<PAGE> 1
SCHEDULE 14A
(RULE 14a-101)
INFORMATION REQUIRED IN PROXY STATEMENT
SCHEDULE 14A INFORMATION
PROXY STATEMENT PURSUANT TO SECTION 14(a) OF THE SECURITIES
EXCHANGE ACT OF 1934 (AMENDMENT NO. )
Filed by the registrant [X]
Filed by a party other than the registrant [ ]
Check the appropriate box:
[ ] Preliminary proxy statement [ ] Confidential, for Use of the
Commission Only (as permitted by
Rule 14a-6(e)(2))
[X] Definitive proxy statement
[ ] Definitive additional materials
[ ] Soliciting material pursuant to Rule 14a-11(c) or Rule 14a-12
A.O. SMITH CORPORATION
- --------------------------------------------------------------------------------
(Name of Registrant as Specified in Its Charter)
- --------------------------------------------------------------------------------
(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
Payment of filing fee (Check the appropriate box):
[ ] No Fee Required.
[ ] Fee computed on table below per Exchange Act Rules 14a-6(i)(4) and
0-11.
(1) Title of each class of securities to which transaction applies:
- --------------------------------------------------------------------------------
(2) Aggregate number of securities to which transaction applies:
- --------------------------------------------------------------------------------
(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (Set forth the amount on which the filing fee
is calculated and state how it was determined):
- --------------------------------------------------------------------------------
(4) Proposed maximum aggregate value of transaction:
- --------------------------------------------------------------------------------
(5) Total fee paid:
- --------------------------------------------------------------------------------
[ ] Fee paid previously with preliminary materials.
- --------------------------------------------------------------------------------
[ ] Check box if any part of the fee is offset as provided by Exchange Act
Rule 0-11(a)(2) and identify the filing for which the offsetting fee was paid
previously. Identify the previous filing by registration statement number, or
the form or schedule and the date of its filing.
(1) Amount previously paid:
- --------------------------------------------------------------------------------
(2) Form, schedule or registration statement no.:
- --------------------------------------------------------------------------------
(3) Filing party:
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(4) Date filed:
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<PAGE> 2
[AOSMITH CORPORATION LOGO]
P.O. BOX 23973
MILWAUKEE, WI 53223-0973
NOTICE AND PROXY STATEMENT
NOTICE OF 1997 ANNUAL MEETING OF STOCKHOLDERS
PLEASE TAKE NOTICE that the annual meeting of the stockholders of A. O.
SMITH CORPORATION will be held on Wednesday, May 21, 1997 at 8:00 A.M. Eastern
Daylight Savings Time, at the Hotel du Pont, 11th and Market Streets,
Wilmington, Delaware for the following purposes:
(1) To elect six directors chosen by the holders of Class A Common Stock.
(2) To elect three directors chosen by the holders of Common Stock.
(3) To approve the amended and restated A. O. Smith Corporation Executive
Incentive Compensation Plan.
(4) To ratify the appointment of Ernst & Young LLP as the Company's
independent auditors for 1997.
(5) To consider and vote on the stockholder proposals set forth in the
proxy statement, if properly presented at the meeting.
(6) To transact such other business and act upon such other matters which
may properly come before the meeting or any adjournments thereof.
Only holders of record of the Class A Common Stock and the Common Stock of
the Company at the close of business on April 1, 1997, will be entitled to
notice of and to vote at the meeting. The list of stockholders entitled to vote
at the meeting will be available as of May 5, 1997 for examination by
stockholders for purposes related to the meeting at the offices of Morris,
Nichols, Arsht & Tunnell, 1201 North Market Street, Wilmington, Delaware.
YOU ARE INVITED TO ATTEND THE MEETING IN PERSON; HOWEVER, EVEN IF YOU PLAN
TO ATTEND THE MEETING IN PERSON, PLEASE TAKE A FEW MINUTES TO COMPLETE, DATE AND
SIGN THE ENCLOSED PROXY AND MAIL IT PROMPTLY IN THE ENCLOSED ENVELOPE. IF YOU
ATTEND THE MEETING, YOU MAY REVOKE YOUR PROXY AND VOTE YOUR SHARES IN PERSON.
YOUR ATTENTION IS DIRECTED TO THE PROXY STATEMENT ENCLOSED WITHIN.
W. David Romoser
Secretary
April 21, 1997
<PAGE> 3
[AOSMITH CORPORATION LOGO]
----------------------------------------------
P. O. BOX 23973
MILWAUKEE, WISCONSIN 53223-0973
----------------------------------------------
PROXY STATEMENT
GENERAL INFORMATION
This proxy statement is furnished to stockholders of A. O. Smith
Corporation (the "Company") in connection with the solicitation by its Board of
Directors of proxies for use at the annual meeting of stockholders of the
Company to be held on Wednesday, May 21, 1997 at 8:00 A.M., Eastern Daylight
Savings Time, at Wilmington, Delaware.
The record date for stockholders entitled to notice of and to vote at the
meeting is the close of business on April 1, 1997 (the "Record Date"). As of the
Record Date, the Company had issued 5,839,958 shares of Class A Common Stock,
par value $5 per share, 5,836,498 shares of which were outstanding and entitled
to one vote each for Class A Common Stock directors and other matters. As of the
Record Date, the Company had issued 15,859,692 shares of Common Stock, par value
$1 per share, 13,808,023 shares of which were outstanding and entitled to one
vote each for Common Stock directors and one-tenth (1/10) vote each for other
matters.
The Notice of 1997 Annual Meeting of Stockholders, this proxy statement,
form of proxy card and the Company's 1996 Annual Report are being mailed on or
about April 21, 1997 to each stockholder of the Company at the holder's address
of record.
Under the Company's Restated Certificate of Incorporation, as long as the
number of outstanding shares of Common Stock is at least 10% of the aggregate
number of outstanding shares of Class A Common Stock, the holders of the Class A
Common Stock and holders of the Common Stock vote as separate classes in the
election of directors. Stockholders are entitled to one vote per share in the
election of directors for their class of stock.
A majority of the outstanding shares entitled to vote must be represented
in person or by proxy at the meeting in order to constitute a quorum for
purposes of holding the annual meeting. The voting by stockholders at the
meeting is conducted by the inspectors of election. Abstentions and broker
nonvotes are counted as present in determining whether the quorum requirement is
met.
Directors are elected by a plurality of the votes cast, by proxy or in
person, with the holders voting as separate classes. A plurality of votes means
that the nominees who receive the greatest number of votes cast are elected as
directors. Consequently, any shares which are not voted, whether by abstention,
broker nonvotes or otherwise, will have no effect on the election of directors.
For all other matters considered at the meeting, both classes of stock vote
together as a single class, with the Class A Common Stock entitled to one vote
per share and the Common Stock entitled to 1/10th vote per share. All such other
matters are decided by a majority of the votes cast. On such other matters, an
abstention will have the same effect as a "no" vote but, because shares held by
brokers will not be considered to vote on matters as to which the brokers
withhold authority, a broker nonvote will have no effect on the vote.
<PAGE> 4
The enclosed proxy is solicited by and on behalf of the Board of Directors
of the Company. A proxy may be revoked by the person giving it at any time
before the exercise thereof by written notice of revocation or a duly executed
proxy bearing a later date to the Secretary of the Company or by attending the
meeting and voting in person. All valid proxies not revoked will be voted unless
marked to abstain. Where a choice is specified on a proxy, the shares
represented by such proxy will be voted in accordance with the specification
made. If no instruction is indicated, the shares will be voted FOR proposals (1)
through (4) set forth in the accompanying notice and AGAINST the stockholder
proposals referenced in (5).
The cost of soliciting proxies, including preparing, assembling and mailing
the notice of meeting, proxy statement, form of proxy and other soliciting
materials, as well as the cost of forwarding such material to the beneficial
owners of stock, will be paid by the Company. In addition to solicitation by
mail, directors, officers, regular employees of the Company and others may also,
but without compensation other than their regular compensation, solicit proxies
personally or by telephone or other means of electronic communication. The
Company may reimburse brokers and others holding stock in their names or in the
names of nominees for their reasonable out-of-pocket expenses in sending proxy
material to principals and beneficial owners.
PRINCIPAL STOCKHOLDERS
The following table shows persons who may be deemed to be beneficial owners
(within the meaning of Rule 13d-3 under the Securities Exchange Act of 1934) of
more than 5% of any class of the Company's stock. Unless otherwise noted, the
table reflects beneficial ownership as of December 31, 1996.
<TABLE>
<CAPTION>
AMOUNT AND NATURE
NAME AND ADDRESS OF BENEFICIAL PERCENT
TITLE OF CLASS OF BENEFICIAL OWNER OWNERSHIP OF CLASS
- -------------- ------------------- ----------------- --------
<S> <C> <C> <C>
Class A Smith Investment Company 5,378,168 92.05%
Common Stock P.O. Box 23976
Milwaukee, WI 53223-0976
Common Stock Smith Investment Company 1,039,384(1) 6.88%(1)
P.O. Box 23976
Milwaukee, WI 53223-0976
Common Stock FMR Corp., 1,750,000(2) 11.59%
Edward C. Johnson 3d
and Abigail P. Johnson
82 Devonshire Street
Boston, MA 02109
Common Stock Pioneer Management 1,153,400 7.64%
Corporation
60 State Street
Boston, MA 02019
Common Stock The Prudential Insurance 1,134,700(3) 7.52%
Company of America
751 Broad Street
Newark, NJ 07102-3777
</TABLE>
- ----------------
(1) Pursuant to the Company's Restated Certificate of Incorporation dated
January 26, 1993, Class A Common Stock is convertible at any time at the
option of the holder into Common Stock on a share-for-share basis. For
2
<PAGE> 5
purposes of computing beneficial ownership of SICO's Common Stock, assuming
that all Class A Common Stock held by SICO was converted into Common Stock,
SICO's beneficial ownership of the Common Stock is 6,417,552 shares, which
represents 31.3% of the class of Common Stock.
