2006 Executive Compensation Survey

In 2006, the Securities and Exchange Commission’s new disclosure rules for executive compensation went into effect. These rules provide investors with a more accurate outline regarding the compensation of top executives and directors of US public companies. The most significant changes include disclosure of annual total compensation, annual change in pension value and annual, nonqualified deferred compensation (this usually refers to deferred compensation for which there is no tax write-off in the given year); severance benefits; and perquisites or other personal items that exceed $10,000. The new rules apply only to companies that have a fiscal year end of December 15, 2006 or later. To provide a more accurate total for the executive compensation in fiscal year 2006, IBO has included the fair value of stock and option awards on the date they were granted. The 2006 IBO Executive Compensation Survey includes 61 executives from 42 companies and is based upon the companies currently in IBO’s three Stock Indexes (see IBO 4/30/07) and Becton Dickinson. QIAGEN, Nanometrics, Stratagene and Molecular Devices are excluded as a result of incomplete filings. To create the tables, IBO selected one or two executives for each company who best reflect the company’s laboratory products or analytical instruments business. For each executive, IBO compiled the annual salary, bonus, nonequity incentive plan and “other” compensation (“other” includes change in pension value, nonqualified deferred compensation earnings and perquisites over $10,000) in order to determine total short-term compensation for fiscal 2006. Long-term compensation is determined based on the grant-date fair value of stock and option awards. These figures provide an account of equity securities awarded to executives in the most recent fiscal year. In previous years, IBO used the market value of restricted stock and the value of options granted multiplied by the average exercise price to determine the total long-term compensation. To more accurately reflect the proposed total compensation by the company directors, IBO now uses a fair market value for option and stock awards. Total compensation consists of annual short-term and long-term compensation. Also included in the tables are the options exercised by the executive during fiscal 2006. In 2006, average total short-term executive compensation jumped 31.4% to $1,254,978 compared to a decline of 7.2% in 2005. An increase was expected following the addition of nonequity incentive compensation and new perquisite rules. Previously, only personal benefits of $50,000 or 10% of the executive’s annual base salary and bonus were included. The average base salary declined a modest 0.4% to $480,430, while the average bonus declined 29.5% to $278,540. Certain compensation previously reported as a bonus is now reported as nonequity incentive compensation. Undetermined performance-related bonuses are listed as nonequity compensation, while any non-performance-related compensation or uncommunicated bonus to an executive is reported as a bonus. The average bonus received by the 27 executives who were awarded bonuses in 2006 was $589,733; in comparison, the average bonus received by the 45 executives in 2005 was less than half at $279,749. The average nonequity payment for an executive eligible under an incentive plan was $511,305. More than half of the executives received nonequity incentive compensation. Also, as expected, due to new disclosure regulations, all “other” compensation increased significantly from the previous year. Excluding a one-time severance package to the CEO of FEI, the average “other” compensation climbed 32.7% to $284,783. The average total long-term compensation, including both fair value stock and options awards, was $929,447. Only four executives in the tables, three of whom have recently resigned, did not receive some form of long-term stock or option compensation. The new disclosure rules for total compensation helped increase the total average compensation to $3,113,873 for fiscal 2006. Unfortunately, we cannot accurately compare this amount to the preceding year as a result of different calculation methods. However, according to Mercer Human Resource Consulting, the median change in CEO total direct compensation (salary, bonus and long-term incentives) was 8.9%, or $8.2 million, for 2006. The Laboratory Instruments Index table (see following page) includes 35 executives from 23 companies. The average 2006 short-term compensation increased 24.5% to $1,125,496 and the average base salary rose 4.0% to $493,966. While several base salaries remained constant, the largest salary increase was for Frank Laukien, CEO and president of Bruker BioSciences. His salary rose 26.2 % to $295,000. The largest reported salary in the Laboratory Instruments Index table was $1,096,154 for Tony White, CEO and president of Applied Biosystems. The average bonus for the Index was $277,376, and the average bonus for those who qualified for a payment in 2006 was up 33% to $693,439. More than 80% of the executives received some sort of bonus; 16 executives received a nonequity incentive payment, 12 were awarded bonuses and two qualified for both bonus and nonequity compensation. The total average