UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

SCHEDULE 14A

INFORMATION REQUIRED IN PROXY STATEMENT
SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of the Securities
Exchange Act of 1934

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NACCO INDUSTRIES, INC.

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5875 LANDERBROOK DRIVE

CLEVELAND, OHIO 44124-4069

 

NOTICE OF ANNUAL MEETING

 

The Annual Meeting of stockholders of NACCO Industries, Inc., which is referred to as the Company, will be held on Wednesday, May 13, 2009 at 9:00 A.M., at 5875 Landerbrook Drive, Cleveland, Ohio, for the following purposes:

 

 

The Board of Directors has fixed the close of business on March 16, 2009 as the record date for the determination of stockholders entitled to notice of, and to vote at, the Annual Meeting or any adjournment thereof. The Proxy Statement and related form of proxy are being mailed to stockholders commencing on or about March 24, 2009.

 

Charles A. Bittenbender

Secretary

 

March 24, 2009

 

Important Notice Regarding the Availability of Proxy Materials for the
Annual Meeting of Stockholders To Be Held on May 13, 2009

 

 

If you wish to attend the meeting and vote in person, you may do so.

 

 

 

5875 LANDERBROOK DRIVE

CLEVELAND, OHIO 44124-4069

 

PROXY STATEMENT — March 24, 2009

 

This Proxy Statement is furnished in connection with the solicitation by the Board of Directors of NACCO Industries, Inc., a Delaware corporation which is referred to as the Company, of proxies to be used at the annual meeting of stockholders of the Company to be held on May 13, 2009, which is referred to as the Annual Meeting. This Proxy Statement and the related form of proxy are being mailed to stockholders commencing on or about March 24, 2009.

 

If the enclosed form of proxy is executed, dated and returned, or you vote electronically, the shares represented by the proxy will be voted as directed on all matters properly coming before the Annual Meeting for a vote. Proxies that are properly signed without any indication of voting instructions will be voted for the election of each director nominee, for the confirmation of the appointment of the independent registered public accounting firm, and as recommended by the Board of Directors with regard to any other matters or, if no recommendation is given, in the proxy holders’ own discretion. The proxies may be revoked at any time prior to their exercise by giving notice to the Company in writing or by executing and delivering a later dated proxy. Attendance at the Annual Meeting will not automatically revoke a proxy, but a stockholder attending the Annual Meeting may request a ballot and vote in person, thereby revoking a previously granted proxy.

 

Stockholders of record at the close of business on March 16, 2009 will be entitled to notice of, and to vote at, the Annual Meeting. On that date, the Company had outstanding and entitled to vote 6,681,480 shares of Class A Common Stock, par value $1.00 per share, which is referred to as the Class A Common, and 1,604,398 shares of Class B Common Stock, par value $1.00 per share, which is referred to as the Class B Common. Each share of Class A Common is entitled to one vote for a nominee for each of the ten directorships to be filled and one vote on each other matter properly brought before the Annual Meeting. Each share of Class B Common is entitled to ten votes for each such nominee and ten votes on each other matter properly brought before the Annual Meeting.

 

At the Annual Meeting, in accordance with Delaware law and the Company’s Bylaws, the inspectors of election appointed by the Board of Directors for the Annual Meeting will determine the presence of a quorum and will tabulate the results of stockholder voting. As provided by Delaware law and the Company’s Bylaws, the holders of a majority of the Company’s stock, issued and outstanding, and entitled to vote at the Annual Meeting and present in person or by proxy at the Annual Meeting, will constitute a quorum for the Annual Meeting. The inspectors of election intend to treat properly executed proxies marked “abstain” as “present” for purposes of determining whether a quorum has been achieved at the Annual Meeting. The inspectors will also treat proxies held in “street name” by brokers that are voted on at least one, but not voted on all, of the proposals to come before the Annual Meeting, which are referred to as broker non-votes, as “present” for purposes of determining whether a quorum has been achieved at the Annual Meeting.

 

Class A Common and Class B Common will vote as a single class on all matters anticipated to be brought before the Annual Meeting. In accordance with Delaware law, the ten director nominees receiving the greatest number of votes will be elected directors. In accordance with the Company’s Bylaws, the holders of a majority of the voting power of the Company’s stock which is present in person or by proxy, and which is actually voted, will decide any other proposal which is brought before the Annual Meeting. As a result, abstentions in respect of any proposal and broker non-votes will not be counted for purposes of determining whether a proposal has received the requisite approval by the Company’s stockholders.

 

In accordance with Delaware law and the Company’s Bylaws, the Company may, by a vote of the stockholders, in person or by proxy, adjourn the Annual Meeting to a later date or dates, without changing the record date. If the Company were to determine that an adjournment was desirable, the appointed proxies would use the discretionary authority granted pursuant to the proxy cards to vote in favor of such an adjournment.

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BUSINESS TO BE TRANSACTED

 

 

Director Nominee Information

 

It is intended that shares represented by proxies in the enclosed form will be voted for the election of the nominees named in the following table to serve as directors for a term of one year and until their successors are elected, unless contrary instructions are received. All of the nominees listed below presently serve as directors of the Company and were elected at the Company’s 2008 annual meeting of stockholders. If an unexpected occurrence should make it necessary, in the judgment of the proxy holders, to substitute some other person for any of the nominees, shares represented by proxies will be voted for such other person as the proxy holders may select.

 

Beneficial Ownership of Class A Common and Class B Common

 

Set forth in the following tables is the indicated information as of March 3, 2009 (except as otherwise indicated) with respect to (i) each person who is known to the Company to be the beneficial owner of more than five percent of the Class A Common, (ii) each person who is known to the Company to be the beneficial owner of more than five percent of the Class B Common and (iii) the beneficial ownership of Class A Common and Class B Common by the directors, the Company’s principal executive officer, principal financial officer and the three other most highly compensated executive officers of the Company and its subsidiaries during 2008, which are referred to as the Named Executive Officers, and all executive officers and directors as a group. Beneficial ownership of Class A Common and Class B Common has been determined for this purpose in accordance with Rules 13d-3 and 13d-5 of the Securities and Exchange Commission, which is referred to as the SEC, under the Securities Exchange Act of 1934, which is referred to as the Exchange Act. Accordingly, the amounts shown in the tables do not purport to represent beneficial ownership for any purpose other than compliance with SEC reporting requirements. Further, beneficial ownership as determined in this manner does not necessarily bear on the economic incidence of ownership of Class A Common or Class B Common.

 

Holders of shares of Class A Common and Class B Common are entitled to different voting rights with respect to each class of stock. Each share of Class A Common is entitled to one vote per share. Each share of Class B Common is entitled to ten votes per share. Holders of Class A Common and holders of Class B Common generally vote together as a single class on matters submitted to a vote of the Company’s stockholders. Shares of Class B Common are convertible into shares of Class A Common on a one-for-one basis, without cost, at any time at the option of the holder of the Class B Common.

 

AMOUNT AND NATURE OF BENEFICIAL OWNERSHIP

 

CLASS A COMMON STOCK

 

 

 

 

CLASS B COMMON STOCK

 

 

 

 

Beatrice B. Taplin is the sister-in-law of Clara Taplin Rankin. Britton T. Taplin is the son of Beatrice B. Taplin, and David F. Taplin is a nephew of Beatrice B. Taplin and Clara Taplin Rankin. Clara Taplin Rankin is the mother of Alfred M. Rankin, Jr. J.C. Butler, Jr., an executive officer of the Company, is the son-in-law of Alfred M. Rankin, Jr. The combined beneficial ownership of such persons shown in the foregoing tables equals 1,322,776 shares, or 19.8%, of the Class A Common and 1,183,344 shares, or 73.72%, of the Class B Common outstanding on March 3, 2009. The combined beneficial ownership of all directors of the Company, together with Clara Taplin Rankin, Beatrice B. Taplin and all of the executive officers of the Company whose beneficial ownership of Class A Common and Class B Common must be disclosed in the foregoing tables in accordance with Rule 13d-3 under the Exchange Act, equals 1,379,033 shares, or 20.64%, of the Class A Common and 1,185,319 shares, or 73.84%, of the Class B Common outstanding on March 3, 2009. Such shares of Class A Common and Class B Common together represent 58.23% of the combined voting power of all Class A Common and Class B Common outstanding on such date.

 

There exists no arrangement or understanding between any director and any other person pursuant to which such director was elected. Each director and executive officer serves until his successor is elected and qualified.

 

Directors’ Meetings and Committees

 

The Board of Directors has an Audit Review Committee, a Compensation Committee, a Nominating and Corporate Governance Committee, a Finance Committee and an Executive Committee. During 2008, the members of such committees were as follows:

 

 

Nominating and Corporate Governance Committee

Dennis W. LaBarre

Richard de J. Osborne

Michael E. Shannon (Chairman)

David F. Taplin

John F. Turben

The Audit Review Committee held nine meetings in 2008. The Audit Review Committee has the responsibilities set forth in its charter with respect to:

 

 

The Board of Directors has determined that Michael E. Shannon, the Chairman of the Audit Review Committee, qualifies as an audit committee financial expert as defined in Section 407(d) of Regulation S-K under the Exchange Act. Mr. Shannon is independent, as such term is defined in Section 303A.02 of the New York Stock Exchange’s listing standards and Rule 10A-3(b)(1) under the Exchange Act. The Board of Directors believes that, in keeping with the high standards of the Company, all members of the Audit Review Committee should have a high level of financial knowledge. Accordingly, the Board of Directors has reviewed the membership of the Audit Review Committee and determined that each member of the Committee is independent as defined in Section 303A.02 of the New York Stock Exchange’s listing standards and Rule 10A-3(b)(1) under the Exchange Act, is financially literate as defined in Section 303A.07(a) of the New York Stock Exchange’s listing standards, has accounting or related financial management expertise as defined in Section 303A.07(a) of the New York Stock Exchange’s listing standards, and may qualify as an audit committee financial expert. No members of the Audit Review Committee serve on more than three public company audit committees.

 

The Compensation Committee held four meetings in 2008. The Compensation Committee has the responsibilities set forth in its charter with respect to the administration of the Company’s policies, programs and procedures for compensating the Company’s employees, including its executive officers, and the directors. Among other things, the Compensation Committee’s direct responsibilities include:

 

 

The Compensation Committee retains and receives assistance in the performance of its responsibilities from an internationally recognized compensation consulting firm. Each member of the Compensation Committee is independent, as independence is defined in the listing standards of the New York Stock Exchange.

The Nominating and Corporate Governance Committee held two meetings in 2008. The Nominating and Corporate Governance Committee has the responsibilities set forth in its charter. Among other things, the Nominating and Corporate Governance Committee’s responsibilities include:

 

 

The Nominating and Corporate Governance Committee will consider director candidates recommended by the Company’s stockholders. See “Procedures for Submission and Consideration of Director Candidates” on page 61. In addition to the foregoing responsibilities, the Nominating and Corporate Governance Committee is responsible for reviewing the Company’s Corporate Governance Guidelines and recommending changes to the Corporate Governance Guidelines, as appropriate; overseeing evaluations of the Board’s effectiveness; and annually reporting to the Board of Directors the Nominating and Corporate Governance Committee’s assessment of the Board’s performance. Each member of the Nominating and Corporate Governance Committee is independent, as independence is defined in the listing standards of the New York Stock Exchange. However, the Nominating and Corporate Governance Committee may, from time to time, consult with certain other members of the Taplin and Rankin families, including Alfred M. Rankin, Jr., regarding the composition of the Board of Directors.

 

The Finance Committee held two meetings in 2008. The Finance Committee reviews the financing and risk management strategies of the Company and its principal subsidiaries and makes recommendations to the Board of Directors on matters concerning finance.

 

The Executive Committee held three meetings in 2008. The Executive Committee may exercise all of the powers of the Board of Directors over the management and control of the business of the Company during the intervals between meetings of the Board of Directors.

 

The Board of Directors held seven meetings in 2008. In 2008, all of the directors attended at least 75 percent of the total meetings held by the Board of Directors and by the committees on which they served during their tenure.

 

The Board of Directors has determined that, based primarily on the ownership of Class A Common and Class B Common by the members of the Taplin and Rankin families and their voting history, the Company has the characteristics of a “controlled company,” as that term is defined in Section 303A of the listing standards of the New York Stock Exchange, and may be one. Accordingly, the Board of Directors has determined that the Company could be characterized as a “controlled company.” However, the Board of Directors has elected not to make use at the present time of any of the exceptions to the requirements of the listing standards of the New York Stock Exchange that are available to controlled companies. Accordingly, at least a majority of the members of the Board of Directors is independent, as independence is defined in the listing standards of the New York Stock Exchange. In making a determination as to the independence of its directors, the Company considered the “Independence Standards for Directors” posted on the Company’s website and broadly considered the materiality of each director’s relationship with the Company. Based upon the foregoing criteria, the Board of Directors has determined that the following directors are independent: Owsley Brown II, Dennis W. LaBarre, Richard de J. Osborne, Ian M. Ross, Michael E. Shannon, Britton T. Taplin, David F. Taplin, John F. Turben and Eugene Wong.

 

In accordance with the rules of the New York Stock Exchange, the non-management directors of the Company are scheduled to meet in executive session, without management, in February of each year. The Chairman of the Compensation Committee presides at such meetings. Additional meetings of the non-

management directors may be scheduled from time to time when the non-management directors believe such meetings are desirable. The determination of the director who should preside at such additional meetings will be made based upon the principal subject matter to be discussed at the meeting. In addition to meetings of the non-management directors which occurred in 2008, the most recent such meeting occurred in February of 2009.

 

The Company holds a regularly scheduled meeting of its Board of Directors in conjunction with its annual meeting of stockholders. Directors are expected to attend the Annual Meeting absent an appropriate excuse. All of the incumbent members of the Board of Directors attended the Company’s 2008 annual meeting of stockholders.

 

The Company has adopted a code of ethics, entitled “Code of Corporate Conduct,” applicable to all Company personnel, including the principal executive officer, principal financial officer, principal accounting officer or controller, or other persons performing similar functions. Waivers of the Company’s code of ethics for directors or executive officers of the Company, if any, will be disclosed on the Company’s website. The Company has also adopted Corporate Governance Guidelines, which provide a framework for the conduct of the Board of Directors’ business. The Code of Corporate Conduct, the Corporate Governance Guidelines, the Independence Standards for Directors, as well as each of the charters of the Audit Review Committee, Compensation Committee and Nominating and Corporate Governance Committee, are posted on the Company’s website at http://www.nacco.com under the heading “Corporate Governance.” The Company will provide a copy of any of these documents, without charge, to any stockholder upon request. The information contained on or accessible through the Company’s website other than this Proxy Statement is not incorporated by reference into this Proxy Statement, and you should not consider such information contained on or accessible through the Company’s website as part of this Proxy Statement.

 

The Audit Review Committee reviews all relationships and transactions in which the Company and its directors and executive officers or their immediate family members are participants to determine whether such persons have a direct or indirect material interest in such transactions. The Company’s legal department is primarily responsible for the development and implementation of processes and controls to obtain information from the directors and executive officers with respect to related person transactions in order to enable the Audit Review Committee to determine, based on the facts and circumstances, whether the Company or a related person has a direct or indirect material interest in the transaction. As set forth in the Audit Review Committee’s charter, in the course of the review of a potentially material related person transaction, the Audit Review Committee considers:

 

 

Based on this review, the Audit Review Committee will determine whether to approve or ratify any transaction which is directly or indirectly material to the Company or a related person.

 

Any member of the Audit Review Committee who is a related person with respect to a transaction under review may not participate in the deliberations or vote with respect to the approval or ratification of the transaction; however, such director may be counted in determining the presence of a quorum at a meeting of the Audit Review Committee that considers the transaction.

Certain Business Relationships

 

Dennis W. LaBarre, a director of the Company and its principal subsidiaries, is a partner in the law firm of Jones Day. Such firm provided legal services on behalf of the Company and its principal subsidiaries during 2008 on a variety of matters, and it is anticipated that such firm will provide such services in 2009. The fees for the legal services rendered to the Company and its principal subsidiaries by Jones Day approximated $3.2 million for the year ended December 31, 2008. The fees for the legal services rendered to the Company by Jones Day were substantially less than 2% of Jones Day’s annual gross revenues for 2008. Mr. LaBarre does not receive any direct compensation from legal fees paid by the Company to Jones Day and these legal fees do not provide any material indirect compensation to Mr. LaBarre.

 

J.C. Butler, Jr., an executive officer of the Company, is the son-in-law of Alfred M. Rankin, Jr. In 2008, Mr. Butler received total compensation from the Company of $445,840, which includes annual compensation, long-term compensation and all other compensation.

 

Report of the Audit Review Committee

 

The Audit Review Committee has reviewed and discussed with the Company’s management and Ernst & Young LLP, the Company’s independent registered public accounting firm, the audited financial statements of the Company contained in the Company’s Annual Report to Stockholders for the year ended December 31, 2008. The Audit Review Committee has also discussed with the Company’s independent registered public accounting firm the matters required to be discussed by the Statement on Auditing Standards No. 61, as amended (AICPA, Professional Standards, Vol. 1 AU Section 380), as adopted by the Public Company Accounting and Oversight Board in Rule 3200T.

 

The Audit Review Committee has received and reviewed the written disclosures and the letter from Ernst & Young LLP required by applicable requirements of the Public Company Accounting Oversight Board regarding Ernst & Young LLP’s communications with the Audit Review Committee concerning independence, and has discussed with Ernst & Young LLP its independence.

 

Based on the review and discussions referred to above, the Audit Review Committee recommended to the Board of Directors that the audited financial statements be included in the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2008, filed with the SEC.

 

MICHAEL E. SHANNON, CHAIRMAN

RICHARD DE J. OSBORNE

JOHN F. TURBEN

 

Director Compensation

 

The following table sets forth all compensation of each director for services as directors to the Company and its subsidiaries for 2008, other than Alfred M. Rankin, Jr. In addition to being a director, Mr. Rankin is also the President and Chief Executive Officer of the Company. Mr. Rankin does not receive any compensation for his services as a director. Mr. Rankin’s compensation for services as an officer of the Company is shown in the Summary Compensation Table on page 44.

 

DIRECTOR COMPENSATION
For Fiscal Year Ended December 31, 2008

 

 

 

 

Description of Material Factors Relating to the Director Compensation Table

 

During 2008, each director who was not an officer of the Company or its subsidiaries received the following compensation for service on the Board of Directors and on subsidiary boards of directors:

 

 

The retainers are paid quarterly in arrears and the meeting fees are paid following each meeting. Each director is also reimbursed for expenses incurred as a result of attendance at meetings. The Company also occasionally makes its private aircraft available to directors for attendance at meetings of the Company and subsidiary boards of directors.

 

Under the Non-Employee Directors’ Plan, each director who was not an officer of the Company or its subsidiaries received $30,000 of his $55,000 retainer in shares of Class A Common, although any fractional shares were paid in cash. The actual number of shares of Class A Common issued to a director is determined by taking the dollar value of the portion of the $30,000 retainer that was earned by the director each quarter and dividing it by the average closing price of shares of Class A Common on the New York Stock Exchange for each week during such quarter. These shares are fully vested on the date of grant and the director is entitled to all rights of a stockholder, including the right to vote and receive dividends. However, the shares cannot be assigned, pledged, hypothecated or otherwise transferred by the director, voluntarily or involuntarily, other than:

 

 

The foregoing restrictions on transfer lapse upon the earliest to occur of:

 

 

In addition, each director has the right under the Non-Employee Directors’ Plan to receive shares of Class A Common in lieu of cash for up to 100% of the balance of his retainers and meeting attendance fees. The number of shares issued is determined under the same formula stated above. However, these Voluntary Shares are not subject to the foregoing transfer restrictions.

Director Compensation Program for 2009

 

The Company’s compensation program for directors for 2009 will be structured in an identical manner to the 2008 program, except that, in response to recent economic and business conditions, and in support of the financial sacrifices made by our employees as described in “Executive Compensation — Executive Compensation Program for 2009” beginning on page 42, the directors have agreed to reduce their retainers and meeting fees by 10%, effective January 1, 2009.

 

Executive Compensation

 

Compensation Discussion and Analysis

 

The following describes the material elements of compensation objectives and policies for the Company and its subsidiaries and the application of these compensation objectives and policies to those individuals named in the Summary Compensation Table on page 44, who we refer to as the Named Executive Officers. This discussion and analysis of the Company’s compensation program should be read in conjunction with the accompanying tables and text disclosing the compensation awarded to, earned by or paid to the Named Executive Officers during 2008.

 

Executive Compensation Governance

 

The Compensation Committee of the Board of Directors and the Compensation Committees of the Company’s subsidiary boards of directors, which are referred to collectively as the Compensation Committee unless the context requires otherwise, establish and oversee the administration of the Company’s policies, programs and procedures for compensating its employees, including its executive officers. Each Compensation Committee consists solely of independent non-employee directors. The Compensation Committee’s direct responsibilities include the review and approval of corporate goals and objectives relevant to compensation for the Chief Executive Officer and other executive officers, evaluation of the performance of the Chief Executive Officer and other executive officers in light of these performance goals and objectives, and determination and approval of the compensation levels of the Chief Executive Officer and other executive officers based on this evaluation. It also makes recommendations to the Board of Directors, where appropriate or required, and takes other actions with respect to all other compensation matters, including incentive compensation plans and equity-based plans.

 

Compensation Consultants

 

The Compensation Committee receives assistance and advice from the Hay Group^®, an internationally-recognized compensation consulting firm. These consultants are engaged by and report to the Compensation Committee, although they also provide advice and discuss compensation issues directly with management. Each year, or more frequently if warranted by changes in circumstances, the Hay Group is engaged to provide recommendations regarding substantially all aspects of executive officer and director compensation. For 2008, the Hay Group was engaged to make recommendations primarily in two areas:

 

 

At the direction of the Compensation Committee, all Hay point recommendations for new executive officer positions and/or changes to current positions are determined by the Hay Group through the consistent application of the Hay point rating methodology, which is a proprietary method that takes into account the know-how, problem solving and accountability requirements of the position.

 

The Compensation Committee also directed the Hay Group to use the median results from their “All Industrials” survey, as described in more detail below, for purposes of the recommendations for the 2008 salary midpoints (at certain of the subsidiaries the salary midpoints are set slightly below median), incentive compensation targets and target total compensation. The Compensation Committee sets our executives’

compensation at (or slightly below) the median level because it believes that the median ensures that our compensation program provides sufficient compensation to attract and retain talented executives and maintain internal pay equity, without overcompensating our executives.

 

Executive Compensation Policies and Objectives

 

The guiding principle of the executive compensation program of the Company and its subsidiaries has been the maintenance of a strong link between a Named Executive Officer’s compensation, his individual performance and the performance of the Company or the subsidiary for which the Named Executive Officer has responsibility. Comprehensively defined “target total compensation” is established for each Named Executive Officer following rigorous evaluation standards to ensure internal equity. Such target total compensation is determined explicitly in dollar terms as the sum of base salary plus cash in lieu of perquisites, short-term incentives and long-term incentives. The following table sets forth the target total compensation and the percent of target total compensation represented by each component of target total compensation that was determined by the Compensation Committee for each Named Executive Officer for 2008:

 

 

The economic and financial events occurring in the last half of 2008 negatively impacted Company results and our incentive compensation program for 2008. As discussed under “-Components of the Named Executive Officers’ Compensation Short-Term Incentive Compensation” and “-Long-Term Incentive Compensation” below, overall Company and business unit performance for 2008, with one exception, was below a level at which the Named Executive Officers could earn their target short-term and long-term incentive compensation. The business unit performance at The North American Coal Corporation, referred to as North American Coal, was above its target performance level. As a result, actual total compensation for all Named Executive Officers other than Mr. Benson, who is the President and Chief Executive Officer of North American Coal, was below the All Industrials median for 2008. Because we expect the economic recovery to be slow in 2009, we have also made several changes to our compensation programs for 2009, as shown in “Executive Compensation Program for 2009” below.

 

Each of the components of target total compensation is described in further detail below.

 

In addition to the target total compensation shown on the table above, the Company and its subsidiaries provide their executives with qualified and nonqualified retirement benefits that are designed to provide a competitive rate of income during retirement with the opportunity for additional income if the Company attains superior results.

 

The design of the compensation program of the Company and its subsidiaries offers opportunities for the Named Executive Officers to earn truly superior compensation for outstanding results. However, it also includes significantly reduced compensation for weak results that do not meet or exceed the previously established performance targets for the year. This is accomplished by:

 

 

 

The primary objectives of the Company’s compensation program are to attract, retain and motivate talented management and to reward them with competitive total compensation for achievement of specific corporate and individual goals, while at the same time making them long-term stakeholders in the Company. In years when the Company has weaker financial results, payouts under the incentive components of the Company’s compensation plans will be lower. In years when the Company has stronger financial results, payouts under the incentive components of the Company’s compensation plans will be greater. The Company believes that the program will encourage Named Executive Officers to earn incentive pay significantly greater than 100% of target over time by delivering outstanding managerial performance.

 

Executive Compensation Methodologies

 

The Company seeks to achieve the foregoing policies and objectives through a mix of base salaries and incentive plans such that base salaries are at levels appropriate to allow the incentive plans to serve as significant motivating factors. The Compensation Committee carefully reviews each of these components in relation to the performance of the Company and its subsidiaries.

 

Incentive-based compensation plans are designed to provide significant rewards for achieving or surpassing annual operating and financial performance objectives, as well as to align the compensation interests of the executive officers, including the Named Executive Officers, with the long-term interests of the Company.

 

Incentive Compensation For Employees of the Company, NMHG and HBB.

 

For the Company and the subsidiaries other than North American Coal, a substantial portion of the incentive compensation package depends on the extent to which the Company’s or applicable subsidiary’s return on total capital employed, which is referred to as ROTCE, performance meets long-term financial objectives rather than on cyclical movements in the Company’s stock price. The Compensation Committee views the ROTCE performance targets as a stockholder protection rate of return. It reflects the Compensation Committee’s belief that the Company and its stockholders are entitled to at least a certain rate of ROTCE for each of the businesses and the Company overall and that, as a measure of protection for the Company’s stockholders, performance against those rates of return should determine the payouts for a significant portion of the respective incentive compensation program.

 

The members of the Compensation Committee consider the following factors together with their general knowledge of each of the Company’s industries and businesses, including the historical results of operations and financial positions of the individual subsidiaries and the Company overall, to determine the ROTCE performance targets for the Company and the subsidiaries:

 

 

 

The Compensation Committee reviews these factors annually and, unless the Compensation Committee concludes that changes in these factors warrant an increase or decrease in the ROTCE performance targets, the ROTCE performance targets generally remain the same from year to year. The ROTCE performance targets have been adjusted in the past from time to time, although no changes were made from 2007 to 2008. When made, these periodic adjustments generally have reflected:

 

 

After the Company and subsidiary year-end financial results are finalized, actual ROTCE performances are compared against the ROTCE performance targets and, using the pre-established formulas, used to determine the payouts under the incentive plans for the year. ROTCE is calculated for these purposes as follows:

 

Earnings (Loss) Before Interest After-Tax after adjustments

divided by

Total Capital Employed after adjustments

 

Earnings Before Interest After-Tax is equal to the sum of interest expense, less 38% for taxes, plus net income. Total Capital Employed is equal to the sum of the average debt and average stockholder’s equity. For purposes of the Company’s incentive plans, average debt and stockholder’s equity are calculated by taking the sum of the balance at the beginning of the year and the balance at the end of the next twelve months divided by 13.

 

ROTCE is calculated from the Company or subsidiary financial statements using average debt and average stockholder’s equity based on the sum of the balance at the beginning of the year and the balance at the end of each quarter divided by five, which is then adjusted for any non-recurring or special items.

 

Following is the calculation of the Company’s consolidated ROTCE for 2008:

 

 

Adjustments to the ROTCE calculation under the Company’s incentive plans are generally non-recurring or special items. For 2008, the ROTCE adjustments related to:

 

 

 

The Compensation Committee determined that these non-recurring or special items were incurred in connection with improving the Company’s operations and, as a result, these items should not adversely affect an executive officer’s incentive compensation payments for actions or events that were beneficial to the Company or that were not generally within the executive officer’s control.

 

Corresponding adjustments were also established by compensation committees at HBB and NACCO Materials Handling Group, Inc. which is referred to as NMHG, for the respective subsidiary’s ROTCE calculations. Finally, NMHG’s ROTCE calculation was adjusted for a portion of the balance of any outstanding indebtedness to the Company. Other examples of adjustments that have been made in the past include the after-tax impact of costs related to acquisitions, reductions in force and penalties.

 

Incentive Compensation For Employees of North American Coal

 

Prior to 2008, due to the unique nature of North American Coal’s business, where a substantial portion of revenue is based on long-term, cost-plus contracts which are not necessarily capital intensive, none of the incentive compensation that was paid to the employees of North American Coal was dependant on North American Coal’s ROTCE performance. Effective January 1, 2008, the Compensation Committee determined that 30% of North American Coal’s short-term incentive compensation should be based on the ROTCE performance of North American Coal’s consolidated mines (Red River Mining Company, Mississippi Lignite Mining Company and the Florida Dragline operations), referred to as the Consolidated Mines, which do require a capital contribution on behalf of North American Coal.

 

ROTCE for the Consolidated Mines is calculated in the same manner as shown above. It may then be adjusted for any non-recurring or special items. However, no such adjustments were made for 2008.

 

The remaining 70% of North American Coal’s short-term incentive compensation is based on net income and the development of new projects. For long-term compensation, North American Coal uses economic value income of current and new projects as its performance criteria based on the Compensation Committee’s determination that this is a more accurate reflection of the rate of return in North American Coal’s business, where a substantial portion of revenue is based on long-term contracts and projects.

 

Other Information

 

The Compensation Committee views the various components of compensation as related but distinct. While a significant percentage of total target compensation is allocated to incentive compensation as a result of the philosophy discussed above, there is no pre-established policy or target for the allocation between either cash and non-cash or short-term and long-term incentive compensation. The Compensation Committee does not believe that significant compensation derived from one component of compensation should negate or reduce compensation from other components. Rather, the Compensation Committee reviews information provided by the Hay Group from their “All Industrials” survey to determine the appropriate level and mix of incentive compensation.

 

For periods before 2008, incentive compensation payments made to the Named Executive Officers generally exceeded their base salary plus perquisite allowance for the year. Because 2008 performance for all companies other than North American Coal was below a level at which participants, including the Named Executive Officers, could earn their target incentive compensation, the 2008 base salary plus perquisite allowance for all Named Executive Officers, other than Mr. Benson, exceeded their incentive compensation payments for the year.

 

While the long-term incentive compensation plans of the Company and the subsidiaries are intended to provide a significant percentage of the Named Executive Officer’s compensation, the Compensation

Committee believes that, as a result of our balance of long-term and short-term incentives and the design of our programs, these arrangements do not encourage the Named Executive Officers or other senior executive officers to take unnecessary risks that could threaten the value of the Company or its stockholders. The Compensation Committee made this determination based on the following factors:

 

 

Finally, in addition to providing other limited perquisites, target levels of perquisites for the executive officers are converted into fixed dollar amounts and paid in cash ratably throughout the year, an approach that recognizes that perquisites are largely just another form of compensation, albeit separate and distinct from salary and incentive compensation.

 

Components of the Named Executive Officers’ Compensation

 

The major portion of the Named Executive Officers’ compensation, which is referred to as “target total compensation,” includes the following components:

 

 

Retirement benefits, which consist mainly of the qualified plans and restoration nonqualified deferred compensation arrangements described below, and other benefits, such as health and welfare benefits, supplement target total compensation. In addition, from time to time, the Compensation Committee may award discretionary cash bonuses to executive officers.

 

The Compensation Committee reviews and takes into account all elements of executive compensation in setting policies and determining compensation levels. In this process, the Compensation Committee reviews “tally sheets” with respect to target total compensation for the Named Executive Officers and certain other executive officers. The tally sheets list each officer’s title, Hay points, salary midpoint, base salary, perquisite allowance, short-term and long-term incentive compensation targets and target total compensation for the current year, as well as those that are being proposed for the subsequent year.

 

The Hay Group provides the Compensation Committee with the salary midpoint for each Hay point level. The salary midpoint is then used to calculate the perquisite amount, long-term incentive compensation targets and target total compensation for each Hay point level by multiplying the salary midpoint provided by the Hay Group by the target incentive percentage provided by the Hay Group. Except as described below for Mr. Schilling under “-Short-Term Incentive Compensation,” the salary midpoint is also used to calculate the short-term incentive compensation targets. With respect to base salary, the Compensation Committee takes into consideration the Named Executive Officers’ performance during the prior year and prior year base salary in relation to the salary midpoint for their positions, as well as any other relevant information provided by the Hay Group, such as general inflation and salary trends, general budget considerations and any extraordinary

personal or corporate events that occurred during the prior year. After reviewing all information, the Compensation Committee determined that the amounts shown below were appropriate for each of the Named Executive Officers in 2008.

 

Base Salary

 

The Compensation Committee fixes an annual base salary intended to be competitive with the marketplace to aid in the recruitment and retention of talented executive officers. Base salary is intended to provide Named Executive Officers with a set amount of money during the year with the expectation that they will perform their responsibilities to the best of their ability and in the best interests of the Company.

 

To assist the Compensation Committee in fixing base salary levels that are at adequately competitive levels, the Compensation Committee has directed the Hay Group to analyze a survey of a broad group of domestic industrial organizations from all segments of industry ranging in size from under $150 million to over $5 billion in annual revenues, which is referred to as the “All Industrials survey.” Organizations participate in the All Industrials survey based upon their voluntary submission of data to the consultant, as well as their ability to pass the consultant’s quality assurance controls. For 2008, participants in the Hay Group’s All Industrials survey, which is used by the Compensation Committee as the principal comparator for purposes of setting target compensation, included 233 parent organizations and 323 independent operating units representing almost all areas of industry, including the light and heavy manufacturing, consumer products and mining segments.

 

This particular survey was chosen as the benchmark because the Compensation Committee feels that the use of a broad-based survey reduces volatility and lessens the impact of cyclical upswings or downturns in any one industry that could otherwise skew the survey results in any particular year. Finally, this survey group has been used historically due to the unique nature of the Company’s holding group structure, as a way to provide internal consistency in compensation among all of the Company’s subsidiaries, regardless of industry.

 

Using the same Hay point methodology discussed above to compare positions of similar scope and complexity and the data obtained in the All Industrials survey, the Hay Group derives a median salary level, which is referred to as the salary midpoint, for each Hay point level, including those positions occupied by the Named Executive Officers. (Certain subsidiaries reduce the midpoints slightly below median.) Because the salary midpoint is based on the Hay point level, all of the executive officers at a particular Hay point level at a particular company have the same salary midpoint. This process assures internal equity in pay among the executives across the Company and all business units.

 

The base salary for each executive officer, including the Named Executive Officers, for each year is approved by the Compensation Committee by taking into account the executive officer’s individual performance for the prior year and the relationship of the executive officer’s prior year’s base salary to the new salary midpoint for the executive officer’s Hay point level. The potential for larger salary increases exists for individuals with lower base salaries relative to their salary midpoint and/or superior performance. The potential for smaller increases or even no increase exists for those individuals with higher base salaries relative to their salary midpoint and/or poor performance.

The following table sets forth the salary midpoint, salary range and base salary for each Named Executive Officer for 2008, as well as the percentage of increase from the 2007 base salary:

 

 

The Compensation Committee’s determination of each executive officer’s current base salary is dependent on the factors discussed above as well as where the executive officer’s base salary fell within the salary range.

 

Because the Company does not provide its executive officers, including the Named Executive Officers, with the perquisites commonly provided to executives in other companies, the Compensation Committee provides executive officers at certain Hay point levels, including the Named Executive Officers, with a fixed dollar amount of cash in lieu of perquisites which is equal to a specified percentage of the executive’s salary midpoint.

 

The applicable percentages were determined by the Hay Group based on a study it conducted comparing the relationship between the value of executive officers’ perquisites and the salary midpoint for the position. At the direction of the Compensation Committee, the Hay Group used data from its proprietary Benefits Report, which contains employee benefits data from an industry-wide survey. For 2008, the organizations that submitted information for the Benefits Report included 834 organizations or operating units representing almost all areas of industry, including the light and heavy manufacturing, consumer products and mining segments, as well as other organizations from the health care, service and financial sectors. Consistent with the utilization of the All Industrials survey, the Compensation Committee determined that the Benefits Report was an appropriate benchmark because using a broad-based survey reduces volatility and lessens the impact of cyclical upswings or downturns in any industry that could otherwise affect the survey results in a particular year.

 

For this study, the Compensation Committee did not seek identical comparisons or specific dollar amounts. Rather, the Compensation Committee merely requested an indication of the cost of perquisites that would represent a reasonable competitive level of perquisites for the company’s various executive positions.

 

The table below sets forth the percentages of salary midpoints paid in lieu of perquisites, as determined by the Hay Group. The Compensation Committee again approved the use of these recommendations for each of the Named Executive Officers for 2008. These amounts were paid in cash ratably throughout the year. This approach satisfied the Company’s objective of providing competitive total compensation to its Named Executive Officers while recognizing that many perquisites are largely just another form of compensation.

 

Short-Term Incentive Compensation

 

The Company uses short-term cash incentives to provide awards for achieving annual operating and financial performance objectives as well as long-term financial objectives. We refer to these long-term financial objectives as the stockholder protection rate of return. All of the short-term incentive compensation plans for the Company and its subsidiaries follow the same basic pattern for award determination:

 

 

At the beginning of 2008, the Compensation Committee considered the factors described above under “— Executive Compensation Methodologies” and adopted performance criteria and target performance levels for the Company and its subsidiaries upon which the short-term awards were based. The performance criteria and target performance levels were established within the Compensation Committee’s discretion, and generally were based upon management’s recommendations as to the performance objectives of the particular business for the year.

 

Performance Against Annual Operating Plans

 

For 2008, the Compensation Committee established the following performance criteria for the indicated short-term plans pertaining to the Named Executive Officers, which criteria are generally based on the annual operating plans of the subsidiaries:

 

For 2008, the Compensation Committee established the following performance targets for the indicated short-term plans pertaining to the Named Executive Officers, which criteria are generally based on the annual operating plans of the subsidiaries:

 

 

The performance targets described above are generally based on the forecasts for the selected performance criteria contained in the subsidiaries’ annual operating plans for the year. Therefore, there is an expectation that these performance targets will be met during the year and, if they are not, the participants will not receive some or all of the portion of the short-term plan award that is based on these performance criteria.

 

Performance Against Stockholder Protection Rate of Return

 

2008 was the first year that a ROTCE component was added to The North American Coal 2008 Annual Incentive Compensation Plan, which is referred to as the North American Coal Short-Term Plan. The North American Coal Compensation Committee considered the factors described above under “— Executive Compensation Methodologies” when determining the appropriate ROTCE target for the Consolidated Mines.

 

For many years, a ROTCE component has been in effect under the NACCO Industries, Inc. 2008 Annual Incentive Compensation Plan, which is referred to as the NACCO Short-Term Plan, the NACCO Industries, Inc. Supplemental Annual Incentive Compensation Plan, which is referred to as the NACCO Supplemental Short-Term Plan, the NACCO Materials Handling Group, Inc. 2008 Annual Incentive Compensation Plan, which is referred to as the NMHG Short-Term Plan and the Hamilton Beach Brands, Inc. 2008 Annual Incentive Compensation Plan, which is referred to as the HBB Short-Term Plan. After reviewing the following factors, the Compensation Committee determined that no changes should be made to the 2008 ROTCE performance targets under those plans from the targets that were in effect in 2007:

 

 

For 2008, the Compensation Committee adopted the following performance criteria based on performance against the stockholder protection rate of return for the indicated short-term plans pertaining to the Named Executive Officers:

 

 

The ROTCE performance targets established by the Compensation Committee for 2008 comprised between 30% and 40% of the short-term plans for 2008. The ROTCE performance targets were not based on the Company’s or subsidiary’s annual operating plan, but instead reflected the Compensation Committee’s belief that the Company’s stockholders are entitled to a certain rate of ROTCE and that, as a measure of

stockholder protection, performance against that rate of return should determine the payouts for a large portion of the short-term incentive compensation.

 

Because the ROTCE performance targets are based on a stockholder protection rate of return for the Company and each of the subsidiaries rather than the current-year annual operating plans, it is possible that in any given year the level of expected performance may be above or below the ROTCE performance target for that year. For 2008, the Compensation Committee did not expect the ROTCE performance would exceed the targets for the short-term plans at the Company or any of its subsidiaries.

 

Individual Performance Factor

 

In its discretion, the Compensation Committee may take into account a participant’s individual performance for the year. Substandard performance could result in a reduction in the amount of, or the total elimination of, an award. In addition, outstanding performance could result in an increase in the amount of the award payable under the short-term plans.

 

Calculation and Payment of Awards

 

Payouts to the Named Executive Officers under the short-term plans are determined by comparing the Company’s or subsidiary’s actual performance to the pre-established performance targets. The Named Executive Officers can receive maximum payouts under the short-term plans for 2008 only if the Company or subsidiary exceeds the targets for both the annual operating plan and the ROTCE performance criteria. The Compensation Committee, in its discretion, may also increase or decrease awards under the short-term plans and may approve the payment of awards where business unit performance would otherwise not meet the minimum criteria set for payment of awards, although it rarely does so. Under the NACCO Supplemental Short-Term Plan, however, there are no individual performance goals and the awards that are payable to the Named Executive Officers may only be decreased. Generally, payments under the short-term plans do not exceed 150% of the target amounts. The payments under the short-term plans are calculated after the end of each year and are paid annually in cash. They are immediately vested when paid.

 

Target awards under the short-term plans for all executive officers, including the Named Executive Officers, are established at specified percentages of each individual’s salary midpoint, based on the number of Hay points assigned to the executive’s position and the Hay Group’s short-term incentive compensation recommendations for that Hay point level. For 2008, the short-term plans were designed to provide target short-term incentive compensation to the Named Executive Officers of between 55% and 90% of salary midpoint, depending on the Named Executive Officer’s position. For 2008, the target short-term incentive compensation percentage provided by the Hay Group for Mr. Schilling was increased from 40% to 55% based on the Compensation Committee’s determination that the increase was warranted to partially compensate Mr. Schilling for the adverse tax consequences and loss of deferral opportunity associated with the freeze of, and payout from, the NACCO Industries, Inc. Unfunded Benefit Plan, referred to as the Frozen NACCO Unfunded Plan, as described in more detail under “-Retirement Plans — Defined Contribution Plans” below and in the narrative accompanying the Nonqualified Deferred Compensation Table starting on page 51.

 

For 2008, final awards for the Named Executive Officers under the short-term plans were calculated based on the Company’s or subsidiaries’ actual performance on the performance criteria for the respective short-term plan compared with the established performance targets.

 

 

 

Pursuant to the terms of the short-term plans, the Compensation Committee is authorized to use negative discretion to reduce the amount of the awards that would otherwise be payable. In 2008, the Compensation Committee did not use negative discretion under any of the short-term plans that covered the Named Executive Officers.

 

The following table shows the short-term plan target both as a percentage of salary midpoint and as a dollar amount for each Named Executive Officer for 2008, as well as the actual short-term plan payout as a percentage of salary midpoint and as a dollar amount for 2008.

 

 

Discretionary Cash Bonuses

 

The Compensation Committee has the authority to grant, and has from time to time granted, discretionary cash bonuses to the executive officers, including the Named Executive Officers, in addition to the short-term incentive plan compensation described above. The Compensation Committee uses discretionary cash bonuses to reward substantial achievement or superior service to the Company, particularly when such achievement or service cannot be reflected in the performance criteria. No Named Executive Officer received a discretionary cash bonus for 2008.

 

Consulting Agreement With Dr. Morecroft

 

For the past eight years, Dr. Morecroft has been the President and Chief Executive Officer of HBB. He has been involved in the housewares industry for over 40 years. Dr. Morecroft’s superior management and financial and leadership skills have greatly contributed to HBB’s past success. Mr. Rankin and the Board of Directors believe that Dr. Morecroft is a substantial asset to the Company as a whole. As a result, at the

request of Mr. Rankin, the Compensation Committee approved a consulting agreement with Dr. Morecroft on February 10, 2009. Pursuant to the consulting agreement, in addition to continuing his employment duties with HBB, Dr. Morecroft is a consultant to Mr. Rankin and the Board of Directors on management, financial and other matters relating to the Company as a whole and particularly with respect to the potential synergies from more closely associating The Kitchen Collection, Inc. (“KC”) and HBB.

 

The term of the agreement is from June 30, 2008 through December 31, 2009. The Company or Dr. Morecroft may terminate the agreement with five days’ advance written notice. The consulting agreement is not an employment agreement and does not guarantee that Dr. Morecroft will continue to be retained as consultant for any specified period of time. For services rendered in 2008, Dr. Morecroft received a lump sum consulting fee from the Company of $665,000 that was paid in February, 2009. For services to be rendered in 2009, Dr. Morecroft is entitled to a consulting fee from the Company of $880,000, being reduced by the amount of any annual incentive compensation payments and/or profit sharing benefits paid to Dr. Morecroft from HBB in 2009. The 2009 consulting fees will be paid in a lump sum after January 1, 2010 but prior to March 15, 2010. In the event of a termination of the agreement or Dr. Morecroft’s termination of employment prior to December 31, 2009, Dr. Morecroft will receive a pro-rata portion of the 2009 consulting fee, based on the number of days during which the agreement was in effect in 2009.

 

The declining economic and business environment faced by the Company and its subsidiaries in 2008 and 2009 required us to take thoughtful and deliberative actions regarding cost reduction and containment. As described in more detail under “-Executive Compensation Program for 2009” below, the Company and the subsidiaries have implemented several programs to reduce costs. In his role as a consultant to the Company and Mr. Rankin, Dr. Morecroft assisted in designing these programs, which have resulted and will continue to result in substantial cost savings to the Company and the subsidiaries.

 

The Compensation Committee approved the reasonable and appropriate fees to be paid to Dr. Morecroft based on the following factors:

 

 

In addition, the consulting agreement contains non-solicitation, non-interference, confidentiality and post-termination cooperation requirements. The Board of Directors and the Compensation Committee also have included a non-compete provision in the consulting agreement because they believe that the Company and the subsidiaries would be at a competitive disadvantage if Dr. Morecroft were to become employed by a competitor during the one-year period following his termination of employment.

 

Finally, none of the consulting fees are included in determining Dr. Morecroft’s retirement or other benefits. The consulting fees owed to Dr. Morecroft for consulting services rendered in 2008 are reflected in the Summary Compensation Table.

 

Long-Term Incentive Compensation

 

The purpose of the Company’s long-term incentive compensation plans is to enable executive officers to accumulate capital through future managerial performance, which the Compensation Committee believes contributes to the future success of the Company’s businesses. The long-term incentive compensation plans at the Company and its subsidiaries generally require long-term commitment on the part of the Company’s executive officers, and cash withdrawals or stock sales are generally not permitted for a number of years. Rather, the awarded amount is effectively invested in the Company for an extended period to strengthen the tie between stockholders’ and the Named Executive Officers’ long-term interests.

The Compensation Committee believes that awards under the Company’s long-term plans promote a long-term focus on the profitability of the Company due to the lengthy holding periods under the plans. Those individual Named Executive Officers who have a greater impact on the Company’s long-term strategy receive a higher percentage of long-term compensation. The executives of the Company are the only long-term plan participants who are entitled to receive equity-based compensation. The Compensation Committee does not consider a Named Executive Officer’s long-term incentive awards for prior periods when determining the value of a long-term incentive award for the current period, because it considers those prior awards to represent compensation for past services.

 

Under the Company’s equity-based long-term plan, although a recipient may receive a payout after the end of a base period and each consistent performance period (or after the award year under the supplemental long-term bonus plan), the recipient is effectively required to invest the non-cash portion of the payout in the Company for up to ten years. This is because the shares distributed generally may not be transferred for ten years following the last day of the base period or award year, as applicable. During the holding period, the ultimate value of a payout is subject to change based upon the value of the shares of Class A Common. The value of the award is enhanced as the value of the shares of Class A Common increases or is reduced as the value of the shares of Class A Common decreases. Thus, the awards provide the recipient with an incentive over the ten-year period to increase the value of the Company, to be reflected in the increased value of the shares of Class A Common. As a result of our annual equity grants and the corresponding transfer restrictions, the number of shares of Class A Common that an executive holds generally increases each year. As a result, the executives of the Company will continue to have or accumulate exposure to long-term Company performance notwithstanding any short-term changes in the value of shares. This increased exposure strongly aligns the long-term interests of the Named Executive Officers of the Company with those of other stockholders.

 

As described below, awards under the North American Coal plan also generally have a holding period of ten years, while awards under the NMHG and HBB plans generally have holding periods of three years.

 

Long-Term Incentive Compensation for Employees of the Company.  The long-term incentive compensation plan for the Company, the NACCO Industries, Inc. Executive Long-Term Incentive Compensation Plan, which is referred to as the NACCO Long-Term Plan, is an equity-based plan that uses the Company’s consolidated ROTCE as the performance criteria for payouts under the plan.

 

Two types of awards are permitted under the plan:

 

 

Base Period Awards.  At the beginning of 2008, the Compensation Committee set a consolidated ROTCE performance target and a performance period of one year for the base period awards under the NACCO Long-Term Plan. The consolidated ROTCE performance target for the NACCO Long-Term Plan for 2008 was the same as the target adopted for the NACCO Short-Term Plan. Because the consolidated ROTCE performance target is based on the stockholder protection rate of return rather than the Company’s current-year annual operating plan, it is possible that in any given year the expected actual level of performance for the year could be higher or lower than the consolidated ROTCE performance target for that year. The

Compensation Committee did not expect that the consolidated ROTCE performance target for the NACCO Long-Term Plan would be met by the Company in 2008.

 

At the beginning of 2008, the Compensation Committee set dollar-denominated target base period awards for all of the participants in the NACCO Long-Term Plan, including those Named Executive Officers participating in the NACCO Long-Term Plan. The awards were expressed in a dollar amount equal to a percentage of the participant’s salary midpoint based on the number of Hay points assigned to the executive’s position and the Hay Group’s long-term incentive compensation recommendations for that Hay point level.

 

The base period target awards for 2008 under the NACCO Long-Term Plan for Alfred M. Rankin, Jr. and Kenneth C. Schilling, the participating Named Executive Officers, were designed to provide target long-term incentive compensation of 205% and 30% of their salary midpoints, respectively. These amounts were then adjusted by the Compensation Committee to 235.75% and 34.50%, respectively, to account for the immediately taxable nature of the distributions under the NACCO Long-Term Plan. Generally, base period award payments will not exceed 150% of the target base period award. The Compensation Committee retains discretionary authority to increase or decrease the amount of any award that would otherwise be payable to a participant or to approve the payment of awards where the Company’s performance would otherwise not meet the minimum criteria set for payment of awards (except awards for Mr. Rankin, which may only be decreased due to the restrictions of Section 162(m) of the Internal Revenue Code).

 

Final base period awards for each participant are calculated as of the end of the performance period based on the Company’s actual consolidated ROTCE performance compared with the consolidated ROTCE target for the year. For 2008, the Company’s actual consolidated ROTCE performance fell below the consolidated ROTCE target for the year. Therefore, no base period awards were granted to any participants, including Mr. Rankin and Mr. Schilling, under the NACCO Long-Term Plan for 2008.

 

Final dollar-denominated base period awards are paid to the participants in a combination of shares of Class A Common and cash, with the cash amount approximating the income tax withholding obligations of the participants for the shares. Approximately 65% of each base period award is distributed in shares of Class A Common.

 

The actual number of shares of Class A Common issued to a participant is determined by taking the dollar value of the stock component of the base period award and dividing it by the average share price. For this purpose, the average share price is the lesser of:

 

 

The awards are fully vested when granted and the participants have all of the rights of a stockholder, including the right to vote, upon receipt of the shares. The participants also have the right to receive dividends that are declared and paid after they receive the shares of Class A Common. The full amount of each final award, including the fair market value of the shares of Class A Common on the date of grant, is fully taxable to the participant.

 

The shares of Class A Common that are issued are subject to transfer restrictions which lapse on the earliest to occur of:

 

 

The Compensation Committee has the right to release the restrictions at an earlier date, but rarely does so.

 

Consistent Performance Awards.  If the Company’s average consolidated ROTCE performance for a five-year performance period exceeds the consolidated ROTCE target set at the beginning of the five-year performance period, participants in the NACCO Long-Term Plan may receive a consistent performance award payout.

 

The amount of any consistent performance award payout would be determined under a formula established at the beginning of the five-year performance period that multiplies the participant’s base period award by a consistent performance factor of up to 50%, based on the amount that the Company’s average consolidated ROTCE performance over the five-year performance period exceeds the consolidated ROTCE target for the period. This amount would then be adjusted by a factor to adjust for inflation over the performance period. Consistent performance award payouts, if any, are paid in the same combination of cash and shares of Class A Common as described above for base period awards. However, the average share price for this purpose is equal to the average closing price on the New York Stock Exchange at the end of each week during the last year of the five-year performance period. No consistent performance award payouts have been paid under the NACCO Long-Term Plan since 2001 because the Company’s average consolidated ROTCE performance for the respective five-year periods has not exceeded the consolidated ROTCE targets for such periods.

 

Additional Long-Term Compensation.  Under the NACCO Industries, Inc. Supplemental Executive Long-Term Incentive Bonus Plan, which is referred to as the NACCO Supplemental Long-Term Plan, the Compensation Committee has the flexibility to provide additional compensation for truly outstanding results and extraordinary personal effort. The only Named Executive Officers who are eligible to participate in this plan are Mr. Rankin and Mr. Schilling. The amount of an award, if any, granted under the NACCO Supplemental Long-Term Plan is at the discretion of the Compensation Committee. Once the amount of an award is determined, the award to a Named Executive Officer will be paid partially in shares of Class A Common and partially in cash, based on the same formula used under the NACCO Long-Term Plan. The shares of Class A Common that are awarded to Named Executive Officers would be subject to the same transfer restrictions as the shares awarded under the NACCO Long-Term Plan. Since the establishment of the NACCO Supplemental Long-Term Plan in 2006, no awards have been granted to any Named Executive Officer under the NACCO Supplemental Long-Term Plan.

 

Long-Term Incentive Compensation for Employees of the Company’s Subsidiaries. The subsidiaries’ long-term incentive compensation plans are linked to future performance of the particular business unit. All awards under the long-term incentive compensation plans of the Company’s subsidiaries are paid in cash from the general assets of the applicable subsidiary.

 

North American Coal Long-Term Plan.  The North American Coal Value Appreciation Plan for Years 2006 to 2015, which is referred to as the North American Coal Long-Term Plan, has a ten-year term and is in effect from 2006 through 2015. The North American Coal Long-Term Plan replaced The North American Coal Value Appreciation Plan for Years 2000 to 2009, which is referred to as the Frozen North American Coal Long-Term Plan, which was frozen on December 31, 2005 and terminated on December 31, 2007.

 

In 2006, when the North American Coal Long-Term Plan was initially established, the North American Coal Compensation Committee established net income appreciation goals that are based upon achieving year by year targets for each year during the ten-year term of the plan. These goals are adjusted each year for inflation and to take into account any “new projects” initiated during the ten-year period. Once a calendar year is completed, the actual adjusted net income less a charge for the capital employed during that year is measured against the adjusted net income less a charge for the capital employed goal for that year to determine the annual net income appreciation of current and new projects, which is referred to as the Annual Factor. Also, actual cumulative adjusted net income less a charge for the capital employed for the term of the plan to date is measured against the cumulative adjusted net income less a charge for the capital employed goals to date to determine the cumulative net income appreciation of current and new projects, which is referred to as the Cumulative Factor, against the ten year target. The North American Coal Compensation

Committee also set a goal for the cumulative net income appreciation due to new projects over the ten-year term of the plan. At the end of each calendar year, the present value of expected cumulative net income appreciation of all new projects initiated during that year is measured against the cumulative new project goal to determine the net income appreciation due to the acquisition of new projects, which is referred to as the New Project Factor. Finally, if it is determined in any year, which is referred to as an Adjustment Year, that a new project has provided significantly less net income appreciation than originally expected, then the amount of any prior award previously attributed to that project as the result of a prior year’s New Project Factor will reduce the New Project Factor in the Adjustment Year, which is referred to as the New Project Adjustment. If the New Project Adjustment is large enough, it is possible for participants to receive negative awards in a given year.

 

At the start of each year during the ten-year term of the North American Coal Long-Term Plan, participants are granted dollar denominated target awards. Target awards are based on a percentage of each participating executive officer’s salary midpoint. For 2008, the target award was designed to provide target compensation for Robert L. Benson of 80% of his salary midpoint. The Compensation Committee based this percentage on recommendations made by the Hay Group.

 

Following the end of the year, final awards for each participant are determined by adjusting the target award by the Annual Factor, the Cumulative Factor and the New Project Factor. In addition, the New Project Adjustment is made, if applicable. The North American Coal Compensation Committee, in its discretion, may also increase or decrease awards under the plan and may approve the payment of awards where business unit performance would otherwise not meet the minimum criteria set for payment of awards.

 

For 2008, payments were calculated in accordance with a formula that is based on the pre-established performance goals. Pursuant to the terms of the North American Coal Long-Term Plan, the Compensation Committee is authorized to use discretion to increase or reduce the amount of the awards that would otherwise be payable. In 2008, the Compensation Committee used positive discretion to take into consideration a new project that was substantially completed by year-end and used negative discretion to reduce the economic value of a contract extension. Based on the foregoing, the awards under the North American Coal Long-Term Plan were approved by the Compensation Committee at 105.4% of target for all participants, including Mr. Benson.

 

The final awards are then credited to participants’ accounts under the North American Coal Long-Term Plan. Account balances are credited with interest based on the average monthly rate of ten-year U.S. Treasury notes. Participants become vested in their accounts at the rate of 20% per year, commencing with the first year in which they are granted a target award. However, participants are automatically 100% vested on the earliest of:

 

 

The account balance is payable in cash upon the earliest of the dates described in the prior paragraph.

 

The Frozen North American Coal Value Long-Term Plan worked in a similar manner. However, all vested account balances under that plan were paid, in cash, to all participants, including Mr. Benson, during the first quarter of 2008.

 

Due to the nature of the North American Coal long-term plans, the awards and payments are described in both the Grants of Plan-Based Awards Table on page 46 and the Nonqualified Deferred Compensation Table on page 51.

 

Refer to “-Employment and Severance Agreements and Change in Control Payments” below for a description of the impact of a change in control on the North American Coal Long-Term Plan awards.

NMHG Long-Term Plan and HBB Long-Term Plan.  The NACCO Materials Handling Group, Inc. Long-Term Incentive Compensation Plan (Effective January 1, 2008), which is referred to as the NMHG Long-Term Plan, and the Hamilton Beach Brands, Inc. Long-Term Incentive Compensation Plan (Effective January 1, 2008), which is referred to as the HBB Long-Term Plan, are both long-term incentive compensation plans that use the respective subsidiary’s ROTCE as the performance criteria for payouts under the plan. Effective January 1, 2008, these plans replaced the NACCO Materials Handling Group, Inc. Long-Term Incentive Compensation Plan (For the Period From January 1, 2000 through December 31, 2007), referred to as the Frozen NMHG Long-Term Plan and the Hamilton Beach Brands, Inc. Long-Term Incentive Compensation Plan (For the Period from January 1, 2003 through December 31, 2007), referred to as the Frozen HBB Long-Term Plan, respectively.

 

At the beginning of each year, each subsidiary’s Compensation Committee sets a ROTCE performance target for the performance period at a level it believes reflects an appropriate stockholder protection rate of return. Payouts are calculated as of the end of the performance period based upon the subsidiary’s actual ROTCE performance compared with the ROTCE performance target for the performance period.

 

In 2008, the ROTCE performance targets for the NMHG Long-Term Plan and HBB Long-Term Plan were the same ROTCE targets that were established by the Compensation Committee for the NMHG Short-Term Plan and the HBB Short-Term Plan, respectively. Because the ROTCE performance targets are based on the stockholder protection rate of return for that particular subsidiary rather than each subsidiary’s current-year annual operating plan, it is possible that in any given year the expected actual level of performance for the year could be higher or lower than the ROTCE performance target established for that subsidiary for that year. The NMHG and HBB Compensation Committees did not expect that the ROTCE performance targets for the NMHG Long-Term Plan or the HBB Long-Term Plan would be met in 2008.

 

At the beginning of 2008, each participant in the NMHG Long-Term Plan and the HBB Long-Term Plan, including the participating Named Executive Officers, was granted dollar-denominated target awards by the respective subsidiary’s Compensation Committee. The target awards were expressed in a dollar amount equal to a percentage of the participant’s salary midpoint based on the number of Hay points assigned to the executive’s position and the Hay Group’s long-term incentive compensation recommendations for that Hay point level.

 

The target award for 2008 under the NMHG Long-Term Plan for Mr. Brogan, the participating Named Executive Officer, was designed to provide target long-term incentive compensation of 125% of his salary midpoint. The target award for 2008 under the HBB Long-Term Plan for Dr. Morecroft, the participating Named Executive Officer, was designed to provide target long-term incentive compensation of 105% of his salary midpoint. Generally, the award payments under both of the plans will not exceed 150% of the target award. The NMHG and HBB Compensation Committees each retain discretionary authority to decrease awards payable to all participants, including the Named Executive Officers and to adjust the incentive compensation measures or payouts for the Named Executive Officers in a manner that is permitted under Section 162(m) of the Internal Revenue Code, although they rarely do so.

 

Final long-term awards for each of the participants are calculated as of the end of the performance period based on the applicable subsidiary’s actual ROTCE performance compared with the ROTCE target for the year. For 2008, both NMHG’s and HBB’s actual ROTCE performance fell below the ROTCE target for the year and, therefore, no awards were approved by either the NMHG Compensation Committee or the HBB Compensation Committee under the NMHG Long-Term Plan or the HBB Long-Term Plan for any participants, including Mr. Brogan and Dr. Morecroft.

 

The awards granted under both plans (if any) are subject to the following rules:

 

 

 

The Frozen NMHG Long-Term Plan and the Frozen HBB Long-Term Plan worked in a similar manner. However, Dr. Morecroft’s sub-account balances under the Frozen HBB Long-Term Plan are paid at the earliest of death, disability, retirement, change in control or on the fifth anniversary of the grant date of the award.

 

Due to the nature of the NMHG Long-Term Plan and the HBB Long-Term Plan, the awards under the plans are described in both the Grants of Plan-Based Awards Table on page 46 and the Nonqualified Deferred Compensation Table on page 51.

 

Refer to “-Employment and Severance Agreements and Change in Control Payments” below for a description of the impact of a change in control on the terms of the NMHG and HBB long-term plans.

 

Comparison of Long-Term Incentive Plan Targets and Payouts.  The following table shows the target award under the applicable long-term incentive plan as both a percentage of salary midpoint and a dollar amount for each Named Executive Officer for the performance period ending in 2008 as well as the corresponding actual payout of the award under the applicable long-term incentive plan both as a percentage of salary midpoint and a dollar amount for the performance period ending in 2008.

 

 

 

 

Retirement Plans

 

The material terms of the various retirement plans are described in the narratives following the Pension Benefits Table and the Nonqualified Deferred Compensation Table.

 

Defined Benefit Pension Plans. The Company no longer provides any defined benefit pensions to the Named Executive Officers, although some of the previously frozen defined benefit pensions are currently increased by annual cost-of-living adjustments, which are referred to as COLAs.

 

Defined Contribution Plans. The Company and its subsidiaries provide the Named Executive Officers and most other employees in the United States with defined contribution retirement benefits. Mandatory employer contributions under the defined contribution retirement plans are calculated under various formulas that are designed to provide employees with competitive retirement income. The Compensation Committee believes that this level of retirement benefits gives the Company and its subsidiaries the opportunity to attract and retain talented management employees at the senior executive level and below. For the Company and all subsidiaries other than North American Coal, additional employer contributions may be made, depending on the performance of the Company and/or its subsidiaries. In general, if the Company and/or those subsidiaries perform well, the amount of the employees’ retirement income increases.

 

With the exception of a portion of the retirement benefits that are provided to Mr. Rankin and Mr. Brogan, the Named Executive Officers and other executive officers receive the same retirement benefits as all other similarly-situated employees. However, the benefits that are provided to the Named Executive Officers and other executive officers are provided under a combination of qualified and nonqualified defined contribution plans, while the benefits that are provided to other employees are provided generally only under qualified retirement plans. The nonqualified defined contribution plans generally provide the executive officers with the retirement benefits that would have been provided under the qualified plans, but that cannot be provided due to various Internal Revenue Service regulations and limits and non-discrimination requirements.

 

The defined contribution retirement benefits generally consist of a combination of employee deferrals, employer matching contributions on the employee deferrals, minimum employer retirement contributions and, with the exception of North American Coal, additional employer profit sharing contributions that are made only if the Company and/or such subsidiaries meet certain pre-established performance criteria.

 

The plans of the Company, North American Coal and NMHG each contain the following three types of benefits:

 

 

HBB’s plans contain 401(k) benefits and profit sharing benefits. However, in lieu of matching benefits, the HBB plans contain an automatic non-elective 3% employer contribution in order to qualify as a “safe harbor” plan.

 

The “compensation” that is taken into account under the plans generally includes base salary and annual incentive payments and excludes most other forms of compensation, including long-term incentive compensation. However, for all benefits under the HBB plans, other than profit sharing benefits, short-term incentive payments are also excluded.

Under the 401(k) portions of the plans, eligible employees may elect to defer up to 25% of compensation. Under the matching portion of the plans, eligible employees receive employer matching contributions on their deferrals in accordance with the following applicable matching contribution formula:

 

 

Under the profit sharing portion of the plans, eligible employees receive a profit sharing contribution equal to a specified percentage of compensation. The percentage varies based on a formula that takes into account the employee’s age and compensation. The formulas at the Company, NMHG and HBB also take into account the ROTCE of the Company or the applicable subsidiary. As applied to the Named Executive Officers in 2008, the range of profit sharing contributions under each applicable formula was:

 

 

All employees, including the Named Executive Officers, receive additional profit sharing contributions for compensation earned in excess of the Federal Social Security wage base, which was $102,000 in 2008, up to the applicable Internal Revenue Code limit of 5.7% of compensation.

 

The Named Executive Officers are 100% vested in their deferrals and in all matching and non-elective contributions. They are also 100% vested in all benefits that are provided under the nonqualified plans. However, they become vested in their profit sharing contributions under the qualified plans at the rate of 20% for each year of service and are fully vested after completing five years of service. All of the Named Executive Officers are 100% vested in all profit sharing benefits because each Named Executive Officer has been employed for at least five years.

 

Benefits under the qualified plans are generally payable at any time following a termination of employment. Participants have the right to invest their qualified plan account balances among various investment options that are offered by the plans’ trustee. Participants can elect various forms of payment including lump sum distributions and installments.

 

The Compensation Committee made several changes to the defined contribution nonqualified retirement plans effective December 31, 2007. These changes were made to avoid additional statutory and regulatory restrictions applied to nonqualified deferred compensation plans under Section 409A of the Internal Revenue Code and to simplify plan administration and recordkeeping. The changes were also made based on the Compensation Committee’s desire to move to a more simplified “pay-as-you-go” compensation structure that also eliminated the risk to the executives based on the unfunded nature of these plans. Finally, these changes were made to avoid any additional onerous changes and restrictions that may be applied to deferred compensation arrangements in the future.

 

The following changes were made to the nonqualified deferred compensation plans:

 

 

 

Effective January 1, 2008, the Compensation Committees adopted replacement defined contribution nonqualified retirement plans that provide substantially the same benefits that were provided under the frozen plans. Beginning with nonqualified amounts earned on or after January 1, 2008:

 

 

A more detailed description of each current and frozen plan is contained in the narrative accompanying the Nonqualified Deferred Compensation Table on page 51.

 

Refer to “-Employment and Severance Agreements and Change in Control Payments” below for a description of the impact of a change in control on the terms of the nonqualified deferred compensation plans.

 

Other Benefits

 

All salaried U.S. employees, including the Named Executive Officers, participate in a variety of health and welfare benefit plans that are designed to enable the Company to attract and retain its workforce in a competitive marketplace.

 

Perquisites and Other Personal Benefits

 

Although the Company provides limited perquisites and other personal benefits to certain executive officers, the Company does not believe these perquisites and other personal benefits constitute a material component of the executive officer’s compensation package.

 

Employment and Severance Agreements and Change in Control Payments

 

Upon a Named Executive Officer’s termination of employment with us for any reason, the Named Executive Officer (and all other employees) are entitled to:

 

 

None of the Named Executive Officers has an employment agreement that provides for a fixed period of employment, fixed positions or duties, or for a fixed base salary or actual or target annual bonus. In addition, there are no pre-arranged severance agreements with any of the Named Executive Officers and the Compensation Committee must review and approve any material severance payment that is in excess of the amount the Named Executive Officer is otherwise entitled to receive under the broad-based severance plans.

 

Prior to the adoption of the change in control provisions under certain long-term plans and the nonqualified defined contribution retirement plans described below, there were no written or unwritten arrangements that provided for payments at or following a change in control of the Company or the subsidiaries.

 

Beginning in 2008, change in control provisions were added to certain long-term incentive compensation and nonqualified defined contribution retirement plans. In order to advance the compensation objective of attracting, retaining and motivating qualified management, the Compensation Committee believed that it was appropriate to provide limited change in control protections to certain of the Named Executive Officers and other employees. This action was also taken in conjunction with final regulations issued under Internal Revenue Code Section 409A which limited the Compensation Committee’s ability to retain flexibility regarding change in control payments under our plans without materially disadvantaging the executives.

 

The account balances under the North American Coal Long-Term Plan, the NMHG Long-Term Plan, the Frozen NMHG Long-Term Plan, the HBB Long-Term Plan and the Frozen HBB Long-Term Plan and all of the nonqualified defined contribution plans will automatically be paid in the form of a lump sum payment in the event of a change in control of the participant’s employer. The Compensation Committee believes that the change in control payment trigger is appropriate due to the unfunded nature of the benefits provided under

these plans. The Compensation Committee believes that the skills, experience and services of its key management employees are a strong factor in the success of the Company and that the occurrence of a change in control transaction would create uncertainty for these employees. The Compensation Committee believes that some key management employees would consider terminating employment in order to trigger the payment of their unfunded benefits if an immediate payment is not made when a change in control occurs. The addition of a change in control payment trigger will encourage key management employees to remain employed during and after a change in control.

 

The change in control payment trigger under the Frozen NMHG Long-Term Plan, the Frozen HBB Long-Term Plan and the nonqualified defined contribution plans does not increase the amount of the benefits payable under those plans. Participants will only receive their account balance (including interest) as of the date of the change in control. The change in control provisions under the North American Coal Long-Term Plan, the NMHG Long-Term Plan and the HBB Long-Term Plan, in addition to providing for the immediate payment of the account balance (plus interest) as of the date of the change in control, also provide for the payment of a pro-rated target award for the year of the change in control.

 

Importantly, these change in control provisions are not employment agreements and do not guarantee employment for any of the executives for any period of time. In addition, none of the payments under the long-term plans or the nonqualified deferred compensation plans will be “grossed up” for any excise taxes imposed on the executives as a result of the receipt of payments upon a change in control.

 

For a further discussion of the potential payments that may be made to the Named Executive Officers in connection with a change in control, please see “— Potential Payments Upon a Change in Control” beginning on page 49.

 

Tax and Accounting Implications

 

Deductibility of Executive Compensation

 

As part of its role, the Compensation Committee reviews and considers the deductibility of executive compensation under Section 162(m) of the Internal Revenue Code, which provides that the Company may not deduct compensation of more than $1 million that is paid to certain individuals. The NACCO Supplemental Short-Term Plan, the NACCO Long-Term Plan and, effective January 1, 2008, the NMHG Long-Term Plan and the HBB Long-Term Plan, have been and will continue to be used so that, together with steps taken by the Compensation Committee in the administration of these plans, payouts on awards made under these plans should not count towards the $1 million cap, which the law imposes for purposes of federal income tax deductibility.

 

While the Compensation Committee intends generally to preserve the deductibility of compensation payable to the Company’s executive officers, as appropriate, deductibility will be only one factor among a number of factors considered in determining appropriate levels or modes of compensation. The Company intends to maintain the flexibility to compensate executive officers based upon an overall determination of what it believes is in the best interests of the Company and its stockholders.

 

Nonqualified Deferred Compensation

 

On October 22, 2004, the American Jobs Creation Act of 2004, which is referred to as the Jobs Act, was signed into law, changing the tax rules applicable to nonqualified deferred compensation arrangements. The Company believes it has operated in good faith compliance with the statutory provisions that were effective January 1, 2005 and related regulatory guidance. The Internal Revenue Service issued the final Jobs Act regulations that are effective January 1, 2009. The Company believes that it has taken all actions needed to bring its plans and programs into compliance with the final regulations.

 

Accounting for Stock-Based Compensation

 

Beginning on January 1, 2006, the Company began accounting for stock-based payments in accordance with the requirements of SFAS No. 123R. See Note 2 of the Company’s audited consolidated financial

statements in the Company’s Annual Report on Form 10-K for the year ended December 31, 2008 for more information regarding the valuation of the Company’s equity awards in accordance with SFAS No. 123R.

 

Stock Ownership Guidelines

 

While the Company encourages the executive officers to own shares of Class A Common, it does not have any formal policy requiring the executive officers to own any specified amount of Class A Common. However, the shares of Class A Common granted to the Company’s executive officers under the NACCO Long-Term Plan generally must be held for a period of ten years. Executive officers of the subsidiaries do not have a similar requirement as they are compensated based on the performance of their own businesses and not on the performance of the Company, and as a result, do not receive shares of Class A Common.

 

Role of Executive Officers in Compensation Decisions

 

The Company’s management, in particular the Chief Executive Officer of the Company and the Chief Executive Officer of each subsidiary, reviews the Company’s goals and objectives relevant to the compensation of the Company’s executive officers. The Chief Executive Officer of the Company annually reviews the performance of each executive officer (other than the Chief Executive Officer, whose performance is reviewed by the Compensation Committee) and makes recommendations based on these reviews, including with respect to salary adjustments and annual award amounts, to the Compensation Committee. In addition to the Chief Executive Officer’s recommendations, the Compensation Committee considers recommendations made by the Company’s independent outside compensation consultant, which bases its recommendations upon an analysis of similar positions at a broad range of domestic industries, as well as an understanding of the Company’s policies and objectives, as described above. The Compensation Committee can exercise its discretion in modifying any recommended adjustments or awards to executive officers. After considering these recommendations, the Compensation Committee determines the base salary and incentive compensation levels for the executive officers, including each Named Executive Officer.

 

Executive Compensation Program for 2009

 

The Company’s executive compensation program for 2009 will be structured in a manner similar to the 2008 program. Principal changes to be considered include any appropriate modifications to salary midpoints, base salaries and the appropriate level of incentive compensation targets in view of internal considerations as well as marketplace practice as reflected in analyses, general industry survey data and the recommendations of the Hay Group based on an updated All Industrials survey.

 

In addition, in response to the recent economic downturn and Company and business performance, the following changes have been made or are being made to our compensation program for 2009:

 

 

 

We do not intend for these actions to be permanent.  If economic and business conditions improve in 2009, the Company and the subsidiaries may take action to modify or eliminate these measures. However, in addition to these measures, the Company and the subsidiaries will also continue to monitor staffing levels and take appropriate actions to reduce any excess staff, will vigorously manage all expenses and will continue to look for further ways to reduce overall costs.

 

Compensation Committee Interlocks and Insider Participation

 

Alfred M. Rankin, Jr., a director of the Company and its principal subsidiaries, is the Chairman, President and Chief Executive Officer of the Company. Mr. Rankin was a member of the compensation committees of the principal subsidiaries of the Company (but not of the Company) during 2007 but resigned as a member of the compensation committees of the principal subsidiaries on February 12, 2008.

 

Dennis W. LaBarre, a director of the Company and its principal subsidiaries, is a partner in the law firm of Jones Day, which provides legal services to the Company and its subsidiaries. See “— Certain Business Relationships” on page 13 for additional information. Mr. LaBarre was a member of the compensation committees of the principal subsidiaries of the Company (but not of the Company) during 2007 but resigned as a member of the compensation committees of the principal subsidiaries on February 12, 2008.

 

Compensation Committee Report

 

The Compensation Committee has reviewed and discussed the Compensation Discussion and Analysis with the Company’s management. Based on the review and discussions referred to above, the Compensation Committee recommended to the Board of Directors that the Compensation Discussion and Analysis be included in this Proxy Statement and in the Company’s Annual Report on Form 10-K.

 

Summary Compensation Table

 

The following table sets forth the compensation for services of the Named Executive Officers of the Company in all capacities to the Company and three of its principal subsidiaries, North American Coal, NMHG and HBB.

 

SUMMARY COMPENSATION TABLE
For Fiscal Year Ended December 31, 2008

 

 

 

 

 

 

 

 

Grants of Plan-Based Awards

 

The following table sets forth information concerning awards granted to the Named Executive Officers for fiscal year 2008 and estimated payouts in the future, under the incentive compensation plans of the Company and its principal subsidiaries.

 

GRANTS OF PLAN-BASED AWARDS
For Fiscal Year Ended December 31, 2008

 

 

 

 

Description of Material Factors Relating to the Summary Compensation Table and Grants of Plan-Based Awards Table

 

None of the Named Executive Officers is a party to any written or unwritten employment agreement or arrangement. However, as described in detail in the Compensation Discussion and Analysis which begins on page 29, Dr. Morecroft and the Company have entered into a consulting agreement under which Dr. Morecroft provides certain consulting services to the Company and its subsidiaries.

 

The compensation of the Named Executive Officers consists of various components, including base salary, which includes a fixed dollar amount of cash in lieu of perquisites, short-term cash incentives and long-term equity incentives for employees of the Company or non-equity long-term incentives for employees of the Company’s subsidiaries. Dr. Morecroft also receives consulting fees. All of the Named Executive Officers also receive various retirement benefits. Each of these components is described in detail in the Compensation Discussion and Analysis which begins on page 37. Additional details of certain components are provided below.

Equity Compensation

 

NACCO Long-Term Plan

 

Certain key management employees of the Company participate in the NACCO Long-Term Plan. As described in more detail in the Compensation Discussion and Analysis beginning on page 30, two types of awards are provided under the plan: (1) base period awards that are based on a one-year performance period and (2) consistent performance awards that are based on a five-year performance period. The only equity awards that remain outstanding at the end of the fiscal year for purposes of this table are the potential consistent performance awards, which would not vest until payment after the end of the applicable performance period. The following table includes information relating to potential consistent performance awards that were previously communicated to the Named Executive Officers and that remain outstanding for purposes of this table at the end of 2008:

 

OUTSTANDING EQUITY AWARDS
At Fiscal Year Ended December 31, 2008