UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

SCHEDULE 14A

INFORMATION REQUIRED IN PROXY STATEMENT

SCHEDULE 14A INFORMATION

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

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o		Soliciting Material Pursuant to §240.14a-12

 

THERMO FISHER SCIENTIFIC INC.

(Name of Registrant as Specified In Its Charter)

 

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

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 81 Wyman Street

 Waltham, MA 02451

 

April 8, 2011

 

Dear Stockholder:

 

You are cordially invited to attend the 2011 Annual Meeting of Stockholders of Thermo Fisher Scientific Inc., which will be held on Wednesday, May 25, 2011, at 1:00 p.m. (Eastern time) at the Mandarin Oriental New York, 80 Columbus Circle at 60th Street, New York, New York.

 

The notice of meeting and proxy statement accompanying this letter describe the specific business to be acted upon at the meeting. The Company’s 2010 Annual Report to Stockholders also accompanies this letter.

 

It is important that your shares of the Company’s common stock be represented and voted at the meeting regardless of the number of shares you may hold. Whether or not you plan to attend the meeting in person, you can ensure your shares of the Company’s common stock are voted at the meeting by submitting your instructions by telephone, the Internet, or in writing by returning the Company’s proxy card (if one has been provided to you). Please review the instructions in the enclosed proxy statement and proxy card regarding each of these voting options.

 

We are pleased this year to again take advantage of the Securities and Exchange Commission rule allowing companies to furnish proxy materials to their stockholders over the Internet. We believe that this e-proxy process expedites stockholders’ receipt of proxy materials, while lowering the costs and reducing the environmental impact of our annual meeting. Stockholders receiving e-proxy materials have been sent a notice containing instructions on how to access the proxy statement and annual report over the Internet and how to vote.

 

Thank you for your continued support of the Company.

 

Yours very truly,

 

MARC N. CASPER
President and Chief Executive Officer

 

 81 Wyman Street

 Waltham, MA 02451

 

NOTICE OF 2011 ANNUAL MEETING OF STOCKHOLDERS

 

To be held on May 25, 2011

 

Important Notice Regarding the Availability of Proxy Materials for the
Annual Meeting of Stockholders to be Held on May 25, 2011.
The Proxy Statement and 2010 Annual Report are available at www.proxyvote.com.

 

April 8, 2011

 

To the Holders of the Common Stock of

THERMO FISHER SCIENTIFIC INC.

 

Notice is hereby given that the 2011 Annual Meeting of Stockholders of Thermo Fisher Scientific (“Thermo Fisher” or the “Company”) will be held on Wednesday, May 25, 2011, at 1:00 p.m. (Eastern time) at the Mandarin Oriental New York, 80 Columbus Circle at 60th Street, New York, New York.

 

The purpose of the meeting is to consider and take action upon the following matters:

 

 

Stockholders of record at the close of business on March 28, 2011, are the only stockholders entitled to notice of and to vote at the 2011 Annual Meeting of Stockholders.

 

This notice, the proxy statement and the proxy card enclosed herewith are sent to you by order of the Board of Directors of the Company.

 

By Order of the Board of Directors,

 

SETH H. HOOGASIAN

Senior Vice President, General Counsel and Secretary

 

IMPORTANT

 

Whether or not you intend to attend the meeting in person, please ensure that your shares of the Company’s common stock are present and voted at the meeting by submitting your instructions by telephone, the Internet, or in writing by completing, signing, dating and returning the enclosed proxy card to our tabulation agent in the enclosed, self-addressed envelope, which requires no postage if mailed in the United States.

 

Directions to the Annual Meeting are available by calling Investor Relations at (781) 622-1111.

Table of Contents

 

 

 81 Wyman Street

 Waltham, MA 02451

 

This proxy statement is furnished in connection with the solicitation of proxies by Thermo Fisher Scientific Inc. (“Thermo Fisher” or the “Company”) on behalf of the Board of Directors of the Company (the “Board”) for use at the 2011 Annual Meeting of Stockholders to be held on Wednesday, May 25, 2011, at 1:00 p.m. (Eastern time) at the Mandarin Oriental New York, 80 Columbus Circle at 60th Street, New York, New York, and any adjournments thereof. The mailing address of the principal executive office of the Company is 81 Wyman Street, Waltham, Massachusetts 02451. This proxy statement and enclosed proxy card are being first furnished to stockholders of the Company on or about April 8, 2011.

 

At the 2011 Annual Meeting of Stockholders, stockholders entitled to vote at the meeting will consider and act upon the matters outlined in the notice of meeting accompanying this proxy statement, including the election of four directors for a three-year term expiring in 2014, an advisory vote on executive compensation, an advisory vote on the frequency of future executive compensation advisory votes, the ratification of the selection of PricewaterhouseCoopers LLP as the Company’s independent auditors for 2011, and a stockholder proposal regarding the declassification of the Company’s Board of Directors.

 

Only stockholders of record at the close of business on March 28, 2011, the record date for the meeting, are entitled to vote at the meeting or any adjournments thereof. At the close of business on March 28, 2011, the outstanding voting securities of the Company consisted of 383,179,783 shares of the Company’s common stock, par value $1.00 per share (“Common Stock”). Each share of Common Stock outstanding at the close of business on the record date is entitled to one vote on each matter that is voted.

 

The presence at the meeting, in person or by proxy, of a majority of the outstanding shares of Common Stock entitled to vote at the meeting will constitute a quorum for the transaction of business at the meeting. Votes of stockholders of record present at the meeting in person or by proxy, abstentions, and “broker non-votes” (as defined below) are counted as present or represented at the meeting for the purpose of determining whether a quorum exists. A “broker non-vote” occurs when a broker or representative does not vote on a particular matter because it either does not have discretionary voting authority on that matter or it does not exercise its discretionary voting authority on that matter.

 

Stockholders of Record

 

Shares entitled to be voted at the meeting can only be voted if the stockholder of record of such shares is present at the meeting, returns a signed proxy card, or authorizes proxies to vote his or her shares by telephone or over the Internet. Shares represented by valid proxy will be voted in accordance with your instructions. If you choose to vote your shares by telephone or over the Internet, which you may do until 11:59 p.m. Eastern time on Tuesday, May 24, 2011, you should follow the instructions provided on the proxy card. In voting by telephone or over the Internet, you will be allowed to confirm that your instructions have been properly recorded.

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A stockholder of record who votes his or her shares by telephone or Internet, or who returns a proxy card, may revoke the proxy at any time before the stockholder’s shares are voted at the meeting by entering new votes by telephone or over the Internet by 11:59 p.m. Eastern time on May 24, 2011, by written notice to the Secretary of the Company received prior to the meeting, by executing and returning a later dated proxy card prior to the meeting, or by voting by ballot at the meeting.

 

Participants in the Thermo Fisher Scientific 401(k) Retirement Plan and the Fisher Hamilton L.L.C. Retirement Savings Plan

 

If you hold your shares through the Thermo Fisher Scientific 401(k) Retirement Plan or the Fisher Hamilton L.L.C. Retirement Savings Plan (each, a “401(k) Plan”), your proxy represents the number of shares in your 401(k) Plan account as of the record date. For those shares in your 401(k) Plan account, your proxy will serve as voting instructions for the trustee of the 401(k) Plan. You may submit your voting instructions by returning a signed and dated proxy card to the Company’s tabulation agent in the enclosed, self-addressed envelope for its receipt by 11:59 p.m. Eastern time on Friday, May 20, 2011, or by telephone or over the Internet by 11:59 p.m. Eastern time on Sunday, May 22, 2011, in accordance with the instructions provided on the proxy card.

 

You may revoke your instructions by executing and returning a later dated proxy card to the Company’s tabulation agent for its receipt by 11:59 p.m. Eastern time on May 20, 2011, or by entering new instructions by telephone or over the Internet by 11:59 p.m. Eastern time on May 22, 2011.

 

Beneficial Stockholders

 

If you hold your shares through a broker, bank or other representative (“broker or representative”), you can only vote your shares in the manner prescribed by the broker or representative. Detailed instructions from your broker or representative will generally be included with your proxy material. These instructions may also include information on whether your shares can be voted by telephone or over the Internet or the manner in which you may revoke your votes. If you choose to vote your shares by telephone or over the Internet, you should follow the instructions provided by the broker or representative.

 

Shares represented by proxy will be voted in accordance with your specific choices. If you sign and return your proxy card or vote by telephone or over the Internet without indicating specific choices, your shares will be voted FOR the nominees for director, FOR the Company’s executive compensation, for every TWO YEARS on frequency of future executive compensation advisory votes, FOR the ratification of the selection of independent auditors for 2011 and AGAINST the stockholder proposal on declassification of the Board of Directors. Should any other matter be properly presented at the meeting, the persons named in the proxy card will vote on such matter in accordance with their judgment.

 

If you sign and return your proxy card marked “abstain” with respect to any of the proposals scheduled to be voted on at the meeting, or choose the same option when voting by telephone or over the Internet, your shares will not be voted affirmatively or negatively on those proposals and will not be counted as votes cast with regard to those proposals.

 

If you hold your shares as a beneficial owner rather than a stockholder of record, your broker or representative will vote the shares that it holds for you in accordance with your instructions (if timely received) or, in the absence of such instructions, your broker or representative may vote on proposals for which it has discretionary voting authority. The only proposal on which your broker or representative has discretionary voting authority is the proposal to ratify the selection of independent auditors for 2011. If you do not instruct your broker or representative regarding how you would like your shares to be voted with respect to any of the other proposals scheduled to be voted on at the meeting, your broker or representative will not be able to vote on your behalf with respect to those proposals.

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If you hold your shares through the 401(k) Plan, the trustee will vote the shares in your 401(k) Plan account in accordance with your instructions (if timely received) or, in the absence of such instructions, the Company will vote your shares FOR the nominees for director, FOR the Company’s executive compensation, for every TWO YEARS on frequency of future executive compensation advisory votes, FOR the ratification of the selection of independent auditors for 2011 and AGAINST the stockholder proposal on declassification of the Board of Directors.

 

Election of Directors

 

Under the Company’s bylaws, in an uncontested election, a nominee for director will be required to obtain a majority of the votes cast in person or by proxy at the annual meeting in order to be elected, such that the number of votes cast “for” a director must exceed the number of votes cast “against” that director. Abstentions and broker non-votes will not have an effect on the determination of whether a nominee for director has been elected.

 

Other Matters

 

Under the Company’s bylaws, the affirmative vote of the holders of a majority of the shares present or represented and entitled to vote at the annual meeting and voting affirmatively or negatively on the matter will be required for: approval of the advisory vote on executive compensation (Proposal 2); approval of one of the three frequency options under the advisory vote on the frequency of future executive compensation advisory votes (Proposal 3); approval of the ratification of the selection of the independent registered public accounting firm (Proposal 4); and approval of the stockholder proposal (Proposal 5). Shares which abstain from voting on these proposals and broker non-votes will not be counted as votes in favor of, or with respect to, such proposals and will also not be counted as votes cast. Accordingly, abstentions and broker non-votes will have no effect on the outcome of these proposals. With respect to Proposal 3, if none of the three frequency options receives the vote of the holders of a majority of the votes cast, we will consider the frequency option (one year, two years or three years) receiving the highest number of votes cast by stockholders to be the frequency that has been recommended by stockholders. However, as described in more detail in Proposal 3, because this proposal is non-binding, the Board of Directors may decide that it is in the best interest of our stockholders and the Company to hold future executive compensation advisory votes more or less frequently. Proposals 2 and 5 are also non-binding proposals.

 

The number of directors constituting the full Board is currently fixed at eleven. The Board is divided into three classes, two of which consist of four directors and one of which consists of three directors, and each class is elected for a three-year term at successive Annual Meetings of Stockholders. In all cases, directors hold office until their successors have been elected and qualified, or until their earlier resignation, death or removal.

 

The terms for Thomas J. Lynch, William G. Parrett, Michael E. Porter and Scott M. Sperling expire at the 2011 Annual Meeting of Stockholders. The Nominating and Corporate Governance Committee of the Board has recommended to the Board, and the Board has nominated, Messrs. Lynch, Parrett and Sperling and Dr. Porter for a three-year term expiring at the 2014 Annual Meeting of Stockholders. Proxies may not be voted for a greater number of persons than the four nominees named.

 

Set forth below are the names of the persons nominated as directors and directors whose terms do not expire this year, their ages, their offices in the Company, if any, their principal occupations or employment for the past five years, the length of their tenure as directors and the names of other public companies in which

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they currently hold directorships or have held directorships during the past five years. We have also presented information below regarding each director’s specific experience, qualifications, attributes and skills that led our Board to the conclusion that he or she should serve as a director. Information regarding their beneficial ownership of Common Stock is reported under the heading “SECURITY OWNERSHIP.”

 

Nominees for Director Whose Term of Office Will Expire in 2014

 

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Incumbent Directors Whose Term of Office Will Expire in 2012

 

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Incumbent Directors Whose Term of Office Will Expire in 2013

 

 

The Board of Directors recommends a vote “FOR” the nominees for director. Proxies solicited by the Board of Directors will be voted FOR the nominees unless stockholders specify to the contrary on their proxy.

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The Board has adopted governance principles and guidelines of the Company (“Corporate Governance Guidelines”) to assist the Board in exercising its duties and to best serve the interests of the Company and its stockholders. In addition, the Company has adopted a code of business conduct and ethics (“Code of Business Conduct and Ethics”) that encompasses the requirements of the rules and regulations of the Securities and Exchange Commission (“SEC”) for a “code of ethics” applicable to principal executive officers, principal financial officers, principal accounting officers or controllers, or persons performing similar functions. The Code of Business Conduct and Ethics applies to all of the Company’s officers, directors and employees. The Company intends to satisfy SEC and New York Stock Exchange (“NYSE”) disclosure requirements regarding amendments to, or waivers of, the Code of Business Conduct and Ethics by posting such information on the Company’s website. The Company’s Corporate Governance Guidelines and Code of Business Conduct and Ethics are available on its website at www.thermofisher.com. We may also use our website to make certain disclosures required by the rules of the NYSE, including the following:

 

 

The Nominating and Corporate Governance Committee considers recommendations for director nominees suggested by its members, other directors, management and other interested parties. It will consider stockholder recommendations for director nominees that are sent to the Nominating and Corporate Governance Committee to the attention of the Company’s Secretary at the principal executive office of the Company. In addition, the bylaws of the Company set forth the process for stockholders to nominate directors for election at an annual meeting of stockholders.

 

The process for evaluating prospective nominees for director, including candidates recommended by stockholders, includes meetings from time to time to evaluate biographical information and background material relating to prospective nominees, interviews of selected candidates by members of the Nominating and Corporate Governance Committee and other members of the Board, and application of the Company’s general criteria for director nominees set forth in the Company’s Corporate Governance Guidelines. These criteria include the prospective nominee’s integrity, business acumen, age, experience, commitment, and diligence. Our Corporate Governance Guidelines specify that the value of diversity on the Board should be considered by the Nominating and Corporate Governance Committee in the director identification and nomination process. The Nominating and Corporate Governance Committee does not assign specific weights to particular criteria and no particular criterion is necessarily applicable to all prospective nominees. The Committee believes that the backgrounds and qualifications of the directors considered as a group should provide a significant breadth of experience, knowledge and abilities to assist the Board in fulfilling its responsibilities. The Nominating and Corporate Governance Committee also considers such other relevant factors as it deems appropriate, including the current composition of the Board, the balance of management and independent directors, and, with respect to members of the Audit Committee, financial expertise.

 

After completing its evaluation, the Nominating and Corporate Governance Committee makes a recommendation to the full Board as to the persons who should be nominated by the Board, and the Board

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determines the nominees after considering the recommendation and report of the Nominating and Corporate Governance Committee.

