If executive compensation plans are designed to reward financial performance and increase shareholder returns, then fiscal 2010 was an exemplary year. In fiscal 2010, total median compensation for the 55 executives at 40 analytical instrument and laboratory product companies in the four IBO Stock Indexes (see IBO 4/30/11) soared 34.3% to $2,761,689. For those same companies, total revenues grew 14%, reported operating profits increased 47% and net income jumped 59%. Accordingly, average stock price rose by 32% in calendar year 2010. Excluding the compensation for Mark N. Casper, president and CEO of Thermo Fisher Scientific, who received a $32.4 million multiyear stock and option award in 2009 (see IBO 4/30/10), average total compensation climbed 28.4% to $3,678,726.

Even though the financial interests of executives and shareholders were more closely aligned in 2010, the aggregate amount of cash incentives and long-term compensation remains a contested issue for some investors. In fiscal 2010, average annual incentives for all executives soared 71.5% to $826,774 to account for 23% of total compensation. Excluding Mr. Casper, total long-term compensation grew 24.6% to $1,943,538 to make up 52% of the total executive compensation payout.

IBO’s executive compensation tables are based on fiscal year 2010 data provided by corporate SEC filings. Compensation defined as “annual incentives” consists of the sum of discretionary and performance-based cash payments. Long-term compensation is defined as fair-value stock awards and option awards received. “Other” compensation is the sum of nonqualified deferred compensation, supplementary retirement plans and perquisites.

Clearly, last fiscal year, a number of executives were rewarded with performance-based annual incentives for their companies’ significant year-over-year financial performances. In fiscal 2010, 51 of the 55 executives earned annual cash incentives, including 15 executives who each received cash incentives of more than $1 million. Only four executives were without bonuses: Craig J. Tuttle, president and CEO of Transgenomic; Thomas E. Oland, president and CEO of TECHNE, who waived his bonus; Chris L. Koliopoulos, who was appointed CEO of Zygo on January 19, 2010, and waived his incentive award; and Scott Garrett, who resigned as chairman, president and CEO of Beckman Coulter on September 6, 2010 (see IBO 9/15/10).

The most significant percentage increase in annual incentives was for Laura B. Hamilton, chair and CEO of MTS Systems. Her bonus award jumped more than 30 times to $534,850 due to accomplished performance goals based primarily on EPS, EBIT and revenue growth. Lawrence Culp, Jr., president and CEO of Danaher, enjoyed the largest annual incentive compensation of $4.4 million, which was based on the successful integration of AB SCIEX, revenue growth and improved profitability.

Acquisitions and divestitures also contributed to bonus awards for Robert F. Friel, chairman and CEO of PerkinElmer, and AMETEK Chairman and CEO F.S. Hermance. Mr. Friel received nearly $300,000 of his $1.8 million bonus for the successful divestiture of the Illumination and Detection Solutions business (see IBO 8/31/10). Mr. Hermance was awarded a $400,000 discretionary bonus for strategic acquisitions, increased market penetration and product introductions. Frank H. Laukien, chairman, president and CEO of Bruker, received 7% of his $752,728 bonus for the completed acquisition of Veeco Metrology (see IBO 8/31/10).

Dr. Laukien along with five other executives had their base salaries restored in fiscal 2010 following pay reductions in fiscal 2009 due to improved economic conditions. Three of those executives received salary increases on top of the restored salaries. Agilent’s President of Chemical Analysis Michael R. McMullen and President of Life Sciences Nicolas Roelofs were awarded salary increases of 23% and 14%, respectively, as a result of strong financial performances by each segment. Thomas J. Vacchiano, Jr., president and CEO of X-Rite, had his salary restored and benefited from a 17% increase in salary.

Based on employment agreements, 33 executives received salary increases in 2010, while salaries for 17 were unchanged, and one salary was slightly lowered for inflation. QIAGEN CEO Peer M. Schatz maintained the largest salary for the second consecutive year, with a salary of $1.2 million, unchanged from a year ago. One of the largest percentage increases in salary was for Mr. Hermance. His salary rose 25% to $1.0 million. Given the sizable bonus increases and prevalent salary increases, average total short-term compensation for all executives grew 35.8% to $1,433,907. As expected, Mr. Culp recorded the largest short-term compensation, totaling $5.5 million.

