Notice Of Annual Meeting Of Stockholders

 

March 6, 2007

 

To the stockholders:

 

 

The Annual Meeting of Stockholders of DOVER CORPORATION will be held on the 3rd Floor, Room 305, Wilmington Trust Company, 1100 North Market Street, Rodney Square North, Wilmington, Delaware 19890, on April 17, 2007, at 10:00 A.M., local time, for the following purposes:

 

 

 

 

Only holders of record of the outstanding common stock at the close of business on February 28, 2007 are entitled to notice of and to vote at the meeting or any adjournments thereof.

 

By authority of the board of directors,

 

Joseph W. Schmidt      

Secretary

 

 

Dover urges its stockholders to vote their shares as soon as possible. The proxy card contains instructions on how stockholders may cast their votes.

DOVER CORPORATION

 

PROXY STATEMENT

 

General

 

This statement is furnished by Dover Corporation (“Dover”), whose principal executive offices are at 280 Park Avenue, New York, NY 10017, in connection with the solicitation of proxies by the board of directors for use at the Annual Meeting of Stockholders (the “Meeting”) to be held on April 17, 2007, or any adjournments thereof, for the purposes set forth in the notice of meeting. Dover will pay the reasonable and actual costs of soliciting proxies, but Dover will not pay any amount to any officers or employees of Dover or its subsidiaries as compensation for soliciting proxies. Dover has retained Morrow & Co. to solicit brokerage houses and other custodians, nominees or fiduciaries and to send proxies and proxy material to the beneficial owners of such shares, at a fee of $7,500 plus expenses. Dover is first sending this statement and the proxy form to the stockholders on or about March 6, 2007.

 

As of the close of business on February 28, 2007, the record date for determining stockholders eligible to vote at the Meeting, Dover had outstanding 204,790,069 shares of common stock. Each share of common stock is entitled to one vote on all matters.

 

Dover has provided to each stockholder as of the record date a copy of Dover’s 2006 Annual Report on Form 10-K filed with the Securities and Exchange Commission (including the financial schedules thereto but without the exhibits) as part of Dover’s Annual Report to Stockholders for 2006. Dover will furnish any exhibit to its 2006 Annual Report on Form 10-K to any such stockholder upon written request and payment of a reasonable fee as Dover may specify to cover Dover’s expenses in providing the exhibit. Requests for exhibits should be directed to the Corporate Secretary at Dover Corporation, 280 Park Avenue, New York, New York 10017.

 

The shares covered by a proxy will be voted in accordance with the voting instructions given by the stockholder. If a stockholder returns a proxy but does not provide voting instructions, the shares covered by the proxy will be voted as follows:

 

 

The proxy also grants discretionary authority to the persons named as proxies in connection with other matters that may properly come before the Meeting if and to the extent allowed by the rules under the Securities Exchange Act of 1934, as amended, and any other applicable rules and regulations.

 

For purposes of the Meeting, there will be a quorum if the holders of a majority of the shares of common stock are present in person or by proxy. Abstentions and broker non-votes will be included in determining whether a quorum exists. Assuming a quorum exists, Proposal 1, regarding the election of directors, will require the vote of a plurality of shares present in person or by proxy and entitled to vote at the Meeting. Stockholders may not cumulate their votes. Proposal 2 and any other matter to properly come before the Meeting will require the affirmative vote of a majority of shares present in person or by proxy and entitled to vote at the Meeting. Abstentions and broker non-votes will not be counted for purposes of the election of directors and will have no effect on the outcome of the vote. For Proposal 2 and any other matter, abstentions and broker non-votes will have the same effect as a vote against the proposal.

 

Delaware law permits voting by telephone and on the internet and all votes submitted by those methods will be treated in the same manner as if submitted by mail. Stockholders of record may vote their shares by returning the enclosed proxy by mail, by telephone at 1-866-540-5760 or on the

internet at http://www.proxyvoting.com/dov. Stockholders who hold their shares in “street name” through a broker or other nominee must follow the instructions provided by such broker or nominee to vote their shares. A person giving a proxy by mail, by telephone or on the internet may revoke it at any time before it is exercised, by giving written notice to the Corporate Secretary of Dover at the address referred to above or by attending the Meeting and requesting in writing the cancellation of the proxy.

 

1. ELECTION OF DIRECTORS

 

The persons named as proxies will vote the shares covered by a proxy for the election of the eleven nominees listed below unless directed otherwise in the proxy, in which case the shares will be voted as directed. Votes may be cast only for the nominees listed below. If any such nominee for election is not for any reason a candidate for election at the Meeting, an event which management does not anticipate, the proxies will be voted for a substitute nominee or nominees as may be designated by the board of directors and for the others named below. Directors will be elected by a plurality of the votes cast. All the nominees are presently directors. Each director elected at the Meeting will serve until the election and qualification of his or her successor.

 

 

Board of Directors and Committees

 

During 2006, the board of directors held four regular meetings and two special meetings. The board has three standing committees, namely an audit committee, a compensation committee and a governance and nominating committee. Each of the committees has a written charter that is available on Dover’s website at http://www.dovercorporation.com and in print to any stockholder who requests it. Requests should be directed to the Corporate Secretary at Dover Corporation, 280 Park Avenue, New York, NY 10017. In 2006, each director attended at least 75% of the meetings of the board of directors and the standing committees of which he or she was a member.

 

The audit committee is currently composed of five directors, all of whom satisfy all the criteria for being “independent” members of the board and the audit committee established by the SEC and the New York Stock Exchange Listing Standards (“NYSE Listing Standards”) and also Dover’s standards for classification as an independent director (the “Dover Independence Standards”) which are available on Dover’s website at http://www.dovercorporation.com. In

addition, the board of directors has determined that all members of the audit committee qualify as “audit committee financial experts” as defined in the applicable SEC rules. The primary functions of the audit committee consist of:

 

 

See the audit committee report beginning on page 43. The audit committee’s responsibilities, authority and resources are described in greater detail in its written charter. In 2006, the audit committee held eight meetings. The members of the audit committee are Michael B. Stubbs (Chair), David H. Benson, James L. Koley, Bernard G. Rethore and Mary A. Winston.

 

The compensation committee is composed of four directors, all of whom satisfy all the criteria for being “independent” members of the board established in the NYSE Listing Standards and the Dover Independence Standards. The compensation committee, together with the other independent directors, approves compensation for the chief executive officer. The compensation committee also:

 

 

See the compensation committee report on page 21. The compensation committee’s responsibilities, authority and resources are described in greater detail in its written charter. In 2006, the compensation committee held four meetings. The members of the compensation committee are Richard K. Lochridge (Chair), Robert W. Cremin, Jean-Pierre M. Ergas, and Kristiane C. Graham.

 

The governance and nominating committee is composed of four directors, all of whom satisfy all the criteria for being “independent” members of the board established in the NYSE Listing Standards and the Dover Independence Standards. The governance and nominating committee develops and recommends to the board corporate governance principles for Dover. In addition, the governance and nominating committee identifies and recommends to the board candidates for election as directors and any changes it believes desirable in the size and composition of the board, and also makes recommendations to the board concerning the structure and membership of the board’s committees. The governance and nominating committee’s responsibilities, authority and resources are described in greater detail in its written charter. The governance and nominating committee held four meetings in 2006. The members of the governance and nominating committee are James L. Koley (Chair), David H. Benson, Robert W. Cremin and Kristiane C. Graham.

 

Dover does not require directors to attend the annual meeting of stockholders. Directors generally do not, and in 2006 did not, attend the annual meeting.

 

Corporate Governance

 

Dover is committed to conducting its business in accordance with the highest level of ethical and corporate governance standards. The following describes some of the actions taken to help ensure that the conduct of Dover and its employees earns the respect and trust of stockholders, customers, business partners, employees and the communities in which they live and work.

 

The board of directors has adopted written corporate governance guidelines which set forth the responsibilities of the board and guidelines relating to the qualifications and independence of its members and the members of its standing committees. In addition, the board has adopted a code of business conduct and ethics setting forth standards applicable to all Dover companies and their employees, a code of ethics for the chief executive officer and senior financial officers, and charters for each of its standing committees. All of these documents (referred to collectively as governance materials) are available on Dover’s website at http://www.dovercorporation.com, and in print to any stockholder who requests them. Requests should be directed to the Corporate Secretary at Dover Corporation, 280 Park Avenue, New York, NY 10017. The board, its committees and management periodically review the requirements of the Sarbanes-Oxley Act of 2002 (the “Sarbox Act”), the rules of the SEC, the NYSE’s Listing Standards and governance best practices, and revise the governance materials as warranted in light of corporate governance developments. Each of Dover’s segment subsidiaries and operating companies has a written code of conduct that meets or exceeds the standards of Dover’s code of business conduct and ethics.

 

The board has determined that at least two-thirds of its members and all of the members of its audit, compensation and governance and nominating committees shall be independent from management and shall meet all of the applicable criteria for independence established by the NYSE, the SEC and Dover. Currently, nine of eleven Dover directors meet all of these standards for independence. The board makes an annual determination of the independence of each nominee for director prior to his or her nomination for (re)election. No director may be deemed independent unless the board determines that he or she has no material relationship with Dover, directly or as an officer, stockholder or partner of an organization that has a material relationship with Dover.

 

The board has determined that each of the current members of the board, except for Thomas L. Reece, who was formerly a management representative, and Ronald L. Hoffman, who is the current management representative on the board, has no relationship with Dover and meets the independence requirements in the NYSE Listing Standards and the independence requirements of the SEC. In addition, all members of the board, except for Messrs. Reece and Hoffman, meet the Dover standards for director independence, which are set forth below.

 

The board holds four regular meetings a year, on a quarterly basis, and additional meetings as it deems necessary. In accordance with the NYSE Listing Standards, its non-management members meet at regularly scheduled executive sessions without management representatives and its independent directors meet alone at least annually. Mr. Koley, the chair of the governance and nominating committee, presides at these sessions. In addition to their normal board meeting attendance, many non-management directors periodically attend the board and company presidents’ meetings of the segment subsidiaries. At least one non-management director serves on the board of each of the six segment subsidiaries, and at least one non-management director usually attends the segment subsidiaries’ regular board and company presidents’ meetings. The board and its committees conduct annual self-evaluations of their performance.

 

At each of its regular quarterly meetings, the audit committee meets with each of the auditors, the director of internal audit and management separately to assess the effectiveness of the independent audit process. In addition to its regular quarterly meetings, the audit committee as a whole reviews and meets to discuss each Quarterly Report on Form 10-Q and the Annual Report on Form 10-K (including financials) prior to its filing with the SEC. The audit committee chair or his/her designee participates in meetings with management and Dover’s auditors to review earnings releases prior to the release of such information. At least one such meeting is held each quarter by

management’s disclosure controls and procedures committee, which includes among its members the chief financial officer, the controller, the director of internal audit and the general counsel of Dover, as well as the chief financial officers of Dover’s segment subsidiaries (the “DC&P committee”). The meeting takes place immediately before Dover’s release of earnings and the filing of its Quarterly Report on Form 10-Q or its Annual Report on Form 10-K, as the case may be, and is for the purpose of reviewing the earnings release, the contents of the quarterly or annual report, as the case may be, and Dover’s disclosure controls and procedures. The meeting is attended by the chair of the audit committee or his/her designee from the audit committee and Dover’s auditors, who review Dover’s earnings releases and reports before the meeting and discuss them with management at the meeting.

 

In accordance with the Sarbox Act, the audit committee has established procedures for (i) the receipt, retention and treatment of complaints regarding accounting, internal accounting controls, or auditing matters (“accounting matters”), and (ii) the confidential, anonymous submission by employees of concerns regarding questionable accounting matters. Such complaints or concerns may be submitted to Dover, care of the Corporate Secretary, or through the communications coordinator, an external service provider (the “communications coordinator”), by mail, fax, telephone or via the internet as published on Dover’s website at http://www.dovercorporation.com. The communications coordinator will forward such communications to the chair of the audit committee and, in most circumstances, to Dover’s General Counsel, in each case without disclosing the identity of the sender if anonymity is requested. Stockholders and other interested persons may also communicate with the board and the non-management directors in any of these same manners. Such communications will be forwarded to the chair of the governance and nominating committee and Dover’s General Counsel.

 

Dover Independence Standards

 

In order for a Dover director to qualify as independent for purposes of the NYSE Listing Standards, the Dover board must affirmatively determine that the director has no material relationship with Dover and its subsidiaries (either directly or as a partner, stockholder or officer of an organization that has a material relationship with Dover or its subsidiaries). The board has determined that individuals who satisfy the following standards shall be deemed independent per se for purposes of board membership, although additional eligibility standards may exist with respect to a specific board committee. The board may amend these standards from time to time in its discretion or for consistency with then applicable NYSE standards. In the following list, the term “Dover” means Dover and its consolidated subsidiaries. “Current” means being an executive, employee or partner at the time of determination of independence. “Executive officer of Dover” means Dover’s chief executive officer and those executive officers who report directly to him.

 

1. The director is not and has not been, within the prior three years, an employee of Dover (excluding service as an interim chairman, CEO or executive officer of Dover).

 

2.  No member of the director’s immediate family is or has been, within the prior three years, an executive officer of Dover (excluding service as an interim chairman, CEO or executive officer of Dover).

 

3.  The director has not received, during any twelve-month period within the prior three years, more than $100,000 in direct compensation from Dover (other than director or committee fees, pension and other deferred compensation for prior services not contingent on continued service).

 

4.  No member of the director’s immediate family has received, during any twelve-month period within the prior three years, more than $100,000 in direct compensation from Dover (other than compensation received for services as a non-executive employee of Dover or pension or other deferred compensation for prior services not contingent on continued service).

 

5.  The director is not a current partner or a current employee of Dover’s external auditor (or, if Dover has engaged a third party to provide internal auditing services, such internal auditor) and was not within the last three years a partner or employee of Dover’s external auditor (or, if Dover has engaged a third party to provide internal auditing services, such internal auditor) who personally worked on Dover’s audit and, in the case that Dover has changed its independent auditors within the prior three years, such former auditors.

 

6.  No member of the director’s immediate family is a current partner of Dover’s external auditor (or, if Dover has engaged a third party to provide internal auditing services, such internal auditor) or a current employee of Dover’s external auditor (or, if Dover has engaged a third party to provide internal auditing services, such internal auditor) who participates in such auditor’s audit, assurance or tax compliance (but not tax planning) practice, or was within the last three years a partner or employee of Dover’s external auditor (or, if Dover has engaged a third party to provide internal auditing services, such internal auditor) who personally worked on Dover’s audit and, in the case that Dover has changed its independent auditors within the prior three years, such former auditors.

 

7.  Neither the director nor any member of the director’s immediate family is, or has been within the last three years, employed as an executive officer of a company during the same period that any of Dover’s current executive officers serves or served on the compensation committee of that company.

 

8.  The director is not a current employee of a company that has made payments to, or received payments from, Dover for property or services in an amount which, in any of the three most recent fiscal years, exceeds the greater of $1 million or 2% of such other company’s consolidated gross revenues.

 

9.  No member of the director’s immediate family is a current executive officer of a company that has made payments to, or received payments from, Dover for property or services in an amount that, in any of the three most recent fiscal years, exceeds the greater of $1 million or 2% of such other company’s consolidated gross revenues.

 

10.  The director does not serve as an executive officer in any tax exempt organization to which Dover has made contributions in any single fiscal year within the last three years in an amount that exceeds the greater of $1 million or 2% of such tax exempt organization’s consolidated gross revenues.

 

Qualifications and Nominations of Directors

 

The governance and nominating committee considers and recommends to the board of directors nominees for election to, or for filling any vacancy on, the board in accordance with Dover’s by-laws and the committee’s charter. The committee annually reviews the requisite skills and characteristics of board members as well as the size, composition, functioning and needs of the board as a whole. To be considered for board membership, a nominee for director must be an individual who has the highest personal and professional integrity, who has demonstrated exceptional ability and judgment, and who will be most effective, in conjunction with the other nominees to the board, in collectively serving the long-term interests of Dover’s stockholders. The committee also considers members’ qualifications as independent (the board requires that at least two-thirds of its members be independent in accordance with applicable NYSE and SEC criteria), the financial literacy of members of the audit committee, the qualification of at least one member of the audit committee as an “audit committee financial expert”, and the diversity, skills, background and experiences of board members in the context of the needs of the board.

 

The governance and nominating committee may also consider such other factors as it may deem to be in the best interests of Dover and its stockholders. The board believes it appropriate and

important that at least one key member of Dover’s management participate as a member of the board. In appropriate circumstances, this number may be increased to two.

 

Whenever the committee concludes, based on the reviews or considerations described above or due to a vacancy, that a new nominee to the board is required or advisable, it will consider recommendations from directors, management, stockholders and, if it deems appropriate, consultants retained for that purpose. In such circumstances, it will evaluate individuals recommended by stockholders in the same manner as nominees recommended from other sources. Stockholders who wish to recommend an individual for nomination should send that person’s name and supporting information to the committee, care of the Corporate Secretary, or through Dover’s communications coordinator. Stockholders who wish to directly nominate an individual for election as a director, without going through the governance and nominating committee or using Dover’s proxy material, must comply with the procedures in Dover’s by-laws.

 

All of the nominees for director for election at the Meeting currently serve on the board and are being proposed by the board.

 

Compensation Committee Procedures

 

Under its charter, the compensation committee is required to meet at least annually. In practice the compensation committee has been meeting on a quarterly basis to review regulatory developments that may impact Dover’s compensation arrangements and employee benefit plans, consider amendments to compensation and benefit plans and perform various administrative tasks of the committee, including its annual review. At the committee’s regular meeting in February of each year, the committee reviews the results of the prior year and determines whether the relevant performance criteria required for the payment to senior executive officers of annual bonuses and medium-term cash incentive compensation for the prior year have been satisfied and, if so, considers and approves the actual amounts of any such payouts. At that meeting, the committee determines the participants in the Executive Officer Annual Incentive Plan and establishes performance criteria for annual bonuses to be awarded under such plan for the coming year, considers and approves any changes in base salary of senior executive officers and determines and makes medium-term cash performance and long-term equity awards under the 2005 Equity and Cash Incentive Plan (the “2005 plan”). The 2005 plan allows Dover to award stock option and SSAR grants, and restricted stock and cash incentive awards. In making its executive compensation decisions, the committee utilizes tally sheets prepared by outside consultants, detailing all compensation payable to each senior executive officer, including potential post-termination benefits.

 

Awards under the 2005 plan are typically made at the scheduled February compensation committee meeting each year shortly after the announcement of the earnings for the prior year. Except in very limited circumstances, the committee does not grant equity awards to executive officers at other times during a given year. Even in such cases, the grants are made by the compensation committee at regularly scheduled quarterly meetings with an exercise price equal to fair market value on the date of grant. Mid-year hires who will participate in the long-term incentive plan usually receive their first grant the following February.

 

All equity awards are made at fair market value on the date of grant, which is the date on which the compensation committee approves the grant. Under the 2005 plan, fair market value is determined in good faith by the compensation committee, taking into consideration the factors the committee deems appropriate from time to time, typically the closing price on the date of grant and the average of the high and low market prices on the date of grant. In November 2006, in light of the new SEC regulations relating to executive compensation disclosure, the committee adopted a principle that, going-forward, no grant will be made with an exercise price below the closing market price on the date of grant. The committee has delegated to its chair the authority to make the final determination of the exercise price following the close of business on the date of grant.

 

The compensation committee annually reviews the performance of Dover’s chief executive officer and recommends his compensation for review and revision or approval by Dover’s independent directors acting as a group. The compensation of the executive officers who report directly to Dover’s chief executive officer is recommended by Dover’s chief executive officer to the committee, which reviews and revises or approves the recommendation as the committee deems appropriate.

 

The compensation committee has the authority and discretion to retain external compensation consultants as it deems appropriate. Until recently, Dover’s compensation committee and management were advised by Jude Rich of Rich Associates and Semler Brossy Consulting Group LLC. Following Mr. Rich’s retirement, the compensation committee selected and retained Mercer Human Resource Consulting, Inc. to serve as its compensation consultant. The compensation committee generally does not ask its consultants to develop recommendations for the compensation of individual executive officers. Rather, the compensation committee looks to its consultant to periodically review and advise regarding the adequacy and appropriateness of Dover’s overall executive compensation plans, programs and practices and, from time to time, to answer specific questions raised by the committee or management. Compensation decisions are made by, and are the responsibility of, the compensation committee and the board, and may reflect factors and considerations other than the information and recommendations provided by the committee’s consultants. Dover’s compensation consultants perform substantially no other services for Dover.

 

Procedures for Approval of Related Person Transactions

 

Dover does not generally engage in transactions in which its senior executive officers or directors, any of their immediate family members or any of its 5% stockholders have a material interest. Should a proposed transaction involve any such persons, the transaction is referred to Dover’s board of directors for consideration and approval by the disinterested directors. Dover’s code of business conduct and ethics, which sets forth standards applicable to all employees, officers and directors of any Dover company, generally proscribes transactions that could result in a conflict of interest for Dover. Any waiver of the code for any senior executive officer or director requires the approval of Dover’s board of directors. Any such waiver will be disclosed on Dover’s website or on a Form 8-K. No such waivers were granted in 2006.

 

Directors’ Compensation

 

Under Dover’s 1996 Non-Employee Directors’ Stock Compensation Plan (the “directors’ plan”), non-employee directors receive annual compensation in an amount the board sets from time to time. The directors’ annual compensation is payable partly in cash and partly in common stock in an allocation the board may adjust from time to time. The cash portion is paid in equal quarterly payments. The stock portion is paid as of November 15 of each year. If any director serves for less than a full calendar year, the compensation to be paid to that director for the year will be pro-rated as deemed appropriate by the compensation committee.

 

Annual compensation for 2006 under the directors’ plan was $120,000, payable 40% in cash and 60% in common stock, and was paid by $48,000 in cash and 1,428 shares of common stock. The number of shares granted to any director is determined by dividing the dollar amount of the director’s annual compensation to be paid in shares by the “fair market value” of a share on the date of grant. The board has selected November 15 of each year as the date for stock compensation to directors. “Fair market value” is determined in good faith by the compensation committee on the basis of considerations the committee deems appropriate, including, for example, the closing price on the date of grant and the average of the high and low sales prices on the date of grant.

 

At its November 2006 meeting, the board of directors increased the base annual compensation of non-employee directors from $120,000 to $140,000, effective January 1, 2007. The percentage of the annual compensation payable in stock and cash remains 60% and 40%, respectively. The board

of directors also approved an increase in the additional annual cash retainer for the chair of the audit committee from $10,000 to $15,000 and the payment of an additional annual cash retainer of $7,500 to the chair of each of the compensation committee and the governance and nominating committee. The additional annual retainer for the chairman of the board remains at $80,000, payable 60% in stock and 40% in cash. In addition, effective for calendar year 2007, Dover directors will receive an annual cash retainer of $15,000 if they serve on a segment subsidiary board plus an additional annual cash retainer of $10,000 if they serve on the board of a second segment subsidiary. No meeting fees will be paid to directors for attending subsidiary meetings.

 

The board also amended Dover’s corporate governance guidelines to reflect the board’s new policy, effective January 1, 2007, that directors are expected to hold at any time at least the aggregate number of shares they were entitled to receive as the stock portion of their annual retainer during the previous five years, net of an assumed 30% withholding tax.

 

The table below sets forth the compensation Dover paid to its directors for services in 2006.

 

 

 

 

 

Security Ownership of Certain Beneficial Owners and Management

 

The following table sets forth certain information regarding the beneficial ownership, as of February 28, 2007 (except as otherwise stated), of Dover common stock by:

 

 

The beneficial ownership of Dover common stock set forth in the table is determined in accordance with the rules of the SEC. The calculation of the percentage of beneficial ownership is based on 204,790,069 shares of common stock outstanding on February 28, 2007. In computing the number of shares beneficially owned by any stockholder and the percentage ownership of such stockholder, shares of common stock subject to options held by that person that are currently exercisable or exercisable within 60 days of the record date are deemed to have been exercised and to be outstanding. Such shares, however, are not deemed to have been issued and to be outstanding for purposes of computing the percentage ownership of any other person. Share amounts held in the Dover Corporation Retirement Savings Plan (the “401(k) plan”) are reported as of February 26, 2007.

 

Unless otherwise indicated in the footnotes below, the persons and entities named in the table have sole voting and investment power as to all shares beneficially owned. Unless otherwise indicated, the business address for all directors and senior executive officers is c/o Dover Corporation, 280 Park Avenue, New York, NY 10017.

 

 

 

 

 

Section 16 (a) Beneficial Ownership Reporting Compliance

 

Section 16(a) of the Exchange Act requires that Dover’s directors and certain of its officers file reports of ownership and changes of ownership of Dover’s common stock with the SEC and the NYSE. Based solely on copies of such reports provided to Dover, Dover believes that all directors and officers filed on a timely basis all such reports required of them with respect to stock ownership and changes in ownership during 2006.

 

EXECUTIVE COMPENSATION

 

Compensation Discussion and Analysis

 

Executive Compensation Policy and Objectives

 

The primary objectives of Dover’s executive compensation programs are to attract and retain highly qualified executive officers, to motivate them to achieve measurable performance objectives at their management level and to align their interests with those of Dover’s stockholders.

 

To achieve the above objectives, Dover follows the basic principles that annual compensation should be competitive with other public manufacturing companies of similar size and that long-term compensation should generally be linked to Dover’s total return to stockholders. Consistent with Dover’s highly decentralized management approach, Dover also believes that compensation for an executive should be closely aligned to the performance of the business over which the executive has the most control. In Dover’s decentralized management structure, there are three levels or groups of management: corporate, segment subsidiary and operating company. In significant ways, Dover’s compensation plans and programs described in the following pages reflect these different management levels.

 

Dover believes that employment contracts are usually not in the best interests of the company or its stockholders. None of Dover’s executive officers has an employment contract.

 

Dover does not believe in negotiating special compensation arrangements with individual executive officers and seldom does so. Dover’s executive compensation plans and programs apply in substantially the same manner to all of Dover’s current executive officers with only the variations described in the following pages. These variations relate primarily to level of responsibility, duration of employment, retirement eligibility and similar factors.

 

The following discussion outlines the process for evaluating and rewarding Dover’s executive officers, numbering about 60, consisting of operating company presidents and the small group of

executive officers located at segment subsidiary offices or Dover corporate headquarters. The plans and programs mentioned in this Compensation Discussion and Analysis are described in detail in the following pages. Dover’s chief executive officer and those executive officers who report directly to him constitute Dover’s executive officers as defined under SEC rules and are termed “senior executive officers” in this proxy statement.

 

Compensation for each executive officer is normally reviewed annually in January. Dover employs a “one-over-one” compensation review system in which an employee’s compensation is reviewed by the two management levels above that employee. In this system, the employee’s performance is reviewed by the employee’s supervisor, who recommends any compensation adjustment to the person to whom the supervisor reports. The second level supervisor reviews and revises or approves the recommendation. The compensation of an operating company president or the chief financial officer of a segment subsidiary is recommended by the chief executive officer of that company’s segment subsidiary and reviewed and revised or approved by Dover’s chief executive officer. The compensation of the executive officers who report directly to Dover’s chief executive officer is recommended by Dover’s chief executive officer and reviewed and revised or approved by the compensation committee of Dover’s board of directors. This includes the four other senior executive officers named in the Summary Compensation Table below. Dover’s chief executive officer and the compensation committee are provided with compensation data on all executive officers. The compensation committee reviews the performance of Dover’s chief executive officer and recommends his compensation. This recommendation is reviewed and revised or approved by all of Dover’s independent directors acting as a group (which includes all the members of the compensation committee, all of whom are independent).

 

In establishing compensation for Dover’s executive officers, the total compensation earned or potentially available for each such person is considered. As part of this process, the compensation committee has for several years reviewed “tally sheets” prepared by consultants. These “tally sheets” are prepared separately for Dover’s chief executive officer and each executive officer reporting directly to the chief executive officer, including all senior executive officers named in the Summary Compensation Table. The tally sheets include all elements of compensation, including annual base salary, annual bonus, medium-term cash performance awards and payouts, long-term equity incentive grants, perquisites and retirement and termination benefits.

 

Dover executive officers do not have employment contracts, and Dover does not have a general severance policy. Accordingly, no Dover executive officer has a contractual right to severance or other benefits upon termination of employment except for benefits to be provided in accordance with the terms of compensation plans in connection with previously granted equity and cash performance awards, accrued retirement benefits and double-trigger change in control agreements which are described below.

 

Dover believes that, in addition to annual salary and bonus opportunities, incentives should be provided to key management over longer periods of time, both to encourage focus on Dover’s long-term performance and help retain talented executives. Dover offers its executive officers this incentive compensation under its long-term incentive plan (LTIP) in two forms. The first form is cash performance awards, which are paid, if earned, three years after award, depending on the financial performance of the executive officer’s applicable business unit over the three-year period. Dover considers this medium-term incentive compensation. The second form is equity awards which, since 2006, are stock settled stock appreciation rights (SSARs) and, prior to 2006, were stock options. SSARs (and stock options) are not exercisable during the first three years after grant, and then are exercisable for seven years, for a total term of 10 years. Dover considers this long-term incentive compensation. SSARs and stock options will have value only if and to the extent that Dover’s stock price has increased above its price on the date of grant.

 

Dover sets compensation on the basis of the performance of the business over which the executive has the most control. For an executive officer at an operating company, the executive

officer’s compensation relates to a large extent directly to the performance of that company. For an executive officer at the segment subsidiary level, compensation is closely related to the performance of that business segment. For executive officers at the corporate level, the overall performance of Dover, as reported to stockholders, is given primary consideration.

 

In setting compensation, Dover generally compares its executive compensation to the manufacturing companies in the Total Compensation Management database, a proprietary database designed by Hewitt Associates (the “TCM database”). Since Dover operates in multiple business segments in the manufacturing industry, management and the compensation committee believe it most appropriate to use a broad manufacturing index for comparative compensation purposes. The TCM database currently includes approximately 270 public manufacturing companies, including Dover and most of the companies that comprise Dover’s peer group for purposes of its stock performance graph, which appears in Dover’s Annual Report on Form 10-K for the year ended December 31, 2006.

 

The TCM database facilitates comparison of compensation of executive officers in stated positions at business units of specified sizes at public manufacturing companies which report their compensation data into the database. Dover has recognized that, under Dover’s highly decentralized management structure, the executive officers of its operating companies are given a much broader level of independent responsibility for their businesses and less centralized administrative support than that generally accorded business unit managers in comparable but centralized companies. This includes responsibility for the operation and performance of their businesses, including development, sourcing and marketing of products, management of capital allocated to them, and initiating and implementing any add-on acquisition proposals for their operating company. Accordingly, Dover decided that the compensation levels of the executive officers at its operating companies should be targeted 15% above the compensation levels of executive officers in comparable positions at similar-sized business units of the other manufacturing companies in the TCM database.

 

A similar analysis was performed for executive officers at the segment subsidiary level. In Dover’s decentralized management structure, the executive officers at the segment subsidiary level bear responsibilities much broader than their counterparts at similar-sized operating business units at most other manufacturing companies. Dover believes these responsibilities approach, but are still less than, the responsibilities of executive officers at the top level of public manufacturing companies in the TCM database. Accordingly, Dover decided that the compensation levels of the executive officers at its segment subsidiaries should be targeted 15% below the compensation levels of executive officers in the top positions of the other manufacturing companies in the TCM database similar in size to the Dover executive officer’s segment subsidiary.

 

Dover uses the 62nd percentile of the TCM database as the appropriate benchmark for salaries and bonuses for all its executives, adjusted as described above. Dover believes that doing so has enabled it and its companies to attract and retain above-average executive talent and is intent on continuing to do so as this drives the financial performance of the company. Dover generally promotes executives from within. However, when Dover or its companies have gone outside to recruit, the success of those efforts has indicated that the levels of its executive compensation are generally appropriate for Dover and its objectives. This TCM database percentile (adjusted as described above) is only a benchmark and the compensation of executive officers in particular cases may be above or below the adjusted benchmark.

 

Compensation Components

 

For 2006, an executive’s compensation consisted of a base salary, an annual incentive bonus opportunity (generally a percentage of the annual salary), medium-term cash-based and long-term equity-based compensation, as well as retirement and other customary benefits such as health care, group life insurance and long-term disability. Dover does not provide post-retirement health care benefits to its executive officers.

 

Annual Compensation

 

Base Salary:  Dover executive officers’ salaries vary from the targeted 62nd percentile of the TCM database based on the assigned responsibilities, individual performance, business unit performance and the individual’s skills, experience and background. Base salaries are reviewed annually and adjusted as appropriate to realign them with market levels after taking into account the factors indicated above.

 

Annual Bonus:  Dover has a traditional bonus program under which it awards its executive officers annual cash bonuses (generally targeted at a percentage of salary) on a discretionary basis. Bonus levels are set with reference to the 62nd percentile of the TCM database and are based on a pay-for-performance policy. Annual bonuses vary depending upon the performance of the executive officer’s business unit, as measured by earnings growth, return on investment and achievement of specific performance goals set by the officer’s supervisor, as well as management’s judgment of the officer’s overall performance. For 2006, it was expected that approximately 50% of any bonus earned at the operating company level would reflect efforts to meet or exceed Dover operating company performance metrics (inventory turnover, net earnings growth, operating margin, working capital as a percentage of sales and after-tax return on investment) and advance appropriate succession plans.

 

Dover has an Executive Officer Annual Incentive Plan (the “bonus incentive plan”) under which Dover may award to its most senior executive officers cash incentive bonuses based on financial performance relative to pre-established annual performance goals. The bonus incentive plan, which replaces the traditional bonus program for participating executive officers, is designed to satisfy the requirements of Section 162(m) of the Internal Revenue Code so that annual bonus awards given to participants will be tax deductible by Dover.