 

Since 2008, the Nominating and Corporate Governance Committee has engaged Egon Zehnder International, a search firm, to facilitate the identification, screening and evaluation of qualified, independent candidates for director to serve on the Board. Mr. Lynch, who is a nominee for election by the Company’s stockholders for the first time, as well as Mr. Chai, who was elected to the Board in 2010, were recommended to the Board by Egon Zehnder.

 

The Company’s Corporate Governance Guidelines require a majority of our Board to be “independent” within the meaning of the NYSE listing requirements including, in the judgment of the Board, the requirement that such directors have no material relationship with the Company (either directly or as a partner, shareholder or officer of an organization that has a relationship with the Company). The Board has adopted the following standards to assist it in determining whether a director has a material relationship with the Company. Under these standards, a director will not be considered to have a material relationship with the Company if he or she is not:

 

•     A director who is (or was within the last three years) an employee, or whose immediate family member is (or was within the last three years) an executive officer, of the Company;

 

•     A director who is a current employee or greater than 10% equity owner, or whose immediate family member is a current executive officer or greater than 10% equity owner, of a company that has made payments to, or received payments from, the Company for property or services in an amount which, in any of the last three fiscal years, exceeds the greater of $1 million, or 2% of such other company’s consolidated gross revenues;

 

•     A director who has received, or whose immediate family member has received, during any twelve-month period within the last three years, more than $120,000 in direct compensation from the Company, other than director and committee fees and pension or other forms of deferred compensation for prior service (provided such compensation is not contingent in any way on continued service);

 

•     (A) A director who is, or whose immediate family member is, a current partner of a firm that is the Company’s internal or external auditor; (B) a director who is a current employee of a firm that is the Company’s internal or external auditor; (C) a director whose immediate family member is a current employee of a firm that is the Company’s internal or external auditor and personally works on the Company’s audit; or (D) a director who was, or whose immediate family member was, within the last three years (but is no longer) a partner or employee of a firm that is the Company’s internal or external auditor and personally worked on the Company’s audit within that time;

 

•     A director who is (or was within the last three years), or whose immediate family member is (or was within the last three years), an executive officer of another company where any of the Company’s current executive officers at the same time serve or served on the other company’s compensation committee;

 

•     A director who is (or was within the last three years) an executive officer or greater than 10% equity owner of another company that is indebted to the Company, or to which the Company is indebted, in an amount that exceeds one percent (1%) of the total consolidated assets of the other company; and

 

•     A director who is a current executive officer of a tax exempt organization that, within the last three years, received discretionary contributions from the Company in an amount that, in any single fiscal year, exceeded the greater of $1 million or 2% of such tax exempt organization’s consolidated gross revenues. (Any automatic matching by the Company of employee charitable contributions will not be included in the amount of the Company’s contributions for this purpose.)

 

Ownership of a significant amount of the Company’s stock, by itself, does not constitute a material relationship. For relationships or amounts not covered by these standards, the determination of whether a material relationship exists shall be made by the other members of the Board who are independent (as defined above).

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The Board has determined that each of Mses. Lewent and Ullian, Messrs. Chai, Lynch, Manning, Manzi, Parrett and Sperling, and Drs. Jacks and Porter is “independent” in accordance with the Company’s Corporate Governance Guidelines and Section 303A.02 of the listing standards of the NYSE. The Board had also determined that Michael A. Bell and Stephen P. Kaufman, both of whom served as directors until the 2010 Annual Meeting of Stockholders, were independent in accordance with these tests. Each of Mses. Lewent and Ullian, Messrs. Chai, Lynch, Manning, Manzi, Parrett and Sperling, and Dr. Porter has no relationship with the Company, other than any relationship that is categorically not material under the guidelines shown above and other than compensation for services as a director as disclosed in this proxy statement under “DIRECTOR COMPENSATION.” Dr. Jacks is a professor at the Massachusetts Institute of Technology (“MIT”), and is the director of the David H. Koch Institute for Integrative Cancer Research at MIT. He is also an employee of and investigator for the Howard Hughes Medical Institute (“HHMI”). MIT and HHMI purchase certain products and services from the Company in the ordinary course of business. Dr. Jacks is not a partner of, controlling shareholder in, or executive officer of either MIT or HHMI. The independent directors (other than Dr. Jacks) determined that neither Dr. Jacks’ position at MIT, nor his employment by HHMI, is material to his independence as a director of the Company. The independent directors (other than Mr. Bell) had also previously determined that Mr. Bell’s relationship with Monitor Clipper Partners, a private equity firm that manages two funds in which a Company pension plan is an investor, was not material to his independence as a director of the Company for the part of 2010 he served in that capacity (see “Transactions with Related Persons” on page 48).

 

The Board met eight times during 2010. During 2010, each of our directors attended at least 75% of the total number of meetings of the Board and the committees of which such director was a member. The Board has a standing Audit Committee, Compensation Committee and Nominating and Corporate Governance Committee. The Company encourages, but does not require, the members of its Board to attend the annual meeting of stockholders. Last year, five of our directors attended the 2010 Annual Meeting of Stockholders.

 

Audit Committee

 

The Audit Committee is responsible for assisting the Board in its oversight of the integrity of the Company’s financial statements, the Company’s compliance with legal and regulatory requirements, the independent auditor’s qualifications and independence, and the performance of the Company’s internal audit function and independent auditors. Certain responsibilities of our Audit Committee and its activities during fiscal 2010 are described with more specificity in the Report of the Audit Committee in this proxy statement under the heading “REPORT OF THE AUDIT COMMITTEE.” The charter of the Audit Committee is available on the Company’s website at www.thermofisher.com.

 

The current members of our Audit Committee are Messrs. Parrett (Chairman), Chai and Manning. Mr. Lynch served on our Audit Committee through February 23, 2011. The Board has determined that each of the members of the Audit Committee is “independent” within the meaning of SEC rules and regulations, the listing standards of the NYSE, and the Company’s Corporate Governance Guidelines, and that each is “financially literate” as is required by the listing standards of the NYSE. The Board has also determined that each of Messrs. Parrett, Chai and Manning qualifies as an “audit committee financial expert” within the meaning of SEC rules and regulations, and that they each have accounting and related financial management expertise as is required by the listing standards of the NYSE. The Board has determined that Mr. Parrett’s membership on four audit committees does not impair his ability to effectively serve on the Company’s Audit Committee. The Audit Committee met 12 times during 2010.

 

Compensation Committee

 

The Compensation Committee is responsible for reviewing and approving compensation matters with respect to the Company’s chief executive officer and its other officers, reviewing and recommending to the Board management succession plans, and administering equity-based plans. Certain responsibilities of our Compensation Committee and its activities during 2010 are described in this proxy statement under the

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heading “Compensation Discussion and Analysis.” The Compensation Committee also periodically reviews our director compensation, and makes recommendations on this topic to the Board as it deems appropriate, as described under the heading “DIRECTOR COMPENSATION.” The charter of the Compensation Committee is available on the Company’s website at www.thermofisher.com.

 

The current members of our Compensation Committee are Messrs. Sperling (Chairman) and Lynch and Ms. Ullian. Dr. Jacks served on our Compensation Committee through February 23, 2011. The Board has determined that each of the members of the Compensation Committee is “independent” within the meaning of the listing standards of the NYSE and the Company’s Corporate Governance Guidelines. The Compensation Committee met eight times during 2010.

 

Role of Consultant

 

The Compensation Committee has sole authority to retain and terminate a compensation consultant to assist in the evaluation of CEO or senior executive compensation. Since October 2007, the Committee has retained Pearl Meyer & Partners (“PM&P”) as its independent compensation consultant. PM&P does not provide any other services to the Company.

 

The consultant compiles information regarding the components and mix (short-term/long-term; fixed/variable; cash/equity) of the executive compensation programs of the Company and its peer groups (see page 15 of this proxy statement for further detail regarding the peer groups), analyzes the relative performance of the Company and the peer groups with respect to the financial metrics used in the programs, and provides advice to the Compensation Committee regarding the Company’s programs. The consultant also provides information regarding emerging trends and best practices in executive compensation.