(2) FMR Corp. and Edward C. Johnson 3d have sole dispositive power with respect
to 1,750,000 shares, including shares beneficially owned by Fidelity
Management & Research Company (FMRC), a subsidiary of FMR Corp., and
Fidelity Magellan Fund, an investment company for which FMRC acts as an
investment advisor.
(3) The Prudential Insurance Company of America has sole voting power and sole
dispositive power with respect to 583,200 shares and shared voting power
with respect to 541,700 shares and shared dispositive power with respect to
551,500 shares.
Information on beneficial ownership is based upon Schedules 13D or 13G
filed with the Securities and Exchange Commission and any additional information
which may have been provided to the Company by any beneficial owners.
On December 31, 1996, Arthur O. Smith owned beneficially 119,095 shares,
and his wife owned of record and beneficially 3,485 shares of the outstanding
capital stock of SICO; various trusts held 198,480 shares for the benefit of the
wife and issue of Arthur O. Smith. On December 31, 1996, Lloyd B. Smith owned
beneficially 2,102 shares of the outstanding capital stock of SICO; various
trusts held 310,903 shares for the benefit of the wife and issue of Lloyd B.
Smith. In addition, Messrs. Smith were trustees of various trusts for the
benefit of persons other than themselves, their wives and issue, which trusts
held on December 31, 1996 an aggregate of 522,960 shares of the outstanding
capital stock of SICO. The shares of SICO held beneficially by Messrs. Smith and
their wives, together with shares held by Messrs. Smith in trust for others
comprised 69.8% of the 1,658,533 outstanding shares of capital stock of SICO on
December 31, 1996. Messrs. Smith have shared investment and voting power on all
trusts for which they are co-trustees. On all other trusts, one or the other
shares trust powers with at least one other person. Messrs. Smith disclaim that
any of the foregoing interests in the capital stock of SICO constitute
beneficial ownership of any common stock of the Company.
ELECTION OF DIRECTORS
Nine directors are to be elected to serve until the next succeeding annual
meeting of stockholders and thereafter until their respective successors shall
be duly elected and qualified. Owners of Class A Common Stock are entitled to
elect 6 directors and owners of Common Stock are entitled to elect the 3
remaining directors.
It is intended that proxies hereby solicited will be voted for the election
of the nominees named below. Proxies will not be voted for a greater number of
persons than the 9 nominees named below. All nominees have consented to being
named in the proxy statement and to serve if elected. If any nominee for
election as a director shall become unavailable to serve as a director, proxies
will be voted for such substitute nominee as may be nominated by the Board of
Directors.
The following information has been furnished to the Company by the
respective nominees for director. Each nominee has been principally engaged in
the employment indicated for the last 5 years unless otherwise stated.
NOMINEES -- CLASS A COMMON STOCK
TOM H. BARRETT -- Partner in American Industrial Partners -- Private
investment partnership.
Mr. Barrett is 66 years of age and has been a director of the Company since
1981. He is the chairman of the Personnel and Compensation Committee of the
Board. He retired as chairman of the board and chief executive
3
<PAGE> 6
officer of The Goodyear Tire & Rubber Company in 1991. He is also a director of
Air Products and Chemicals, Inc., Easco Corporation and Rubbermaid Incorporated,
as well as a trustee of the Mutual Life Insurance Company of New York.
GLEN R. BOMBERGER -- Executive Vice President and Chief Financial Officer.
Mr. Bomberger, 59, became a director and executive vice president and chief
financial officer in 1986. He is a member of the Investment Policy Committee of
the Board. Mr. Bomberger joined the Company in 1960. He is currently a director
and vice president-finance of SICO. He is a director of Portico Funds, Inc.
ROBERT J. O'TOOLE -- Chairman of the Board, President and Chief Executive
Officer.
Mr. O'Toole, 56, became chairman of the board on March 31, 1992. He is a
member of the Investment Policy Committee of the Board. He was elected chief
executive officer in March 1989. He was elected president, chief operating
officer and a director in 1986. He also served as the head of the Automotive
Products Company, a division of the Company, from November 1990 until May 1992.
Mr. O'Toole joined the Company in 1963. He is a director of Firstar Bank
Milwaukee, N.A. and Protection Mutual Insurance Company.
DONALD J. SCHUENKE -- Chairman of Northern Telecom Limited and Northern
Telecom, Inc.
Mr. Schuenke, 68, was elected a director of the Company in October 1988. He
is chairman of the Investment Policy Committee of the Board. Mr. Schuenke has
served as the chairman (non-executive) of Northern Telecom Limited since January
1994, and he also serves as the chairman (non-executive) of Northern Telecom,
Inc. He was chairman of The Northwestern Mutual Life Insurance Company from
January 1990 to January 1994 and served as its chief executive officer from
March 1983 to October 1993. Mr. Schuenke is a director of Allen-Edmonds Shoe
Corporation, Badger Meter, Inc. and Federal Home Loan Mortgage Corporation.
ARTHUR O. SMITH -- Director, Chairman and Chief Executive Officer of Smith
Investment Company.
Mr. Smith is 66 years of age and has been a director of the Company since
1960. He is a member of the Personnel and Compensation Committee and the
Investment Policy Committee of the Board. He is chairman and chief executive
officer of SICO and the retired chairman of ASI Technologies, Inc. He was
president of SICO until July 1, 1993. Mr. Smith is the uncle of Bruce M. Smith,
a director of the Company.
BRUCE M. SMITH -- President and Director of Smith Investment Company.
Mr. Smith, 48, was elected a director of the Company on April 5, 1995. He
is a member of the Investment Policy Committee and the Audit Committee of the
Board. He was elected president of SICO on July 1, 1993 and has served as a
director of SICO since July 1983. Prior to that time, he was executive vice
president of the Water Products Company, a division of the Company, from January
1991 through June 1993 and managing director of A. O. Smith Electric Motors
(Ireland) Ltd., a subsidiary of the Company, from March 1988 through December
1990. Mr. Smith originally joined the Company in 1978. He is the nephew of
Arthur O. Smith, a director of the Company.
NOMINEES -- COMMON STOCK
RUSSELL G. CLEARY -- Chairman and Chief Executive Officer, Cleary
Management Corporation -- a privately held business and real estate development
corporation.
Mr. Cleary is 63 years of age and has been a director of the Company since
1984. He is a member of the Personnel and Compensation Committee of the Board.
Mr. Cleary has been chairman and chief executive officer
4
<PAGE> 7
of Cleary Management since 1989. Formerly, he was chairman, president and chief
executive officer of G. Heileman Brewing Company, Inc. and retired in December
1988. Mr. Cleary is a director of Ecolab, Inc. and also chairman of the board of
First State Bancorp, Inc.
LEANDER W. JENNINGS -- Chairman and Chief Executive Officer, Jennings &
Associates -- financial management consulting.
Mr. Jennings is 68 years of age and was elected a director of the Company
in 1987. He is the chairman of the Audit Committee of the Board. He has been
chairman and chief executive officer of Jennings & Associates since 1985. Mr.
Jennings retired as managing partner and senior operating committee member of
Peat, Marwick, Mitchell & Company in 1985. He is also a director of Fruit of the
Loom, Inc., Prime Capital Corporation, Alberto Culver Company and TEPPCO, Inc.
DR. AGNAR PYTTE -- President, Case Western Reserve University.
Dr. Pytte, 64, was elected a director of the Company in February 1991. He
is a member of the Audit Committee of the Board. He became the president of Case
Western Reserve University in July 1987. Prior to July 1987, Dr. Pytte was the
provost at Dartmouth College where he held other academic positions since 1958.
Dr. Pytte is also a director of The Goodyear Tire & Rubber Company.
BOARD COMMITTEES
The Board of Directors of the Company serves as a committee of the whole
for designating nominees for election as director. The Board of Directors will
consider written recommendations directed to the Chairman from stockholders
concerning nominees for Director. The Board of Directors has 3 standing
committees, the Personnel and Compensation Committee, the Investment Policy
Committee and the Audit Committee. In 1996, the Personnel and Compensation
Committee held 3 meetings, the Investment Policy Committee held 4 meetings and
the Audit Committee met 3 times. The Personnel and Compensation Committee is
responsible for establishing and administering the Company's compensation and
benefit plans for officers, executives and management employees, including the
determination of eligibility for participation in such plans. It determines the
compensation to be paid to officers and certain other selected executives. The
Investment Policy Committee is responsible for investment policy and certain
other matters for all Company retirement funds and other employee benefit funds.
