating Mr. Schubel for election as a director, our Board focused on his knowledge of managing manufacturing operations and his experience with operations in Asia as important attributes for his continuing to serve as one of our directors.

 

Information Concerning the Board of Directors and Its Committees

 

Compensation of Directors.  Directors who are not our employees are paid an annual retainer of $40,000, $1,500 for each committee meeting attended in person and $1,000 for each committee meeting attended by teleconference, plus reimbursement of reasonable expenses relating to attendance at meetings. In addition, our Lead Director is paid an additional annual retainer of $7,500, the chairperson of the Audit Committee and the Compensation Committee are each paid an additional annual retainer of $10,000, and the chairperson of the Nominating and Governance Committee and the Technology Committee are each paid an annual retainer of $5,000. No additional fees are paid to directors who are also our full-time employees.

 

In addition to cash compensation, each non-employee director receives a grant of equity under the Littelfuse, Inc. Long-Term Incentive Plan (the “Long-Term Plan”) comprised of one-third options and two-thirds restricted stock units upon his or her election or reelection to the Board at the Company’s Annual Meeting of Stockholders. The value of the annual grant of equity is equal to $90,000 based on the price of the Company’s common stock on the date of grant and in accordance with the grant fair values under ASC Topic 718. The stock options and restricted stock units vest ratably over three years. The stock options have an exercise price equal to the fair market value of our common stock on the date of grant and have a seven-year term. The restricted stock units entitle the director to receive one share of common stock per unit upon vesting. On April 30, 2010, Messrs. Chung, Driscoll, Grillo, Major, Noglows and Schubel were each granted 1,724 options to purchase shares of common stock and 1,424 restricted stock units.

 

Under the Littelfuse Deferred Compensation Plan for Non-employee Directors (the “Non-employee Directors Plan”), a non-employee director, at his election, may defer receipt of his cash director’s fees. Such deferred fees are used to purchase shares of our common stock, and such shares and any distributions on those shares are deposited with a third party trustee for the benefit of the director until the director ceases to be a director of Littelfuse. In 2010, only Mr. Chung and Mr. Schubel elected to defer receipt of cash directors’ fees and be compensated in common stock under the Non-employee Directors Plan.

The following table sets forth compensation paid to all persons who were non-employee directors at any time during 2010:

 

2010 Director Compensation Table

 

 

 

 

In February 2011, the Board of Directors adopted a new compensation policy for outside directors, which was substantially similar to the design of the previous policy. Directors who are not our employees now will be paid an annual retainer of $58,000 plus reimbursement of reasonable expenses relating to attendance at meetings. There will be no additional fees for attendance at meetings. In addition, our Lead Director will be paid an additional annual retainer of $10,000, the chairperson of the Audit Committee will be paid an additional annual retainer of $18,000, the chairperson of the Compensation Committee will be paid an additional annual retainer of $15,000, the chairperson of the Nominating and Governance Committee will be paid an annual retainer of $7,500 and the chairperson of the Technology Committee will be paid an annual retainer of $5,000. No additional fees will be paid to directors who are also our full-time employees. Non-employee directors will continue to receive a grant of equity under the Long-Term Plan (the “Long-Term Plan”) equal to comprised of one-third options and two-thirds restricted stock units upon his or her election or

reelection to the Board at the Company’s Annual Meeting of Stockholders. In 2011, the value of the annual grant of equity will be equal to $80,000 based on the value as determined by the Compensation Committee’s independent consultant, which reflects discounts associated with the risk of forfeiture. This change in valuation approach was made to be consistent with the approach used for determining equity grant levels for the executive group, and the new level of equity grant represents an increase of approximately 10% versus the previous grant level.

 

Stock Ownership Policy

 

In February 2011, the Board of Directors adopted a stock ownership policy that requires our executive officers and directors to hold and maintain a certain number of shares of common stock of the Company. Each non-employee director is required to hold a number of shares equal to five times (5X) the amount of the annual retainer. All new directors have five years from the date of election or appointment to satisfy their required stock ownership level. Until such time as a director achieves the required stock ownership level, such director is required to retain 50% of the “net shares” of common stock realized from any equity awards granted by the Company. “Net shares” are those shares that remain after shares are sold or withheld to pay withholding taxes and the exercise price of stock options, if applicable. Failure of a director to satisfy the applicable stock ownership level within the required compliance period may result in such director being ineligible to receive their annual equity award or being subject to a 100% retention requirement. All of our directors are in compliance with the guidelines and requirements set forth in our newly adopted stock ownership policy.

 

Attendance at Meetings.  The Board held eight meetings during fiscal year 2010. All of the directors attended 100% of the meetings of the Board and the committees on which they served. It is our policy that all of the directors attend our annual meeting of stockholders, and all directors attended the 2010 annual meeting.

 

Independent members of our Board regularly meet in executive session without management present. Stockholders wishing to communicate directly with the Board or individual directors should communicate in writing to our Corporate Secretary at our principal executive offices. Our Corporate Secretary will in turn promptly forward such communication to the directors.

 

Board Leadership Structure and Role in Risk Oversight.  Our Chief Executive Officer, Gordon Hunter, also serves as the Chairman of the Board of Directors. Additionally, Ronald L. Schubel serves as the independent Lead Director. Among other things, the Lead Director convenes and chairs regular and special executive sessions of the independent directors and serves as liaison between the independent directors and our CEO and Chairman of the Board. We believe that our leadership structure allows the Board to have better control of the direction of management, while still retaining independent oversight. In understanding our structure, it is important to remember that Mr. Hunter served as a director of Littelfuse before serving as an executive officer.

 

The Board’s role in our risk oversight process includes receiving regular reports from members of management on areas of material risk to the Company, including operational, financial, legal and regulatory, compensation and strategic risks. The full Board or the appropriate committee receives these reports from management to enable it to understand our risk identification, risk management and risk mitigation strategies. When a committee receives the report, the chairman of the relevant committee reports on the discussion to the full Board during the committee reports portion of the next Board meeting. This enables the Board and its committees to coordinate the risk oversight role, particularly with respect to risk interrelationships.