 

The consultant retained by the Compensation Committee reports to the Compensation Committee Chair and has direct access to Committee members. The consultant periodically attends Committee meetings either in person or by telephone, and meets with the Committee in executive session without management present.

 

Nominating and Corporate Governance Committee

 

The Nominating and Corporate Governance Committee is responsible for identifying persons qualified to serve as members of the Board, recommending to the Board persons to be nominated by the Board for election as directors at the annual meeting of stockholders and persons to be elected by the Board to fill any vacancies, and recommending to the Board the directors to be appointed to each of its committees. In addition, the Nominating and Corporate Governance Committee is responsible for developing and recommending to the Board a set of corporate governance guidelines applicable to the Company (as well as reviewing and reassessing the adequacy of such guidelines as it deems appropriate from time to time) and overseeing the annual self-evaluation of the Board. The charter of the Nominating and Corporate Governance Committee is available on the Company’s website at www.thermofisher.com.

 

The current members of our Nominating and Corporate Governance Committee are Messrs. Lynch (Chairman), Chai and Sperling, and Dr. Porter. The Board has determined that each of the members of the Nominating and Corporate Governance Committee is “independent” within the meaning of the listing standards of the NYSE and the Company’s Corporate Governance Guidelines. The Nominating and Corporate Governance Committee met eight times during 2010.

 

We separate the roles of Chief Executive Officer and Chairman of the Board in recognition of the differences between the two roles. The CEO is responsible for setting the strategic direction for the Company and the day to day leadership and performance of the Company, while the Chairman of the Board provides guidance to the CEO and sets the agenda for Board meetings and presides over meetings of the Board.

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Our Board oversees our risk management processes directly and through its committees. Our management is responsible for risk management on a day-to-day basis. The role of our Board and its committees is to oversee the risk management activities of management. The Audit Committee assists the board in fulfilling its oversight responsibilities with respect to risk management in the areas of financial reporting, internal controls and compliance with legal and regulatory requirements, and, in accordance with NYSE requirements, discusses policies with respect to risk assessment and risk management, including guidelines and policies to govern the process by which the Company’s exposure to risk is handled. Risk assessment reports are periodically provided by management to the Audit Committee. The Compensation Committee assists the Board in fulfilling its oversight responsibilities with respect to the management of risks arising from our compensation policies and programs. The Nominating and Corporate Governance Committee assists the Board in fulfilling its oversight responsibilities with respect to the management of risks associated with board organization, membership and structure, succession planning for our directors, and corporate governance.

 

In accordance with the listing standards of the NYSE and the Company’s Corporate Governance Guidelines, independent directors meet at least twice a year in an executive session without management and at such other times as may be requested by any independent director. Jim P. Manzi, as the Chairman of the Board, presides at the meetings of the Company’s independent directors held in executive session without management.

 

The Board has established a process for stockholders and other interested parties to send communications to the Board or any individual director or groups of directors, including the Chairman of the Board and the independent directors. Stockholders and other interested parties who desire to send communications to the Board or any individual director or groups of directors should write to the Board or such individual director or group of directors care of the Company’s Corporate Secretary, Thermo Fisher Scientific Inc., 81 Wyman Street, Waltham, Massachusetts 02451. The Corporate Secretary will relay all such communications to the Board, or individual director or group of directors, as the case may be.

 

The Compensation Committee oversees our executive compensation program for officers. In this role, the Compensation Committee reviews and approves annually all compensation decisions relating to our named executive officers. Our named executive officers for the year ended December 31, 2010 are Marc N. Casper, President and Chief Executive Officer, Peter M. Wilver, Senior Vice President and Chief Financial Officer, Gregory J. Herrema, Senior Vice President, Alan J. Malus, Senior Vice President, and Edward A. Pesicka, Senior Vice President.

 

Summary of Key Elements of Officer Compensation

 

Our executive compensation program ties a substantial portion of each executive’s overall cash compensation to the achievement of key strategic, financial and operational goals and uses a portfolio of equity awards to help align the interests of our executives with those of our stockholders.

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Consistent with this approach, the compensation of our named executive officers for 2010 featured:

 

•     Cash payouts under our annual cash incentive bonus program that ranged between 125% and 150% of target and reflected:

 

•     overachievement of our organic revenue growth goal (4.28% achievement vs. a target of 2.75%),

 

•     overachievement of our adjusted operating margin goal (17.76% vs. a target of 17.43%), and

 

•     overall success against a variety of non-financial goals, as detailed on page 17.

 

•     Equity grants for each of our named executive officers (other than Mr. Casper who did not receive equity grants in 2010, as he had received equity grants in November 2009 in connection with his promotion to Chief Executive Officer), that consisted of a mixture of:

 

•     stock options that vest over a four- or five-year period,

 

•     time-based restricted stock units that vest over a three-year period, and

 

•     performance-based restricted stock units that vest based on the Company’s total shareholder return relative to the performance of the S&P 500 Industrials Index.

 

As described below, our executive compensation program incorporates a number of other key features that are designed to align the interests of our named executive officers with that of our stockholders, including:

 

•     a compensation package more heavily weighted toward long-term equity-based incentive compensation than salary and annual cash incentives in order to emphasize the focus on the Company’s long-term performance,

 

•     a one-year holding period post-vesting on restricted stock units granted to our officers (added in 2010) to complement our existing stock ownership guidelines, in order to encourage officers to focus on the Company’s long-term performance and discourage unreasonable risk-taking,

 

•     a policy not to extend tax gross-ups in future compensation arrangements,

 

 

•     limited perquisites, none of which are subject to a tax gross-up.

 

Objectives and Philosophy of Our Executive Compensation Program

 

The primary objectives of our executive compensation program are to:

 

•     attract and retain the best possible executive talent,

 

•     promote the achievement of key strategic and financial performance measures by linking annual cash incentives to the achievement of corporate performance goals,

 

•     motivate the Company’s officers to create long-term value for the Company’s stockholders and achieve other business objectives of the Company, and

 

•     require stock ownership by the Company’s officers in order to align their financial interests with the long-term interests of the Company’s stockholders.

 

To achieve these objectives, the Compensation Committee evaluates our officers’ compensation program with the goal of setting compensation at levels the Committee believes are competitive with those of other peer companies that compete with us for executive talent. In addition, our executive compensation program ties a substantial portion of each executive’s overall cash compensation to key strategic, financial and operational goals such as organic revenue growth, adjusted operating margin expansion, and new product introductions. We also provide a portion of our executive compensation in the form of stock options and

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restricted stock unit grants, which we believe helps retain our executives and aligns their interests with those of our stockholders by allowing them to participate in the longer term success of the Company as reflected in stock price. Our compensation package is primarily performance-based, and a substantial portion is denominated in equity. The following charts compare the components of our compensation package to the 2010 market median as computed by Pearl Meyer & Partners, as described in greater detail below.

 

Mix of Pay By Component

 

 

Pay By Component as a Percent of Market Median

 

 

Process

 

The Compensation Committee uses market surveys and analyses prepared by outside consulting firms to stay informed of developments in the design of compensation packages generally and to benchmark our officer compensation program against those of companies with whom we compete for executive talent to ensure our compensation program is in line with current marketplace standards. The Compensation Committee generally targets compensation for our executive officers as a group, in the aggregate, near the median (e.g., within 10%) of the pay levels derived from the compensation consultants’ studies. Variations to this general target may occur as dictated by individual circumstances.

 

Typically, during the first calendar quarter of each year, the chief executive officer makes a recommendation to the Compensation Committee with respect to annual salary increases and bonuses, and annual equity awards, if any, for executive officers other than himself, which is then reviewed by the Compensation Committee. The Compensation Committee annually reviews the individual performance evaluations for the named executive officers, and, usually in late February or early March, determines their compensation changes and awards after receiving input from the independent directors of the Board. As part of this process, the Compensation Committee also reviews, with respect to each named executive officer, the current value of prior equity grants, the balances in deferred compensation accounts, and the amount of compensation the executive officer would receive if he left the Company under a variety of circumstances.

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Components of our Executive Compensation Program

 

The primary elements of our executive compensation program are:

 

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We do not have any formal or informal policy or target for allocating compensation between cash and non-cash compensation or among the different forms of non-cash compensation. Instead, the Compensation Committee, after reviewing information provided by compensation consultants, determines what it believes in its business judgment to be the appropriate level of each of the various compensation components.

 

The Committee believes that the Company’s executive compensation program supports the executive compensation objectives described above without encouraging management to take unreasonable risk with respect to Thermo Fisher’s business. The Committee believes that the program’s use of long-term, equity based compensation, the use of both options and restricted stock awards, our stock ownership guidelines, and our post-vesting holding period on restricted stock units all encourage officers to take a long-term view of Thermo Fisher’s performance and discourage unreasonable risk-taking. The Committee has reviewed the Company’s key compensation policies and practices and concluded that any risks arising from our policies and programs are not reasonably likely to have a material adverse effect on the Company.

 

Compensation Consultant

 

In late 2009, the Committee directly engaged Pearl Meyer & Partners (“PM&P”), a compensation consulting firm, to assist the Committee in its review and evaluation of the compensation for the executive officers. PM&P provides no services to the Company other than to the Compensation Committee, and is therefore entirely independent of the management of the Company. In making decisions on 2010 salary changes, the setting of 2010 target annual cash incentive bonuses as a percentage of salary, and equity award decisions in March 2010, the Committee considered the market study prepared by PM&P in late 2009, which included data from three peer groups (the core peer group, the broader industries peer group, and the small competitors peer group) of publicly-traded companies as well as industry survey data for other companies that were deemed relevant by PM&P.

 

Peer Groups

 

PM&P did not consult with management in developing its peer groups or in providing its analysis to the Compensation Committee. The core peer group represents companies most similar to Thermo Fisher in terms of size and industry. The companies included in the core peer group were:

 

 

The broader industries peer group represented companies that were of similar size as compared to Thermo Fisher and that compete in broader, but generally similar, industries. The broader industries peer group consisted of:

 

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The small competitors peer group represented companies that were similar to Thermo Fisher in product or service offerings, but had annual revenues less than one-third that of Thermo Fisher. The small competitors peer group consisted of:

 

 

PM&P employed regression analysis techniques in order to examine the relationship between company revenue size and pay, and used that relationship to calculate predicted pay values for a company of Thermo Fisher’s size. For Messrs. Casper, Herrema, Malus and Pesicka, PM&P used size-regressed core peer group and small competitors peer group pay data. These companies are most similar to Thermo Fisher with respect to industry and PM&P’s review indicated that pay practices within the industry have been distinct from those at “broader” industries for chief executive officers and heads of operating businesses. For Messrs. Herrema, Malus and Pesicka, pay data was collected from comparable positions and size regressed based on the business size of both market and Thermo Fisher roles. For Mr. Wilver, PM&P used a blend of size-regressed pay data from all three peer groups, because pay trends for chief financial officer positions are not as industry specific, and executives are more likely to be recruited across industries.

 

Base Salary

 

Base salary is used to recognize the experience, skills, knowledge and responsibilities required of all our employees, including our executive officers. Generally, we believe that executive officer base salaries should be, in the aggregate, near (e.g., within 10%) the median of the range of salaries for executives in similar positions at comparable companies determined in a manner consistent with the PM&P report, but with variations as dictated by individual circumstances. Base salaries are generally reviewed annually by our Compensation Committee in February and changes are effective in late March/early April of that year. In making base salary decisions, the Committee takes into account a variety of factors, including the level of the individual’s responsibility, the length of time the individual has been in that position, the ability to replace the individual and the current base salary of the individual. In late February 2010, the Compensation Committee increased the salaries of our executive officers for 2010 (effective April 2010) in accordance with our standard annual compensation review with reference to the PM&P study conducted in late 2009. The 2010 base salaries for the named executive officers were set consistent with our philosophy of keeping salaries near the median derived from the PM&P study. Increases were as follows: 7.5% for Mr. Casper, 2.7% for Mr. Wilver, 4.1% for Mr. Malus, and an 8.7% increase for each of Messrs. Herrema and Pesicka. Increases vary principally to reflect current competitive position, to recognize strong performance and to assist the Company to retain these highly valued executives. Mr. Casper’s base salary was more than 10% below the market median and Mr. Malus’ 2010 base salary was more than 10% above the median according to the PM&P report. The Committee deemed it appropriate to compensate Mr. Casper at this level based on his tenure as Chief Executive Officer, and to set Mr. Malus’ base salary at this level after considering Mr. Malus’ tenure as a senior executive of the Company, the performance of the operating business that he manages, and his individual performance.

 

Base salaries were increased as reflected in the table below.

 

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Annual Cash Incentive Bonus

 

Annual cash incentive awards for the Company’s executive officers for 2010 were granted under the Company’s 2008 Annual Incentive Award Plan (the “162(m) Plan”), which was approved by the stockholders of the Company at its 2008 Annual Meeting of Stockholders. The 162(m) Plan was adopted to preserve the tax deductibility of the annual bonus that may be earned by executive officers of the Company. The actual amounts paid are subject to the application by the Compensation Committee of negative discretion under the 162(m) Plan, as described below.

 

Under the 162(m) Plan, in the first quarter of a calendar year the Compensation Committee selects a performance goal for the year. For 2010, the Committee selected the financial measure of earnings before interest, taxes and amortization, excluding the impact of restructurings, cost of revenues charges associated with acquisitions or restructurings, selling, general and administrative charges associated with acquisition transaction costs, gains/losses from the sale of a business or real estate, material asset impairment charges and other unusual or nonrecurring items (“adjusted operating income”). The Committee selected this financial measure, as opposed to an income measure computed under generally accepted accounting principles (GAAP), because this measure is consistent with how management measures and forecasts the Company’s performance, especially when comparing such results to previous periods or forecasts. The maximum award payable in any year under the 162(m) Plan to an executive officer is $5,000,000. Each executive officer was awarded a percentage of adjusted operating income for the year, subject to the right of the Committee to lower, but not raise, the actual bonuses paid. In February 2011, the Compensation Committee elected to lower the 2010 bonuses payable under the 162(m) Plan to the amounts computed in accordance with the process described below for the Company’s annual incentive program for the year based on the Compensation Committee’s determinations as to the level of achievement of the supplemental performance measures under the Company’s annual incentive program for 2010.

 

Typically, in the first quarter of a calendar year, the Compensation Committee also establishes a target incentive cash award amount under the Company’s annual incentive program for each officer of the Company, including executive officers. This amount, which is a percentage of base salary, is determined by the Compensation Committee based on the salary level of the officer, the position of the officer within the Company and input from the compensation consultant. The amount actually awarded to an officer, which can range from 0 to 200% of target, varies primarily based on performance of the Company as a whole with respect to financial and non-financial measures, but is subject to adjustment based on the Committee’s subjective evaluation of an officer’s contributions to those results. The Committee generally sets the goals such that the target payout (100% of target bonus) represents attractive financial performance within our industry and can be reasonably expected to be achieved; and payouts above 150% of this target require outstanding performance.

