UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

SCHEDULE 14A

 

PROXY STATEMENT PURSUANT TO SECTION 14(a) OF THE

SECURITIES EXCHANGE ACT OF 1934

(AMENDMENT NO.      )

 

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Filed by a Party other than the Registrant o

 

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x  Definitive Proxy Statement

 

o  Definitive Additional Materials

 

o  Soliciting Material Under Rule 14a-12

 

ABM Industries Incorporated

(Name of Registrant as Specified In Its Charter)

 

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

 

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551 Fifth Avenue, Suite 300
New York, New York 10176

 

February 1, 2010

 

Dear Fellow Shareholders:

 

You are cordially invited to attend the 2010 Annual Meeting of Shareholders of ABM Industries Incorporated in The Grand Terrace Ballroom at the Sofitel Hotel, 45 West 44^th Street, New York, New York 10036, on Tuesday, March 2, 2010, at 10:00 a.m. At the meeting, shareholders will: (1) elect three directors to serve three-year terms until the 2013 Annual Meeting and until their successors are duly elected and qualified, (2) vote on the ratification of KPMG LLP as ABM’s independent registered public accounting firm for the current year, (3) approve the amendment of the 2004 Employee Stock Purchase Plan, and (4) transact such other business as may properly come before the meeting.

 

Whether or not you plan to attend the meeting in person, please take the time to vote on the Internet, by telephone or by mailing your proxy card. As explained in the Proxy Statement, you may revoke your proxy at any time before it is actually voted at the meeting.

 

Only shareholders of record at the close of business on January 13, 2010 will be entitled to vote at the meeting and any adjournments thereof. A list of shareholders on that date will be available for inspection by any shareholder for ten days prior to the meeting during normal business hours at ABM’s corporate headquarters located at 551 Fifth Avenue, Suite 300, New York, New York 10176. You may make an appointment to review the list of shareholders by telephoning (212) 297-0200.

 

If you plan to attend the meeting in person and vote at the meeting, please remember to bring a form of personal identification with you. If you are acting as a proxy for another shareholder, please bring appropriate documentation from the record owner for whom you are acting as a proxy. If you will need any special assistance at the meeting, please contact ABM at (212) 297-0200 prior to the meeting.

 

We look forward to seeing you at the meeting.

 

551 Fifth Avenue, Suite 300

New York, New York 10176

 

 

2010 ANNUAL MEETING OF SHAREHOLDERS

TUESDAY, MARCH 2, 2010
10:00 A.M.
NOTICE OF MEETING AND PROXY STATEMENT

 

YOUR VOTE IS IMPORTANT

 

ABM Industries Incorporated (“ABM” or the “Company”) will hold its 2010 Annual Meeting of Shareholders in The Grand Terrace Ballroom at the Sofitel Hotel, 45 West 44th Street, New York, New York 10036 on Tuesday, March 2, 2010, at 10:00 a.m. At the Annual Meeting, shareholders will: (1) elect three directors to serve three-year terms until the 2013 Annual Meeting and until their successors are duly elected and qualified, (2) vote on the ratification of KPMG LLP as ABM’s independent registered public accounting firm for the current year, (3) approve the amendment of the 2004 Employee Stock Purchase Plan, and (4) transact such other business as may properly come before the meeting.

 

If you are a shareholder of record, you may vote in any one of four ways: in person by attending the Annual Meeting, by Internet, by telephone, or by mail using the enclosed proxy card. Specific voting information is included under the caption “Voting Procedures.” Only shareholders of record at the close of business on January 13, 2010, are entitled to vote. On that day 51,871,551 shares of ABM common stock were outstanding. Each share entitles the holder to one vote.

 

The ABM Board of Directors asks you to vote in favor of the director nominees, the ratification of KPMG LLP as ABM’s independent registered public accounting firm and approve the amendment of the 2004 Employee Stock Purchase Plan. This Proxy Statement provides you with detailed information about each of these matters. We encourage you to read this Proxy Statement carefully. In addition, you may obtain information about ABM from the 2009 Annual Report on Form 10-K and the 2009 Annual Report to Shareholders, as well as from additional documents that we have filed with the Securities and Exchange Commission that are available on ABM’s Web site at www.abm.com.

 

This Notice and Proxy Statement are dated February 1, 2010, and were first mailed, together with a proxy card, to shareholders on or about February 1, 2010.

 

Important Notice Regarding the Availability of Proxy Materials
for the Shareholder Meeting to be Held on March 2, 2010.

 

The Proxy Statement, Annual Report on Form 10-K and Annual Report to Shareholders and the means to vote by Internet are available at www.proxyvote.com.

 

Instead of receiving paper copies of future annual reports and proxy statements in the mail, you can elect to receive an e-mail that will provide an electronic link to these documents. Choosing to receive your proxy materials online will save us the cost of producing and mailing documents to you as well as conserve natural resources. With electronic delivery, we will notify you by e-mail as soon as the annual report and proxy statement are available on the Internet, and you can easily submit your shareholder vote online. If you are a shareholder of record, you may enroll in the electronic delivery service at the time you vote by marking the appropriate box on your proxy card, or by selecting electronic delivery if you vote on the Internet, and following the enrollment instructions. If you are a beneficial holder, you may also have the opportunity to receive annual meeting materials electronically. Please check the information provided in the proxy materials mailed to you by your brokerage firm, bank or trustee.

 

You may contact Ms. Mimi Benderman at 212-297-0200 to obtain directions to the site of the Annual Meeting.

 

Table of Contents

 

 

Your vote is important. Please refer to the proxy card or other voting instructions included with these proxy materials for information on the voting methods available to you.

 

If you are a shareholder of record, you can save ABM expense by voting on the Internet or by telephone. The Internet and telephone procedures allow you to vote your shares and confirm that your instructions have been properly recorded. To vote on the Internet or by telephone simply follow the instructions on the proxy card. If you vote on the Internet or by telephone, you do not need to return your proxy card. If you properly sign and return the enclosed proxy card or follow the telephone or Internet instructions to vote, your shares will be voted at the Annual Meeting in accordance with your instructions. If you sign and return the proxy card but do not specify a choice, the proxy holders will vote the shares represented: (i) “For” the election of the nominees as directors, “For” the ratification of the independent registered public accounting firm, “For” the amendment of the 2004 Employee Stock Purchase Plan (“ESPP”), and (ii) in their discretion on other matters. You may revoke your proxy at any time before the voting at the Annual Meeting by delivering a written notice to the Secretary of ABM, submitting a later-dated proxy card, voting at a later date on the Internet or by telephone, or voting by ballot at the Annual Meeting. Voting by Internet and by telephone is not available after 11:59 p.m. Eastern Standard Time on March 1, 2010.

 

If your shares are held in the name of a bank or stockbroker, you may be able to vote on the Internet or by telephone by following the instructions on the proxy form you receive from your bank or broker. Under the current rules of the New York Stock Exchange (“NYSE”), if you hold your shares through a bank or brokerage firm and your broker delivers this Proxy Statement to you, the broker is entitled to vote your shares on the ratification of the selection of KPMG LLP as the Company’s independent registered public accounting firm even if you do not provide voting instructions to your broker. The director nominee elections and Company proposal relating to the amendment of the ESPP to be voted on at the Annual Meeting are considered “non-routine” matters under the current rules of the NYSE. As such, brokers holding shares in street name for customers are prohibited from giving a proxy to vote those shares absent specific instructions from their customers. If you give instructions on how to vote to your bank or broker, you may later revoke the instructions by taking the steps described in the information that you receive from your bank or broker.

 

Before the Annual Meeting can begin, a quorum must be present. A quorum is a majority of the shares outstanding and entitled to vote as of the record date, January 13, 2010. A quorum is based on the number of shares represented by the shareholders attending in person and by their proxy holders. If you return your proxy card, but indicate on the proxy card that you wish to withhold your votes on nominees for director or abstain from voting on the ratification of the independent registered public accounting firm and/or the approval of the amendment of the ESPP, your shares will still be counted as present in determining the quorum.