The Audit Committee recommends the firm which will act as independent auditors
for the Company and has the responsibility to review audit procedures and the
internal controls of the Company.
5
<PAGE> 8
DIRECTOR COMPENSATION
Directors received $20,000 annually, plus expenses and $1,000 for
attendance at each board meeting. Each Audit and Personnel and Compensation
Committee member receives $2,000 and the chairman of each receives $3,000
annually; committee members are also entitled to $1,000 per meeting, plus
expenses. Each Investment Policy Committee member receives $2,000 and the
chairman receives $3,000 annually; committee members are also entitled to $2,000
per meeting, plus expenses. Directors who are employees of the Company are not
compensated for service as directors or committee members or for attendance at
board or committee meetings. During 1996, a total of 6 regular and 2 special
meetings of the Board of Directors were held; all directors attended at least
75% of the number of board meetings and committee meetings, in the aggregate, on
which the director served as a member.
Certain directors have elected to defer payment of their fees under the
Corporate Directors' Deferred Compensation Plan (the "Directors' Plan"). The
Directors' Plan allows directors to defer all or a portion (not less than 50%)
of their fees until any date, but not later than the year in which age 71 is
attained. Payments can be made in a lump sum or in not more than 10 annual
installments. Deferred fees earn interest based on an established prime rate.
The A. O. Smith Non-Employee Directors' Retirement Plan provides an annual
benefit for outside directors after 5 years of service and attainment of age 70.
The annual benefit amount, payable in quarterly installments, is the annual
retainer in effect at the time of retirement. Benefit payments continue for a
period equal to the number of years of service as a director, but not to exceed
10 years; all payments cease upon death of the director.
6
<PAGE> 9
SECURITY OWNERSHIP OF DIRECTORS AND MANAGEMENT
The following table shows, as of December 31, 1996, the Class A Common
Stock and Common Stock of the Company, the Class A Common Stock and Common Stock
options exercisable on or before March 1, 1997, and the common stock of SICO
beneficially owned by each director, each nominee for director, each named
executive officer in the Summary Compensation Table and by all directors and
executive officers as a group.
COMPANY COMMON STOCK
<TABLE>
<CAPTION>
AMOUNT AND NATURE OF % OF SHARES
NAME TYPE OF STOCK BENEFICIAL OWNERSHIP(1) OUTSTANDING
---- ------------- ----------------------- -----------
<S> <C> <C> <C>
Tom H. Barrett Common Stock 1,000 shares *
John A. Bertrand Common Stock 67,700 shares(2) *
Glen R. Bomberger Common Stock 181,240 shares(2) 1.20%
Russell G. Cleary Common Stock 36,000 shares(4) *
Leander W. Jennings Common Stock 2,000 shares(5) *
Ronald E. Massa Common Stock 13,164 shares(2) *
Robert J. O'Toole Common Stock 547,600 shares(2) 3.63%
Dr. Agnar Pytte Common Stock 2,000 shares *
W. David Romoser Common Stock 48,155 shares(2) *
Donald J. Schuenke Common Stock 3,000 shares *
Arthur O. Smith(6) -- -- --
Bruce M. Smith(6) -- -- --
All 24 Directors, Nominees and Executive Officers
as a Group Common Stock 1,194,643 shares(2) 7.91%
</TABLE>
- ----------------
* Represents less than one percent.
SICO COMPANY STOCK
<TABLE>
<CAPTION>
AMOUNT AND NATURE OF PERCENT OF
NAME TYPE OF STOCK BENEFICIAL OWNERSHIP(1) CLASS
---- ------------- ----------------------- ----------
<S> <C> <C> <C>
Arthur O. Smith Common Stock 119,095 shares(3) 7.18%
Bruce M. Smith Common Stock 19,637 shares(3) 1.18%
All 24 Directors, Nominees and Officers as a
Group Common Stock 138,732 shares 8.36%
</TABLE>
- ----------------
(1) Except as otherwise noted, all securities are held with sole voting and sole
dispositive power.
(2) Includes 515,800, 164,800, 30,400, 56,500, 12,400 and 1,014,300 shares of
Common Stock subject to options exercisable on or before March 1, 1997,
respectively for Messrs. O'Toole, Bomberger, Romoser, Bertrand and Massa and
for all directors and executive officers as a group. Please refer to the
Option Grants and Option Exercise Tables for additional stock option
information.
(3) See also "Principal Stockholders." As of December 31, 1996, Mr. Bruce M.
Smith beneficially owned 16,837 shares of the outstanding capital stock of
SICO, which shares are held in a grantor trust which can be amended or
revoked by him at any time (but for which he does not have voting or
dispositive power), and his wife beneficially owned 2,800 shares of SICO as
sole custodian for the benefit of the issue of Mr. Smith. He disclaims that
any of the foregoing interests in the capital stock of SICO constitute
beneficial ownership of any common stock of the Company.
(4) Mr. Cleary has shared voting and shared dispositive power with respect to
his shares of Common Stock, including 11,000 shares of Common Stock which
are held in a charitable foundation as to which Mr. Cleary disclaims any
beneficial ownership.
(5) Mr. Jennings disclaims beneficial ownership with respect to 1,000 shares of
Common Stock for which he has no voting or dispositive powers.
(6) Excludes shares beneficially owned by SICO.
7
<PAGE> 10
EXECUTIVE COMPENSATION
The SUMMARY COMPENSATION TABLE reflects all compensation awarded to, earned
by or paid to each of the Company's five most highly compensated executive
officers, including the chief executive officer, during fiscal year 1996, as
well as all compensation awarded, earned or paid in the two previous fiscal
years.
================================================================================
SUMMARY COMPENSATION TABLE
================================================================================
<TABLE>
<CAPTION>
LONG TERM
ANNUAL COMPENSATION COMPENSATION
- --------------------------------------------------------------------------------------- ------------
AWARDS
OTHER ------------
ANNUAL OPTIONS ALL OTHER
NAME AND COMPENSATION GRANTED COMPENSATION
PRINCIPAL POSITION YEAR SALARY($)(1) BONUS($) ($)(2) (#)(3) ($)(4)
------------------ ---- ------------ -------- ------------ ------------ ------------
<S> <C> <C> <C> <C> <C> <C>
Robert J. O'Toole 1996 575,016 810,000 33,648 64,600 100,159
Chairman, President and 1995 545,016 810,000 34,948 61,400 108,688
Chief Executive Officer 1994 514,992 760,000 33,764 57,800 113,762
Glen R. Bomberger 1996 321,000 310,000 26,769 19,900 41,253
Executive Vice President and 1995 306,000 310,000 25,637 18,900 48,190
Chief Financial Officer 1994 292,008 295,000 25,702 17,800 53,599
W. David Romoser 1996 211,333 160,000 15,715 11,400 20,313
Vice President, Secretary and 1995 201,333 160,000 16,285 10,900 21,341
General Counsel 1994 191,667 150,000 14,460 10,200 22,206
John A. Bertrand 1996 190,000 165,000 18,385 8,500 17,823
President of A. O. Smith 1995 180,000 155,000 17,772 8,100 19,296
Electrical Products Company, 1994 N/A N/A N/A N/A N/A
a division of the Company
Ronald E. Massa 1996 198,750 150,000 14,622 20,600 19,035
President of A. O. Smith 1995 N/A N/A N/A N/A N/A
Automotive Products Company, 1994 N/A N/A N/A N/A N/A
a division of the Company
</TABLE>
===============================================================================
(1) Includes amounts earned during 1996 even if deferred.
(2) Includes amounts of tax reimbursements for the following: Company car,
country club, financial counseling and executive term life insurance
premiums and reimbursement of executive payments for term life insurance
premiums.
(3) See footnote (1) in Option Grants Table.
(4) All Other Compensation includes the amounts of: (a) Company contributions
under the Profit Sharing Retirement Plan (a 401(k) plan) and contributions
under the Supplemental Benefit Plan for the 401(k) plan and (b) the value
of the non-term portion of the premiums paid by the Company (arrived at by
treating the payment as an interest-free loan to the earliest possible date
the payment can be refunded and calculating its present value) for the
benefit of the named executive officers pursuant to the Executive Life
Insurance Plan, a split-dollar insurance plan. The amounts paid in 1996 are
as follows: Mr. O'Toole -- (a) $40,021 and (b) $60,138; Mr.
Bomberger -- (a) $22,342 and (b) $18,911; Mr. Romoser -- (a) $14,709 and
(b) $5,604; Mr. Bertrand -- (a) $13,224 and (b) $4,599; and Mr. Massa --
(a) $13,833 and (b) $5,202.
8
<PAGE> 11
STOCK OPTION GRANTS
The table below reflects the stock option grants made under the 1990
Long-Term Executive Incentive Compensation Plan to the five named executive
officers during 1996.
