SCHEDULE 14A INFORMATION Proxy Statement Pursuant to Section 14(a) of the Securities Exchange Act of 1934 Filed by the Registrant [X] Filed by a Party other than the Registrant [ ] Check the appropriate box: [ ] Preliminary Proxy Statement [X] Definitive Proxy Statement [ ] Definitive Additional Materials [ ] Soliciting Material Pursuant to Rule 14a-11(c) or Rule 14a-12 PARKER-HANNIFIN CORPORATION _______________________________________________________________________ (Name of Registrant as Specified In Its Charter) Joseph D. Whiteman, Secretary _______________________________________________________________________ (Name of Person(s) Filing Proxy Statement) Payment of Filing Fee (Check the appropriate box): [x] $125 per Exchange Act Rules 0-11(c)(1)(ii), 14a-6(i)(1), or 14a-6(j)(2) [ ] $500 per each party to the controversy pursuant to Exchange Act Rule 14a-6(i)(3). [ ] Fee computed on table below per Exchange Act Rules 14a-6(i)(4) and 0-11. 1) Title of each class of securities to which transaction applies: 2) Aggregate number of securities to which transaction applies: 3) Per unit price or other underlying value of transaction computed pursuant to Exchange Act Rule 0-11:_/ 4) Proposed maximum aggregate value of transaction: _/ Set forth the amount on which the filing fee is calculated and state how it was determined. [ ] Check box if any part of the fee is offset as provided by Exchange Act Rule 0-11(a)(2) and identify the filing for which the offsetting fee was paid previously. Identify the previous filing by registration statement number, or the Form or Schedule and the date of its filing. 1) Amount previously Paid: .............................................. 2) Form, Schedule or Registration Statement No.: .............................................. 3) Filing Party: .............................................. 4) Date Filed: .............................................. PARKER-HANNIFIN CORPORATION 17325 Euclid Avenue - Cleveland, Ohio 44112 NOTICE OF ANNUAL MEETING OF SHAREHOLDERS OCTOBER 26, 1994 The annual meeting of shareholders of Parker-Hannifin Corporation will be held at the Corporation's Hydraulic Valve Division, 520 Ternes Avenue, Elyria, Ohio, in the employee cafeteria on Wednesday, October 26, 1994, at 10:00 a.m., Eastern Daylight Time, for the following purposes: 1. Fixing at four the number of Directors in the class whose three-year term of office will expire in 1997 and electing four Directors in such class; 2. Appointing Coopers & Lybrand as independent public accountants for the fiscal year ending June 30, 1995; and 3. Transacting such other business as may properly come before the meeting. Shareholders of record at the close of business on August 30, 1994, are entitled to vote at the meeting. Please sign and return the enclosed Proxy promptly. A return envelope is enclosed for your convenience. By Order of the Board of Directors Joseph D. Whiteman Joseph D. Whiteman Secretary September 26, 1994 PARKER-HANNIFIN CORPORATION 17325 Euclid Avenue - Cleveland, Ohio 44112 PROXY STATEMENT This Proxy Statement is furnished in connection with the solicitation by the Board of Directors of the Corporation of proxies to be voted at the annual meeting of shareholders scheduled to be held on October 26, 1994, and at all adjournments thereof. Only shareholders of record at the close of business on August 30, 1994 will be entitled to vote. On that date, 48,973,148 Common Shares were outstanding and entitled to vote at the meeting, each share being entitled to one vote. This Proxy Statement and the form of Proxy are being mailed to shareholders on September 26, 1994. Shareholders of the Corporation have cumulative voting rights in the election of Directors, provided any shareholder gives notice in writing to the President or a Vice President or the Secretary of the Corporation not less than 48 hours before the time fixed for holding the meeting that he desires that the voting at such election be cumulative and an announcement of the giving of such notice is made upon the convening of the meeting by the Chairman or the Secretary or by or on behalf of the shareholder giving such notice. In such event, each shareholder has the right to cumulate his votes and give one nominee the number of votes equal to the number of Directors of each class to which Directors are nominated multiplied by the number of votes to which his shares are entitled, or he may distribute his votes on the same principle among two or more nominees to each such class, as he sees fit. In the event that voting at the election is cumulative, the persons named in the Proxy will vote shares represented by valid Board of Directors' Proxies on a cumulative basis for the election of the nominees named below, allocating the votes of such shares in accordance with their judgment. ELECTION OF DIRECTORS The Board of Directors of the Corporation presently consists of 12 members divided into three classes, each of which consists of four members. Since the last annual meeting of shareholders, Dr. Robert H. Cannon, Jr., a member of the class whose term expires in 1995, retired from the Board of Directors. The Directors of the