compensation for the table was $3,140,554. Some of the most notable payouts include Marijn E. Dekkers, CEO and president of Thermo Fisher Scientific, whose total compensation amounted to $20.2 million, the largest among all tables. The employment agreement for Mr. Dekkers currently provides for an annual base salary of $1,050,000 and a target annual incentive bonus of 110% of base salary. The actual amount paid as a bonus in any given year is a multiple of zero to two times the target amount. Not to be outdone, Gregory Summe, the president and CEO of PerkinElmer, earned the highest short-term compensation, totaling $4,411,063. Mr. Summe received a total nonequity bonus of $2,806,000, of which $1,250,000 was based on short-term incentive and individual performance and $1,556,100 was attributed to performance goals based on earnings per share. Mr. Summe was also awarded $147,336 for use of the company’s aircraft in which it owns a fractional interest. During 2006, there were many changes among executives. Transgenomic hired Mr. Tuttle as president and CEO on July 12, 2006, following the resignation of Collin J. D’Silva (see IBO 8/15/06). Robert Friel was appointed divisional president for PerkinElmer, replacing Peter Coggins, who retired in February 2006 (see IBO 1/31/06). Also, ensuing the acquisition of Amazys, Thomas J. Vacchiano, Jr. was appointed the new president and CEO of X-Rite, while Michael C. Ferrara retired from his position of CEO on October 1, but remains a nonofficer employee of the company (see IBO 11/15/06). Edward J. Ludwig, CEO of Becton Dickinson, received “other” compensation of $60,790 for personal use of company-owned aircraft. Additionally, Mr. Ludwig has arranged a time-share plan for personal use of the company-owned aircraft for which he makes aggregate payments of $94,450 to the company. For the Process/Metrology/Motion Instrumentation Index (see preceding page), the average short-term compensation improved over 200% to $1,933,061, as a result of a large compensation package to the former president and CEO of FEI. Vahe A. Sarkissian, who resigned effective April 1 (see IBO 8/15/06), received a severance package valued at over $8,996,945, which included the acceleration of all of his stock options and restricted stock awards. Excluding the large compensation package, short-term compensation increased 3.8% to $647,783 and total compensation averaged $1,898,655. Apart from Mr. Sarkissan, all executives received either a bonus or nonequity incentive payment. The average bonus for those who received one jumped 137% to $483,913, due to the employment package received by Don R. Kania. As the newly appointed president and CEO of FEI (see IBO 8/15/06), Dr. Kania received a $750,000 bonus, 300,000 option shares with an base price of $19.38, a 150,000-share stock award, relocation reimbursement totaling $218,651 and reimbursement of $19,246 for legal fees associated with his employment agreement. The average short-term compensation for executives in the Laboratory Consumables/Equipment Index (see page 5) dropped 9.9% to $915,349. The average base salary dropped 3.7% to $479,145, due to the CEO change at Sigma-Aldrich. Effective January 1, 2006, Jai P. Nagarkatti replaced David R. Harvey as CEO of Sigma-Aldrich (see IBO 3/31/06). In connection with his promotion, Dr. Nagarkatti received a base salary increase from $470,000 to $600,000. Consequently, the salary of Dr. Harvey, now the chairman, was reduced from $725,000 to $250,000. Excluding both individuals from the table, the average base salary improved 4.3% to $492,682. Eric Krasnoff, CEO of Pall, received an $865,815 bonus based on the company’s favorable return on equity and elected to receive $632,626 of the value in the form of restricted stock. New Brunswick’s CEO, David Freedman, retired effective December 31, 2006. His successor is the current president and COO James Orcutt (see IBO 2/28/07). Mr. Freedman received a performance bonus of $94,283 for meeting the company’s 2006 goals and a $396,000 recognition bonus. The Diversified Instrumentation Index (see page 6) was not included in the 2005 survey. The average salary, bonus and nonequity incentives top all other Indexes at $533,865, $264,828 and $498,085, respectively. The Index also represents the largest average total compensation of $4,078,687. Accordingly, the average market capitalization and operating profit for the Diversified Instrumentation Index far exceeds the other Indexes. F. S. Hermance, CEO of AMETEK, was awarded a nonequity bonus of $952,000 in 2006 based on the company’s short-term incentive program relating to operating group performance measures. Danaher’s executive vice president, Steven E. Simms, elected to defer $750,000 of his $900,000 nonequity incentive compensation into the company’s deferred incentive program. In addition to the lucrative nonequity incentive bonus earned by Roper’s CEO and president, Brian Jellison, he also received perquisites of $6,112 for club memberships, $24,000 for a company car and $159,007 for relocation. These new disclosure rules may have the effect of requiring company directors to justify what is considered fair and competitive compensation, which has a direct effect on shareholders.

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