Company Name: Ecolab Inc.
Public Availability Date: February 8, 2008
Document Sections: INQUIRY LETTER
INQUIRY LETTER
INQUIRY LETTER
APPENDIX
STAFF REPLY LETTER
[INQUIRY LETTER]
February 7, 2008
Via Federal Express
U.S. Securities and Exchange Commission
Division of Corporation Finance
Office of Chief Counsel
100 F Street, N.E.
Washington, D.C. 20549
Re: Ecolab Inc. - Stockholder Proposal Submitted by Sheet Metal Workers'
National Pension Fund
Ladies and Gentlemen:
Per our letter dated December 28, 2007, we requested that the Staff concur in
our opinion that our client, Ecolab Inc. (the "Company"), may omit from its
proxy statement and form of proxy for the Company's 2008 Annual Meeting of
Stockholders (collectively, the "2008 Proxy Materials") a stockholder proposal
and statement in support thereof (collectively, the "Proposal") received from
Sheet Metal Workers' National Pension Fund (the "Fund").
On February 6, 2008, the Company received a letter, a copy of which is attached
hereto, from the Fund formally withdrawing the Proposal.
Given that the Fund has now voluntarily withdrawn the submission and therefore
has rendered the matter moot, we are informing you that it is unnecessary for
the Staff to respond to our request for Staff concurrence regarding the
exclusion of the Proposal from the Company's 2008 Proxy Materials. Please
withdraw our request.
If you have any questions regarding this matter, please feel free to call me at
(612) 607-7267.
Very truly yours,
/s/
Bruce A. Machmeier
BAM/mjbs
Attachments
cc: Kenneth Colombo, Sheet Metal Workers' National Pension Fund
Craig Rosenberg
Sarah Z. Erickson, Esq.
Lawrence T. Bell, Esq.
[INQUIRY LETTER]
December 28, 2007
Via Federal Express and E-Mail (cfletters@sec.gov)
U.S. Securities and Exchange Commission
Division of Corporation Finance
Office of Chief Counsel
100 F Street, N.E.
Washington, D.C. 20549
Re: Ecolab Inc. - Stockholder Proposal Submitted by Sheet Metal Workers'
National Pension Fund
Ladies and Gentlemen:
This letter is to advise you that it is the intention of our client, Ecolab Inc.
(the "Company"), to omit from its proxy statement and form of proxy for the
Company's 2008 Annual Meeting of Stockholders (collectively, the "2008 Proxy
Materials") a stockholder proposal and supporting statement (collectively, the
"Proposal") received by facsimile on November 29, 2007 from the Sheet Metal
Workers' National Pension Fund (the "Fund"). Copies of the Proposal and
accompanying cover letter, dated November 29, 2007, are attached hereto as
Attachment A. Pursuant to Rule 14a-8(j) under the Securities Exchange Act of
1934, as amended (the "Exchange Act"), we have enclosed six (6) copies of this
letter and its attachments. Also in accordance with Rule 14a-8(j), we are on
this date mailing a copy of this letter and its attachments to the Fund,
informing it of the Company's intention to omit the Proposal from the 2008 Proxy
Materials.
On behalf of the Company, we hereby respectfully request that the staff of the
Division of Corporation Finance (the "Staff") concur in the Company's opinion
that the Proposal may be excluded from the 2008 Proxy Materials. We have advised
the Company that the Proposal may be omitted from the 2008 Proxy Materials
pursuant to Rule 14a-8(i)(10) because it has been substantially implemented by
the Company.
The Proposal
The resolution portion of the Proposal states:
"Resolved: That the shareholders of Ecolab Inc. ("Company") request that the
Board of Director's Executive Compensation Committee adopt a
pay-for-superior-performance principle by establishing an executive compensation
plan for senior executives ("Plan") that does the following:
Sets compensation targets for the Plan's annual and long-term incentive pay
components at or below the peer group median;
Delivers a majority of the Plan's target long-term compensation through
performance-vested, not simply time-vested, equity awards;
Provides the strategic rationale and relative weightings of the financial and
non-financial performance metrics or criteria used in the annual and
performance-vested long-term incentive components of the Plan;
Establishes performance targets for each Plan financial metric relative to the
performance of the Company's peer companies; and
Limits payment under the annual and performance-vested long-term incentive
components of the Plan to when the Company's performance on its selected
financial performance metrics exceeds peer group median performance."
Discussion - The Company has substantially implemented the Proposal, and
therefore it is excludable under Rule 14a-8(i)(10)
Overview
The Company "has already substantially implemented the Proposal" pursuant to
Rule 14a-8(i)(10 and, therefore, the Proposal is excludable from the Company's
2008 Proxy Materials.
The Commission stated in 1976 that the predecessor to Rule 14a-8(i)(10) was
"designed to avoid the possibility of shareholders having to consider matters
which already have been favorably acted upon by the management." See Release No.
34-12598 (July 7, 1976). In responding to prior no-action requests, the Staff
has concurred that a company need not necessarily comply with every particular
of a proposal in order for the proposal to be substantially implemented, so long
as a company's actions satisfactorily address the proposal's underlying
concerns. See Masco Corporation (March 29, 1999) (permitting exclusion because
the company adopted a version of the proposal with slight modification and a
clarification as to one of its terms); The Gap, Inc. (March 16, 2001)
(permitting the exclusion of a proposal that requested a report on the child
labor practices of the company's vendors because the company had already
established a code of vendor conduct, monitored vendor compliance and published
the related information). In one letter, the Staff concluded that a proposal
based on a set of guidelines had been substantially implemented by a company
where "its particular policies, practices and procedures compare[d] favorably
with the guidelines of the proposal." Texaco Inc. (March 29, 1991) (exclusion
permitted where company's environmental policies compared favorably with "Valdez
Principles" requested by shareholder proposal).
The Staff has granted no action relief in the past to companies that sought to
exclude executive pay-for-performance proposals. See, e.g., Cisco Systems, Inc.
(August 11, 2003) (permitting exclusion of proposal to implement
performance-based executive compensation plan where company had already adopted
a performance-based plan). During the most recent proxy season, the Staff
declined to grant such no action relief to requesting issuers. See, e.g.,
Wal-Mart Stores, Inc. (March 27, 2007); Avaya Inc. (October 18, 2006). However,
we do not read these more recent letters as suggesting that the Staff's view of
Rule 14a-8(i)(10) has changed. Instead, we assume that each particular
shareholder's proposal must be compared with the particular company's current
policies, practices and procedures to determine whether it has been
"substantially implemented." In this instance, the Company has substantially
implemented the Proposal.
Analysis
The Proposal requests that the Company adopt a "pay-for-superior-performance
principle" by establishing a plan with five components. However, not only has
the Company already implemented a "pay-for-superior-performance" principle in
its executive compensation program (the "Executive Compensation Program"), it is
described in comprehensive detail in the Company's Definitive Proxy Statement on
Schedule 14A filed March 28, 2007 (the "2007 Proxy Statement").
Component 1: The Executive Compensation Program "Sets Compensation Targets For
the Plan's Annual and Long-Term Incentive Pay Components At or Below the Peer
Group Median."
The Company has already adopted Component 1, as explained by the following
disclosures in its 2007 Proxy Statement:
"Our philosophy is to position the aggregate of these elements [base salary,
annual cash incentives, long term equity incentives, special benefits and
perquisites and change-in-control severance policy] at the median of our
competitive market, adjusted for the Company's current size." Page 23 of 2007
Proxy Statement.
"For annual cash incentives, our philosophy is to also position them at a
level commensurate with the Company's performance based on diluted earnings per
share compared to the Standard & Poor's 500 [of which the Company is part]." Id.
"We position annual cash incentives and stock options to provide lower than
median compensation for lower than competitive market performance and higher
than median compensation for higher than competitive market performance." Id.
"Our philosophy is to pay a base salary that is the median of our
size-adjusted competitive market. When an executive officer is new to his/her
position, his/her initial base salary will likely be significantly less than the
median but, if performance is acceptable, his/her base salary will be increased
over several years to arrive at the median." Page 24 of 2007 Proxy Statement.
"Our bonus targets are set at the market median for each position, and the
bonus plan is structured so that lower performance results in below market
payouts and superior performance drives payouts above the market median." Page
25 of 2007 Proxy Statement.
"We provide the opportunity for our named executive officers and other
executives to earn a market competitive long-term equity incentive award." Page
27 of 2007 Proxy Statement.