class elected at each annual election shall hold office for terms of three years. Shareholder approval is sought to fix at four the number of directors in the class whose term will expire in 1997 and to elect Duane E. Collins, Allen H. Ford, Allan L. Rayfield and Paul G. Schloemer, directors whose terms of office expire in 1994, to such class. A plurality of the Common Shares voted in person or by proxy is required to elect a director. Should any nominee become unable to accept nomination or election, the proxies will be voted for the election of such other person as a Director as the Board of Directors may recommend. However, the Board of Directors has no reason to anticipate that this will occur. NOMINEES FOR ELECTION AS DIRECTORS FOR TERM EXPIRING IN 1997 DUANE E. COLLINS, 58, has served as a Director of the Corporation since 1992. Mr. Collins became President and Chief Executive Officer of the Corporation in July 1993. Prior to that, Mr. Collins served as the Corporation's Vice Chairman of the Board from June 1992 to June 1993 and Executive Vice President and President, International, from 1987 to 1992. ALLEN H. FORD, 66, has served as a Director of the Corporation since 1975. He is Chairman of the Audit Committee and a member of the Nominating and Pension Committees. Now a Consultant, Mr. Ford was formerly the Senior Vice President-Finance and Control of The Standard Oil Company (diversified natural resources). Mr. Ford is also a Director of First Union Real Estate Investments. 1 ALLAN L. RAYFIELD, 59, has served as a Director of the Corporation since 1984. He is a member of the Nominating, Audit and Compensation and Management Development Committees. Mr. Rayfield is the President, Chief Executive Officer and Director of M/A-COM, Inc. (microwave manufacturing). Previously, Mr. Rayfield was President and Chief Operating Officer of M/A-COM, Inc. from March 1991 to November 1993; Chairman of the Board and Chief Executive Officer of International Telecharge, Inc. (telecommunications) from April 1990 to March 1991; Managing Director of Forstmann Rayfield & Co. (equity investment) from April 1989 to April 1990; and Senior Vice President of GTE Corporation (telecommunications and electronic systems and equipment) from 1985 to 1989. PAUL G. SCHLOEMER, 66, has served as a Director of the Corporation since 1982. Mr. Schloemer served as President and Chief Executive Officer of the Corporation from 1984 to 1993. Mr. Schloemer is also a Director of Rubbermaid Incorporated, AMP Incorporated and Esterline Technologies Corporation. PRESENT DIRECTORS WHOSE TERMS EXPIRE IN 1996 PAUL C. ELY, JR., 62, has served as a Director of the Corporation since 1984. He is Chairman of the Pension Committee and a member of the Nominating Committee. Mr. Ely is presently the General Partner of Alpha Partners (venture capital seed financing). From December 1988 to July 1989, Mr. Ely was Executive Vice President and Director of Unisys Corporation (computers). Prior to that, Mr. Ely was President and Chief Executive Officer of Convergent, Inc. (computers) from 1985 to 1988 and Executive Vice President and Director of Hewlett-Packard Company (computers) from 1980 to 1984. Mr. Ely is also a Director of Network Peripherals, Inc. and Tektronix, Inc. FRANK A. LEPAGE, 67, has served as a Director of the Corporation since 1977. He is Chairman of the Nominating Committee and a member of the Audit Committee. Now retired, Mr. LePage previously served as Director and Executive Vice President of The Firestone Tire & Rubber Company (manufacturer of tires and related products). Mr. LePage is also a Director of Acme Metals Inc. PETER W. LIKINS, 58, has served as a Director of the Corporation since 1989. He is a member of the Nominating, Audit and Compensation and Management Development Committees. Dr. Likins is the President of Lehigh University. Dr. Likins also serves as Director of Consolidated Edison Company of New York, Inc., Communications Satellite Corp. and Safeguard Scientifics, Inc. WOLFGANG R. SCHMITT, 50, has served as a Director of the Corporation since 1992. He is a member of the Nominating and Compensation and Management Development Committees. Mr. Schmitt is the Chairman of the Board of Directors, President and Chief Executive Officer of Rubbermaid Incorporated (manufacturer of rubber and plastic products). He was previously President and Chief Operating Officer of Rubbermaid from 1991 to 1992, President and General Manager of Rubbermaid's Home Products Division from 1984 to 1991 and Executive Vice President of Rubbermaid from 1987 to 1991. Mr. Schmitt also serves as a director of Kimberly-Clark Inc. PRESENT DIRECTORS WHOSE TERMS EXPIRE IN 1995 JOHN G. BREEN, 60, has served as a Director of the Corporation since 1980. He is Chairman of the Compensation and Management Development Committee and a member of the Nominating and Pension Committees. Mr. Breen is the Chairman of the Board and Chief Executive Officer of The Sherwin Williams Company (paints and coatings). Mr. Breen is also a Director of National City Corporation, Mead Corporation and Goodyear Tire and Rubber Company. PATRICK S. PARKER, 64, has served as a Director of the Corporation since 1960. Mr. Parker is the Chairman of the Board of the Corporation. 2 WALTER SEIPP, 68, has served as a Director of the Corporation since 1992. He is a member of the Nominating Committee. Dr. Seipp is the Chairman of the Supervisory Board of Commerzbank AG in Frankfurt, Germany. Previously, he was Chairman of the Board of Managing Directors of Commerzbank AG from 1981 to 1991. DENNIS W. SULLIVAN, 55, has served as a Director of the Corporation since 1983. Mr. Sullivan is the Executive Vice President - Industrial and Automotive of the Corporation. Mr. Sullivan is also a Director of Ferro Corporation and KeyCorp. No Director of the Corporation is related to any other Director. During the fiscal year ended June 30, 1994, there were five meetings of the Corporation's Board of Directors. Each Director attended at least 75% of the meetings held by the Board of Directors and the Committees of the Board on which he served except for Dr. Likins. The Audit Committee, which met twice during the fiscal year ended June 30, 1994, is responsible for reviewing with the Corporation's financial management and its independent auditors, the proposed auditing program (including both the independent and the internal audits) for each fiscal year, the results of the audits and the adequacy of the Corporation's internal control structure. This Committee recommends to the Board of Directors the appointment of the independent auditors for the fiscal year. The Pension Committee, which met once during the fiscal year ended June 30, 1994, is responsible for reviewing with the Corporation's management the funding and investment policies for defined benefit plans and defined contribution plans sponsored by the Corporation. The Compensation and Management Development Committee, which met three times during the fiscal year ended June 30, 1994, is responsible for annually reviewing and fixing the salaries and other compensation of the officers of the Corporation, deciding upon the grant of stock options to the officers and other employees of the Corporation and reviewing corporate policies and programs for the development of management personnel. The Nominating Committee, which did not meet during the fiscal year ended June 30, 1994, is responsible for evaluating and recommending to the Board qualified nominees for election as Directors of the Corporation and considering other matters pertaining to the size and composition of the Board. The Nominating Committee will give appropriate consideration to qualified persons recommended by shareholders for nomination as Directors of the Corporation provided that such recommendations are accompanied by information sufficient to enable the Committee to evaluate the qualifications of the nominee. Nominations should be sent to the attention of the Secretary of the Corporation. Compensation of Directors. The Corporation compensates Directors, other than officers who are Directors, for their services. Except as otherwise indicated below, the annual retainer for such Directors is $24,000. The fee for attending each Board and Committee meeting is $1,000 for all such Directors other than Committee Chairmen, whose fee is $1,500 for chairing committee meetings. Patrick S. Parker, Chairman of the Board of Directors, retired as an executive officer as of June 30, 1994 and will retire as an employee of the Corporation on October 31, 1994. Thereafter, he will receive an annual retainer of $120,000 as Chairman of the Board, plus club memberships and the continued use of a leased automobile. The Corporation has adopted a Retirement Plan for Directors, other than officers who are Directors, which provides for payments of 50% of the annual retainer in effect on the date of retirement until the monthly payments made equal the Director's months of service, or until 120 monthly payments have been made, or until death, whichever occurs first. Minimum requirements to qualify for the plan are three years of service (one full term) and attainment of age 65 prior to retirement as a Director. All current directors except Messrs. Schmitt and Seipp have met the service requirements of the Plan. 3 COMPENSATION AND MANAGEMENT DEVELOPMENT COMMITTEE REPORT ON EXECUTIVE COMPENSATION The Compensation and Management Development Committee of the Board of Directors (the "Committee") has furnished the following report on executive compensation: The Committee, which consists entirely of four outside Directors, has overall responsibility to: * review the performance and long-term management potential of the executive officers of the Corporation; and * review and fix the salaries and other compensation of the executive officers of the Corporation. Following review and approval by the Committee, all issues pertaining to executive compensation are submitted to the full Board of Directors in conjunction with its approval and review of the Corporation's strategies and operating plans, thereby assuring that the Corporation's system of executive compensation is reasonable and appropriate, meets its stated purpose and effectively serves the interests of the shareholders and the Corporation. The Corporation's executive compensation programs are designed to attract and retain key executives critical to the long-term success of the Corporation by remaining competitive with other multinational diversified manufacturing companies of similar size. Comparative compensation information is used by the Committee to establish competitive salary grade ranges at the market median for both base pay and total annual compensation. The group of companies used for compensation comparison purposes is not the same as the S&P Manufacturing (Diversified Industrials) Index, which is the peer group of companies included in the performance graph on page 11. Comparative compensation information is obtained by the Committee from independent surveys of numerous diversified manufacturers, which the Committee believes is important in order to establish competitive compensation ranges at the appropriate levels. On the other hand, the S&P Index utilized in the performance graph contains data only with respect to a limited number of companies who are in businesses similar to the Corporation, which data is theoretically reflective of the stock performance of all diversified manufacturers as a whole. The Corporation's executive compensation programs also are intended to reward executives commensurate with performance and attainment of pre-determined financial objectives. Accordingly, compensation of executive officers is directly and materially linked to both operating and stock price performance, aligning closely the financial interests of the Corporation's executives with those of its shareholders. Compensation for the Corporation's executives consists of four primary elements: 1. A base salary within a competitively established range. The specific base salary within the range is determined by length of service and individual contributions and performance as measured against pre-established goals and objectives. Goals and objectives for each executive vary in accordance with each executive's responsibilities and are established by each executive's supervisor. 2. An annual cash incentive bonus that is comprised of two components: a. an amount that is determined by the Corporation's pre-tax return on average assets as compared to the Corporation's annual goal established at the beginning of the fiscal year (the "Target Incentive Bonus"); and b. an amount that is determined based on the return on division net assets for the divisions in each executive's individual operating unit (or the average return for all divisions for corporate staff executive officers) (the "RONA Bonus"). The target amount of the annual cash incentive bonuses is established in such a manner that base salary plus the target bonus will be within the competitively determined total annual compensation range mentioned above. Target annual incentive bonuses typically represent approximately 30-40% of total targeted annual compensation for the executive officers with operational profit and loss responsibility 4 (including the Chief Executive Officer) and 15-25% of targeted total annual compensation for the other executive officers. The Chief Executive Officer, with the approval of the Committee, also has the authority to establish additional annual incentive programs for operating executives. For example, in fiscal year 1994, operating group presidents had the opportunity to earn an additional bonus if their group exceeded their sales plan by more than 5%. 3. A long-term incentive plan (LTIP) award that is based upon the Corporation's actual average return on equity for a three fiscal year period, payable in cash and/or restricted stock at the election of the Committee. The amount of the LTIP award is calculated by applying a pre-determined multiplier to the midpoint of the base salary range for each executive. The multiplier ranges from .55 for the lowest executive salary grade to 1.5 for the Chief Executive Officer, which is consistent with the Committee's philosophy to provide the most significant incentives to the highest ranking executives. 4. Stock option grants determined by the recipient's salary grade level. Grants are intended to recognize different levels of responsibility as indicated by salary grade. All executives in the same grade level receive the same number of options. Stock options are granted with an exercise price equal to the fair market value of the Corporation's common stock on the day of grant and all current grants are exercisable between one and ten years from the date granted. Incentive compensation for the Corporation's executives is significantly "at risk", based upon the financial performance of the Corporation. Indeed, more than one half of each executive's targeted total compensation (including base salary, annual bonus, LTIP payouts and stock options) may fluctuate significantly from year to year because it is directly tied to business and individual performance. Long-term incentive programs are designed to link the interests of the executives with those of the stockholders. LTIP awards, whether paid in cash or restricted stock, focus on long-term return on equity, which is directly related to enhancing shareholder value. Restricted stock awards build stock ownership and encourage a long-term focus on shareholder value since the stock is restricted from being sold, transferred, or assigned for a specified period. Stock option grants provide an incentive that aligns the executive's interests with those of the shareholders since stock options will provide value to the executive only when the price of the Corporation stock increases above the option grant price. The Corporation's executive compensation philosophy is specifically evident in the compensation paid during the most recent fiscal year to the Corporation's President and Chief Executive Officer, Duane E. Collins. The significant increase in Mr. Collins' fiscal 1994 base salary is reflective of his recent promotion to that position. For the same reason, Mr. Collins' base salary was established well below the mid-point of his salary grade range. In addition, based on the Corporation's fiscal 1994 operating plan, Mr. Collins was to receive 100% of his Target Incentive Bonus of $186,400 if the Corporation's actual pre-tax return on average assets, adjusted primarily for acquisitions and currency transactions, was 7.1%. A minimum payout of 48% of the Target Incentive Bonus was established at a 5.5% pre-tax return on average assets and a maximum payout of 150% of the Target Incentive Bonus was established at an 8.7% pre-tax return on average assets. During the fiscal year ended June 30, 1994, the Corporation's adjusted pre-tax return on average assets, further adjusted as described below, was 9.72% and each executive officer, including Mr. Collins, received an amount equal to the maximum 150% of his Target Incentive Bonus, which is included in the "Bonus" column of the Summary Compensation Table on page 7. Mr. Collins' RONA Bonus was targeted at $165,600 based upon an approximate 21% average return on division net assets. The average return on division net assets, adjusted as described below, was slightly more than 23%, resulting in a RONA Bonus payment to Mr. Collins of $186,240, which is included in the "Bonus" column of the Summary Compensation Table on page 7. The other executive officers also received RONA Bonuses based upon the return on division net assets by their respective operating units (or the average return for all divisions for corporate staff executive officers). Based on the Corporation's average return on equity, adjusted as described below, of 8.14% for the two fiscal years ended June 30, 1994, Mr. Collins and the other executive officers received an interim payment 5 under the 1993-94-95 Long Term Incentive Plan in the form of restricted shares, as reported in the "LTIP Payouts" column of the Summary Compensation Table on page 7. Such payment represents 25.7% of the target payment that could have been achieved had the Corporation achieved its return on equity goal of 16% of such period. Mr. Collins and the other executive officers also received a long- term incentive award as described in the LTIP table on page 9 and were granted the stock options described in the stock option award table on page 8. The significant difference between the number of stock options awarded to Mr. Collins and the other executive officers is reflective of the Committee's philosophy of assuring that the CEO has a significant incentive to increase the stock price and shareholder value. In fiscal 1994 the Corporation not only achieved record sales but also experienced markedly improved operating results before the effect of charges taken in the fiscal third quarter to reduce the book value of certain long-term assets and to recognize downsizing and relocation activities. Most of the charges were taken to reflect structural changes that have occurred in the aerospace industry and to recognize continuing economic problems in Europe and South America. The Committee, believing that the charges were appropriate to position the Corporation in addressing marketplace realities, unanimously approved the principle that the above-identified charges against earnings would not have an effect on the Corporation's annual and long-term incentive compensation plans. Accordingly, the Corporation's actual return on average assets, return on division net assets and return on equity were adjusted for purposes of determining compensation payable under such plans. During 1993, the Omnibus Budget Reconciliation Act of 1993 (the "Act") was enacted by Congress. The Act includes potential limitations on the deductibility of compensation in excess of $1 million paid to the Corporation's Chief Executive Officer and four other highest paid executive officers beginning in fiscal year 1995. The Committee has taken the necessary actions to ensure the deductibility of compensation paid by the Corporation to such individuals. John G. Breen, Chairman Dr. Peter W. Likins John G. Breen, Chairman Dr. Peter W. Likins Allan L. Rayfield Wolfgang R. Schmitt Allan L. Rayfield Wolfgang R. Schmitt 6 EXECUTIVE COMPENSATION The following table summarizes compensation paid by the Corporation for each of the last three fiscal years to its Chief Executive Officer and each of the other four most highly compensated executive officers: