ACUITY BRANDS, INC.
1170 Peachtree Street, NE
Suite 2400
Atlanta, Georgia 30309

 

NOTICE OF ANNUAL MEETING OF STOCKHOLDERS

To be held January 8, 2009

 

 

By order of the Board of Directors,

 

 

C. DAN SMITH

 

Vice President, Treasurer and Secretary

 

November 24, 2008

 

 

 

TABLE OF CONTENTS

 

ACUITY BRANDS, INC.
1170 Peachtree Street, NE
Suite 2400
Atlanta, Georgia 30309

 

PROXY STATEMENT

 

The Board of Directors (the “Board”) of Acuity Brands, Inc. (“we,” “our,” “us”, 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 8, 2009. 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, 2008. We expect to begin mailing this proxy statement and the enclosed proxy on November 24, 2008.

 

All properly executed written proxies, and all properly completed proxies submitted by telephone or the 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 17, 2008, 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 40,959,629 shares of common stock issued and outstanding on the record date.

 

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 2008 annual meeting of stockholders. These officers are Vernon J. Nagel, Richard K. Reece and C. Dan Smith.

 

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, Richard K. Reece and C. Dan Smith 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?

 

November 17, 2008 is the record date for the annual meeting to be held on January 8, 2009. The record date is established by the Board as required by the Delaware General Corporation Law (“Delaware Law”). Owners of record of our 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.

 

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 enclosed 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 us. 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 enclosed 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 us. 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 the enclosed proxy card in the postage-paid envelope provided.

 

In Person.  You may vote in person at the annual meeting.

 

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 annual 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 if I sign and return the proxy card, but do not provide voting instructions?

 

Proxies that are properly executed and delivered, and not revoked, will be voted as specified on the proxy card. If no direction is specified on the proxy card, the proxy will be voted for the election of the nominees for director described in this proxy statement and for ratification of the appointment of our independent registered public accounting firm for fiscal year 2009.

 

What if I change my mind after I return my proxy?

 

You may revoke your proxy and change your vote at any time before the polls close at the annual meeting. You may do this by:

 

 

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.

 

Will my shares be voted if I do not sign and return my proxy card, vote by the Internet, vote by telephone, or attend the annual meeting and vote in person?

 

If you are a stockholder of record and you do not sign and return your proxy card, vote by the Internet, vote by telephone or attend the annual meeting and vote in person, your shares will not be voted and will not count in deciding the matters presented for stockholder consideration in this proxy statement.

 

If your shares are held in street name through a bank or broker and you do not provide voting instructions before the annual meeting, your bank or broker may vote your shares on your behalf under certain circumstances. Brokerage firms have the authority under certain rules to vote shares for which their customers do not provide voting instructions on “routine” matters.

The election of directors and the ratification of the appointment of the independent registered public accounting firm are considered “routine” matters under these rules. Therefore, brokerage firms are allowed to vote their customers’ shares on these matters if the customers do not provide voting instructions. If your brokerage firm votes your shares on these matters because you do not provide voting instructions, your shares will be counted for purposes of establishing a quorum to conduct business at the meeting and in determining the number of shares voted for or against the routine matters.

 

When a proposal is not a routine matter and the brokerage firm has not received voting instructions from the beneficial owner of the shares with respect to that proposal, the brokerage firm cannot vote the shares on that proposal. This is called a “broker non-vote.”

 

We encourage you to provide instructions to your brokerage firm by voting your proxy. This action ensures your shares will be voted at the meeting in accordance with your wishes.

 

How are abstentions and broker non-votes counted?

 

Broker non-votes will be considered as present for purposes of establishing a quorum but not entitled to vote with respect to that matter. Because the matters for stockholder consideration at the annual meeting are “routine” matters, the brokers will have discretionary authority to vote the shares and broker non-votes will not affect the outcome of the votes.

 

How are votes tabulated?

 

According to our 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 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.

 

Important Notice Regarding the Availability of Proxy Materials for the Stockholder Meeting

to be Held on January 8, 2009

 

The proxy statement and annual report are available at http://bnymellon.mobular.net/bnymellon/ayi.

 

 

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 our 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 our website under “SEC Filings” and “Section 16 Filings.”

