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

2011 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 25, 2011

 

To Our Stockholders:

 

You are cordially invited to attend the 2011 Annual Meeting of Stockholders of Harsco Corporation (the “Company”), which will be held on Tuesday, April 26, 2011, 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 is appreciated.

 

Sincerely,

 

 

Salvatore D. Fazzolari

Chairman, President and Chief Executive Officer

 

This document is intended to be mailed to stockholders on or about March 25, 2011.

 

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 26, 2011, 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:

 

 

K. G. Eddy,
D. C. Everitt,
S. D. Fazzolari,
S. E. Graham,
T. D. Growcock,
H. W. Knueppel,
J. M. Loree,
A. J. Sordoni, III, and
R. C. Wilburn;

 

 

The Board has fixed the close of business on March 3, 2011 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 postage-paid 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 25, 2011

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” or “we” or “us”), of proxies in the accompanying form to be used at our Annual Meeting of Stockholders, to be held on April 26, 2011, 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 3, 2011
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):		80,639,370 shares
Proxy Statements, Notice of Annual Meeting and Proxy Cards are intended to be mailed to stockholders:		On or about March 25, 2011
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 Conduct and charters of the Board’s committees are available in print to any stockholder who requests such copies from us. If you desire a copy please contact Kenneth D. Julian as noted above.

 

The Notice of 2011 Annual Meeting and Proxy Statement, our Proxy Card, our Annual Report on Form 10-K and our 2010 Summary 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 advisory vote on named executive officer compensation and the advisory vote on the frequency of future named executive officer compensation advisory votes. 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 nine nominees of the Board of Directors, (2) FOR the ratification of the appointment of PricewaterhouseCoopers LLP as independent auditors for the current fiscal year, (3) FOR the advisory vote on named executive officer compensation as such compensation is disclosed in this Proxy Statement, (4) for future advisory votes on named executive officer compensation as required by the Securities Exchange Act of 1934 (the “Exchange Act”) to be held EVERY YEAR, and (5) 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 and broker non-votes 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 compensation matters and the ratification of auditors, abstentions will have the effect of negative votes but broker non-votes will not have any effect on 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/about-us in the Corporate Governance section.

 

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

 

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/about-us, 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. Everitt, Graham, Growcock, Knueppel, Loree, Sordoni, and Wilburn and Ms. Eddy. In addition, the Board affirmatively determined that Messrs. Pierce and Scheiner were independent within the meaning of the NYSE Euronext listing standards during their tenure. Mr. Pierce is not standing for reelection due to his retirement. Mr. Scheiner died in February 2011.

 

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 2010 fiscal year, the independent Directors held five meetings. Each of the five meetings was attended by the complete group of independent Directors serving on our Board at the time of the meeting (i.e., eight independent Directors attended the first four

meetings and ten independent Directors attended the last meeting in 2010). The independent Directors also met separately from management at the end of each 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 seven individuals who are standing for election as Directors in 2011 and who were also Board members at the time of our Annual Meeting in 2010, attended the 2010 Annual Meeting of Stockholders. Messrs. Pierce and Scheiner also attended our Annual Meeting in 2010.

 

Information regarding the structure of our Board of Directors immediately following our Annual Meeting (at that time, the size of the Board will be reduced by one due to the retirement of Mr. Pierce):

 

Size of the Board of Directors:		Nine members
Size of Board of Directors authorized in the By-Laws:		Not less than five nor more than twelve
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, or CEO. 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. This conclusion also takes into account the abilities of our current Chairman and CEO to effectively serve in both posts. Future decisions as to the leadership structure will be based on our circumstances at the time, including the capabilities of the officers and directors who may be asked to fill the leadership roles.

 

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, 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. 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 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 us. The executive oversight of this process is through a committee comprised of the Chairman and CEO, the Chief Financial Officer, or CFO, and the Chief Administrative Officer, or CAO. 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. We believe that our leadership structure, discussed in detail above, supports the risk oversight function of the Board.

 

The Board of Directors held six meetings during the fiscal year ended December 31, 2010. All Directors who served during the fiscal year ended December 31, 2010 attended 100% of the total Board meetings and meetings of the committees on which they served, and the average attendance by such Directors at all Board and committee meetings was 100%. The independent Directors held five meetings during 2010. We have standing Audit, Management Development and Compensation, and Nominating and Corporate Governance Committees.

 

 

 

 

 

 

 

[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 US Diversified Industrials Index for the past five years. The graph assumes an initial investment of $100 on December 31, 2005 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^© 2011 S&P, a division of The McGraw-Hill Companies Inc. All rights reserved.
Copyright^© 2011 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 four 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. We will also periodically assess our current Board, and, as we consider additional candidates for the Board, assess them to determine whether there are 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 our strategic path.

 

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 criterion 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 2012 ANNUAL MEETING OF STOCKHOLDERS.”

 

There have been no material changes to the procedures relating to stockholder nominations during 2010. 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 except for Mr. Pierce, who will be retiring, 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 2011 Annual Meeting of Stockholders and the Board has approved the recommendation. In 2010 we engaged RSR Partners, a third party search firm, to assist with the selection of Director candidates for the 2011 Annual Meeting of Stockholders. RSR Partners was paid $211,388 in connection with such searches. During 2010, 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 nine 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 3, 2011), 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 Committee’s review.

 

Annual compensation for non-employee Directors for 2010 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. Our Board members have instituted a stockholding requirement for Board members equal to five times their annual retainer. Board members have three years from the date they join the Board to comply with the requirement in light of its recent establishment. The current compensation amounts for non-employee Directors, effective for fiscal year 2010, 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.

 

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 2010:

 

 

 

The following table sets forth, as of March 3, 2011, 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 2010 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 0.70% 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 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 2011. A copy of the Audit Committee Charter can be viewed at the Corporate Governance section of our website at www.harsco.com/about-us.

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 supervising 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 privately (and in separate meetings) with members of management, our independent auditors and our internal auditors following each Audit Committee meeting and as may otherwise be needed. The Audit Committee 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, and the full Audit Committee meets with management and our independent auditors to review and discuss our Quarterly Earnings Releases prior to their release.

 

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, 2010 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 Standards, 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, 2010 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, 2010 and December 31, 2009.

 

 

 

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, 2011. 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 at least a majority of the shares of outstanding common stock present in person or by proxy and entitled to vote on matters 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, 2011 would be changed. However, the Audit Committee may review whether to seek new independent auditors for the fiscal year ending December 31, 2012.

 

The Audit Committee, at its meeting held in July 2010, reviewed and approved the fee estimate for the annual audit of our fiscal 2010 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.

 

Introduction

 

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 2010, and describe how this compensation fits within our executive compensation philosophy. We also describe certain changes to our executive compensation programs for fiscal 2011 and later years. The following Executive Summary provides a brief discussion of our business performance for 2010, and this Compensation Discussion and Analysis analyzes the link between pay and performance for our named executive officers in 2010.

 

Executive Summary

 

Core Compensation Philosophy and Objectives

 

We, through our Compensation Committee, administer our executive compensation programs with the following guiding principles in mind:

 

Additional key goals of the Company and our Compensation Committee are to:

 

 

Our compensation program is also designed to reflect our goal of paying fair but market-based wages, while both ensuring that we attract, retain and motivate a premier management team to sustain our competitive advantage in the marketplace and that we provide a framework that encourages outstanding financial results over the long term. As a result, in administering our executive compensation program, we look to ensure that:

 

 

The Compensation Committee regularly reviews our officer compensation strategies, policies and programs to assure the program continues to meet its guiding principles.

 

Top Issues Considered by the Company and the Compensation Committee During 2010

 

Our executive officer pay determinations in 2010 continued to be impacted by our continued transformation. In addition to the direct compensation issues relating to payment of annual and long-term incentives, the top issues considered by us and our Compensation Committee during 2010 included the following:

 

 

In allocating the various compensation components of our compensation program, we believe 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 us 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 Compensation Committee to responsibly perform their duties as they relate to compensation.

2010 Business and Economic Climate

 

Harsco Corporation is a diversified industrial services company serving global industries that are fundamental to worldwide economic growth, including infrastructure, metals, railways and energy. During calendar year 2010, Harsco kept its focus on significantly reducing its cost structure and measurably lowering the break-even point of all of its business platforms while executing on its business transformation strategies. Key to this strategy was the transformation of our Harsco Infrastructure business group, as we took a charge of approximately $84 million in the fourth quarter of 2010 to facilitate a major restructuring to optimize Harsco Infrastructure as a more streamlined, efficient, cost-effective, disciplined and market-focused global platform with a single business brand.

