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NOTICE OF 2009 ANNUAL MEETING OF SHAREHOLDERS

TO BE HELD MAY 5, 2009

Dear Shareholder,

The 2009 annual meeting of West Pharmaceutical Services, Inc. will be held at our headquarters, 101 Gordon Drive, Lionville, Pennsylvania 19341, on Tuesday, May 5, 2009, at 9:30 AM.  The items of business at the meeting are:

1.               to elect Paula A. Johnson, Anthony Welters and Patrick J. Zenner as Class I Directors, each for a term of three years;

2.               to ratify the appointment of PricewaterhouseCoopers LLP as our independent registered public accounting firm for the 2009 fiscal year; and

3.               to transact any other business that may properly come before the meeting and any adjournment or postponement.

The board of directors unanimously recommends a vote “FOR” proposals 1 and 2 above.

As permitted by new Securities and Exchange Commission rules, we have elected to provide access to our proxy materials both by sending you this full set of proxy materials, including a proxy card, and by notifying you of the availability of our proxy materials on the Internet.  This proxy statement and our 2008 annual report are available at our web site at http://www.westpharma.com/na/en/Investors/Pages/ProxyMaterials.aspx, which does not have “cookies” that identify visitors to the site.

Only shareholders of record at the close of business on March 20, 2009, are entitled to notice of and to vote at the meeting or any postponement or adjournment of the meeting.  You can vote by proxy on the Internet, or by dating, signing and returning the enclosed proxy in the enclosed envelope.  It is important that your shares be represented and voted, whether or not you expect to attend the meeting in person.

Important Notice Regarding the Availability of Proxy Materials for

the Shareholder Meeting May 5, 2009:

Our proxy statement and annual report are available at http://www.westpharma.com/na/en/Investors/Pages/ProxyMaterials.aspx.

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WEST PHARMACEUTICAL SERVICES, INC.

101 Gordon Drive

Lionville, Pennsylvania 19341

PROXY STATEMENT

GENERAL INFORMATION ABOUT THE MEETING

Proxy Solicitation

Our board of directors is soliciting your proxy to vote on matters that will be presented at our 2009 annual meeting and at any adjournment or postponement.  This proxy statement, the accompanying proxy card or voting instructions and our 2008 annual report are being mailed on or about March 26, 2009.  This proxy statement contains information on these matters to assist you in voting your shares.

A proxy is your legal designation of another person to vote on your behalf.  By completing the enclosed proxy card, you are giving John R. Gailey III and William J. Federici the authority to vote your shares as indicated on the proxy card.  They have been appointed by our board of directors to act in that capacity.

Proxies may be solicited on our behalf by directors, officers or employees in person or by facsimile or other electronic means.  We will pay the cost of soliciting proxies.

Shareholders of Record and Beneficial Owners

If your shares are registered directly in your name with our transfer agent American Stock Transfer & Trust Company, you are considered the “shareholder of record” of those shares.  We have mailed these proxy materials directly to you.

If your shares are held in a stock brokerage account or by a bank or other holder of record, you are considered the “beneficial owner” of shares held in street name.  These proxy materials have been forwarded to you by your broker, bank or other holder of record who is considered the shareholder of record of those shares.  As the beneficial owner, you may direct your broker, bank or other holder of record on how to vote your shares by using the proxy card included in the mailing or by following their instructions for voting on the Internet.

If you are a beneficial owner, your bank, broker or other holder of record may vote your shares on the election of directors and the ratification of PricewaterhouseCoopers LLP as our independent registered public accounting firm even if it does not receive voting instructions from you, but it generally is not entitled to vote on other matters unless it receives voting instructions from you.  These are considered “broker non-votes.”

Householding

We have adopted a procedure called “householding” for mailing the proxy statement and the annual report.  Householding means that shareholders who share the same last name and address will receive only one copy of the materials, unless we are notified that one or more of these shareholders wishes to continue receiving additional copies.  We will continue to mail a proxy card to each shareholder of record.  If you prefer to receive multiple copies of the proxy materials at the same address, please contact the Vice President, General Counsel and Secretary (in writing: West Pharmaceutical Services, Inc., 101 Gordon Drive, Lionville, PA 19341; by telephone: (610) 594-3319).

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Shareholders Entitled to Vote

You are entitled to receive notice of and to vote at the meeting only if you were a shareholder of record at the close of business on March 20, 2009.  If you were a shareholder of record on that date, you will be entitled to vote all of the shares you held on that date.  Each outstanding share of our common stock, par value $.25 per share, will be entitled to one vote on each matter considered at the meeting.  As of the record date, 32,720,391 shares of our common stock were issued and outstanding.

Quorum

A quorum is necessary to take action at the meeting.  A quorum means that holders of a majority of the outstanding shares of our common stock entitled to vote, are present, either in person or represented by proxy.  Votes withheld from director nominees, abstentions and broker non-votes will be counted in determining the presence of a quorum.

Voting Requirements

Directors will be elected by plurality vote.  This means that the director nominee with the most votes for a particular slot is elected for that slot.  You may vote “for” or “withhold” with respect to the election of directors.  Other matters are determined by a majority of the votes cast, including ratification of the appointment of PricewaterhouseCoopers LLP.  Under Pennsylvania law, votes withheld from directors, abstentions and broker non-votes are not considered “votes” and, therefore, will not be given effect either as affirmative or negative votes.

Any shares you may hold in our 401(k) plans have been added to your other holdings on your proxy card.  Your completed proxy card serves as voting instructions to the trustee of those plans.  You may direct the trustee how to vote your plan shares by submitting your proxy vote for those shares, along with the rest of your shares, by Internet or mail, all as described on the enclosed proxy card.  If you do not instruct the trustee how to vote, your plan shares will be voted by the trustee in the same proportion that it votes shares in other plan accounts for which it did receive timely voting instructions.

Voting Methods

You may vote using any of the following methods:

Proxy Card or Voting Instruction Card.  Be sure to complete, sign and date the card and return it in the prepaid envelope.  If you are a shareholder of record and return your signed proxy card but do not indicate your voting preferences, the persons named in the proxy card will vote FOR the election of directors and FOR the ratification of the appointment of PricewaterhouseCoopers LLP as our independent registered public accounting firm on your behalf.

Via the Internet.  The Internet voting procedure is designed to authenticate votes cast by use of a personal identification number.  The procedure allows shareholders to appoint a proxy, provides voting instructions and  confirms that their actions have been properly recorded.  The website for Internet voting is www.voteproxy.com.  The enclosed proxy card contains specific instructions on Internet voting.  Please have your proxy card handy when you go online.  Internet voting facilities for shareholders of record will be available 24 hours a day and will close at 11:59 PM Eastern Time on May 4, 2009.

In Person at the Meeting.  If you are a shareholder of record and attend the meeting, you may deliver your completed proxy card in person.  If you are a beneficial owner, you must obtain a proxy from your broker, bank or other holder of record and present it to the judge of elections with your ballot in order to vote.

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Changing Your Vote

Even after you have submitted your proxy, you may revoke or change your vote at any time before the proxy is exercised by filing with our corporate secretary either a notice of revocation or a duly executed proxy bearing a later date.  You may also vote in person at the meeting, although attendance at the meeting will not by itself revoke a previously granted proxy.

Other Matters

As of the date this proxy statement was printed, we did not know of any other matters to be raised at the annual meeting.  If other matters are properly presented for consideration, the persons named in your proxy card will have the discretion to vote on those matters for you.

PROPOSAL #1 — ELECTION OF DIRECTORS

Our board of directors is divided into three classes.  Each year, the directors in one class are elected to serve a three-year term.  The board has nominated Paula A. Johnson, Anthony Welters and Patrick J. Zenner for election as Class I directors.  All of the nominees have agreed to be named and to serve, and we expect each nominee to be able to serve if elected.  If any nominee is not able to serve, the nominating and corporate governance committee will recommend to our board a replacement nominee.  The board may then designate the other nominee to stand for election.  If you voted for the unavailable nominee, your vote will be cast for his or her replacement.  The ages, principal occupations, directorships held and other information about the nominees and directors are shown below.

Director Change in 2008.  In October 2008, director Jenne K. Britell resigned from our board and the size of the board was reduced to 10.

Nominees For Directors in Class I For Terms to Expire in 2012

The board of directors recommends a vote “FOR” the election of each of the director nominees.

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Continuing Class II Directors Whose Terms Expire in 2010

Continuing Class III Directors Whose Terms Expire in 2011

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CORPORATE GOVERNANCE AND BOARD OF DIRECTORS MATTERS

Governance Principles

Our board has adopted corporate governance principles to provide guidance to our board and its committees on the board’s role, director qualifications and responsibilities, board composition, organization and leadership.  The governance principles are published on our website at www.westpharma.com under the Investors – Corporate Governance captions.  You may request a printed copy of the principles from our corporate secretary.  The board regularly reviews corporate governance developments and modifies the corporate governance principles as warranted.  Any modifications are reflected on our website.

Director Qualifications

The board and the nominating and corporate governance committee consider, at a minimum, the following factors in recommending potential new board members or the continued service of existing directors:

The board generally seeks active or former senior level executives of public companies, particularly companies with international operations, leaders in the healthcare or public health fields and individuals with financial expertise.

Director Independence

Our board has affirmatively determined that each director, except our CEO Dr. Morel, has no direct or indirect material relationship with us.  The board has established independence standards that conform to the NYSE’s independence criteria.  The independence standards may be found on our website at www.westpharma.com under the Investors – Corporate Governance captions.  In making its determination, the board considered our independence standards and relevant facts and circumstances, including direct and indirect transactions and relationships between each director and us.

Chairman, Independent Directors

One independent director is designated as “Chairman, Independent Directors.”  The Chairman, Independent Directors confers with the chief executive officer on our board’s agenda items and information requirements, calls meetings of the independent directors and presides at executive sessions of the independent directors.  Anthony Welters is the current Chairman, Independent Directors.

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Communicating with the Board

Interested parties can communicate with the Chairman, Independent Directors or the non-management directors as a group by sending a letter addressed to our board of directors, c/o Vice President, General Counsel and Secretary, West Pharmaceutical Services, Inc., 101 Gordon Drive, Lionville, PA 19341.  Communications to a particular director should be addressed to that director at the same address.

Our corporate secretary maintains a log of all communications received through this process.  Communications to specific directors are forwarded to those directors.  All other communications are transmitted directly to the Chairman, Independent Directors who decides whether they should be forwarded to a particular board committee or to management for further handling.

Review and Approval of Related Transactions

The nominating and corporate governance committee is responsible for the review, approval or ratification of “related-person transactions” between us and related persons.  Under SEC rules, a related person is a director, officer, nominee for director or 5% shareholder since the beginning of the last fiscal year and their immediate family members.  We have written policies and procedures that apply to any transaction or series of transactions in which we or one of our subsidiaries are a participant, the amount involved exceeds $120,000 and a related person has a direct or indirect material interest.  The nominating and corporate governance committee has determined that, barring additional facts or circumstances, a related person does not have a direct or indirect material interest in the following categories of transactions:

·                  Any employment of one of our executive officers if the related compensation of the executive has to be reported (or would be reported if the executive was a named executive officer and the compensation was approved by the compensation committee) in our proxy statement;

·                  Any compensation to one of our directors if the compensation has to be reported in our proxy statement;

·                  Any transaction with another company at which a related person’s only relationship is as an employee (other than an executive officer), director or beneficial owner of less than 10% of that company’s shares, if the aggregate amount involved does not exceed the greater of $1 million or 2% of that company’s total annual revenues;

·                  Any charitable contribution, grant or endowment we make to a charitable organization, foundation or university for which a related person’s only relationship is as an employee (other than an executive officer) or a director, if the aggregate amount involved does not exceed the lesser of $1 million or 2% of the charitable organization’s total annual receipts;

·                  Transactions in which all shareholders receive proportional benefits;

·                  Transactions involving competitive bids; and

·                  Banking-related services involving a bank depository of funds, transfer agent, registrar, trustee under a trust indenture or similar service.

Transactions not included in one of the above categories are reviewed by the nominating and corporate governance committee.  The committee determines whether the related person has a material interest in a transaction and may approve, ratify, rescind or take other action with respect to the transaction.

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Code of Business Conduct

All of our employees, officers and directors are required to comply with our Code of Business Conduct.  The Code of Business Conduct covers fundamental ethical and compliance-related principles and practices such as  accurate accounting records and financial reporting, avoiding conflicts of interest, the protection and use of our property and information and compliance with legal requirements.

Our Code of Business Conduct can be found on our website at www.westpharma.com under the Investors – Corporate Governance captions.  You may request a printed copy from our corporate secretary.

Board and Committee Membership

Our board of directors has five committees: audit committee; compensation committee; nominating and corporate governance committee; finance committee; and innovation and technology committee.  The board has adopted a written charter for each committee, which are posted on our website at www.westpharma.com under the Investors – Corporate Governance captions.  You may request a printed copy of each committee’s charter from our corporate secretary.

The following table shows the current membership of each board committee:

The Audit Committee.  The audit committee assists our board in its oversight of (1) the integrity of our financial statements; (2) the independence and qualifications of our independent registered public accounting firm; (3) the performance of our internal audit function and independent registered public accounting firm; and (4) our compliance with legal and regulatory requirements.  In carrying out these responsibilities, the audit committee, among other things:

·                  reviews and discusses our annual and quarterly financial statements with management and the independent registered public accounting firm;

·                  manages our relationship with the independent registered public accounting firm, including having sole authority for its appointment, retention and compensation; reviewing the scope of its work; approving non-audit and audit services; and confirming the independence of the independent registered public accounting firm; and

·                  oversees management’s implementation and maintenance of disclosure controls and procedures and internal control over financial reporting.

Audit Committee Financial Experts.  The board has determined that each current member of the audit committee is an “audit committee financial expert” within the meaning of SEC regulations.

The Compensation Committee.  The compensation committee monitors the effectiveness of our executive compensation programs in realizing its compensation philosophy; reviews and approves corporate goals and objectives relevant to the compensation of our executive officers and evaluates their performance against those goals and objectives; and, either as a committee or together with the other independent directors, determines and approves their compensation levels based on that evaluation.  Final decisions on the compensation of our chief executive officer are discussed with and approved by the independent directors in executive session.  The compensation committee also makes recommendations to our board on incentive and equity-based

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compensation plans.  In overseeing the administration of those plans, the compensation committee approves all grants and awards to executive officers, establishes performance goals and determines whether or not those goals have been met.

Our compensation committee has delegated certain authority, responsibilities and duties to a committee of senior officers, referred to as the “plan committee.”  The plan committee may make equity awards to newly hired employees as part of a new-hire package and to existing employees in connection with promotions or for retention purposes, subject to guidelines and an overall annual share limitation.  The plan committee may not make any awards or grants to our officers.  The plan committee is composed of our CEO, vice president, human resources, general counsel and controller.

The Nominating and Corporate Governance Committee.  The nominating and corporate governance committee identifies qualified individuals to serve as board members; recommends nominees for director and officer positions; determines the appropriate size and composition of our board and its committees; monitors a process to assess board effectiveness; reviews related-party transactions; and considers matters of corporate governance.  After review by the independent directors, the nominating and corporate governance committee formally recommends to our board a successor to the chief executive officer.  The committee also reviews and makes recommendations to the board on the form and level of director compensation.  The nominating and corporate governance committee administers director equity-based compensation awards.

Candidate Selection Process.  To identify new, non-management director candidates, the nominating and corporate governance committee considers individuals suggested or recommended from a variety of sources, including committee members, other directors, the chief executive officer, customers, suppliers, board advisors and our security holders.  The committee has not employed a third-party search firm, but it reserves the right to do so.  All persons recommended for nomination to our board, regardless of the source of the recommendation, are evaluated in the same manner by the committee.

The Finance Committee.  The finance committee serves as our board’s liaison with management on important financial transactions and financial-policy matters.  The finance committee consults with and advises management on financial strategies and procedures, acquisitions, divestitures and capital expenditure requests.

The Innovation and Technology Committee.  The innovation and technology committee provides guidance to our board on technical and commercial innovation strategies; reviews emerging technology trends that may affect our business; reviews our major innovation and technological programs and overall patent strategies; and assists our board in making well-informed choices about investments in new technology.

Board and Committee Meetings

The following chart shows the number of meetings of our board and each of its committees held during 2008.  All directors attended more than 75% of the total number of meetings of board and committees on which they served.  Under our corporate governance principles, directors are expected to attend our annual meeting unless they cannot because of illness or emergency.  All directors attended our 2008 annual meeting.

Our board holds regular executive sessions of only non-management directors to conduct a self-assessment of its performance and to review management’s strategy and operating plans, the criteria by which the chief executive officer and other senior executives are measured, management’s performance against those criteria and any other relevant topics.  Last year, non-management directors held six executive sessions.

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DIRECTOR COMPENSATION

Annual compensation for non-employee directors is comprised of cash compensation, in the form of an annual retainer, meeting and committee fees, and annual grants of deferred stock.  The following table shows the meeting fees and retainers paid to non-employee directors in 2008:

2008 Director Compensation Table

The total 2008 compensation of our non-employee directors is shown in the following table.  All directors are currently serving on our board, except Jenne K. Britell who resigned on October 6, 2008.

(1)   The amounts in this column are the dividend equivalents credited to each account under the Director Deferred Compensation Plan.

Fees Earned and Paid in Cash.  The amounts in the “Fees Earned and Paid in Cash” column are retainers for serving on our board, board committees and as committee chairs and Chairman, Independent Directors.  All annual retainers and meeting fees are paid quarterly.  The amounts do not reflect elections to defer fees under the Non-Qualified Deferred Compensation Plan for Non-Employee Directors (“Director Deferred Compensation Plan”).  In 2008, Mr. Neafsey, Mr. Welters, Mr. Weiland, Mr. Worden and Dr. Young deferred 100% of their director’s fees.

Stock Awards.  The amounts in the “Stock Awards” column reflect the compensation costs recognized as expense in our financial statements under FAS 123(R) during 2008 for deferred stock awards granted to directors.  In 2007 and 2008, each non-employee director was awarded 2,100 shares of deferred stock.  The expense attributable to the 2007 award is based on a per-share grant date fair value of $50.00 per share for all directors, except Mr. Hofmann whose 2007 award was made when he joined the board later in 2007 and has a FAS 123(R) grant date fair value of $41.57 per share.  The per-share grant date fair value of the 2008 deferred stock award for all directors was $45.71.  Dr. Britell forfeited her 2008 award when she left the board and,

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therefore, no expense for her 2008 award is included.  For a more detailed discussion on the compensation charges for our deferred stock awards, refer to Note 16 of the Notes to Financial Statements contained in our 2008 Form 10-K.

Deferred stock awards are made on the date of our annual meeting and vest on the date of the following year’s annual meeting, provided that the director continues to serve on our board on that date.  The deferred stock also vests on a director’s retirement, if earlier.  The 2008 deferred stock had a grant date fair market value of $95,991 based on the stock’s closing price ($45.71) on the award date, May 6, 2008.

All deferred stock is credited to an account under the Director Deferred Compensation Plan and is distributed as shares of common stock according to the terms of that plan, as described below.  When dividends are paid on common stock, additional shares of deferred stock are credited to each director’s deferred stock account as if those dividends were used to purchase additional shares.

Stock Options.  Prior to 2007, non-employee directors received annual grants of stock options, which vested on the first anniversary of the grant date.  After benchmarking this practice, our board of directors stopped granting stock options to directors.

Outstanding Director Stock Awards and Stock Options At Fiscal Year-End 2008

The following table presents information on stock awards and stock options as of December 31, 2008 for each person who served as a non-employee director during that year.

Director Deferred Compensation Plan

All non-employee directors may participate in the Director Deferred Compensation Plan, which permits participants to defer all or a part of their annual cash retainers and meeting fees until they cease to be directors.  Deferred fees may be credited to a “stock-unit” account that is deemed invested in our common stock or to an account that earns interest at the prime rate of our principal commercial bank.  The stock-unit accounts also are credited with dividend equivalents based on the number of stock units credited to the account as of the dividend record date.

The value of a director’s account balance is distributed on termination of board service.  The value of a director’s stock-unit account is determined by multiplying the number of stock units credited to the account by the fair market value of our common stock on the termination date.

Directors may receive their distribution as a lump sum or in up to 10 annual installments.  Separate elections may apply to amounts earned and vested before 2005 and amounts earned and vested after December 31, 2004.  Deferred stock is distributed in shares of stock and stock units are distributed in cash.  If a director elects the installment option, any cash-account balances during the distribution period will earn interest at the prime rate of our principal commercial bank and deferred stock will be credited with dividends until paid.  Partial shares are distributed in cash.

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EXECUTIVE COMPENSATION

Compensation Discussion and Analysis

Overview

This section of the proxy statement explains how our executive compensation programs are designed and operate with respect to the named executive officers (the CEO, CFO and three other most-highly compensated executive officers).  The “Summary Compensation Table and Narrative Disclosure” section presents compensation earned by the named executive officers in 2006, 2007 and 2008.

Our board’s compensation committee develops our overall compensation philosophy, approves our executive compensation programs and makes all decisions about the compensation of our executive officers, including the named executive officers.  The committee’s decisions on the compensation of the chief executive officer are discussed with and approved by the independent directors.  The committee’s overall compensation philosophy is to tie executive pay to short-term and longer-term company performance and to attract and retain the type of executive leadership that will help us achieve our strategic objectives.  To reach these goals, we have designed our compensation programs to reflect the following values:

·                  The programs should have a strong pay-for-performance aspect.  A major portion of executive pay should be “at risk” based on our financial performance.  Total pay should be targeted at the appropriate market median with greater rewards paid for exceeding goals.

·                  The programs should support the achievement of both operating performance and strategic objectives.  Annual bonuses should reward performance against key budgeted targets, while long-term incentives should keep management focused on business growth and effective use of capital.

·                  The programs should link management compensation with the interests of shareholders, and executives should have an interest in enhancing shareholder value.  Incentives should facilitate stock ownership and their value should result from increasing stock price.

·                  The programs should assure access to needed talent and encourage retention.  They should be fair and market-competitive.  Compensation opportunities should be consistent with each executive’s responsibilities, experience and performance.

The Role of Our Compensation Consultant

The compensation committee has retained Towers Perrin, an outside compensation consultant, to assist it.  Towers Perrin reports directly to the committee.  During 2008, Towers Perrin performed the following tasks for the committee:

·                  Prepared competitive market data with respect to the compensation of the executive officer group;

·                  Provided input on the committee’s pay recommendations for the chief executive officer;

·                  Provided input on compensation program design and philosophy, incentive-pay mix and comparator groups against which executive pay is benchmarked; and

·                  Provided information on executive compensation trends.

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The Role of Comparator Groups in Executive Compensation Decisions

Each year, the committee reviews our executives’ cash and equity compensation relative to comparable companies of a reasonably similar size and complexity with which we compete for talent and business.  To assure that executive compensation is fair and market-competitive, the committee sets midpoint base salaries, target bonus levels and expected long-term incentive award values by reference to the median of a select group of industry-specific comparator companies – referred to as the “Business Segment Comparator Group.”  The committee also considers compensation data from a broad survey of cross-industry companies, including healthcare and others – referred to as the “Talent Market Comparator Group” – as a way of confirming that our executive pay is competitive.

The selection of the comparator group companies was based on the following guiding principles:

·                  Business Segment Comparator Group companies should reflect businesses and industries that are similar in complexity to us as measured by global footprint, manufacturing capabilities, revenues, materials, intellectual-property profile and customer characteristics;

·                  The overall comparator samples should reflect both those companies with which we compete for business, and more broadly, those with which we compete for talent;

·                  To the extent possible, the selection process should be driven by appropriate criteria versus selection of individual companies; and

·                  Data samples should be robust, provide decision-quality data for all executive positions and be readily available.

The committee agreed that the Business Segment Comparator Group should have the following characteristics:

The composition of the Business Segment Comparator Group was proposed by Towers Perrin based on the criteria described above, and selected by the committee and management.  It is comprised of the following companies:

Business Segment Comparator Group

The committee reviews the Business Segment Comparator Group each year.  One company was removed from the group for 2008 due to its merger into a larger company.

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The committee agreed that the Talent Market Comparator Group should consist of companies that participate in Towers Perrin’s annual executive compensation database, which have revenues of $500 million to $2 billion and operate in the chemicals, electronics and scientific equipment, healthcare/medical products, industrial manufacturing or pharmaceuticals industries.  Intended to represent the marketplace where we compete for talent, this broader group is used to confirm the competitiveness of compensation paid to similar executives at the Business Segment Comparator Group companies and when information on particular executive positions within the primary peer-group companies is unavailable.  The companies in the Talent Market Comparator Group used for 2008 compensation purposes were:

Talent Market Comparator Group

The Use and Review of Tally Sheets

The committee reviews tally sheets as part of its annual executive-compensation review.  The tally sheets contain all components of the named executive officers’ current compensation, including salary, equity and non-equity incentive compensation and perquisite components, and valuations of retirement benefits and estimated compensation payable on employment termination or following a change in control.  The tally sheets assemble all of the individual elements for each named executive officer’s actual and potential compensation so that the committee may consider the appropriateness of the total value of the compensation packages and the mix between current and projected pay.

In its review of these tally sheets, the committee noted that in many instances the year-over-year decrease in the value of equity owned by executive officers exceeded their total 2008 compensation, reflecting year-over-year declines in our stock price.  The committee believed that such a decline in wealth accumulation was consistent with its stock ownership and pay-for-performance philosophies.

The Elements of Our Executive Pay

We have established an executive compensation program that includes three main components:

·                  Base salaries;

·                  Annual incentive (bonus) awards; and

·                  Long-term equity incentive awards.

These components are designed to work together to advance the overall goals of our compensation philosophy.  To ensure fair and competitive compensation, base salaries and targeted annual and long-term incentive opportunities are generally set at or near median pay levels of the market as represented by pay practices in the Business Segment and Talent Market Comparator Groups.

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We target the top end of the 75th percentile range for the combined value of cash compensation (base salaries and annual bonus) and long-term incentives, if maximum performance is achieved, which will yield above-average compensation for superior performance.  Because the value of stock-based awards at the time they become earned and vested depends on stock-price appreciation and longer-term operating performance over the award period, individual compensation levels may vary from the intended target.

Consistent with our compensation philosophy, performance-based pay generally represents a greater percentage of the total compensation of the executives who have the most influence over and responsibility for the achievement of performance objectives, thus emphasizing the pay-for-performance aspect of our compensation programs.

The Role of Executives in Determining Compensation

Our chief executive officer and our vice president, human resources, together with Towers Perrin, make recommendations to the committee on incentive-plan design and incentive-compensation targets for each named executive officer other than the chief executive officer.  Their recommendations are influenced to a large degree by Towers Perrin’s evaluation of the median incentive compensation levels of the Business Segment Comparator Group, which is reviewed at least annually.  The CEO prepares salary recommendations for each executive officer after reviewing comparative salary data and discusses job performance and the rationale for his recommendations with the committee.

Base Salary

The objective of base salary is to provide fixed compensation for each named executive officer that is fair and market-competitive.  Although we target base salaries at a competitive range (i.e., +/- 15%) of the market median, individual salary levels may vary depending on the executive’s experience, length of service in the position, potential for advancement and/or development, the committee’s subjective view of personal performance, and the influence of compensation structures in markets where we compete for talent.

Salary increases are based on an evaluation of the individual’s performance and level of pay in relation to Business Segment and Talent Comparator Group levels for similar positions.  Before making its decision on the CEO’s salary, the committee reviews a competitive compensation assessment that compare his base salary, targeted annual incentive and expected long-term incentive values with the comparable position at each of the Business Segment Comparator Group companies.  The committee also reviews the CEO’s performance evaluation and discusses its views with the independent directors in executive session.  Salaries are reviewed annually and any adjustments take effect in late April or early May.

2008 Base Salary Decisions

The committee approved a salary increase for each named executive officer last year.  In approving increases for the non-CEO named executive officers, the committee took into account the individual’s responsibilities, experience and performance, his position relative to the Business Segment and Talent Market Comparator Groups and to internal peers, and considered the recommendations of the CEO.

Dr. Morel’s 2008 salary increase reflected the committee’s desire to maintain his salary at or within the median and our board’s view that he has provided excellent leadership and continues to remain a highly effective CEO.

The following table shows the 2008 salary increases approved by the committee for each named executive officer and the comparison of their base salary with the Business Segment Comparator Group.

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2008 Base Salary Increases and Comparisons to Market

Annual Incentive Plan

The named executive officers may earn annual bonuses under the Annual Incentive Plan based on our financial performance criteria, subject to maximum and minimum performance and payout limits.  Annual bonuses reward achievement of annual operating goals, which are focused on attaining profitable growth while encouraging prudent use of cash.  To achieve these goals, bonuses depend on the achievement of multiple financial targets, weighted according to their importance.  The targets vary according to organization unit.  The targets for the named executive officers are as follows:

Annual Incentive Plan

Performance Targets and Weighting

The adjusted EPS metric consists of GAAP EPS, adjusted to budgeted foreign-exchange rates, and excluding the impact of unusual or infrequent items such as discrete tax benefits and restructuring gains or losses.  Adjusted regional revenue, operating income and division cash flow consist of GAAP results for those measures, adjusted for budgeted exchange rates.

Target bonus opportunities are determined as a percentage of each executive’s base salary.  The committee establishes target-bonus levels for each of the named executive officers through an analysis of compensation for comparable positions in the Business Segment and Talent Market Comparator Groups.  The combination of base salary and target bonus is intended to approximate the median market if the performance targets are met, and approach the 75th percentile if targets are exceeded.  Consistent with our overall compensation design, executives with greater responsibilities for influencing financial performance have higher target bonus levels as a percentage of salary.

An executive’s Annual Incentive Plan award is determined by multiplying his base salary times his bonus opportunity times the applicable “payout factor.”  For each performance measure, a “payout factor” is determined based on the level of performance for the applicable year versus the targets for that year.  If the executive achieves 100% performance, the payout factor for each performance measure is 100%.  If the performance level is less than a threshold amount, the payout factor is zero, and if performance exceeds 100%, the payout factor will be greater than 100%.  Each payout factor is weighted to reflect the relative importance

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of the applicable performance measure.  The following table shows the payout formula.  Performance between points is straight-line interpolated.

Annual Incentive Plan awards are paid in cash, but executives may elect to have up to 100% of the bonus paid in our common stock, referred to as “bonus shares.”  This option increases executive stock ownership and further aligns executives with shareholder interests.  As an inducement to acquire and hold shares, we also grant one additional time-vested restricted share, referred to as an “incentive share,” for each four bonus shares received.  Incentive shares vest only if the executive holds the bonus shares for four years and remains employed during the vesting period — provisions designed to encourage long-term stock ownership and promote retention.

2008 Annual Performance Measurement and Achievement

Each year, our chief executive officer and vice president, human resources, working with our finance group and in consultation with the committee, propose annual incentive payout criteria, payout targets and weighting.  The committee reviewed and approved the proposed 2008 performance criteria, which were based on our board-approved budget, because it believed the proposed goals represented appropriate “stretch” targets and were aligned with shareholder interests.  The following table shows the 2008 targets, their weighting and performance against target as they apply to each of the named executive officers.

2008 Annual Incentive Plan

Performance Targets, Weighting and Achievement

(In US $ millions, except per-share data)

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The table below shows the 2008 target and actual Annual Incentive Plan awards paid to each of the named executive officers.  The total actual award is shown in the “Non-Equity Incentive Plan Compensation” column of the 2008 Summary Compensation Table.

2008 Annual Incentive Plan Payouts

Long-Term Incentive Program

Our long-term equity compensation program is intended to complement the objectives of the Annual Incentive Plan by encouraging longer-term sales growth and profitable investments.  Long-term incentives also are intended to align executive and investor interests; assist in retaining key executive personnel; and give executives an opportunity to create wealth over time based on increasing stock value.

Our long-term incentive programs use equity-based awards in the form of non-qualified stock options that vest over time and performance-vesting share units (“PVS units”), which entitle the recipient to receive a number of shares of our common stock dependent on achievement of multi-year financial targets.

Stock Options.  Stock options enable our executives to share in the growth of our stock for up to 10 years from the award date.  This encourages our executives and other employees to make long-term decisions to benefit us and our shareholders because options become valuable only to the extent that the market value of our common stock exceeds the option’s exercise price.  The awards vest ratably over four years, which helps us retain key employees.  Stock options generally expire 90 days after employment termination, except in the case of retirement.  The normal 90-day expiration period ensures that employees do not share in increases in stock value after they terminate employment for reasons other than retirement.  We permit shares to be exercised for the full 10-year term following retirement to reward long service and provide income security and to encourage executives to think long-term as they near the end of their career.

PVS Units.  PVS unit awards provide for a medium-term incentive compensation opportunity that pays out only if certain performance measures are met over a three-year period.  They are designed to encourage our executives to balance near-term earnings growth with longer-term profitable investments.  PVS units may be earned based on two equally weighted performance measures — compound annual revenue growth rate (“CAGR”) and return on invested capital (“ROIC”).  The payout opportunity is capped at 200% and actual payouts may range from 0% to 200% based on actual results.  The following table shows the payout formula.  Performance between points is straight-line interpolated.

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After the base salary and annual bonus opportunity are set, the value of targeted long-term opportunities is established by comparing the individual executive’s total direct compensation (i.e., salary, cash bonus and the expected value of long-term incentive awards) to the market.  The committee’s practice is to determine the targeted dollar amount of equity compensation and then grant long-term incentive awards that have a fair value equal to that amount on the grant date.  Long-term award value is roughly divided equally between the two types of awards.  Stock options are valued using a binomial lattice model, and PVS units are valued based on the discounted value of the stock, adjusted for the risk of forfeiture.

As with the determination of base salaries and Annual Incentive Plan award opportunities, the committee exercises judgment in view of the above criteria, taking into consideration CEO recommendations in setting long-term award target levels for non-CEO executives and discussions with the independent directors regarding the target levels for the CEO.  The committee also considers potential shareholder dilution of the program and overall business and market conditions.  Long-term grants do not affect the amount of an employee’s retirement benefits.

2008 Long-Term Incentive Performance Measurement and Achievement

For PVS units awarded in 2008, the committee set a target CAGR and ROIC goal of 10% each.  In setting the 2008 CAGR and ROIC targets, the committee considered past performance, our weighted average cost of capital and information relative to sales growth in the markets in which we operate.  The number of options or PVS units previously granted to, or held by, a named executive officer is not a factor in determining individual grants.  Past awards were granted based on performance in prior years.  As a result, potential accumulated wealth is not viewed as relevant in arriving at the current year awards.  The value of 2008 PVS units awarded to each named executive officer is reflected in the 2008 Summary Compensation Table on page 20 and the 2008 Grants of Plan-Based Awards Table on page 22.

Retirement Plans and Termination Payments

We maintain defined benefit and defined contribution retirement programs for U.S. salaried employees in which Dr. Morel, Mr. Ellers, Mr. Federici and Mr. Gailey participate.  In addition to the standard benefits available to all eligible U.S. salaried employees, we maintain non-qualified defined benefit plans in which these four executives participate.  All tax-qualified defined benefit plans have a maximum compensation limit and a maximum annual benefit, which restrict the benefit to participants whose compensation exceeds these limits.  The non-qualified plans provide benefits to key salaried employees, including those four named executives, using the same formula for benefits as is used under the tax-qualified plans but without regard to the compensation limits and maximum benefit accruals for tax-qualified plans.

We also provide our named executive officers with certain benefits on termination of their employment in various circumstances, as described under “Estimated Payments Following Severance” and “Payments On Termination in Connection With a Change in Control” sections below.  We believe that these agreements are an important element in ensuring that the executives remain focused on our business in the event of a threat or occurrence of a change in control; encourage executives to act in the best interests of the shareholders in assessing a transaction; and protect our value by retaining key talent.

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Considerations Specific to Mr. Keating

In 2008, Mr. Keating informed us of his intent to retire on March 31, 2009.  The committee believes that he has contributed significant value to us over the course of his seven years as regional head and has built a superb foundation for growth in his region.  The committee believes that Mr. Keating has made decisions and contributions that will have a significant impact beyond his retirement.  To reflect and reward these contributions, which will benefit our long-term future, the committee amended Mr. Keating’s outstanding stock options and PVS units in October 2008 to allow them to continue vesting according to their original vesting schedules following his retirement.  The value of this added benefit was $248,811 based on our stock price at that time.

Other Compensation Policies

Personal Benefits.  We provide our named executive officers with other benefits, reflected in the “All Other Compensation” column of the 2008 Summary Compensation Table on page 20, that we believe are reasonable and competitive so that we may attract and retain talented senior executives.  In total, they represent a small percentage of the executives’ overall compensation.

Stock Ownership Requirements.  First adopted in 1994, stock-ownership goals for all executive officers reflect our view that senior management should have a significant equity position in the Company.  Stock-ownership goals align executives with the interests of shareholders and encourage a longer-term focus.  These goals specify a value equal to particular multiples of the executive’s base salary, which executive officers must acquire within five to seven years of attaining their position.  The chief executive officer’s goal is 5x base salary and the goal for all other executive officers is 2x base salary.  Our stock may be held in various forms to achieve the ownership guidelines, including shares held directly, shares held in retirement and savings plans accounts, and bonus and restricted stock awarded under our incentive plans.  The committee reviews progress against these goals every year.  All named executive officers currently meet their guidelines.  We prohibit hedges of our common stock by executive officers or employees.

Equity-Awards Policy.  Under the committee’s equity-awards policy, all equity awards (other than grants for newly hired employees and grants for promotions or for retention purposes) are made once per year at the committee meeting in February or March, following the release of earnings for the prior fiscal year.  The policy also confirms that the grant date of any equity award is the date the award is approved at a meeting of the committee or plan committee and that the exercise price of any stock option is determined as of the grant date in compliance with the terms of the applicable incentive plan.

Accounting Impact on Executive Compensation.  In designing our total compensation and benefit programs, we review the accounting implications of our decisions.  We seek to deliver cost-effective compensation and benefit programs that meet our needs while ensuring an appropriate impact on reported earnings and other financial measures that we deem important.  We have also taken steps to ensure that all of our nonqualified deferred compensation plans and arrangements comply with the recently implemented regulations under Section 409A of the Internal Revenue Code.

Deductibility of Executive Compensation.  Under Section 162(m) of the Internal Revenue Code, a publicly held corporation is denied a federal tax deduction for compensation in excess of $1,000,000, which is paid to its chief executive officer, chief financial officer and its three most-highly compensated executive officers other than those officers.  “Qualified performance-based compensation” and certain other compensation are not subject to the deduction limitation.  Our board of directors has taken action to cause cash bonus awards and grants of stock options, PVS units and other stock awards under our incentive plans to be treated as qualified performance-based compensation and, therefore, not limited by Section 162(m).

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Compensation Committee Report

The compensation committee, composed of independent directors, reviewed and discussed the preceding Compensation Discussion and Analysis with the Company’s management.  Based on this review and discussions, the compensation committee recommended to the Company’s board of directors, and the board of directors approved, that the Compensation Discussion and Analysis be included in this proxy statement and incorporated by reference into the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2008.

Summary Compensation Table and Narrative Disclosure

The following table presents information on the compensation to our chief executive officer, chief financial officer and the three other most-highly compensated officers during the fiscal year ended December 31, 2008.  We refer to these officers as the “named executive officers.”

2008 Summary Compensation Table

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Stock Awards.  The amounts in the “Stock Awards” column reflect the accounting charge taken in each year for incentive (time-vesting restricted) shares and unearned PVS units.  Accounting costs are determined, as required, under FAS 123(R).  The following table summarizes the portion of 2008 expense attributable to unearned PVS unit awards by year of award and the accounting charge associated with unvested incentive shares granted to each named executive officer.

For a more detailed discussion on the compensation charges for our PVS units and incentive shares, refer to Note 16 of the Notes to Financial Statements contained in our 2008 Form 10-K.

Option Awards.  The amounts in the “Option Awards” column reflect the accounting charge taken in each year for stock-option awards.  Accounting costs are determined, as required, under FAS 123(R).  The following table summarizes the 2008 expense attributable to stock options by grant date of the award: