2008

Annual Meeting

of Shareholders

and

Proxy Statement

 

Four Coliseum Centre

2730 West Tyvola Road

Charlotte, North Carolina 28217

 

 

THE ANNUAL MEETING OF SHAREHOLDERS of Goodrich Corporation, a New York corporation, will be held at Goodrich’s headquarters, Four Coliseum Centre, 2730 West Tyvola Road, Charlotte, North Carolina on April 22, 2008, at 10:00 a.m. Eastern Time to:

 

1. Elect eleven Directors to hold office until the next Annual Meeting of Shareholders and until their respective successors are elected and qualified.

 

2. Ratify the appointment of Ernst & Young LLP as our independent registered public accounting firm for the year 2008.

 

3. Approve an amendment and restatement of the Goodrich Corporation 2001 Equity Compensation Plan.

 

4. Approve the Goodrich Corporation 2008 Global Employee Stock Purchase Plan.

 

5. Transact such other business as may properly come before the meeting.

 

Information with respect to these matters is contained in the Proxy Statement attached to this Notice.

 

The Board of Directors has fixed March 3, 2008 as the record date for determining shareholders entitled to notice of and to vote at the meeting. Only holders of record at the close of business on that date shall be entitled to notice of and to vote at the meeting or any adjournment thereof.

 

A proxy for use at the meeting in the form accompanying this Notice is hereby solicited on behalf of the Board of Directors from holders of Common Stock. Shareholders may withdraw their proxies at the meeting should they be present and desire to vote their shares in person, and they may revoke their proxies for any reason at any time prior to the voting thereof.

 

It is important that every shareholder be represented at the meeting regardless of the number of shares owned. To minimize expense associated with collecting proxies, please execute and return your proxy promptly.

 

By Order of the Board of Directors

 

Sally L. Geib

Secretary

 

Dated March 12, 2008

 

Important Notice Regarding the Availability of Proxy Materials for the
Shareholder Meeting to Be Held on April 22, 2008. Our proxy statement and 2007 annual report to shareholders are available at
www.goodrich.com/governance.

 

TABLE OF CONTENTS

 

 

The accompanying proxy is solicited on behalf of the Board of Directors of Goodrich Corporation.  Our 2008 Annual Meeting of Shareholders will be held at our corporate headquarters, Four Coliseum Centre, 2730 West Tyvola Road, Charlotte, North Carolina at 10:00 a.m. Eastern Time on April 22, 2008.

 

All shareholders of record of our Common Stock at the close of business on March 3, 2008 are entitled to notice of and to vote at the Annual Meeting. There were 125,064,965 shares outstanding and entitled to vote on such date, and each share is entitled to one vote. There are no cumulative voting rights.

 

Most shareholders have a choice of voting by proxy over the Internet, by using a toll-free telephone number or by completing a proxy card and mailing it in the postage-paid envelope provided. Please refer to your proxy card or the information forwarded by your bank, broker or other holder of record to see which options are available to you. Please be aware that if you vote over the Internet, you may incur costs such as telephone and Internet access charges for which you will be responsible. The Internet and telephone voting facilities for shareholders of record will close at 11:59 p.m. Eastern Time on April 21, 2008.

 

When you vote by proxy, your shares will be voted according to your instructions. You can revoke your proxy at any time before it is exercised by written notice to our Secretary, timely delivery of a properly executed, later-dated proxy (including an Internet or telephone vote) or voting by ballot at the Annual Meeting. If your shares are held in the name of a bank, broker or other holder of record, you must obtain a proxy, executed in your favor, from the holder of record to be able to vote at the Annual Meeting.

 

Proxies for shares of Common Stock will also represent shares held under our Dividend Reinvestment Plan. Proxies will also be considered to be voting instructions to the plan trustees with respect to shares held in accounts under the Goodrich Corporation Employees’ Savings Plan and Goodrich Corporation Savings Plan for Rohr Employees. We have been advised that voting instructions from plan participants must be received by not later than 11:59 p.m. Eastern Time on April 17, 2008 in order to be included in the final voting instruction tabulation provided to the plan trustees.

 

We will pay the expense of soliciting these proxies. In addition to using the mails and the Internet, our officers, Directors and employees may solicit proxies personally, by telephone or by facsimile. We will reimburse brokers and others holding shares in their names, or in the names of nominees, for their expenses in sending proxy material to the beneficial owners of such shares and obtaining their proxies. We have retained Laurel Hill Advisory Group, LLC, 2 Robbins Lane, Suite 201, Jericho, NY 11753, to assist us in soliciting proxies from shareholders, including brokers, custodians, nominees and fiduciaries, and will pay that firm fees estimated at $10,000 for its services, plus the firm’s expenses and disbursements.

 

The approximate date on which we will begin mailing this proxy statement, the accompanying proxy and our 2007 Annual Report, including financial statements, to shareholders is March 12, 2008.

 

This proxy statement and our 2007 Annual Report are available on our Internet site at www.goodrich.com/governance. The Company now offers the opportunity to electronically receive future proxy statements and annual reports over the Internet. By using these services, you are not only able to access these materials more quickly than ever before, but you are also helping the Company reduce printing and postage costs associated with their distribution. Online services are available to our registered and beneficial shareholders who have active email accounts and Internet access. Registered shareholders maintain shares in their own names. Beneficial shareholders have shares deposited with a bank or brokerage firm. To view a listing of participating brokerage firms or to enroll in the program, please go to http://enroll.icsdelivery.com/gr and

click on the appropriate selection. If you have accounts with multiple brokers, you will need to complete the process for each brokerage account. Upon completion of your enrollment, you will receive an email confirming your election to use the online services. Your enrollment in the online program will remain in effect as long as your account remains active or until you cancel it. If you are a current employee with a Company provided e-mail address, you will automatically receive proxy statements and annual reports over the Internet unless you notify the Company of your decision to receive paper copies in the mail.

 

Our principal executive offices are located at Four Coliseum Centre, 2730 West Tyvola Road, Charlotte, North Carolina 28217.

 

Unless the context otherwise requires, the terms “we”, “our”, “us”, “Goodrich” and “the Company” as used in this proxy statement refer to Goodrich Corporation.

 

 

The presence, in person or by proxy, of the holders of a majority of the shares of Common Stock entitled to vote at the Annual Meeting is necessary to constitute a quorum. Withheld votes, abstentions and broker “non-votes” are counted as present and entitled to vote for purposes of constituting a quorum. A broker “non-vote” occurs when a nominee holding shares for a beneficial owner does not vote on a particular proposal because the nominee does not have discretionary voting power for that particular item and has not received voting instructions from the beneficial owner.

 

If you are a beneficial shareholder and your broker holds your shares in its name, the rules of the New York Stock Exchange permit your broker to vote your shares on the election of Directors and the ratification of the appointment of our independent registered public accounting firm, even if the broker does not receive voting instructions from you. However, under the rules of the New York Stock Exchange, your broker cannot vote your shares on the proposal relating to the amendment and restatement of the Goodrich Corporation 2001 Equity Compensation Plan or on the proposal relating to approval of the Goodrich Corporation 2008 Global Employee Stock Purchase Plan if you do not timely provide instructions for voting your shares.

 

The eleven nominees for Director receiving a plurality of the votes cast at the Annual Meeting in person or by proxy shall be elected. This means that the Director nominee with the most votes for a particular slot is elected for that slot. Only votes “for” affect the outcome.

 

Our Guidelines on Governance set forth our procedures if a Director nominee is elected, but receives a majority of “withheld” votes. In an uncontested election, any nominee for Director who receives a greater number of “withheld” votes than votes “for” such election is required to tender his or her resignation following certification of the shareholder vote. The Committee on Governance is required to make recommendations to the Board with respect to any such letter of resignation. The Board is required to take action with respect to this recommendation and to disclose its decision.

 

Ratification of the appointment of our independent registered public accounting firm, approval of the amendment and restatement of the Goodrich Corporation 2001 Equity Compensation Plan and approval of the Goodrich Corporation 2008 Global Employee Stock Purchase Plan will be decided by a majority of the votes cast “for” or “against” each proposal at the Annual Meeting. Abstentions and, if applicable, broker “non-votes” are not counted as votes “for” or “against” these proposals.

 

1. ELECTION OF DIRECTORS

 

One of the purposes of the Annual Meeting is the election of eleven Directors to hold office until the next annual meeting of shareholders in 2009 and until their respective successors are elected and qualified. The eleven nominees for election as a Director are named on the following pages. All of them are now Directors whose terms expire at the 2008 Annual Meeting.

 

All nominees have indicated that they are willing to serve as Directors if elected. If any nominee should be unable or unwilling to serve, the proxies will be voted for the election of such person as may be designated by our Board of Directors to replace such nominee.

 

The Board recommends that you vote FOR the election of these nominees for Director.

 

NOMINEES FOR ELECTION

 

 

OTHER NOMINEES

 

Under our By-Laws, nominations of persons for election to the Board of Directors may be made at an annual meeting of shareholders by any shareholder who was a shareholder of record at the time of giving the notice described below, who is entitled to vote at such meeting and who complies with the notice procedures set forth in the By-Laws.

 

For a nomination to be properly brought before an annual meeting of shareholders, the shareholder must have given timely notice thereof in writing to our Secretary. To be timely, the shareholder’s notice must have been sent to, and received by, our Secretary at our principal executive offices generally not less than 90 nor more than 120 days prior to the first anniversary of the preceding year’s annual meeting. For the 2009 Annual Meeting, such notice must be received between December 23, 2008 and January 22, 2009. Each such notice must include:

 

 

No person nominated by a shareholder at the Annual Meeting is eligible for election as a director unless nominated in accordance with the procedures contained in the By-Laws. See Appendix A for the full text of the relevant section of the By-Laws.

 

The Audit Review Committee of our Board of Directors has appointed the firm of Ernst & Young LLP, subject to ratification by the shareholders at the Annual Meeting, to serve as our independent registered public accounting firm for the year 2008. Should Ernst & Young LLP be unable to perform these services for any reason, the Audit Review Committee will appoint another independent registered public accounting firm to perform these services.

Representatives of the firm of Ernst & Young LLP, our independent registered public accounting firm for the most recently completed fiscal year, are expected to be present at the Annual Meeting. They will have the opportunity to make a statement if they desire to do so, and will be available to respond to appropriate questions from shareholders.

 

Fees to Independent Registered Public Accounting Firm for 2007 and 2006

 

The following is a summary of the fees billed to us by Ernst & Young LLP for professional services rendered for 2007 and 2006:

 

 

Audit Fees.  Audit fees consist of fees billed by Ernst & Young LLP for professional services rendered for the audit of our financial statements, the review of financial statements included in our Quarterly Reports on Form 10-Q and services that are normally provided by them in connection with statutory and regulatory filings or engagements for those years. Audit fees also include the audit of the effectiveness of our internal control over financial reporting, as required by Section 404 of the Sarbanes-Oxley Act of 2002.

 

Audit-Related Fees.  Audit-related fees consist of fees billed by Ernst & Young LLP for assurance and related services that are reasonably related to the performance of the audit or review of our financial statements and are not reported under “Audit Fees” above. Audit-related fees included fees for employee benefit plan audits, acquisition/divestiture assistance, accounting consultation and audits of a joint venture.