Mr. Culp also achieved the biggest long-term compensation package of $11.3 million, which included $2.1 million in stock grants for performance measures achieved in fiscal 2009. In total, 46 executives received long-term compensation awards. Ten other executives received long-term bonuses of more than $3 million. Several executives, including Mr. Casper, Mr. Vacchiano and Brian D. Jellison, chairman, president and CEO of Roper Industries, were ineligible for long-term compensation awards in fiscal 2010 due to previous multiyear grants. Frank Witney, president and CEO of Dionex, was not awarded any long-term compensation in fiscal 2010, following the receipt of a $3.1 million grant in 2009 when he was hired (see IBO 4/15/09). Douglas A. Berthiaume, chairman, president and CEO of Waters, declined to be considered for a grant in fiscal 2010, and Bruker decided not to award long-term incentives based on the company’s current stock price and outstanding equity awards.

Average long-term compensation fo

r those executives who received it was just under $2.3 million and was comprised of 43% stock fair value and 57% option grants. The largest percentage increase in long-term compensation was recorded by John L. Bishop, president and CEO of Cepheid. The fair value of his stock and options awards soared 284.8% to $3.0 million.

Most stock and options awards are based on long-term incentives measured against peer groups, including industry, revenue and market capitalization. Thus, to provide a more accurate comparison of executive compensation, IBO analyzed compensation packages for presidents and CEOs by their companies’ market capitalizations. Three categories were used: companies with market capitalizations of more than $5 billion (large-cap), companies with market capitalizations of $500 million to $5 billion (medium-cap), and companies with market capitalizations of under $500 million (small-cap).

For the 16 presidents and CEOs of the 14 large-cap companies, median total compensation grew 17.5% to $6,332,937. Excluding Mr. Culp’s pay, average total compensation climbed 36.8% to $7,708,762, including a 35.5% increase in long-term compensation to $4,209,406. Average short-term compensation for executives at the large-cap companies rose 42.8% to $2,596,727, including a 76.8% jump in average annual incentive to $1,627,942. All executives, except for Mr. Garrett, received at least a $1 million bonus. Revenue growth for the 14 companies improved 13% in fiscal 2010, with each company reaching at least $2 billion in sales. Operating profit in fiscal 2010 increased 38%, and average stock price climbed 33% in calendar 2010.

Compensation packages for executives at the large-cap companies were mostly dependent on long-term compensation and annual incentives, as these payments accounted for 53% and 23% of total compensation, respectively. A number of these executives also participated in executive profit-sharing plans and supplementary retirement plans, as listed under “Other” compensation. The sum of these payments along with various perks made up 12% of total compensation for these executives.

Notable payments under “Other” compensation for executives at the large-cap companies included $3.6 million for Eric Krasnoff, chairman and CEO of Pall, related to supplemental profit plans and management plans. Mr. Culp received $269,395 for personal use of Danaher’s aircraft. Mr. Garrett received $1.9 million in severance pay.

Average total compensation for the presidents and CEOs of the 14 mid-cap companies increased 23.4% to $2,956,892. Average long-term compensation rose 16.9% to $1,506,991, despite four executives who did not receive any stock or option grants in fiscal 2010, compared with two who did not in fiscal 2009. Average short-term compensation grew 36.5% to $1,334,075, including a 65.2% increase in average incentive award to $735,199. Fiscal 2010 revenues and operating profits for the mid-cap companies grew 14% and 12%, respectively, and average stock price jumped 31% in calendar year 2010.

Average incentive award and long-term compensation for executives at the mid-cap companies accounted for 25% and 51% of total compensation, respectively. Compared with the executives at the large-cap companies, these CEOs were more dependent on salaries than other deferred or retirement compensation. Average salary for executives at the mid-cap companies made up 20% of their total compensation, while other compensation amounted to 4% of total pay. However, John R. Peeler, CEO of Veeco Instruments, recognized $104,250 for housing and $18,000 for transportation.

For the 13 presidents and CEOs of the 12 small-cap companies, average total compensation increased 18.3% to $1,273,178. Average long-term pay grew 17.5% to $537,349, and average short-term pay rose 15.5% to $684,097. Average annual incentive award jumped 56.5% to $276,600. Fiscal 2010 revenues for these 12 companies improved 15%, and operating profits were positive, compared with a loss a year ago. Average stock price in calendar year 2010 grew 36%.

Salaries for executives at the small-cap companies accounted for 32% of their total compensation, significantly more than executive salaries at the mid-cap and large-cap companies. Annual incentives and long-term compensation for executives at the small-cap companies made up 22% and 42% of total pay, respectively, while other compensation accounted for 4%.

IBO also listed the heads of the dedicated instrument and laboratory-related business units of companies in a separate table (see page 7). For these 12 non-CEO executives, average total compensation increased 23.9% to $2,089,333. Average short-term and long-term compensation grew 42.0% and 20.3% to $812,642 and $1,143,879, respectively. Fiscal 2010 revenues for these segments climbed 10%. Arthur G. Caputo, president of Waters’s Waters Division, had the highest percentage change in total compensation and the largest total compensation, which grew 53.9% to $4.0 million. The increase was attributed to a $792,652 bonus based on adjusted EPS performance.

Aside from Mr. Witney, IBO’s executive compensation tables include several new names. Harry F. Hixson, Jr., was appointed CEO of Sequenom on March 13, 2010 (see IBO 9/30/09). Max Carnecchia was hired as president and CEO of Accelrys on June 15, 2009 (see IBO 7/31/09). Hugh C. Martin, president and CEO of Pacific Biosciences, was added to the tables following the company’s IPO on October 26, 2010 (see IBO 10/31/10). Jai P. Nagarkatti, who served as president and CEO of Sigma-Aldrich, passed away on November 13, 2010. His successor, Rakesh Sachdev, was appointed president and CEO the following day (see IBO 11/15/10).

 Top 10 Compensation, 2010

 Company                 Executive                  Total Pay

 Danaher                 H. Lawrence Culp, Jr.      $17,032,244

 Life Technologies       Gregory T. Lucier          $11,498,009

 Illinois Tool Works     David B. Speer             $11,190,111

 Agilent Technologies    William P. Sullivan        $10,442,447

 Pall                    Eric Krasnoff              $10,039,049

 Beckton Dickinson & Co. Edward J. Ludwig           $10,005,022

 PerkinElmer             Robert F. Friel             $7,948,297

 AMETEK                  F.S. Hermance               $7,807,317

 Illumina                Jay T. Flatley              $6,608,974

 Beckman Coulter         Scott Garrett               $6,056,900

 Average                                             $9,862,837

 Top 10 Short-Term Raises, 2010

 Company                 Executive                  % Chg.

 Danaher                 H. Lawrence Culp, Jr.      478%

 Waters                  Douglas A. Berthiaume      205%

 Nanometrics             Timothy J. Stultz          180%

 AMETEK                  F.S. Hermance              172%

 FEI Company             Don R. Kania               145%

 X-Rite                  Thomas J. Vacchiano, Jr.   115%

 Mettler-Toledo Int'l    Olivier A. Filliol         102%

 MTS Systems             Laura B. Hamilton           93%

 Agilent Technologies    William P. Sullivan         90%

 Illinois Tool Works     David B. Speer              75%

 Average                                            165%

 Top 10 Short-Term Compensation, 2010 

 Company                 Executive                  Total Pay

 Danaher                 H. Lawrence Culp, Jr.      $5,517,778

 Life Technologies       Gregory T. Lucier          $4,004,521

 Agilent Technologies    William P. Sullivan        $3,525,586

 Roper Industries        Brian D. Jellison          $3,412,500

 Illinois Tool Works     David B. Speer             $3,332,492

 AMETEK                  F.S. Hermance              $3,000,000

 PerkinElmer             Robert F. Friel            $2,668,554

 Veeco Instruments       John R. Peeler             $2,622,384

 Teledyne Technologies   Robert Mehrabian           $2,612,908

 ThermoFisher Scientific Mark N. Casper             $2,591,970

 Average                                            $3,328,869

 Top 5 Total Comp. Increases and Declines, 2010

 Company                 Executive                  % Chg.

 Top 5 Increases

 Pacific Biosciences     Hugh C. Martin             208%

 Life Technologies       Gregory T. Lucier          155%

 Waters                  Douglas A. Berthiaume      142%

 Cepheid                 John L. Bishop             130%

 X-Rite                  Thomas J. Vacchiano, Jr.   113%

 Average                                            150%

 Top 5 Declines

 ThermoFisher Scientific Mark N. Casper             -92%

 Dionex                  Frank Witney               -71%

 Sequenom                Harry F. Hixson, Jr.       -49%

 Affymetrix              Kevin M. King              -37%

 QIAGEN                  Peer M. Schatz              -9%

 Average                                            -52%

 Top 10 Fair-Value Stock and Option Grant Recipients, 2010

 Company                 Executive                  Fair Value

 Danaher                 H. Lawrence Culp, Jr.      $10,997,368

 Life Technologies       Gregory T. Lucier           $7,265,910

 Agilent Technologies    William P. Sullivan         $6,886,937

 Illinois Tool Works     David B. Speer              $6,470,767

 Becton Dickinson & Co.  Edward J. Ludwig            $5,891,687

 Illumina                Jay T. Flatley              $4,914,525

 PerkinElmer             Robert F. Friel             $4,557,576

 AMETEK                  F.S. Hermance               $4,116,302

 Pall                    Eric Krasnoff               $4,099,993

 Pacific Biosciences     Hugh C. Martin              $3,653,556

 Average                                             $5,885,462