- --------------------------------------------------------------------------------
OPTION GRANTS TABLE
- --------------------------------------------------------------------------------
Option Grants in 1996
<TABLE>
<CAPTION>
POTENTIAL REALIZABLE VALUE
AT ASSUMED ANNUAL RATES OF
STOCK PRICE APPRECIATION
INDIVIDUAL GRANTS FOR OPTION TERM(2)
- ------------------------------------------------------------------------------------- ---------------------------------
% OF
TOTAL
OPTIONS
OPTIONS GRANTED EXERCISE
GRANTED(1) TO ALL PRICE EXPIRATION 0% 5% 10%
NAME (#) EMPLOYEES ($/SH) DATE ($) ($) ($)
---- ---------- --------- -------- ---------- --- ------------ ------------
<S> <C> <C> <C> <C> <C> <C> <C>
Robert J. O'Toole
Chairman, President and
Chief Executive Officer 64,600 31.34% $24.50 10/08/06 $0 $ 995,345 $ 2,522,412
Glen R. Bomberger 19,900 9.66% $24.50 10/08/06 0 $ 306,615 $ 777,027
W. David Romoser 11,400 5.53% $24.50 10/08/06 0 $ 175,649 $ 445,131
John A. Bertrand 8,500 4.12% $24.50 10/08/06 0 $ 130,966 $ 331,896
Ronald E. Massa 16,500 10.0% $24.50 10/08/06
4,100 $27.00 06/11/06 0 $ 323,847 $ 820,696
------- ------ -- ------------ ------------
Totals 125,000 60.65% N/A N/A $0 $ 1,932,422 $ 4,897,162
======= ====== == ============ ============
All Stockholders
(20,940,521 shares of
Class A Common Stock and Common
Stock) N/A N/A N/A N/A 0 $323,216,942 $815,737,996
Named Executive Officers' % of Total
Stockholders Equity N/A .60% N/A N/A $0 .60% .60%
</TABLE>
- --------------------------------------------------------------------------------
(1) All options were granted under the 1990 Long-Term Executive Incentive
Compensation Plan. The options were granted on 10/08/96 as options to
acquire Common Stock and are first exercisable on 10/08/06. An additional
option to acquire Common Stock was granted on 6/11/96 and is first
exercisable on 6/11/06. All options were granted at the average of market
value on the date of grant and have a 10 year term.
(2) The dollar values in these columns represent assumed rates of appreciation
only, over the 10-year option term, at the 5% and 10% rates of appreciation
set by the Securities and Exchange Commission rules as well as a 0% increase
in value. These amounts are not intended to predict or represent possible
future appreciation of the Company's Common Stock value. Actual gains, if
any, on stock option exercises and Common Stock holdings depend on future
performance of the Company's Common Stock and overall stock market
conditions.
9
<PAGE> 12
OPTION EXERCISES AND YEAR-END VALUES
The table includes information related to options exercised by the five
named executive officers during fiscal year 1996 and the number and value of
options held at the end of the fiscal year.
================================================================================
OPTION EXERCISES AND YEAR-END VALUE TABLE
================================================================================
Aggregated Option Exercises in Fiscal Year 1996,
and December 31, 1996 Option Values
<TABLE>
<CAPTION>
NUMBER OF
SECURITIES UNDERLYING VALUE OF UNEXERCISED
UNEXERCISED OPTIONS IN-THE-MONEY OPTIONS AT
AT DECEMBER 31, 1996 (#) DECEMBER 31, 1996 ($)(1)
SHARES ACQUIRED VALUE ---------------------------- ----------------------------
NAME ON EXERCISE(#) REALIZED($) EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
---- --------------- ----------- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
Robert J. O'Toole
Chairman, President and
Chief Executive Officer 0 $0 515,800 64,600 $7,908,871 $347,225
Glen R. Bomberger 0 $0 164,800 19,900 $2,587,545 $106,963
W. David Romoser 0 $0 30,400 11,400 $ 116,688 $ 61,275
John A. Bertrand 0 $0 56,500 8,500 $ 794,932 $ 45,688
Ronald E. Massa 0 $0 12,400 20,600 $ 68,513 $100,475
</TABLE>
================================================================================
(1) Based on the difference between the option exercise price and the closing
price on the New York Stock Exchange of $29.875 for the Common Stock on
December 31, 1996.
================================================================================
PENSION PLAN TABLE(1)
================================================================================
<TABLE>
<CAPTION>
YEARS OF SERVICE(3)
-------------------------------------------------
REMUNERATION(2) 10 20 25 30 35
- --------------- ------- ------- ------- -------- --------
<C> <C> <C> <C> <C> <C>
150,000 $22,074 $44,149 $55,186 $ 66,223 $ 77,261
175,000** 23,467 47,261 59,159 71,056 82,953
200,000** 25,960 51,357 66,994 80,672 94,350
225,000** 28,453 57,412 72,567 88,026 103,484
250,000** 30,844 63,219 80,386 97,552 114,719
275,000** 32,193 66,494 84,874 102,754 120,000*
300,000
and above** 32,430 67,070 85,369 103,668 120,000*
</TABLE>
================================================================================
* Maximum annual benefit payment in 1996 is $120,000.
** Maximum allowable salary that can be used in benefit calculation through 1993
is $235,840 and in 1994, 1995 and 1996 is $150,000.
10
<PAGE> 13
(1) The Pension Plan Table shows estimated annual benefits payable to an
executive officer upon retirement under the A. O. Smith Retirement Plan,
assuming retirement at December 31, 1996, at age 65 and based upon the final
compensation and years of service set forth in the Table. Benefit amounts
were computed on a straight-life annuity basis.
(2) The compensation covered by the Plan is based on the average of the highest
5 consecutive years of annual compensation out of the last 10 years prior to
retirement. The amount included in the calculation of compensation, as
reflected in the Summary Compensation Table, is Salary. Compensation covered
by the Plan does not include Bonus, Other Annual Compensation, Long Term
Compensation or All Other Compensation amounts.
(3) Messrs. O'Toole, Bomberger, Romoser, Bertrand and Massa had 33, 36, 4, 29
and 19 years of service, respectively, at year-end.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
The directors who served as members of the Personnel and Compensation
Committee during fiscal year 1996 were Tom H. Barrett, Russell G. Cleary and
Arthur O. Smith.
Mr. Arthur O. Smith is an executive officer and a director of SICO. During
1996, the Company provided SICO consulting services, office space, directors',
officers' and group insurance coverage and other miscellaneous services. The
Company was reimbursed by SICO in the amount of $118,164 for the Company's costs
relating to such services. Mr. Arthur O. Smith is a director of the Company and
served on the Personnel and Compensation Committee of the Company in 1996. Mr.
Glen R. Bomberger, an executive officer and a director of the Company, is also a
director and vice president-finance of SICO and served as a member of the
Compensation Committee of SICO. Mr. Bruce M. Smith, a director of the Company,
is also an executive officer and director of SICO.
BOARD PERSONNEL AND COMPENSATION COMMITTEE REPORT
ON EXECUTIVE COMPENSATION
The Personnel and Compensation Committee (the "Committee") of the Board of
Directors is responsible for establishing an executive compensation program and
for administering the executive compensation policies and plans of the Company.
The Committee also determines the amount of compensation which the Company's
chief executive officer and other executive officers receive annually.
The Committee consists of three members, each of whom is an outside
director of the Company. This report was prepared by the Committee to provide
the Company's stockholders with a summary of its executive compensation policies
and practices.
The Committee has two primary objectives relating to the Company's
executive compensation program. The first is to recruit and retain high quality
executive leadership which is committed to achieving the current and long term
successful and profitable operations of the Company's businesses. The other is
to maintain an incentive compensation program which links executive pay to the
Company's return on investment.
In order to achieve these objectives, the Committee provides an executive
compensation program competitive with other comparably sized manufacturing
companies. The Committee believes that return on investment currently provides
the best measure of performance because it closely correlates the benefits to
the stockholders with the financial incentives for the executives. The Committee
has established ranges for financial incentives based upon return on investment,
with smaller incentive payments for a modest return on investment and larger
incentive payments for greater returns.
11
<PAGE> 14
The Company's executive compensation program consists of three components:
base salary, short term incentive (bonus) compensation and long term incentive
(stock options) compensation. In determining the executive compensation
practices, the Committee compares the Company's executive compensation program
with other companies' compensation programs for executives with similar
management responsibilities. The companies surveyed include manufacturing
businesses of similar size and the companies reflected in the Dow Auto Index,
one of the comparables used in the Company's Performance Graph. The Committee
annually reviews executive compensation data bases and also from time to time
uses independent compensation consultants for purposes of evaluating and
reviewing the Company's executive compensation program.
The Committee has designated certain executives, including the chief
executive officer ("CEO"), for compensation under the executive compensation
program in accordance with the performance criteria and standards described
below.
BASE SALARY
The Committee establishes competitive salary ranges for the executive
officers, generally above the median level of the salary ranges in the survey
referred to above. In addition, the Committee reviews each executive's
performance and accomplishments during the prior year as well as experience and
service with the Company in determining the annual base salary level for the
executive within the applicable salary range. In 1996, this methodology was
followed in establishing base salaries for the executive officers.
SHORT TERM INCENTIVE COMPENSATION
Short term incentive compensation is provided under the Executive Incentive
Compensation Plan ("EICP"). The EICP, consistent with the Company's philosophy
of linking compensation to the Company's return on investment, provides an
opportunity for executives to earn a cash bonus, the amount of which is based
upon the Company's and/or the operating unit's return on investment. Each year
the Committee sets minimum and maximum financial objectives for each of the
business units and the corporation. Achievement of these financial objectives by
the business or corporate units determines the amount of the Incentive
Compensation Fund available for the award of individual executive bonuses.