 

Tax Fees.  There were no tax fees billed by Ernst & Young LLP for 2007 and 2006.

 

All Other Fees.  All other fees consist of fees related to products and services provided by Ernst & Young LLP, other than those reported above under “Audit Fees”, “Audit-Related Fees” and “Tax Fees”. For 2007 and 2006, all other fees represents fees billed by Ernst & Young LLP for miscellaneous services.

 

None of the services represented by the fees set forth in the above table were provided in accordance with the de minimis exception to Audit Review Committee approval that appears in Rule 2-01(c)(7)(i)(C) of Regulation S-X.

 

Audit Review Committee Pre-Approval Policy

 

The Audit Review Committee of our Board of Directors must review and pre-approve all audit and non-audit services performed by our independent registered public accounting firm. In conducting such reviews, the Audit Review Committee will determine whether the provision of non-audit services would impair the firm’s independence. The term of any pre-approval is 12 months from the date of pre-approval, unless the Audit Review Committee specifically provides for a different period.

 

Requests or applications to provide services that require pre-approval by the Audit Review Committee are submitted by both the independent registered public accounting firm and management and must include a joint statement as to whether, in their view, the request or application is consistent with the SEC’s rules on auditor independence. Detailed back-up documentation must be provided in connection with each request or application.

The Audit Review Committee may delegate pre-approval authority to one or more of its members. The member or members to whom such authority is delegated must report any pre-approval decisions to the Audit Review Committee at its next scheduled meeting. The Audit Review Committee does not delegate to management its responsibilities to pre-approve services performed by the independent registered public accounting firm.

 

The full text of the Audit Review Committee pre-approval policy is available on the corporate governance page of our Internet site at www.goodrich.com/governance.

 

Vote Required

 

Ratification of the appointment of Ernst & Young LLP as our independent registered public accounting firm for the year 2008 will be decided by a majority of the votes cast “for” or “against” the proposal at the Annual Meeting.

 

The Board of Directors recommends that you vote FOR ratifying this appointment.

 

 

The Board is submitting a proposal to shareholders to approve an amendment and restatement of the Goodrich Corporation 2001 Equity Compensation Plan (the “Plan”). Shareholders originally approved the Plan on April 17, 2001 and approved of the amendment and restatement of the Plan on April 19, 2005.

 

At the present time, the Plan has approximately 1.2 million shares available for new awards. The Board believes that the Plan has been an important factor in attracting, keeping and motivating key employees, and further believes that this type of incentive should continue to be offered in the future. As a result, the Board proposes and recommends approval of the amendment and restatement of the Plan, which includes the following proposed significant amendments to the Plan:

 

 

A summary of the amended and restated Plan appears below. This summary is qualified in its entirety by reference to the text of the amended and restated Plan, which is included as Appendix B to this proxy statement.

 

Shares Available for Plan; Award Limitations

 

The Plan makes 14,500,000 shares of our common stock available for grant, together with shares of common stock available as of April 17, 2001 for future awards under our stock option plan that became effective on April 19, 1999 (the “1999 Plan”) and any shares of common stock represented by outstanding 1999 Plan awards as of April 17, 2001 that are not issued or that are subject to awards that have lapsed or are forfeited, terminated, settled in cash or canceled without having been exercised (other than shares underlying an option that is canceled upon exercise of a related appreciation right), after that date. Such shares may be either authorized but unissued shares or treasury shares. The closing price of our common stock on January 31, 2008 as reported by the New York Stock Exchange was $62.45 per share.

 

The following rules apply for purposes of calculating the number of shares of common stock available for delivery under the Plan:

 

 

The Plan also provides certain limitations with respect to particular types of awards, as follows:

 

 

Plan Administration

 

The Compensation Committee of the Board of Directors administers the Plan. The Committee shall consist of at least three members who shall not be eligible to participate in the Plan. The Committee is comprised solely of independent directors. We refer to the Compensation Committee or any other committee appointed by the Board to administrator the Plan (whose members meet the criteria set forth in the Plan) as the “Committee” within this summary.

 

Eligibility

 

Awards under the Plan may be granted to any salaried, full-time employees of the Company or any subsidiary of which the Company owns more than 50% of the voting stock. Directors who are also officers or employees may be granted awards under the Plan, but Directors who are not also our employees are not eligible to participate. The Committee has discretion to determine which of the eligible employees will receive awards or grants under the Plan. We estimate that approximately 16,000 employees currently satisfy the eligibility requirements of the Plan

 

Stock Options

 

The Committee may grant options to purchase our common stock at not less than Fair Market Value (as defined in the Plan) on the date of grant. The Plan specifically prohibits the repricing of options after they are granted, or the exchange or “swapping” of lower priced options for higher priced options.

 

The Plan provides for the grant of stock options that qualify as incentive stock options under the Code, as well as stock options that do not qualify for such treatment. The Plan also permits the granting of other statutory stock options pursuant to any future provisions of the Code. The federal income tax treatment of incentive stock options is generally more favorable to optionees than the treatment accorded other options. It is also less favorable to us because we will generally not receive a tax deduction with respect to incentive stock options. (See “Federal Income Tax Treatment” below.) Under current law, the maximum amount of incentive stock options that may be granted to an individual which are exercisable for the first time during any calendar year may not exceed $100,000 in aggregate fair market value.

 

The Plan provides that, subject to certain limitations with respect to the price and term of options and rights upon termination of employment, discussed below, the Committee shall have the authority in its discretion to specify all other terms and conditions relating to stock options. For example, the Committee may determine the term of each option, which may not exceed 10 years from the date of grant, may determine when options may be exercised and may permit payment upon exercise to be made in our common stock owned by the optionee, valued at the fair market value on the date of exercise, or other acceptable forms of consideration equal in value to the option price. The Committee may place limitations with respect to the ability to use common stock in payment of the option price, including limitations on the pyramiding of shares.

 

Stock Appreciation Rights

 

The Plan also authorizes the Committee to grant stock appreciation rights and/or limited stock appreciation rights in connection with any option granted by the Committee. A stock appreciation right would, subject to the terms and conditions set forth in the Plan, allow an employee to surrender the related stock option and receive payment in stock for the difference between the stock option price and the price of our common stock on the date on which the appreciation right is exercised. A limited stock appreciation right entitles the optionee to elect to receive the appreciation on the option in cash for a 60-day period generally commencing following a “Change in Control,” as defined in the Plan.

Stock appreciation rights and limited stock appreciation rights may be granted at the time of the granting of the related stock options or any time thereafter during the term of the related stock options. The number of stock appreciation rights and limited stock appreciation rights granted shall not exceed the number of shares which may be purchased upon the exercise of the related options and shall be exercisable only so long as related options are exercisable.

 

Performance Share Awards

 

The Committee may grant performance share awards (performance awards in common stock or phantom shares) and performance unit awards (performance awards to be paid out in cash) that are contingent upon the attainment of performance objectives and other restrictions imposed by the Committee. The performance period, performance objectives and other restrictions and, for performance unit awards, the target unit value or range of unit values, will be established by the Committee at the time of grant. Performance objectives that may be used under the Plan shall be based upon one or more or the following criteria: operating income; net income; earnings (including earnings before interest, taxes, depreciation and/or amortization); earnings per share; sales; costs; profitability of an identifiable business unit or product; maintenance or improvement of profit margins; cost reduction goals; operating cash flow; free cash flow (operating cash flow less capital expenditures); working capital; improvements in capital structure; debt reduction; credit ratings; return on assets; return on equity; return on invested capital; stock price; total shareholder return; completion of joint ventures, divestitures, acquisitions or other corporate transactions; new business or expansion of customers or clients; strategic plan development and implementation; succession plan development and implementation; customer satisfaction indicators; employee metrics; or other objective individual or team goals.

 

The performance objectives may relate to us, on an absolute basis and/or relative to one or more peer group companies or indices, or to a particular participant, subsidiary, division or operating unit, or any combination of the foregoing, all as the Committee shall determine. In addition, to the degree consistent with Section 162(m) of the Code (or any successor section thereto), the Committee may adjust, modify or amend the above criteria, either in establishing any performance objective or in determining the extent to which any performance objective has been achieved.

 

The Committee has the authority, at the time it establishes the performance objectives for a particular award, to make equitable adjustments in the criteria in recognition of unusual or non-recurring events, in response to changes in applicable laws or regulations, or to account for items of gain, loss or expense determined to be extraordinary or unusual in nature or infrequent in occurrence or related to the disposal of a business or related to a change in accounting principles, or as the Committee determines to be appropriate to reflect a true measurement of the performance of the Company or any subsidiary, division or operating unit, as applicable, and to otherwise satisfy the objectives of the Plan. At the end of the performance period, the Committee will determine the extent or degree to which the performance objectives have been attained and will determine the form payment will take (cash, shares of common stock or a combination).

 

Restricted Stock and Restricted Stock Unit Awards

 

The Committee may award restricted stock or restricted stock units that are subject to conditions established by the Committee, which may include continued employment with the Company. Any award of restricted stock or restricted stock units that is conditioned upon continued employment will be conditioned upon continued employment for a minimum period of three years following the award, except in the case of death, disability or retirement and except as otherwise provided by the Committee in connection with a “Change in Control” as defined in the Plan.

Other Awards

 

The Plan permits the Committee to make other types of awards in units or phantom shares, the value of which are based in whole or in part on the value of the Company’s Common Stock, in lieu of making awards in actual shares of stock (“Other Awards”). Other Awards may be paid in cash, stock or a combination of both.

 

Miscellaneous

 

The Plan authorizes the delegation of authority with respect to up to 10% of the shares authorized under the Plan to our Chief Executive Officer and other officers, but only with respect to participants who are not subject to Section 16 of the Securities Exchange Act of 1934.

 

The Committee has discretion to make such provisions as it deems appropriate with respect to the effect, if any, termination of employment will have on any grants or awards under this Plan.

 

The Committee may require that any federal, state or local withholding tax requirements be satisfied by withholding shares of common stock or other amounts which would otherwise be payable under the Plan.

 

Options and any related appreciation rights and other awards granted under the Plan shall not be transferable other than by will or the laws of descent and distribution, or as the Committee approves. Under no circumstances will a transfer for value of options and any related appreciation rights, or of any other award under the Plan, be permitted.

 

If actual shares are awarded subject to performance objectives, continued service, or other conditions, they may be registered in the participant’s name but held by us or be retained in book-entry form. In such event, the Committee may permit the participant to receive dividends and other distributions and to vote with respect to such registered shares. Any awards or parts of awards subject to performance objectives or other restrictions which are not satisfied or removed shall be forfeited to us, and any shares actually issued will revert to treasury shares of the Company.

 

If there is a change in corporate capitalization such as a stock split or a corporate transaction, such as any merger, consolidation, separation, including a spin-off, or other distribution of stock or property of the Company, any reorganization or any partial or complete liquidation of the Company (a “Corporate Reorganization”, as defined in the Plan), the Committee or the Board shall be required to make such substitution or adjustments in the aggregate number and kind of shares reserved for issuance under the Plan, and the maximum limitation on the number of awards that may be granted to any participant, in the number, kind and option price of shares subject to outstanding stock options and stock appreciation rights, in the number and kind of shares subject to other outstanding awards granted under the Plan and/or such other equitable substitution or adjustments to equalize the value and prevent dilution or enlargement of rights of participants in any form or manner that it may, in good faith, determine to be equitable under the circumstances. The number of shares subject to any award shall always be a whole number, notwithstanding any such adjustments.

 

The time within which options and/or stock appreciation rights may be exercised in full shall be accelerated in the event of a “Change in Control,” as defined in detail in the Plan. Options so accelerated will remain exercisable for at least two years or the remainder of the option or appreciation right term, whichever is shorter, unless they terminate in accordance with other Change in Control provisions of the Plan. The Committee has discretion to determine how to treat other awards in Change in Control situations. In the event of a proposed Change in Control that would be a dissolution or liquidation event, the Board, in its discretion, will notify participants who hold options or stock appreciation rights at least ten business days prior to the date of the proposed dissolution or liquidation and, if the holder does not exercise the award

before that time, the award will terminate. With respect to a proposed Change in Control that is not a dissolution or liquidation event, the Plan provides that options or stock appreciation rights be assumed by, or that an equivalent award be substituted by, the successor corporation or its parent or one of its subsidiaries and, if it is not so assumed or substituted, provides that the award will terminate if not exercised on or prior to the date of the Change in Control and requires the Board to give notice to each holder of such options and appreciation rights ten business days prior to the proposed Change in Control. Subject to the more specific definition contained in the Plan, the types of events that will generally be considered to be a Change in Control include the following (each subject to any exceptions contained in the Plan): (i) any person or entity becoming the beneficial owner of 20% or more of the common stock or combined voting power of the Company’s outstanding securities, (ii) a change in the majority of the Directors of the Company, or (iii) certain corporate reorganizations where the existing shareholders do not retain at least 70% of the voting securities of the surviving entity.

 

The Plan may be amended or terminated by the Board, except that no amendment shall be made without the approval of shareholders which has the effect of increasing the number of shares of stock subject to the Plan (other than in connection with a “Corporate Reorganization,” as defined in the Plan), materially increasing the benefits accruing to participants under the Plan or materially modifying the requirements for participation in the Plan. No amendment or termination will adversely affect any rights or obligations with respect to awards previously made under the Plan unless the action is taken in order to comply with applicable law, stock exchange rules or accounting rules.

 

The Committee may permit deferral of cash or stock based awards provided that such deferral complies with Section 409A of the Code.

 

U.S. Tax Treatment of Options and Awards

 

Incentive Stock Options

 

An incentive stock option results in no taxable income to the optionee or deduction to us at the time it is granted or exercised. However, the excess of the fair market value of the shares acquired over the option price is an item of adjustment in computing the alternative minimum taxable income of the optionee. If the optionee holds the stock received as a result of an exercise of an incentive stock option for at least two years from the date of the grant and one year from the date of exercise, then the gain realized on disposition of the stock is treated as a long-term capital gain. If the shares are disposed of during this period, however (i.e., a “disqualifying disposition”), then the optionee will include in income, as compensation for the year of the disposition, an amount equal to the excess, if any, of the fair market value of the shares at the time of exercise of the option over the option price (or, if less, the excess of the amount realized upon disposition over the option price). The excess, if any, of the sale price over the fair market value on the date of exercise will be a short-term capital gain. In such case, we will be entitled to a deduction, in the year of such a disposition, for the amount includible in the optionee’s income as compensation. The optionee’s basis in the shares acquired upon exercise of an incentive stock option is equal to the option price paid, plus any amount includible in his or her income as a result of a disqualifying disposition.

 

Non-Qualified Stock Options

 

A non-qualified stock option results in no taxable income to the optionee or deduction to us at the time it is granted. An optionee exercising such an option will, at that time, realize taxable compensation in the amount of the difference between the option price and the then market value of the shares. Subject to the applicable provisions of the Code, a deduction for federal income tax purposes will be allowable to us in the year of exercise in an amount equal to the taxable compensation realized by the optionee. The optionee’s basis in such shares is

equal to the sum of the option price plus the amount includible in his or her income as compensation upon exercise. Any gain (or loss) upon subsequent disposition of the shares will be a long-term or short-term gain (or loss), depending upon the holding period of the shares.

 

If a non-qualified option is exercised by tendering previously owned shares of the Company’s common stock in payment of the option price, then, instead of the treatment described above, the following will apply: a number of new shares equal to the number of previously owned shares tendered will be considered to have been received in a tax-free exchange; the optionee’s basis and holding period for such number of new shares will be equal to the basis and holding period of the previously owned shares exchanged. The optionee will have compensation income equal to the fair market value on the date of exercise of the number of new shares received in excess of such number of exchanged shares; the optionee’s basis in such excess shares will be equal to the amount of such compensation income, and the holding period in such shares will begin on the date of exercise.

 

Stock Appreciation Rights

 

Generally, the recipient of a stand-alone stock appreciation right will not recognize taxable income at the time the stand-alone stock appreciation right is granted. If an employee receives the appreciation inherent in the stock appreciation right in stock, the value of such stock will be taxed as compensation income to the employee at the time it is received.

 

In general, there will be no federal income tax deduction allowed to us upon the grant or termination of a stock appreciation right. However, upon the exercise of a stock appreciation right, we will be entitled to a deduction equal to the amount of ordinary income the recipient is required to recognize as a result of the exercise.

 

Stock Awards / Performance Awards

 

The recipient of a stock award or performance award will recognize no income at the time of grant if such award is subject to a substantial risk of forfeiture. Generally, at the time the substantial risk of forfeiture terminates with respect to a stock award, the then fair market value of the stock will constitute compensation income to the employee. Subject to the applicable provisions of the Code, a deduction for federal income tax purposes will be allowable to us in an amount equal to the compensation realized by the employee.

 

Tax Treatment of Awards to Employees Outside the United States

 

The grant and exercise of options and awards under the Plan to employees outside the United States may be taxed on a different basis.

 

Plan Benefits

 

It is not presently possible to determine the dollar value of awards that may be made, or the individuals that may be selected for such awards, in the future under the Plan.

 

Awards under the Plan in 2007 to the Chief Executive Officer and each of the named executive officers are shown in the “Summary Compensation Table” and in the “Grants of Plan-Based Awards” table.

 

Awards under the Plan in 2007 for all executive officers as a group were as follows: 697,400 stock options, 73,600 restricted stock units and 59,100 performance units. Awards under the Plan in 2007 for all non-executive officer employees as a group totaled 649,600 stock options, 486,850 restricted stock units and 90,600 performance units. Non-executive directors are not eligible to participate in the Plan.

Vote Required

 

Approval of the amendment and restatement of the Plan will be decided by a majority of the votes cast “for” or “against” the proposal at the meeting.

 

The Board of Directors recommends that you vote FOR approval of the amendment and restatement of the Goodrich Corporation 2001 Equity Compensation Plan.

 

The Board is submitting a proposal to shareholders to approve the Goodrich Corporation 2008 Global Employee Stock Purchase Plan (the “Purchase Plan”). The purpose of the Purchase Plan is to provide an overarching framework for localized stock purchase plans under which employees of the Company and its affiliates can be provided the opportunity to purchase shares of our common stock through accumulated payroll deductions. The Board also views the Purchase Plan as a retention tool as well as providing employees with the ability to share in the future success of the Company and aligning their personal interests with the interests of the Company’s shareholders.

 

A summary of the Purchase Plan appears below. This summary is qualified in its entirety by the text of the Purchase Plan, which is included as Appendix C to this proxy statement.

 

Plan Administration

 

The Purchase Plan will be administered by the Compensation Committee of the Board or such other committee of the Board as may be appointed from time to time by the Board whose members meet the criteria set forth in the Purchase Plan. We refer to the Compensation Committee or any other committee appointed by the Board to administer the Purchase Plan as the “Committee” within this summary. The Committee has broad administrative authority, including: to interpret the Purchase Plan and each of its sub-plans; to adopt, amend and rescind rules and regulations for administering the Purchase Plan and its sub-plans; and to correct defects in the Purchase Plan. The Committee may appoint appropriate agents to administer the Purchase Plan, and the Committee and any person to whom administrative authority has been delegated will be indemnified by the Company for their actions, determinations and omissions relating to the Purchase Plan or any sub-plan as set forth in the Purchase Plan.

 

Shares Available for Purchase Plan

 

Shares of the Company’s Common Stock may be offered for purchase under the Purchase Plan. The maximum number of shares that may be offered pursuant to the Purchase Plan is 3,000,000 shares, subject to adjustment and amendment as described under “Adjustments” and “Amendments” below. As offerings under the Purchase Plan will be made under sub-plans to the Purchase Plan (as further described below), this 3,000,000 share limitation is effectively the cap on the number of shares that may be issued in the aggregate under any sub-plans to the Purchase Plan. Shares made available under the Purchase Plan may be either authorized but unissued shares, shares purchased on the market, treasury shares or any combination of the foregoing. Shares offered but not in fact delivered pursuant to a sub-plan, shares delivered to, but subsequently forfeited by, a participant, and shares subject to grants, awards or incentives that are settled in cash rather than delivery of shares, will not count against the limit described in this paragraph.

 

Eligible Employees

 

The class of employees eligible to participate in the Purchase Plan consists of those full-time or part-time employees or statutory directors of the Company and any of its affiliates (as

defined in the Purchase Plan) participating in a sub-plan who satisfy the eligibility requirements of an applicable sub-plan, subject to the limitation that no employee who beneficially owns 5% or more of the Company’s outstanding shares will be eligible to participate in the Purchase Plan. Without regard to the 5% limitation, we estimate that, together with those entities that qualify as affiliates under the Purchase Plan, we currently have approximately 23,000 such employees or directors who could be eligible to participate upon the adoption of applicable sub-plans. Sub-plans adopted under the Purchase Plan must permit participation by a specified group of the class of employees described above, a substantial majority of whom will not be executive employees. We anticipate that our existing Employee Stock Purchase Plan for U.S. employees will become a sub-plan of the Purchase Plan if our shareholders approve of this proposal. We estimate that approximately 16,000 U.S. employees are currently eligible to participate in that existing plan. It is also anticipated that the Committee will authorize a sub-plan for our U.K. employees if our shareholders approve of this proposal, which we estimate would permit approximately 3,400 U.K. employees to participate.

 

Offerings under the Purchase Plan

 

Sub-plans, in General.  Offerings under the Purchase Plan will be made under and pursuant to the terms and conditions of sub-plans, which the Purchase Plan anticipates will be tailored to meet the legal, tax and other regulatory requirements of the particular country, consistent with the terms of the Purchase Plan. The terms and conditions of the sub-plans will be determined by the Committee, our Chief Executive Officer and the employer participating in the sub-plan.