 

During 2010, all of our business segments, except for Infrastructure, were able to emerge from the global economic downturn and execute on their performance objectives, achieving many of their performance goals, financial or otherwise, resulting in many individuals within our segments, including several named executive officers, earning annual incentive bonuses. As part of our continued transformation to “OneHarsco”, however, during 2010 our Compensation Committee approved an adjustment in the annual incentive bonus program, which now provides that 20% of the bonus compensation of certain officers, including the named executive officers who head certain of our business segments, such as Galdino Claro, Executive Vice President and Group CEO, Harsco Metals & Minerals and Ivor Harrington, Executive Vice President and Group CEO, Harsco Infrastructure, will be based on Economic Value Added (EVA^®) results for the Company as a whole (the sole exception to this structure for 2010 is that Mr. Harrington, who was hired by the Company in July 2010, was guaranteed a one-time bonus under the terms of his employment offer letter). We believe this continues to provide a strong incentive for our key executives to equally focus on the success of the overall Company and their business units, engineering value across the enterprise.

 

Because of the significant impact that the global economic downturn had on our business performance over the past several years, our long-term EVA objectives were not satisfied and therefore, no RSU payouts for the 2007-2009 performance period under the Company’s long-term incentive compensation program, which payouts are based on Corporate-level EVA, were made.

 

Our Infrastructure business services the global non-residential construction and industrial maintenance markets. These markets were severely and adversely impacted in 2010 by the global economic crisis, and the full year EVA results for the Infrastructure segment were below established targets for 2010. Our Harsco Rail segment, which provides worldwide track maintenance services, and our Harsco Metals & Minerals segment, which provides specialized services to the global metals industry, reached their maximum EVA cash bonus payout for 2010. Our Harsco Industrial segment, which provides air-cooled heat exchangers for the natural gas industry, heat transfer equipment, including hot water boilers and water heaters for institutional and commercial building applications and steel and aluminum bar grating, achieved their EVA cash bonus payout in part for 2010.

 

Harsco also continued its success in expanding its geographic footprint in faster-growth emerging market economies and was able to leverage off of new leadership appointments in 2010 to better align its segment reporting with our strategic business focus. Effective with year-end reporting for December 31, 2010, the Harsco Metals and Harsco Minerals businesses will be reported as one segment for financial reporting purposes. As a result, our four reported segments will be Harsco Metals & Minerals, Harsco Infrastructure, Harsco Rail and Harsco Industrial.

2010 Compensation Results

 

Fiscal 2010 was anticipated to be a difficult year for the economy and our businesses, and the Committee tailored our officer compensation program to be in line with these expectations, while providing support for the ongoing needs of our business and key strategic initiatives in our Metals and Minerals and Rail businesses. As a result, when designing our fiscal 2010 officer compensation program, the Committee considered our fiscal 2010 budget and financial performance expectations, both of which, though higher than 2009 actual performance, still did not return us to historical performance levels. As a result, with respect to our compensation plan:

 

 

The Committee believes its actions, as detailed in this Compensation Discussion and Analysis, balanced our objectives of containing costs, calibrating pay opportunities with performance expectations and the degree of difficulty associated with achieving performance goals, and retaining and motivating our officers.

 

Changes for 2011 and Beyond

 

Throughout 2010 the Committee held extensive deliberations on the Company’s incentive programs to determine whether the structure and targets were appropriate in light of the changing business environment facing the Company. As a result of these deliberations, the Committee determined that changes were required and approved the following items (as did the Board of Directors) that will apply to incentive compensation commencing in 2011 and beyond:

 

Long-Term Incentive Plan

 

The Committee focused on a number of aspects of the long-term incentive program and determined that the program needed to establish performance targets that were based on metrics

other than EVA. While EVA has positive characteristics as a performance metric, the Committee felt that based on the changing global economic environment facing the Company and goals to be achieved, other metrics would more effectively drive the performance the Company was looking to achieve. After reviewing various alternatives and discussing them with its compensation consultant and senior management, the Committee implemented two new performance metrics: free cash flow and relative total shareholder return. The Committee felt that free cash flow was one of the key drivers to the long-term success of the Company and that relative total shareholder return provided the appropriate benchmark to assess how the Company was doing against a group of its peers. In light of the unique nature of the businesses comprising the Company, the Committee selected the Standard & Poor’s MidCap 400 Index to measure the Company’s relative performance. The free cash flow target and the relative shareholder return performance target will each comprise 25% of the total amount of the long-term incentive target, with the other 50% being time-based. With respect to free cash flow and relative total shareholder return, participants can earn up to 150% of target based on achievement above previously established target amounts. In addition, the Committee established a payment gate, requiring that the Company as a whole must achieve positive earnings per share on a U.S. GAAP basis before any of the performance portion of the award (i.e., the amounts based on free cash flow and total shareholder return) may be paid. These changes are applicable starting with the three-year performance cycle commencing January 2011 and ending December 2013.

 

Annual Incentive Program

 

The Committee continued its ongoing review of the annual incentive program to confirm that the program was designed to drive the achievement of the annual performance objectives needed to increase stockholder value. The Committee reviewed the appropriateness of the EVA metric and determined that EVA was the appropriate target for the annual incentive program, as it drove operating performance while also managing the utilization of capital in obtaining the annual operating performance. In light of the loss performance of one of our divisions in 2010 and the significant restructuring charge that was taken in December 2010, the Committee imposed a new requirement for annual incentive payouts. No annual incentive bonus payout will be made under the annual incentive program to participants of any operating unit whose performance is used to calculate bonus payouts unless such operating unit achieves at least breakeven operating profit (calculated on an internal company basis), inclusive of the bonus charges; and if only a breakeven operating profit is achieved, no higher bonus payout than a target payout may be made with regard to participants of such operating unit. The Committee believes that these limitations on payouts align the interest of stockholders and management.

 

Stock Option Grants

 

In connection with its review of the incentive programs of the Company, the Committee became concerned about the retention of the key executives that were most responsible for implementing the changes needed to return the Company to the previous levels of performance. Over the past three years, limited incentive payouts were made under both the short-term and the long-term programs. With respect to the long-term program, it is likely that there will only be a limited payout on the cycle ending in December of 2011. In light of the pick-up in certain parts of the economy and the expressed need of many organizations for experienced executives to lead them forward, the Committee considered various ways it could retain the executives most needed for the implementation of the plans that would result in the improved performance of the Company. After reviewing several alternatives, in January 2011, the Committee and the Board approved a limited grant of stock options to a limited group of executives of the Company who were deemed by

management and the Board to be critical to the execution of both the short-term and long-term strategic plans. This is the first grant of stock options to management since 2002. Because stock options do not provide any return to the holder unless the stock price increases, the Committee concluded that this was an appropriate form of retention award, as it linked any return to management to a commensurate return to stockholders. The Committee also took into account, for certain grantees, the freezes in cash compensation and the reduced grants of RSUs in calendar years 2009 and 2010, which has resulted in certain of our senior executives falling significantly behind their peers in terms of total compensation. As such, the options also provide an opportunity to compensate for some of that shortfall, but only if we are at the same time successful in increasing stockholder value.

 

Overview of 2010 Compensation Program

 

Our executive compensation program is carried out through several compensation elements. 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 consist of the following:

 

 

Principles and Practices Underlying Our Named Executive Officer Compensation Program

 

Role of Management

 

Management provides data, analyses, input and recommendations to the Compensation Committee through our CEO and our CAO. In addition, during 2010 we established an internal compensation council, consisting of senior officers and our human resources specialists, which provides input to the Committee (through our CEO and CAO) regarding the design and funding of our annual bonus program and long-term equity program. Our CEO and CAO also provide input on various matters for the Committee to consider when determining each component and the total amount of our named executive officers’ compensation, and our CAO also provides input on various values for the Committee to consider when determining each component and the total value of our CEO’s compensation. The Committee gives significant weight to our CEO’s evaluation of the other named executive officers’ performance and recommendations of appropriate compensation for this group. This input and that of the CAO and the compensation council is advisory in nature, however, and neither the CEO, CAO nor the compensation council determine any component of compensation for any officer; these responsibilities reside only with the Committee.

During fiscal year 2010, our Chairman and CEO reviewed both (1) benchmark compensation materials and other related information provided by Towers Watson & Co., or Towers Watson, and Pearl Meyer & Partners, or 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 provides the Committee with factual information on which it bases its decisions regarding his compensation. As an example, our Chairman and CEO meets with the 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 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 Pearl Meyer, Towers Watson and Stern Stewart & Co., or Stern Stewart. 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.