Incentive compensation, while predicated on the executive's unit meeting
its financial objective, is also based upon achievement of strategic objectives
established each year for the executive. In determining the amount of the
incentive compensation award to be paid to an individual executive, the
Committee considers the executive's scope of responsibility, contributions to
profit improvement and attainment of the individual's strategic objectives.
Approximately half of the incentive compensation award distributed to the
individual executive is based on the return on investment of the executive's
business unit and is formula-based between maximum and minimum target
achievement. The other half of the award is based upon accomplishment of the
executive's strategic objectives, such as development of personnel, planning,
maintenance of product leadership, continuous improvement programs and product
and process research and development.
The maximum amount of incentive compensation payable to an executive during
any year is 200% of base salary. In order to be eligible for incentive
compensation, executives are required to enter into annual contracts (standard
incentive plan contracts required for all plan participants) which obligate them
to remain in the employment of the Company for the year.
During 1996, the Company had its third best return on investment in its
history and most of the operating units achieved satisfactory levels of return
on investment. Accordingly, the Committee made incentive compensation awards to
the participating executives based on the factors described above.
12
<PAGE> 15
In order to preserve the compensation awards paid to the CEO and other
executive officers pursuant to the EICP as qualified performance based
compensation under Section 162(m) of the Internal Revenue Code of 1986, as
amended, and the deductibility of these payments to the Company, the Committee
has recommended to the Board of Directors that it submit the EICP to the
shareholders for approval. The Committee recommends a vote for approval of the
EICP. A discussion of the EICP and the proposal is found in another part of this
proxy statement.
LONG TERM INCENTIVE COMPENSATION
The Committee utilizes the shareholder approved 1990 Long Term Executive
Incentive Compensation Plan ("LTEICP") as another key component in carrying out
the Company's philosophy of linking the executive compensation program to the
stockholders' interests. The LTEICP consists of stock options which are granted
annually to the executives at the current market price of the stock on the date
of the grant. The size of the option grant to the executive is established at a
level commensurate with the median level of grants for the executive's position
as reported in the aforementioned survey data and studies by independent
compensation consultants. Pursuant to the LTEICP, executives enter into standard
plan contracts each year which reflect the specific terms of the stock option
grants and terms of forfeiture should the executive leave the employment of the
Company.
CEO COMPENSATION
The Committee, in establishing the 1996 compensation program for the Chief
Executive Officer, Robert J. O'Toole, employed the methodology and surveys
previously described in this report. In setting Mr. O'Toole's base salary for
1996, the Committee reviewed his accomplishments during the prior year,
experience, service with the Company and determined to position it above the
median level of salaries of chief executive officers of similar sized
manufacturing companies. Mr. O'Toole's bonus compensation for 1996 was directly
related to the Company's return on investment earned by the Company and
reflected Committee set minimum and maximum objectives. The maximum amount of
bonus compensation payable to Mr. O'Toole is 200% of base salary. The Committee
made stock option grants to Mr. O'Toole under the LTEICP consistent with the
methodology utilized in making grants to the other participating executives.
CONCLUDING REMARKS
The Committee reviewed executive compensation during 1996 and concluded
that the stockholders' interests were well served by the executive compensation
program. The Committee will continue to monitor and evaluate its executive
compensation program and make any adjustments determined to be appropriate. The
Committee has and intends to preserve the deductibility of executive
compensation paid by the Company in accordance with the provisions of Section
162(m) of the Internal Revenue Code of 1986, as amended.
PERSONNEL & COMPENSATION COMMITTEE
Tom H. Barrett, Chairman
Russell G. Cleary, Member
Arthur O. Smith, Member
13
<PAGE> 16
PERFORMANCE GRAPH
The graph below shows a five year comparison of the cumulative shareholder
return on the Company's common stock with the cumulative total return of
companies on the S&P 500 Composite Index and the Dow Automotive Index (without
tire and rubber), both of which are published indexes.
[LINE GRAPH]
Comparison of Five Year Cumulative Total Return
From December 31, 1991 to December 31, 1996
<TABLE>
<CAPTION>
MEASUREMENT PERIOD A.O. SMITH S&P 500 DOW AUTO W/O TIRE
(FISCAL YEAR COVERED) CORPORATION COMPOSITE INDEX & RUBBER
<S> <C> <C> <C>
12/31/91 100.00 100.00 100.00
12/31/92 218.80 107.62 128.40
12/31/93 421.40 118.50 168.60
12/31/94 294.10 120.00 148.40
12/31/95 255.30 165.20 182.30
12/31/96 366.90 203.01 207.09
</TABLE>
COMPLIANCE WITH SECTION 16(a) OF THE
SECURITIES EXCHANGE ACT
Section 16(a) of the Securities Exchange Act of 1934 requires the Company's
directors and executive officers, and persons who own more than ten percent of a
registered class of the Company's equity securities, to file reports of
ownership and changes in ownership with the Securities and Exchange Commission
and the New York and American Stock Exchanges. Executive officers, directors and
greater than ten percent shareholders are required by SEC regulations to furnish
the Company with copies of all Section 16(a) Forms 3, 4 and 5 which they file.
Based solely on its review of the copies of such forms received by the
Company and written representations from certain reporting persons during fiscal
year 1996, the Company believes that all filing requirements applicable to its
executive officers, directors and greater than ten percent beneficial owners
were met.
14
<PAGE> 17
AMENDMENTS TO AND RESTATEMENT OF
THE EXECUTIVE INCENTIVE COMPENSATION PLAN
GENERAL
The Executive Incentive Compensation Plan (the "Plan") was adopted by the
Board of Directors in 1975 and approved by stockholders in 1976. The Plan as
amended from time to time, has been in effect since 1976 and its predecessor
plan had been in effect from 1961 to 1976.
The Board of Directors and the Personnel and Compensation Committee of the
Board have and intend to preserve the deductibility of executive compensation
paid by the Corporation under the Plan in accordance with the provision of
Section 162(m) of the Internal Revenue Code of 1986, as amended. This Code
provision, which was enacted in 1993, and the regulations thereunder require
stockholders' approval of the Plan at least every five (5) years. Accordingly,
the Board of Directors is seeking shareholders' approval of the Plan. The text
of the Plan is set forth on Exhibit A hereto and the description which appears
herein is qualified in its entirety by reference to such text.
VOTE REQUIRED
The affirmative vote of a majority of the votes of the shares of Class A
Common Stock and Common Stock outstanding and entitled to vote at the meeting is
required for approval of the Plan. Refer to the General Information Section on
page 1 of the proxy statement for a more detailed discussion of the vote
required. SICO, which on the Record Date had the right to vote approximately 76%
of the votes outstanding of the Class A Common Stock and Common Stock has
advised the Company that it will vote all such shares for approval of the Plan.
Accordingly, approval of the Plan is assured. The Board of Directors recommends
that stockholders vote FOR approval of the Plan.
PURPOSE OF THE PLAN
The purpose of the Plan is to provide additional compensation as incentive
to key top management employees upon whose efforts the success and profitability
of the Corporation or its subsidiaries is dependent and to enhance the
Corporation's ability to attract and retain outstanding employees.
FEATURES OF THE PLAN
Under the Plan, the Personnel and Compensation Committee (hereinafter "the
Committee") of the Board of Directors, comprised of three directors who are
"disinterested persons" and "outside directors" as defined, respectively, by
Rule 16b-3 under the Securities and Exchange Act of 1934 and Section
162(m)(4)(c) of the Internal Revenue Code as amended, administers the Plan
(including full authority to interpret its provisions). The Committee
establishes each year a Performance Goal(s) for each of the divisional,
subsidiary and corporate units to measure performance for bonus purposes under
the Plan. The Performance Goals have and could include return on investment,
return on performance assets, sales growth, cash flow and other objectives as
determined by the Committee. The unit is measured against the Performance
Goal(s) in establishing the amount of the incentive compensation fund for the
unit.
The amount of each incentive compensation fund is allocated to individuals
participating in such fund in part on the proportion his earnings bear to the
earnings of all participants in such fund, the unit's financial accomplishment
and the unit's and the individual's achievement of strategic objectives and the
discretion of the
15
<PAGE> 18
Committee. The total incentive allocation to any participant under the Plan
shall not exceed an amount equal to 200% of the participant's base salary for
the year.
INCENTIVE CONTRACTS
Each participant, to be eligible to participate, is required to enter into
an agreement at the beginning of each year which obligates him to remain
employed during the entire year in order to receive incentive compensation. Cash
awards are payable in a lump sum as soon as practical after the end of the year
in which the bonus is earned.
TAX CONSEQUENCES
The Corporation is advised of the following tax consequences respecting
payment of awards under the Plan. Cash bonuses will be ordinary income to the
participant subject to tax in the year paid. The Corporation is entitled to a
deduction in the same amount.
ELIGIBLE PARTICIPANTS
In 1996, executive positions occupied by 18 persons (of whom 9 were
officers) had been designated by the Committee to participate in the Plan. All
of the individuals named in the tabulation under "Remuneration of Directors and
Officers" except non-employee directors are eligible to participate in the Plan.
If approved by the stockholders, the Plan will be effective for the fiscal year
which commenced January 1, 1997.
APPOINTMENT OF INDEPENDENT AUDITORS
The Board of Directors of the Company has appointed Ernst & Young LLP,
Certified Public Accountants, as the Company's independent auditors for 1997.
The action of the Board of Directors was taken upon the recommendation of its
Audit Committee.
Although not required to be submitted to a vote of the stockholders, the
Board of Directors believes it appropriate to obtain stockholder ratification of
the Board's action in appointing Ernst & Young LLP as the Company's independent
auditors. Should such appointment not be ratified, the Board of Directors will
reconsider the matter. A representative of Ernst & Young LLP is expected to be
present at the annual meeting of stockholders and available to respond to
appropriate questions and he will have the opportunity to make a statement if he
desires to do so.
STOCKHOLDER PROPOSALS
The Company has received proposals from two stockholders who have informed
the Company of their intentions to present the proposed resolutions at the
annual stockholders meeting. Mr. John J. Gilbert, 29 East 64th Street, New York,
New York 10021-7043, has submitted a proposed resolution to separate the
position of chairman and president. Mr. Gilbert is the owner of 100 shares of
Common Stock and 200 shares of Class A Common Stock of the Company, and he
serves as co-trustee with respect to 200 shares of Class A Common Stock of the
Company. The Adrian Dominican Sisters, 1257 East Siena Heights Drive, Adrian,
Michigan 49221, have submitted a proposed resolution concerning executive
compensation review. The Adrian Dominican Sisters are the owners of 100 shares
of Common Stock of the Company.
16
<PAGE> 19
The proposed resolutions and the statements in support thereof is presented
below as received from the stockholders. The Board of Directors has recommended
votes against both stockholder proposals for the reasons discussed in the
Company's responses.
STOCKHOLDER PROPOSAL
TO SEPARATE THE POSITION
OF CHAIRMAN AND PRESIDENT
RESOLVED, the stockholders of A. O. Smith Corporation, assembled in annual
meeting in person and by proxy, hereby request that the by-laws be amended to
read: Any two or more offices, may be held by the same person, except that the
Chairman and President and the Corporate Secretary and the Treasurer shall not
be held by the same person.
REASONS
Corporations are too big for any one man to hold the office of the Chairman
and President.
One should be the Chairman and Chief Executive Officer and another the
President and Chief Operating Officer.
We believe splitting the job of Chairman-President, as we suggest, makes
for better decentralization of management and more shareholder protection in
administration of business over a long period of time.
If you agree, please mark your proxy for this resolution; otherwise it is
automatically cast against it, unless you have marked to abstain.
THE BOARD OF DIRECTORS AND MANAGEMENT DO NOT AGREE WITH THE ABOVE
PROPOSAL AND RECOMMEND A VOTE AGAINST IT FOR THE FOLLOWING REASONS:
Combining the positions of chairman, president and chief executive officer
has facilitated the ability of the Board to operate effectively and efficiently.
A principal role of the chairman is to propose the general agenda for the Board
of Directors' meetings from among the many operational, administrative and
strategic issues facing the Company on a day to day basis. The agenda provides a
framework for discussion without limiting consideration of other matters by the
Board. The Company and its stockholders benefit by permitting the Board to
interact directly and consistently with the person among them most knowledgeable
about the Company and about management's vision for the Company's future.
The offices of Corporate Secretary and Treasurer are not currently held by
the same person. The proposal does not state a reason for the request that the
by-laws be amended to prohibit both these offices being held by the same person.
There are no compelling reasons to adopt such an amendment and there is merit
for reserving to the Board of Directors the authority to elect one person to
fill both positions in appropriate circumstances.
For all these reasons, the Board of Directors and Management recommend a
vote AGAINST this stockholder proposal.
17
<PAGE> 20
STOCKHOLDER PROPOSAL CONCERNING EXECUTIVE
COMPENSATION REVIEW
WHEREAS: We believe financial, social and environmental criteria should all
be taken into account in setting compensation packages for corporate officers.
Public scrutiny of executive compensation is intensifying, with serious concerns
being expressed about the widening chasm between salaries of top corporate
officers, U.S. employees and workers in low wage countries. Concerns include:
- In 1995 Pearl Meyer and Partners reported that CEO compensation packages
at large corporations increased 23% to an average of $4.37 million. That
is $2,100 an hour or 183 times the average U.S. worker's 1995 hourly
earnings according to the Council in International and Public Affairs.
- As CEO salaries soared in 1995, U.S. private sector worker pay and
benefits inched up just 2.8%, the lowest increase since the Department of
Labor created the employment cost index in 1980.
- Executives of companies with Mexican operations often make several
thousand times the pay of their Mexican employees. In 1994, Ford's CEO
Alexander Trotman made 2,003 times the annual pay of an average Ford
employee in Mexico. Allied Signal's CEO Lawrence Bossidy's compensation
package of $8.4 million in 1995 was more than the company's total annual
Mexican payroll of $7.8 million for approximately 3,800 workers.
- Our Company's Chairman, President and Chief Executive Officer received a
total compensation package of $1,560,052 in 1995. In March 1995, the
average Mexican maquiladora worker's salary averaged between $32 and $54
per week. This salary does not even provide purchasing power sufficient
for workers to meet their families' immediate needs.
- Our company needs to address the implications of paying high executive
salaries and poverty wages to workers in developing nations. The
situation in Mexico is illustrative of conditions in other developing
countries. Consequences of paying widely divergent compensation levels
might include decreased worker commitment, poor labor-management
relations and harm to A. O. Smith's public image. We believe our company
should adopt a policy of paying a sustainable wage, providing enough
purchasing power for workers to support themselves and their families.
Bristol-Myers Squibb and Proctor & Gamble have established a living wage
policy for their global operations.
RESOLVED: Shareholders request that the Board institute a special Executive
Compensation Review and prepare a report available to shareholders by October
1997, summarizing the results and recommended changes. The review shall cover
pay, benefits, perks, stock options and special arrangements in the compensation
packages for all top officers.
The review will include:
1. Ways to link our company's executive compensation more closely to
financial, social and environmental performance with proposed criteria.
2. Comparison of compensation packages for company officers with the lowest
and average wages for company employees in the U.S. and with three low
wage countries, including Mexico.
3. Whether a cap should be placed on compensation packages for officers to
prevent our company from paying excessive compensation.
18
<PAGE> 21
THE BOARD OF DIRECTORS AND MANAGEMENT DO NOT AGREE WITH THE ABOVE
PROPOSAL AND RECOMMEND A VOTE AGAINST IT FOR THE FOLLOWING REASONS:
We believe that adoption of the Proposal is unnecessary since much of the
information sought is available to stockholders annually by virtue of the
Securities and Exchange Commission's rules on executive compensation disclosure.
These rules require that the Corporation's proxy statement specifically address
each of the items in the Proposal (i.e., "pay, benefits, perks, stock options
and special arrangements").
The proposed Executive Compensation Review and the preparation of a
separate report to stockholders is unnecessary because the Company already has
an executive compensation review and discloses the basis for forms and amounts
of executive compensation annually in the Company's proxy statement. The
proponent seeks to link executive compensation more closely to financial
performance, yet the Company's executive compensation is already directly and
strongly linked to financial performance.
Further, the proponent requests linking executive compensation more closely
to environmental and social corporate performance. The Board of Directors is
sensitive to environmental and social concerns, and believes the executive
officers and the Company are addressing these concerns appropriately. The
Company has values statements and policies regarding the environment,
harassment, and discrimination and other important social matters, which are
disseminated to all employees and monitored for compliance.
The Board of Directors believes that the basis under which A. O. Smith's
executives are compensated and the manner in which it is reported are
appropriate and does not recommend changes in its executive compensation
practices.
For all these reasons, the Board of Directors and Management recommend a
vote AGAINST this stockholder proposal.
OTHER BUSINESS
Management is not aware of any matters other than those stated above which
may be presented for action at the meeting, but should any matter requiring a
vote of the stockholders arise, it is intended that proxies solicited will be
voted in respect thereof in accordance with the discretion of the person or
persons voting the proxies.
DATE FOR STOCKHOLDER PROPOSALS
Proposals of stockholders intended to be presented at the 1998 annual
meeting of stockholders must be received by the Company no later than November
4, 1997, to be included in the materials for the 1998 meeting.
April 21, 1997
EVEN IF YOU PLAN TO ATTEND THE MEETING, PLEASE COMPLETE, DATE AND SIGN THE
ENCLOSED PROXY AND MAIL IT PROMPTLY IN THE ENCLOSED ENVELOPE. IF YOU ATTEND THE
MEETING YOU MAY REVOKE YOUR PROXY AND VOTE YOUR SHARES IN PERSON.
19
<PAGE> 22
EXHIBIT A
A. O. SMITH CORPORATION
EXECUTIVE INCENTIVE COMPENSATION PLAN
AMENDED AND RESTATED AS OF JANUARY 1, 1997
I. PURPOSE
The purpose of the A. O. Smith Corporation Executive Incentive Compensation
Plan is to provide additional compensation as an incentive to key executives
upon whose efforts the continued successful and profitable operations of A. O.
Smith Corporation and its subsidiaries and affiliates are dependent and to
insure the continued availability of their full or part-time services to the
Company.
II. DEFINITIONS
A. "Code" -- The Internal Revenue Code of 1986, as amended from time to
time.
B. "Committee" -- The Personnel and Compensation Committee of the Board of
Directors of the Company, which shall consist of not less than two
directors, each of whom is a "disinterested person" within the meaning
of Rule 16b-3 under the Securities Exchange Act of 1934, as amended,
and each of whom is an "outside director" within the meaning of Section
162(m)(4)(c) of the Code.
C. "Company" -- A. O. Smith Corporation.
D. "Company Profit" -- Consolidated net after-tax earnings of the total
Company for the particular period (excluding special items of income
and expense as determined by the Committee).
E. "Company Return on Investment" -- Shall be defined by the Committee
prior to establishing it as a Performance Goal for a Performance
Period.
F. "Corporate Headquarters" -- The general offices of the Company and
other organizational units of the Company as designated by the
Committee.
G. "Corporate Headquarters Incentive Compensation Fund" -- The amount set
aside or otherwise available for the payment of incentive compensation
under the Plan pursuant to Section III.C.2.
H. "Division" -- Participating Employers and divisions of the Company
selected by the Committee.
I. "Division Incentive Objective(s)" -- The Division's financial goal(s)
as determined each year by the Committee, may include but is not
limited to one or more Performance Goals.
J. "Division Incentive Compensation Fund" -- The amount set aside or
otherwise available for the payment of incentive compensation under
the Plan, pursuant to Section III.C.1.
K. "Earnings" -- The Participant's annual base salary, as of the beginning
of each Year; except that, if an employee becomes a Participant during
the Year, his Earnings shall be that portion of his annual base salary
attributable to the period after the date on which he becomes a
Participant.
L. "Participant" -- Any employee of the Company or a Participating
Employer who at any time during the Year occupies a position designated
by the Committee as participating in the Plan at the beginning of each
Year, or at the time such position is established if later than the
beginning of the Year. The Committee's designation of a particular
position to be participating in any Year shall not require the
Committee to designate such position to be participating in another
Year.
A-1
<PAGE> 23
M. "Participating Employer" -- Any subsidiary or affiliate of the Company
designated by the Committee as being included in the Plan.
N. "Performance Goals" -- Any one or more of the financial objectives
established by the Committee including, but not limited to, return on
investment, return on sales, sales growth, profit growth, earnings per
share growth, market price appreciation of the Company's shares and
cash flow.
O. "Performance Period" -- Any period for which a Performance Goal or
Goals have been established which, in the absence of any designation to
the contrary by the Committee, shall be the fiscal year of the Company.
P. "Plan" -- The A. O. Smith Corporation Executive Incentive Compensation
Plan.
Q. "Strategic Objectives" -- Those objectives as may be established by the
Committee such as, but not restricted to, development of personnel,
planning, maintenance of product leadership, continuous improvement
programs and product and process research and development.
III. CREATION OF INCENTIVE COMPENSATION FUND
A. Each year the Committee shall establish Performance Goals for the
Corporate Headquarters and each Division. Normally, a Company Return on
Investment objective will be set for the Corporate Headquarters and a
Performance Goal will be set for each Division; provided, however, that the
Committee, in its sole discretion, may use one or more other Performance Goals
as the objectives for any or all of the Participants. The Committee shall
establish such objectives before the first day of the Year (or such later time
as may be permitted under Section 162(m) of the Code or the regulations
thereunder without causing the compensation to be payable as the result of the
achievement of such objectives to cease to be treated as compensation that is
deductible under such Section 162(m)).
B. The minimum and maximum Company Return on Investment and Division
Incentive Objective(s), together with such other Performance Goals as the
Committee may determine, will be used in the establishment of the incentive
compensation fund. The objectives may vary for each Division as determined by
the Committee. In setting the objectives required for establishment of the
incentive compensation fund, the Committee shall have broad discretion and take
into consideration the Company's long-range objectives, specific circumstances
and opportunities and such other factors it may determine to be appropriate.
C. The incentive compensation funds (which shall be certified by the
Treasurer of the Company to the Committee) shall be calculated each year for
each Division and the Corporate Headquarters, provided that a Division's
performance and the Company's Return on Investment, respectively, are equal to
or more than the minimum objectives determined by the Committee pursuant to
Section III.A as being required for the establishment of the incentive
compensation fund.
1. Division Incentive Compensation Fund
Utilizing a method determined in advance by the Committee in
accordance with Section III.A, the actual performance for each Division
shall be compared with the minimum Division Incentive Objective(s), with
the result being expressed as a percentage which shall be multiplied by the
aggregate Participants' Earnings to determine the amount set aside by the
Company for a Division.
A-2
<PAGE> 24
2. Corporate Headquarters Incentive Compensation Fund
Utilizing a method determined in advance by the Committee in
accordance with Section III.A, a calculation shall be made appropriate to
the Performance Goal to determine the amount set aside by the Company for
the Corporate Headquarters. For example, if Company Return on Investment is
the Performance Goal, the difference between the minimum and the actual
Company Return on Investment shall be expressed as a percentage which shall
be multiplied by the aggregate Participants' Earnings to determine the
amount set aside by the Company for the Corporate Headquarters.
D. Committee Certification
As soon as is reasonably practicable after the end of each Year or other
Performance Period, the Committee shall certify in writing as to the
satisfaction of the requisite Performance Goal or Goals if such certification is
required in order to qualify the related compensation for the performance-based
exception provided by Section 162(m)(4)(c) of the Code. Upon such certification,
the incentive compensation funds shall be established.
IV. PAYMENT OF INCENTIVE COMPENSATION FUNDS
Each year, the Committee shall establish the percentage of the Division
Incentive Compensation Fund and Corporate Headquarters Incentive Compensation
Fund, which shall be allocated and paid to each Participant. In determining the
amount of incentive compensation to be paid to a Participant for a Year, the
Committee shall consider, but not be limited to, the unit's results against
Performance Goals, each Participant's scope of responsibility and the evaluation
of a Participant's performance during the Year with respect to his contributions
to the improvement of profit, development of personnel, planning, maintenance of
product leadership and product and process research and development. Any
unallocated amount may be distributed to Participants in future Years.
V. LIMITATION ON INDIVIDUAL INCENTIVE COMPENSATION PAYMENTS
The total incentive compensation allocated to any Participant under the
Plan with respect to a Year shall not exceed an amount equal to 200% of Earnings
for such Year.
VI. CONTRACTS
The eligibility of any Participant to participate in the Plan for any Year
shall be conditioned upon his entering or having entered into a written contract
with the Company or a Participating Employer prior to the beginning of such Year
or prior to his initial participation in this Plan, as the case may be, which
shall obligate the Participant to remain in such employment for a period which
shall not be less than such Year or the portion thereof which will elapse
following the date of his initial participation in the Plan, and shall contain
such other terms and provisions not inconsistent with this Plan as the Committee
in its discretion may deem advisable.
VII. DEATH OF A PARTICIPANT
Each Participant shall have the right to designate a beneficiary to receive
any incentive compensation remaining unpaid at the death of the Participant, and
to specify the time and manner of payment thereof to such beneficiary in
accordance with rules established by the Committee. If no such designation of
beneficiary is delivered by a Participant to the Committee or its
representative, any such incentive compensation remaining
A-3
<PAGE> 25
unpaid at the death of such Participant shall be paid to his legal
representatives at such times and in such manner as if the Participant were
living.
VIII. FORFEITURE
Until such time as the full amount of his incentive compensation has been
actually paid to any Participant, his right to receive any unpaid amount thereof
shall be wholly contingent and shall be forfeited if, prior to payment thereof,
the Participant at any time prior or subsequent to his retirement or termination
of employment by the Company or any Participating Employer shall do any act, or
engage directly or indirectly (whether as owner, partner, officer, employee or
otherwise) in the operation or management of any business which in the judgment
of the Company or such Participating Employer shall be detrimental to or in
competition with the Company, any of its subsidiaries or affiliates.
IX. GENERAL
Neither the establishment of this Plan nor the selection of any employee as
a Participant, nor any contract referred to in Section VI, shall give any
Participant any right to be retained in the employ of the Company or such
Participating Employer; and no Participant, and no person claiming under or
through a Participant, shall have any right or interest in the Plan or any
incentive compensation allocation hereunder unless and until the terms,
conditions and provisions of this Plan affecting such Participant, and those of
any contract between such Participant and the Company (or a Participating
Employer) under this Plan, shall have been complied with as specified. No moneys
or other property of the Company (or a Participating Employer) under this Plan,
whether inchoate, accrued or determined or determinable in amount, shall be
subject to any claim of any creditor of any Participant, nor shall any
Participant or beneficiary have any right or power to alienate, anticipate,
commute, pledge, encumber or assign any incentive compensation fund or incentive
compensation allocation provided for hereunder.
X. ADMINISTRATION; CONSTRUCTION
The Plan shall be administered by the Committee, which shall have full
power and authority to designate Participants, determine the basis upon which
incentive compensation funds are established and awards of incentive
compensation may be made, interpret and administer the Plan and to take any
other action in furtherance of the objectives of the Plan that is not
inconsistent with the express provisions of the Plan. Unless the Committee
expressly determines that an award of incentive compensation to a Participant
need not qualify for the performance-based exception of Section 162(m)(4)(c) of
the Code, the Committee shall take all steps reasonably necessary to ensure that
awards made pursuant to Section IV will qualify for such exception.