"Our stock option program is based on pre-established grant guidelines that
are calibrated to our competitive market every year." Page 28 of 2007 Proxy
Statement.
As illustrated by numerous statements in the Company's 2007 Proxy Statement, the
Company's Executive Compensation Program already sets compensation targets for
annual and long-term incentive pay at or below its peer group median. The
Company has adopted Component 1 of the Proposal.
Component 2: The Executive Compensation Program "Delivers a Majority of its
Target Long-Term Compensation Through Performance-Vested, not Simply
Time-Vested, Equity Awards."
The Company has adopted Component 2. Target long-term compensation in the
Executive Compensation Program is provided primarily by stock options, which are
granted at fair market value on the date of grant and vest only so long as the
executive remains employed by the Company. As stated in the Company's 2007 Proxy
Statement, the Company's stock option awards are performance based because (1)
actual stock option grants are "based on our assessment of individual
performance and future potential" (Page 28 of 2007 Proxy Statement) and (2)
"unless our stock price increases after the grants are made, the stock options
deliver no value to the option holders" (Page 27 of 2007 Proxy Statement). Stock
options "motivate executives to make decisions that focus on long-term growth
and thus increase stockholder value." (Page 27 of 2007 Proxy Statement).
Consistent with the concern underlying Component 2 that calls for the delivery
of a majority of long-term compensation through the use of performance-vested
rather than time-vested equity awards, the Company's stock options are, in fact,
performance-based as well as time-based (unlike other forms of time-vested
equity awards, like restricted stock, which would retain value even if the stock
price were to decrease after grant). The Company's use of stock options
satisfactorily addresses the Proposal's underlying concern that long-term
compensation is performance-based and not simply time-based.
Component 3: The Executive Compensation Program "Provides the Strategic
Rationale and Relative Weightings of the Financial and Non-Financial Performance
Metrics or Criteria Used in the Annual and Performance-Vested Long-Term
Incentive Components of the Plan."
The Company has adopted Component 3, as explained by the following disclosures
in its 2007 Proxy Statement:
"Under the MIP [the Company's annual cash incentive plan], we use a mix of
overall corporate, business unit, and individual performance measures to foster
cross-divisional cooperation and to assure that executives have a reasonable
measure of control over the factors that affect their awards." (Page 25 of 2007
Proxy Statement).
The Company provides a chart on Page 25 of the 2007 Proxy Statement
summarizing the performance measure mix for the named executive officers in
2006, including the relative weightings requested under Component 3, of the
three performance measures: (i) corporate, (ii) business unit and (iii)
individual. The "overall corporate" and "business unit" measures referred to in
the text and in the table are financial performance measures, while the
"individual" measures are a mix of financial and non-financial individual
measures.
The Company provides a table, found on page 31 of the 2007 Proxy Statement,
providing the relative weightings requested under Component 3, for all of the
elements of compensation for the Company's named executive officers, including (i)
performance based, (ii) not performance based, (iii) annual, (iv) long-term, (v)
cash based and (vi) equity based.
"In establishing these performance goals [overall corporate, business unit and
individual goals], we take into consideration a variety of factors, the most
material of which include our prior year results, our expected economic and
market influences, other large companies' performance expectations and our
anticipated business opportunities, investment requirements and competitive
situation." Page 25-26 of 2007 Proxy Statement.
As illustrated by the disclosures provided in the Company's 2007 Proxy
Statement, the Company's Executive Compensation Program already provides the
strategic rationale and relative weightings of the financial and non-financial
performance metrics or criteria used in the plan. The Company has adopted
Component 3 of the Proposal.
Component 4: The Executive Compensation Program "Establishes Performance Targets
for Each Plan Financial Metric Relative to the Performance of the Company's Peer
Companies."
The Company has also adopted Component 4. Diluted earnings per share is the
primary financial metric used to measure corporate performance for purposes of
the Executive Compensation Program. (See chart on Page 25 of the 2007 Proxy
Statement.) "For annual cash incentives, our philosophy is to also position them
at a level commensurate with the Company's performance based on diluted earnings
per share compared to the Standard & Poor's 500 [of which the Company is part]."
Page 23 of 2007 Proxy Statement. Other targets, used for a portion of certain
executives' annual cash incentive, are based on revenue and operating income and
are derived from the Company's overall diluted earnings per share goal as part
of the Company's business plan.