 

Your votes on the proposals will be counted as required by Delaware law and ABM’s Bylaws and as described below.

 

Proposal 1 — Election of Directors

 

The three persons who receive a plurality of the votes cast will be elected as directors. This means that the three director nominees with the most votes are elected. Only votes “For” affect the outcome. If you do not wish your shares to be voted for a particular nominee, you may withhold authority: (1) in the space provided on the proxy card or (2) as prompted during the telephone or Internet voting instructions. Withheld votes do not affect the voting calculation.

Proposal 2 — Ratification of Independent Registered Public Accounting Firm

 

Proposal 2 will be approved if the number of shares voted “For” exceeds the number of shares voted “Against.” Abstentions and broker non-votes, if any, have no effect.

 

Proposal 3 — Approval of the Amendment of the 2004 Employee Stock Purchase Plan

 

Proposal 3 will be approved if the number of shares voted “For” exceeds the number of shares voted “Against.” Abstentions and broker non-votes, if any, have no effect.

 

We encourage you to vote and to vote promptly. Voting promptly may save ABM the expense of a second mailing.

 

ABM has a confidential voting policy to protect its shareholders’ voting privacy. Under this policy, ballots, proxy cards and voting instructions returned by brokerage firms, banks and other holders of record are treated as confidential. Only the proxy tabulator and the Inspector of Election have access to the ballots, proxy cards and voting instructions. These persons are not directors, officers or employees of ABM.

 

The proxy tabulator will disclose information taken from the ballots, proxy cards and voting instructions only: (1) in the event of a proxy contest, (2) as otherwise required by law, (3) if you request or authorize the disclosure of your vote, or (4) if ABM concludes that there is a dispute as to the authenticity of proxies, ballots or votes, or the accuracy of its tabulation.

 

The accompanying proxy is solicited on behalf of the ABM Board of Directors. ABM will bear the costs for the solicitation of proxies. Following the mailing of this Proxy Statement and proxy card, ABM directors, officers and employees may, for no additional compensation, solicit your proxy personally, by telephone, or by e-mail.

 

ABM will reimburse banks, brokers, and other holders of record for their reasonable out-of-pocket expenses for forwarding these proxy materials.

 

Broadridge Financial Solutions, Inc. will be the proxy tabulator and IVS Associates, Inc. will act as the Inspector of Election.

 

Shareholders who hold their shares in the name of their bank or broker and live in the same household as other shareholders may receive only one copy of this Proxy Statement. This practice is known as “householding.” If you hold your shares in your broker’s name and would like additional copies of these materials, please contact your broker. If you receive multiple copies and would prefer to receive only one, please contact your broker. ABM does not use householding for the copies of the proxy statement that it delivers directly to shareholders.

 

THE BOARD OF DIRECTORS RECOMMENDS
VOTES “FOR” THE ELECTION OF THE
NOMINEES AS DIRECTORS

 

The Board is divided into three classes, serving staggered three-year terms. The Board currently has nine directors. The Board of Directors has proposed the following nominees for election as directors with terms expiring in 2013: Luke S. Helms, Henry L. Kotkins, Jr. and William W. Steele.

Each nominee elected as a director will continue in office until his or her successor has been duly elected and qualified, or until his or her earlier death, resignation or retirement. The Board expects each nominee for election as a director to serve if elected. If a nominee is unable or unwilling to serve, proxies will be voted in favor of the other nominees and may be voted for a substitute nominee. All ABM directors are encouraged to attend ABM’s annual meetings. All ABM directors, with the exception of Mr. Rosenberg, who retired on March 3, 2009, attended the 2009 Annual Meeting and all current directors are expected to attend the 2010 Annual Meeting. The principal occupation and certain other information about the nominees and other directors whose terms of office continue after the Annual Meeting are set forth below.

 

 

THE BOARD OF DIRECTORS RECOMMENDS VOTES
“FOR” THE ELECTION OF THE NOMINEES AS DIRECTORS

 

The Board of Directors has adopted Corporate Governance Principles which reflect the Board of Directors’ commitment to corporate governance and the role of governance in building long-term shareholder value. The actions of the Board in this area are discussed more fully under Governance Information in this Proxy Statement.

 

From time to time, the Board of Directors revises the Company’s Corporate Governance Principles in response to changing regulatory requirements, evolving best practices and the concerns of the Company’s shareholders and other constituents. The Company’s Corporate Governance Principles, which includes the Company’s independence standards, are published on its Web site at http://investor.abm.com. In addition to the Corporate Governance Principles, other information relating to corporate governance at ABM is available on the Company’s Web site at the same address, including the Charters of the Audit Committee, Compensation Committee, and Governance Committee. These documents are also available in printed hardcopy format upon written request to the Corporate Secretary at the Company’s corporate headquarters.

 

Director Independence

 

The Corporate Governance Principles provide that a majority of the ABM directors will be independent and that its Audit Committee, Compensation Committee and Governance Committee shall consist solely of independent directors. Each year the Governance Committee reviews the independence of each of the directors under the NYSE listing standards and considers any current or previous employment relationship as well as any transactions or relationships between ABM and their directors or any members of their immediate family (or any entity of which a director or an immediate family member is an executive officer, general partner or significant equity holder). The purpose of this review is to determine whether any relationships or transactions exist that preclude a director from being deemed independent under the NYSE listing standards or are otherwise inconsistent with a determination that the director is independent. To facilitate this process, the Governance Committee reviews directors’ responses to the Company’s annual Directors’ and Officers’ Questionnaire, which requires disclosure of each director’s and his or her immediate family’s relationships to the Company, as well as any potential conflicts of interest that may otherwise be brought to the attention of the Governance Committee.

 

In this context, the Governance Committee considered the employment of a relative of one of the Company’s directors with the Company in an entry-level management position and also considered a commercial relationship, terminated during calendar year 2009, involving a company controlled by a director, and a subsidiary of the Company. The Governance Committee also considered the retirement benefits of Mr. Steele that are described under “Transactions with Related Persons.” The Governance Committee determined that these relationships were not material. Based on its analysis of these relationships and the Company’s independence standards, the Governance Committee concluded and recommended to the Board that none of these relationships impaired such director’s independence, and the Governance Committee affirmatively determined and recommended to the Board that the following directors be designated as independent: Dan T. Bane, Linda Chavez, Anthony G. Fernandes, J. Philip Ferguson, Luke S. Helms, Maryellen C. Herringer, Henry L. Kotkins, Jr., and William W. Steele. The Board of Directors accepted this recommendation and made this determination.

 

Executive Sessions of Directors

 

The Board regularly meets in executive session for general discussion of relevant subjects. Executive sessions or meetings of independent directors are held regularly (at least four times a year) to consider matters such as succession planning and other matters important to the Company and corporate governance. Executive

sessions are chaired by the Chairman, who is an independent director. During fiscal year 2009, the Board met in executive session seven times.

 

Independent Chairman

 

The ABM Board of Directors has elected an independent director to serve as Chairman to chair meetings of the Board and executive sessions of the Board, to coordinate the activities of the other independent directors, and to perform such other duties and responsibilities as the Board of Directors may determine. These duties also include chairing meetings of the stockholders of ABM, overseeing the preparation of agendas for meetings of the Board, preparing for executive sessions of the Board and providing feedback to the CEO, keeping directors informed through the timely distribution of information and reports, maintaining contact with the CEO and ABM’s General Counsel between meetings to stay current on developments and to determine when it may be appropriate to alert the Board to significant pending developments, serving as a liaison between independent directors and the CEO with respect to sensitive issues, and other matters. Maryellen C. Herringer has served as Chairman since March 2006.

 

Communications with Directors

 

Shareholders and other interested parties may communicate with the Board of Directors on board-related issues by sending an e-mail to boardofdirectors@abm.com. Shareholders may also communicate by mail to:

 

Board of Directors

ABM Industries Incorporated

551 Fifth Avenue, Suite 300

New York, New York 10176

 

All mail addressed in this manner will be delivered to the Chair or Chairs of the Committees with responsibilities most closely related to the matters addressed in the communication.

 

Shareholders may communicate with the independent directors by sending an e-mail to the address: nonmanagementdirectors@abm.com. All directors other than Mr. Slipsager, who is an employee, are independent directors. Shareholders may also communicate by mail to:

 

Independent Directors

ABM Industries Incorporated

551 Fifth Avenue, Suite 300

New York, New York 10176

 

Relevant communications are distributed to the Board, or to any individual director or directors as appropriate, depending on the facts and circumstances outlined in the communication. In that regard, the Board of Directors has requested that certain unsolicited items that are unrelated to the duties and responsibilities of the Board should be excluded, such as business solicitations or advertisements, junk mail and mass mailings, new product or service suggestions, resumes and other forms of job inquiries, spam, and surveys. Any communication that is excluded will be provided to a director upon request.

 

Code of Business Conduct

 

The Board of Directors has adopted the ABM Code of Business Conduct (the “Code of Conduct”). The Code of Conduct applies to all directors, officers and employees of ABM, including ABM’s CEO, Chief Financial Officer (“CFO”) and Chief Accounting Officer. The Code of Conduct is available on ABM’s Web site under “Governance” at http://investor.abm.com and in printed hardcopy format upon written request to the Corporate Secretary at the Company’s corporate headquarters. If any amendments are made to the Code of Conduct or if any waiver, including any implicit waiver, of a provision of the Code of Conduct is granted to ABM’s CEO, CFO or Chief Accounting Officer, ABM will disclose such amendment or the nature of such waiver on its Web site.

 

The Audit Committee of the Board of Directors performs the responsibilities set forth in its Charter, which include overseeing the corporate financial reporting process and the internal and independent audits of ABM and the communication process among the Board, management and ABM’s independent registered public accounting firm. The responsibilities of the Audit Committee include: (1) assisting the Board with respect to the Company’s compliance with legal and regulatory requirements; (2) selecting the independent registered public accounting firm; (3) approving the fees for the independent registered public accounting firm; (4) ensuring the independence of the independent registered public accounting firm; (5) overseeing the work of the independent registered public accounting firm; (6) reviewing ABM’s system of internal accounting controls; and (7) reviewing policies with respect to risk assessment and risk management. The members of the Audit Committee are: Mr. Fernandes, Chair, and Messrs. Bane, Ferguson, Helms, and Steele.

 

Each member of the Audit Committee has been determined to be independent under the standards for independence for audit committee members established by the NYSE. In addition, the Board of Directors has determined that each member of the Committee is financially literate and that Messrs. Bane, Fernandes, Helms and Steele each qualify as an “audit committee financial expert” under the definition promulgated by the Securities and Exchange Commission (“SEC”).

 

The Compensation Committee performs the responsibilities set forth in its Charter, which include: (1) providing direction to the Company in the area of executive compensation; (2) annually reviewing and approving corporate goals and objectives relevant to the CEO’s compensation, and evaluating the CEO’s performance in light of those goals and objectives; (3) recommending for approval to the directors who are both independent under applicable NYSE and SEC rules and “outside” directors under Section 162(m) of the Internal Revenue Code of 1986 (the “Code”), the CEO’s compensation level based on an evaluation of the CEO’s performance; (4) reviewing the Company’s compensation structure and, after considering the recommendation of the CEO, approving the compensation of all other employees of the Company who are executive officers of the Company and such other executives as may be established by the Committee; (5) with the assistance of an outside consultant retained directly by the Committee, conducting a review of all executive incentive plans at least once every three years and making recommendations to the Board with respect to incentive compensation plans and equity-based compensation plans for the Company and its subsidiaries; (6) making awards under and overseeing the administration of the Company’s executive benefit and equity-based compensation plans and any other plans the Board determines will be overseen by the Committee; (7) reviewing the CEO’s employment agreement and recommending the terms of the CEO employment agreement to the independent and outside directors; (8) reviewing and approving the Company’s employment agreements with executive officers, other than the CEO, and such other executives as may be established by the Committee, and, after considering the recommendation of the CEO, determining the employees or groups of employees to whom such forms of agreements shall be extended; (9) reviewing and recommending to the Board severance and other terms in any change-in-control agreements and policies; (10) reviewing and discussing with management the Company’s proposed disclosures in respect of the “Compensation Discussion and Analysis” required under the Securities Exchange Act rules and recommending to the Board that the Compensation Discussion and Analysis reviewed by the Committee be included in the Company’s Proxy Statement and Annual Report on Form 10-K; and (11) preparing annually the Compensation Committee Report required under Securities Exchange Act rules.

 

The CEO often attends meetings of the Compensation Committee and provides recommendations regarding compensation levels for employees, other than himself, whose compensation is subject to review by the Committee. The CEO also provides input and recommendations pertaining to other compensation issues under discussion by the Compensation Committee, other than CEO compensation. The Committee meets in executive session without the CEO when discussing the CEO’s compensation and certain other matters, including, from time to time, the compensation of other executives. The members of the Compensation

Committee are: Ms. Chavez, Chair, Ms. Herringer, and Mr. Kotkins. As described above, each member of the Compensation Committee has been determined to be independent.

 

None of the members of the Compensation Committee during fiscal year 2009 or as of the date of this Proxy Statement is or has been an officer or employee of the Company and no executive officer of the Company served on the compensation committee or board of any company that employed any member of the Company’s Compensation Committee or Board of Directors.

 

The Governance Committee performs the responsibilities set forth in its Charter, which include: (1) making recommendations to the Board as to the optimal number of directors on the Board; (2) reviewing and recommending criteria and candidates for selection of new directors and the reelection of incumbent directors; (3) reviewing and recommending management succession plans; (4) making equity grants to non-employee directors; (5) reviewing and recommending to the Board any changes in cash compensation of non-employee directors; and (6) other matters of corporate governance. The members of the Governance Committee are: Mr. Helms, Chair, Ms. Chavez, and Mr. Kotkins. As described above, each member of the Governance Committee has been determined to be independent.

 

The Executive Committee has the authority to exercise all power and authority of the Board in the management of the business and affairs of ABM, except: (1) any functions delegated to other committees of the Board, and (2) any powers which, under Delaware law, may only be exercised by the full Board. The members of the Executive Committee are: Mr. Steele, Chair, Ms. Herringer, and Messrs. Helms and Slipsager.

 

During fiscal year 2009, the Board of Directors met eight times, the Audit Committee met ten times, the Compensation Committee met eight times, the Governance Committee met six times, and the Executive Committee did not meet. During this period, each of the Company’s directors attended 90% or more of the aggregate number of meetings of the Board and committees on which he or she served.

 

The Board is responsible for selecting nominees for election as directors. The Board delegates the screening process involved to the Governance Committee with the expectation that other members of the Board, including the CEO, are asked to take part in the process as appropriate. Candidates recommended by the Governance Committee are subject to approval by the Board.

 

The Governance Committee regularly assesses the appropriate size of the Board, and whether any vacancies on the Board are expected due to retirement or otherwise. In the event that any vacancy is anticipated, or otherwise arises, the Governance Committee considers various potential candidates for director. The Governance Committee recommends to the Board the criteria for director candidates, and the Board establishes the criteria. The Governance Committee of the Board is responsible for reviewing with the Board the requisite skills and characteristics of new Board candidates and current Board members in the context of the current composition of the Board.

 

In selecting director candidates, the Board looks for pertinent experience in industry, finance, administration, operations or marketing, as well as candidates who bring diversity to the Board. Director candidates should be able to provide insights and practical wisdom based on their experience and expertise. Directors are expected to prepare for, attend and participate in Board meetings and meetings of the Committees of the Board on which they serve

and to spend the time needed and to meet as frequently as necessary to properly discharge their responsibilities and duties as directors. Each Board member is expected to arrange his or her schedule so that other existing and planned future commitments do not materially interfere with the member’s service as a director. Ordinarily, directors who are full-time employees of ABM or who serve as chief executive officers or equivalent positions at other companies may not serve on the boards of more than two other publicly traded companies. Other directors may not serve on the boards of more than four other publicly traded companies. Service on other boards and other commitments are considered by the Governance Committee and the Board when reviewing Board candidates and in connection with the Board’s annual self-evaluation process.

 

The Governance Committee utilizes a variety of methods for identifying and evaluating nominees for director, such as search firms and the relationships of current directors. The Committee has retained a search firm to assist it in identifying, interviewing, and reviewing the credentials of potential candidates, and this firm identified Mr. Ferguson as a potential director. Candidates may also come to the attention of the Governance Committee through current Board members, shareholders or other persons. These candidates are evaluated at regular or special meetings of the Governance Committee, and may be considered at any point during the year.

 

The policy of the Governance Committee is to consider shareholder recommendations for director candidates using the same criteria as described above. Following verification of the shareholder status of persons recommending candidates, the Governance Committee will consider the candidates at a regularly scheduled meeting. If any materials are provided by a shareholder in connection with the recommendation of a director candidate, such materials will be forwarded to the Governance Committee. The Governance Committee may, if it determines to do so, utilize a search firm to assist in its review and will evaluate this director candidate in the same manner as other candidates.

 

Any recommendations by shareholders for consideration by the Governance Committee should include the candidate’s name and qualifications for Board membership and fulfill all of the requirements set forth in the Company’s Bylaws, and should be sent within the time frame set forth in the Bylaws to:

 

Corporate Secretary

ABM Industries Incorporated

551 Fifth Avenue, Suite 300

New York, New York 10176

 

Overview

 

This Compensation Discussion and Analysis provides information about ABM’s compensation philosophy and strategy, as well as the policies and decisions that guided ABM in fiscal year 2009 in establishing the level and nature of the compensation provided to the CEO, the CFO, and the three most highly compensated executive officers other than the CEO and CFO (collectively, with the CEO and CFO, the “NEOs”).

 

Objectives of the Executive Compensation Program

 

The Compensation Committee believes that the need to attract, motivate and retain qualified executives must be balanced against ABM’s desire to improve profitability and control costs in a service business characterized by low margins. ABM’s executive compensation programs are designed to:

 

 

 

ABM provides compensation in the form of salary, annual cash performance incentives, equity awards and benefits that are intended to be both attractive and competitive. However, total compensation opportunity is weighted toward incentive compensation linked to the financial performance of ABM and individual performance which contributes to ABM’s strategic initiatives. ABM’s incentive-based pay rewards executives for meeting or exceeding corporate and divisional financial and operating objectives overall and against budget, for their individual contributions to these results, and for optimizing the creation of shareholder value.

 

The Compensation Committee reviews the executive compensation program and NEO compensation at least annually. The use and relative contribution of each compensation element is based on a subjective determination by the Compensation Committee of the importance of each compensation element in supporting ABM’s business and talent strategies, after taking into consideration the recommendations of the CEO, as well as the prevalence, weight and value of these elements for executives at other companies. ABM uses cash compensation primarily for base salaries, short-term incentives, matching contributions in the ABM 401(k) plan, and severance arrangements. ABM uses equity compensation for long-term incentives. In order to meet ABM’s compensation objectives, a substantial percentage of each executive’s potential compensation is based on performance against annual financial and operating goals, with the percentage varying in relationship to the executive’s position and responsibilities. The Compensation Committee believes that the overall mix among base salary, cash and non-cash incentives effectively balances short- and long-term performance objectives.

 

Currently, the Compensation Committee evaluates the CEO and makes recommendations about the CEO’s compensation to those directors who qualify as both independent under applicable NYSE and SEC rules and “outside” under applicable provisions of the Code (such directors comprise the “CEO Committee”). Approval of the CEO’s cash compensation arrangements rests solely with the CEO Committee. In fiscal years prior to fiscal year 2010, the Compensation Committee approved equity grants to the CEO. Beginning in fiscal year 2010, the CEO Committee will approve equity grants to the CEO. The CEO is not present during the deliberations about his compensation. The CEO evaluates the performance of each executive officer, other than himself, and makes recommendations about compensation for those executives to the Compensation Committee. The Compensation Committee determines the structure of the compensation program and individual arrangements for the other NEOs after considering the recommendations of the CEO. Although the CEO may make recommendations and provide advice with respect to compensation arrangements for the other NEOs, approval of compensation arrangements for NEOs, other than the CEO, rests solely with the Compensation Committee. In fiscal year 2009 and prior years, the Compensation Committee approved equity grants to the CEO and the other NEOs. Beginning in fiscal year 2010, the CEO Committee will approve equity grants to the CEO.

 

The Compensation Committee assesses all components of pay in connection with its annual review of the executive compensation program, including base salary, annual incentives, equity compensation (including accumulated vested and unvested equity compensation) and the value of benefits (including potential severance benefits) and perquisites. The Compensation Committee bases its assessment in part on tally sheets prepared by management for each NEO. A review of tally sheets gives the Compensation Committee detail with respect to the totality of each executive’s compensation, as well as the components that comprise the overall compensation package, and how compensation earned by each executive compares to the compensation earned by others. The tally sheets also help the Compensation Committee understand the effect that changing any element of pay will have on total compensation. Additionally, tally sheets reveal how well each pay element is aligned with Company philosophy and objectives. The Compensation Committee also compares ABM executive compensation to a summary of compensation data from other companies as discussed in “Consultants, Use of Market Data, and Benchmarking” below.

Consultants, Use of Market Data, and Benchmarking

 

The Compensation Committee has engaged Exequity, LLP (“Exequity”) as its independent executive compensation consultant to provide advice and ongoing recommendations concerning executive compensation programs to the Compensation Committee. The Compensation Committee regularly consults with its compensation consultant on the Company’s compensation program structure and specific individual compensation arrangements. The Compensation Committee’s compensation consultant is selected by the Compensation Committee, does not provide any other services to ABM, except as noted in the next sentence, and receives compensation only for services provided to, or at the request of, the Compensation Committee. In the first quarter of fiscal year 2009, Exequity assisted management in its analysis of equity available for grant under the Amended and Restated 2006 Equity Incentive Plan (“2006 Equity Incentive Plan”), with the concurrence of the Compensation Committee. The Compensation Committee’s consultant attends Compensation Committee meetings from time to time and also communicates with the Compensation Committee Chair outside of meetings as necessary. The consultant reports directly to the Compensation Committee and not to management, although the consultant meets with management at the request of the Compensation Committee to gather information relating to ABM compensation plans and proposals that management makes to the Compensation Committee. The Compensation Committee may replace the consultant or hire additional consultants at any time. The Compensation Committee also considers information about compensation and compensation programs that it receives from management, particularly the CEO, the Senior Vice President, Human Resources, and the Company’s compensation consultant, Hewitt Associates.

 

Each year, the Compensation Committee considers the compensation levels, programs and practices of certain other companies in connection with its assessment of the Company’s programs and compensation levels. ABM, through its subsidiaries, is a leading provider in the United States of facility services. Given its size and national footprint, few public companies are directly comparable to ABM. Accordingly, the Compensation Committee, working with its compensation consultant, regularly reviews the various criteria by which it benchmarks ABM’s pay practices. In fiscal year 2009, the Committee engaged in a detailed examination of the benchmark criteria, and after careful review, determined to maintain the peer group composition used in fiscal year 2008, deleting only those companies that had a change in corporate status, making it difficult to gather compensation information about those companies. The peer group companies were selected with reference to the following criteria:

 

 

The following 28 companies (the “Peer Group”) met these criteria and were selected by the Committee as ABM’s primary peer group in reviewing pay and making compensation decisions for fiscal year 2009:

 

 

The Compensation Committee’s decisions relating to NEO pay reflect its review of the compensation practices reported in the proxy statements filed by the companies in the Peer Group. These practices are compiled by the Compensation Committee’s compensation consultant. This information forms the basis of the analysis the Compensation Committee uses to assess the competitiveness of NEO pay. In the past, the

Compensation Committee has also reviewed general industry data provided by Hewitt Associates for functional or staff positions, including the NEO positions, frequently recruited from other industries. As discussed below, under “Base Salary,” in fiscal year 2009, a Company-wide salary freeze was put into effect in light of general economic conditions at that time. In view of this salary freeze, the Compensation Committee determined to limit its 2009 comparative review of NEO compensation to Peer Group practices, and did not review other survey data. The proxy analysis reviewed by the Compensation Committee in fiscal year 2009 compared base salaries, short-term incentives, long-term incentives and total compensation.

 

The Compensation Committee believes that the proxy data reviewed provide a reasonable indicator of total compensation paid by companies that recruit executives with skill sets similar to those that the Company seeks in its executives. Compensation for the Company’s executives is generally managed within the ranges of compensation paid by companies in the Peer Group and the general industry community. The Compensation Committee normally references the benchmark group median (50th percentile) for each compensation element. However, the Compensation Committee uses its judgment to determine pay levels necessary to attract and retain executive talent. In exercising its judgment, the Compensation Committee looks beyond the competitive data and places significant weight on individual job performance (based on specific financial and operating objectives for each executive, as well as leadership behaviors), experience, compensation history, future potential, internal comparisons, affordability, retention risk, and, in the case of new hires, compensation at former employers, as well as, in the case of executives other than the CEO, the CEO’s recommendations. The Compensation Committee’s independent consultant reported that compensation expenditure in fiscal year 2009 with respect to the Company’s NEOs continues to be conservatively positioned within the range of Peer Group practices.

 

The chart below shows the Company’s compensation positioning for its NEOs in fiscal year 2009 in relation to 50th percentile Peer Group practices.

 

 

“Total Direct Compensation,” as used in this chart, includes total cash compensation and the value of long-term incentive compensation, including equity grants, using a Black-Scholes valuation with respect to stock option grants.

 

“At Target,” as used in this chart, reflects compensation levels assuming annual cash bonuses are paid at levels that reflect 100% goal attainment.

 

“Actual,” as used in this chart, reflects compensation levels measured after incorporating actual cash bonuses earned based on proven results.

 

Elements of Compensation

 

The principal components of the Company’s executive compensation program include:

 

 

The Company uses these primary elements because each supports achievement of one or more of its compensation objectives. Although each element is described separately, the Compensation Committee considers each element to be part of a total compensation package and, therefore, the Compensation Committee considers the impact of each element on an NEO’s total compensation when making decisions pertaining to base salary, short- and long-term incentives, benefits and perquisites. More information about the

value of these compensation components for the NEOs is provided below in the Summary Compensation Table for Fiscal Year 2009 and Grants of Plan-Based Awards Table During Fiscal Year 2009.

 

Base Salary

 

The Compensation Committee reviews and approves base salaries for executives in the first fiscal quarter and as needed in connection with recruitment, promotions or other changes in responsibilities. Base salary amounts affect potential annual cash performance incentive payments and equity awards described in the following sections because these elements are based on a percentage of base salary. Accordingly, when making base salary decisions, the Compensation Committee also considers the impact of salary changes on these other elements of compensation.

 

The Compensation Committee annually establishes the base salary for the NEOs, other than the CEO, and reviews and recommends the base salary of the CEO to the CEO Committee. In general, base salaries are set at a level which the Compensation Committee believes will effectively reward, attract and retain necessary talent, considering the factors described previously. In establishing compensation levels for each NEO, or in the case of the CEO, making a recommendation as to base salary to the CEO Committee, the Compensation Committee considers the internal relationship of positions based on scope and level of responsibility, impact on the Company or on the business unit, the background and skills required to perform the position responsibilities, and the NEO’s experience and individual performance. This consideration also includes the relationship of each NEO’s compensation to the CEO’s compensation. However, in light of a Company-wide salary freeze that took effect at the beginning of fiscal year 2009, the Compensation Committee determined that it was not appropriate to increase the base salaries of the NEOs for fiscal year 2009 and recommended that the CEO Committee not increase the base salary of the CEO for fiscal year 2009. This recommendation was accepted by the CEO Committee.

 

Annual Cash Performance Incentive Payments

 

 

The CEO’s annual cash performance incentive payment is based on an assessment of the CEO’s performance against the CEO’s performance objectives. The CEO’s performance objectives are annually reviewed and approved in the first quarter of the Company’s fiscal year by the Compensation Committee, in consultation with the independent directors, following a discussion of the most important objectives for the Company in the coming year. Mr. Slipsager participates in this process by providing his proposed objectives to, and reviewing his proposed objectives with, the Compensation Committee. The potential range of bonus for the CEO is 0% to 180% of target.

 

Mr. Slipsager’s performance objectives for fiscal year 2009 included a combination of goals relating to financial and strategic objectives, operational improvements, succession planning, investor communication responsibilities and the Company’s ongoing process and systems transformation. Financial goals included metrics relating to the achievement of pre-tax operating profit as well as other factors, such as targets relating to cash flow and “days sales outstanding,” which the Compensation Committee believes are important measurements of the Company’s financial strength. Strategic goals included in the CEO’s 2009 performance objectives related to identifying and analyzing potential acquisitions and other opportunities that could expand the Company’s footprint internationally and strengthen its presence in the United States. Mr. Slipsager’s objectives relating to operational improvements included the development of appropriate management agility to respond to the challenging economic conditions that continued in 2009. Reflecting the Compensation Committee’s belief that management is a key component of the Company’s continued success, Mr. Slipsager’s performance objectives in the area of succession planning included the continued development of senior management’s abilities with respect to leadership skills and focus on personal leadership, including the development of future leaders of the Company. Complementing the Company’s goal of increasing shareholder value by achieving better awareness in the financial community of ABM, a key performance objective in fiscal year 2009 included outreach to the investment community. Mr. Slipsager’s objectives supporting the Company’s ongoing systems transformation included overseeing the implementation of certain new payroll,

accounting and human resource systems, and the launch of a new approach to deliver business solutions through an end-to-end management process.

 

Mr. Slipsager’s performance is assessed through an evaluation process involving each of the directors. After the end of fiscal year 2009, each director was interviewed by the Chairs of the Audit, Compensation and Governance Committees concerning the CEO’s performance against the performance objectives adopted at the beginning of the fiscal year. The results of the interviews were reported to the Compensation Committee and the independent directors. After the close of the fiscal year, and in connection with above-described process, the Compensation Committee assessed Mr. Slipsager’s performance against these objectives, assigning relative weights of 50% for results relating to financial goals and 50% for results relating to the other goals. After reviewing the results of the interviews and discussing them with the CEO Committee, the Compensation Committee determined that Mr. Slipsager had exceeded his performance objectives and recommended to the CEO Committee that he receive a cash incentive payment equal to 137% of his target bonus, which the CEO Committee approved.

 

 

The Company has an annual cash performance incentive program (“PIP”) for executives and key employees which is designed to motivate and reward achievement of annual financial and performance objectives and to provide a competitive total compensation opportunity in support of the Company’s compensation objectives. The PIP provides short-term incentive award opportunities for executives based on the Company’s financial performance, business unit or department performance, as the case may be, and individual performance. All NEOs, other than the CEO, participated in this program. Under the PIP, the Compensation Committee establishes a target bonus for each executive based on a multiple of base salary. In addition, each executive’s target bonus is weighted based on Company, business unit (or department for certain corporate executives) objectives and individual performance objectives to reflect the executive’s responsibilities. The Compensation Committee approves the Company and business unit objectives, the threshold and range of awards related to these objectives, and the range of awards related to the department and individual performance objectives. The CEO approves the department and individual performance objectives for these persons. Generally, the performance criteria associated with the Company and business unit performance are objective, while those associated with department and individual performance objectives are subjective.

 

In the first quarter of fiscal year 2009, the Compensation Committee reviewed the fiscal year 2009 target bonuses for the NEOs, evaluating current duties and responsibilities and comparative compensation information with the Compensation Committee’s independent compensation consultant. The potential range of bonuses for the NEOs is 0% to 180% of the target award. Following its review, the Compensation Committee approved the fiscal year 2009 PIP for executives and key employees. The criteria used in the fiscal year 2009 PIP include Company performance (“Corporate Results”), individual performance in providing strategic leadership, employee leadership, and compliance and administration (“Individual Performance”), and performance of the operating subsidiaries (“Business Unit Results”), in the case of executives having responsibilities for operating subsidiaries, or department performance (“Department Results”), in the case of executives having responsibilities for corporate departments. The Corporate Results component is based on certain targets for income from continuing operations subject to discretionary strategic results modifiers (“Strategic Results Modifiers”) and achievement of a threshold amount with respect to income from continuing operations. The performance metrics for the Strategic Results Modifiers include revenue growth, operating profit margins, cash flow, cost reduction and other strategic performance targets. The Compensation Committee believes that the identified criteria constitute important business value drivers and align the Company’s non-equity incentive compensation with the interests of the Company’s shareholders.

 

Bonus levels allocated to financial performance are based on budget expectations at the beginning of the fiscal year; achievement above target will lead to higher bonus payments while achievement below target will reduce the payment. No bonuses for financial performance are paid below a specified performance threshold. Since positions held by the NEOs participating in the PIP differ in terms of areas of focus, scope and impact on the Company, the relative weighting of Corporate Results, Business Unit Results or Department Results, as the case may be, and Individual Performance objectives vary based on position and responsibilities.

Payments under the 2009 PIP for the NEOs are based on the assessment of Corporate Results, Business Unit Results or Department Results, as the case may be, and Individual Performance, weighted according to the individual criteria for each NEO. Following the end of the fiscal year, Corporate Results and Business Unit Results or Department Results, as the case may be, are determined and submitted to the Compensation Committee. The CEO provides the Compensation Committee with his assessment of the achievement of the Department Results and Individual Performance objectives, as well as his assessment of the other NEOs. The Compensation Committee discusses the CEO’s assessments of the other NEOs with the CEO and has discretion to modify his assessments. In addition, the Compensation Committee may adjust Corporate Results and Business Unit Results or Department Results, as the case may be, to take into consideration unusual items such as acquisitions or divestitures. A performance level that meets expectations leads to a payment at target, while an outstanding performance assessment will lead to the highest payment contemplated.

 

The determinations of fiscal year 2009 bonuses for the NEOs participating in the PIP were based on Corporate Results, Business Unit Results or Department Results, as the case may be, and Individual Performance, as described below.

 

Corporate Results, which were included in bonus calculations for Messrs. Lusk, McClure, and Zaccagnini and Ms. McConnell, were measured by the Company’s fiscal year 2009 income from continuing operations, adjusted for certain tax-related reserves, relative to fiscal year 2009 budget and relative to fiscal year 2008 income from continuing operations. The two factors were weighted equally in the corporate performance calculation. In fiscal year 2009, the Company’s income from continuing operations, as adjusted, was 96.9% of budget and 106.3% of fiscal year 2008 income from continuing operations, which translated into funding levels of 89.2% and 104.9%, respectively, for an overall corporate performance funding level of 97.0%.

 

Business Unit Results for the Janitorial segment, which were included in the bonus calculation for Mr. McClure, were measured by Janitorial’s fiscal year 2009 pre-tax income from continuing operations relative to budget and relative to fiscal year 2008 pre-tax income from continuing operations, with the two factors weighted equally. In fiscal year 2009, Janitorial’s fiscal year 2009 pre-tax income from continuing operations of $139,858,000 was 94.4% of the budgeted number and 118.0% of Janitorial’s fiscal year 2008 pre-tax income from continuing operations, which translated into funding levels of 80.5% and 148.7%, respectively, for an overall funding level of 114.6%.

 

Mr. Zaccagnini’s responsibilities include the non-Janitorial business units of the Company. Business Unit Results for these business units were measured by the sum of the Parking, Engineering and Security fiscal year 2009 pre-tax income from continuing operations relative to budget and relative to fiscal year 2008 pre-tax income from continuing operations, with the two factors weighted equally. In 2009, these business units’ fiscal year 2009 pre-tax income from continuing operations of $48,164,000 was 98.4% of the budgeted number and 104.0% of fiscal year 2008 pre-tax income from continuing operations, which translated into funding levels of 113.1% and 116.0%, respectively, for an overall funding level of 114.6%. Although Mr. Zaccagnini also had responsibility for the Company’s Lighting business in fiscal year 2008, because this business was divested at the end of fiscal year 2008, results relating to the Lighting business were not included in the calculation of the financial portion of Mr. Zaccagnini’s bonus.

 

The bonus calculations for Messrs. Lusk, McClure and Zaccagnini and Ms. McConnell also took into consideration their Individual Performances, and, in the case of Mr. Lusk and Ms. McConnell, Department Results. The individual and department performance objectives varied depending on the nature of responsibilities of each executive. All executives had objectives pertaining to leadership development. Other individual and department performance objectives varied depending on the nature of responsibilities of each executive.

 

Mr. Lusk’s individual and department performance objectives included the continued implementation of the on-going systems upgrade and design and deployment of business solutions, completing the transition of certain information technology services away from the former outsource provider, improving Company profitability through enhanced financial discipline and capabilities, and maintenance and enhancement of internal controls and procedures. His success in achieving his individual and departmental objectives was rated by the Compensation Committee at 130.0% and 125.0%, respectively, as recommended by the CEO.

Mr. McClure’s individual objectives included achieving or exceeding certain targets relating to profits and profit margins in the janitorial segment, continued focus on expense management, identifying additional savings opportunities within the Janitorial segment, realignment of leadership responsibilities in relationship to business needs, identification of business opportunities, and enhanced linkage between incentives and critical business drivers. Mr. McClure’s success in achieving his objectives was rated by the Compensation Committee at a 130.0% individual performance funding level, as recommended by the CEO.

 

Mr. Zaccagnini’s individual objectives included achieving or exceeding certain budgeted targets for profits, with continued focus on generating positive cash flow, development of certain “brand” opportunities within the Engineering segment, and exploration of acquisition opportunities in the Engineering, Security and Parking business segments. His success in achieving his objectives was rated by the Compensation Committee at an overall 140.0% individual performance funding level, as recommended by the CEO.

 

Ms. McConnell’s individual and department performance objectives included maintaining the strength of the legal department, providing ongoing support to the Board of Directors, with emphasis on corporate governance, partnering with the Company’s risk management function to identify opportunities for risk reduction, continued monitoring and evaluation of litigation functions, and support relating to the planning and development of compliance-related tools for the Company. Her success in achieving her individual and departmental objectives was rated by the Compensation Committee at 115.0% and 127.0%, respectively, as recommended by the CEO.

 

The target bonuses, maximum bonuses, performance factors and weightings, and the actual fiscal year 2009 bonus awards are set forth in the following table:

 

Fiscal Year 2009 Bonus Targets, Weighting, and Awards

 

 

 

 

Equity Incentives

 

Equity incentives create a direct link between executive compensation and shareholder returns by tying a significant portion of total compensation to the performance of the Company’s stock. The Compensation

Committee believes equity incentives encourage executives to remain at the Company. Equity-based awards are granted under the 2006 Equity Incentive Plan, which has been approved by Company shareholders. Messrs. Slipsager, McClure and Zaccagnini also continue to receive benefits from the vesting and appreciation of prior equity-based awards.

 

In determining the equity incentives to be granted to each executive, the Compensation Committee considers, in addition to the factors previously described, each individual’s accumulated vested and unvested awards, the current value of the awards, comparison of individual awards between executives and in relation to other compensation elements, and total accounting expense of existing awards.

 

Equity-based awards may be granted to senior executives annually (or, in the case of newly hired executives, at the time they join ABM), but may also be granted from time to time in connection with promotions or assumption of additional responsibilities, as well as to promote retention, and/or to create focus on specific performance objectives. The types of equity-based awards utilized by ABM are as follows:

 

 

The Compensation Committee generally approves an equity award of a specific dollar value for each recipient based on a multiple of the recipient’s base salary. For Mr. Slipsager, the awards may range from 0% to 200% of base salary. For Messrs. Lusk, McClure and Zaccagnini, the awards may range from 0% to 125% of base salary. For Ms. McConnell, the awards may range from 0% to 100% of base salary. Under guidelines utilized by the Compensation Committee for awards made in fiscal year 2009 under the 2006 Equity Incentive Plan, the dollar value of the awards has been distributed among the following equity vehicles:

 

Fiscal Year 2009 Equity Grant Value Distribution

 

The number of shares granted is calculated for stock options based on the Black-Scholes value and for RSUs and Performance Shares based on the fair market value of the Company’s stock on the date of grant of the award.

 

Fiscal Year 2009 Equity Incentives

 

In January 2009, the Compensation Committee, as part of a regular grant cycle under the 2006 Equity Incentive Plan, awarded stock options, RSUs and Performance Shares to the NEOs. However, in view of considerations and uncertainty relating to the continuing recession in January 2009, the Compensation Committee determined to reduce by approximately 50% the value of awards granted in January 2009 as compared to those granted in January 2008. More information relating to 2009 equity-based awards to NEOs can be found in the table “Grants of Plan-Based Awards During Fiscal Year 2009.”

 

The 2009 Performance Share program was based on metrics relating to operating cash flow and earnings before interest expense, income taxes, depreciation and amortization (“EBITDA”) in fiscal year 2009, adjusted to exclude discontinued operations and items impacting comparability. Metrics relating to operating cash flow and EBITDA were selected by the Compensation Committee, upon the recommendation of the CEO, based upon the belief that growth in these areas positively correlates with growth in enterprise value. Under the 2009 Performance Share program, awards to recipients do not vest until January 12, 2012. The formula used to calculate shares earned under the 2009 Performance Share program is set forth below:

 

2009 Operating Cash Flow + 5 times the change in EBITDA between fiscal year 2008 and fiscal year 2009 = Value Creation

 

In the event that the formula produced a value creation number greater than $216.7 million, shares would be earned at 125% of target. In the event that the formula produced a value creation number less than $141.3 million, no shares would be earned.

 

In January 2010, the Compensation Committee, applying the formula set forth above, determined that shares were earned at 106.6% of target, based on a value creation number equal to $200.9 million.

 

Also, in January 2010, the Compensation Committee reviewed the Company’s performance over the performance periods relating to grants of Performance Shares in fiscal year 2007, comparing the revenue and profit margin targets relating to that performance period against actual revenues and profit margins achieved during the performance period. The 2007-2009 Performance Share program was based on (1) three-year average profit margin (for persons who received grants in the first five months of the performance period) or two-year average profit margins (for person who received grants in the latter half of fiscal year 2007) and (2) three-year or two-year average annual revenues, depending on when the Performance Share grant was made to the recipient as referenced above.

 

For fiscal years 2007-2009, average three-year annual revenues were approximately $3.271 billion and average annual two-year revenues were approximately $3.553 billion, and average three-year annual profit margin equaled 2.74% and average annual two-year profit margin equaled 2.70%, resulting in 75% of the Performance Shares vesting under the 2007-2009 Performance Share program for all recipients.

Stock Ownership Guidelines

 

In October 2006, the Compensation Committee adopted the following stock ownership guidelines for NEOs and other senior executives that are based on a multiple of base salary.

 

Stock Ownership Guidelines

 

 

Executives are expected to achieve their targets within five years of becoming subject to the ownership guidelines. The Compensation Committee periodically assesses the guidelines and the officers’ ownership relative to these guidelines. Progress toward targeted ownership levels may be taken into consideration in future grants to executives. In addition, executives who are not at their targeted stock ownership level must hold 50% of the net shares realized from previous equity-based grants for a minimum of one year. “Net shares realized” means unrestricted shares acquired by an executive under the 2006 Equity Incentive Plan net of any shares sold to pay the exercise price (if any) and taxes withheld.

 

Benefits and Perquisites

 

The NEOs are eligible for customary employee benefits, which include, but are not limited to, participation in ABM’s 401(k) Plan, as well as group life, health, and accidental death and disability insurance programs. In addition, the NEOs, other than Mr. Lusk and Ms. McConnell, qualify for benefits under the Supplemental Executive Retirement Plan (“SERP”), an unfunded retirement plan that was closed to new participants prior to the employment of Mr. Lusk and Ms. McConnell. Mr. Slipsager and Mr. McClure also participate in the Service Award Benefit Plan (“SAB”), which provides participants upon termination of employment with a minimum of seven days of pay for each year of employment between November 1989 and January 2002. The SAB was closed to new participants prior to the employment of Messrs. Lusk and Zaccagnini and Ms. McConnell.

 

The NEOs are eligible to participate in ABM’s Employee Deferred Compensation Plan, which is an unfunded deferred compensation plan available to highly compensated employees. The Employee Deferred Compensation Plan benefits are shown in the “Nonqualified Deferred Compensation in Fiscal Year 2009” table, followed by a description of the plan.

 

The Company provides certain perquisites to its officers. In fiscal year 2009, perquisites included an automobile allowance, parking allowance, club dues and relocation costs. The value and an explanation of the perquisites is shown in the “Summary Compensation Table for Fiscal Year 2009” in the column headed “All Other Compensation.” In fiscal year 2009, the Compensation Committee reviewed Company policy relating to perquisites and in January 2010, the Compensation Committee determined to eliminate perquisites relating to automobile allowance, parking allowance and club dues, and adjust base salaries in fiscal year 2010 to take into account the effects of this decision.

 

Change-in-Control and Other Severance Arrangements

 

Change-in-Control Agreements

 

ABM has entered into change-in-control agreements with each of the NEOs to assure continuity of ABM’s senior management and to provide the NEOs with stated severance compensation should their employment with ABM be terminated under certain defined circumstances following a change in control (as defined in the agreements). The agreements are considered to be “double trigger” arrangements where the payment of severance compensation is predicated upon the occurrence of two triggering events: (1) the

occurrence of a change in control, and (2) either the involuntary termination of employment with ABM (other than for “cause” as defined in the agreement) or the termination of employment with ABM by the executive for “good reason” as defined in the agreement. The potential benefits to executives are described in the “Potential Payments Upon Certain Terminations of Employment Following a Change in Control on October 31, 2009” table and the agreements summarized in the narrative.

 

Other Severance Arrangements

 

The Board of Directors has adopted a severance plan that provides compensation to executives whose employment is terminated without “cause,” as cause is defined in the employment agreement between the Company and the executive. The plan was adopted following the Compensation Committee’s review of similar plans in the Peer Group and general industry. The plan provides salary and target bonus payments to the Company’s senior executives and salary payments to other executives, with the duration of payments dependent on the level of the executive’s position within the Company. The CEO is not covered under the severance plan although, as discussed in connection with the narrative relating to the Summary Compensation Table for Fiscal Year 2009, his employment agreement provides him with severance payments if he is terminated without cause. ABM expects the severance plan to provide consistency of treatment for officers who are at similar levels in the organization and to protect ABM by requiring a release and post-employment noncompetition restriction as a condition to a severance payment, helping to retain officers during periods of organizational change and assisting in recruiting new executives.

 

In connection with the adoption of the severance plan, the Compensation Committee also determined in the first quarter of 2008 to revise the form of executive employment agreements to provide, among other things, for post-employment restrictions on competition. As described in connection with the narrative relating to the Summary Compensation Table for Fiscal Year 2009, in the fourth quarter of 2008, the Company entered into employment agreements with Messrs. Lusk, McClure, and Zaccagnini and Ms. McConnell which provide for post-employment restrictions on competitive activities.

 

In the event payments to Messrs. Lusk, McClure and Zaccagnini and Ms. McConnell are triggered under both the change-in-control agreement and the severance plan in the event of a change of control, the change-in-control agreement states that amounts paid under the severance plan (which are lower) will be credited against and reduce payments under the change-in-control agreement.

 

Compensation Recovery Policy

 

In December 2009, the Board of Directors adopted a policy relating to the recoupment of cash and equity compensation. The policy provides that if the Company’s financial statements are the subject of a restatement due to misconduct, fraud or malfeasance, then, to the extent permitted by applicable law, the independent members of the Board, or a committee consisting of independent members of the Board designated by the Board, may, in its discretion, recover cash compensation paid to an executive officer of the Company or rescind or make other adjustments to an equity award made to an executive officer of the Company, including recovering cash proceeds relating to the sale or other disposition of an equity award, to the extent that the payment or award was predicated upon the achievement of certain financial results that were subsequently the subject of a restatement. Where applicable, the Company may seek to recover any amount determined to have been inappropriately received by the individual executive officer. In addition, it is also the Board of Directors’ policy that if the independent members of the Board or a committee consisting of independent members of the Board, determine that an employee who has received a cash incentive payment or an equity award has engaged in conduct constituting “Cause,” as defined in the policy, then the Board or such Committee may take action it deems necessary to address such conduct, including recovery of cash incentive payments, rescission of equity grants made to the employee in the 36-month period prior to the date on which the Board or such Committee makes such determination and recovery of proceeds relating to the sale or other disposition of an equity award during such 36-month period. “Cause” includes, but is not limited to, serious misconduct, dishonesty, disloyalty, conviction of a felony or misdemeanor involving moral turpitude, and failure to substantially perform employment-related duties or responsibilities.

Accounting and Tax Considerations

 

The Compensation Committee takes into consideration the accounting, tax and related financial implications to ABM and executives when designing compensation and benefit programs. In general, base salary, annual cash incentive bonus payments, and the costs related to benefits and perquisites are recognized as compensation expense at the time they are earned or provided, and equity based compensation expense is recognized over the vesting period of the grant.

 

Subject to the exceptions and limits described below, ABM deducts for federal income tax purposes all payments of compensation and other benefits to executives. ABM does not deduct nonqualified deferred compensation until the year that the deferred compensation is paid to the executive.

 

Section 162(m) of the Internal Revenue Code generally does not allow a tax deduction to public companies for compensation over $1 million paid to the CEO or any of the three other most highly compensated executive officers unless the compensation is paid based solely on the attainment of one or more pre-established objective performance goals and certain other requirements are met. It is the Compensation Committee’s preference to qualify its executives’ compensation for deductibility under Section 162(m), to the extent it is consistent with ABM’s best interests. In this regard, the Compensation Committee considers various factors, including the payments of salary and the delivery of shares underlying RSUs, compensation deferral elections, and other matters in connection with its compensation decisions. The Company’s Executive Officer Incentive Plan and 2006 Equity Incentive Plan, both of which have been approved by the Company’s shareholders, have been designed to permit ABM to make incentive payments and awards of Performance Shares and stock options that are not subject to the deduction limits of Section 162(m). From time to time the Compensation Committee has awarded, and may in the future award, compensation that is not fully deductible.

 

Section 4999 and Section 280G of the Internal Revenue Code provide that certain executives could be subject to significant excise taxes if they receive payments or benefits that exceed certain limits in connection with a change in ownership or change in effective control of ABM and that ABM or its successors could lose an income tax deduction with respect to the payments subject to the excise tax. ABM has change-in-control agreements with the NEOs, but these agreements do not provide for a tax “gross up” or other reimbursement for taxes the executive might be required to pay pursuant to Section 4999 of the Internal Revenue Code. Payments and benefits under the change-in-control agreements (as well as under all other agreements or plans covering the NEOs) are subject to reduction in order to avoid the application of the excise tax on “excess parachute payments” but only if the reduction would increase the net after-tax amount received by the named executive officer, with one exception. The exception is that any reduction may be made to the extent the NEO would be entitled to receive, on an after-tax basis, at least 90% of the severance payment he or she would otherwise be entitled to under the severance agreement.

 

Section 409A of the Internal Revenue Code imposes significant additional taxes and interest on underpayments of taxes in the event an executive defers compensation under a plan that does not meet the requirements of Section 409A. ABM has structured its programs and individual arrangements in a manner intended to comply with the requirements of Section 409A.

 

The Compensation Committee has reviewed the Compensation Discussion and Analysis and discussed the Analysis with management. Based on its review and discussions with management, the Compensation Committee recommended to the Board of Directors that the Compensation Discussion and Analysis be included in ABM’s Annual Report on Form 10-K, for the fiscal year ended October 31, 2009 and ABM’s 2010 Proxy Statement.

 

This report is provided by the following independent and outside directors, who comprise the Compensation Committee:

 

Linda Chavez, Chair
Maryellen C. Herringer
Henry L. Kotkins, Jr.

 

The following tables and accompanying narrative describe the compensation of the NEOs and the ABM executive compensation program.

 

 

 

 

 

Messrs. Slipsager, Lusk, McClure and Zaccagnini and Ms. McConnell have employment agreements that provide for annual salaries and bonuses. The annual bonuses for the NEOs in fiscal year 2009 were based on performance objectives for each described under “Compensation Discussion and Analysis.” Year-end measurement against these objectives resulted in payments to Mr. Slipsager of 137% of target, to Mr. Lusk of 113% of target, to Mr. McClure of 117% of target, to Mr. Zaccagnini of 114% of target, and to Ms. McConnell of 108% of target. In addition, the NEOs are eligible for the other compensation programs, benefits and perquisites described above.

 

In fiscal year 2008, the Compensation Committee reviewed the employment agreements for the NEOs. In connection with this review, the Committee recommended that Mr. Slipsager’s agreement be amended and restated to include, among other things, certain post-employment prohibitions on competition with the Company, and to provide that the term of employment be for a period ending on October 31, 2013. At a meeting of the independent members of the Board of Directors, Mr. Slipsager’s amended and restated employment agreement was approved. The employment agreements for the other NEOs terminate on October 31, 2010. Each employment agreement contains a provision providing for automatic one-year extension unless, in the case of Mr. Slipsager, the Company provides notice 90 days prior to the expiration of the employment agreement that it does not wish to renew, and in the case of the other NEOs, the Company provides such notice within 60 days of the expiration of the employment agreement. Under each employment agreement, the Company has the right to terminate the employment agreement without cause. In the event that the Company terminates Mr. Slipsager’s agreement without cause, he is entitled to receive two times the sum of his base salary and target bonus. In the event that the Company terminates the employment of any of the other NEOs without cause, such NEO is entitled to receive such severance payments as are then-applicable under the Company’s Severance Policy. Currently, such amount upon termination would equal 18 months’ base pay and target bonus in the case of the NEOs who are Executive Vice Presidents, and 12 months’ base pay and target bonus for the NEO who is a Senior Vice President. The employment agreements contain provisions prohibiting competition with the Company for a period of one year following termination of employment. In

December 2009, Mr. Slipsager’s employment agreement was amended to delete certain provisions requiring mandatory deferrals of cash bonus payments, after the Committee determined such provisions were not necessary.

 

The table below shows payout ranges for the NEOs with respect to non-equity incentive plan awards and equity incentive plan awards, as well as other information.

 

 

 

 

The following table shows the outstanding equity awards held by the NEOs at October 31, 2009.

 

 

 

 

The following table shows the amounts realized upon exercise of stock options and vesting in fiscal year 2009 of shares previously awarded.

 

 

 

 

The following tables and accompanying narrative describe benefits to the NEOs under the SAB, SERP and the Employee Deferred Compensation Plan.

 

Pension Benefits at 2009 Fiscal Year-End