 

Payment for Shares; Maximum Discount to Purchase Price.  Each sub-plan will require payment for shares to be in the form and amounts required by law applicable to the sub-plan. The purchase price for shares will be determined by the Committee, will be compliant with laws applicable to the relevant sub-plan and will be set forth in the applicable sub-plan. In no event will the right to purchase any shares under any sub-plan be at a discount to the purchase price of the shares that exceeds 20% of the fair market value of the shares. The sub-plan for U.S. employees will provide for a purchase price discount that complies with Section 423 of the Code, and such discount will be 15% of the fair market value of the shares on the applicable date as set forth in the sub-plan, or such other percentage as may be permitted from time to time under the Code. Fair market value means, as of any date, the average of the closing prices per share of our common stock as reflected by composite transactions on the New York Stock Exchange throughout a period of 10 trading days ending on such date. The closing price of our common stock on January 31, 2008 as reported by the New York Stock Exchange was $62.45 per share.

 

Limitations on Offering or Contribution Period.  The offering or contribution period is the time period during which contributions to purchase shares in connection with an offering under a sub-plan will be made. The offering or contribution period under the sub-plan for U.S. employees will not exceed 27 months, or such other maximum time period as may be permitted from time to time under the Code. Outside the United States, a sub-plan may provide for an offering or contribution period greater than 27 months, but less than or equal to 60 months, if permitted by laws applicable to such sub-plan and otherwise deemed appropriate by the Committee. A sub-plan may permit participants to exercise rights to purchase shares subsequent to the expiration of the offering or contribution period, but the time periods for exercise cannot exceed those permitted or required by applicable law and the circumstances under which this may occur must be consistent with local practices and applicable law. The Code currently would not permit a U.S. employee to exercise a right to purchase shares under our existing Employee Stock Purchase Plan more than 27 months after the grant date.

 

Limitations on Employee Contributions.  The Purchase Plan provides for a default limitation on participant contributions, but permits a sub-plan to provide for different contribution limitations that the Committee determines to be appropriate based on local practices and

compliant with local law applicable to the sub-plan. With respect to any sub-plan for U.S. employees and any offerings to U.S. employees under a sub-plan, no offering may permit the participant during any one calendar year to purchase shares under the sub-plan and any other stock purchase plan of the Company and its affiliates where the fair market value exceeds $25,000 at the time the offering is made, or such other limitation as may be designated by the Committee or imposed by the Code. The U.S. limitation will apply to non-U.S. sub-plans as well, unless a different limitation is set forth in the non-U.S. sub-plan or required by law applicable to the non-U.S. sub-plan.

 

Termination of Employment.  Unless otherwise provided in an applicable sub-plan, if the employment of a participant terminates for any reason, including resignation, death, disability, retirement or other cause, his or her participation in the sub-plan automatically terminates, and the Company will refund any payroll deductions held by the Company and issue certificates for shares, if appropriate, to which the employee is entitled under prior offerings. Each sub-plan may provide different or additional terms that apply in the event of a termination of employment of a participant in the sub-plan, including permitting the employee or his or her beneficiary (in the case of death) to exercise rights with respect to an offering following the termination of employment. If a sub-plan provides for the exercise of rights to purchase shares following a termination of employment, the time periods for such exercise may not exceed those permitted or required by applicable law, and the circumstances for permitting such exercise must be consistent with local practices and applicable law.

 

Restrictions on Assignment.  Rights to purchase shares granted to a participant under any sub-plan are not transferable, except by will or by the laws of descent or distribution. Sub-plans may, however, permit their participants to designate a beneficiary to exercise rights of the participant upon his or her death, subject to the limitations on exercise following termination of employment described above. Rights to purchase shares will be exercisable during a participant’s lifetime only by the participant, or his or her guardian or legal representative if permissible under applicable law.

 

Adjustments

 

The Purchase Plan provides that the Board or the Committee will adjust the number of shares subject to and purchase price of awards or rights made pursuant to a sub-plan as well as the maximum aggregate number of shares available under the Purchase Plan, among other equitable adjustments, to take into account the impact of any stock split or a corporate transaction, any merger, consolidation, separation, including a spin off, or other distribution of stock or property of the Company, any reorganization or any partial or complete liquidation.

 

Additionally, if the Board determines that the number of shares that may be purchased under awards that have been made under sub-plans to the Purchase Plan may exceed the number of shares available for sale under the Purchase Plan as described above under “Shares Available for Purchase Plan,” the Board has discretion to provide for the Committee or the administrators of the relevant sub-plans to make a pro rata allocation of the shares available in as uniform a manner as practicable and as they deem equitable with respect to the participants holding those rights.

 

Impact of Certain Change in Control Events

 

The Purchase Plan includes provisions as to how outstanding rights to purchase shares will be treated in the event of a change in control, but permits different treatment of awards if provided in an applicable sub-plan or if otherwise required by law that applies to the sub-plan under which outstanding awards were made. In particular, the Purchase Plan provides for the

following to occur, unless otherwise provided in the relevant sub-plan or required by applicable law:

 

 

The Purchase Plan includes a detailed definition of “Change in Control” similar to the definition included in the Plan described in Proposal 3, but the Purchase Plan permits a different definition of change in control to govern if specified in a sub-plan or required by law applicable to the relevant sub-plan.

 

Amendments

 

The Purchase Plan may be amended by the Board at any time and for any reason. No revision to the Purchase Plan, however, will be effective until the amendment is approved by the shareholders of the Company if such approval is required under any applicable law or by the rules of the New York Stock Exchange. No amendment may adversely affect any right of a participant with respect to contributions paid or shares purchased or held under the Purchase Plan without the participant’s consent, unless the amendment is necessary to comply with applicable law.

 

Termination

 

The Purchase Plan and all of its sub-plans will terminate upon the earlier of (i) the termination by the Committee of all sub-plans in effect with respect to all employers participating in the sub-plan at the time of termination and (ii) the 10th anniversary of the date of approval of the Purchase Plan by the Company’s shareholders. In either case, the termination of the Purchase Plan will not affect participants’ rights with respect to any offering that began prior to the termination.

 

Tax Consequences

 

The tax consequences for employees participating in the Purchase Plan will depend upon the tax laws of the country in which they live.

U.S. Employees — Federal Income Tax Consequences

 

For U.S. employees, no federal income tax consequence will arise at the time an employee purchases Common Stock under the Purchase Plan. If an employee disposes of Common Stock purchased under the Purchase Plan less than one year after the Common Stock is transferred to the employee and within two years of the grant date, the employee will be deemed to have received compensation taxable as ordinary income for the taxable year in which the disposition occurs in the amount of the difference between the fair market value of the Common Stock at the time of transfer to the employee and the amount paid by the employee for the Common Stock. The amount of such ordinary income recognized by the employee will be added to the employee’s basis in the Common Stock for purposes of determining capital gain or loss upon the disposition of the Common Stock by the employee. The employee will then recognize capital gain or loss equal to the difference between the employee’s basis, adjusted as described in the preceding sentence, in the Common Stock and the amount realized upon disposition of the stock.

 

If an employee does not dispose of the Common Stock purchased under the Purchase Plan until at least one year after the Common Stock is transferred to him or her and at least two years after the grant date, the employee will be deemed to have received compensation taxable as ordinary income for the taxable year in which the disposition occurs in an amount equal to the lesser of (a) the excess of the fair market value of the Common Stock on the date of disposition over the purchase price paid by the employee, or (b) the excess of the fair market value of the Common Stock on the grant date over the purchase price paid by the employee. The amount of such ordinary income recognized by the employee will be added to the employee’s basis in the Common Stock for purposes of determining capital gain or loss upon the disposition of the Common Stock by the employee. The employee will then recognize capital gain or loss equal to the difference between the employee’s basis, adjusted as described in the preceding sentence, in the Common Stock and the amount realized upon disposition of the stock. If an employee dies before disposing of the Common Stock purchased under the Purchase Plan, he or she will be deemed to have received compensation taxable as ordinary income in the taxable year closing with the employee’s death in an amount equal to the lesser of clauses (a) or (b) as set forth in the first sentence of this paragraph. The employee will not realize any capital gain or loss at death.

 

New Plan Benefits

 

No current directors who are not employees will receive any benefit under the Purchase Plan. Each executive officer qualifies for participation under the Purchase Plan and may be eligible to annually purchase up to $25,000 worth of our Common Stock at a discount below the market price. However, participation in the Purchase Plan is voluntary and dependent upon each executive officer’s election to participate, and the benefit will depend on the terms of the offerings (if any) and the fair market value of the Common Stock on the exercise date. Accordingly, the benefits that would be received under the Purchase Plan by our current executive officers and by other eligible employees are not currently determinable.

 

Vote Required

 

Approval of the Purchase Plan will be decided by a majority of the votes cast “for” or “against” the proposal at this meeting.

 

The Board recommends that you vote FOR the approval of the Purchase Plan.

 

 

Our Board of Directors knows of no other matters that may properly be presented to the Annual Meeting. If any other matters do properly come before the Annual Meeting, however, the persons appointed in the accompanying proxy intend to vote the shares represented by such proxy in accordance with their best judgment.

 

Pursuant to the New York Business Corporation Law and our By-Laws, our business is managed under the direction of our Board of Directors. Members of the Board are kept informed of our business through discussions with the Chairman, President and Chief Executive Officer and other officers, through visits to our significant facilities, by reviewing materials provided to them and by participating in meetings of the Board and its committees. In addition, to promote open discussion among our non-management directors, those Directors meet in regularly scheduled executive sessions without management participation. These sessions are presided over by the Chair of our Committee on Governance.

 

Corporate Governance

 

Our Board of Directors has a long-standing commitment to sound and effective corporate governance practices. In 1995 the Board adopted its Guidelines on Governance, which address a number of important governance issues including director independence, qualifications for Board membership, mandatory retirement, majority voting in the uncontested election of Directors, Board self-assessment and succession planning. In addition, the Board has for many years had in place formal charters setting forth the powers and responsibilities of each of its standing committees.

 

Obtaining Copies of Governance Documents

 

We maintain a corporate governance page (www.goodrich.com/governance) on our Internet site that includes key information about our corporate governance initiatives, including our Guidelines on Governance, the charters for our standing committees and our Business Code of Conduct. Copies of the Guidelines on Governance, the charters for our standing committees and our Business Code of Conduct can also be obtained by writing to: Secretary, Goodrich Corporation, 2730 W. Tyvola Road, Charlotte, North Carolina 28217.

 

Business Code of Conduct

 

In 2003 our Board of Directors adopted our revised Business Code of Conduct, which sets forth the fundamental legal and ethical principles for conducting all aspects of our business. The code applies to all Directors, officers and employees of our company and its subsidiaries, as well as to agents and representatives doing business on our behalf. Our Business Code of Conduct, together with specific policies and procedures, outlines the behavior expected of such individuals in carrying out their daily activities within appropriate ethical and legal standards.

 

Board of Directors

 

Our Board of Directors held seven meetings in 2007. All Directors attended 75% or more of the aggregate of the number of Board of Director meetings and meetings of the committees of the Board on which they served.

 

We typically schedule a Board of Directors meeting in conjunction with our annual meeting of shareholders and expect that our Directors will attend absent a valid reason, such as a schedule conflict. All eleven individuals standing for election as Directors in 2008 attended our 2007 annual meeting of shareholders.

 

Director Independence; Audit Committee Financial Expert

 

Our Board of Directors has determined that each of our Directors other than Mr. Larsen, and each of the members of our Audit Review Committee, Committee on Governance and Compensation Committee, has no material relationship with Goodrich (other than in the individual’s position as a Director) and is an “independent director” under the New York Stock

Exchange director independence standards and the director independence standards set forth in our Guidelines on Governance (which reflect exactly the New York Stock Exchange standards).

 

The Board has also determined that each of the members of our Audit Review Committee is “independent” for purposes of Section 10A(m)(3) of the Securities Exchange Act of 1934, and that all members of the Audit Review Committee, Messrs. DeLoach, Jumper, Olesen, Rankin and Young, are “audit committee financial experts” as that term is defined in Item 407 of Regulation S-K of the SEC.

 

The Board based these determinations primarily on a review of the responses of our Directors to questions regarding education, employment and compensation history, affiliations and family and other relationships and on discussions with the Directors. In making its independence determinations, the Board considered the transactions described below under “Policy on Related Party Transactions” and for the reasons stated below determined that none of those relationships was material.

 

Policy on Related Party Transactions

 

In 2006, our Board of Directors adopted a written policy with respect to related party transactions. The policy requires that all transactions between the Company and a related party, which includes all executive officers and Directors and their immediate family members, that exceeds $120,000 and in which the related party has a direct or indirect material interest, be approved or ratified by the Audit Review Committee or by the disinterested members of our full Board of Directors. The policy also applies to entities: (1) owned or controlled by a Director, executive officer or their immediate family members: and (2) of which a Director, executive officer or their immediate family member serves as a senior officer or Director.

 

For 2007, the Audit Review Committee considered and ratified transactions between the Company and The Timken Company. Director Griffith is President and Chief Executive Officer of Timken. Timken’s direct sales to the Company during 2007 were approximately $3.2 million, consisting of primarily bearing products that the Company used in various applications.

 

In reaching its decision, the Audit Review Committee took into consideration the following factors: Director Griffith received no unique personal benefit from such transactions; the transactions were negotiated at arm’s length between the companies with no involvement from Director Griffith; the total amount of sales between the companies is small in comparison to the total revenues of either company; and the amount of such sales is significantly below the levels that would preclude a finding of independence under New York Stock Exchange standards or our Guidelines on Governance.

 

Compensation Committee Interlocks and Insider Participation

 

In making its independence determinations with respect to Director Griffith, who serves on the Compensation Committee, the Board considered the transactions described above under “Policy on Related Party Transactions” and for the reasons stated above determined that none of those relationships was material.

 

Board Committees

 

Our Board of Directors has established five standing committees: the Executive Committee, the Audit Review Committee, the Compensation Committee, the Committee on Governance and the Financial Policy Committee.

The following table shows the current committee membership and the number of meetings each committee held in 2007.

 

 

The following is a brief description of the duties of each committee. A more complete description of each committee’s functions is contained in its charter, which is available on the corporate governance page of our Internet site www.goodrich.com/governance.

 

Executive Committee.  The Executive Committee acts on behalf of our Board of Directors between regularly scheduled Board meetings. Our Guidelines on Governance state that it is the view of the Board that the Executive Committee will meet only when formal action is necessary and it is not feasible to convene a special meeting, in person or by telephone, of the full Board.

 

Audit Review Committee.  The Audit Review Committee assists our Board of Directors in its oversight of the integrity of our financial statements, the qualifications and independence of our independent registered public accounting firm, the performance of our internal audit function and independent registered public accounting firm, and our compliance with legal and regulatory requirements. This committee has direct responsibility for the selection and appointment of our independent registered public accounting firm.

 

Compensation Committee.  The Compensation Committee reviews, analyzes and, in some cases, approves and, in other cases, makes recommendations to our Board of Directors regarding employee and executive compensation, and incentive, equity-based and benefit programs, including compensation for our Chief Executive Officer.

 

Committee on Governance.  The Committee on Governance assists our Board of Directors in identifying and recommending individuals to the Board for nomination as Board members, Board assessment and administration, management assessment and reviewing and assessing corporate governance guidelines and principles.

 

Financial Policy Committee.  The Financial Policy Committee assists our Board of Directors in reviewing and monitoring our financial planning, financial structure, risk management and insurance programs, dividend policy and retirement plan funding and investment.

 

Director Nominations

 

Our Board of Directors is responsible for nominating members of the Board and for filling vacancies on the Board that may exist between annual meetings of shareholders. The Board has delegated the screening process for new Directors to the Committee on Governance.

Our Guidelines on Governance state that candidates nominated for election or re-election to our Board of Directors generally should meet the following qualifications:

 

 

The Guidelines on Governance state that normally only the Chief Executive Officer should be an employee Director.

 

When a vacancy exists on the Board, or when the Board determines to add an additional Director, the Committee on Governance seeks out appropriate candidates from various sources, which may include other Directors as well as consultants and search firms to which we pay fees for their assistance in identifying and evaluating candidates. The Committee evaluates all candidates on the basis of the above qualifications and other criteria that may vary from time to time.

 

The Committee on Governance does not have a formal policy on the consideration of Director candidates recommended by shareholders. The Board of Directors believes that such a formal policy is unnecessary and that the issue is more appropriately dealt with on a case-by-case basis.

 

Under our By-Laws, nominations of persons for election to the Board of Directors may be made at an annual meeting of shareholders by any shareholder who complies with the advance notice provisions of our By-Laws. These advance notice provisions are discussed elsewhere in this proxy statement under the caption “Election of Directors — Other Nominees”.

 

Communications with Directors

 

Shareholders or other interested parties who wish to communicate with our Board of Directors, our non-management Directors as a group or any individual Director can do so by writing to them, c/o Secretary, Goodrich Corporation, 2730 West Tyvola Road, Charlotte, North Carolina 28217. Our Secretary has been instructed by the Board to promptly forward all communications so received to the addressee or addressees.

 

Compensation of Directors

 

The Committee on Governance determines the total compensation of the non-management Directors. Each component of Director compensation is described in more detail below. Management Directors receive no additional compensation for Board service.

 

The Board requires that each non-management Director receive and hold a significant amount of his or her compensation for service on the Board in equity-based compensation. Through the Outside Director Phantom Share Plan approximately 60% of a Director’s annual compensation must be held in phantom shares (common stock equivalents). The value of each

phantom share is determined on the relevant date by the fair market value of our common stock (as defined in the Phantom Share Plan). Under the Phantom Share Plan, Directors must hold all phantom shares in the Plan until termination of service from the Board. In addition, the Board provides its members with the opportunity to defer annual retainer and meeting fees under the Outside Director Deferral Plan into additional phantom shares.

 

The following table sets forth information regarding the compensation of our non-management Directors in 2007.

 

 

 

 

Annual Retainer and Meeting Fees

 

During 2007, each of our non-management Directors received an annual retainer of $55,000, payable in quarterly installments. Effective July 1, 2007, the annual retainer was increased to $60,000. In addition, each of our non-management Directors received $1,500 for each Board and Board Committee meeting attended. The Chairs of the Committee on Governance, the Compensation Committee and the Financial Policy Committee each received an

annual $5,000 retainer for serving as the Committee Chair and the Chair of the Audit Review Committee received an annual $10,000 retainer. Chair retainers are paid in quarterly installments.

 

Outside Director Deferral Plan

 

Starting in 2005, non-management Directors could elect to defer annual retainer and meeting fees under the Outside Director Deferral Plan. The plan permits non-management Directors to elect to defer a portion or all of the annual retainer and meeting fees into either a phantom Goodrich share account or a cash account. Amounts deferred into the phantom share account accrue dividend equivalents, and amounts deferred into the cash account accrue interest at the prime rate. The plan provides that amounts deferred into the phantom share account are paid out in shares of Common Stock, and amounts deferred into the cash account are paid out in cash, in each case following termination of service as a Director in either a single lump sum, five annual installments or ten annual installments.

 

Prior to 2005, non-management Directors could elect to defer a portion or all of the annual retainer and meeting fees into a phantom Goodrich share account pursuant to the Directors’ Deferred Compensation Plan. The plan provides that amounts deferred into the account are paid out in shares of Common Stock following termination of service as a Director. Dividend equivalents accrue on all phantom shares credited to a Director’s account.

 

Outside Director Phantom Share Plan

 

In addition to the annual retainer and meeting fees, in 2007, each non-management Director received an annual grant of phantom shares under the Outside Director Phantom Share Plan equal in value to $75,000. Effective July 1, 2007, the annual grant value of the phantom shares was increased to $90,000. Dividend equivalents accrue on all phantom shares credited to a Director’s account. All phantom shares are fully vested on the date of grant. Following termination of service as a Director, the cash value of the phantom shares will be paid to each Director in either a single lump sum, five annual installments or ten annual installments. The value of each phantom share is determined on the relevant date by the fair market value of common stock (as defined in the plan).

 

Prior to 2005, each non-management Director received an annual grant of phantom shares under the Directors’ Phantom Share Plan equal in value to the then-current annual retainer. Dividend equivalents accrue on all phantom shares credited to a Director’s account. All phantom shares become fully vested at the earlier of five years from the date of grant, upon the Director’s termination of Board service after age 55, or upon a change in control of Goodrich as defined in our Equity Compensation Plan. Following termination of service as a Director, the cash value of the vested number of phantom shares will be paid to each Director in twelve monthly installments. The value of each phantom share is determined on the relevant date by the fair market value of Common Stock (as defined in the plan).

 

Directors’ Retirement Income Plan

 

Mr. Rankin participates in our 1982 Directors’ Retirement Income Plan, which was terminated in 1995. The plan provided that, upon retirement from the Board of Directors after reaching the age of 55 with at least ten years of service as a Director, any non-management Director would be entitled to receive an annual amount equal to the annual retainer in effect at retirement. A retiring Director who had reached age 55 and served for at least five but less than ten years would be entitled to a reduced amount equal to 50% of the annual retainer in effect at retirement, plus 10% of such annual retainer for each additional year of service (rounded to the nearest whole year) up to ten. Under the transition provisions of the plan,

upon his retirement Mr. Rankin will be entitled to receive an annual amount under the plan equal to 70% of the annual retainer in effect at retirement.

 

Other

 

Non-management Directors are reimbursed for actual expenses incurred in the performance of their services as Directors, including continuing education programs and seminars and, in most instances, provided with travel via company-provided private aircraft to Board of Directors and committee meetings. We also provide each non-management Director with long-distance telephone service for business and personal use and with $250,000 in business travel accident insurance coverage.

 

Indemnification; Insurance

 

We indemnify our Directors and officers to the fullest extent permitted by the New York Business Corporation Law. This is required under our By-Laws, and we have also signed agreements with each of our Directors and some of our officers contractually obligating us to provide this indemnification to them.

 

As authorized by the New York Business Corporation Law and our By-Laws, we have purchased insurance providing indemnification for Goodrich and its subsidiaries as well as their directors and officers. The insurance is part of a package that includes employment practices, fiduciary and crime insurance coverage.

 

The Audit Review Committee is appointed annually by the Board of Directors to assist it in its oversight function by monitoring the integrity of Goodrich’s consolidated financial statements, the qualifications and independence of the independent registered public accounting firm, the performance of the internal audit function and independent registered public accounting firm and compliance with legal and regulatory requirements. The Audit Review Committee has the sole authority and responsibility to select, determine the compensation of, evaluate and, when appropriate, replace the independent registered public accounting firm.

 

Management is responsible for the financial reporting process, including the system of internal controls, for the preparation of consolidated financial statements in accordance with generally accepted accounting principles and for the report on internal control over financial reporting. The independent registered public accounting firm is responsible for auditing those financial statements and expressing an opinion as to their conformity with generally accepted accounting principles. In addition, that firm is responsible for attesting to management’s assessment of and the effectiveness of Goodrich’s internal control over financial reporting.

 

In this context, the Audit Review Committee has met and held discussions with management and the independent registered public accounting firm. Management represented to the Audit Review Committee that Goodrich’s consolidated financial statements were prepared in accordance with generally accepted accounting principles, and the Audit Review Committee has reviewed and discussed the consolidated financial statements with management and the independent registered public accounting firm. The independent registered public accounting firm discussed with the Audit Review Committee the matters required to be discussed by Statement on Auditing Standards No. 61 (Communication With Audit Committees). The Audit Review Committee also reviewed and discussed with management and the independent registered public accounting firm, management’s report and the independent registered public accounting firm’s report and attestation on internal control over financial reporting in accordance with Section 404 of the Sarbanes-Oxley Act.

 

In addition, the Audit Review Committee received the written disclosures and the letter from the independent registered public accounting firm required by Independence Standards Board Standard No. 1 (Independence Discussions With Audit Committees), and discussed with the independent registered public accounting firm its independence from Goodrich and its management. The Audit Review Committee also considered whether the provision of non-audit services to Goodrich is compatible with maintaining the firm’s independence. The Audit Review Committee has concluded that the independent registered public accounting firm is independent from Goodrich and its management.

 

The Audit Review Committee discussed with Goodrich’s internal auditors and independent registered public accounting firm the overall scope and plans for their respective audits. The Audit Review Committee meets with the internal auditors and independent registered public accounting firm, with and without management present, to discuss the results of their examinations, the evaluations of Goodrich’s internal controls, and the overall quality of Goodrich’s financial reporting.

In reliance on the reviews and discussions referred to above, the Audit Review Committee recommended to the Board of Directors, and the Board has approved, that the audited financial statements be included in Goodrich’s Annual Report on Form 10-K for the year ended December 31, 2007, for filing with the Securities and Exchange Commission. The Audit Review Committee also appointed, subject to shareholder ratification, Goodrich’s independent registered public accounting firm for the year 2008.

 

The Audit Review Committee

 

Harris E. DeLoach, Jr., Chair
John P. Jumper
Douglas E. Olesen
Alfred M. Rankin, Jr.
A. Thomas Young

 

The Compensation Committee has reviewed and discussed the Compensation Discussion and Analysis contained in this Proxy Statement with management. Based on the review and discussion referred to above, the Compensation Committee recommended to the Board of Directors that the Compensation Discussion and Analysis be included in this Proxy Statement.

 

The Compensation Committee

 

James W. Griffith, Chair
Diane C. Creel
George A. Davidson, Jr.
Lloyd W. Newton
A. Thomas Young

EXECUTIVE COMPENSATION

 

Compensation Discussion and Analysis

 

Executive Compensation Overview

 

We have designed our compensation programs to help us recruit and retain the executive talent required to successfully manage our business. We have designed the programs to motivate employees to achieve business objectives and maximize their long-term commitment to our success by providing compensation elements that align the interests of executives with maximizing shareholder value and achieving our long-term strategies. In this Compensation Discussion and Analysis, we describe the elements of our executive compensation programs, the rationale for the choices made in developing the programs and the process for compensation design and decisions.

 

Compensation Committee

 

The Compensation Committee of the Board of Directors is responsible for establishing the overall philosophy and objectives, financial metrics and oversight for our executive compensation programs. The Committee presently consists of five independent directors who are responsible for reviewing our compensation, benefits and stock-based programs and recommending changes to the full Board of Directors. The Committee meets regularly, but at least three times annually, and engages the services of an independent compensation consultant to assist with its deliberations. The Board of Directors has established a Compensation Committee Charter to govern and guide the Committee. The Committee reviews and assesses the Charter annually and recommends any changes to the Board of Directors. The Committee’s philosophy is to develop short-term and long-term incentive programs that reward financial performance that creates value for our shareholders. Our executive compensation programs are designed to strike an appropriate balance between our short-term and long-term goals and objectives.

 

Compensation of Named Executive Officers

 

The Chief Executive Officer’s long-term incentive compensation, based on target levels, is approximately 60% of his total direct compensation, and his annual incentive compensation is approximately 20% of his total direct compensation. The remainder of his total direct compensation, approximately 20%, is base salary. For the other named executive officers, based on target levels, their long-term incentive compensation is approximately 55% of their total direct compensation and their annual incentive compensation is approximately 20% of their total direct compensation. The remainder of the other executives’ total direct compensation, approximately 25%, is base salary. The Committee recommends to the Board of Directors the compensation for the Chief Executive Officer and establishes the compensation for the other named executive officers. Below is a bar chart showing the components of the total compensation for the named executive officers based on target levels.

 

Financial Goals and Performance Metrics

 

As the Committee collaborates with the Board of Directors and senior management to evaluate our financial performance, it reviews and identifies those areas where financial performance can be improved. Measures of this financial performance improvement include revenue growth, net income, earnings per share, earnings before interest and taxes, cash flow or its individual components, return on equity, return on invested capital or any other financial metric that will enhance shareholder value when achieved or exceeded. In addition to enhancing shareholder value, the executive compensation programs are also intended to provide retention value to the Company and to provide a competitive compensation package for attracting executive talent.

 

Each year, the Committee reviews our annual and long-term (5 years) business plans. Using this review, the Committee identifies those financial goals that are critical for achievement of our business plans. The Committee also, in conjunction with its independent compensation consultant, Pearl Meyer & Partners, annually reviews the components of other aerospace and manufacturing companies’ executive compensation programs. Other than serving as independent compensation consultant to the Committee and providing advice to the Committee on Governance on Director compensation issues, Pearl Meyer & Partners provided no other services to the Board, its committees or to the Company in 2007. This external review helps the Committee identify issues and trends in executive compensation.

 

Components of Executive Compensation

 

The components of our executive compensation program are: annual salary; annual incentive compensation; long-term incentive compensation; benefits; and perquisites. Long-term incentive compensation currently consists of grants of restricted stock units, non-qualified stock options and performance units. Each of these components is discussed separately below.

 

The Committee’s philosophy is to provide the right balance of short-term and long-term compensation. To that end, the Committee considers the achievement of the long-term goals of the Company to be a priority for increasing shareholder value and targets long-term incentive compensation to be at least 50% of the total direct compensation of the executive officers. This focuses management on the appropriate long-term initiatives to increase shareholder value. In addition, short-term (annual) incentive compensation is intended to be approximately 20 to 25% of the total direct compensation of the executive officers, with annual salary making up the remainder.

 

Annual Salary

 

The Committee views annual salary as the foundation for our executive compensation programs. In establishing salary levels, the Committee considers annual salary as a basic and necessary component of executive compensation. While focusing on executive performance, the payment of annual salary is not directly tied to achievement of certain pre-established financial goals. As discussed above, annual salary is targeted to be approximately 20-25% of the total direct executive compensation package for the named executive officers. The Committee considers financial performance when evaluating future salary adjustments as well as the continued employment of the named executive officers.

 

In addition, annual salary is intended to ensure that our compensation practices are competitive within the aerospace industry and with major industrial companies (using the peer group referenced below). The Committee believes that the target salary for each of our executive positions should be at the median base salary of similar positions at comparable aerospace and industrial companies. Consistent with our peer group companies, our Chief Executive Officer’s annual salary is greater than the salary of the other named executive officers because he has responsibility for the performance of the entire Company while the other named

executive officers have responsibility for a business segment or a corporate function. The role requires a different level of knowledge, experience and capability to achieve complex results across the entire Company. While the median serves as a target, other factors such as experience, time in position, complexity of functions and operations and past performance are also considered. The Committee believes that salaries for executives with significant experience and strong past performance should not generally exceed the 75th percentile of the comparable position within the peer group. The Committee recommends to the Board of Directors the base salary for the Chairman and Chief Executive Officer and establishes the annual salary for certain other executive officers, including the named executive officers. Following the 2007 salary increases awarded to the Chief Executive Officer and the other named executive officers, their salaries (except for Mr. Kuechle’s) were between the 50th and the 75th percentile of the comparable peer group. Because Mr. Kuechle only became the Chief Financial Officer of the Company in 2005, his salary is below the median base salary of the comparable peer group.

 

To help assess the annual salary of our executive officers, each year the Committee and its independent advisor (currently Pearl Meyer & Partners) review market data for each executive officer, including the named executive officers. Pearl Meyer & Partners’ analysis includes reviewing the proxy statements of our peer group and broader executive compensation survey data provided by Towers Perrin, Mercer, Watson Wyatt and Hewitt. The Committee evaluates the peer group data as well as survey data trends to develop a target annual salary for each executive position. The Committee considers a number of factors in determining annual salary, including the past year’s performance, annual salaries paid by comparable aerospace and industrial companies, the complexity of the executive’s position and the executive’s overall experience. Based on its consideration as well as recommendations from the Chief Executive Officer, the Committee uses its judgment to determine the appropriate salary level for each executive officer. The Chief Executive Officer provides written feedback to the Committee on the performance of the executive officers, including his own.

 

As discussed above, the Committee, through Pearl Meyer & Partners, reviews the proxy statements of peer companies to evaluate current practices and trends within the aerospace industry. The Committee has established a group of aerospace peer companies (32 companies) which is used for both comparison of executive compensation practices as well as total shareholder return performance. The companies included in the peer group are selected based on their aerospace products, revenue size and comparability to our markets and customers. In 2007, Sequa Corporation was removed from the peer group because it was acquired by a private equity group. The companies listed below are our current peer group.

 

•   AAR Corp.

•   Alcoa Inc. 

•   Alliant Techsystems Inc.

•   B/E Aerospace, Inc.

•   The Boeing Company

•   Bombardier Inc.

•   Crane Co.

•   Curtiss-Wright Corporation

•   EADS N.V. 

•   Embraer

•   Garmin Ltd. 

•   General Electric Company

•   Heico Corporation

•   Hexcel Corporation

•   Honeywell International Inc.

•   ITT Corporation

•   Moog Inc.

•   Parker-Hannifin Corporation

•   Precision Castparts Corp.

•   Raytheon Company
•   Rockwell Collins Inc.

•   Rolls-Royce Group plc.

•   Spirit Aerosystems Inc.

•   Teledyne Technologies, Inc.

•   Textron Inc.

•   Triumph Group, Inc.

 

Annual Incentive Compensation

 

Our annual incentive compensation is an annual cash bonus paid based on the achievement of certain financial, individual and team performance goals. In addition to rewarding performance, our annual incentive compensation is intended to motivate and retain qualified individuals who have the opportunity to influence our results and enhance shareholder value. The

philosophy is to provide competitive awards when financial objectives are achieved and provide reduced or no awards when the objectives are not achieved.

 

An individual’s annual incentive compensation target under our Management Incentive Plan is expressed as a percentage of salary, with the percentages of salary increasing with the level of the job. For 2007, the target bonus for our Chief Executive Officer was 100% of his annual salary. For the other named executive officers in 2007, the target bonus was either 65% or 60% of their annual salary. Consistent with our peer group companies, our Chief Executive Officer’s target bonus is greater than the target bonus of the other named executive officers because he has responsibility for the performance of the entire Company while the other named executive officers have responsibility for a business segment or a corporate function. Annual incentive payments can range from 0% to 200% of target, based on the level of performance against the financial and individual and team objectives. This range of percentages is based on the analysis of the peer group data and the competitive survey data to ensure that our annual incentive compensation remains competitive. The payout percentages are based on the achievement of the financial metrics established at the beginning of the year.

 

Each year, the Committee evaluates our business and strategic plan to determine which financial metrics are critical to achieving this plan. Based on discussions with our management, the Committee identifies those financial metrics, typically limited to two or three. As we are in the midst of an aerospace growth cycle, the Committee determined that earnings before interest and taxes as well as conversion of earnings into free cash flow are critical goals to achieving our strategic plan. We also used these metrics for the past several years. For the period 2005-2007 the weightings of the earnings before interest and taxes as well as free cash flow were equal at 42.5% each for the Chief Executive Officer and 40.0% each for the other named executive officers. The remaining 15% weighting for the Chief Executive Officer and 20% weighting for the other named executive officers is based on individual and team goals that were identified at the beginning of each year.

 

The Committee sets the target performance for these financial metrics as well as the threshold and maximum levels at the beginning of each year. The Committee generally establishes the incentive plan targets at the business plan, or budget, for the coming year. This decision is based on the level of difficulty in achieving the business plan as well as identifying the risks associated with the plan. The threshold and maximum levels are then established. The threshold is determined based on the Committee’s judgment of acceptable financial performance and the maximum is determined based on superior financial performance. Annual incentive compensation is paid only if threshold performance is achieved on at least one financial metric. The Committee then reviews financial performance throughout the fiscal year and identifies any areas where further consideration and discussion are warranted. The decision to exercise any discretionary adjustments regarding special items is reserved for year-end after the Committee reviews overall performance. The actual target financial performance levels and the threshold and maximums for the financial metrics for 2007 are disclosed below.

 

Chief Executive Officer

 

Other Named Executive Officers

 

 

 

 

At its February meeting, the Committee reviews our final financial results for the year and the Committee determines whether any special consideration, positive or negative, should be exercised. The Committee has the discretion to make adjustments for significant and unusual special items such as restructuring costs, accelerated settlement of debt obligations, prior year tax settlements and acquisitions and divestures. The Committee then reports the results to the Board of Directors.

 

In addition to the financial objectives used to determine the annual incentive plan payout, each participant is evaluated on the achievement of individual and team goals. These goals are typically non-financial such as execution of strategic initiatives, talent management and continuous improvement. The respective individual and team goals for the named executive officers are discussed, reviewed and approved by the Committee at the beginning of each year. The Chief Executive Officer provides written feedback to the Committee on the achievement of individual and team goals by each named executive officer, including himself.

 

Mr. Larsen’s 2007 annual incentive bonus was $1,782,415 and was based substantially (approximately 85%) on Goodrich’s strong 2007 financial performance. 2007 Earnings before Interest and Taxes increased by more than 39% to $829 million and Free Cash Flow increased, from 2006 levels, by more than 33% to $311 million. In addition, Mr. Larsen was recognized for:

 

 

Mr. Kuechle’s 2007 annual incentive bonus was $422,311. Mr. Grisik’s 2007 annual incentive bonus was $532,735. Mr. Linnert’s 2007 annual incentive bonus was $536,818. Mr. Carmola’s 2007 annual incentive bonus was $540,918. Their 2007 annual incentive bonuses were based substantially (over 80%) on Goodrich’s strong 2007 financial performance which is discussed above. In addition, each of the four was recognized for:

 

Mr. Kuechle:

 

 

 

Mr. Grisik:

 

 

Mr. Linnert:

 

 

Mr. Carmola:

 

 

For 2007, the Committee excluded the impact of the divestiture of the Company’s Aviation Technical Services business unit. Adjustments for acquisitions and divestitures were identified as excludable at the time that the target levels were set, and was consistent with past practice. After making these adjustments, the Committee recommended an award in the amount discussed above to the Board of Directors for Mr. Larsen and awarded the amounts discussed above for the other named executive officers.

 

Long-term Incentive Compensation

 

Our long-term incentive compensation awards are made pursuant to the 2001 Equity Compensation Plan, which was initially approved by shareholders in April 2001 and, as amended and restated, subsequently approved by shareholders in April 2005. The Equity Compensation Plan is administered by the Committee and provides for a variety of equity-based incentive compensation awards such as stock options, restricted stock units, restricted stock and performance units.

 

In 2004, the Committee changed the approach to providing long-term incentive compensation by adding restricted stock units to the mix of stock options and performance units. At the time, the Committee determined that a stronger emphasis on restricted stock units and less emphasis on stock options was appropriate. The Committee approved the use of restricted stock units in partial replacement of stock options to reduce shareholder dilution and to reduce the number of shares necessary to meet the needs of the plan. The Committee also eliminated the use of incentive stock options and now utilizes non-qualified stock options exclusively. This decision was made to obtain a more beneficial tax treatment for the Company and to streamline the administration and communication of the stock option grant process. This approach was continued in 2007 because the Committee considers it to be an appropriate use of equity as part

of total compensation since it further aligns the incentives of our management with the interests of shareholders.

 

For the named executive officers, the mix of long-term incentive awards is weighted 40% restricted stock units, 30% non-qualified stock options and 30% performance unit awards. This approach balances the overall number of shares used each year for equity grants and minimizes the impact of grants on shareholder dilution. This approach also balances the use of restricted stock units, which provides ongoing value, with stock options and performance unit awards that require stock price growth to create value. Restricted stock units are granted annually if we achieve an adjusted return on invested capital at or above a predetermined level for the previous year. Restricted stock units generally, once granted, vest at the rate of 50% on the third anniversary, 25% on the fourth anniversary and the balance on the fifth anniversary of the date of grant to assist in employee retention. If a participant’s employment with us terminates prior to vesting for any reason other than death, disability or retirement, the unvested restricted stock units are forfeited.

 

The Committee considers the recommendation of the Chief Executive Officer in determining the level of awards of long-term incentive compensation to executive officers, other than himself. The Chief Executive Officer makes recommendations based on guidelines established by the Committee and his judgment on the individual’s performance. The Committee has established a set of equity grant guidelines based on its review of competitive practices and the practices of our peer group. The guidelines are based on salary and level within the Company. The Committee targets the equity grant guidelines at the median of our peer group data. The Committee also considers its own evaluation of the individuals since the members have an opportunity to observe their performance and have available information on the level of past awards and individual stock ownership of the executive officers which may be considered in the final determination of the awards. The Committee ultimately decides the level of long-term compensation granted to each named executive officer, except for Mr. Larsen. The Committee makes a recommendation to the Board of Directors for the level of long-term compensation for Mr. Larsen.

 

We use the average of the high and low price on a grant date as the fair market value for our equity grants. We believe this approach is a more appropriate method of determining fair market value than using the closing price which may be more impacted by external or market events late on a grant date.

 

Restricted Stock Units

 

The Committee views the annual grants of restricted stock units as the foundation for the long-term incentive awards program. Restricted stock units provide management with an underlying value in our stock. In order to qualify the restricted stock unit awards as performance-based compensation under Section 162(m) of the Code, the Committee has imposed a performance measure of an 8% annual return on invested capital, which must be met before grants are approved for executive employees. For 2007, the annual return on invested capital threshold was increased from 5% to 8%. The Committee considers return on invested capital as an effective measure of our ability to manage our capital. Restricted stock unit grants vest over a five-year period as described earlier. The Committee believes that this vesting schedule provides the appropriate balance between short-term and long-term incentives as well as providing retention value to the Company. As we pay dividends, dividend equivalents are paid to each participant who holds restricted stock units. A participant who dies, becomes disabled or retires is immediately vested in each restricted stock unit award. For 2007, return on invested capital exceeded the 8% annual return threshold, which the Committee took into account in making 2008 grants of restricted stock units.

Stock Options

 

The Committee views non-qualified stock option grants as a critical and direct link between management and shareholders. All value earned through stock options is dependent upon an increase in the value of our stock price. The 2001 Equity Compensation Plan provides that stock options may not be granted at less than 100% of fair market value on the grant date and that options may not be repriced.

 

Each year, the Committee approves annual option grants at its December meeting, except with respect to the Chief Executive Officer whose annual grant is approved by the Board of Directors at its December meeting. Senior management recommends to the Committee the potential recipients and the number of options for the annual stock option grant with the Committee reviewing and approving the final grants. The grant price is the fair market value on the grant date, which is defined as the average of the high and low sales price on that date. In order to ensure that our annual stock option grants are not subject to market timing, the Committee has historically approved annual stock option grants at its December meeting with a grant date of the first trading day of the following year.

 

Stock options are generally granted with a three-year graded vesting schedule, vesting 33.3% each year, and for a term of ten years. The Committee believes that this vesting schedule adequately balances short-term and long-term goals as well as providing retention value to the Company. If a participant dies, becomes disabled or retires on or after age 65, unvested stock options are immediately vested. If a participant retires early, the shares continue to vest on the original schedule. If a person leaves the Company for reasons other than for death, disability or retirement, the unvested stock options are forfeited and any vested options must be exercised within 90 days.

 

The Committee has established a set of equity grant guidelines based on its review of competitive practices and the practices of our peer group. The guidelines are based on salary and level within the organization.

 

Performance Units

 

The Committee views performance units as an opportunity to reward senior management for both stock price growth and achievement of financial performance goals. The Committee makes awards every year, based on overlapping three-year performance cycles. The Committee has determined that a three-year cycle is an appropriate balance of short-term and long-term results and represents a realistic performance horizon. At the beginning of each three-year cycle, the Committee establishes the financial metrics. The financial metrics for the performance unit plan have been consistent for the past four award cycles. The financial metrics, listed below, are relative total shareholder return, which measures our stock performance against our peer group, and return on invested capital, which was discussed earlier. The award of performance units is limited to our senior management, currently consisting of approximately 53 individuals who have significant responsibilities for managing individual business units or have significant influence on our overall results.

 

 

Awards are credited as phantom performance shares in a book account for each participant. Each phantom performance share is equivalent to one share of our common stock. Throughout the performance period, dividend equivalents are credited to each participant’s phantom shares. Under the award terms, participants are entitled to a payout at the end of each plan cycle only if the threshold performance standard is met. The number of phantom performance shares to

be used in the calculation of the payout will range from 0% to 200% of the total phantom performance share account (including shares credited through dividend equivalents), based on the level of performance against the above financial objectives. At the end of the performance period, the participant will receive a cash payment based on the number of phantom shares at the end of the period, the then current price of our common stock and the level of achievement of each performance measure. For the 2005-2007 cycle, the payout was 181.9% of target award grants.

 

2007 Special Equity Grant

 

For 2007, the Committee decided to link a higher portion of our senior executives’ compensation directly to our stock price. In lieu of 25% of their 2007 long-term incentive grant value, the named executive officers received a one-time, performance-based stock option grant. Special stock option awards were also granted to an additional 12 members of senior management. The named executive officers received the following special grants: Marshall O. Larsen 150,000 shares; Scott E. Kuechle, 50,000 shares; John J. Grisik, 50,000 shares; Terrence G. Linnert 50,000 shares; and John J. Carmola 50,000 shares.

 

These stock option awards were designed to reward our senior executives only if our stock price increased significantly over our stock price on the date of grant. These special stock option awards have a seven-year term that included a market condition whereby the options vest only when our stock price closes at or above $65.00 per share for any five trading days during a 20 consecutive-trading-day period. The grant price was the fair market value on January 3, 2007, $45.87 per share. Due to our stock performance in 2007, these stock option awards vested on September 18, 2007. A total of 715,000 stock options were issued under this special grant.

 

Benefit and Perquisite Programs

 

Our executive officers, including all of the named executive officers, are eligible to participate in a number of broad-based benefit programs, including health, disability and life insurance programs, qualified 401(k) and pension plans and a severance plan. Our executive officers may also participate in other benefit programs including non-qualified 401(k) and pension plans, a supplemental executive retirement plan, and a management continuity agreement that takes effect upon a change-in-control. Messrs. Larsen, Grisik and Linnert also participate in an executive disability benefit agreement. The perquisites offered to executive officers include an automobile allowance, automobile and umbrella liability insurance, financial counseling and tax preparation, club memberships, annual physical examinations for the executive and spouse, long-distance telephone service for the executive and family and, in certain cases, home security systems and use of our aircraft for personal use. Executives receive a tax gross-up equal to 100% of the amounts paid by us on behalf of the executive with respect to the automobile allowance, umbrella liability insurance, financial counseling and tax preparation, club initiation fees and certain life insurance programs. These perquisites are reviewed periodically against our peer group to evaluate competitive programs. Overall, the perquisite programs are provided to enable executives to focus more time on Company business, customer relations and business development.

 

Executive Life Insurance

 

During 2006, Messrs. Carmola, Grisik and Linnert participated in the Goodrich Corporation Split-dollar Insurance Plan, which provided a two-phase program of split-dollar life insurance for certain of our executive officers. In 2006, the Committee determined that the split-dollar program no longer meets our business purposes and is not necessary to satisfy competitive compensation practices. On December 29, 2006, we entered into new agreements with Messrs. Carmola, Grisik and Linnert, terminating the split-dollar insurance plan for these executives.

These new agreements with Messrs. Linnert, Grisik and Carmola provided that they receive ownership of the split-dollar life insurance policies upon execution of the agreements in return for ending the Company’s ongoing commitment to the split-dollar insurance plan for these executives and the underlying life insurance policies.

 

Each executive received a life insurance policy with a paid-up cash value that is adequate to sustain the policy, at current dividend rates, with a death benefit equal to two times the executive’s projected salary (assuming 3.5% salary increases) at age 65. These agreements required us to contribute either to the split-dollar life insurance policies or directly to the executive an amount, after taxes, that is adequate to sustain the policy for the expected life of the executive. This approach is consistent with the termination provisions of the original agreements, and resulted in gross taxable income of $516,771 for Mr. Carmola, $355,335 for Mr. Grisik, and $592,288 for Mr. Linnert. These amounts were paid in 2007, and are included in the summary compensation table.

 

Stock Ownership Guidelines

 

The Committee approves stock ownership guidelines to align the interests of our senior management team with those of the shareholders. We believe that senior managers (including the named executive officers) should maintain a significant equity interest in the Company through ownership of stock that they acquire either with their own funds or through certain awards described below. The Committee has determined that stock ownership creates direct economic alignment with shareholders and motivates them to enhance shareholder value. The definition of stock owned includes the following:

 

 

We have historically required our senior managers to own a multiple of salary in our stock. In 2006, the Committee requested that management review the ownership guidelines for comparability with those of our peers. In addition to input from Pearl Meyer & Partners, we benchmarked our peer group to analyze their practices related to stock ownership guidelines. The Committee reviewed and changed our guidelines in 2006 to establish a five-level, fixed share ownership guideline structure. Based on the trends found in our peer group, we have increased our guidelines. These guidelines represent approximately 5 times salary (increased from 4) for the Chief Executive Officer and 3.5 times salary (increased from 2.5) for the other named executive officers.

 

 

Our policy is that members of our senior management team meet the ownership guidelines within five years of the first equity grant to the individual. All of the named executive officers have satisfied the stock ownership requirements. Senior managers who have been promoted will have the longer of three years from the date of their promotion or the remaining five years

from their first equity grant to satisfy the ownership guidelines. Those who have not satisfied their ownership guidelines will be required to retain the after-tax value of any vested restricted stock or restricted stock unit grants until the guidelines are satisfied.

 

Impact of Regulatory Requirements on 2007 Compensation

 

Various income tax, accounting and other regulatory requirements are considered in awards of executive compensation to named executive officers and other executives. Of particular note is the deduction limitation imposed by Section 162(m) of the Code, as more specifically described in the following paragraph. In addition, the design of our executive compensation programs considered the non-deductibility of excess parachute tax payments under Section 280G of the Code (and the related excise tax imposed by Section 4999). Additionally, consideration was given to the special rules applicable to non-qualified deferred compensation arrangements under Section 409A and the accounting treatment of various types of equity-based and cash compensation under Financial Accounting Statement 123(R), as well as the overall income tax rules applicable to various forms of compensation. While an objective was to compensate executives in a manner that produced favorable tax and accounting treatment, the main goal was to develop fair and equitable compensation arrangements that appropriately incent, reward and retain valued executives.

 

Tax Deductibility of Compensation

 

Section 162(m) of the Code generally disallows a tax deduction to public companies for compensation in excess of $1 million paid to the company’s chief executive officer or any of the named executive officers. Certain compensation is specifically exempt from the deduction limit to the extent that it does not exceed $1 million during any fiscal year or is “performance based” as defined in Section 162(m). The Committee believes that it is generally in our interest to structure compensation to come within the deductibility limits set in Section 162(m) of the Code. The Committee also believes, however, that it must maintain the flexibility to take actions which it deems to be in the best interests of the Company but which may not qualify for tax deductibility under Section 162(m). The Committee has structured our annual incentive compensation to satisfy Section 162(m). In 2007, substantially all of our annual incentive compensation paid to our named executive officers satisfied Section 162(m).

Summary Compensation Table

 

On the following pages are tables showing various components of executive compensation, benefits and stock awards for the named executive officers. The table below summarizes the total compensation paid or earned by each of the named executive officers for the fiscal year ended December 31, 2007. We have not entered into employment agreements with any of the named executive officers, other than the management continuity agreements described starting on page 51 of this Proxy Statement.

 

The named executive officers were not entitled to receive payments which would be characterized as “bonus” payments under column (d) of the Summary Compensation Table for the fiscal year ended December 31, 2007. Amounts listed under column (g), “Non-Equity Incentive Plan Compensation”, were determined by the Compensation Committee at its February 18, 2008 meeting.

 

 

 

 

 

 

 

 

 

Grants of Plan-Based Awards

 

Grants of Plan-Based Awards Table

 

 

Exercise Price

 

As required by the 2001 Equity Compensation Plan, under which all of our options were awarded, we used the average of the high and low sales price on the grant date to determine the exercise price for the option awards. The closing price of our common stock on the New York Stock Exchange on the grant date was $45.72.

 

Estimated Future Payouts — Non-equity Plans

 

For estimated future payments under non-equity incentive plan awards, each participant is assigned threshold and maximum award levels. Threshold award level is the level above which an incentive award will be paid. No incentive award is paid for performance at or below threshold level. Maximum award level is the maximum amount of incentive award that may be paid. A participant’s maximum award level is 200% of such participant’s target incentive amount.

 

The Committee may use one or more of the following performance measures: operating income; net income; earnings (including earnings before interest, taxes, depreciation and/or amortization); earnings per share; sales; costs; profitability of an identifiable business unit or product; maintenance or improvement of profit margins; cost reduction goals; operating cash flow; free cash flow (operating cash flow less capital expenditures); working capital; improvements in capital structure; debt reduction; credit ratings; return on assets; return on equity; return on invested capital; stock price; total shareholder return; completion of joint ventures, divestitures, acquisitions or other corporate transactions; new business or expansion of customers or clients; strategic plan development and implementation; succession plan development and implementation; customer satisfaction indicators; employee metrics; or other objective individual or team goals.

The performance measures may relate to the Company, on an absolute basis and/or relative to one or more peer group companies or indices, or to a particular participant, subsidiary, division or operating unit, or any combination of the foregoing, determined by the Committee. In addition, the Committee may adjust, modify or amend the above criteria, either in establishing any performance measure or in determining the extent to which any performance measure has been achieved. The Committee has the authority, at the time it establishes the performance measures for the applicable program year, to make equitable adjustments in the criteria in recognition of unusual or non-recurring events, in response to changes in applicable laws or regulations, or to account for items of gain, loss or expense determined to be extraordinary or unusual in nature or infrequent in occurrence or related to the disposal of a business or related to a change in accounting principles, or as the Committee determines to be appropriate to reflect a true measurement of the performance of the Company or any subsidiary, division or operating unit, as applicable, and to otherwise satisfy the objectives of the program. As noted above, the Committee selected earnings before interest and taxes and conversion of earnings into free cash flow for 2007.

 

Estimated Future Payouts — Equity Plans — Performance Unit Awards

 

The estimated future payouts under equity incentive plan awards relates to the 2007-2009 performance unit awards made in 2007 pursuant to the 2001 Equity Compensation Plan. Payouts on these awards are to be based on the Company’s relative total shareholder return and return on invested capital over the 2007-2009 performance period. At the end of the performance period, each participant will earn a cash payout only if the threshold performance standard is exceeded. The cash payout will range from 0% to 200% of the value of the total performance unit account (including performance units credited through dividends equivalents), based on the level of performance against the financial metrics. For information on the actual 2007 financial metrics, see page 38 of the Compensation Discussion and Analysis.

 

Estimated Future Payouts — Equity Plans — Restricted Stock Unit Awards

 

The shares of stock for the named executive officers represents the value as of the date of the grant of restricted stock unit awards granted on January 3, 2007. Restricted stock units, once granted, vest at the rate of 50% on the third anniversary, 25% on the fourth anniversary and the balance on the fifth anniversary of the date of grant. Dividends or dividend equivalents are paid on all restricted stock units awards.

 

Estimated Future Payouts — Equity Plans — Stock Option Grants

 

All options were granted pursuant to our 2001 Equity Compensation Plan with an exercise price equal to 100% of the fair market value (as defined in the plan) on January 3, 2007, the date of the grant, have a 10-year term and vest in equal installments over a three-year period.

 

Outstanding Equity Awards at Fiscal Year-End