 

For 2010, the financial measures established by the Compensation Committee under the Company’s annual incentive program were (i) growth in revenue (adjusted for the impact of acquisitions and divestitures and for foreign currency changes) and (ii) growth in adjusted operating income as a percentage of revenue. The Committee selected these financial measures, as opposed to financial measures computed under generally accepted accounting principles (GAAP), because these measures are consistent with how management measures and forecasts the Company’s performance, especially when comparing such results to previous periods or forecasts. For both of the financial measures, the Company’s actual performance was measured relative to the Company’s internal operating goals for 2010. The weighting of the financial measures for 2010 was as follows: 35% for the revenue growth goal and 35% for the earnings as a percentage of revenue goal. The remaining 30% was based on company-wide, non-financial measures, which included the achievement of employer of choice and customer allegiance goals, increased new product introduction, organic revenue growth relative to the Company’s peer group, the completion of certain information technology investments, the continuation of building a diverse workforce, and the achievement of merger and acquisition-related goals. For the revenue growth element, the baseline target (for 100% payout) was 2.75% growth and actual results were 4.28%, yielding a payout of 151% of target. For the adjusted operating income as a percentage of revenue element, the baseline target was 17.43% of revenue and the actual results were 17.76% of revenue, which translated to a payout of 158% of target. The results for the non-financial goals were as follows: (1) on the

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employer of choice goal, participation in our employee survey increased from 78% for the last survey to 82% this year, and average scores on the same questions from both surveys did not change materially; (2) on our goal to continue to build a diverse workforce, we exceeded our target that 33% of new employees who joined our top three career bands were female and/or minorities; (3) on growth relative to our peer group, we estimate that we exceeded the growth rate of one out of three of our peers; (4) on our introduction of new products, we achieved higher than our target that 17% of revenue in the last year from products designed and commercialized by the Company come from products introduced in the last two years; (5) on our mergers and acquisitions strategy, we exceeded our goal to acquire at least $200 million of annualized revenue, and announced the acquisition of Dionex Corporation for $2.1 billion; (6) on our customer allegiance goal, we exceeded our goal of achieving a customer allegiance score of 50 by year-end (measured by a formula relating to how many of our customers would recommend us to another potential customer); (7) on our infrastructure and growth investments goal, we exceeded our information technology investment goal of a $25 million increase, we successfully launched our thermoscientific.com website on time, and we made significant progress on commercial investments in Asia, and (8) on our goal to increase our research and development investment by 25 basis points, we achieved a 23 basis points increase. The Committee judged these goals in the context of the overall goal to develop the Company’s employees, culture and assets with the primary goal of making connections across the Company’s portfolio, creating value for Company stockholders and working with determination to advance the Company’s position as the world leader in serving science. Taking all of these factors into account, the Committee concluded that actual achievement against the non-financial measures was at a 106% payout level.

 

The process described above resulted in a preliminary overall achievement calculation of 140% of target bonus for each of the named executive officers. Messrs. Casper and Wilver (as corporate executives) received bonuses at the calculated payout (140%). Messrs. Herrema, Malus and Pesicka (as operating executives) were awarded 125%, 150% and 136% of target bonus, respectively, to reflect the performances of the operating businesses which they manage.

 

The target bonus awards and actual bonus awards for 2010 for the named executive officers were as follows:

 

 

In setting target bonuses for 2010, the Committee reviewed the competitive position of the 2009 target bonuses, as developed by PM&P and concluded it was appropriate to increase the target bonus opportunity for Messrs. Herrema, Malus and Pesicka from 70% to 75%. Following these adjustments, the 2010 target bonus awards for our named executive officers were between 7 and 18% below the median target bonus awards (as a percent of median base salaries), as developed by PM&P. However, the Committee deemed it appropriate to set the target bonus awards for the named executive officers at these levels based on its desire to emphasize long-term equity incentives instead.

 

Stock Option and Restricted Stock Awards

 

Our equity award program is the primary vehicle for offering long-term incentives to our executives. We believe that equity grants provide our executives with a strong link to our long-term performance, create an ownership culture and help to align the interests of our executives with that of our stockholders. In addition, the vesting feature of our equity grants should further our goal of executive retention because this feature provides an incentive to our executives to remain in our employ during the vesting period. In determining the

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size of equity grants to our executives, our Compensation Committee considers the recommendations of the chief executive officer with respect to awards to our executives other than the chief executive officer, and input from the independent directors of the Board with respect to awards to our chief executive officer. The Committee then decides how much of these values should be delivered by each of the long-term incentive vehicles utilized by the Company, such as stock options, restricted stock units or restricted stock awards.

 

We typically make an initial equity award of stock options to new executives when they become executives and to newly promoted executives to reflect their new responsibilities, and annual equity grants in late February as part of our overall compensation program. Our equity awards have typically taken the form of stock options and restricted stock grants. Because restricted shares and restricted stock units have a built-in value at the time the grants are made, we generally grant significantly fewer shares of restricted stock than the number of stock options we would grant for a similar purpose. All grants of options, restricted stock and restricted stock units to our officers are approved by the Compensation Committee. The timing of the Compensation Committee meeting in late February or early March is such that the meeting occurs after we have publicly released earnings for the just-completed year. While our cash incentive program is designed to reward executives for meeting near-term (generally annual) financial and operational goals, our equity program is designed to focus on long-term performance and alignment of executive officer compensation with the long-term interests of our stockholders. The annualized value of equity awards to our named executive officers in the aggregate at the time of grant approaches the market 75th percentile as determined by the PM&P report, as our overall compensation package is more heavily weighted toward long-term equity-based incentive compensation than salary and annual cash incentives in order to more strongly emphasize the focus on long-term performance.

 

Typically, the stock options we grant to our named executive officers vest over the first three to five years of a seven-year option term, and time-based restricted stock awards vest equally over three years. Vesting normally ceases upon termination of employment, except for acceleration upon certain qualifying retirements, death, disability, and in the case of certain terminations for Mr. Casper (see “Agreements with Named Executive Officers; Potential Payments upon Termination or Change in Control” on page 34). Stock option exercise rights normally cease for officers other than Mr. Casper shortly after termination, except for in the cases of death, disability and qualifying retirement. Prior to the exercise of an option, the holder has no rights as a stockholder with respect to the shares subject to such option, including voting rights and the right to receive dividends or dividend equivalents. Prior to the vesting of restricted stock, the holder has no right to transfer the shares but has voting rights and the right to receive dividends (if being paid) with respect to the shares. Prior to the distribution of shares after vesting of restricted stock units (which represent a right in the future to receive shares), the holder has no right to transfer, vote, or receive dividends with respect to the underlying shares.

 

Our practice is to set the exercise price of stock options to officers to equal the closing price of our Common Stock on the New York Stock Exchange on the date the grant is approved by the Compensation Committee or the Employee Equity Committee. Newly hired or promoted employees, other than officers, normally are granted stock options by the Employee Equity Committee, which consists of Mr. Casper. These grants are made once per quarter, after we have publicly released earnings for the previous quarter. Grants over 25,000 shares to any individual, and all grants to officers, may only be approved by the Compensation Committee.

 

2010 Annual Grant

 

On March 5, 2010, in connection with the normal compensation cycle, the Committee granted stock options, and time-based and performance-based restricted stock units to Messrs. Wilver, Herrema, Malus and Pesicka. PM&P provided the Committee with a market consensus median grant level (in dollars) for each of Messrs. Wilver, Herrema, Malus and Pesicka. The Committee adjusted these amounts towards the 75th percentile to reflect its interest in focusing on long-term performance, as well as its judgment on matters of internal fairness, the impact of broader economic conditions on the Company’s stock price, and the retentive and incentive value of prior grants to these individuals. The adjusted amounts were then converted to numbers of stock options and restricted stock units, with 40% of the value being delivered through stock options, 30%

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through time-based restricted stock units, and 30% through performance-based restricted stock units. The Committee adopted this allocation because it supports our strategy of providing executives with a balanced portfolio of equity vehicles and was reflective of market practice for some of our peer companies. With respect to the performance-based restricted stock units, the executives would have the ability to earn up to 160% of the target number of shares based on the Company’s achievement of the maximum performance metric, and they must achieve a minimum threshold to receive any shares.