 

Role of Compensation Consultants

 

Independent Committee Consultant

 

Our Compensation Committee engaged an outside, independent executive compensation consultant, Pearl Meyer, to advise and counsel the Committee for 2010. Pearl Meyer was selected and engaged by the Committee because of their broad expertise in many executive compensation areas as well as for their fit with the philosophy and personality of the Committee. For example, in fiscal 2010, Pearl Meyer provided the Committee an overview of executive compensation trends and regulatory developments, and provided advice and counsel on changes to our change of control severance agreements. Pearl Meyer provides no services to us other than those provided directly to or on behalf of the Committee.

 

At the Compensation Committee’s direction, management provides all Committee materials to Pearl Meyer and discusses all materials and recommendations with the consultant in advance of each Committee meeting or communication. Pearl Meyer considers the information and reports to the Committee chairperson, specifically identifying any issues or concerns. The Committee considers Pearl Meyer’s input as part of its decision-making processes. The Committee’s independent consultant attended each of the FY 2010 Committee meetings, either in person or via teleconference.

 

Management Consultant

 

Our CAO and his staff retain and work with Towers Watson, 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. Towers Watson provides various calculations, comparator group data and general market data used by the Compensation Committee in its decision-making processes. Towers Watson also provides consulting, actuarial and other compensation and employee benefits-related services to us. Towers Watson does not attend Committee meetings on a regular basis.

 

EVA Consultant

 

Stern Stewart was selected and engaged by management because of their expertise in working with economic value-added programs, and they advise us on our economic value-added program, both from an operations and from a compensation standpoint and assist in developing both annual and (prior to 2011) long-term EVA goals. From a compensation standpoint, this information is utilized as part of our EVA-based Annual Incentive Plan. Stern Stewart does not attend Compensation Committee meetings on a regular basis.

 

Fees Paid for Non-Compensation Related Services

 

In 2010, Towers Watson received aggregate fees in the amount of $136,309 for compensation-related services it provided to management and the Compensation Committee. Towers Watson also provides pension plan-related and other advice to our Human Resources and Finance groups and measurement support for various casualty exposures. Towers Watson has also assisted in due diligence reviews of potential acquisition candidates, and in 2010 was compensated for these services in the amount of $915,075. The decision to engage Towers Watson for these non-compensation related services was made by management. The Committee and the Board did not approve these services. No other compensation consultant received in excess of $120,000 during 2010 for non-compensation related services.

 

Data Considerations

 

Peer Group and Market Data

 

The Compensation Committee targets each named executive officer’s total direct annual compensation to the median range for comparable positions in our comparator group, and seeks to drive company financial performance that is in the upper quartile of our comparator group. The Committee structures our officer compensation program so that outstanding performance measured against our compensation plans’ metrics and associated goals generates total direct annual compensation at or above the median range; conversely, achievement below compensation plan goals generates total direct annual compensation below the median range, all in support of our pay-for-performance philosophy. The Committee also considers comparator group data when determining compensation practices.

 

The Compensation Committee adjusts a component of a named executive officer’s pay or total direct annual compensation above or below the median range to acknowledge the experience and value he or she brings to the role, sustained high-level performance, demonstrated success in meeting key financial and other business objectives, and the amount of his or her pay relative to the pay of his or her peers. The differences in compensation levels among our named executive officers are attributable to the differences in the median range of compensation for similar positions in our comparator group data and the Committee’s assessment of each position’s internal value.

 

Our benchmarking is conducted annually against benchmarking data prepared by Towers Watson. The Towers Watson data utilizes a broad industry-wide benchmarking database of approximately 800 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 our 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, Towers Watson’s use of regression analysis adjusts the data in its benchmarking database.

 

We also utilize benchmarking data prepared by Pearl Meyer. Pearl Meyer benchmarks us annually against a peer group which, for 2010, consisted of a small group of 14 publicly-traded companies that the Compensation 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 are companies that had one or more business aspects that correspond with one or more aspects of our business. The 14 peer group companies are:

 

 

Performance and compensation data for the peer group was tracked by Pearl Meyer and provided to the Compensation Committee as part of 2010 executive compensation review process. The Committee also, on a periodic basis, reviews the competitiveness of aspects of our benefits package.

 

Impact of Individual Performance

 

Initial Benchmarking

 

In reviewing salaries, total cash compensation and total direct compensation, the Compensation Committee initially considered how each named executive officer’s compensation compared to the 50th percentile based on the survey data provided by Towers Watson. 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 2010, our named executive officers’ compensation was at the following percentiles:

 

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

 

 

The percentages shown above also reflect in part the results of our failure to execute on our 2010 plan, as a result of which the salaries for certain executives, including the named executive officers, were frozen. This freeze on salaries was put in place with the agreement of management, and will be reexamined and reevaluated during our second quarter 2011, based on our performance to date as measured at such time. The percentages shown above also reflect the fact that certain named executive officers, such as Mr. Neuffer, are long-term employees of the Company and have served in executive positions for many years (and, the business units which Mr. Neuffer led were high performing business units, which resulted in higher cash bonuses being paid to Mr. Neuffer in recognition of this performance); and that other named executive officers, such as Messrs. Fazzolari and Schnoor, have cash and long-term incentive targets that were established when they were relatively new in their positions, such that subsequent freezes have not allowed their total compensation to increase in a manner commensurate with their increase in seniority. Messrs. Claro and Harrington represent new hires in 2009 and 2010, respectively, who were brought in at globally competitive rates for their positions and who also received certain guaranteed components to their compensation (in the form of RSUs and cash bonuses), primarily to compensate for stock awards and bonuses they each forfeited at their prior positions in order to accept our employment offers within our desired timeframe. Mr. Butler’s total cash compensation and total direct compensation were heavily impacted by the performance of the Infrastructure business and the global economic downturn.

 

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 Committee considers individual performance by each of the named executive officers during the course of the year, as evaluated by the 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 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 both long-term incentive compensation awards and involves the significant use of discretion on the part of the Compensation Committee. For 2010, the 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 for 2010 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.

 

Analysis of 2010 Executive Compensation Decisions

 

Salaries

 

In determining 2010 salary levels for each of our named executive officers, our Compensation Committee took into consideration the following factors:

 

 

 

Of continuing importance for 2010 were the increases in responsibility of the members of 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 2010, continued to take into account the continued expansion of the named executive officers’ roles during calendar year 2010. In late 2010, our Committee made the decision to continue the freeze of the salaries for our corporate level officers, including our CEO and CFO, and our named executive officers other than Messrs. Neuffer and Butler (due to their retirement), in light of the continuing turnaround 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 Compensation Committee changed the annual incentive program during 2010 in order for the plan to better reflect several of our principal goals. In particular, the annual incentive program was changed during 2010 to provide that all participants will have at least 20% of their annual bonus based on our overall EVA performance. This is in furtherance of our “OneHarsco” philosophy and of our globally integrated organization goals.

 

Setting Target Annual Incentive Payouts

 

Payments of annual incentives are a function of the executive’s annual salary multiplied by a bonus percentage, which is then 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 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, and our desire to keep incentive payments within a particular 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. The Compensation Committee has discretion to reduce the final awards for the named executive officers.

The target bonus percentages for the named executive officers for 2010 were as follows:

 

 

Actual annual incentive award payouts to the named executive officers are detailed in the 2010 Summary Compensation Table. Mr. Harrington received a guaranteed bonus award in accordance with the terms of his employment offer letter.

 

Performance Metric for Annual Incentive Compensation Plan and Fiscal 2010 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 again deemed the appropriate measure by which to judge results for 2010 annual 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 must improve each year in order for our current operations value to increase to our total market value. Current operations value 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) forever.

 

The 2010 EVA improvement target was developed by Stern Stewart based on the principles outlined above. The payout under the annual incentive bonus program for 2010 was based on the amount of economic value created, 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 2010 for the Company as a whole was $7,700,000. The EVA improvement required for a target bonus payout for the business units for which Mr. Claro was responsible was $3,786,000 and the EVA improvement required for a target bonus payout for the business unit for which Messrs. Harrington and Butler were responsible was $2,886,000. The EVA improvement required for a target bonus payout for the business unit for which Mr. Neuffer was responsible was $1,029,000.

 

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 2010, the EVA interval for the Company as a whole was $45,000,000. The EVA interval for those business units for which Mr. Claro had responsibility was $26,800,000 and the EVA interval for the business units for which Messrs. Harrington and Butler had responsibility was $28,500,000. The EVA interval for those business units for which Mr. Neuffer had responsibility was $12,300,000.