 

Our proxy materials and annual report are available on our 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.”

 

The Board has delegated certain functions to the Executive Committee, the Audit Committee, the Compensation Committee, and the Governance Committee. Our Statement of Responsibilities of the Committees of the Board contains each Committee’s charter. For information about where to find the charters, 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, 2008, the Board met four times. All directors attended 100% of the total meetings held by the Board and their respective committees during the fiscal year. We typically expect 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 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 met once during the fiscal year.

 

The Audit Committee is responsible for matters pertaining to our auditing, internal control, and financial reporting, as set forth in the Committee’s report (see “Report of the Audit Committee’’) and in its charter. Each member of the Committee is independent under the requirements of the SEC and the Sarbanes-Oxley Act of 2002. In addition, each member of the Committee meets 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 auditor, and with the chief financial officer and the general counsel of our lighting business, without other management present. The Board has determined that Messrs. Clendenin, Guynn 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 six meetings during the 2008 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. At most regularly scheduled meetings, 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 2008 fiscal year.

 

The Governance Committee is responsible for reviewing matters pertaining to the composition, organization, and practices of the Board. The Committee’s responsibilities, as set forth in its charter, 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 any new Board positions 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 2008 fiscal year.

 

The directors serving on the Compensation Committee of the Board during the fiscal year ended August 31, 2008 were Ray M. Robinson, Chairman, Peter C. Browning and Julia B. North. None of these individuals are or ever have been our officers or employees. During the 2008 fiscal year, none of our executive officers 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 our other directors are affiliated.

 

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:

 

 

Annual Director Fees

 

In fiscal 2008, each non-employee director received an annual director fee in the amount of $130,000, which included 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 received $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 director 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.

 

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

 

The Board has not approved any changes to non-employee director compensation for fiscal 2009.

 

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 director 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.

 

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 2008

 

The following table sets forth information concerning the fiscal 2008 compensation of our non-employee directors:

 

 

 

 

 

The following table sets forth information concerning beneficial ownership of our common stock as of November 17, 2008, 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 as a group, and by beneficial owners of more than five percent of our common stock.

 

 

 

 

 

Directors, officers and persons who beneficially own more than 10% of our common stock are required by Section 16(a) of the Exchange Act to file reports of ownership and changes in ownership of our common stock with the SEC, the New York Stock Exchange, and us. All filings were timely in fiscal 2008, except that Forms 4 for Messrs. Nagel and Reece were filed late to report a restricted stock grant in November 2007 and a Form 4 for Mr. Guynn was filed late to report a stock unit grant in May 2008, each due to an administrative error.

 

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.

 

We have transactions in the ordinary course of business with unaffiliated corporations and institutions, or their subsidiaries, for which certain of our non-employee directors serve as directors. None of our directors 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. We annually request each director to verify and update the following information:

 

 

We compile a list of all such persons and entities and it has been reviewed and updated, we distribute it 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 non-employee directors with us, management believes the directors had no direct or indirect material interest in transactions in which we engaged with those companies during the fiscal year.

 

ITEM 1—ELECTION OF DIRECTORS

 

The Board is responsible for supervising the management of the Company. The Board has determined that all of its current 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 our 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 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. Our 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 eight.

 

The terms for three of our directors, Peter C. Browning, John L. Clendenin, and Ray M. Robinson, expire at this annual meeting. Messrs. Browning, Clendenin, and Robinson have been nominated for re-election at the annual meeting. If elected, Messrs. Browning, Clendenin, and Robinson will hold office for three-year terms expiring at the annual meeting for fiscal year 2011 or until their successors are elected and qualified.

 

On March 27, 2008, George C. (Jack) Guynn was appointed to the class of directors whose term expires at the annual meeting for fiscal year 2009. He was recommended as a candidate by one of our non-management directors, and nominated and vetted in accordance with the Board of Directors’ Corporate Governance Guidelines. Mr. Guynn will stand for election at the upcoming annual meeting. If elected, Mr. Guynn will hold office until the annual meeting for fiscal year 2009 or until his successor is elected and qualified.

 

The Board has also nominated Gordon D. Harnett as a member of the class of directors whose term expires at the annual meeting for fiscal year 2010. He was recommended as a candidate by one of our non-management directors, and nominated and vetted in accordance with the Board of Directors’ Corporate Governance Guidelines. The Board has determined that Mr. Harnett has no material relationship with the Company, and is therefore independent, based on the listing standards of the New York Stock Exchange, the categorical standards set forth in the Governance Guidelines, and a finding of no other material relationships. If elected, Mr. Harnett will hold office until the annual meeting for fiscal year 2010 or until his successor is elected and qualified.

 

Due to the nomination of Mr. Harnett, the Board has resolved to increase its size to nine directors as of the annual meeting.

 

Our Governance Guidelines previously provided that directors would not be nominated for election after their 72nd birthday and were expected to offer to resign as of the annual meeting following their 72nd birthday. The term of Mr. Clendenin, who is 74 years old, expires at this annual meeting. After due consideration, the Board determined that it was in the best interests of the Company and its stockholders to waive this provision of the Governance Guidelines to allow the Board to nominate Mr. Clendenin as a director for election after his 72nd birthday. The Board determined, in its discretion, that the Company and the Board should continue to benefit from Mr. Clendenin’s leadership. The waiver was adopted in October 2008.

 

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.

Four of the director nominees listed below are currently directors of the Company. One of the director nominees, Mr. Harnett, is not a current director 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 the Company, if applicable.

 

 

 

 

The Board of Directors recommends that you vote FOR all director nominees.

 

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

 

 

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 our financial statements for the fiscal year ending August 31, 2009. E&Y has performed this function for us since 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 2008 is set out below in “Fees Billed by Independent Registered Public Accounting Firm.”

 

The Board of Directors recommends that you vote FOR the ratification of the appointment of Ernst & Young LLP as our independent registered public accounting firm.

 

 

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 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, 2008 for filing with the SEC.

 

AUDIT COMMITTEE

 

Robert F. McCullough, Chairman
John L. Clendenin
George C. (Jack) Guynn
Neil Williams

 

The following table sets forth the aggregate fees billed during the fiscal years ended August 31, 2008 and 2007:

 

 

Audit Fees include fees for services rendered for the audit of our 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 our internal controls 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 us primarily for the annual audits of our defined contribution plans.

 

Tax Fees include amounts billed to us primarily for domestic and international tax compliance and a review of our federal income tax return in 2007 and international tax compliance in 2008.

 

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 our independent registered public accounting firm, to pre-approve the performance of all audit and permitted non-audit services provided to us by our independent registered public accounting firm in accordance with Section 10A of the Exchange Act, and to review with our 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.

 

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.

 

Executive Officers

 

Executive officers are elected annually by the Board 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—Directors with Terms Expiring at the 2009 and 2010 Annual Meetings.”

 

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

 

 

The Compensation Committee has reviewed and discussed with management the following Compensation Discussion and Analysis section of the 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 Proxy Statement for fiscal 2008 for filing with the SEC.

 

The Compensation Committee

 

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

 

This section of the proxy statement describes the material elements of the fiscal 2008 compensation program for the executive officers named in the Summary Compensation Table, who are called the named executive officers. This section also includes information about our executive compensation philosophy, the overall objectives of our compensation program and each element of compensation that we provide. It also describes the key factors the Compensation Committee considers in determining compensation for the named executive officers.

 

For fiscal 2008, our named executive officers are:

 

 

The Spin-Off

 

Historically, Acuity Brands, Inc. owned and managed two businesses that serve distinctive markets—lighting equipment and specialty products. The lighting equipment segment, operated by Acuity Brands Lighting, Inc. and other subsidiaries, referred to as ABL, designs, produces, and distributes a broad array of indoor and outdoor lighting fixtures and lighting related products and services for commercial and institutional, industrial, infrastructure, and residential applications for various markets throughout North America and select international markets. The specialty products segment, operated by Zep Inc., is a producer, marketer, and service provider of a wide range of cleaning and maintenance solutions for commercial, industrial, institutional, and consumer end-markets primarily throughout North America and Europe. We completed the spin-off of Zep Inc. on October 31, 2007. We continue to operate in the lighting equipment business segment.

 

Key Fiscal 2008 Accomplishments

 

We had a very successful year in 2008, achieving record financial results in a number of key metrics. In addition, we completed the spin-off to our shareholders of our specialty chemicals business, creating two more focused organizations positioned to pursue their own growth strategies more effectively. Our financial accomplishments are especially noteworthy since we had to overcome a significant rise in commodity prices and the turbulent economic conditions in the U.S., along with the weak demand that continues to prevail in the residential housing market and for new store construction in certain retail channels. Key financial accomplishments in fiscal 2008 include:

 

 

These results exclude the specialty chemicals business, which was spun off to the shareholders of Acuity Brands on October 31, 2007 as Zep Inc. These results do include a $14.6 million pre-tax special charge, or $0.21 per diluted share, for actions taken to streamline and simplify the organization, including the corporate office, following the spin-off of Zep Inc.

 

Compensation Philosophy

 

We aspire 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:

 

 

As we believe there must be a strong relationship between executive compensation and the creation of value for stockholders, we strive to pay upper quartile (75^th percentile) compensation only when we achieve upper quartile performance.

 

Our philosophy is to compensate management and other key associates through a combination of base salary and variable incentive compensation based on Company performance. To create a true pay-for-performance environment, total compensation is comprised of a base salary, generally targeted to be at median (or lower, as in the case of Mr. Nagel), plus significant at-risk performance-based variable annual and long-term incentive compensation. Our executive compensation program has been guided by the following principles, which are intended to support our pay-for-performance philosophy:

 

 

The executive compensation program is designed to:

 

 

In implementing our compensation philosophy, we emphasize the significant amount of risk factored into the total direct compensation mix (base salary and annual and long-term incentive awards) of our named executive officers with expectations for sustained upper quartile Company performance. This places each executive officer’s total direct compensation opportunity subject to considerable leverage—low fixed pay in the form of base salary and a wide range of possible outcomes with respect to annual and long-term incentive compensation driven by performance. A distinct example of this strategy is the compensation opportunity of our Chief Executive Officer, Vernon J. Nagel. Mr. Nagel’s base salary is established at the lower quartile of the Company’s peer group (described below), and has remained fixed at this low level for several years. At the same time, Mr. Nagel’s annual incentive target is structured to provide an opportunity for him to earn total annual cash compensation at the upper quartile of

competitive compensation benchmarks by establishing targeted levels of performance for Mr. Nagel at upper quartile levels of Company performance as compared to the Company’s peers.

 

Role of Compensation Consultant

 

Under its charter, the Compensation Committee is authorized to engage outside advisors at our expense. In fiscal 2008, the Compensation Committee engaged the compensation consulting firm of Towers Perrin to advise the Committee regarding compensation of our executive officers, and other compensation-related matters such as benefit plans. The Compensation Committee periodically approves an engagement letter that describes the duties to be performed by the consultant and the related costs. The chairman of the 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. During fiscal year 2008, Towers Perrin provided additional consulting services to the Company which included investment advice and performance reporting for the Company’s domestic qualified defined benefit and defined contribution plans.

 

Under the engagement letter for fiscal 2008, Towers Perrin performed the following services for the Compensation Committee, in addition to preparation for and attendance at meetings of the Compensation Committee:

 

 

During fiscal year 2008, the Compensation Committee met in executive session to discuss and evaluate the performance of Towers Perrin in serving as the Committee’s independent advisor. Based on its evaluation, the Compensation Committee decided to engage the Towers Perrin firm as its advisor for fiscal year 2009.

 

Market Data

 

The Compensation Committee annually compares the various elements of our executive compensation program with respect to the chief executive officer in order to gauge compensation levels relative to that of the market and our competitors through the use of publicly available market surveys and total compensation studies and long-term incentive compensation analyses provided by the Compensation Committee’s compensation consultant, Towers Perrin. The Compensation Committee performs similar comparisons for our other executive officers periodically, though it did not perform such a comparison for our other executive officers in fiscal 2008.

 

During fiscal 2008, Towers Perrin provided compensation data for purposes of the chief executive officer’s compensation review. The compensation data was obtained from the Towers Perrin 2008 Compensation Data Bank Executive Compensation Database and the Watson Wyatt Worldwide’s 2008/2009 Top Management Compensation Calculator. In each case, the total sample of survey participants was narrowed to include only those companies of comparable-size that are representative of the companies with whom Acuity Brands competes for executive talent.

 

For purposes of analyzing the chief executive officer’s compensation, at the request of the Compensation Committee, Towers Perrin compiled a list of recommended peer companies that would be a representative example of organizations of comparable size and business focus. Towers Perrin developed a list of recommended peer companies based upon an assessment of each company’s annual revenues, market capitalization, one-year and three-year levels of historical profitability, and one-year and three-year levels of historical total shareholder returns. The Compensation Committee reviewed the recommendations of the consultant and approved the list of peer companies. The following list of 19 companies comprising the peer group are selected to represent a diverse, general industry composite including consumer products, industrial manufacturing, and/or wholesale/retail trade

companies with size and financial characteristics generally comparable to the Company. For fiscal 2008, the 19 companies making up the peer group included:

 

 

General Compensation Levels

 

The total direct compensation opportunities offered to our executive officers have been designed to ensure that they have a strong relationship with the creation of value for stockholders, are competitive with market practices, support our 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 Compensation Committee considers: compensation information and input, including market data, 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.

 

Weighting and Selection of Elements of Compensation

 

The Compensation Committee determines the mix and weightings of each of the compensation elements by considering comparative compensation data as described above. Generally, in fiscal 2008 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 plan guidelines as well as its judgment and discretion in deciding the mix and value of total long-term incentive compensation. The Compensation Committee uses various equity-related vehicles, including restricted stock and stock options, to motivate executives to act 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 (for ABL executives, ABL performance), in each case subject to adjustment based on individual performance. Once the applicable performance criteria have been satisfied, an award of time-vesting restricted stock or stock options, or a combination of both, is made to the participants. Restricted stock and stock options are 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.

 

Elements of Executive Compensation

 

We use the following compensation elements in our executive compensation program:

 

 

The compensation program also includes minimal perquisites and other personal benefits (only a charitable contribution match in fiscal 2008). In addition, named executive officers generally participate in our health and welfare plans on the same basis as other full-time employees.

 

The objective for each element of compensation is described below.

 

 

Base Salary

 

The Compensation Committee 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 generally are set near or below the 50th percentile. For the chief executive officer, the Compensation Committee considers the peer group data described above in determining market levels. For the other executive officers, the Compensation Committee considers periodic studies issued by various consulting firms to determine market levels.

 

In accordance with our pay-for-performance philosophy, Mr. Nagel’s salary is in the bottom quartile of the peer group and has not been increased since 2004. A significant portion of Mr. Nagel’s compensation, as well as for most senior levels of management, is tied to variable compensation based on Company performance. Messrs. Reece, Black, Quick and Murphy did not receive a base salary increase in fiscal 2008. Effective March 1, 2008, the Compensation Committee increased Mr. Hartman’s base salary from $310,000 to $360,000 in connection with an organizational realignment which included Mr. Hartman’s assumption of increased responsibilities as Chief Commercial Officer for all brands of Acuity Brands Lighting.

 

The Compensation Committee approved base salary increases for fiscal 2009, effective November 1, 2008, as follows: Mr. Reece’s salary was increased to $412,000 from $400,000; Mr. Black’s salary was increased to $320,000 from $300,000; and Mr. Quick’s salary was increased to $320,000 from $310,000. The increases were based on considerations of individual performance of each executive officer, as well as internal pay equity among senior management. Mr. Nagel did not receive a base salary increase, as the Compensation Committee continued to believe that any increased compensation for the chief executive officer should be tied to Company performance. Mr. Hartman did not receive an increase as his salary was increased in fiscal 2008.

 

Short-Term Incentives

 

Performance-based annual incentive compensation is a key component of our executive compensation strategy. This element is designed to be a significant at-risk component of overall compensation.

Annual incentive awards are made under the Acuity Brands, Inc. 2007 Management Compensation and Incentive Plan (the “Annual Incentive Plan”), which was approved by Acuity Brands’ stockholders at the January 2008 annual meeting. The Annual Incentive Plan is designed to motivate executive officers to attain specific short-term performance objectives that, in turn, further our 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 ABL 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. In addition, for Messrs. Nagel and Reece, the actual award earned is subject to the application of negative discretion by the Compensation Committee. The Committee takes into account individual performance for the fiscal year in applying the negative discretion. The award, if earned, is paid in cash.

 

Financial Performance—General

 

Generally, at the beginning of the fiscal 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. For most participants, achieving target financial performance would yield an award of 100% of the target amount set at the beginning of the year, excluding any individual performance factor. However, for Messrs. Nagel and Reece, achieving target financial performance would yield an award of 200% of the target amount, which is then subject to the application of negative discretion by the Compensation Committee. The target and maximum levels are structured this way for certain senior executives to comply with the requirements of Section 162(m) of the Code (see “Tax Deductibility Policy” below). Actual 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 our 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 the ABL 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 ABL business unit performance, as appropriate for that named executive officer.

 

Fiscal 2008 Financial Performance Measures and Weighting

 

The performance measures and weighting for fiscal 2008 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 our long-term financial goals and resulting in market appreciation for stockholders. For fiscal 2008, the performance measures and weighting selected were as follows:

 

 

 

These were primarily the same performance measures and weightings that the Committee used for fiscal 2007.

 

 

 ¹ Defined as earnings before interest and taxes.

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 consistent with overall company objectives and (2) considering, on a qualitative basis, whether the individual’s performance reflects our 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 the other named executive officers were set after individual discussion with the chief executive officer. The individual objectives established for the named executive officers include objectives that are common across all executives, and objectives specific to each individual’s role at our company. For example, an individual objective common for all of the named executive officers included the further development and implementation of continuous improvement (or “Lean”) processes and culture within the Company. The successful spin-off of Zep Inc. was an individual objective for Messrs. Nagel and Reece. At the end of the fiscal year, each participant, including the named executive officers, is given an individual performance management process rating (a PMP Rating), which is translated to a PMP Payout Percentage.

 

The maximum PMP Payout Percentage that can be earned by participants in the plan is 133%. However, for Messrs. Nagel and Reece, the maximum PMP Payout Percentage that can be earned is 120% and that maximum percentage is assumed as being met for annual incentive award purposes prior to the application of negative discretion by the Compensation Committee. At the end of the fiscal year, the Compensation Committee or the Board, as applicable, selects the precise payout percentage within the range (or reduces the assumed percentage for Messrs. Nagel and Reece) based on factors such as level of responsibility and impact on our performance, with calibrations made across comparable positions to achieve consistency of the percentages selected.

 

The table below sets forth the range of PMP Ratings and the possible PMP Payout Percentages for all participants.

 

 

 

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 considers it 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 Annual Incentive Target Percentage, representing the percentage of base salary used in the determination of the award, is set at the beginning of the year for each of the named executive officers. For fiscal 2008, they were as follows: Mr. Nagel—150%; Mr. Reece—65%; Mr. Black—55%; Mr. Hartman—60%; Mr. Quick—55%; and Mr. Murphy—60%.

 

The Financial Performance Payout Percentage at target is 100% for most participants in the Annual Incentive Plan. For Messrs. Nagel and Reece, the Financial Performance Payout Percentage at target is 200%. 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 annual incentive award, assuming that Company performance was at target and that he received an actual PMP Rating of “superior” equivalent to a PMP Payout Percentage of 120%, would be as follows:

$600,000 x (150% x 200%) x 120% = $2,160,000

 

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 2008 Annual Incentive Award

 

The following table outlines the fiscal 2008 performance measures, the weighting for each performance measure and the threshold, target, maximum, and actual 2008 performance levels, as determined by the Compensation Committee. In accordance with our pay-for-performance philosophy, the performance measures at the target level are set at a level approximately equal to the 75th percentile of longer-term financial performance for public companies in the S&P 500 and S&P 600 indexes.

 

Because the performance levels at threshold, target and maximum were derived from our long-term financial performance targets, which are in the upper quartile of financial performance for industrial companies, they differed from the operating plan targets for fiscal 2008. In setting the performance level for fiscal 2008, the Compensation Committee set performance measures that were adjusted to reflect the spin-off of Zep Inc. The maximum award is designed to reward only exceptional performance.

 

 

 

In October 2008, based on the Compensation Committee’s certification of performance with respect to fiscal 2008 annual incentive targets using information prepared by the finance department, the Board approved the Compensation Committee’s recommendations with respect to fiscal 2008 annual incentives for the named executive officers. The following table outlines the threshold, target, maximum, and actual 2008 awards earned under the Annual Incentive Plan for each of the named executive officers for fiscal 2008 as a dollar amount (in thousands).

The target level awards assume that the PMP Rating was 120% (superior) and the maximum level awards assume the highest PMP Rating eligible for each participant.

 

 

 

Based on the achievement of Company performance measures and their assumed PMP Ratings, Messrs. Nagel and Reece were eligible to receive annual incentive awards of $4,000,000 and $1,218,000, respectively. In accordance with past practice, the Compensation Committee exercised negative discretion to reduce the amount of the awards for Messrs. Nagel and Reece, as shown in the table above. Based on the achievement of ABL performance measures and their PMP Rating, Messrs. Black, Hartman and Quick earned annual incentive awards of $570,000, $535,000, and $525,000, respectively. Mr. Murphy’s award was also based on the achievement of Company performance measures, and was prorated for the time that he served as an employee during fiscal 2008. There was no negative discretion applied to the amounts for Messrs. Black, Hartman, Quick and Murphy.

 

Long-Term Incentives

 

A substantial portion of the total direct compensation of our named executive officers is delivered in the form of long-term equity, including restricted stock and stock options. 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 Amended and Restated Acuity Brands, Inc. Long-Term Incentive Plan (the “LTIP”), which was approved by stockholders at the January 2008 annual meeting.

 

The purpose of the LTIP is to enable executive officers and other eligible associates to accumulate capital through future managerial performance, which the Compensation Committee believes contributes to the future success of our Company. The LTIP creates a pool of equity available for annual grants to all eligible associates, 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 Compensation Committee selects performance criteria, upon which awards under the LTIP are based, from the array of performance measures contained in the LTIP. Threshold, target and maximum targets are set by the Compensation Committee.

 

Target awards are determined as a percentage of each executive officer’s salary. For most participants in the LTIP, achieving target Company financial performance yields an award of 100% of the target award for the participant, excluding any individual performance factor. For Messrs. Nagel and Reece, achieving target Company performance yields an award of 200% of the target award. The greater percentage for these named executive officers 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 participant are determined by comparing actual Company performance against the established performance criteria for the year. Final awards also 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 our performance with calibrations made across comparable positions to achieve consistency of the percentages selected. For Messrs. Nagel and Reece, the maximum PMP Payout Percentage was assumed as being met for LTIP award purposes prior to the application of negative discretion by the Compensation Committee.

 

The dollar amount of each actual LTIP award, including the named executive officers, is determined as follows:

 

Base Salary x (LTIP Target % x Financial Performance Payout %) x PMP Payout %

 

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 2008, the Compensation Committee used negative discretion to reduce the awards for Messrs. Nagel and Reece, but did not approve any payment of awards not warranted by financial performance.

 

The final dollar-denominated awards are then converted into time-vesting restricted stock, stock options, or a combination of the two, as determined by the Compensation Committee. The restricted stock generally vests over a four-year period. Dividends are paid on the restricted stock. 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.

 

Fiscal 2008 Awards

 

For fiscal 2008, the Compensation Committee determined that the performance criterion for LTIP awards was earnings per share. The target EPS was $3.04, with a threshold of $2.68 and a maximum of $3.51. The award formula payout percentage is 0% for threshold performance, 100% for target performance and 150% for maximum performance. For Messrs. Nagel and Reece, 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 150% (300% for Messrs. Nagel and Reece), even if actual performance exceeds the level of performance corresponding to the maximum payout percentage. The Compensation Committee was expected to apply negative discretion to the award for Messrs. Nagel and Reece.

 

The appropriate EPS targets were derived from our 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 2008. 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 16.0% increase over the prior year and the maximum award represented a 21.8% increase over the prior year. This compares favorably to our upper quartile performance goal of 15% annual growth. The maximum award is designed to reward only exceptional performance.

We achieved $3.57 in diluted earnings per share, which was above the maximum target. The following table outlines the award targets and 2008 actual award values under the LTIP for each of the named executive officers for fiscal 2008 as a dollar amount (in thousands). The target and maximum awards listed assume that the PMP Rating was “Outstanding” (150%). In setting these levels, we expected that the Compensation Committee would exercise negative discretion in determining the final awards for Messrs. Nagel and Reece.

 

 

 

The actual awards earned by Messrs. Black, Hartman and Quick were based on the maximum target and each person’s PMP Rating. For Messrs. Nagel and Reece, the actual awards earned were based on the maximum target and each person’s PMP Rating, as well as the Compensation Committee’s application of negative discretion in determining the final amount of each award. Due to the Company’s termination of his employment during the year, Mr. Murphy was not eligible to receive an LTIP award for fiscal 2008.

 

Equity Award Grant Practices

 

Annual equity awards under the LTIP are approved by the Compensation Committee and the Board 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. We do not time the granting of equity awards to the disclosure of material information.

 

Executive Perquisites

 

Perquisites and other personal benefits comprised a minimal portion of our executive compensation program. The only perquisite or other personal benefit provided by us to executive officers in fiscal 2008 was a Company match on charitable contributions up to $5,000 for Messrs. Nagel and Reece and up to $2,500 for Messrs. Black, Hartman and Quick.

 

Retirement Benefits

 

We provide retirement benefits under a number of defined benefit retirement plans. As of December 31, 2002, we froze the pension benefits under certain plans 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 benefits lost when the pension plan was frozen.

 

Effective January 1, 2003, we 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 annual incentive payment (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 (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.) Messrs. Nagel, Reece and Murphy participated in the 2002 SERP in fiscal 2008.

 

We also maintain several deferred compensation plans which are described below under “Fiscal 2008 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, we make contributions to participants’ accounts.

 

We maintain a defined contribution 401(k) plan that covers our employees and former employees. The 401(k) plan provides for employee pre-tax contributions and employer matching contributions.

Change in Control Agreements

We have change in control agreements with our named executive officers that provide for separation payments and benefits, consistent with common market practices among our peers, upon qualifying terminations of employment in connection with a change in control of our Company. 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 in order that they may devote their energies to meeting the business objectives and needs of our Company and our stockholders. For additional information on the change in control arrangements see “Potential Payments upon Termination—Change in Control Agreements” below.

 

Severance Agreements

To ensure that we are offering a competitive executive compensation program, we believe it is important to provide reasonable severance benefits to our 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. 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 “Potential Payments upon Termination—Severance Agreements” below.

 

Equity Ownership Requirements

Our executive officers became subject to a share ownership requirement in 2004. 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. The share ownership requirement provides that, over a four-year period, Mr. Nagel will attain ownership in our common stock valued at four times his annual base salary, Mr. Reece will attain ownership valued at three times his annual base salary and that the other named executive officers will attain ownership valued at two times their annual base salaries. The ownership of each named executive officer that was our employee at the end of the fiscal year 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 our 401(k) plan. Stock options are not taken into consideration in meeting the ownership requirements.

 

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 we do 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 our compensation programs, fiscal 2008 incentive targets for our executive officers that were named executive officers in fiscal 2007 and employed by the Company at the end of fiscal 2008 were twice that of other participants. While the Compensation Committee does not intend that an executive officer will earn such an 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.

 

Meetings of the Compensation Committee are regularly attended by the chief executive officer and the corporate secretary. Frequently, the chief financial officer also attends meetings of the Committee.

 

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

 

The following table presents information concerning compensation for the named executive officers for fiscal 2008 and 2007.

 

 

 

 

 

 

The following table provides information about equity and non-equity awards granted to the named executive officers during fiscal 2008.

 

 

 

 

The following table provides information on the holdings of stock options and restricted stock awards by the named executive officers at August 31, 2008. This table includes unexercised and unvested option awards, unvested restricted stock awards, and the target value of equity awards under the LTIP for fiscal 2008 performance, which were not determinable as of August 31, 2008. Each equity grant is shown separately for each named executive officer. The vesting schedule for each grant is shown following the table, based on the option or stock award grant date. The option exercise prices shown below are the closing market price of our stock on the New York Stock Exchange on the grant date.