 

We reviewed our compensation policies and practices to assess whether such policies and practices as they relate to the Company’s employees were reasonably likely to have a material adverse effect on the Company. This assessment was made by the General Counsel and Vice President, Human Resources and senior members of the Company’s human resources department in consultation with outside counsel. Where appropriate, the General Counsel and Vice President, Human Resources and the senior members of the Company’s human resources department sought input from the Compensation Committee’s compensation consultant, the Company’s accounting and financial staff and other senior management. We concluded that any

risks arising from our policies and programs are not reasonably likely to have a material adverse effect on the Company. Our programs reflect sound risk management practices including:

 

 

Audit Committee.  The Audit Committee of the Board (the “Audit Committee”) is responsible for, among other things, the appointment, compensation, retention and oversight of the work of the independent registered public accounting firm engaged (including resolution of disagreements between management and the auditor regarding financial reporting) for the purpose of preparing or issuing an audit report or performing other audit, review or attest services for the Company. It is also the responsibility of the Audit Committee to (1) review the adequacy and effectiveness of the accounting and financial controls and procedures of the Company and (2) review transactions posing a potential conflict of interest between us and our directors, officers and affiliates. A copy of the Audit Committee Charter is available on our website at www.littelfuse.com. The Audit Committee met seven times in 2010. Members of the Audit Committee are Anthony Grillo, the Chairman of the Audit Committee, John E. Major and Ronald L. Schubel, each of whom has been deemed by the Board to be “independent” and to meet the enhanced requirements for audit committee members under the NASDAQ rules and listing standards and the rules and regulations of the SEC. The Board has determined that Anthony Grillo is an “audit committee financial expert” as defined by the SEC based on his prior experience as a certified public accountant, investment banker and private equity investor.

 

Nominating and Governance Committee.  It is the responsibility of the Nominating and Governance Committee of the Board (the “Nominating and Governance Committee”) to identify individuals qualified to serve on our Board and to recommend those individuals the Board should nominate for election at our annual meeting of stockholders. The Board has adopted a charter for the Nominating and Governance Committee. A copy of that charter is available on our website at www.littelfuse.com. The Nominating and Governance Committee met three times during 2010. The Nominating and Governance Committee reviewed the performance of all of the current members of the Board and determined and recommended to the Board that all of the current directors should be nominated for re-election. In making this recommendation, consideration was given to matters such as attendance at meetings, preparation for meetings, input at meetings, interaction with other Board members, and other tangible and intangible benefits their service as directors brought to us. No other candidates were recommended or evaluated. Members of the Nominating and Governance Committee are John E. Major, the Chairman of the Nominating and Governance Committee, John P. Driscoll and William P. Noglows, each of whom has been deemed by the Board to be independent under NASDAQ listing standards.

 

Director Qualification Standards.

 

The Nominating and Governance Committee, in considering a person for a nominee as a director, takes into consideration such factors as it deems appropriate, including the following:

 

 

 

The Nominating and Governance Committee will consider nominees for the Board recommended by stockholders, using the same evaluation process as for any other candidate. Recommendations should be submitted to the Corporate Secretary at our principal executive offices or directly to any member of the Nominating and Governance Committee. Any recommendation must include:

 

 

To be considered by the Nominating and Corporate Governance Committee for nomination and inclusion in our proxy statement for the 2012 Annual Meeting, stockholder recommendations for director must be received by us no later than November 16, 2011. Each stockholder recommendation must include the name and address of the nominating stockholder and the number of shares owned beneficially and of record by such stockholder.

 

Technology Committee.  It is the responsibility of the Technology Committee of the Board (the “Technology Committee”) to review our research and development activities and ensure we maximize the use of appropriate technology throughout the organization. The Board has adopted a charter for the Technology Committee, which is available on our website at www.littelfuse.com. The Technology Committee met four times in 2010. Members of the Technology Committee are Gordon Hunter, the Chairman of the Technology Committee, T. J. Chung, John E. Major and Ronald L. Schubel.

 

Compensation Committee.  The charter for the Compensation Committee of the Board (the “Compensation Committee”) is posted on our website at www.littelfuse.com. The Compensation Committee is charged in the charter with the authority to review our compensation practices and policies, review and recommend to the Board for its consideration and determination the compensation for the directors, Chief Executive Officer and the other executive officers, evaluate Chief Executive Officer performance, and annually review and report on our compensation discussion and analysis and recommend its inclusion in our Form 10-K and Proxy Statement. The Compensation Committee held seven meetings in 2010. The members of the Compensation Committee are John P. Driscoll, the Chairman of the Compensation Committee, T.J. Chung and William P. Noglows, each of whom has been deemed by the Board to be independent under NASDAQ listing standards. See the “Compensation Committee Report” below.

 

Processes and Procedures.

 

The Compensation Committee focuses on good governance practices and procedures in its operation. In 2010, this included:

 

 

Delegation of Authority.

 

The Compensation Committee charter does not provide authority to the Compensation Committee to delegate its role and responsibilities to any persons.

 

Role of Executive Officers.

 

A discussion of the role of management in determining compensation levels can be found in this Proxy Statement under “Executive Compensation — Compensation Discussion and Analysis.”

 

Role of Compensation Consultant.

 

The Compensation Committee continued to engage Compensation Strategies, Inc. during the 2010 fiscal year to assist it with compiling a comprehensive analysis of market data and analyzing its implications for executive compensation at the Company, as well as various other executive compensation issues. Compensation Strategies, which was first engaged by the Compensation Committee in August 2007, provided the following services in 2010: (1) provided a competitive review of executive compensation levels for 2010; (2) reviewed our annual bonus and long-term incentive programs; (3) reviewed the perquisites available to our executives versus the competitive market; (4) reviewed the executive compensation philosophy; (5) provided a competitive review of director compensation; and (6) provided a share ownership guideline review. Compensation Strategies continued to work with the Compensation Committee throughout the year with respect to these issues and as requested by the Compensation Committee.

 

Compensation Committee Interlocks and Insider Participation

 

William P. Noglows, T.J. Chung and John P. Driscoll served on the Compensation Committee during fiscal year 2010. None of our executive officers served as a member of the Compensation Committee, or on a board of directors performing equivalent functions, of any entity that had one or more of its executive officers serving as a director or member of our Compensation Committee.