 

An example of how the EVA system works may provide clarification. If we as a whole achieved $7,700,000 in EVA improvement, those individuals paid on Company-wide performance would receive their target payout amount (100%). If, instead, we as a whole achieved $52,700,000 or more (that is, $7,700,000 plus $45,000,000) 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 more than $7,700,000 but less than $52,700,000, 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. If the amount of EVA improvement achieved was less than $7,700,000 but more than negative $37,300,000 (that is, $7,700,000 minus $45,000,000), 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.

 

In 2010, we as a whole produced negative $30,769,000 in EVA improvement ($38,469,000 below the applicable EVA target), which resulted in a bonus percentage of 15 percent for those individuals whose bonuses were based on corporate performance. The business units for which Mr. Claro was responsible generated $42,168,000 in EVA improvement ($38,382,000 above the applicable EVA target), which resulted in a bonus percentage of 200% for this business unit. When combined with the 20% of his payout that is based on consolidated performance, Mr. Claro received a bonus of 163% of target. The business unit for which Messrs. Harrington and Butler were responsible generated negative $84,108,000 in EVA improvement ($86,994,000 below the applicable EVA target), which resulted in a bonus percentage of zero for Mr. Butler for this business unit. When combined with the 20% of his payout that is based on consolidated performance, Mr. Butler received a bonus of 3% of target. Mr. Harrington was guaranteed a target level payout under the annual incentive plan pursuant to the terms of his employment offer letter with us and as a result received a bonus of 100% of target. The business units for which Mr. Neuffer was responsible generated $4,470,000 in EVA improvement ($3,441,000 above the applicable EVA target), which resulted in a bonus percentage of 128% for this business unit. When combined with the 20% of his payout that is based on consolidated performance, Mr. Neuffer received a bonus of 105% of target.

 

We, with the input of Stern Stewart, have established minimum, target and maximum objectives for overall EVA performance for 2011 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 to the Compensation 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 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 were met, would have been granted in January 2010), as follows:

 

 

During its February 2008 meeting, the Board of Directors reviewed proposed RSU grants for each named executive officer for the three-year performance period ending December 31, 2010 (that is, RSUs that, if the performance criteria were met, would have been granted in January 2011), as follows:

 

 

Performance Metrics for RSUs

 

In furtherance of our pay-for-performance culture, payouts for RSUs are contingent upon satisfaction of pre-established performance goals spanning a three-year period. The performance goals for the 2007-2009 and 2008-2010 performance periods were cumulative EVA, which is more fully described on pages 37 and 38. 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 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 offer letter, however, Mr. Claro received a separate RSU payout in 2009. This RSU payout is also reflected in the 2010 Summary Compensation Table and the 2010 Grants of Plan-Based Awards Table below.

 

RSUs Based on 2008-2010 Performance Criteria

 

Due to the extreme turbulence experienced across the world’s economies during 2008 and 2009, and due to the continued turnaround of our Infrastructure business, our performance during those years was negatively impacted and the long-term incentive goal for the 2008-2010 RSU awards was not met. As a result, none of our named executive officers received any final RSU payout for the 2008-2010 performance period.

 

In accordance with the terms of their respective employment offer letters, however, both Messrs. Harrington and Claro received separate RSU payouts in 2011. These RSU payouts are also reflected in the 2010 Summary Compensation Table and the 2010 Grants of Plan-Based Awards Table on page 50 of this Proxy Statement.

 

RSUs Based on 2010-2012 Performance Criteria

 

During 2009, the Compensation Committee continued its ongoing review of our 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 our 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 were effective starting with the 2010-2012 performance cycle. For future cycles (i.e., starting with the 2011-2013 cycle), awards will be based on a market-determined percentage of salary mid-point versus a predetermined number of shares, except in the case of one named executive officer, Ivor Harrington, whose awards for the 2011-2013 cycle and future cycles will be based on a percentage of actual salary as a result of the terms of his employment offer letter.

RSUs Based on 2010-2011 Performance Criteria

 

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 are achieved by us. The EVA performance targets were established by Stern Stewart.

 

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 payouts until 2013. The Board determined that, without the new two-year program, we would be at a competitive employment disadvantage compared to 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, 2009) and stock overhang (4.28% average for the three-year period ending December 31, 2009) for our equity compensation plans when considering the new equity incentive award, and determined that it was very conservative.