As disclosed in the Company's 2007 Proxy Statement, the Company's Executive
Compensation Program already establishes performance targets for each Plan
financial metric relative to the performance of the Company's peer companies.
The Company has adopted Component 4 of the Proposal.
Component 5: The Executive Compensation Program "Limits Payment Under the Annual
and Performance-Vested Long-Term Incentive Components of the Plan to When the
Company's Performance on its Selected Financial Performance Metrics Exceeds Peer
Group Median Performance."
The Company has substantially adopted Component 5. As stated on Page 23 of the
2007 Proxy Statement, "We position annual cash incentives and stock options to
provide lower than median compensation for lower than competitive market
performance and higher than median compensation for higher than competitive
market performance." Payment of the annual cash incentive is limited based on
Company performance because payment of the annual cash incentive at target is
set at the market median (Page 25 of 2007 Proxy Statement), while no payment is
made without growth (Page 26 of 2007 Proxy Statement) and a much more reduced or
limited payment is made if threshold performance is obtained (Id.). Award of
stock options, as the Company's long-term incentive component, is "based on
pre-established grant guidelines that are calibrated to our competitive market
every year" (Page 28 of 2007 Proxy Statement) and based on individual
performance (Page 28 of 2007 Proxy Statement). The relation between payment of
annual and long-term compensation and median competitive market performance
satisfactorily addresses the Proposal's underlying concern that the compensation
components be tied to a median peer group performance.
Conclusion
The Proposal is properly excludable from the Company's 2008 Proxy Materials on
the basis that it has been substantially implemented by the Company in
connection with its Executive Compensation Program.
While there are minor differences in some details between the Proposal and the
Company's Executive Compensation Program, both the philosophy behind the
Executive Compensation Program and the overall details of the program "compare
favorably" with the Proposal. See Texaco Inc. (March 29, 1991). To the extent
that Rule 14a-8(i)(10) is designed to avoid asking the shareholders to consider
matters that have been already "favorably acted upon by management", the
Proposal should be excluded from the Company's 2008 Proxy Materials.
Accordingly, we hereby respectfully request that the Staff confirm that it will
not recommend enforcement action if the Proposal is excluded. Should you
disagree with the conclusions set forth in this letter, we would appreciate the
opportunity to confer with you prior to the issuance of the Staff's Rule
14a-8(d) response.
Please do not hesitate to call me at (612) 607-7267 if you require additional
information or wish to discuss this submission further.
Please acknowledge receipt of this letter by stamping the enclosed additional
copy of this letter and returning it in the enclosed self-addressed stamped
envelope.
Thank you for your attention to this matter.
Very truly yours,
/s/
Bruce A. Machmeier
Attachments
cc: Kenneth Colombo, Sheet Metal Workers' National Pension Fund
Craig Rosenberg
[INQUIRY LETTER]
[Sent via facsimile to (651) 293-2471 and via UPS]
November 29, 2007
Lawrence T. Bell,
Sr. VP, General Counsel and Secretary
Ecolab, Inc.
Ecolab Corporate Center, 370 Wabasha Street North
St. Paul, MN 55102
Re: Pay for Superior Performance Proposal
Dear Lawrence T. Bell:
On behalf of the Sheet Metal Workers' National Pension Fund ("Fund"), I hereby
submit the enclosed shareholder proposal ("Proposal") for inclusion in the
Ecolab, Inc. ("Company") proxy statement to be circulated to Company
shareholders in conjunction with the next annual meeting of shareholders. The
Proposal relates to executive compensation plans that align senior executives'
compensation with defined financial performance criteria which can be
benchmarked against a disclosed peer group of companies. The Proposal is
submitted under Rule 14(a)-8 (Proposals of Security Holders) of the U.S.
Securities and Exchange Commission proxy regulations.
The Fund is the beneficial owner of approximately 5,291 shares of the Company's
common stock that have been held continuously for more than a year prior to this
date of submission. The Fund and other Sheet Metal Worker pension funds are
long-term holders of the Company's common stock. The Proposal is submitted to
encourage executive compensation policies and practices that are tied to
superior corporate performance as well as to promote long-term corporate value
growth.
The Fund intends to hold the shares through the date of the Company's next
annual meeting of shareholders. The record holder of the stock will provide the
appropriate verification of the Fund's beneficial ownership by separate letter.
Either the undersigned or a designated representative will present the Proposal
for consideration at the annual meeting of shareholders.
If you have any questions or wish to discuss the Proposal, please contact me at
(703) 739-7000 or kcolombo@smwnpf.org. Copies of correspondence or a request for
a "no-action" letter should likewise be directed to me at Sheet Metal Workers'
National Pension Fund, 601 N. Fairfax Street, Suite 500, Alexandria, VA 22314.
Copies should also be forwarded to Mr. Craig Rosenberg, ProxyVote Plus, One Lane
Center, 1200 Shermer Rd., Suite 216, Northbrook, IL 60062.
Sincerely,
/s/
Kenneth Colombo
Corporate Governance Advisor
Enclosure
cc: Craig Rosenberg
[APPENDIX]
Pay-for-Superior-Performance Principle Proposal
Resolved: That the shareholders of Ecolab Inc. ("Company") request that the
Board of Director's Executive Compensation Committee adopt a
pay-for-superior-performance principle by establishing an executive compensation
plan for senior executives ("Plan") that does the following:
Sets compensation targets for the Plan's annual and long-term incentive pay
components at or below the peer group median;
Delivers a majority of the Plan's target long-term compensation through
performance-vested, not simply time-vested, equity awards;
Provides the strategic rationale and relative weightings of the financial and
non-financial performance metrics or criteria used in the annual and
performance-vested long-term incentive components of the Plan;
Establishes performance targets for each Plan financial metric relative to the
performance of the Company's peer companies; and
Limits payment under the annual and performance-vested long-term incentive
components of the Plan to when the Company's performance on its selected
financial performance metrics exceeds peer group median performance.
Supporting Statement: We feel it is imperative that executive compensation plans
for senior executives be designed and implemented to promote long-term corporate
value. A critical design feature of a well-conceived executive compensation plan
is a close correlation between the level of pay and the level of corporate
performance. The pay-for-performance concept has received considerable
attention, yet all too often executive pay plans provide generous compensation
for average or below average performance when measured against peer performance.
We believe the failure to tie executive compensation to superior corporate
performance has fueled the escalation of executive compensation and detracted
from the goal of enhancing long-term corporate value. Post-employment benefits
provided to executives from severance plans and supplemental executive pensions
exacerbate the problem.
We believe that the pay-for-superior-performance principle presents a
straightforward formulation for senior executive incentive compensation that
will help establish more rigorous pay for performance features in the Company's
Plan. A strong pay and performance nexus will be established when reasonable
incentive compensation target pay levels are established; demanding performance
goals related to strategically selected financial performance metrics are set in
comparison to peer company performance; and incentive payments are awarded only
when median peer performance is exceeded.
We believe the Company's Plan fails to promote the pay-for-superior-performance
principle in several important ways. Our analysis of the Company's executive
compensation plan reveals the following features that do not promote the
pay-for-superior-performance principle:
Target performance levels for annual incentive plan metrics are not disclosed.
The target performance levels for the annual incentive plan metrics are not
peer group related.
The annual incentive plan provides for below target payout.
100% of the Company's long-term compensation is not performance-vested.
Options vest ratably over 3 years.
We believe a plan designed to reward superior corporate performance relative to
peer companies will help moderate executive compensation and focus senior
executives on building sustainable long-term corporate value.
[STAFF REPLY LETTER]
February 8, 2008
Bruce A. Machmeier
Oppenheimer Wolff & Donnelly LLP
Plaza VII, Suite 3300
45 South Seventh Street
Minneapolis, MN 55402-1609
Re: Ecolab Inc.
Dear Mr. Machmeier:
This is in regard to your letter dated February 7, 2008 concerning the
shareholder proposal submitted by the Sheet Metal Workers' National Pension Fund
for inclusion in Ecolab's proxy materials for its upcoming annual meeting of
security holders. Your letter indicates that the proponent has withdrawn the
proposal, and that Ecolab therefore withdraws its December 28, 2007 request for
a no-action letter from the Division. Because the matter is now moot, we will
have no further comment.
Sincerely,
/s/
Gregory Belliston
Special Counsel
cc: Kenneth Colombo
Corporate Governance Advisor
Sheet Metal Workers' National Pension Fund
Edward F. Carlough Plaza
601 N. Fairfax Street, Suite 500
Alexandria, VA 22314
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