XI. AMENDMENTS
The Board of Directors of the Company may from time to time amend, suspend
or terminate, in whole or in part, any or all of the provisions of this Plan,
effective as of the beginning of any Year commencing after the date of adoption
of such action by the Board of Directors; provided, however, that no such action
shall affect the rights of any Participant or the operation of this Plan with
respect to any incentive compensation to which such Participant may have become
entitled hereunder prior to the effective date of such action; and provided
further that shareholder approval of any amendment of the Plan shall also be
obtained if otherwise required by the Code, or any rules promulgated thereunder,
in order to qualify any compensation payable hereunder for the performance-based
exception in Section 162(m)(4)(c) of the Code.
A-4
<PAGE> 26
XII. EFFECTIVE DATE; SHAREHOLDER APPROVAL
This Plan shall be effective upon the adoption of the Plan by the directors
of the Company and shall first apply to incentive compensation payable with
respect to the calendar year 1997; provided, however, that no compensation shall
be paid to any Participant pursuant to the Plan unless the shareholders of the
Company have previously approved the Plan.
A-5
<PAGE> 27
A. O. SMITH CORPORATION
PROXY - COMMON STOCK
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
The undersigned hereby appoints ROBERT J. O'TOOLE, GLEN R. BOMBERGER and
W. DAVID ROMOSER, or any one of them, with full power of substitution, as proxy
or proxies of the undersigned to attend the annual meeting of stockholders of
A. O. Smith Corporation to be held on May 21, 1997, at 8:00 a.m. Eastern Time,
at the Hotel du Point, 11th and Market Streets, Wilmington, Delaware, or at any
adjournment thereof, and there to vote all shares of Common Stock which the
undersigned would be entitled to vote if personally present as specified upon
the following matters and in their discretion upon such other matters as may
properly come before the meeting.
THIS PROXY WHEN PROPERLY EXECUTED WILL BE VOTED IN THE MANNER DIRECTED
HEREIN BY THE UNDERSIGNED. IF NO DIRECTION IS MADE, THIS PROXY WILL BE VOTED
FOR PROPOSALS 1, 2 AND 3 AND AGAINST PROPOSALS 4 AND 5.
DETACH BELOW AND RETURN USING THE ENVELOPE PROVIDED
- --------------------------------------------------------------------------------
A. O. SMITH CORPORATION 1997 ANNUAL MEETING
<TABLE>
<S><C>
1. ELECTION OF DIRECTORS:
1. Russell G. Cleary 2. Leander W. Jennings 3. Dr. Agnar Pytte /__/ FOR all nominees /__/ WITHHOLD AUTHORITY
listed to the left to vote for all
(except as specified nominees listed
below). to the left.
(Instructions: To withhold authority to vote for any individual nominee, write
number(s) of nominee(s) in the box provided to the right. __________________________ ______________________________
2. Proposal to approve the amended and restated A. O. Smith Corporation Executive /__/ FOR /__/ AGAINST /__/ ABSTAIN
Incentive Compensation Plan:
3. Proposal to approve the ratification of Ernst & Young LLP as the independent /__/ FOR /__/ AGAINST /__/ ABSTAIN
auditors of the corporation:
4. Stockholder proposal to separate the positions of Chairman and President: /__/ FOR /__/ AGAINST /__/ ABSTAIN
5. Stockholder proposal concerning executive compensation review: /__/ FOR /__/ AGAINST /__/ ABSTAIN
Address Change? Date ______________________ NO. OF SHARES
MARK BOX /__/
Indicate changes below
_______________________________________________
Signature(s) in Box
Please sign exactly as your name appears on
this proxy. When shares are held by joint
tenants, both should sign. When signing as
attorney, executor, administrator, trustee or
guardian, please give full title as such. If a
corporation, please sign in full corporate name
by President or other authorized officer. If a
partnership, please sign in partnership name by
authorized person.
</TABLE>
45
<PAGE> 28
A. O. SMITH CORPORATION
PROXY - CLASS A COMMON STOCK
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
The undersigned hereby appoints ROBERT J. O'TOOLE, GLEN R. BOMBERGER and
W. DAVID ROMOSER, or any one of them, with full power of substitution, as proxy
or proxies of the undersigned to attend the annual meeting of stockholders of
A. O. Smith Corporation to be held on May 21, 1997, at 8:00 a.m. Eastern Time,
at the Hotel du Point, 11th and Market Streets, Wilmington, Delaware, or at any
adjournment thereof, and there to vote all shares of Class A Common Stock which
the undersigned would be entitled to vote if personally present as specified
upon the following matters and in their discretion upon such other matters as
may properly come before the meeting.
THIS PROXY WHEN PROPERLY EXECUTED WILL BE VOTED IN THE MANNER DIRECTED
HEREIN BY THE UNDERSIGNED. IF NO DIRECTION IS MADE, THIS PROXY WILL BE VOTED
FOR PROPOSALS 1, 2 AND 3 AND AGAINST PROPOSALS 4 AND 5.
DETACH BELOW AND RETURN USING THE ENVELOPE PROVIDED
- --------------------------------------------------------------------------------
A. O. SMITH CORPORATION 1997 ANNUAL MEETING
<TABLE>
<S><C>
1. ELECTION OF DIRECTORS:
1. Tom H. Barrett 2. Glen R. Bomberger 3. Robert J. O'Toole /__/ FOR all nominees /__/ WITHHOLD AUTHORITY
4. Donald J. Schuenke 5. Arthur O. Smith 6. Bruce M. Smith listed to the left to vote for all
(except as specified nominees listed
below). to the left.
(Instructions: To withhold authority to vote for any individual nominee, write
number(s) of nominee(s) in the box provided to the right. __________________________ ______________________________
2. Proposal to approve the amended and restated A. O. Smith Corporation Executive /__/ FOR /__/ AGAINST /__/ ABSTAIN
Incentive Compensation Plan:
3. Proposal to approve the ratification of Ernst & Young LLP as the independent /__/ FOR /__/ AGAINST /__/ ABSTAIN
auditors of the corporation:
4. Stockholder proposal to separate the positions of Chairman and President: /__/ FOR /__/ AGAINST /__/ ABSTAIN
5. Stockholder proposal concerning executive compensation review: /__/ FOR /__/ AGAINST /__/ ABSTAIN
Address Change? Date ______________________ NO. OF SHARES
MARK BOX /__/
Indicate changes below
_______________________________________________
Signature(s) in Box
Please sign exactly as your name appears on
this Proxy. When shares are held by joint
tenants, both should sign. When signing as
attorney, executor, administrator, trustee or
guardian, please give full title as such. If a
corporation, please sign in full corporate name
by President or other authorized officer. If a
partnership, please sign in partnership name by
authorized person.
</TABLE>
46
<PAGE> 29
A. O. SMITH CORPORATION
VOTING INSTRUCTIONS TO THE MARSHALL & ILSLEY TRUST COMPANY
TRUSTEE OF THE A. O. SMITH PROFIT
SHARING RETIREMENT PLAN
THIS VOTING INSTRUCTION IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
The undersigned hereby directs the Marshall & Ilsley Trust Company,
Trustee of the A. O. Smith Profit Sharing Retirement Plan to vote the shares of
A. O. Smith Corporation Common Stock allocated to the undersigned's account in
said Trust at the Annual Meeting to be held on May 21, 1997 and all
adjournments.
VOTING INSTRUCTIONS TO THE TRUSTEE: IF NO CHOICES ARE MARKED BELOW, THE
TRUSTEE WILL VOTE FOR PROPOSALS 1, 2 AND 3 AND AGAINST PROPOSALS 4 AND 5.
DETACH BELOW AND RETURN USING THE ENVELOPE PROVIDED
- --------------------------------------------------------------------------------
A. O. SMITH CORPORATION 1997 ANNUAL MEETING
<TABLE>
<S><C>
1. ELECTION OF DIRECTORS:
1. Russell G. Cleary 2. Leander W. Jennings 3. Dr. Agnar Pytte /__/ FOR all nominees /__/ WITHHOLD AUTHORITY
listed to the left to vote for all
(except as specified nominees listed
below). to the left.
(Instructions: To withhold authority to vote for any individual nominee, write
number(s) of nominee(s) in the box provided to the right. __________________________ ______________________________
2. Proposal to approve the amended and restated A. O. Smith Corporation Executive /__/ FOR /__/ AGAINST /__/ ABSTAIN
Incentive Compensation Plan:
3. Proposal to approve the ratification of Ernst & Young LLP as the independent /__/ FOR /__/ AGAINST /__/ ABSTAIN
auditors of the corporation:
4. Stockholder proposal to separate the positions of Chairman and President: /__/ FOR /__/ AGAINST /__/ ABSTAIN
5. Stockholder proposal concerning executive compensation review: /__/ FOR /__/ AGAINST /__/ ABSTAIN
Address Change? Date ______________________ NO. OF SHARES
MARK BOX /__/
Indicate changes below
_______________________________________________
Signature(s) in Box
Please sign exactly as your name appears on
this proxy. When shares are held by joint
tenants, both should sign. When signing as
attorney, executor, administrator, trustee or
guardian, please give full title as such. If a
corporation, please sign in full corporate name
by President or other authorized officer. If a
partnership, please sign in partnership name by
authorized person.
</TABLE>
47