 

A portion of the 2010 stock options vest in equal annual installments over the four-year period commencing on the date of grant (i.e., the first 1/4 of a stock option award would vest on the first anniversary of the date of grant), and the remainder vest over a five-year period commencing on the second anniversary of the date of grant (i.e., the first 1/4 of a stock option award would vest on the second anniversary of the date of grant), in each case so long as the executive officer is employed by the Company on each such date (subject to certain exceptions). The 2010 time-based restricted stock units vest in equal annual installments over the three-year period commencing on the date of grant (i.e., the first ¹/₃ of a restricted stock unit award would vest on the first anniversary of the date of grant) so long as the executive officer is employed by the Company on each such date (subject to certain exceptions).

 

In connection with the awards of performance-based restricted stock units, the Compensation Committee adopted as a performance goal the measure Company stock price. The number of performance-based restricted stock units to be earned is based on the Company’s total shareholder return for the applicable measurement period, relative to the performance of the S&P 500 Industrials Index for the same period, assuming continued employment, subject to certain exceptions. The vesting of the performance-based restricted stock unit awards is as follows: up to fifty percent (50%) of the maximum restricted stock units would vest on the day the Compensation Committee certifies the performance level achieved for the first measurement period (January 1, 2010 through June 30, 2011), and up to the maximum restricted stock units would vest on the day the Compensation Committee certifies the performance level achieved for the second measurement period (January 1, 2010 through December 31, 2012), less the amount of restricted stock units that vested in connection with the first measurement period (but not less than zero), so long as the executive officer is employed by the Company on each such date (subject to certain exceptions). The percent of shares that would vest at various percentile performance achievements versus the index is depicted below.

 

 

Beginning with our 2010 equity grant, the Compensation Committee has implemented a one-year holding period on restricted stock units granted to our officers, in order to encourage officers to focus on the Company’s long-term performance, such that shares issuable upon the vesting of restricted stock units would be delivered to the executives on the first anniversary of the applicable vesting date, subject to certain exceptions.

 

Mr. Casper did not receive grants of stock options or restricted stock units in 2010, as he received equity grants in November 2009 in connection with his promotion to Chief Executive Officer.

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Stock Ownership Policy

 

The Compensation Committee has established a stock ownership policy that the chief executive officer holds shares of Common Stock equal in value to at least four times his annual base salary and that each other executive officer hold shares of Common Stock equal in value to at least two times his or her annual base salary. For purposes of this policy, shares of time-based restricted stock and restricted stock units, and vested but undistributed performance-based restricted stock units, are counted towards the target. All of our named executive officers are currently in compliance with this policy.

 

Benefits and Other Compensation

 

We maintain broad-based benefits that are provided to all employees, including health and dental insurance, life and disability insurance and a 401(k) plan. Executives are eligible to participate in all of our employee benefit plans, in each case on the same basis as other employees. The 401(k) plan is a tax-qualified retirement savings plan pursuant to which all U.S. based employees, including officers, are able to contribute a percentage of their annual salary up to the limit prescribed by the Internal Revenue Service (the “IRS”) to the 401(k) plan on a before-tax basis. The Company matches contributions made by employees to the 401(k) plan, dollar for dollar, up to the first 6 percent of compensation deferred by the employee to the plan. Employees were capped at contributing 6% of $245,000 for 2010 in accordance with the IRS annual compensation limit. All contributions to the 401(k) plan as well as any matching contributions are fully-vested upon contribution.

 

The named executive officers, in addition to certain other U.S.-based eligible executives, are entitled to participate in the Company’s Deferred Compensation Plan. Pursuant to the Deferred Compensation Plan, an eligible employee can defer receipt of his or her annual base salary and/or bonus until he or she ceases to serve as an employee of the Company or until a future date while the participant continues to be an employee of the Company. The Deferred Compensation Plan is discussed in further detail under the heading “Nonqualified Deferred Compensation For 2010” on page 31. Amounts deferred under this plan can be invested in an array of mutual funds and other investment vehicles administered by The Newport Group. The Company does not guarantee any above-market interest rates or rates of return on these deferred amounts. The Company matches 100% of the first 6% of pay that is deferred into the Deferred Compensation Plan over the IRS annual compensation limit for 401(k) purposes.

 

The Company provides officers with perquisites and other personal benefits that the Company and the Compensation Committee believe are reasonable and consistent with its overall compensation program to better enable the Company to attract and retain superior employees for key positions. Each named executive officer receives supplemental long-term disability and life insurance, and access to emergency medical service through Massachusetts General Hospital’s global hospital network. Additionally, the Company provides a $3 million term life insurance policy to Mr. Casper. Attributed costs of the personal benefits described above for the named executive officers for 2010 are described in the “Summary Compensation Table” on page 23.

 

Severance and Change in Control Benefits

 

Pursuant to our equity plans and agreements we have entered into with our executives, in the event of the termination of their employment under certain circumstances or a change in control, they are entitled to specified benefits. We have provided more detailed information about these benefits, along with estimates of their value under various circumstances, under the caption “Agreements with Named Executive Officers; Potential Payments Upon Termination or Change in Control” on page 34. We believe providing these benefits helps us compete for executive talent and that our severance and change in control benefits are generally in line with severance packages offered to comparable executives at other companies.

 

We have executive change in control retention agreements with our executives that provide cash and other severance benefits if there is a change in control of the Company and their employment is terminated by the Company without “cause” or by the individual for “good reason,” as those terms are defined therein, in each case within 18 months thereafter. We also have an executive severance policy that provides severance benefits to our executives (other than Mr. Casper) in the event their employment is terminated by the Company without “cause” (as such term is defined therein) in the absence of a change in control. Mr. Casper’s severance

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arrangements are provided in a separate agreement between him and the Company. The change in control retention agreements and executive severance arrangements are described in greater detail under the caption “Agreements with Named Executive Officers; Potential Payments Upon Termination or Change in Control” on page 34.

 

In February 2009, the Committee approved a new form of executive change in control agreements for executives joining the Company after February 2009. The new form of change in control agreement eliminates any tax gross-up provision, as the Company does not intend to extend tax gross-ups in future compensation arrangements.

 

Tax and Accounting Considerations

 

Deductibility of Executive Compensation

 

The Compensation Committee considers the potential effect of Section 162(m) of the Internal Revenue Code of 1986 as amended (the “Code”), in designing its compensation program, but reserves the right to use its independent judgment to approve nondeductible compensation, while taking into account the financial effects such action may have on the Company. Section 162(m) limits the tax deduction available to public companies for annual compensation that is paid to the Company’s chief executive officer and three other most highly paid executive officers (other than the chief financial officer) in excess of $1,000,000, unless the compensation qualifies as “performance-based” or is otherwise exempt from Section 162(m). Stock options, performance-based restricted stock unit awards and annual incentive cash bonuses for the executive officers are intended to qualify for the deduction.

 

Accounting Considerations

 

Accounting considerations also play an important role in the design of our executive compensation programs and policies. ASC 718 requires us to expense the cost of stock-based compensation awards. We consider the relative impact in terms of accounting cost in addition to other factors such as stockholder dilution, retentive impact, and motivational impact when selecting long-term equity incentive instruments.

 

The Compensation Committee of the Company has reviewed and discussed the Compensation Discussion and Analysis required by Item 402(b) of Regulation S-K with management and, based on such review and discussions, the Compensation Committee recommended to the Board that the Compensation Discussion and Analysis be included in this proxy statement.

 

THE COMPENSATION COMMITTEE

 

Scott M. Sperling (Chairman)
Tyler Jacks
Thomas J. Lynch
Elaine S. Ullian

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The following table summarizes compensation for services to the Company earned during the last three fiscal years by the Company’s chief executive officer, chief financial officer, and the three other most highly compensated executive officers of the Company during 2010. The executive officers listed below are collectively referred to in this proxy statement as the “named executive officers.”

 

 

(1)     Reflects salary earned for the year, though a portion of such salary may have been paid early in the subsequent year.