 

Executive Compensation

 

Compensation Discussion and Analysis

 

This section provides information regarding the compensation and benefit programs in place for our Chief Executive Officer, Chief Financial Officer and our three other most highly compensated executive officers (collectively, the “named executive officers”) for the 2010 fiscal year, namely:

 

1. Mr. Gordon Hunter, Chairman of the Board, President and Chief Executive Officer, has seven years of service with Littelfuse.

 

2. Mr. Philip G. Franklin, Vice President, Operations Support, Chief Financial Officer and Treasurer, has 12 years of service with Littelfuse.

 

3. Mr. David W. Heinzmann, Vice President of Global Operations, has 26 years of service with Littelfuse.

 

4. Mr. Ryan K. Stafford, General Counsel and Vice President, Human Resources, has four years of service with Littelfuse.

 

5. Mr. Dal Ferbert, Vice President and General Manager of our Electrical Business Unit, has 34 years of service with Littelfuse.

 

Executive Summary

 

Under the recently enacted Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010, our stockholders are entitled to cast an advisory vote to approve the compensation of our named executive officers as disclosed in this Proxy Statement.

As described below, our executive compensation programs are designed to align the interests of our executives with those of our stockholders, by rewarding performance that meets or exceeds established corporate and individual performance goals. Company performance is based on the achievement of specified financial objectives applicable to each named executive officer, which include sales, earnings per share and cash from operations, as well as performance measurements of the areas within the scope of authority of the named executive officer; whereas, individual performance is based on each named executive officer’s achievement of specified individual performance objectives.

 

The compensation of our named executive officers during fiscal year 2010 reflects our financial performance:

 

1. Net sales increased in fiscal year 2010 to $608.0 million, compared to $430.1 million in 2009, reflecting strong growth in all market segments and geographies;

 

2. Sales in our Automotive business segment increased $31.8 million or 32% to $130.3 million;

 

3. Sales in our Electronics business segment increased $126.9 million or 48% to $389.9 million;

 

4. Sales in our Electrical business segment increased $19.2 million or 28% to $87.8 million;

 

5. Gross profit was $233.9 million or 38.5% of sales in 2010, compared to $125.4 million or 29.1% of sales in 2009; and

 

6. Income before income taxes was $107.7 million in 2010 compared to $10.8 million in 2009.

 

Our executive compensation program is designed to pay for performance. In fiscal year 2010, 80% of our annual incentive awards paid to our named executive officers was directly performance-based and 20% were tied to individual goals that promote value to the Company. In addition, a significant portion of our executive compensation program consists of long-term compensation subject to long-term vesting requirements.

 

The Compensation Committee continually reviews the compensation programs for our named executive officers to ensure they achieve the desired goals of aligning our executive compensation structure with our stockholders’ interests and current market practices. We have programs that align the compensation of our executives with the interests of our stockholders and manage compensation risk, including stock ownership guidelines, an independent Compensation Committee and the use of an independent compensation consultant.

 

We are asking our stockholders to indicate their support for our named executive officer compensation as described in this Proxy Statement under Proposal No. 3, which allows our stockholders the opportunity to express their views on our named executive officers’ compensation. This vote is not intended to address any specific item of compensation, but rather the overall compensation of our named executive officers and the philosophy, policies and practices described in the Compensation Discussion and Analysis, the executive compensation tables, and the accompanying narrative as presented in this Proxy Statement.

 

Total Rewards Philosophy

 

The Compensation Committee is responsible for guiding and overseeing the formulation and application of the compensation and benefit programs for our named executive officers. Our Total Rewards Philosophy for executive compensation is designed to drive performance in the form of global business growth and success by fully leveraging our investment in our human capital to create stockholder value. To achieve our goals, we must attract and retain individuals with the appropriate expertise and leadership ability, and we must motivate and reward them to build long-term stockholder value.

 

The Compensation Committee has worked with our management and the Compensation Committee’s compensation consultant to design compensation programs with the following primary objectives:

 

 

 

The design of our specific programs is based on the following guiding principles:

 

Performance

 

We believe that the best way to accomplish alignment of compensation with the interests of our stockholders is to link a significant portion of total compensation directly to meeting and exceeding individual, business unit and overall Company performance goals. When performance exceeds expectations, total pay levels are expected to be above the competitive median. When performance falls below expectations, total pay levels are expected to be below competitive levels.

 

Competitiveness

 

Compensation and benefit programs are designed to be competitive with those provided by companies with whom we compete for talent. Generally, we target the 50th percentile of the total compensation programs of competitor companies, adjusted for an executive’s operating responsibilities, management level, and tenure and performance in the position. In order to help us analyze the competitiveness of our compensation programs, we developed a reference group in October 2007, which was reviewed in November 2010, as discussed in more detail below in “Total Rewards Philosophy — Competitive Analysis.” Our health and welfare benefit programs are designed to provide competitive levels of protection and financial security but are not based on performance.

 

Cost

 

Compensation and benefit programs are designed to be cost effective, ensuring that the interests of our stockholders are considered.

 

The Annual Compensation Process

 

The Compensation Committee reviews industry data and performance results presented by its compensation consultant in determining the appropriate aggregate and individual compensation levels for the year. In conducting its review, the Compensation Committee considers quantitative performance results, the overall need of the organization to attract, retain and motivate the executive team, and the total cost of compensation programs. The Compensation Committee also reviews information showing the executive’s total target and actual compensation during the year. The amount of compensation already realized or potentially realizable, however, does not determine the level at which future pay opportunities may be set.

