UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 8-K
CURRENT REPORT
Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
Date of Report (Date of earliest event reported): January 23, 2007
EATON CORPORATION
(Exact name of registrant as specified in its charter)
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| Ohio
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1-1396
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34-0196300 |
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(State or other jurisdiction
incorporation) of
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(Commission
File Number)
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(I.R.S. Employer
Identification No.) |
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Eaton Center
Cleveland, Ohio
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44114 |
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| (Address of principal executive offices)
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(Zip Code) |
(216) 523-5000
(Registrant’s telephone number, including area code)
Check the appropriate box below if the Form 8-K is intended to
simultaneously satisfy the filing obligation of the registrant under any of the
following provisions:
o Written communications pursuant to Rule 425 under the Securities Act
(17 CFR 230.425)
o Soliciting material pursuant to Rule 14a-12 under the Exchange Act
(17 CFR 240.14a-12)
o Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange
Act (17 CFR 240.14d-2(b))
o Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange
Act (17 CFR 240.13e-4(c))
Item 1.01 Entry into a Material Definitive Agreement.
2007 Actions Under Incentive Compensation Plans
On January 23, 2007, the Compensation and Organization Committee (the “Committee”) of the Board of
Directors of the registrant, at the request of the Chairman and Chief Executive Officer, adopted a
limit on the amount that may be paid to the Chairman and Chief Executive Officer under the
registrant’s Executive Strategic Incentive Plan I (the “ESI Plan I”) for the 2003-2006 award
period. Except for the limit, the amount of the 2003-2006 award, which is expressed in the form of
Phantom Share Units, is determined by achievement against specific Cash Flow Return on Gross
Capital and Earnings Per Share growth targets, weighted equally, appreciation or depreciation in
the market value of the registrant’s common shares and the individual participant’s personal
performance. The award will be paid in cash.
The
Committee took this action at the request of the Chairman and Chief
Executive Officer following several
discussions, which began in early 2006. In these discussions, the Chairman and Chief Executive
Officer highlighted for the Committee the impact of the difficult and unique actions the Company
implemented during 2006 as part of its Excel 07 Program. This Program was initiated in the first
quarter of 2006 to address resource levels and operating performance in businesses which
underperformed in 2005 and businesses in which markets were expected to soften beginning in 2006
and extending into 2007. He noted that these actions had adversely impacted a significant number
of Eaton associates and locations, including plant closings, employee reductions and
restructurings. In light of these difficult and unique Company actions, he expressed the view that
his award for this period under the ESI Plan I should be no greater than his award for the
2002-2005 award period. At its January 23, 2007 meeting, the Committee took up the Chairman and
Chief Executive Officer’s request on this matter and agreed to
reduce his
2003-2006 award to the same level as his 2002-2005 award. All of the registrant’s
executive officers participate in the ESI Plan I; however, the limit described in this report
applies only to the Chairman and Chief Executive Officer. A copy of the ESI Plan I is filed as
Exhibit 10(b) to the registrant’s Form 10-K Annual Report for the year ended December 31, 2002.
The Committee has responsibility for setting the total compensation for the Chairman and Chief
Executive Officer. The Committee consists of five independent non-employee directors and is advised
by independent compensation consultants retained and directed by the Committee. The Committee
meets in executive session (with no members of the Company’s management in attendance) to review
the comprehensive market data for the Chairman and Chief Executive Officer’s position and to
establish an annual total compensation plan for the Chairman and Chief Executive Officer. Other
than the matter described above, the recommendations by the Chairman and Chief Executive Officer
are not typically part of the formal process of establishing compensation for the Chairman and
Chief Executive Officer.