 

(2)     These amounts represent the aggregate grant date fair value of restricted stock and restricted stock unit awards made during 2010, 2009 and 2008, respectively, calculated in accordance with the Company’s financial reporting practices. For information on the valuation assumptions with respect to these awards, refer to note 5 of the Thermo Fisher financial statements in the Form 10-K for the year ended December 31, 2010, as filed with the SEC. For performance-based restricted stock unit awards made in March 2010 to Messrs. Wilver, Herrema, Malus and Pesicka, these amounts reflect the grant date fair value of such awards using a Monte Carlo simulation model. The value of these awards at the grant date assuming that the highest level of performance conditions was achieved was $839,350, $886,861, $886,681 and $886,861 for Messrs. Wilver, Herrema, Malus and Pesicka, respectively. For the November 21, 2009 performance-based restricted stock unit granted to Mr. Casper, this amount reflects the grant date fair value of such award using a Monte Carlo simulation model. The value of this award at the grant date assuming that the highest level of performance conditions was achieved is $18,624,000. For performance-based restricted stock unit awards made in February 2009 to Messrs. Wilver, Herrema, Malus and Pesicka, these amounts reflect the grant date fair value of such awards based upon the probable outcome at the time of grant. The value of these awards at the grant date assuming that the highest level of performance conditions was achieved was $901,056, $1,039,680, $1,039,680 and $1,039,680 for Messrs. Wilver, Herrema, Malus and Pesicka, respectively. For performance-based restricted stock awards made in February 2008 to Messrs. Casper, Wilver and Malus, these amounts reflect the grant date fair value of such awards based upon the probable outcome at the time of grant. The value of these awards at the grant date assuming that the highest level of performance conditions was achieved was $974,136, $807,392, and $763,512 for Messrs. Casper, Wilver and Malus, respectively. The amounts reflected in this column do not represent the actual amounts paid to or realized by the named executive officer for these awards during fiscal years 2010, 2009 or 2008.

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(3)     These amounts represent the aggregate grant date fair value of stock option awards made during 2010, 2009 and 2008, respectively, calculated in accordance with the Company’s financial reporting practices. For information on the valuation assumptions with respect to these awards, refer to note 5 of the Thermo Fisher financial statements in the Form 10-K for the year ended December 31, 2010, as filed with the SEC. For the November 21, 2009 performance-based stock option granted to Mr. Casper, this amount reflects the grant date fair value of such award using a Monte Carlo simulation model. The value of this award at the grant date assuming that the highest level of performance conditions was achieved is $2,215,605. These amounts do not represent the actual amounts paid to or realized by the named executive officer for these awards during fiscal years 2010, 2009 or 2008.

 

(4)     Reflects bonus earned for the year but paid early in the subsequent year.

 

(5)     For Messrs. Malus and Pesicka, the amounts presented in this column represent the actuarial increase in the present value of their benefits under the Thermo Fisher Retirement Plan during the year ($2,808 for Mr. Malus in 2008, $2,808 and $2,104 for Messrs. Malus and Pesicka, respectively, for 2009, and $10,740 and $11,533 for Messrs. Malus and Pesicka, respectively, for 2010). As this Retirement Plan was a pension plan maintained by Fisher prior to the Fisher Merger in 2006, and was frozen prior to the merger, only Messrs. Malus and Pesicka (former employees of Fisher) participate in the Retirement Plan.

 

(6)     Under SEC rules and regulations, if the total value of all perquisites and personal benefits is $10,000 or more for any named executive officer, then each perquisite or personal benefit, regardless of its amount, must be identified by type. If perquisites and personal benefits are required to be reported for a named executive officer, then each perquisite or personal benefit that exceeds the greater of $25,000 or 10% of the total amount of perquisites and personal benefits for that officer must be quantified and disclosed in a footnote. The amounts presented in this column include (a) matching contributions made on behalf of the named executive officers by the Company pursuant to the Company’s 401(k) Plan, (b) premiums paid by the Company with respect to long-term disability insurance for the benefit of the named executive officers, (c) with respect to Mr. Casper, premiums paid by the Company for a term life insurance policy for the benefit of Mr. Casper, (d) premiums paid by the Company with respect to supplemental group term life insurance, (e) access to emergency medical service through Massachusetts General Hospital’s global hospital network, and (f) matching contributions made on behalf of the named executive officers by the Company pursuant to the Company’s Non-Qualified Deferred Compensation Plan. For 2010, the dollar value of the principal components of these benefits was (1) $14,700 each for Messrs. Casper, Wilver, Herrema, Malus and Pesicka for matching 401(k) contributions, (2) $2,244, $3,010, $2,444, $3,784 and $2,721 for Messrs. Casper, Wilver, Herrema, Malus and Pesicka, respectively, for long-term disability insurance premiums, (3) $11,875 for a term life insurance policy for Mr. Casper, and (4) $140,769, $60,810, $42,779, $57,610 and $45,254 for Messrs. Casper, Wilver, Herrema, Malus and Pesicka, respectively, for matching deferred compensation plan contributions.

 

(7)     Mr. Herrema became an executive officer of the Company on May 15, 2008, but was not a named executive officer for the year ended December 31, 2008.

 

(8)     Mr. Pesicka became an executive officer of the Company on July 10, 2008, but was not a named executive officer for the year ended December 31, 2008.

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*     All equity awards made during 2010 were granted under the Company’s 2008 Stock Incentive Plan.

 

(1)     Target awards are based on a percentage of the named executive officer’s salary.

 

(2)     These amounts represent the aggregate grant date fair value of stock option and restricted stock unit awards made during 2010, calculated in accordance with the Company’s financial reporting practices. For information on the valuation assumptions with respect to these awards, refer to note 5 of the Thermo Fisher financial statements in the Form 10-K for the year ended December 31, 2010, as filed with the SEC. For performance-based awards for Messrs. Wilver, Herrema, Malus and Pesicka, these amounts reflect the grant date fair value of each award using a Monte Carlo simulation model. Please see the footnotes to the Summary Compensation Table on page 23 for the grant date fair value of each award assuming that the highest level of performance conditions was achieved. The amounts reflected in this column do not represent the actual amounts paid to or realized by the named executive officer for these awards during fiscal year 2010.

 

(3)     Represents the threshold, target and maximum number of achievable shares pursuant to a performance-based restricted stock unit award. In connection with the awards of performance-based restricted stock units, the Compensation Committee adopted as a performance goal the measure Company stock price. The number of performance-based restricted stock units to be earned is based on the Company’s total shareholder return for the applicable measurement period, relative to the performance of the S&P 500 Industrials Index for the same period, assuming continued employment, subject to certain exceptions. The vesting of the performance-based restricted stock unit awards is as follows: up to fifty percent (50%) of the maximum restricted stock units would vest on the day the Compensation Committee certifies the performance level achieved for the first measurement period (January 1, 2010 through June 30, 2011), and up to the maximum restricted stock units would vest on the day the Compensation Committee certifies the performance level achieved for the second measurement period (January 1, 2010 through December 31, 2012), less the amount of restricted stock units that vested in connection with the first measurement period (but not less than zero), so long as the executive officer is employed by the Company on each such date (subject to certain exceptions). Shares issuable upon the vesting of restricted stock units would be delivered to the executives on the first anniversary of the applicable vesting date, subject to certain exceptions.

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(4)     Represents a time-based restricted stock unit award which vests in equal annual installments over a three-year period commencing on the date of grant (i.e., the first 1/3 of the restricted stock unit grant would vest on the first anniversary of the date of grant) so long as the executive officer is employed by the Company on each such date (subject to certain exceptions). Shares issuable upon the vesting of restricted stock units would be delivered to the executives on the first anniversary of the applicable vesting date, subject to certain exceptions.

 

(5)     The options vest in equal annual installments over a four-year period beginning on the date of grant. One-quarter of the options vest on each of March 5, 2011, 2012, 2013 and 2014, so long as the executive officer is employed by the Company on each such date (subject to certain exceptions).

 

(6)     The options vest over a five-year period beginning on the second anniversary of the date of grant. One-quarter of the options vest on each of March 5, 2012, 2013, 2014 and 2015, so long as the executive officer is employed by the Company on each such date (subject to certain exceptions).