 

The Compensation Committee reviews base salaries in the fall, with any changes to be effective February 1 of the following year. This process aligns the timing of annual executive salary adjustments with the timing of adjustments for all other employees. The benefits payable under the Littelfuse, Inc. Annual Incentive Plan (the “Annual Incentive Plan”) for the preceding year, if any, and the terms of the program for the current year generally are established in January or February of each year. Before 2008, stock options and performance share/unit awards were granted in April or May of each year at the regularly scheduled meetings of the Compensation Committee and the full Board held in connection with our Annual Meeting of Stockholders. In 2008, however, performance share/unit awards were granted before the end of March so that they could qualify as “performance-based compensation” within the meaning of Section 162(m) (“Section 162(m)”) of the Internal Revenue Code of 1986, as amended (the “Code”). Stock options and restricted stock (please see discussion below in the section entitled “Equity Compensation”) continued to be granted at the meetings of the Compensation Committee and the full Board held in connection with our Annual Meeting of Stockholders. In 2009, following a review of the performance share/unit awards, the Compensation Committee decided to cease issuing performance share/unit awards due to the ineffectiveness of the grants in achieving the desired objectives (reflected in the fact that previous awards had paid out in only two of the previous 12 years), the complexity of managing the program and the difficulty in setting three-year targets in the midst of the economic downturn during 2009. In 2010, the Compensation Committee decided to replace

the grant of restricted stock with restricted stock units. These restricted stock units are settled for shares of common stock and are subject to the same vesting requirements as our restricted stock. Since we establish the meeting schedule and agenda for our grants well in advance, there is no opportunity for manipulation of exercise prices on option grants if we are in possession of non-public information at the time of the meetings. Approval of grants for any newly-hired or promoted executives during the course of the year generally occurs at the Compensation Committee meeting immediately following the hiring or promotion, as applicable.

 

Competitive Analysis

 

Competitive compensation levels for our Chief Executive Officer and other named executive officers are established through, among other methods, the use of data obtained from the Compensation Committee’s compensation consultant. These analyses include base salary, annual incentive opportunities and long-term incentive opportunities for comparable companies. In October 2007 with the advice of our compensation consultant, we adopted an industry reference group as a source to evaluate compensation levels. The Compensation Committee again reviewed the members of the reference group based on information provided by the compensation consultant and determined it was appropriate to maintain the same members for 2010. The reference group consists of 17 publicly-traded companies of reasonably similar size to us in the electronic equipment/electronic manufacturing services industry, the electronic components and equipment industry and the semiconductor/semiconductor equipment and manufacturing industry, representing different segments of our business. The companies included in the reference group are set forth below:

 

 

The raw data derived from each company in the reference group is size-adjusted to approximate our revenues for the corresponding fiscal year. The total compensation for our named executive officers is generally targeted at the 50th percentile of the adjusted data specific to each position. In some instances, however, we provide compensation above or below the 50th percentile for a particular element and/or for a particular position, based on internal factors, including the executive’s operating responsibilities, management level, possible differences in compensation standards in the representative industries, the focus of our Total Rewards Philosophy, and tenure and performance in the position.

 

Allocation between Cash and Non-Cash Compensation and Current and Long-Term Compensation

 

We believe that both cash components and non-cash components are appropriate mechanisms for delivering compensation. Cash compensation is used as current compensation (i.e., base salary and annual

incentive awards), while non-cash compensation (i.e., stock options, performance shares/units, restricted stock and restricted stock units) is generally used for long-term compensation. The allocation between cash and non-cash compensation is an outcome of our targeted competitiveness for individual program elements, including salary, annual incentive compensation and long-term incentive grants, and our practice with respect to allocating between the different types of long-term incentive grants. The mix of compensation ultimately realized by the executives is determined by a combination of individual, team and Company-wide performance over time.

 

The allocation between current and long-term compensation is based primarily on competitive market practices relative to base salaries, annual incentive awards and long-term incentive values, as opposed to a targeted allocation between current and long-term pay. We also consider certain internal factors that may cause us to target a particular element of an executive’s compensation differently. These internal factors may include the executive’s operating responsibilities, management level and tenure and performance in the position. We consider the total compensation to be delivered to individual executives, and as such exercise discretion in determining the portion allocated to annual and long-term incentive opportunity. We believe that this “total compensation” approach provides the ability to align pay decisions with the short-term and long-term needs of the business and the interests of our stockholders. It also allows for the flexibility needed to recognize differences in performance by providing differentiated pay.

 

Management’s Role

 

The key elements of management’s role in determining compensation levels for the named executive officers are as follows:

 

 

The Independent Consultant

 

The Compensation Committee has the authority under its charter to engage the services of outside advisors to assist in carrying out its duties. Under this authority, the Compensation Committee retained Compensation Strategies, Inc. in August 2007 to assist in the structuring of executive compensation for 2008. The Compensation Committee has continued to use Compensation Strategies, Inc. for assistance and reference with regards to executive compensation through 2009 and 2010 and into 2011. Compensation Strategies did not provide any other services to us in 2010. As mentioned above, in 2010 Compensation Strategies reviewed our annual bonus and long-term incentive programs; reviewed the perquisites available to our executives versus the competitive market; reviewed our executive compensation philosophy; provided a competitive review of director compensation; and provided a share ownership guideline review. The compensation consultant also

provided competitive compensation data regarding the peer group to the Compensation Committee in November 2010 for the formulation of executive compensation in 2011.

 

Impact of Accounting and Tax Issues on Executive Compensation

 

In setting each executive’s compensation levels, we do not have a stated policy that all compensation must be deductible. The Compensation Committee will consider various alternatives to preserving the deductibility of compensation payments and benefits to the extent reasonably practicable and to the extent consistent with our other compensation goals. The Compensation Committee and the Board analyze the overall expense arising from aggregate executive compensation levels and awards and the components of our pay programs. Section 162(m) places a limit of $1,000,000 on the amount of compensation that we may deduct in any one year with respect to our Chief Executive Officer and our three other most highly compensated officers, other than the principal financial officer. Compensation that qualifies as “performance-based compensation” under Section 162(m), including compensation pursuant to plans or arrangements approved by our stockholders, is not subject to the deduction limit. The Annual Incentive Plan and the Long-Term Plan have been approved by our stockholders; as a result, stock options, stock appreciation rights, restricted stock, restricted stock units, performance shares, performance units and annual cash incentive awards under all of these plans that qualify as “performance-based compensation” will not be subject to the deductibility limit imposed by Section 162(m).

 

Employment Contracts

 

As of December 31, 2007, we entered into an amended and restated employment agreement with Mr. Gordon Hunter, our Chairman of the Board, President and Chief Executive Officer, which replaced his employment agreement dated as of May 1, 2006. The employment agreement was amended and restated in order to comply with the requirements of Section 409A of the Code and the formal guidance issued thereunder (“Section 409A”). The term of the employment agreement runs until death, disability, or such time as terminated by us or Mr. Hunter. We may terminate Mr. Hunter’s employment at will or upon 60 days notice subject to certain payments as further discussed below in the section entitled, “Gordon Hunter’s Employment Agreement Post-Employment Provisions.” The employment agreement requires us to provide Mr. Hunter with a base salary of at least $525,000 per year, provisions for a home office, an automobile, and up to $15,000 in annual financial planning and tax counseling services. The employment agreement also contains non-disclosure, non-competition, non-solicitation and non-hire provisions for Mr. Hunter upon cessation of his employment with us. The foregoing description of the terms of the employment agreement is qualified in its entirety by reference to the employment agreement as set forth on Exhibit 10.2 to our Annual Report on Form 10-K for the fiscal year ended December 27, 2008.

 

Please see additional discussion regarding the terms of Mr. Hunter’s employment agreement below in the section entitled “Post-Employment Compensation.” Other than the change of control agreements also discussed below under “Post-Employment Compensation,” none of the other named executive officers have employment agreements.

 

Components of Total Compensation

 

The compensation of our named executive officers usually consists of five components:

 

 

Each component is designed to help achieve our compensation objectives and to contribute to a total package that is competitive, appropriately performance-based and valued by our executives.

 

Purpose:  The determination of each executive officer’s base salary is designed to attract, retain and motivate highly qualified executives by paying a competitive salary.

 

Administration:  Our Chief Executive Officer and our General Counsel and Vice President, Human Resources recommend officer salary levels (other than for the Chief Executive Officer) to the Compensation Committee for approval. The Compensation Committee reviews these recommendations along with the reference group information and other information and advice of the compensation consultant, if any, and makes its recommendations to the full Board for approval. The Compensation Committee determines and makes Chief Executive Officer salary recommendations to the full Board for approval by the independent directors.

 

Determination of amounts:  Base salary generally is targeted at the 50th percentile of the reference group, adjusted to compensate for individual scope of responsibility, years of experience, past and future contributions to our success and possible differences in compensation standards in the electronics industry. We strive to be market competitive in an effort to attract, retain and motivate talented executive officers. The named executive officers’ salaries are determined by market salary data and each individual’s position, responsibility and longevity within our company and performance in that position.

 

The base salaries for the named executive officers in 2010 were determined based on historical compensation for our named executive officers and on compensation information provided by the compensation consultant. Due to the continued uncertainty of the economy in the fall of 2009, the Compensation Committee deferred decisions regarding base salaries for our executive officers until February 2010. The Compensation Committee remained concerned about the economy in early 2010 but recognized that our executive officers’ base salaries had remained unchanged since 2008. Consequently, in February 2010, the Compensation Committee recommended to the Board and the Board approved an increase of 2% in base salary for the 2010 fiscal year for all executive officers as a cost-of-living adjustment. In 2011, the Compensation Committee recommended to the Board and the Board approved an increase of 3% in base salary for the 2011 fiscal year for all executive officers, effective as of February 1, 2011. The base salary amounts for the named executive officers, effective as of February 1, 2010, and February 1, 2011, respectively, are as follows:

 

 

 

Purpose:  The Annual Incentive Plan is designed to provide a performance-based cash reward to the named executive officers (among other executives and key employees of the Company) for contributing to the achievement of our corporate goals and driving stockholder value, thereby addressing the objectives of our executive compensation policies.

 

Administration:  The Compensation Committee, after (1) consulting with our Chief Executive Officer and our General Counsel and Vice President, Human Resources, (2) reviewing the reference group information and other information and advice of the compensation consultant, if any, and (3) discussing the financial goals and targets of the Company for the next fiscal year with our Chief Executive Officer and our Vice President, Operations Support, Chief Financial Officer and Treasurer, establishes a threshold, target and a maximum amount that may be awarded as an annual incentive compensation award to each named executive officer for the calendar year. The threshold, target and maximum amounts are set as percentages of each named executive officer’s base salary.

 

Awards are granted based on an explicit formula approved by the Compensation Committee and recommended to the full Board for approval, typically at the first meeting of each year. At the end of each

year, the amount of the total award payable to each of the executive officers is calculated by the Compensation Committee based on Company and individual performance measures using a mathematical formula weighting each of the factors. The Compensation Committee then recommends the awards to the full Board for approval.

 

The Compensation Committee retains the discretion to adjust any awards determined by the formula to make adjustments for extraordinary events, except that no adjustment will be made if it would cause an award subject to Section 162(m) to fail to qualify as “performance-based compensation” within the meaning of Section 162(m). In the past, these adjustments have included severance charges and extreme commodity price changes.

 

Determination of amounts:  Incentive amounts are earned based on the achievement of established objectives on a sliding scale from 0% to 200% of the target amount, which is set as a percentage of the recipient’s base salary. While we generally attempt to benchmark the 50th percentile of the total compensation of our reference group, we do not necessarily benchmark our annual incentive awards against a certain percentile of the reference group. We set the threshold, target and maximum amounts so that, if earned, we pay sufficient total annual compensation to remain competitive.

 

Annual incentive awards paid to individual named executive officers are based on both the actual financial results in relation to the target goals under the plan and an evaluation of the named executive officer’s performance in relation to his or her individual performance objectives. Approximately 80% of the award is tied to the actual financial results, such as sales, earnings per share and cash from operations, as well as performance measurements of the areas within the scope of authority of the named executive officer, in relation to the target goals under the plan and, except for Mr. Hunter, approximately 20% is based on individual performance objectives, some of which are qualitative in nature and might have required subjective determinations by the Committee in its discretion. Since Section 162(m) allows payout amounts to be reduced (but not increased) at the discretion of the Compensation Committee, 20% of Mr. Hunter’s award is fully-earned at a maximum level based on meeting a minimum amount of earnings per share, but may be reduced to appropriate levels based on performance against his stated goals, as determined by the Compensation Committee or Board in their negative discretion.

 

For 2010, the Company performance objectives at target level for the named executive officers consisted of earnings per share of $1.50, cash from operations of $60.0 million, and, for Messrs. Hunter, Franklin, Heinzmann and Stafford, sales of $466.6 million. Mr. Ferbert’s objectives did not include total corporate sales but rather included net sales and operating income for his business unit. For Mr. Ferbert, the net sales target for his business unit for 2010 was $75.4 million and the operating income target was $17.0 million.

 

The personal performance objectives vary for each named executive officer, as described below, and are tailored to the job responsibilities of each individual executive. Personal performance objectives considered in determining executive awards are subject to change year-to-year, depending on the needs of the Company and the role of the named executive officer; however, personal performance objectives in 2010 generally fall under four broad categories: (1) business performance, (2) strategic development, (3) talent development and (4) compliance and governance. Mr. Hunter’s personal performance objectives included (1) executing the annual operating plan; (2) developing talent and leadership; (3) refreshing corporate strategy; and (4) ensuring excellence in compliance and governance. Mr. Franklin’s personal performance objectives included (1) refreshing corporate strategy; (2) developing talent and leadership of the finance team; (3) ensuring excellence in compliance and governance; and (4) maintaining robust investor relations and shareholder communications. Mr. Heinzmann’s personal performance objectives included (1) driving operational excellence; (2) developing talent and leadership of the operations team; (3) completing global restructuring programs; and (4) supporting our Lean Enterprise initiative. Mr. Stafford’s personal performance objectives included (1) ensuring excellence in compliance and governance; (2) developing and overseeing the talent and leadership development programs of the Company; and (3) supporting our Lean Enterprise initiative. Mr. Ferbert’s personal performance objectives included (1) developing talent and leadership of the electrical business unit; and (2) executing the electrical business unit strategic plan.

 

While some of the 2010 individual performance objectives for each named executive officer may be measured by objective standards, others may be more qualitative in nature and are ultimately subject to the determination of the Compensation Committee based on input from our Chief Executive Officer. In the case of

Mr. Hunter, his 20% portion is fully earned on meeting an earnings per share threshold of $0.43 and then is subject to reduction by the Compensation Committee or the Board in their negative discretion based on individual performance against stated goals.

 

The following table summarizes Annual Incentive Plan target percentages for the named executive officers for 2010:

 

 

The threshold, target and maximum amounts as percentages of each named executive officer’s base salary are set forth in the Grants of Plan Based Awards in 2010 Table included in this Proxy Statement. We generally attempt to benchmark the 50th percentile of the total compensation of our reference group, but do not necessarily benchmark our annual bonus against a certain percentile of the reference group. We determine the threshold, target and maximum amounts so that, if earned, we pay sufficient total annual compensation to remain competitive. While our target bonus amounts often are larger than the adjusted median of the reference group, the Compensation Committee does this in order to place a larger percentage of total compensation “at risk” and conditioned on meeting Company and personal objectives. In addition, based on our previous financial performance and the projections for 2010 performance, the Compensation Committee set what it considered aggressive Company performance objectives for the Annual Incentive Plan in 2010.

 

In February 2011, the Compensation Committee made determinations as to the satisfaction of the individual performance factors for 2010 for each named executive officer and determined payouts under the Annual Incentive Plan for 2010. For 2010, the Company’s performance objectives for earnings per share, cash from operations and sales all exceeded the maximum amounts considered by the Compensation Committee for awards. These results particularly influenced the award decisions for Messrs. Hunter, Franklin, Heinzmann and Stafford, whose payouts were all at maximum payout levels for these measures. Mr. Ferbert also exceeded the net sales and operating income maximum for his business unit, and, therefore, his payout also equaled the maximum amount for these measures. In addition, the Compensation Committee positively reviewed each named executive officer’s performance against his respective individual performance objectives and, with the exception of Mr. Hunter, awarded the named executive officers a corresponding increase in their total incentive award at amounts approximately half way between the target level and the maximum level based on such reviews. As previously discussed, in order to comply with Section 162(m), Mr. Hunter’s individual performance amount under the Annual Incentive Plan is fully earned upon meeting the earnings per share threshold of $0.43 and then is subject to reduction based on individual performance against the stated goals. Mr. Hunter’s individual performance also was judged to exceed target levels but not reach maximum levels. Therefore, the Compensation Committee exercised its negative discretion to reduce the award to the appropriate level. Consequently, all of our named executive officers received payouts in excess of their respective target levels but short of the maximum payout. The table below shows the amounts awarded under the awards granted under the Annual Incentive Plan in 2010 for each named executive officer and the amount as a percentage of base salary.

 

At its February 2011 meeting, the Compensation Committee established the threshold, target and maximum amounts to be awarded under the Annual Incentive Plan for 2011 for the named executive officers, subject to achievement of financial objectives of the Company and individual performance objectives set by the Compensation Committee for 2011. The following table summarizes Annual Incentive Plan target percentages for the named executive officers for 2011:

 

 

 

Purpose:  In 2010, the Compensation Committee awarded a combination of two types of equity awards under the Long-Term Plan to our named executive officers: stock option awards and restricted stock units. The Compensation Committee felt that the two award types emphasize the goals of our equity compensation: (1) to align each named executive officer’s financial interests with driving stockholder value, (2) to focus the named executive officers efforts on long-term financial performance of the Company and (3) to assist in the retention of our named executive officers.

 

Administration:  The Compensation Committee approves the awards of stock options and restricted stock units based upon (1) the recommendations of our Chief Executive Officer and our General Counsel and Vice President, Human Resources with respect to the named executive officers other than the Chief Executive Officer and on its own with respect to the Chief Executive Officer and (2) reviewing the reference group information and other information and advice of the compensation consultant, if any. The overall funding levels for our equity awards, however, are ultimately subject to the judgment and approval of the Compensation Committee to ensure appropriate alignment with the interest of our stockholders.

 

Over the last several years, the Compensation Committee has attempted to simplify and bring transparency to the equity compensation component of our compensation program: the Compensation Committee has eliminated the complication of the performance share/unit program, made the terms of equity awards to directors, officers and employees uniform and changed the restricted stock awards made to executive officers to restricted stock units to conform with the forms of awards made to the Board and other employees. Prior to 2010, stock options were typically granted with a four-year vesting period and an exercise price equal to the fair market value of our common stock on the date of grant. In 2010, stock options were granted with a three-year vesting period and an exercise price equal to the fair market value of our common stock on the date of grant. Neither the Littelfuse, Inc. Equity Incentive Compensation Plan (the “Equity Plan”), which was used for grants in years prior to 2010, nor the Long-Term Plan, which was approved at the 2010 Annual Meeting of Stockholders and was used for equity grants to officers and directors in 2010 and will be used for such grants in the future, permit grants of stock options with exercise prices below the fair market value of the stock at the time of the grant. Prior to 2010, the Compensation Committee granted restricted stock that typically vested at the rate of 25% per year on each of the first four anniversaries of the grant date. In 2010, the Compensation Committee granted restricted stock units (instead of restricted stock) with a three-year vesting period, so, as mentioned above, that the form of grants was consistent with grants made to members of the Board and other eligible employees. The switch to restricted stock units from restricted stock also was made for flexibility in the form of award payout and for tax reasons.

 

Before 2009, the Compensation Committee awarded performance share/unit awards to be paid out based on the achievement of performance factors determined at the end of a three-year performance period. For the awards granted prior to 2008, the performance shares/units earned after the three-year performance period vested ratably over a subsequent three-year period, with half of the vested amount paid in shares and half in

cash. Beginning with the 2008 awards, the performance share/unit awards are paid out entirely in shares at the end of the three-year performance period. The Compensation Committee made these changes to the performance share/unit awards because it determined that the previous six-year payout structure was too long and did not have an adequate motivational value for the named executive officers. In February 2011, the Compensation Committee determined that the Company failed to meet the performance requirements for the performance share/unit awards granted in 2008 and, consequently, the performance share/unit awards were not earned.

 

Determination of Amounts:  Total equity compensation awards generally are targeted to the 50th percentile of our reference group. The allocation by the Committee between the types of equity compensation is based primarily on a combination of market practice, internal equity considerations, individual performance and relative importance of the objectives behind each of the types (i.e. long-term financial performance and retention). In 2010, the Committee determined that approximately 55% of the value of the equity awards should be made in stock options, with the remaining 45% of the value of the equity awards to be made in restricted stock units. The restricted stock unit awards and stock options granted in 2010 to the named executive officers are set forth in the Grants of Plan-Based Awards in 2010 Table below.

 

Stock Ownership Policy

 

As mentioned above under the Director Compensation section, we recently adopted a stock ownership policy that requires our executive officers and directors to hold and maintain a certain number of shares of common stock of the Company. Our Chief Executive Officer is required to hold a number of shares equal to five times (5X) his base salary, our Chief Financial Officer is required to hold a number of shares equal to three times (3X) his base salary, and each of our other vice presidents is required to hold a number of shares equal to two times (2X) his respective base salary. All new executive officers have five years from the date of election or appointment to satisfy their required stock ownership level. Like the directors, until such time as an officer achieves the required stock ownership level, that officer is required to retain 50% of the “net shares” of common stock realized from any equity awards granted by the Company. Failure to satisfy the applicable stock ownership level within the required compliance period may result in an officer being ineligible to receive their annual equity award, receiving any cash bonus in the form of shares of common stock, and/or being subject to a 100% retention requirement. All of our executive officers are in compliance with the guidelines and requirements set forth in our stock ownership policy.

 

 

Perquisites

 

The Chief Executive Officer and other named executive officers are provided with the opportunity to receive financial planning services and executive physicals on an annual basis. Each named executive officer is entitled to financial planning services at a maximum of $10,000 in the first year and $5,000 per year thereafter, except for Mr. Hunter, who, pursuant to his employment agreement, is entitled to $15,000 per year of financial planning, and approximately $5,500 per year for an executive physical. We provide these benefits to help our named executive officers efficiently manage their time and financial affairs and to allow them to stay focused on business issues and minimize distractions of this type. Additionally, Mr. Hunter is provided with a Company automobile as required by his employment agreement, the terms of which were established to remain competitive against our peers.

 

Health and Welfare Programs

 

We offer our executives the opportunity to participate in certain health and welfare programs. The named executive officers participate in the same programs designed for all of our full-time U.S. employees. We believe these programs are important components of a total compensation system, and we provide them to remain competitive. The core insurance package includes health, dental, disability and basic group life insurance coverage. The named executive officers are also provided with an increased amount of life insurance in order to provide a targeted level of coverage equal to three times base salary.

We provide this benefit to remain competitive with those companies with whom we compete for executive talent.

 

 

Retirement Plans

 

In 2009, the Compensation Committee restructured the retirement benefits we provide to our employees, including our named executive officers. Effective April 1, 2009, we amended the Littelfuse, Inc. Retirement Plan (the “Pension Plan”) to freeze benefit accruals such that participants’ accrued benefits are frozen at April 1, 2009 levels. As a result of the amendment, no new participants are permitted to join the Pension Plan after the freeze date.

 

We terminated the Littelfuse, Inc. Supplemental Executive Retirement Plan (the “SERP”), effective December 31, 2009. No new benefits can be earned under the SERP on or after this date, other than certain change in control benefits and annual interest which is credited at the 5-year Treasury constant maturity rate until accounts are distributed. The SERP was a legacy plan with only two active participants, including one named executive officer. The changes to the Pension Plan and the SERP were undertaken as a cost-savings measure, but the Compensation Committee also believed that a modern mobile workforce does not value traditional defined benefit pension plans, such as the Pension Plan, and to remain competitive the Company should offer additional contributions to the Company’s 401(k) plan.

 

We now provide retirement benefits to our employees and named executive officers through the following plans:

 

Littelfuse, Inc. 401(k) Retirement and Savings Plan

 

The 401(k) Plan provides employees the opportunity to save for retirement on a tax-favored basis. Executives may elect to participate in the 401(k) Plan on the same basis as all our other employees. The Company amended the Littelfuse, Inc. 401(k) Plan, effective as of January 1, 2010, to provide fully vested matching contributions equal to 100% of the first 4% of a participant’s annual pay (subject to IRS compensation limits) contributed to the 401(k) Plan. In addition, the Plan provides for discretionary contributions for those eligible, active participants who were participants in the Company’s Pension Plan, with a minimum of 10 years of service as of January 1, 2010, and have a combined age and years of service of at least 60 as of January 1, 2010 (the “60 Point Group”). The Company has currently set these contributions at 5% of base pay (subject to IRS compensation limits). For 2010, the Company has also decided to make a discretionary company contribution on behalf of all eligible participants equal to 2% of base salary paid in 2010.

 

Littelfuse, Inc. Supplemental Retirement and Savings Plan

 

The Company established the Littelfuse, Inc. Supplemental Retirement and Savings Plan, effective January 1, 2010 (the “Supplemental Plan”), for certain management employees, including the named executive officers. The Supplemental Plan is a non-qualified retirement plan that allows participants to plan for retirement by deferring up to 90% of their annual pay to the Supplemental Plan. The Supplemental Plan provides fully vested matching contributions to participants who also are participants in the 401(k) Plan in an amount up to 4% of a participant’s annual pay in excess of the IRS compensation limit that is deferred to the 401(k) Plan or the Supplemental Plan less the amount we contribute for the participant as a match to the 401(k) Plan. The Company may also provide fully vested contributions to certain members of the 60 Point Group. Such contributions, if any, will generally equal the contribution made to the 60 Point Group under the 401(k) Plan determined without regard to the IRS compensation limit ($245,000 for 2010) less the amount of the actual contribution made to the 60 Point Group under the 401(k) Plan. The Company amended the Supplemental Plan, effective as of January 1, 2010, to ensure that it tracks the compensation definitions and 60 Point Group contribution percentages used under similar provisions in the 401(k) Plan.

Post-Employment Compensation

 

The Company has in place change of control agreements with each of our named executive officers. The change of control agreements, which were effective as of January 1, 2009, contain substantially the same material terms and conditions as the prior agreements, but the minimum threshold to trigger a change of control was increased and certain changes were made to guarantee the agreements were consistent with the requirements of Section 162(m) and Section 409A. If, within the two-year period following a change of control, the named executive officer terminates his employment for good reason or is terminated other than for cause, the named executive officer will be entitled to receive certain compensation and benefits. Provisions under these change of control agreements are based on competitive practice and are designed to ensure that the named executive officers’ interests remain aligned with the interests of the stockholders should a potential change of control arise. A change of control situation may undermine our named executive officers’ job security, and it is to our benefit to encourage the named executive officers to seek out beneficial business transactions and to remain with us through the closing of the transaction, even though their futures may be uncertain as a result. As such, we structured the change of control provisions in the named executive officers’ agreements with a “double trigger,” which requires termination of the executive without cause or by the executive for good reason in connection with or shortly following a change of control. This structure essentially places the decision of whether to trigger change of control benefits largely in the hands of the acquiring company, since the consummation of the transaction alone would not trigger the benefit.

 

Pursuant to his employment agreement, in the event Mr. Hunter terminates his employment for good reason or is terminated other than for cause, he will be entitled to receive certain compensation and benefits. These additional termination-related payments are provided for under his employment agreement, the provisions of which are based on competitive practice.

 

Notwithstanding anything to the contrary set forth in any of our filings under the Securities Act of 1933, as amended, or the Securities Exchange Act of 1934, as amended, that might incorporate other filings with the SEC, including this Proxy Statement, in whole or in part, the following Compensation Committee Report shall not be deemed to be incorporated by reference into any such filings.

 

Compensation Committee Report

 

To the Board of Directors of Littelfuse, Inc.:

 

We have reviewed and discussed with management the Compensation Discussion and Analysis contained in this Proxy Statement.

 

Based on the review and discussion referred to above, we recommend to the Board of Directors that the Compensation Discussion and Analysis referred to above be included in this Proxy Statement and in our Annual Report on Form 10-K for the year ended January 1, 2011.

 

Compensation Committee:

 

John P. Driscoll (Chairman)

Tzau-Jin (T. J.) Chung

William P. Noglows

 

Compensation Tables and Narrative Disclosures

 

The following table sets forth compensation information for our named executive officers for services rendered in all capacities to us and our subsidiaries in fiscal years 2010, 2009 and 2008.

 

Summary Compensation Table

 

 

 

 

The following table provides additional information with respect to options and stock-based awards granted in 2010, the value of which was provided in the Stock Awards and Options Awards columns of the Summary Compensation Table, and the potential range of payouts associated with the Annual Incentive Plan.

 

Grants of Plan-Based Awards in 2010 Table

 

 

 

 

Narrative Disclosure to Summary Compensation Table and Grants of Plan-Based Awards in 2010 Table

 

Annual Incentive Plan

 

The amounts listed in the Threshold, Target and Maximum columns under the Estimated Possible Payouts Under Non-Equity Incentive Plan Awards heading of the Grants of Plan-Based Awards in 2010 Table represent

the potential range of cash awards for the Annual Incentive Plan for 2010. For 2010, a threshold, target and maximum award was established for each Named executive officer as a percent of base salary as shown below.

 

 

Option Awards and Restricted Stock Unit Awards

 

The stock option awards granted in 2010 vest ratably over three years and have a seven-year term. The restricted stock units granted in 2010 also vest ratably over three years. Upon vesting, one share of our common stock will be delivered for each restricted stock unit award (or, where non-US law prohibits settlement in stock, payment may be made in cash).

 

See “Compensation Discussion and Analysis” for a discussion of the proportion of salary and bonus in relation to total compensation, which is discussed under “Allocation between Cash and Non-Cash Compensation and Current and Long-Term Compensation,” and other material terms of our named executive officers’ compensation and the related amounts included in the foregoing tables.

 

The following table provides information regarding the outstanding equity awards held by each of the Named executive officers as of January 1, 2011.

 

Outstanding Equity Awards at 2010 Fiscal Year-End Table