 

Stock Ownership Guidelines

 

In addition to our strong performance culture, as well as holding periods for RSU grants, we maintain stock ownership guidelines that apply to the named executive officers and certain other RSU plan participants. Our stock ownership guidelines encourage the retention of stock acquired through our RSU award program. In 2010, the stock ownership requirements were updated and revised so that no shares may be sold by participants until their applicable holding requirements are satisfied, subject to a hardship exception that will be administered by the Compensation Committee.

 

The stock ownership 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 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 will result in a review by the Committee to determine the cause of such failure and to develop an appropriate corrective action plan. The Committee felt that this was a reasonable approach in light of the recent economic downturn and the impact of the same on our stock price.

 

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, the 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 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 has not been a direct function of salary, as target grants were established by the 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. As noted above, this was changed in 2010 so that RSU grants are now based on a percentage of an individual’s salary.

 

During the review of compensation for 2010, which was completed in 2009, and in connection with the preparation of this report, the 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 2010 calendar year. Our performance during 2008-2010 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 36-41 of this Proxy Statement, including with regard to the details of our EVA performance for 2010 shown on pages 37-38 of this Proxy Statement. The RSU award numbers shown below differ from the numbers shown in the 2010 Summary Compensation Table, as the numbers below reflect the RSU grant that would have been made in January 2011 based on the 2008-2010 performance period. As further detailed on page 40 of this Proxy Statement, none of our named executive officers received any final RSU payout for the 2008-2010 performance period, except that Messrs. Harrington and Claro received separate RSU payouts in accordance with the terms of their respective employment offer letters.

 

 

The conversion rate used for amounts included above with respect to Mr. Butler was £1.00 = $1.55.

 

As noted above, our performance during 2010 has impacted our payouts under the annual incentive plan and with regard to RSUs.

 

Other Compensation Elements

 

We also provide our named executive officers the following broad-based employee benefits on the same terms as provided to our 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 change in control severance agreements described below. Messrs. Fazzolari and Claro are entitled to a car provided by us, 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. Certain of our named executive officers received relocation assistance during 2010 including a housing allowance. This relocation assistance was provided for a limited period of time for transition of the executives to our corporate headquarters.

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 2010 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.

 

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 us. In addition, we have reviewed 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 above, compensation decisions include subjective considerations, which restrain the influence of formulae or objective factors on excessive risk taking.

 

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

 

Change in Control Severance Agreements

 

As a result of the Board of Directors’ ongoing review of our executive compensation programs, in December 2010, we entered into (1) Amended and Restated Change in Control Severance Agreements (the “Amended Agreements”) with each of Salvatore D. Fazzolari, Stephen J. Schnoor, and certain of our other officers, and (2) Change in Control Severance Agreements (the “New Agreements” and together with the Amended Agreements, the “Agreements”) with Galdino J. Claro, Ivor J. Harrington and certain of our other officers. The Amended Agreements amend and restate the Change in Control Severance Agreements, dated as of December 31, 2008 (the “Old Agreements”), between us and each of Messrs. Fazzolari, Schnoor and certain of our other officers. Each of the Agreements contains the following terms and are intended to reflect a more market-

based approach to a potential change in control scenario and to better align us with generally accepted corporate governance guidelines:

 

 

 

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

 

 

The change in control severance arrangements are reviewed on a regular basis, but not necessarily as part of the annual compensation review.

 

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. 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 2010 Summary Compensation Table.

 

The Compensation Committee has reviewed and discussed the Compensation Discussion and Analysis with management. Based on this review and discussion, the 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, 2010 and our Proxy Statement for our 2011 Annual Meeting of Stockholders, for filing with the SEC.

 

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

 

T. D. Growcock, Chairman

D. H. Pierce

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 2008, 2009, and 2010.

 

 

No grants of RSUs were made in 2010 for the 2007-2009 performance period. This amount does not include the grant to Mr. Claro in 2009, which was provided pursuant to the terms of his employment offer letter (rather than with reference to the applicable performance period) and has a full grant date fair value of $478,500. The full grant date fair value of the RSU awards for the 2006-2008 performance period was $2,681,619, which was determined using the average of the high and low price of the stock on that day’s trading, less a discount for dividends not received during the performance period. The above information does not reflect an estimate for forfeitures, and none of these awards has been forfeited as of March 3, 2011.

 

 

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 2010 and describes the other benefits included in the “All Other Compensation” column for 2010.

 

 

 

The following table sets forth information concerning plan-based awards to the named executive officers during 2010: