A. O. SMITH CORPORATION

 

PERSONNEL AND COMPENSATION COMMITTEE CHARTER 

Purpose 

 

The Personnel and Compensation Committee (the “Committee”) shall be responsible for reviewing and making decisions with respect to salaries, bonuses, stock options and other benefits for executive officers of A. O. Smith Corporation (the “Company”) under a delegation of authority from the Board of Directors (the “Board”).  In performing this function, it shall be the objective of the Committee to:  (i) encourage the achievement of the Company’s long-range objectives by providing compensation which directly relates to the performance of the individual and the achievement of internal strategic objectives; (ii) establish compensation policies and guidelines that will attract and retain qualified personnel through an overall level of compensation opportunity that is competitive within the Company’s industry; and (iii) promote a direct relationship between compensation and the Company’s performance by facilitating executive officer stock ownership through restricted stock and other long term incentives.  The Committee shall produce an annual report on executive compensation for inclusion in the Company’s proxy statement for the annual meeting of stockholders, in accordance with applicable rules and regulations. 

Composition of the Committee 

 

The Committee will be annually appointed by the Board and will consist of at least three directors, all of whom in the judgment of the Board will be independent, unless and to the extent the Board elects to exercise the “Controlled Company” exemption as it deems appropriate.  Any such exemption will be disclosed in the proxy.  The chairperson of the Committee shall be designated by the Board.  The Board may at any time remove one or more directors as members of the Committee.  At least two of the directors appointed to serve on the Committee shall be “non-employee directors” (within the meaning of Rule 16b-3 promulgated under the Securities Exchange Act of 1934, as amended) and “outside directors” (within the meaning of Section 162(m) of the Internal Revenue Code of 1986, as amended, and the regulations thereunder). 

Authority and Responsibilities 

 

The Committee shall have the following authority and responsibilities: 

 

1.      To assist the Board in developing and evaluating potential candidates for executive positions, including the chairman and chief executive officer, and to oversee the development of executive succession plans. 

 

2.      To review and approve on an annual basis the corporate goals and objectives with respect to compensation for the chairman and chief executive officer.  The Committee shall evaluate at least once a year the chairman and chief executive officer’s performance in light of these established goals and objectives and, based upon these evaluations, shall set the chairman and chief executive officer’s annual compensation, including salary, bonus, incentive and equity compensation.

 

3.      To review and approve on an annual basis the evaluation process and compensation structure for the Company’s officers.  The Committee shall approve the annual compensation, including salary, bonus, incentive and equity compensation for officers. 

 

4.      To review the Company’s incentive compensation and other stock-based plans and recommend changes in such plans to the Board as needed.  The Committee shall have and shall exercise all the authority of the Board with respect to the administration of such plans.

 

5.     To prepare and publish an annual executive compensation report in the Company’s proxy statement.

 

6.      To review and recommend to the Board the compensation to be paid to directors for their services as directors, committee members and committee chairpersons.

 

The Committee shall have the authority to delegate any of its responsibilities to subcommittees as the Committee may deem appropriate in its sole discretion.

 

The Committee shall have authority to retain such compensation consultants, outside counsel and other advisors as the Committee may deem appropriate in its sole discretion.  The Committee shall have sole authority to approve such fees and retention terms.

 

The Committee shall report its actions and any recommendations to the Board after each Committee meeting and shall conduct and present to the Board an annual performance evaluation of the Committee.  The Committee shall review at least annually the adequacy of this charter and recommend any proposed changes to the Board for approval.