ACUITY BRANDS, INC.

1170 Peachtree Street, NE

 Suite 2400

Atlanta, Georgia 30309

 

NOTICE OF ANNUAL MEETING OF STOCKHOLDERS

To be held January 10, 2008

 

 

 

By order of the Board of Directors,

 

 

HELEN D. HAINES

 

Vice President and Secretary

 

November 19, 2007

 

 

 

TABLE OF CONTENTS

 

ACUITY BRANDS, INC.

1170 Peachtree Street, NE

Suite 2400

Atlanta, Georgia 30309

 

PROXY STATEMENT

 

The Board of Directors of Acuity Brands, Inc. (“We,” “Our,” the “Company,” or “Acuity Brands”) are furnishing this information in connection with the solicitation of proxies for the annual meeting of stockholders to be held on January 10, 2008. We have enclosed with this proxy statement a proxy and a copy of the Company’s annual report to stockholders, which includes the annual report on Form 10-K filed with the Securities and Exchange Commission (the “SEC”) for the fiscal year ended August 31, 2007. We expect to begin mailing this proxy statement and the enclosed proxy on November 19, 2007.

 

All properly executed written proxies, and all properly completed proxies submitted by telephone or Internet, that are delivered pursuant to this solicitation will be voted at the meeting in accordance with directions given in the proxy, unless the proxy is revoked prior to completion of voting at the meeting.

 

Only owners of record of shares of common stock of the Company at the close of business on November 12, 2007, the record date, are entitled to vote at the meeting, or at any adjournments or postponements of the meeting. Each owner of record on the record date is entitled to one vote for each share of common stock held. There were 42,405,013 shares of common stock issued and outstanding on the record date.

 

QUESTIONS RELATING TO THIS PROXY STATEMENT

 

What is a proxy?

 

It is your legal designation of another person to vote the stock you own. That other person is called a proxy. If you designate someone as your proxy in a written document, that document also is called a proxy or a proxy card. We have designated three of our officers as proxies for the 2007 Annual Meeting of Stockholders. These three officers are Vernon J. Nagel, Kenyon W. Murphy, and Helen D. Haines.

 

What is a proxy statement?

 

It is a document that SEC regulations require us to give you when we ask you to sign a proxy card designating Vernon J. Nagel, Kenyon W. Murphy and Helen D. Haines as proxies to vote on your behalf.

 

What is the difference between a stockholder of record and a stockholder who holds stock in street name?

 

If your shares are registered in your name with our transfer agent, The Bank of New York Mellon, you are a stockholder of record.

 

If your shares are held in the name of your broker or bank, your shares are held in street name.

 

What is the record date and what does it mean?

 

The record date for the 2007 Annual Meeting is November 12, 2007. The record date is established by the Board as required by the Delaware General Corporation Law (“Delaware Law”). Owners of record of common stock at the close of business on the record date are entitled to receive notice of the meeting and vote at the meeting and any adjournments or postponements of the meeting.

 

What different methods may I use to vote?

 

If you are a stockholder of record, you may provide your voting instructions by the Internet or by telephone by following the instructions provided on the proxy card or by mail on the enclosed proxy card using the accompanying envelope. If you hold shares through a bank or broker you should refer to the information the bank or broker

provides about your voting options. At any time before the proxy is voted at the annual meeting, you may revoke it by giving written notice to the Secretary of the Company or by voting in person at the meeting.

 

What if I sign and return my proxy, but do not provide voting instructions?

 

Proxies that are properly delivered, and not revoked, will be voted as specified on the proxy card. If no direction is specified on proxies signed and returned, proxies will be voted for the election of the nominees for director listed below, for approval of the amended and restated Acuity Brands, Inc. Long-Term Incentive Plan, for approval of the Acuity Brands, Inc. 2007 Management Compensation and Incentive Plan, and for ratification of the appointment of the Company’s independent registered public accounting firm for fiscal year 2008 as stated on the proxy card.

 

How do I vote as a stockholder of record?

 

As a stockholder of record, you may vote by one of the four methods described below:

 

By the Internet. You may give your voting instructions by the Internet as described on the proxy card. This method is also available to stockholders who hold shares in the BuyDirect Plan, in the Employee Stock Purchase Plan, or in a 401(k) plan sponsored by the Company or Zep Inc. The Internet voting procedure is designed to verify the voting authority of stockholders. You will be able to vote your shares by the Internet and confirm that your vote has been properly recorded. Please see your proxy card for specific instructions.

 

By Telephone. You may give your voting instructions using the toll-free number listed on the proxy card. This method is also available to stockholders who hold shares in the BuyDirect Plan, in the Employee Stock Purchase Plan, or in a 401(k) plan sponsored by the Company or Zep Inc. The telephone voting procedure is designed to verify the voting authority of stockholders. The procedure allows you to vote your shares and to confirm that your vote has been properly recorded. Please see your proxy card for specific instructions.

 

By Mail. You may sign, date, and mail your proxy card in the postage-paid envelope provided.

 

In Person. You may vote in person at the meeting. Street name holders may only vote in person at the meeting if they have a legal proxy, as described in the following question.

 

How do I vote as a street name stockholder?

 

If your shares are held through a bank or broker, you should receive information from the bank or broker about your specific voting options. If you have questions about voting your shares, you should contact your bank or broker.

 

If you wish to vote in person at the meeting, you will need to bring a legal proxy to the meeting. You must request a legal proxy through your bank or broker.

 

Please note that if you request a legal proxy, any previously executed proxy will be revoked and your vote will not be counted unless you appear at the meeting and vote in person, or legally appoint another proxy to vote on your behalf.

 

What is a quorum?

 

The presence of the holders of a majority of the outstanding shares of common stock entitled to vote at the Annual Meeting, present in person or represented by proxy, is necessary to constitute a quorum. The election inspector appointed for the meeting will tabulate votes cast by proxy and in person at the meeting and determine the presence of a quorum.

 

How are abstentions and broker non-votes counted?

 

Abstentions will be considered as present for purposes of establishing a quorum. If a broker indicates on the proxy that it does not have discretionary authority to vote certain shares on a particular matter (a “broker non-vote”), those shares will be considered as present for purposes of establishing a quorum but not entitled to vote with respect

to that matter. The New York Stock Exchange rules require that at least a majority of outstanding shares vote with respect to items 2 and 3, and broker non-votes are not counted for purposes of this requirement.

 

How are votes tabulated?

 

According to the Company’s By-Laws, each of the proposed items will be determined as follows:

 

Election of Directors: The election of directors will be determined by a plurality of votes cast.

 

All other matters: The voting results of all other matters are determined by a majority of votes cast affirmatively or negatively, except as may otherwise be required by law.

 

How are proxies solicited and what is the cost?

 

We will bear all expenses incurred in connection with the solicitation of proxies. We have engaged The Proxy Advisory Group, LLC to assist with the solicitation of proxies for an estimated fee of $10,000 and reimbursement of certain expenses. We will reimburse brokers, fiduciaries and custodians for their costs in forwarding proxy materials to beneficial owners of common stock. Our directors, officers and employees may solicit proxies by mail, telephone and personal contact. They will not receive any additional compensation for these activities.

 

QUESTIONS AND ANSWERS ABOUT COMMUNICATIONS,
GOVERNANCE, AND COMPANY DOCUMENTS

 

The Board takes seriously its responsibility to represent the interests of stockholders and is committed to good corporate governance. To that end, the Board has adopted a number of policies and processes to ensure effective governance of the Board and the Company.

 

How do I contact the Board of Directors?

 

Stockholders and other interested parties may communicate directly with the Board or the non-management directors by writing to the Chairman of the Governance Committee and with members of the Audit Committee by writing to the Chairman of the Audit Committee, each in care of Corporate Secretary, Acuity Brands, Inc., 1170 Peachtree Street, NE, Suite 2400, Atlanta, Georgia 30309. All communications will be forwarded promptly.

 

Where can I see the Company’s corporate documents and SEC filings?

 

The following governance documents are available on the Company’s website at www.acuitybrands.com under “Corporate Governance.”

 

 

Copies of any of these documents will be furnished to any interested party if requested in writing to Corporate Secretary, Acuity Brands, Inc., 1170 Peachtree Street, NE, Suite 2400, Atlanta, Georgia 30309.

 

Our SEC filings are available on the Company’s website under “SEC Filings” and “Section 16 Filings.”

 

Our proxy materials and annual report are available on the Company’s website under “Annual Report/Proxy.”

 

How are directors nominated?

 

The Governance Committee, comprised of all of the independent directors, is responsible for recommending to the Board a slate of director nominees for the Board to consider recommending to the stockholders, and for recommending to the Board nominees for appointment to fill a new Board seat or any Board vacancy. To fulfill these responsibilities, the Committee annually assesses the requirements of the Board and makes recommendations to the

Board regarding its size, composition, and structure. In determining whether to nominate an incumbent director for reelection, the Governance Committee evaluates each incumbent director’s continued service in light of the current assessment of the Board’s requirements, taking into account factors such as evaluations of the incumbent’s performance. Directors whose terms expire at the next annual meeting undergo peer and self assessment prior to being nominated for reelection.

 

When the need to fill a new Board seat or vacancy arises, the Committee proceeds by whatever means it deems appropriate to identify a qualified candidate or candidates, which may include engaging an outside search firm. The Committee reviews the qualifications of each candidate, including, but not limited to, the candidate’s experience, judgment, diversity, and skills in such areas as manufacturing and distribution technologies and accounting or financial management. Final candidates are generally interviewed by one or more Committee members. The Committee makes a recommendation to the Board based on its review, the results of interviews with the candidates, and all other available information. The Board makes the final decision on whether to invite a candidate to join the Board. The Board-approved invitation is extended through the Chairman of the Governance Committee and the Chairman of the Board, President, and Chief Executive Officer.

 

Director Nominations by Stockholders. The Governance Committee will consider recommendations for director nominees from stockholders made in writing and addressed to the attention of the Chairman of the Governance Committee, c/o Corporate Secretary, Acuity Brands, Inc., 1170 Peachtree Street, NE, Suite 2400, Atlanta, Georgia, 30309. The Governance Committee will consider such recommendations on the same basis as those from other sources. Stockholders making recommendations for director nominees to the Committee should provide the same information required for nominations by stockholders at an annual meeting, as explained below under “Next Annual Meeting—Stockholder Proposals.”

 

INFORMATION CONCERNING THE BOARD AND ITS COMMITTEES

 

Board and Committee Membership

 

The Board of Directors has delegated certain functions to the Executive Committee, the Audit Committee, the Compensation Committee, and the Governance Committee. The Company’s Statement of Responsibilities of the Committees of the Board contains each Committee’s charter (see “Questions and Answers about Communications, Governance, and Company Documents”). The table below sets forth the current membership of each of the committees:

 

 

 

During the fiscal year ended August 31, 2007, the Board of Directors met six times. All directors attended at least 75% of the total meetings held by the Board and their respective committees during the fiscal year. The Company typically expects that each continuing director will attend the annual meeting of stockholders, absent a valid reason. All of the directors serving at the time of last year’s annual meeting attended the meeting.

At each regular quarterly Board meeting, the Board of Directors meets without management present. Non-management director sessions are led by the Chairman of the Governance Committee.

 

The Executive Committee is authorized to perform all of the powers of the full Board, except the power to amend the By-Laws and except as restricted by Delaware Law. The Executive Committee is called upon in very limited circumstances due to reliance on the other standing committees of the Board and the direct involvement of the entire Board in governance matters. The Committee did not meet during the 2007 fiscal year and acted once by written consent.

 

The Audit Committee is responsible for certain matters pertaining to the auditing, internal control, and financial reporting of the Company, as set forth in the Committee’s report below and in its charter (see “Questions and Answers about Communications, Governance, and Company Documents”). All members of the Committee are independent under the requirements of the SEC and the Sarbanes-Oxley Act of 2002. In addition, the members of the Committee meet the current independence and financial literacy requirements of the listing standards of the New York Stock Exchange. Each quarter, the Audit Committee meets separately with the independent registered public accounting firm, the internal auditors, the corporate compliance officer, and the general counsel, without other management present. The Board has determined that Messrs. Clendenin, Deavenport, and McCullough satisfy the “audit committee financial expert” criteria adopted by the SEC and that each of them has accounting and related financial management expertise required by the listing standards of the New York Stock Exchange. The Committee held seven meetings during the 2007 fiscal year.

 

The Compensation Committee is responsible for certain matters relating to the evaluation and compensation of the executive officers and non-employee directors, as set forth in its charter (see “Questions and Answers about Communications, Governance, and Company Documents “). At each meeting, the Compensation Committee meets privately with an independent compensation consultant without management present. Annually, the Compensation Committee evaluates the performance of the independent consultant in relation to the Committee’s functions and responsibilities. Each member of the Committee is independent under the listing standards of the New York Stock Exchange and is an outside director under Section 162(m) of the Internal Revenue Code (the “Code”) and a non-employee under Section 16(b) of the Securities Exchange Act of 1934, as amended (the “Exchange Act”). The Committee held five meetings during the 2007 fiscal year.

 

The Governance Committee is responsible for reviewing matters pertaining to the composition, organization, and practices of the Board of Directors. The Committee’s responsibilities, as set forth in its charter (see “Questions and Answers about Communications, Governance, and Company Documents “), include recommending Corporate Governance Guidelines, recommending the Code of Ethics and Business Conduct, a periodic evaluation of the Board in meeting its corporate governance responsibilities, a periodic evaluation of individual directors, and recommending to the full Board a slate of directors for consideration by the stockholders at the annual meeting and candidates to fill a new Board position or any vacancies on the Board as explained in greater detail above under “Questions and Answers about Communications, Governance, and Company Documents.” Each member of the Committee is independent under the listing standards of the New York Stock Exchange. The Committee held three meetings during the 2007 fiscal year.

 

Compensation Committee Interlocks and Insider Participation

 

The directors serving on the Compensation Committee of the Board of Directors during the fiscal year ended August 31, 2007 were Ray M. Robinson, Chairman, Peter C. Browning, and Julia B. North. None of these individuals are or ever have been officers or employees of the Company. During the 2007 fiscal year, no executive officer of the Company served as a director of any corporation for which any of these individuals served as an executive officer, and there were no other Compensation Committee interlocks with the companies with which these individuals or the Company’s other directors are affiliated.

 

COMPENSATION OF DIRECTORS

 

Non-Employee Directors

 

We provide each non-employee director with an annual director fee, which includes meeting fees for a specified number of Board and committee meetings. The program is designed to achieve the following goals: compensation should fairly pay directors for work required for a company of Acuity Brands’ size and scope; compensation should align directors’ interests with the long-term interests of stockholders; and the structure of the compensation should be simple, transparent, and easy for stockholders to understand.

 

Annual Director Fees

 

Beginning in January 2007, each non-employee director receives an annual director fee in the amount of $130,000, which includes the meeting fees for the first five Board meetings and the first five meetings attended for each committee, and an additional fee of $5,000 for serving as chairman of a committee. Non-employee directors receive $2,000 for each Board meeting attended in excess of five Board meetings per year and $1,500 for each committee meeting attended in excess of five committee meetings of each committee per year. Fifty percent of the annual fee, or $65,000, is required to be deferred under the terms of the deferred compensation plan described below, and the remaining fees can be deferred at the election of the director.

 

Prior to January 2007, each non-employee director received an annual retainer of $70,000, meeting fees of $2,000 for each Board meeting attended and $1,500 for each committee meeting attended, and an additional fee of $5,000 for serving as the chairman of a committee. Fifty percent of the retainer, or $35,000, was required to be deferred under the terms of the deferred compensation plan, and the remaining fees could be deferred at the election of the director. In addition, each non-employee director received an annual stock option grant as described below.

 

Directors who are employees receive no additional compensation for services as a director or as a member of a committee of our Board.

 

Stock Option Grants

 

Prior to January 2007, we granted each non-employee director stock options for the purchase of 1,500 shares of Acuity Brands common stock annually on the day of the annual meeting of stockholders with an exercise price equal to the fair market value on the grant date. The options became exercisable after one year, remained exercisable for a period of ten years from the grant date, and expired at the earlier of the expiration date or three years following retirement from the Board. Beginning January 2007, the non-employee directors’ plan was amended to provide that no further annual grants of stock options would be made to non-employee directors.

 

In connection with the spin-off of Zep Inc. by Acuity Brands on October 31, 2007, stock options held by directors remained stock options to acquire Acuity Brands common stock and were adjusted in accordance with the non-employee directors’ plan by a conversion ratio for Acuity Brands options in order to preserve the aggregate intrinsic value of the options.

 

Deferred Compensation Plan

 

Non-employee directors are required to defer one-half of their annual director fee and can elect to defer the remaining portion of the annual fee and any chairman or meeting fees pursuant to a deferred compensation plan for non-employee directors. The deferred amounts can be invested in deferred stock units to be paid in shares at retirement from the Board or credited to an interest-bearing account to be paid in cash at retirement from the Board. Dividend equivalents on deferred stock units are credited to the interest-bearing account.

 

The value of the Acuity Brands deferred stock units credited to each director at the date of the spin-off remained in Acuity Brands deferred stock units to be paid at retirement from the Board in Acuity Brands common stock, and the number of deferred stock units was increased using a conversion ratio to maintain the value of the deferred stock units immediately following the spin-off.

Stock Ownership Requirement

 

Each non-employee director has been subject to a stock ownership requirement that requires the director to attain ownership in Acuity Brands common stock valued at two times the expected annual director fee. For purposes of the ownership requirement, deferred stock units are counted toward the ownership requirement. See “Beneficial Ownership of the Company’s Securities.”

 

Director Compensation for Fiscal 2007

 

The following table sets forth information concerning the compensation for fiscal 2007 to our non-employee directors:

 

 

 

 

 

 

BENEFICIAL OWNERSHIP OF THE COMPANY’S SECURITIES

 

The following table sets forth information concerning beneficial ownership of the Company’s common stock as of November 1, 2007, unless otherwise indicated, by each of the directors and nominees for director, by each of the named executive officers, by all directors and executive officers of the Company as a group, and by beneficial owners of more than five percent of the Company’s common stock.

 

 

 

 

 

SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE

 

Directors, officers and persons who beneficially own more than 10% of the Company’s common stock are required by Section 16(a) of the Exchange Act to file reports of ownership and changes in ownership of the Company’s common stock with the SEC, the New York Stock Exchange, and the Company. Based on our review of information received by the Company during the fiscal year, we believe that all required Section 16(a) filings were made on a timely basis.

 

CERTAIN RELATIONSHIPS AND RELATED PARTY TRANSACTIONS

 

There is no family relationship between any of our executive officers or directors, and there are no arrangements or understandings between any of our executive officers or directors and any other person pursuant to which any of them was elected an officer or director, other than arrangements or understandings with our directors or officers acting solely in their capacities as such. Generally, our executive officers are elected annually and serve at the pleasure of our Board of Directors.

 

The Company has transactions in the ordinary course of business with unaffiliated corporations and institutions, or their subsidiaries, for which certain non-employee directors of the Company serve as directors. No directors of the Company serve as executive officers of those companies. Identifying possible related party transactions involves the following procedures in addition to the completion and review of the customary directors and officers questionnaires. The Company annually requests each director to verify and update the following information:

 

 

After the Company compiles a list of all such persons and entities (approximately 3,000) and it has been reviewed and updated, it is distributed within the Company to identify potential transactions through comparison to ongoing transactions, along with payment and receipt information. Transactions are compiled for each person and entity and reviewed for relevancy. Relevant information, if any, is presented to the Board to obtain approval or ratification of the transactions.

 

With respect to those companies having common nonemployee directors with the Company, management believes the directors had no direct or indirect material interest in transactions in which the Company engaged with those companies during the fiscal year.

 

PROPOSALS REQUIRING YOUR VOTE

 

ITEM 1—ELECTION OF DIRECTORS

 

The Board of Directors is responsible for supervising the management of the Company. The Board has determined that all of its members, except Vernon J. Nagel, the Chairman, President, and Chief Executive Officer, have no material relationship with the Company, and are therefore independent, based on the listing standards of the New York Stock Exchange, the categorical standards set forth in the Governance Guidelines (available on the Company’s website at www.acuitybrands.com under “Corporate Governance” and attached as Appendix A), and a finding of no other material relationships.

 

The members of the Board of Directors are divided into three classes serving staggered three-year terms. Directors for each class are elected at the annual meeting of stockholders for the year in which the term for their class expires. The Company’s By-Laws provide that the number of directors constituting the Board shall be determined from time to time by the Board. Currently, the number of directors constituting the Board is fixed at nine with two outstanding vacancies. One vacancy is the result of the decision of Jay M. Davis not to seek reelection at the annual meeting for fiscal year 2006 and the other is due to the resignation of Earnest W. Deavenport, Jr. in connection with the spin-off of Zep Inc. on October 31, 2007

 

The terms for three of our directors, John L. Clendenin, Robert F. McCullough and Neil Williams, expire at this annual meeting. Two of these directors, Messrs. McCullough and Williams, are nominees at the annual meeting. If elected, Messrs. McCullough and Williams will hold office for three-year terms expiring at the annual meeting for fiscal year 2010 or until their successors are elected and qualified.

 

Our Governance Guidelines provide that directors will not be nominated for election after their 72nd birthday and are expected to offer to resign as of the annual meeting following their 72nd birthday. For this reason, Mr. Clendenin has not been nominated for reelection. However, in order that the Board of Directors and the Company may continue to benefit from Mr. Clendenin’s leadership following the spin-off by the Company of Zep Inc. in October 2007, the Board has appointed Mr. Clendenin, effective as of the 2007 Annual Meeting, to fill the vacancy that was created by Mr. Deavenport’s resignation. Mr. Clendenin will complete Mr. Deavenport’s term, which expires at the 2008 annual meeting.

 

In November 2007, the Board reduced the number of directors constituting the Board to seven, effective as of the 2007 Annual Meeting.

 

The persons named in the accompanying proxy, or their substitutes, will vote for the election of the nominees listed hereafter, except to the extent authority to vote for any or all of the nominees is withheld. No proposed nominee is being elected pursuant to any arrangement or understanding between the nominee and any other person or persons. All nominees have consented to stand for election at this meeting. If any of the nominees become unable or unwilling to serve, the persons named as proxies in the accompanying proxy, or their substitutes, shall have full discretion and authority to vote or refrain from voting for any substitute nominees in accordance with their judgment.

Director Nominees for Terms Expiring at the 2010 Annual Meeting

 

All of the director nominees listed below are currently directors of the Company. Following is a brief summary of each director nominee’s business experience, other public company directorships held, and membership on the standing committees of the Board of Directors of the Company.

 

 

Directors with Terms Expiring at the 2007, 2008 or 2009 Annual Meetings

 

The directors listed below will continue in office for the remainder of their terms in accordance with the By-Laws of the Company.

 

 

ITEM 2—APPROVAL OF THE AMENDED AND RESTATED ACUITY BRANDS, INC.
LONG-TERM INCENTIVE PLAN

 

In October 2007, the Board of Directors adopted the amended and restated Acuity Brands, Inc. Long-Term Incentive Plan (the “Amended Plan”) for the benefit of directors, officers, and other key employees of the Company and its subsidiaries (the “Participants”). Stockholder approval of the Amended Plan, including the performance measures which may be utilized thereunder, is sought:

 

 

Approval of the Amended Plan requires the affirmative vote of a majority of the shares of Acuity Brands’ outstanding common stock present, in person or by proxy, and entitled to vote at the annual meeting; provided that at least a majority of shares of Acuity Brands’ outstanding common stock is voted on this proposal. If the Amended Plan is approved by Acuity Brands’ stockholders, no further awards will be made under the current Acuity Brands, Inc. Nonemployee Directors’ Stock Option Plan (the “Directors’ Plan”). If the Amended Plan is not approved by Acuity Brands’ stockholders, the existing Long-Term Incentive Plan (the “Plan”) will continue in effect without the amendments described below and the Directors’ Plan will continue in effect in accordance with its terms.

 

The material provisions of the Amended Plan are summarized below. This summary is qualified in its entirety by reference to the full text of the Amended Plan, which is attached as Exhibit A.

 

Purposes of the Amended Plan

 

The general purposes of the Amended Plan are to provide additional incentives to the Participants, whose substantial contributions are essential to the continued growth and profitability of the Company’s business, to strengthen the commitment of the Participants to the Company and its subsidiaries, to further motivate the Participants to perform their assigned responsibilities diligently and skillfully, and to attract and retain competent and dedicated individuals whose efforts will result in the long-term growth and profitability of the Company and, over time, appreciation in the market value of its stock.

 

Nature of the Amendments

 

The Amended Plan preserves the framework provided by the Long-Term Incentive Plan approved by stockholders in December 2003. The amendments incorporated in the Amended Plan modify the Plan in the following ways: (a) increasing the shares authorized for issuance under the Plan by 2,500,000 shares to 13,600,000 shares (of which 7,325,912 shares have been issued and 2,813,787 shares are subject to outstanding awards as of November 2, 2007); (b) permitting awards to be made to non-employee directors; and (c) amending the listed performance measures.

 

Description of the Amended Plan

 

The Amended Plan will continue to be administered by a committee of two or more non-employee members of the Board (the “Committee”). The Committee currently designated by the Board to administer the Amended Plan is the Compensation Committee. The Amended Plan is a flexible plan that will provide the Committee discretion to fashion the terms of the following types of awards (described below): Stock Options (both Incentive Stock Options and Nonqualified Stock Options), Restricted Stock, Restricted Stock Units, Performance Units, Performance Shares, and Stock Appreciation Rights (individually and collectively, “Awards”). Awards to directors will be in the form of Nonqualified Stock Options, Restricted Stock, or Restricted Stock Units.

 

The Committee will (a) select those Participants to whom Awards will be granted, and (b) determine the type, size and terms and conditions of Awards, including the exercise price per Share for each Stock Option and the restrictions or performance criteria relating to Restricted Stock, Restricted Stock Units, Performance Units,

Performance Shares, and Stock Appreciation Rights. The Committee may also delegate to the Chief Executive Officer the authority to grant Stock Options or Awards from a pool of shares established by the Committee. The Committee will administer, construe, and interpret the Amended Plan.

 

The maximum number of shares of the Company’s common stock (“shares”) that may be awarded under the Amended Plan is 13,600,000. The maximum number of incentive stock options that may be issued under the Amended Plan is 1,000,000. Not more than an aggregate of 50% of the 13,600,000 shares authorized under the Amended Plan may be issued or transferred in connection with the award of Restricted Stock, Restricted Stock Units, Performance Shares, and Performance Units. Shares awarded or subject to purchase under the Amended Plan that are not delivered or purchased, or are reacquired by the Company as a result of forfeiture or termination, expiration or cancellation of an award, will again be available for issuance under the Amended Plan. With respect to Shares used to exercise an Option or for tax withholding, the Committee will, in its discretion and in accordance with applicable law, determine whether to include such Shares in determining the maximum number of Shares that may be issued under the Amended Plan

 

In the event of any “Change in Capitalization” (as defined in the Plan), the Committee will in an appropriate and equitable manner adjust the maximum number and class of Shares with respect to which Awards may be granted, the number and class of Shares which are subject to outstanding Awards (subject to limitations imposed under Sections 422 and 424 of the Code in the case of Incentive Stock Options), and the purchase price therefor, if applicable.

 

Of the 13,600,000 shares to be authorized under the Amended Plan, 11,100,000 shares were approved by stockholders in December 2003. As of November 2, 2007 there were:

 

 

Options and related exercise prices and restricted stock units were converted in accordance with a conversion formula in connection with the spin-off of Zep Inc. on October 31, 2007. Shares available for grant were not converted. The incremental 2,500,000 shares represents 2,000,000 shares for which the Board committed in December 2003 to seek additional shareholder approval for issuance under the Plan and 500,000 shares in replacement of the Directors’ Plan, which has 182,185 shares available for grant. It is anticipated that the 2,500,000 shares being proposed for approval will provide sufficient shares for awards to be issued during fiscal years 2008 through 2013.

 

The Amended Plan will terminate on October 25, 2017. The Board may terminate or amend the Amended Plan at any time (other than with respect to the protections afforded to optionees and grantees upon a Change in Control), unless such amendment or termination will adversely affect outstanding Stock Options or Awards. However, to the extent required by the rules of the exchange on which the Shares are listed or applicable law, no amendment will be effective unless approved by stockholders.

 

Awards Issuable Under the Amended Plan

 

Stock Options. Both Incentive Stock Options and Nonqualified Stock Options may be granted pursuant to the Amended Plan. The maximum number of Shares subject to Stock Options and Stock Appreciation Rights that, in the aggregate, may be granted under the Amended Plan to any Participant during a fiscal year of the Company is 500,000 Shares. Options may be granted based upon the achievement of Performance Measures (described below) as may be determined by the Committee. All Stock Options granted under the Amended Plan will have an exercise price per Share equal to at least the fair market value of a Share on the date the Stock Option is granted. The

maximum term for all Stock Options granted under the Amended Plan is ten years. Stock Options are nontransferable other than by will or the laws of descent and distribution and during an optionee’s lifetime may be exercised only by the optionee or his guardian or legal representative. The Committee may provide that the Option may be transferred, in whole or in part, without consideration, by written instrument signed by the Optionee, to any members of the immediate family of the Optionee (i.e., spouse, children, and grandchildren), any trusts for the benefit of such family members or any partnerships whose only partners are such family members. If all or part of the Option is transferred, the transferee’s rights under the Option shall be subject to the same restrictions and limitations with respect to the Option as the Optionee. Stock Options are exercisable at such time and in such installments as the Committee may provide (but not less than a year from the grant date, subject to the Committee’s authority to accelerate vesting) at the time the Stock Option is granted. The Committee may accelerate the exercisability of any Stock Option at any time, subject to any limitations required by Section 162(m) of the Code. The purchase price for Shares acquired pursuant to the exercise of an Option must be paid in full upon exercise, as determined by the Committee in its discretion or as provided in the agreement, in cash, by check, by transferring Shares to the Company, by attesting to ownership of Shares upon such terms and conditions as may be determined by the Committee, by net settlement in the manner determined by the Committee, or, except as limited by applicable law, by receipt of funds from a designated broker. No fractional shares shall be issued upon the exercise of an option. The terms and conditions of the Stock Options relating to their treatment upon termination of the optionee’s employment will be determined by the Committee at the time the Stock Options are granted. The Amended Plan prohibits the Company from reducing the exercise price of outstanding options without receiving stockholder approval, other than in connection with a change in capitalization (such as the spin-off).

 

Upon a Change in Control, all outstanding Stock Options under the Amended Plan on the date of a Change in Control will become immediately and fully exercisable. The Committee, in its discretion, may terminate the Stock Options upon a Change in Control, provided that at least 30 days prior to the Change in Control, the Committee notifies the optionee that the Stock Options will be terminated and provides the optionee, at the election of the Committee, either (i) a cash payment in the amount equal to the excess, if any, of (x)(A) in the case of a Nonqualified Stock Option, the greater of (1) the Fair Market Value (as defined in the Amended Plan), on the date preceding the date of cancellation, of the Shares subject to the Option or portion thereof cancelled, or (2) the Adjusted Fair Market Value of the Shares subject to the option or portion thereof cancelled, or (B) in the case of Incentive Stock Options, the Fair Market Value, at the time of cancellation, of the Shares subject to the Option or portion thereof cancelled, over (y) the aggregate purchase price for such Shares under the Option, or (ii) the right to exercise all Stock Options (including, the Stock Options vested as a result of the Change in Control) immediately prior to the Change in Control.

 

Restricted Stock and Restricted Stock Units. The aggregate maximum number of Shares that may be awarded under a Restricted Stock Award, a Restricted Stock Unit, and a Performance Share or Unit Award to each Participant during any fiscal year is 100,000 Shares. Restricted Stock and Restricted Stock Units may be, but are not required to be, granted based upon the achievement of the Performance Measures (described below) to the Incentive Plan as may be determined by the Committee. The terms of a Restricted Stock Award, including the restrictions and conditions (including performance conditions) placed on such Shares and the time or times at which such restrictions will lapse (generally no sooner than one year for performance-based awards and three years for time-vesting awards, including graded vesting), will be determined by the Committee at the time the Award is made. The agreements evidencing Awards of Restricted Stock shall set forth the terms and conditions of such Awards upon a grantee’s termination of employment. Unless the Committee provides otherwise in the agreements, all restrictions on outstanding Shares of Restricted Stock will lapse upon a Change in Control.

 

The Committee will determine the terms of Restricted Stock Units, including the restrictions, terms and conditions of the Award, whether the Award will be paid in cash, Shares or a combination of the two, and whether the Award is payable at vesting, termination of employment, or such other date. The Committee will also determine at the time of the Award when restrictions on the Award will lapse. The agreements evidencing Awards of Restricted Stock Units will set forth the terms and conditions of such Awards upon a grantee’s termination of employment. Unless the Committee provides otherwise in the agreements, all restrictions on outstanding Shares of Restricted Stock Units will lapse upon a Change in Control. The Committee may determine at the time an Award of Restricted Stock Units is granted that hypothetical dividends paid on Restricted Stock Units may be paid to the grantee or

deferred. Deferred dividends (together with any interest accrued thereon) will be paid upon the lapsing of restrictions on Restricted Stock Units or forfeited upon the forfeiture of Restricted Stock Units.

 

Performance Units and Performance Shares. Each Performance Unit will represent one Share and payments in respect of vested Performance Units will be made in cash, Shares, or Shares of Restricted Stock or any combination of the foregoing, as determined by the Committee. Performance Shares are awarded in the form of Shares of Restricted Stock. The vesting of Performance Units and Performance Shares is based upon the level of achievement of the performance measure or performance measures specified by the Committee, selected from the performance measures described below, over the Performance Cycle (as such term is defined in the Amended Plan). The performance measure may relate to the performance of the Company or its subsidiaries or business units, or any combination of the foregoing. Performance measures and the length of the Performance Cycle for Performance Units and Performance Shares will be determined by the Committee at the time the Award is made. The agreements evidencing Awards of Performance Units and Performance Shares will set forth the terms and conditions of such Awards, including those applicable in the event of the grantee’s termination of employment.

 

After the applicable Performance Cycle (as such term is defined in the Amended Plan) has ended, the Committee may adjust the achieved performance levels to exclude the effects of unusual charges or income items or other events, such as acquisitions or divestitures, which distort the financial results for the Performance Cycle; provided that with respect to named executive officers, the Committee shall exclude items with the effect of increasing the Award payable if such items constitute “extraordinary” or “unusual” events or items under generally accepted accounting principles or are other significant unusual events or items. The Committee will also adjust performance calculations to exclude the unanticipated effect on financial results of changes in tax laws or regulations. The Committee is allowed to decrease the Award otherwise payable if the financial performance during the Performance Cycle justifies such adjustment, regardless of the extent to which the applicable performance measure was achieved. The agreement evidencing the granting of an Award may provide the Committee with the right to revise performance levels and Awards payable if unforeseen events occur which have a substantial effect on financial results and which in the Committee’s judgment make the application of the performance levels unfair; provided that for named executive officers such changes must be made in a manner not inconsistent with Code Section 162(m).

 

At the time an Award is made, the Committee will determine the total number of Performance Shares subject to an Award and the time or times at which the Performance Shares will be issued to the grantee. In addition, the Committee will determine (a) the time or times at which the awarded but not issued Performance Shares will be issued to the grantee and (b) the time or times at which awarded and issued Performance Shares will become vested in or forfeited by the grantee, in either case based upon the attainment of specified performance objectives within the Performance Cycle. At the time the Award of Performance Units is made, the Committee may determine that hypothetical dividends be paid or deferred on the Performance Units issued. Deferred dividends (together with any interest accrued thereon) will be paid upon the lapsing of restrictions on Performance Units and forfeited upon the forfeiture of Performance Units. Upon a Change in Control, unless the Committee provides otherwise in the agreement evidencing the Award, (1) with respect to Performance Units, the grantee will (a) become vested in a percentage of Performance Units as determined by the Committee at the time of the Award of such Performance Units and as set forth in the agreement and (b) be entitled to receive in respect to all Performance Units which become vested as a result of a Change in Control, a cash payment within ten (10) days after the Change in Control equal to the product of the Adjusted Fair Market Value of a Share multiplied by the number of Performance Units which become vested, or (2) with respect to Performance Shares, all restrictions will lapse immediately on all or a portion of the Performance Shares as determined by the Committee at the time of the Award of such Performance Shares and as set forth in the agreement.

Performance Measures. If Awards granted or issued under the Amended Plan are intended to qualify under the performance-based compensation provisions of Section 162(m) of the Code, the performance measure(s) to be used for purposes of such Awards will be chosen by the Committee from among the following (which may relate to the Company or a business unit, division or subsidiary of the Company) as listed in Exhibit A to the Amended Plan:

 

 

The Committee can establish other performance measures for Awards granted to participants who are not named executive officers, or for Awards granted to named executive officers that are not intended to qualify under the performance-based compensation provisions of Section 162(m) of the Code. In making the Award, the Committee may provide for specific adjustments that will be made to the performance measures for the Award for the performance period. In measuring performance, the Committee may adjust the Company’s financial results as indicated above.

 

Stock Appreciation Rights (“SARs”). SARs may be granted pursuant to the Amended Plan. All SARs granted under the Amended Plan will have an exercise price per Share equal to at least the Fair Market Value of a Share on the date of grant. The maximum term for all SARs granted under the Amended Plan is ten years. SARs are nontransferable other than by will or the laws of descent and distribution and during a grantee’s lifetime may be exercised only by the grantee or his guardian or legal representative. The Committee may provide that the SAR may be transferred, in whole or in part, without consideration, by written instrument signed by the Grantee, to any members of the immediate family of the Grantee (i.e., spouse, children, and grandchildren), any trusts for the benefit of such family members or any partnerships whose only partners are such family members. If all or part of the SAR is transferred, the transferee’s rights under the SAR shall be subject to the same restrictions and limitations with respect to the SAR as the Grantee. SARs are exercisable at such time and in such installments as the Committee may provide in the agreement and payment will be in the form of cash or stock, as the Committee determines, equal in value to the excess of the Fair Market Value on the exercise date over the exercise price of the SAR. The Committee may accelerate the exercisability of any SAR at any time, subject to any limitations required by Section 162(m) of the Code. The terms and conditions of the SAR relating to their treatment upon termination of the grantee’s employment will be determined by the Committee at the time the SARs are granted. Upon a Change in Control, all outstanding SARs on the date of a Change in Control will become immediately and fully exercisable and the grantee will automatically receive a cash payment in the amount equal to the excess, if any, of the Fair Market Value, on the date of the Change in Control, of the Shares subject to the SAR over the aggregate exercise price of the Shares under the SAR. The Committee may, in its discretion, modify outstanding SARs; however, no modification of a SAR shall adversely alter or impair any rights or obligations under the Agreement without the

grantee’s consent and the Committee is not permitted to materially modify or reduce the exercise price of any outstanding SAR.

 

Federal Income Tax Consequences

 

The following is a brief summary of the current U.S. Federal income tax consequences of grants or awards made under the Amended Plan.

 

Stock Options. An optionee will not recognize taxable income upon grant or exercise of an Incentive Stock Option. However, upon the exercise of an Incentive Stock Option, the excess of the fair market value of the Shares received over the exercise price of the Shares subject to the Stock Option will be treated as an adjustment to alternative minimum tax purposes. Any dividends paid on Shares will be taxable as dividend income in the taxable year in which the dividend is received. The Company and its subsidiaries will not be entitled to any business expense deduction with respect to the grant or exercise of an Incentive Stock Option, except as discussed below.

 

In order for the exercise of an Incentive Stock Option to qualify for favorable tax treatment, the optionee generally must be an employee of the Company, parent, or a subsidiary (within the meaning of Section 422 of the Code) from the date the Incentive Stock Option is granted through a date within three months before the date of exercise. In the case of an optionee who is disabled, the three-month period for exercise following termination of employment may be extended to one year. In the case of an optionee’s death, the time for exercising Incentive Stock Options after termination of employment and the holding period for stock received pursuant to the exercise of the Incentive Stock Options are waived.

 

If all of the requirements for Incentive Stock Option treatment are met and the optionee has held the Shares for at least two years after the date of grant and for at least one year after the date of exercise, upon disposition of the Shares by the optionee, the difference, if any, between the sales price of the Shares and the exercise price of the Stock Option will be treated as long-term capital gain or loss. If the optionee does not hold the Shares in accordance with the holding period rules set forth above, the optionee will recognize ordinary income at the time of the disposition of the Shares, generally in an amount equal to the excess of the fair market value of the Shares at the time the Stock Option was exercised over the exercise price of the Stock Option. The ordinary income recognized by an optionee upon the disposition of the Shares has been determined by the IRS not to constitute wages for purposes of applicable withholding tax requirements. The balance of the gain realized, if any, will be long-term or short-term capital gain, depending upon whether or not the Shares were sold more than one year after the Stock Option was exercised. If the optionee sells the Shares prior to the satisfaction of the holding period rules but at a price below the fair market value of the Shares at the time the Stock Option was exercised, the amount of ordinary income will be limited to the amount realized on the sale over the exercise price of the Stock Option. The Company and its subsidiaries will be allowed a business expense deduction to the extent the optionee recognizes ordinary income.

 

An optionee to whom a Nonqualified Stock Option is granted will recognize no income at the time of the grant of the Stock Option. Upon exercise of a Nonqualified Stock Option, an optionee will recognize ordinary income in an amount equal to the excess of the Fair Market Value of the Shares on the date of exercise over the exercise price of the Stock Option. If the exercise complies with applicable withholding requirements, the Company and its subsidiaries will be entitled to a business expense deduction in the same amount and at the same time as the optionee recognizes ordinary income. Upon a subsequent sale or exchange of Shares acquired pursuant to the exercise of a Nonqualified Stock Option, the optionee will have taxable gain or loss, measured by the difference between the amount realized on the disposition and the tax basis of the shares (generally, the amount paid for the Shares plus the amount treated as ordinary income at the time the Stock Option was exercised).

 

SARs. A grantee will not recognize any income upon the grant of a SAR. A grantee will recognize income taxable as ordinary income (subject to income tax withholding) upon exercise of a SAR equal to the amount of cash paid or Shares received from the Company upon such exercise, and the Company will be entitled to a corresponding deduction.

 

Restricted Stock. A grantee will not recognize taxable income at the time of the grant of a restricted stock award, and the Company will not be entitled to a tax deduction at such time, unless the grantee makes an election to be taxed at the time such restricted stock award is granted. If such election is not made, the grantee will recognize

taxable income at the time the restrictions lapse in an amount equal to the excess of the Fair Market Value of the Shares at such time over the amount, if any, paid for such Shares. The amount of ordinary income recognized by a grantee by making the above-described election or upon the lapse of the restrictions is deductible by the Company as compensation expense. In addition, a grantee receiving dividends with respect to Shares subject to a restricted stock award for which the above-described election has not been made and prior to the time the restrictions lapse will recognize taxable compensation (subject to income tax withholding), rather than dividend income, in an amount equal to the dividends paid and the Company will be entitled to a corresponding deduction.

 

Restricted Stock Units. A grantee will not recognize taxable income upon the grant of a Restricted Stock Unit. Upon payment for a Restricted Stock Unit, the grantee will recognize compensation taxable as ordinary income in an amount equal to the cash paid and/or the Fair Market Value of Shares delivered and the Company will be entitled to a corresponding deduction.

 

Performance Awards. A grantee will not recognize taxable income upon the grant of Performance Shares or Performance Units, and the Company will not be entitled to a tax deduction at such time. Upon the settlement of a performance award, the grantee will recognize compensation taxable as ordinary income (and subject to income tax withholding) in an amount equal to the cash paid and the Fair Market Value of the Shares delivered to the grantee, and the Company will be entitled to a corresponding deduction.

 

Withholding Taxes. The Amended Plan provides that in satisfaction of the federal, state and local income taxes and other amounts as may be required by law to be withheld with respect to a Stock Option or Award, the optionee or grantee may make a written election to have withheld a portion of the Shares issuable to him having an aggregate Fair Market Value equal to the Withholding Taxes.

 

Compliance with Section 162(m) of the Code. Section 162(m) of the Code denies an income tax deduction to an employer for certain compensation in excess of $1,000,000 per year paid by a publicly-traded corporation to a named executive officer. Compensation realized with respect to stock options and SARs awarded under the Amended Plan, including upon exercise of a nonqualified stock option or SAR or upon a disqualifying disposition of an incentive stock option, as described above, will be excluded from this deductibility limit if it satisfies certain requirements, including a requirement that the Amended Plan be approved by the Company’s stockholders at the Annual Meeting. In addition, other types of Awards under the Amended Plan may be excluded from this deduction limit if the Awards or the grant of the Awards are conditioned on the achievement of one or more of the performance measures described above, as required by Section 162(m) of the Code. To satisfy the requirements that apply to “performance-based” compensation, those performance measures must be approved by our current stockholders. Approval of the Amended Plan will also constitute approval of those measures.

 

New Plan Benefits

 

The Committee designates employees of the Company and its subsidiaries and directors of the Company as eligible to participate in the Amended Plan. As of the record date, there were approximately 215 eligible employees under the Plan, including three of the named executive officers.

 

The new plan benefits table setting forth benefits for the Amended Plan appears below Item No. 3.

 

THE BOARD OF DIRECTORS RECOMMENDS THAT YOU VOTE FOR ITEM 2, APPROVAL OF THE AMENDED AND RESTATED ACUITY BRANDS, INC. LONG-TERM INCENTIVE PLAN, INCLUDING THE MATERIAL TERMS OF THE PERFORMANCE MEASURES UNDER WHICH CERTAIN AWARDS MAY BE GRANTED.

 

ITEM NO. 3— APPROVAL OF THE ACUITY BRANDS, INC. 2007 MANAGEMENT
COMPENSATION AND INCENTIVE PLAN

 

Subject to approval by the Corporation’s stockholders, the Board of Directors on October 25, 2007 adopted the Acuity Brands, Inc. 2007 Management Compensation and Incentive Plan (the “Incentive Plan”) effective as of September 1, 2007. Stockholder approval of the Incentive Plan is sought in order to qualify the Incentive Plan under Section 162(m) of the Code and to thereby allow the Company to deduct for federal income tax purposes all

compensation paid under the Incentive Plan to named executive officers (generally, the executive officers who would be listed for a fiscal year in the summary compensation table).

 

Approval of the Incentive Plan requires the affirmative vote of a majority of the shares of the Corporation’s outstanding common stock present, in person or by proxy, and entitled to vote at the annual meeting; provided that at least a majority of shares of the Corporation’s outstanding common stock is voted on this proposal. If the Incentive Plan is not approved by the Corporation’s stockholders, the existing Acuity Brands, Inc. Management Compensation and Incentive Plan will continue. In such event, however, future payments under that plan will not qualify for the performance-based compensation exception under Section 162(m) of the Code.

 

This summary of the material features of the Incentive Plan is qualified in its entirety by reference to the full text of the Incentive Plan, which is set forth in Exhibit B.

 

General

 

The purpose of the Incentive Plan is to further the growth and financial success of the Company by offering performance incentives to designated executives who have significant responsibility for such success. The Incentive Plan will be administered by the Compensation Committee or other committee designated by the Board (the “Committee”), subject to the Committee’s right to delegate to the Chief Executive Officer and others responsibility for administration of the Incentive Plan as it relates to participants other than named executive officers. Persons eligible to participate in the Incentive Plan are the executive officers and other executives of the Company, its subsidiaries, or its business units who are in management positions designated as eligible for participation by the Committee or its designee. Currently, 17 individuals have been designated as eligible for participation for fiscal year 2008. Additional non-executive employees are covered under similar annual incentive plans at Acuity Brands Lighting.

 

The Incentive Plan may be amended, suspended, or terminated by the Committee at any time, subject to ratification by the Board and to the consent of each participant whose rights with respect to an approved award would be adversely affected. Unless terminated, the Incentive Plan will remain in effect until awards thereunder are paid for the Company’s fiscal year ending in 2013.

 

Awards under the Incentive Plan

 

Prior to, or as soon as practical after, the commencement of each fiscal year, the Committee will establish plan rules for that year with respect to the following matters:

 

 

Performance criteria for named executive officers will include one or more of the following criteria, as set forth in Appendix A to the Incentive Plan:

 

 

The Committee may establish other performance criteria for participants who are not named executive officers. In making the Award for a fiscal year, the Committee may provide for specific adjustments that will be made to the performance criteria for the Award for such year. The maximum incentive award payable to a participant for any fiscal year of the Company will be $4.0 million. Plan rules established each year by the Committee will be submitted to the Board of Directors for ratification.

 

After the end of each fiscal year, the Committee will certify the extent to which the performance criteria have been achieved for that year. In measuring performance, the Committee may adjust the Company’s financial results to exclude the effect of unusual charges, income items, or other events which distort year-to-year comparisons of results. With respect to named executive officers the Committee shall exclude such items with the effect of increasing the award payable if such items constitute “extraordinary” or “unusual” events or items under generally accepted accounting principles or are other significant unusual events or items. The Committee will also make adjustments to eliminate the effect of unanticipated changes in the tax laws and regulations.

 

Incentive awards shall be approved by the Committee, subject to ratification by the Board, based on the plan rules then in effect and the achievement of performance criteria as certified by the Committee. Any award may be decreased, at the Committee’s discretion, based on such factors as the Committee may determine, including the failure of the Company or an operating unit to meet additional performance goals or the failure of the participant to meet personal performance goals. The Committee may in its discretion grant awards to deserving participants, notwithstanding levels of achievement of performance criteria.

 

Awards will generally be made in lump sum cash payments, unless the Committee specifies otherwise at the beginning of the year. Payment will be made as soon as practicable after determination of awards, subject to any rights of a participant to defer amounts pursuant to other plans of the Company.

 

A partial incentive award may be authorized by the Committee for a participant who is terminated without cause or who retires, dies, or becomes permanently and totally disabled. Otherwise, no award will be paid to a participant who is not an active employee of the Company, an operating unit, or an affiliate at the end of the fiscal year to which the award relates and, if the Committee so provides, on the date the award is payable.

Change in Control

 

Upon the occurrence of a Change in Control (as defined in the Incentive Plan), unless a participant otherwise elects in writing, the participant’s incentive award for that year will be deemed to have been fully earned for the year, with performance at the target level and with no reductions for other factors. In that case, within thirty days after the effective date of the Change in Control, the participant will be paid in cash a pro rata portion of the award based on the number of days within the fiscal year that elapsed as of the effective date of the Change in Control.

 

Federal Tax Consequences

 

An award under the Incentive Plan will constitute taxable ordinary income to the participant. Generally, the Company will be entitled to a corresponding deduction.

 

Section 162(m) of the Internal Revenue Code limits to $1 million the amount of compensation that may be deducted in any tax year with respect to a named executive officer, with an exception for certain performance-based compensation. The Incentive Plan is designed, and is to be administered, to qualify payments to named executive officers for that performance-based compensation exception.

 

New Plan Benefits

 

The Committee designates employees of the Company and its subsidiaries eligible to participate in the Incentive Plan. As of the record date, there were approximately 17 eligible employees under the prior Plan, including three of the named executive officers.

 

The new plan benefits table setting forth benefits for the Incentive Plan appears below.

 

THE BOARD OF DIRECTORS RECOMMENDS THAT YOU VOTE FOR ITEM NO. 3, APPROVAL OF THE ACUITY BRANDS, INC. 2007 MANAGEMENT COMPENSATION AND INCENTIVE PLAN, INCLUDING THE MATERIAL TERMS OF THE PERFORMANCE MEASURES UNDER WHICH CERTAIN AWARDS MAY BE GRANTED.

New Plan Benefits Table

 

As of November 2, 2007, there were options to purchase 1,671,927 shares of our common stock outstanding under the Long-Term Incentive Plan approved in 2003. The weighted average remaining life of these outstanding options was 6.18 years, and the weighted average exercise price was $23.58. There were a total of 1,141,860 shares subject to outstanding restricted stock and restricted stock unit awards that have not fully vested and remain subject to forfeiture. There were 960,301 shares available for grant under the 2003 plan.

 

 

 

 

 

Disclosure with Respect to Equity Compensation Plans

 

The following table provides information as of August 31, 2007 about equity awards under the Company’s Long-Term Incentive Plan and the Nonemployee Directors’ Stock Option Plan. The table does not include 1,104,694 shares available for purchase under the Employee Stock Purchase Plan and does not include the proposed increase of shares for the Amended Plan.

 

 

 

 

ITEM 4—RATIFICATION OF THE APPOINTMENT OF THE
INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

 

At the annual meeting, a proposal will be presented to ratify the appointment of Ernst & Young LLP (“E&Y”) as the independent registered public accounting firm to audit the Company’s financial statements for the fiscal year ending August 31, 2008. E&Y has performed this function for the Company since April 2002. One or more representatives of E&Y are expected to be present at the annual meeting and will be afforded the opportunity to make a statement if they so desire and to respond to appropriate stockholder questions. Information regarding fees paid to E&Y during fiscal year 2007 is set out below in “Fees Billed by Independent Registered Public Accounting Firm.”

 

THE BOARD OF DIRECTORS RECOMMENDS THAT YOU VOTE FOR ITEM 4, RATIFICATION OF THE APPOINTMENT OF ERNST & YOUNG LLP AS THE COMPANY’S INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM.

 

REPORT OF THE AUDIT COMMITTEE

 

The Audit Committee and the Board of Directors previously adopted a written charter to set forth the Audit Committee’s responsibilities. The charter is reviewed annually and amended as necessary to comply with new regulatory requirements. A copy of the Company’s Audit Committee charter, which is included in the Statement of Responsibilities of Committees of the Board, is available on the Company’s website at www.acuitybrands.com under the heading, “Corporate Governance.” The Audit Committee is comprised solely of independent directors, as such term is defined by the listing standards of the New York Stock Exchange.

 

As required by the charter, the Audit Committee reviewed the Company’s audited financial statements and met with management, as well as with E&Y (with and without management present), to (1) discuss the financial statements, (2) discuss their evaluations of the Company’s internal controls over financial reporting, and (3) discuss their knowledge of any fraud, whether or not material, that involved management or other employees who had a significant role in the Company’s internal controls.

 

The Audit Committee received from E&Y the required written disclosures and the letter from E&Y regarding their independence and the report regarding the results of their integrated audit. In connection with its review of the financial statements and the auditors’ required communications and reports, the members of the Audit Committee discussed with a representative of E&Y their independence, as well as the following:

 

 

Based on its discussions with management and the Company’s independent registered public accounting firm referenced above, the Audit Committee did not become aware of any material misstatements or omissions in the financial statements. Accordingly, the Audit Committee recommended to the Board of Directors that the financial statements be included in the Company’s Annual Report on Form 10-K for the fiscal year ended August 31, 2007 for filing with the SEC.

 

AUDIT COMMITTEE

 

Robert F. McCullough, Chairman
John L. Clendenin
Earnest W. Deavenport, Jr.
Neil Williams

 

FEES BILLED BY INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

 

The following table sets forth the aggregate fees billed during the fiscal years ended August 31, 2007 and 2006:

 

 

Audit Fees include fees for services rendered for the audit of the Company’s annual financial statements and the review of the interim financial statements included in quarterly reports. Audit fees also include fees associated with rendering an opinion on the Company’s internal controls as of August 31, 2007 in accordance with Section 404 of the Sarbanes-Oxley Act of 2002. The 2007 amount also includes audit fees associated with the spin-off of Zep Inc.

 

Audit-Related Fees include amounts billed to the Company primarily for the annual audits of the Company’s defined contribution plans.

 

Tax Fees include amounts billed to the Company primarily for domestic and international tax compliance and a review of the Company’s Federal income tax return.

 

The Audit Committee has established policies and procedures for the approval and pre-approval of audit services and permitted non-audit services. The Audit Committee has the responsibility to engage and terminate the Company’s independent registered public accounting firm, to pre-approve the performance of all audit and permitted non-audit services provided to the Company by its independent registered public accounting firm in accordance with Section 10A of the Exchange Act, and to review with the Company’s independent registered public accounting firm their fees and plans for all auditing services. All fees paid to E&Y were pre-approved by the Audit Committee and there were no instances of waiver of approval requirements or guidelines.

 

The Audit Committee considered the provision of non-audit services by the independent registered public accounting firm and determined that provision of those services was compatible with maintaining auditor independence.

 

There were no “reportable events” as that term is described in Item 304(a)(1)(v) of Regulation S-K.

 

OTHER MATTERS

 

We know of no other business to be transacted, but if any other matters do come before the meeting, the persons named as proxies in the accompanying proxy, or their substitutes, will vote or act with respect to them in accordance with their best judgment.

 

MANAGEMENT

 

Executive Officers

 

Executive officers are elected annually by the Board of Directors and serve at the discretion of the Board. Vernon J. Nagel serves as a Director and as an executive officer. His business experience is discussed above in “Item 1—Election of Directors—Director Nominees for Terms Expiring at the 2007, 2008 and 2009 Annual Meetings.”

 

Other executive officers as of the date of the Proxy Statement are:

 

 

EXECUTIVE COMPENSATION

 

REPORT OF THE COMPENSATION COMMITTEE

 

The Compensation Committee has reviewed and discussed with management the following Compensation Discussion and Analysis section of the Company’s 2007 Proxy Statement. Based on its review and discussions with management, the Compensation Committee recommended to the Board of Directors that the Compensation Discussion and Analysis be included in the Company’s Proxy Statement for fiscal 2007 for filing with the SEC.

 

The Compensation Committee

 

Ray M. Robinson, Chairman
Peter C. Browning
Julia B. North

 

COMPENSATION DISCUSSION AND ANALYSIS

 

For purposes of this Compensation Discussion and Analysis, our named executive officers for fiscal 2007 are Messrs. Nagel, Reece, Morgan, Murphy, and Holl. Mr. Holl was an executive officer of Acuity Brands until July 23, 2007.

 

Compensation Philosophy

 

Our philosophy is to compensate management and other key associates through a combination of base salary and variable incentive compensation based on the Company’s performance. To create a true pay-for-performance environment, total compensation is comprised of median base salary plus significant at-risk performance-based variable annual and long-term incentive compensation. Management aspires for Acuity Brands to be a premier industrial company capable of delivering consistent upper quartile performance to our stockholders. We define upper quartile performance using specific metrics, including:

 

 

There must be a strong relationship between executive compensation and the creation of value for stockholders, so that we pay upper quartile (75^th percentile) compensation only when the Company achieves upper quartile performance.

 

Historically Acuity Brands’ executive compensation program has been guided by the following principles, which are intended to support the Company’s pay-for-performance philosophy:

 

 

The executive compensation program is designed to:

 

 

General Compensation Levels

 

The total direct compensation (base salary and annual and long-term incentive) opportunities offered to Acuity Brands’ executive officers have been designed to ensure that they are competitive with market practices, support Acuity Brands’ executive recruitment and retention objectives, and are internally equitable among executives. The annual and long-term incentive portions of total direct compensation are performance-based and provide compensation in excess of base salary only when performance goals are met.

 

In determining total direct compensation opportunities, the Acuity Brands Compensation Committee considers: compensation information and input provided by its compensation consultant, Towers Perrin; the evaluation by the Board of Directors of the chief executive officer; and the chief executive officer’s performance review and recommendation for each other executive officer. The market data provides competitive compensation information for positions of comparable responsibilities with comparably-sized manufacturing companies that are representative of the companies with whom Acuity Brands competes for executive talent.

 

Peer Group Analysis

 

Acuity Brands annually compares the various elements of its executive compensation program with respect to its chief executive officer in order to gauge its compensation levels relative to that of the market and its competitors through the use of publicly available market surveys, total compensation studies and long-term incentive compensation analyses, provided by the Compensation Committee’s compensation consultant, Towers Perrin. Acuity Brands performs similar comparisons for its other executive officers periodically.

 

During fiscal 2007, Towers Perrin provided compensation data for purposes of the chief executive officer’s compensation review. The compensation data was obtained from the Towers Perrin 2006 Compensation Data Bank Executive Compensation Database and the Watson Wyatt 2006/07 Top Management Compensation Calculator. In each case, the total sample of survey participants was narrowed to include only those companies with revenues comparable to Acuity Brands (approximately $2.1 billion for fiscal 2007).

 

For purposes of the chief executive officer’s compensation, Towers Perrin compiled a list of peer companies with whom Acuity Brands competes for executive talent. These companies represent a diverse, general industry composite, including consumer products, chemicals, industrial manufacturing, and/or retail/wholesale/trade companies with revenues ranging from $650 million to $5.6 billion. For fiscal 2007, this peer group was comprised of the following companies:

 

 

Weighting and Selection of Elements of Compensation

 

The Acuity Brands Compensation Committee determines the mix and weightings of each of the compensation elements by considering comparative compensation data as described above. Generally, in fiscal 2007 and the past several years, the most significant percentage of targeted compensation was allocated to long-term incentive awards. Base salary is the only portion of compensation that is assured. While the Compensation Committee has established a framework to assure that a significant portion of aggregate target total direct compensation is at risk for senior executives, actual amounts earned depend on annual performance of the business and the individual.

 

The Compensation Committee uses its judgment and discretion in deciding the mix and value of total long-term incentive compensation. The Compensation Committee uses restricted stock as well as options to motivate

executives to think like stockholders and to focus on the long-term performance of the business. All long-term incentives are performance-based and payout is entirely determined by Company performance and, for business unit executives, business unit performance, in each case subject to adjustment based on individual performance. Once the applicable performance criteria have been satisfied, an award of stock options or time-vesting restricted stock is made to the participants. Restricted stock is designed to mirror stockholder interests and make executives sensitive to upside potential and stockholder gains, as well as to downside risk, because a change in the stock price affects overall compensation.

 

Role of Compensation Consultants

 

Under its charter, the Acuity Brands Compensation Committee is authorized to engage outside advisors at Acuity Brands’ expense. The Acuity Brands Compensation Committee engaged the compensation consulting firm of Towers Perrin to advise the Committee regarding compensation of Acuity Brands’ executive officers and non-employee directors, and other compensation-related matters such as benefit plans. The Acuity Brands Compensation Committee annually approves an engagement letter with Towers Perrin that describes the duties to be performed by Towers Perrin during the fiscal year and the related costs. The chairman of Acuity Brands’ Compensation Committee may make additional requests of Towers Perrin during the year on behalf of the Committee. Management may periodically engage Towers Perrin to perform research to support matters to be presented to the Compensation Committee by management. Under the engagement letter for fiscal 2007, Towers Perrin performed or was expected to perform the following services, in addition to preparation for and attendance at meetings of the Compensation Committee:

 

 

Elements of Executive Compensation

 

Acuity Brands uses several compensation elements in its executive compensation program, including:

 

 

The compensation program has also included minimal perquisites and other personal benefits (only a charitable contribution match in fiscal 2007).

Acuity Brands emphasizes the following elements of compensation:

 

 

Base Salary

 

Acuity Brands sets base salary to be competitive with the general market. The base salary is designed to attract talented executives and provide a secure base of cash compensation. Salary adjustments may be made annually as merited or on promotion to a position of increased responsibility. The base salaries of executives are set near or below the 50^th percentile with variable compensation dependent on the Company’s performance. For example, Mr. Nagel’s salary is in the bottom 10% of his peer group and has been at the same level since 2004 in accordance with the Company’s philosophy of enhancing base salary through variable incentive pay only when justified by the Company’s performance. In fiscal 2007, the Compensation Committee awarded a salary increase to Mr. Murphy in connection with his assumption of duties as Chief Administrative Officer. The salaries of Messrs. Reece and Holl have not been increased since they joined the Company in 2005 and 2006, respectively. Mr. Morgan’s salary was last increased in 2005.

 

Short-Term Incentives

 

Performance-based annual incentive compensation is a key component of Acuity Brands’ executive compensation strategy designed as a significant at-risk component of overall compensation.

 

The annual incentive award is payable in cash under the Acuity Brands, Inc. Management Compensation and Incentive Plan (the Incentive Plan), which was approved by Acuity Brands’ stockholders and which has been replaced by the 2007 Management Compensation and Incentive Plan, subject to approval by stockholders at this meeting. This plan was designed to motivate executive officers to attain specific short-term performance objectives that, in turn, further Acuity Brands’ long-term objectives.

 

At the start of a fiscal year, an annual incentive target, stated as a percentage of base salary, is determined for each participant. Measures of Company and business unit financial performance for the fiscal year are also determined. The actual award earned is based on the results of financial performance for the fiscal year. The actual award earned also takes into account individual performance for the fiscal year. Finally, the actual award is subject to the application of negative discretion by the Compensation Committee.

 

Financial Performance

 

Generally, at the beginning of the year, the Compensation Committee selects the annual financial performance measures and sets the annual financial performance goals at the threshold, target and maximum levels, which determine payouts. Achieving target financial performance would yield an award of 100% (200% for named executive officers, subject to negative discretion) of the target amount set at the beginning of the year. Actual Company financial performance for the fiscal year determines the total amount of dollars available for the incentive pool for annual incentive awards to all eligible employees, including the named executive officers. Financial performance percentages are interpolated for performance falling between stated performance measures.

 

When deciding what financial measures to use at the start of a fiscal year, and the threshold, target and maximum levels of achievement of those measures, the Compensation Committee carefully considers the state of

Acuity Brands’ business and what financial measures are most likely to focus the participants, including the named executive officers, on making decisions that deliver short-term results aligned with long-term goals. The Committee considers management’s recommendations regarding the appropriate financial measures. The financial measures are chosen from an array of possible financial measures included in the Annual Incentive Plan.

 

Financial performance is measured separately for Acuity Brands as a whole and for each business unit. Depending on the named executive officer’s responsibilities, the calculation of his annual incentive award is measured and determined based on Company-wide performance or business unit performance, as appropriate for that named executive officer.

 

Individual Performance

 

Performance of individual participants in the Annual Incentive Plan, including the named executive officers, is evaluated after the end of the fiscal year by (1) comparing actual performance to daily job responsibilities and pre-established individual objectives and (2) considering, on a qualitative basis, whether the individual’s performance reflects Acuity Brands’ corporate values and business philosophies, such as continuous improvement. The individual objectives for Mr. Nagel were set with the approval of the Compensation Committee. The individual objectives for Messrs. Reece, Morgan, Murphy, and Holl were set after individual discussion with the chief executive officer. Each participant, including a named executive officer, is given an individual performance management process rating (a PMP Rating), which is translated to a PMP Payout Percentage. The table below sets forth the range of possible PMP Payout Percentages for all participants.

 

 

The maximum PMP Payout Percentage that can be earned by a named executive officer is 120%. The Compensation Committee selects the precise payout percentage within the range (or reduces the percentage for named executive officers) based on factors such as level of responsibility and impact on the Company’s performance with calibrations made across comparable positions to achieve consistency of the percentages selected.

 

Determination of Award

 

The level of financial performance is determined after the end of the fiscal year based on actual business results compared to the financial measures set at the beginning of the fiscal year. In addition, the chief executive officer annually prepares a written report for the Compensation Committee, summarizing the individual performance goals and achievements of the named executive officers, including himself. The Compensation Committee reviews the written report and takes it into consideration in determining the awards. The amount of each actual annual incentive award, including the awards to the named executive officers, is determined as follows:

 

Base Salary x (Annual Incentive Target % x Financial Performance Payout %) x PMP Payout%

 

The Financial Performance Payout Percentage at target is 200% for named executive officers of Acuity Brands, as compared to 100% for other participants in the Incentive Plan. The greater percentage is designed to facilitate the Compensation Committee’s application of negative discretion as it considers appropriate in accordance with the provisions of Section 162(m) of the Code.

 

For example, for Mr. Nagel the calculation for his bonus award, assuming that Company performance was at target and that he received a PMP Rating of “commendable” reducing the PMP Payout Percentage to 100%, would be as follows:

$600,000 x (150% x 200%) x 100% = $1,800,000

The Compensation Committee then determines the final award by applying negative discretion as it considers appropriate in accordance with the requirements of Section 162(m) of the Code.

 

Fiscal 2007 Awards

 

The performance measures and performance level required for fiscal 2007 awards were established by the Compensation Committee and ratified by the Board of Directors early in the fiscal year and were intended to drive business and individual performance supporting Acuity Brands’ long-term financial goals and resulting in market appreciation for stockholders. For fiscal 2007, the performance measures and weighting selected were as follows:

 

 

The appropriate performance levels at threshold, target and maximum were derived from Acuity Brands’ long-term financial performance targets, which are in the upper quartile of financial performance for industrial companies, and therefore differed from the operating plan targets for fiscal 2007. In setting the performance level for fiscal 2007, the Compensation Committee began with the financial performance for fiscal 2006 and generally required an increase in performance to achieve the target and maximum awards, although decreases were specified if justified by economic conditions or by corporate actions designed to achieve long-term financial performance improvement. The maximum award is designed to reward only exceptional performance.

 

Performance Measures

 

The following table outlines the fiscal 2007 performance measures, the weighting for each performance measure and the threshold, target, maximum, and actual 2007 performance levels, reflected as a percentage change from fiscal 2006 financial performance, as determined by the Compensation Committee.

 

 

 

 

As expected, the Compensation Committee exercised negative discretion in determining the final fiscal 2007 awards.

(1) Under which the fiscal 2007 annual incentive awards were determined for Messrs. Nagel, Reece, and Murphy.

(2) Under which Mr. Morgan’s fiscal 2007 annual incentive award was determined.

(3) Under which Mr. Holl’s fiscal 2007 annual incentive award was determined.

 

The following table outlines the threshold, target, maximum, and actual 2007 awards under the Incentive Plan for each of the named executive officers for fiscal 2007 as a dollar amount (in thousands). In setting the threshold, target, and maximum levels, Acuity Brands expected that the Compensation Committee would exercise negative discretion in determining the final awards. For example, in the last four fiscal years, the Compensation Committee exercised negative discretion to reduce Mr. Nagel’s award by between 24% and 66%. See “Tax Deductibility Policy.”

 

 

 

The threshold, target and maximum awards that could have been earned under the Incentive Plan for fiscal year 2007 for each of the named executive officers, expressed as a dollar amount, are also contained in the Fiscal 2007 Grants of Plan-Based Awards table.

 

At its meeting held on September 28, 2007, based on the Compensation Committee’s certification of performance with respect to fiscal 2007 annual incentive targets using information prepared by the Acuity Brands finance department, the Acuity Brands Board approved the Compensation Committee’s recommendations with respect to fiscal 2007 annual incentives for the named executive officers.

 

Based on the achievement of the Acuity Brands, Inc. performance measures and their PMP ratings, Messrs. Nagel, Reece, and Murphy were eligible to receive the maximum annual incentive awards of $3,600,000, $960,000, and $912,000, respectively, and based on the achievement of the Acuity Brands Lighting performance measures and his PMP Rating, Mr. Morgan was eligible to receive the maximum annual incentive award of $1,300,000. In accordance with past practice, the Compensation Committee exercised negative discretion to reduce the amount of the awards to for Messrs. Nagel, Reece, Murphy, and Morgan. The final amounts determined by the Compensation Committee are shown in the table above. As previously described, Mr. Holl’s annual incentive award was determined pursuant to his employment agreement.

 

Under the terms of the current Annual Incentive Plan, the maximum incentive award that may be paid to an individual participant for a plan year is $1,500,000. Because Mr. Nagel earned the full bonus awarded by the Committee based on the Company’s exceptional performance in fiscal 2007 and his individual performance, the Committee recommended and the Board of Directors approved payment of the additional amount to Mr. Nagel.

 

Long-Term Incentives

 

A substantial portion of the total direct compensation of Acuity Brands’ named executive officers is delivered in the form of long-term equity, including stock options and restricted stock. Equity incentive awards are generally granted on an annual basis and are allocated based on the achievement of Company-wide financial targets, business unit operating targets, if applicable, and individual performance ratings. Awards are made under the Acuity Brands, Inc. Long-Term Incentive Plan (the LTIP), which has been approved by stockholders in 2003.

 

The purpose of the LTIP is to enable executive officers to accumulate capital through future managerial performance, which the Acuity Brands Compensation Committee believes contributes to the future success of its

businesses. The LTIP creates a pool of equity available for annual grants to all eligible employees, including the named executive officers. The Committee believes that awards under the LTIP promote a long-term focus on our profitability due to the multi-year vesting period under the plan.

 

At the beginning of each year, the Acuity Brands Compensation Committee selects performance criteria, upon which awards under the LTIP are based, from the array of performance measures contained in the LTIP. For those participants employed in a business unit, financial performance is first measured at the Company level and then by the contribution of the business unit towards achievement of the financial performance.

 

Target awards are determined as a percentage of each executive officer’s salary and are denominated in dollars. Target financial performance yields an award of 200% for executive officers of Acuity Brands, as compared to 100% for other participants in the LTIP. The greater percentage is designed to facilitate the Compensation Committee’s application of negative discretion as it considers appropriate in accordance with the provisions of Section 162(m) of the Code. The total long-term award payments to all eligible employees cannot exceed 8% of consolidated operating profit before expenses associated with the LTIP.

 

Final awards for each individual are determined by adjusting the target award based on Acuity Brands’ actual performance against the established performance target for the year (after adjustments), both at the Company level and, if applicable, the business unit. Final awards take into account each individual’s PMP Rating. Individual performance is evaluated in the same manner as under the Annual Incentive Plan, except that the payout factor is as follows.

 

 

The Compensation Committee selects the precise payout percentage within the range based on factors such as level of responsibility and impact on the Company’s performance with calibrations made across comparable positions to achieve consistency of the percentages selected.

 

The Compensation Committee, in its discretion, taking into account the recommendations of the chief executive officer, may increase or decrease awards under the LTIP and may approve the payment of awards where performance would otherwise not meet the minimum criteria set for payment of awards, although it rarely does so. In fiscal 2006, the Compensation Committee used negative discretion to reduce the awards for named executive officers, but did not approve any payment of awards not warranted by financial performance.

 

The final dollar-denominated awards are then converted into either stock options or time-vesting restricted stock, as determined by the Compensation Committee. The stock options have an exercise price equal to the closing price on the date of grant and generally vest over a three-year period. The restricted stock generally vests over a four-year period. Dividends are paid on the restricted stock.

 

Fiscal 2007 Awards

 

For fiscal 2007, the performance criterion for LTIP awards was earnings per share (EPS). The target EPS was $2.65, with a threshold of $2.00 and a maximum of $3.00. For named executive officers, the award formula payout percentage is 0% for threshold performance, 200% for target performance, and 300% for maximum performance. The payout percentage used in the award formula cannot exceed 300%, even if actual performance exceeds the level of performance corresponding to the maximum payout percentage. The final awards for participants employed at a business unit are also adjusted based on the applicable business unit’s achievement of its target for operating profit.

 

The appropriate EPS targets were derived from Acuity Brands’ long-term growth targets, which are in the upper quartile of financial performance for industrial companies, and therefore differ from the operating plan targets for fiscal 2007. In setting the performance level, the Compensation Committee begins with the financial performance for the prior fiscal year and generally requires an increase in performance to achieve the target and maximum awards. The target award represented a 13% increase over the prior year and the maximum award represented a 28%

increase over the prior year. This compares favorably to the Company’s upper quartile performance goal of 15% annual growth. The maximum award is designed to reward only exceptional performance.

 

The following table outlines the award targets and 2007 actual award values under the LTIP for each of the named executive officers for fiscal 2007 as a dollar amount (in thousands). The target and maximum awards listed assume that the PMP Rating was “Outstanding” (150%). In setting these levels, Acuity Brands expected that the Compensation Committee would exercise negative discretion in determining the final awards for the named executive officers as they have done historically. See “Tax Deductibility Policy.”

 

 

* The awards for Messrs. Morgan and Holl were made by the Compensation Committee of Zep Inc. under the Zep Inc. Long-Term Incentive Plan following the spin-off of Zep Inc. by Acuity Brands on October 31, 2007.

 

(1) Mr. Murphy did not receive an award for fiscal year 2007 because his position is expected to be eliminated in 2008 in connection with the spin-off of Zep Inc.

 

The threshold, target and maximum awards that can be earned under the LTIP for fiscal 2007 for each of the named executive officers are also included in the Fiscal 2007 Grants of Plan-Based Awards table. The actual awards earned by Messrs. Nagel and Reece were based on the Company’s achievement of $3.37 in diluted earnings per share and the Compensation Committee’s application of negative discretion in determining the final amount of each award.

 

Equity Award Grant Practices

 

Annual equity awards are approved by the Compensation Committee and the Board of Directors at their regularly scheduled quarterly meeting following the end of the fiscal year. The chief executive officer may make interim equity awards from a previously approved discretionary share pool on the first business day of each fiscal quarter based on prescribed criteria established by the Compensation Committee. Acuity Brands does not time the granting of its equity awards to the disclosure of material information.

 

Executive Perquisites

 

Perquisites and other personal benefits comprised a minimal portion of Acuity Brands’ executive compensation program. The only perquisite or other personal benefit provided by Acuity Brands to executive officers in fiscal 2007 was a charitable contributions match up to a specified amount.

 

Retirement Benefits

 

Acuity Brands provides retirement benefits under a number of defined benefit retirement plans. Acuity Brands froze the pension benefits under certain plans as of December 31, 2002 for all participants. This means that, while participants retain the pension benefits already accrued, no additional pension benefits will accrue after the effective date of the freeze. However, executives formerly covered by the frozen pension plan are receiving a supplemental annual contribution under a deferred compensation plan which is designed to replace the accrual under the frozen pension plan.

 

Effective January 1, 2003, Acuity Brands implemented the Acuity Brands, Inc. 2002 Supplemental Executive Retirement Plan (the 2002 SERP) that provides a monthly benefit equal to 1.6% of average base salary and bonus (using the highest three consecutive years of remuneration out of the ten years preceding an executive’s retirement) multiplied by years of service as an executive officer of Acuity Brands (up to a maximum of 10 years) divided by 12. Benefits are generally payable for a 15-year period following retirement (as defined in the 2002 SERP), subject to

such alternative forms of payment as may be determined by Acuity Brands. All named executive officers participated in the 2002 SERP. Mr. Holl’s benefit was forfeited in July 2007 upon his transfer to a non-eligible position prior to becoming vested in his benefit. Mr. Morgan’s benefit was frozen effective with the spin-off of Zep Inc. by Acuity Brands in October 2007.

 

Acuity Brands also maintains several deferred compensation plans which are described under “Executive Compensation—Fiscal 2007 Nonqualified Deferred Compensation.” The plans are designed to provide eligible participants an opportunity to defer compensation on a tax efficient basis. Under certain plan provisions, Acuity Brands makes contributions to participants’ accounts.

 

Acuity Brands maintains a defined contribution 401(k) plan that covers employees and former employees of Acuity Brands Lighting and the corporate office. The 401(k) plan provides for employee pre-tax contributions and employer matching contributions.

 

Change in Control Agreements

 

Acuity Brands has change in control agreements with its named executive officers which provide for separation payments and benefits, consistent with common market practices among Acuity Brands’ peers, upon qualifying terminations of employment in connection with a change in control of Acuity Brands. The Board of Directors intends for the change in control agreements to provide the named executive officers some measure of security against the possibility of employment loss that may result following a change in control of Acuity Brands in order that they may devote their energies to meeting the business objectives and needs of the Company and its stockholders. For additional information on the change in control arrangements see “Executive Compensation—Potential Payments upon Termination—Change in Control Agreements.”

 

Severance Agreements

 

To ensure that Acuity Brands is offering a competitive executive compensation program, Acuity Brands believes it is important to provide reasonable severance benefits to its named executive officers.

 

The severance agreements contain restrictive covenants with respect to confidentiality, non-solicitation, and non-competition, and are subject to the execution of a release. We will pay reasonable legal fees and related expenses incurred by an executive who is successful to a significant extent in enforcing his rights under the severance agreements. The severance agreements are effective for a rolling two-year term, which will automatically extend each day for an additional day unless terminated by either party, in which case they will continue for two years after the notice of termination or for three years following a change in control. For additional information on the severance arrangements see “Executive Compensation—Potential Payments upon Termination—Severance Agreements.”

 

Equity Ownership Requirements

 

The executive officers of Acuity Brands became subject to a share ownership requirement in 2004 and have been subject to a share retention requirement since January 2003. The share ownership requirement provides that, over a four-year period, the chief executive officer will attain ownership of the our common stock valued at four times his annual base salary and that the other named executive officers will attain ownership in our common stock valued at three times their annual base salaries. The ownership of each executive officer currently exceeds his requirement. For these purposes, ownership includes stock held directly, interests in restricted stock, restricted stock units, stock acquired through our employee stock purchase plan, and investments in our stock through Acuity’s 401(k) plan. Stock options are not taken into consideration in meeting the ownership requirements.

 

The requirements are intended to ensure that our executive officers maintain an equity interest in our Company at a level sufficient to assure our stockholders of their commitment to value creation, while addressing their individual needs for portfolio diversification.

Tax Deductibility Policy

 

Section 162(m) of the Code generally limits the tax deductibility of compensation of the chief executive officer and our three other executive officers (other than our chief executive officer and our chief financial officer) who are the highest paid and employed at year-end to $1 million per year unless the compensation qualifies as “performance-based” compensation. While Acuity Brands does not design compensation programs solely for tax purposes, we design plans to be tax efficient where possible. However, the Compensation Committee may exercise discretion in those instances when the mechanistic approaches under tax laws would compromise the interest of stockholders. As a result, to maximize the tax efficiency of Acuity Brands’ compensation programs, incentive targets for executive officers of Acuity Brands are twice that of other participants in fiscal 2007. While the Compensation Committee does not intend that an executive officer will earn such amount, the program is designed to permit the Compensation Committee to reward outstanding performance while retaining the tax deductibility of the award. The Compensation Committee continues to have the ability to use negative discretion in calculating an appropriate award.

 

Role of Executive Officers

 

As discussed above, the chief executive officer reports to the Compensation Committee on his evaluations of the senior executives, including the other named executive officers. He makes compensation recommendations for the other named executive officers with respect to base salary, merit increases and annual and long-term incentives which are the basis of discussion with the Compensation Committee. The chief financial officer evaluates the financial implications of any proposed Compensation Committee action. Executive officer level human resource personnel have also provided information to the Compensation Committee.

 

Meetings of the Compensation Committee are regularly attended by: the chief executive officer; the chief administrative officer and general counsel; the executive level human resource officer(if different than the chief administrative officer); and the secretary. On occasion, the chief financial officer also attends meetings of the Committee.

 

EXECUTIVE COMPENSATION TABLES

 

Set forth below is information concerning the fiscal 2007 compensation paid to the applicable named executive officer in connection with his service to Acuity Brands.

 

Fiscal 2007 Summary Compensation Table

 

The following table presents information concerning compensation paid to the named executive officers in fiscal 2007.

 

 

 

 

 

 

Fiscal 2007 Grants of Plan — Based Awards

 

The following table provides information about equity and non-equity awards granted to the named executive officers during fiscal 2007.