 

The bonus incentive plan is administered by the compensation committee and operates in the following manner. The compensation committee determines which senior executive officers will participate in the bonus incentive plan in any given year. At its meeting in February each year, the compensation committee establishes the performance criteria by which each participant will be measured for that year, the numerical performance goal for each such criterion, and a target dollar bonus amount for each participant. For participants at the corporate level, the criteria may be any or all of Dover’s net income, earnings per share and return on equity, as reflected in Dover’s public financial statements. For participants at the segment subsidiary level, the criteria may be either or both of that subsidiary’s operating earnings and return on investment. The compensation committee sets the numerical performance goals at levels it believes provide a reasonable bonus opportunity with an incentive for substantial upside for achievement of greater than 100% of the goals. The compensation committee has decided that no credit will be given for performance less than 50% of the performance goal, and that no additional credit will be given for performance above 150% of the performance goal.

 

After the end of the year, the level of performance is determined and the potential bonus for each participant is calculated. The compensation committee then considers all other factors in the annual performance of each participant. Considering these factors, the committee has discretion to set the amount of a participant’s annual bonus which may not be more than that calculated under the bonus incentive plan. As a point of reference in exercising this discretion, annual bonus amounts arrived at under this plan are typically compared to comparable bonus levels reflected in the TCM database, using as a target the 62nd percentile. The bonuses paid under the bonus incentive plan are almost always less than the maximum possible bonus calculated in accordance with the plan. It is Dover’s intention that the amount of bonus paid to any participant under the bonus incentive plan for any year will approximate the amount of bonus that would be paid to that participant under the company’s traditional bonus program.

For 2006, all of the executive officers named in the Summary Compensation Table plus the other segment subsidiary heads participated in the bonus incentive plan. The performance criterion was earnings per share for each participating corporate officer and segment operating earnings for the heads of each business segment. At the corporate level, 91% of the performance goal was achieved. At the segment subsidiaries, the level of performance goal achievement ranged from 82% to 105%. After discretionary adjustment by the compensation committee, the named executive officers were paid the bonuses shown in the Summary Compensation Table.

 

Medium-Term and Long-Term Compensation

 

As mentioned above, Dover offers its executive officers incentive compensation over periods of time longer than one year under its long-term incentive plan (LTIP). This is Dover’s 2005 plan. Only executives who are in a position to affect materially Dover’s profitability and growth are eligible for awards under the 2005 plan.

 

The 2005 plan allows Dover to make cash performance awards, stock option grants, restricted stock awards and, beginning in 2006, SSAR grants. Dover generally does not award restricted stock except in connection with special or unusual circumstances. No restricted stock awards were made to executive officers in or for the year 2006 and none of Dover’s executive officers currently holds restricted stock. Stock options and SSARs have substantially the same terms and provide the same incentive and benefit to employees, but SSARs were added to the 2005 plan in 2006 as a replacement for stock options because SSARs are much easier for the company and the employee to administer. SSARs also should result in fewer shares being issued and thus less dilution. Prior to 2006, no SSARs were available. Since the 2005 plan was amended to make SSARs available, no options have been granted.

 

Awards under the 2005 plan are generally made only once each year, at the scheduled February compensation committee meeting shortly after announcement of earnings for the prior year. Except in very limited circumstances, the committee does not grant LTIP awards at other times during a given year. Even in such cases, the grants are made by the compensation committee at regularly scheduled quarterly meetings and equity grants have an exercise price equal to fair market value on the date of grant. Mid-year hires who will participate in the long term incentive plan usually receive their first grant the following February.

 

LTIP awards are generally a combination of an SSAR grant and a cash performance award. The award for an individual is calculated by multiplying the individual’s base salary by a multiple appropriate for his or her level established by the compensation committee and designed to deliver competitive 62nd percentile medium and long-term incentive compensation. The resulting dollar value is then allocated between SSAR grant and cash incentive award, as described in the following paragraph. For the named executive officers, the cash incentive awards and SSAR grants made in February 2007 were based on multiples ranging from 3.8 to 7.2, with higher multiples relating to higher levels of responsibility.

 

In keeping with Dover’s executive compensation philosophy, Dover adjusts the relative mix of medium-term (cash) and long-term (equity) compensation opportunities in accordance with the breadth of the executive’s responsibility across the Dover organization. Increasingly larger percentages are allocated to long-term reward potential through equity awards for persons who are in positions to most materially affect Dover’s overall profitability and growth. Operating company management receive 27% of their respective reward opportunity in the form of three-year cash incentive awards, the value of which depends on the success of their operating unit, and 73% in the form of equity awards, the value of which depends on the success of Dover as a whole. Segment subsidiary officers receive 20% of their reward opportunity in the form of cash incentive awards and 80% in the form of equity awards. Corporate level officers receive 6% of their reward opportunity in the form of cash incentive awards and 94% in the form of equity awards.

 

Cash Performance Awards:  The dollar value to be applied to the cash performance award becomes the base amount of that award. Cash performance awards are made annually for the three-year performance period commencing with the year of the award. Any payout of cash performance awards will occur three years later, conditional upon the achievement of specified financial performance criteria over the three-year period. For example, payouts of cash incentive awards made in February 2007 are scheduled for payment in February 2010, subject to the achievement of the performance criteria for the three years 2007, 2008 and 2009, compared to the actual performance in the base year 2006. The actual cash payout, if any, is equal to the cash performance award amount multiplied by a percentage which is derived from a performance matrix, or table. The performance matrix uses a combination of the following performance parameters, using in each case the average of each factor over the three-year performance period compared to the base year:

 

 

For the corporate officers who have responsibility across the entire Dover organization, including the chief executive officer and the chief financial officer, the applicable parameters are average (over three years) real growth in earnings per share and after-tax return on equity as reported in Dover’s public financial statements. For those participating officers at segment subsidiaries and operating companies, including the other named executive officers, the applicable parameters are average (over three years) real growth in operating earnings and after-tax return on investment as applicable to their business segment or operating company. In determining the amount of the payouts to officers of the segment subsidiaries and operating businesses, the results of businesses sold, including gains and losses on the sale of those businesses, are excluded once the businesses are sold, and all prior period results are restated to reflect such sold businesses. In a few select situations, adjustments are made to the performance criteria or the method of calculating the payout with the approval of the compensation committee. There is no payout if the three-year average growth in earnings is below zero or if the three-year average return on equity or return on investment is less than ten percent.

 

Since payouts under cash performance awards are based on performance over a three-year period, Dover has adopted transition rules for award recipients who transfer from one Dover business to another. During the three years following the transfer, payouts of cash performance awards continue to be based on the original performance period cash awards granted while the participant was at the former company. Any payout made within the first year after the transfer is based on the performance metrics applicable to the participant’s former company, as that is the business over which the person had the most control during the performance period. For payouts during the second and third years following a transfer, the participant has the option of selecting the performance metrics applicable to either the former or current business. However, if the performance metrics applicable to the current business are selected for a possible payout in year two after a transfer, the performance metrics applicable to the current business must also be used for any payout in year three after a transfer.

 

These transition rules are applicable to Mr. Van Loan, one of the named executive officers, in respect of the payout made to him in February 2007 for his cash performance award originally granted in February 2004. Mr. Van Loan became President of Dover Technologies in May 2005. His 2007 payout was based on the performance metrics applicable to the Everett Charles Technologies operating company, based on his award as President of Everett Charles Technologies in 2004.

 

 

SSAR Awards:  Once the dollar value to be applied to an SSAR grant is determined, that value is converted into a number of SSARs by dividing that value by the fair market value of Dover

stock on the date of grant. The exercise price of all SSARs (and options granted in prior years) is the fair market value of Dover’s stock on the date of grant. All SSARs (and stock options) have been granted with ten-year terms and are not exercisable until three years after their grant.

 

Under the 2005 plan, the fair market value of Dover stock on the date of grant is determined in good faith by the compensation committee, taking into consideration the factors the committee deems appropriate from time to time, typically the closing price on the date of grant and the average of the high and low market prices on the date of grant. Accordingly, prior to November 2006, the fair market value may have been lower or higher than the closing price on the date of grant if the committee determined that the closing price was not the best representation of the fair market value of Dover common stock on that day. In November 2006, in light of the new SEC regulations relating to executive compensation disclosure, the committee adopted a principle that, going-forward, no grant will be made with an exercise price below the closing market price on the date of grant.

 

Stockholding Guidelines

 

Dover has no formal stock ownership requirement for its executive officers. However, it expects that its senior executive officers (or their family members) will hold the net shares acquired by the executive officer as compensation from Dover upon exercise of options or SSARs for the duration of the officer’s employment with Dover, except in cases of special need and in preparation for retirement.

 

Other Executive Officer Benefits

 

Dover and most of its companies offer a 401(k) plan to substantially all U.S.-based employees and provide a company matching contribution (the amount of which varies depending on the operating unit where such employees work) based on the amount contributed during the course of the year by a plan participant. Some operating units also make profit sharing contributions to the plan based on various discretionary performance factors.

 

Dover’s executive compensation program also includes the ability of executive officers to participate in various qualified and nonqualified employee benefit plans. Generally, these benefits serve a different purpose than traditional compensation, such as providing protection against financial loss arising from illness, disability, death or retirement. Some of these benefits are similar to those offered to other employees. Others, with participation generally limited to executive officers, are intended to enhance the tax efficiency of benefits to the recipient or serve as a substitute for, or enhance benefit opportunities lost due to, regulatory contribution limits applicable with respect to Dover’s qualified plans.

 

Dover offers selected executive officers the opportunity to participate in its Supplemental Executive Retirement Plan, which is an unfunded nonqualified plan that provides enhanced retirement benefits. In order to participate in the plan, executives must have been granted cash performance or equity awards in at least five years under the 2005 or 1995 plan and have been formally designated as participants by Dover’s chief executive officer. The plan provides a benefit pursuant to a formula in which two percent of a participant’s final five-year average pay is multiplied by the participant’s years of service (up to a maximum of 30 years) and then reduced by the value of other retirement benefits the participant will receive that are attributable to company contributions under other qualified and nonqualified retirement plans (including social security). In certain instances, in order to facilitate the hiring of experienced, mid-career executives, participants are credited with years of service prior to their actual years of service with Dover for purposes of determining their benefits under the plan. Unreduced plan benefits are payable to a participant who retires after attaining age 62 and completing 10 years of service, and the plan provides benefits if

the participant becomes permanently disabled or dies before retirement. For a detailed description of this plan, see “Pension Benefits” below.

 

Dover also offers executive officers the opportunity to participate in its deferred compensation plan. This plan allows participants to elect to defer their receipt of the payment of up to 50% of salary and 100% of bonus and any payout of a cash performance award which is earned with respect to any year. This affords tax planning benefits to participants. See “Nonqualified Deferred Compensation” below for a detailed description of this plan.

 

With respect to its pension and other similar benefit programs, Dover has set a target at the median of comparable companies.

 

Although Dover has no executive employment contracts, it does have double-trigger change-in-control agreements with each of the named executive officers and certain other executive officers designed to encourage each such officer to continue to carry out his or her duties with a Dover company in the event of a change in control of Dover. The agreements provide that if both (1) there is a change in control of Dover and (2) within eighteen months following the change in control the officer’s employment is terminated either by Dover for other than “cause,” “disability” or death or by such officer for “good reason” (all as defined in the agreements), then such officer will receive a lump sum payment equal to three times the base salary in effect prior to that time plus the average annual bonus earned by the officer during the three prior years. The terms of these agreements are described in greater detail below.

 

Under the terms of various Dover benefit plans, a change in control of Dover will cause acceleration of the availability and payout of benefits, including that all outstanding cash performance awards will immediately vest and be paid and all outstanding stock options and SSARs will immediately vest and become exercisable. Most executive officers, including all senior executives, may not receive any payments under these agreements until six months after separation from Dover.

 

Perquisites

 

Dover does not provide significant perquisites to its executive officers. In keeping with its decentralized management style, Dover has no executive perquisite program. Management and the compensation committee believe that providing significant perquisites to executive officers would not be consistent with Dover’s overall compensation philosophy. As seen in the notes to the Summary Compensation Table below, only two of the five named executive officers received more than $10,000 in perquisites in 2006.

 

Regulatory Considerations

 

Dover takes into consideration applicable tax, securities laws and accounting regulations in structuring and modifying its compensation arrangements and employee benefit plans and, as it deems appropriate, making individual compensation decisions.

 

Section 162(m).  Section 162(m) of the Internal Revenue Code limits the ability of a public corporation such as Dover to take an income tax deduction of compensation in excess of $1 million to specified executive officers unless the compensation is paid under a stockholder-approved plan and is based on objective performance criteria. Dover’s general policy is to structure individual compensation and compensation programs to allow the company to fully deduct compensation in accordance with Section 162(m). Accordingly, as discussed above, Dover’s bonus incentive plan is designed to satisfy the requirements of Section 162(m), as are both the equity and cash incentive portions of the long-term incentive plan. Until 2007, the salary of Dover’s chief executive officer has been limited to $1 million per year and annual bonuses were increased to maintain total competitive compensation, based on TCM data and overall market conditions.

 

Dover believes that tax deductibility of compensation is an important factor in setting executive compensation policy and in rewarding superior executive performance. However, the compensation committee retains the authority to approve the payment of compensation that may not be deductible if it believes such payments would be in the best interest of Dover’s stockholders. All compensation paid to the executive officers for 2006 qualified as fully deductible for federal income tax purposes, although this will not be the case for the chief executive officer’s salary in 2007.

 

Section 409A.  Section 409A of the Internal Revenue Code imposes certain restrictions on Dover’s discretion with respect to early retirement and other matters under various of its nonqualified employee benefit plans and has required changes in the provisions and administration of these plans. These regulations largely limit the ability of senior executives to withdraw funds from Dover’s nonqualified plans and delay for six months following termination of employment certain payments or distributions to “specified employees,” as defined in Section 409A, who are generally the 50 highest paid employees of the Dover companies. Dover is revising its plans and practices to comply with these requirements and considering their impact on its overall executive compensation program.

 

Compensation Committee Report

 

The compensation committee has reviewed and discussed with management the Compensation Discussion and Analysis for the year ended December 31, 2006.

 

Based on the review and discussions referred to above, the compensation committee recommended to the board of directors that the Compensation Discussion and Analysis for the year ended December 31, 2006 be included in Dover’s Annual Report on Form 10-K and in this proxy statement.

 

Robert W. Cremin

Jean-Pierre M. Ergas

Kristiane C. Graham

SUMMARY COMPENSATION TABLE

 

The Summary Compensation Table below shows all remuneration paid by Dover and its subsidiaries to the following officers for 2006:

 

 

The determination of the most highly paid senior executive officers is based on total compensation paid or accrued for 2006, excluding changes in the actuarial value of defined benefit plans and earnings on nonqualified deferred compensation balances.

 

 

 

 

GRANTS OF PLAN-BASED AWARDS

 

 

 

 

OUTSTANDING EQUITY AWARDS AT FISCAL YEAR-END

 

 

 

 

Equity Plans.   The awards shown in the “Outstanding Equity Awards at Fiscal Year End” table are grants of options or, beginning in 2006, SSARs, granted under the 2005 plan or its predecessor, the 1995 plan. The 1995 plan expired in January 2005 and was replaced by the 2005 plan. Options granted under either plan have similar terms.

 

The 2005 plan provides for stock option, SSAR, restricted stock and cash incentive awards. Dover reserved a maximum aggregate of 20,000,000 shares of common stock for issuance under the 2005 plan during its 10-year term. Of the shares authorized for issuance under the 2005 plan, only a maximum aggregate of 5% of the shares may be granted as restricted stock. Options granted under the 2005 plan may be either nonqualified stock options or incentive stock options within the meaning of Section 422 of the Internal Revenue Code. Grants and awards may be made by the compensation committee at any time or from time to time before January 31, 2015, provided that no incentive stock options may be granted after February 11, 2014.

 

No single recipient may be granted options and/or SSARs for more than 600,000 shares in any year. Options and SSARs have a term not exceeding ten years and become exercisable after not less than three years from their date of grant, except in special circumstances such as upon a change in control or a recipient’s death or permanent disability. Generally, stock options are not transferable, except that nonqualified options may be transferred to members of the holder’s immediate family (or a trust for the benefit of one or more of such family members), but any such transferred options cannot be further transferred by the transferee during the transferee’s lifetime. SSARs are not transferable except by bequest or inheritance.

 

The primary difference between options and SSARs is in the method of exercise. To exercise an option, the holder must pay to Dover the exercise price and the withholding taxes triggered by the exercise. By contrast, the holder of a vested SSAR will only have to notify Dover of the SSAR exercise and specify the number of SSARs being exercised. Dover will then calculate the gain measured by the difference between the exercise price and the fair market value of a share on the date of exercise, withhold the appropriate amount of tax, divide the remaining gain by the fair market value of a share on the date of exercise and deliver the resulting number of whole shares to the holder. Because of this issuance of a net number of shares, the number of shares issued upon exercise of SSARs will be less than upon exercise of stock options covering the same initial number of shares.

 

OPTION EXERCISES AND STOCK VESTED

 

 

 

 

 

PENSION BENEFITS

 

 

 

 

Pension Plan

 

The Dover Corporation Pension Plan (the “pension plan”) is a tax-qualified defined benefit plan covering certain salaried and hourly employees of Dover and its domestic subsidiaries who are US citizens and tax residents, and generally have attained age 21 and completed one year of employment. A number of Dover operating companies and one segment subsidiary do not participate in the pension plan and Mr. Van Loan does not participate in the pension plan. Generally, vesting of qualified pension benefits occurs after completion of five years of employment or, if earlier, upon reaching normal retirement age, which, for purposes of the pension plan, is the first day of the month coincident with or next following an employee’s 65th birthday.

 

The benefit is based generally upon:

 

 

Compensation for pension plan purposes includes base pay, annual bonus, commissions, overtime, holiday pay, vacation pay and certain amounts contributed by employees to benefit plans, but excludes any payments of stock option, SSAR or restricted stock awards under the 2005 plan or the 1995 plan, expense reimbursements, payments from or Dover contributions to benefit plans, sign-on, stay or retention bonuses, severance pay, or special allowance or premium pay with respect to employment outside the United States. Compensation is limited to the annual statutory limit for tax-qualified pension plans ($225,000 for 2007). Benefits at a participant’s normal retirement age under the pension plan are equal to 1% of the participant’s final average compensation up to the Social Security integration level (SSIL) plus 1.5% of final average compensation in excess of the SSIL, multiplied by the participant’s years of actual service under the pension plan to a maximum of thirty-five years. The SSIL is 158% of the Social Security wage bases averaged over the 35 years prior to the year of calculation. A participant who remains in service after his or her normal retirement age continues to accrue benefits under the pension plan. All persons named in the Pension Benefits Table who participate in the pension plan have become vested in their pension plan benefits and, therefore, are eligible, upon termination of employment, to begin receiving benefits before normal retirement age, in which case the benefit would be reduced if paid prior to their normal retirement ages based on the following factors:

 

 

Alternatively, payment of the benefit can be deferred until normal retirement age.

 

A qualified plan election generally is required in order for benefits to commence. Benefits will be paid as a single life annuity if the employee is not married at the benefit commencement date, or as a joint and 50% survivor annuity with the participant’s spouse as the joint annuitant if the employee is married on such date. Other forms of payment may be elected, including a lump sum payment, 5 year certain and life annuity (meaning a guaranteed benefit for 5 years to the employee and if the employee dies before this period ends, the remaining guaranteed payments will be made to his or her beneficiary), 10 year certain and life annuity, single life annuity and joint and 100% survivor annuity. A vested participant who becomes permanently disabled prior to retirement may elect to receive either an unreduced immediate benefit or an enhanced deferred benefit, and benefits also are payable to the spouse of a participant who dies prior to retirement.

 

SERP

 

The Dover Corporation Supplemental Executive Retirement Plan (the “SERP”) is an unfunded nonqualified plan that provides enhanced retirement benefits. Eligibility for, and vesting of, SERP benefits occur when an employee

 

 

Benefits under the SERP are determined as (A) times (B) times (C) reduced by (D):

 

(A) 2% of the participant’s final average compensation (defined as the highest 60 consecutive months of compensation out of the last 120 months of employment) multiplied by

 

(B) the participant’s years of actual service plus prior service credit (limited to a combined maximum of 30 years), multiplied by

 

(C) if the participant elects to have payment of benefits commence prior to his or her 65th birthday, an early retirement reduction factor, based on the participant’s age and service at termination (as described below), reduced by

 

(D) all company provided benefits paid or accrued under all other qualified and nonqualified plans sponsored by Dover, including the employer-paid portion of Social Security or other benefits provided from a governmental plan, but excluding offsets for elective deferrals of employee compensation plus associated earnings under any such plan (e.g., employee contributions to the 401(k) plan or the deferred compensation plan and earnings attributable to such contributions).

 

Compensation for SERP purposes is the same as that under the pension plan, except that the statutory limitation with respect to the amount of compensation that can be considered under a tax-qualified plan does not apply.

 

Participants who were at least age forty on their first birthday following their date of hire (or the acquisition of their employer) by a Dover company and received an equity or cash incentive award under the 1995 or 2005 plan within 24 months after such hire (or acquisition) date (“mid-career hires”) are eligible to receive years of service credit equal to one-fourth of the number of years that have elapsed from the participant’s twenty-fifth birthday to the date he or she was hired (or acquired) by a Dover company (“prior service credit”). However, certain conditions apply to such participants who were hired after December 31, 2004. For purposes of granting prior service credit to participants, there are two levels of application:

 

 

Normal retirement age is 65 and early retirement reduction factors apply to participants who retire before that age except that a participant may retire at age 62 without penalty if the participant has at least 10 years of service (if hired prior to 2005, service includes prior service credit). All named executive officers are eligible to receive unreduced early retirement benefits if they retire or terminate employment after attaining age 62.

 

The table below summarizes the application of the early retirement factors:

 

 

 

 

A participant who becomes permanently disabled will continue to accrue years of service credits under the SERP during the period of disability and will be entitled to receive a benefit as described above, based on his or her final five-year average compensation at the time that the disability commences, when the participant subsequently terminates employment. The spouse or other beneficiary of a participant who dies prior to commencement of benefit payments from the SERP will receive a lump sum death benefit in the amount that the participant would have received had he or she otherwise terminated employment or retired and been entitled to a lump sum payment of his or her benefit.

 

SERP benefits that have a present value of $500,000 or less will be paid in a single lump sum payment within 30 days of termination of employment (or on the first day of the seventh month following termination, if the employee is a “specified employee,” as defined in Internal Revenue Code Section 409A). If the present value of a SERP benefit exceeds $500,000, 75% of the present value of the benefit will be paid as a lump sum at the termination of employment or retirement (or on the first day of the seventh month following termination, if the employee is a “specified employee,” as defined in Internal Revenue Code Section 409A) with the remainder paid in five annual installments commencing one year after the termination of employment.

 

Lump sum payments from the SERP will be calculated on the same basis as is used for calculating lump sum payments from the pension plan, except that the discount rate with respect to executives who have not attained age 55 and completed 10 years of actual service will be the greater of the pension plan’s lump sum rate and the discount rate used with respect to the pension plan for financial accounting purposes. SERP benefits generally will be paid as soon as practicable after a participant’s retirement. The SERP benefit of a “specified employee” (as defined above) for whom payment is delayed for six months after retirement will be credited with interest at the rate used to calculate lump sum benefits with respect to the period of delay. An election to delay the timing (but not change the form) of distribution of the SERP benefit must be made at least one year prior to termination of employment/retirement, and if such an election is made, the payment of the SERP benefit must be delayed by at least 5 years from either the date of termination/retirement or the prior date elected.

 

Grandfathered SERP Benefits

 

SERP participants who, as of December 31, 2004, were age 55 and whose actual service and prior service credit totaled at least 10 years are considered grandfathered participants and have additional flexibility regarding receipt of the portion of their SERP benefit accrued through December 31, 2004 (“grandfathered SERP benefit”), based on the provisions of the SERP in effect at that time.

 

The forms of payment of the grandfathered SERP benefits are the same as those under the pension plan. Any grandfathered SERP benefit which has a present value of $50,000 or less is automatically distributed in a lump sum shortly after termination of employment. A grandfathered SERP benefit which has a present value greater than $50,000 may be paid in a lump sum only with the approval of the pension committee. A participant who has made a timely election to receive an annuity form of payment can elect another annuity form of payment (or elect another beneficiary, if applicable), regardless of the rules described above, if the participant can demonstrate that there has been a relevant change in family circumstances since the prior election was made. For executives with a grandfathered SERP benefit, an election regarding the time and form of the distribution of the grandfathered SERP benefit is required to be made at least one year prior to termination of employment or retirement. If no such distribution election is made, the payment of the grandfathered SERP benefit will be made according to the time and form of pension plan payments (or payments under another qualified defined benefit plan of a Dover affiliate in which the SERP participant is participating), unless the executive is not a participant in the pension plan (or another qualified defined benefit plan of a Dover affiliate), in which case payment of the grandfathered SERP benefit will begin at age 65 in the form of a joint and 50% survivor annuity (if the participant is married),

with the participant’s spouse as the joint annuitant, or a single life annuity (if the participant is not married).

 

The grandfathered SERP benefit may be rolled over to the deferred compensation plan if an election under both the SERP and the deferred compensation plan is made at least one year in advance of termination of employment or retirement. In addition, the grandfathered SERP benefit will not be subject to the six month delay for any executive who is a “specified employee” as described above.

 

All named executive officers are entitled to a grandfathered SERP benefit.

 

NONQUALIFIED DEFERRED COMPENSATION

 

 

 

 

Deferred Compensation Plan

 

The Dover Corporation Deferred Compensation Plan (the “deferred compensation plan”) is an unfunded nonqualified plan maintained for the purpose of making available the option to defer receipt of current compensation to a select group of management or highly compensated employees (as that phrase is defined under Title I of ERISA) of Dover and its subsidiary corporations, where the term “subsidiary corporation” is defined as set forth under Internal Revenue Code Section 424(f). All amounts deferred are from the salary (base pay), bonus or cash performance program payouts which the participant was entitled to receive in the year of deferral. Dover has established a non-qualified grantor trust (the “trust”), with a bank as the trustee thereof, to hold certain amounts deferred under the deferred compensation plan. These amounts are considered general assets of Dover and are available to Dover’s creditors in the event of Dover’s insolvency. Amounts held in the trust are invested by the trustee using various investment vehicles including the purchase of insurance contracts on the lives of certain participants.

 

Employees eligible for the deferred compensation plan are key management or highly compensated employees who are selected by the deferred compensation plan’s administrative committee and who meet the following requirements at the time of filing an election to defer compensation under the deferred compensation plan:

 

 

 

Each year by November 30th, participants can elect to defer salary that would otherwise be paid during the next calendar year and to defer the bonus, cash performance payment, and other compensation paid in the second calendar year following the election. Amounts that may be deferred are up to 50% of salary (base pay), up to 100% or a set dollar amount of bonus and/or up to 100% or a set dollar amount of cash performance compensation, but in all events the minimum aggregate amount deferred during a plan year must be $5,000. All such deferral elections are irrevocable. Dover may also make discretionary contributions on behalf of participants but has never done so and does not currently expect to do so. Participants are offered certain investment options and can choose how they wish to allocate their deferrals among those investment options. Although participants do not own shares in the investment options selected, their accounts are credited with the net returns of the investment options they selected and in which their deferrals are deemed to be invested. Participants may change the individual options selected on a monthly basis. Participants are 100% vested in all amounts deferred, and any earnings and losses on such deferred amounts. If there are any company contributions, they will be vested as determined by the deferred compensation plan’s administrative committee.

 

A participant who makes a deferral election for a year may also elect, with respect to the compensation being deferred for that year, the timing and form for the payment of benefits which will apply if the participant’s account value is more than $50,000 as of the January 31st following the year in which any event triggering distribution (such as retirement) occurs or if the participant terminates employment on account of retirement or disability, as defined under the deferred compensation plan. Account balances of $50,000 or less are distributed in a lump sum.

 

Generally, disbursements of deferred amounts must be either on account of retirement, disability or any other termination of service, or at the time of a scheduled in-service withdrawal date chosen by the participant. On demand in-service distributions are permitted with respect to amounts deferred as of December 31, 2004, as adjusted for earnings and losses (the “grandfathered deferred compensation plan”), and require forfeiture of 10% of the amount of the distribution requested. The participant may also elect to have a lump sum amount from the grandfathered SERP benefit rolled over to the grandfathered deferred compensation plan, and have such amount distributed in accordance with the distribution dates allowable under the deferred compensation plan. Any such rollover must be elected (and may be revoked) not less than 12 months prior to the participant’s retirement or termination of employment. In addition, distributions on account of hardship, as determined in the deferred compensation plan’s administrative committee’s discretion, are permitted and in the event a hardship distribution occurs, the participant may not defer any compensation for the balance of that plan year.

 

Under the deferred compensation plan, retirement is deemed to occur on or after the participant reaches his or her 65th birthday, the participant completes 10 years of service and attains age 55, or, with respect to deferrals under the grandfathered deferred compensation plan, the participant completes such other criteria that the deferred compensation plan’s administrative committee determines is sufficient to grant an approved earlier retirement date. Distributions triggered by retirement may be deferred but not later than the last day of the first quarter following the calendar year in which the participant attains age 70. Upon retirement or disability, distributions of a participant’s account may be made in the following forms: over a period of 5, 10, or 15 years, or in a single lump sum. If no election is made as to the form of distribution, the account is automatically distributed in annual installments over a 10-year period. Scheduled in-service withdrawals may be elected to be distributed in a single lump sum, or annual installments over 2, 3, 4, or 5 years. Distributions upon death or other termination of service are made in a single lump sum payment.

 

Changes in the form or timing of distributions (as elected initially) may be made at any time but are not effective until the later of 12 months after the election and retirement (or the fixed date in the case of scheduled in-service withdrawals). For scheduled in-service withdrawals, the only change in election permitted is to extend (up to two times) the date of payment, with the minimum period of such extension being 5 years (2 years with respect to the grandfathered deferred compensation plan) from the originally scheduled date for the first extension, and five years (2 years with respect to the grandfathered deferred compensation plan) from the extended date with respect to the second extension.

 

Internal Revenue Code Section 409A applies to all amounts deferred under the deferred compensation plan that were earned on and after January 1, 2005 (the “409A deferred compensation plan”). The same terms and conditions apply to the 409A deferred compensation plan other than those requiring a change to comply with Section 409A. Accordingly, the payment date of the amounts under the 409A deferred compensation plan will be delayed for six months for any executive who is a “specified employee” (as described above), in which case amounts under the 409A deferred compensation plan as of termination of employment or retirement will be increased with six months of earnings. In addition, on demand in-service withdrawals under the 409A deferred compensation plan are not allowed. The approved early retirement features of the deferred compensation plan, which permitted distributions prior to attainment of age 55 and 10 years of service, at the discretion of the deferred compensation plan’s administrative committee, are not applicable to the 409A deferred compensation plan. Initial elections as to the form and timing of distributions must be made at the same time as initial deferral elections, for each plan year of participation. An election to delay the timing and/or distribution of the 409A deferred compensation plan must be made at least one year prior to the originally scheduled distribution date, and must result in a delay of distribution of such amounts by at least 5 years after the originally scheduled distribution date.

 

POTENTIAL PAYMENTS UPON TERMINATION OR CHANGE IN CONTROL

 

The discussion and tables below describe the compensation to which each of the named executive officers would be entitled in the event of termination of such executive’s employment or a change in control.

 

As discussed elsewhere in this proxy statement, Dover companies do not enter into employment contracts with their executives and do not have a general severance policy applicable to all employees. Accordingly, the named executive officers are entitled to benefits upon termination of their employment only as provided for in previously granted options, SSARs and cash incentive grants under the 2005 plan and its predecessor, the 1995 plan, other benefits plans and in dual-trigger change in control agreements.

 

409A Limitations.  In compliance with Internal Revenue Code Section 409A, an executive who is a “specified employee” (as described above) at the time of termination of employment may not receive a payment of any compensation that is determined to be subject to Internal Revenue Code Section 409A until six months after his or her departure from Dover (including, but not limited to, certain benefit payments on voluntary or involuntary termination, SERP benefits other than grandfathered SERP benefits, and 409A deferred compensation plan benefits).

 

Payments Made Upon Termination (Without a Change in Control)

 

Payments Made Upon Voluntary or Involuntry (Not for Cause) Termination

 

A named executive officer whose employment terminates as a result of voluntary departure or involuntary termination other than for cause:

 

 

A named executive officer whose employment is terminated by Dover for cause will forfeit all outstanding cash and equity awards under the 2005 and 1995 plans, whether or not vested or exercisable. The executive will receive a payment of amounts deferred and accrued in the deferred compensation plan and all amounts vested in the SERP as described in the applicable plan description above.

 

Payments Made Upon Normal Retirement

 

A named executive officer who retires at the normal retirement age under the applicable plan:

 

 

Under the 2005 and 1995 plans, normal retirement is defined as retirement at age 62. For the definitions of normal retirement under each of the deferred compensation plan, SERP and pension plan, see the applicable plan description above.

 

Payments made Upon Early Retirement

 

Early retirement is defined in each of the deferred compensation plan, the SERP and the pension plan as described in the applicable plan description above. With respect to awards under the 2005 and 1995 plans, early retirement is defined as termination for any reason other than normal retirement, death, disability or cause, under one of the following circumstances:

 

 

A named executive officer who takes early retirement (as defined in the applicable plan):

 

 

 

Any person taking early retirement under the 2005 or 1995 plan and not waiving the benefits of early retirement is deemed to have expressly agreed not to compete with Dover or any Dover company at which he or she was employed within the three years immediately prior to termination, in the geographic area in which Dover or the Dover company actively carried on business at the end of the participant’s employment, for the period during which early retirement affords the participant enhanced benefits. These periods are:

 

 

If the participant fails to comply with the non-compete provision, the early retirement is automatically rescinded and the participant forfeits the enhanced benefits referred to above and must return to Dover the economic value previously realized by reason of such benefits.

 

Payments Made Upon Disability or Death

 

A named executive officer who dies or becomes permanently disabled (or, if he has died, his beneficiary or estate):