Table of Contents

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

SCHEDULE 14A INFORMATION

Proxy Statement Pursuant to Section 14(a) of

the Securities Exchange Act of 1934 (Amendment No.    )

Filed by the Registrant    x

Filed by a Party other than the Registrant    ¨

Check the appropriate box:

        Rule 14a-6(e)(2))

x    Definitive Proxy Statement

The McGraw-Hill Companies, Inc.

(Name of Registrant as Specified In Its Certificate)

(Name of Person(s) Filing Proxy Statement, if other than the Registrant)

Payment of Filing Fee (Check the appropriate box):

x    No fee required.

Notes:

Reg. §240.14a-101.

SEC 1913 (3-99)

Table of Contents

March 20, 2009

Dear Shareholder:

On behalf of our Board of Directors and management, we cordially invite you to attend our Annual Meeting of Shareholders on Wednesday, April 29, 2009. The Meeting will be held at our headquarters at 1221 Avenue of the Americas, New York, New York 10020-1095, at 11:00 a.m. (EDT). If you are unable to attend the Annual Meeting in New York, please join us via live Webcast on the Company’s Web site at www.mcgraw-hill.com.

The Notice of Meeting and Proxy Statement accompanying this letter describe the business we will consider at the Meeting. Your vote is very important. I urge you to vote to be certain your shares are represented at the Meeting even if you plan to attend. Most shareholders have a choice of voting over the Internet, by telephone or by using a traditional proxy card. Please refer to your proxy materials or the information forwarded by your bank, broker or other holder of record to see which methods are available to you.

I look forward to seeing you at the Meeting.

Harold McGraw III

Chairman of the Board, President and Chief Executive Officer

Table of Contents

Notice of Annual Meeting of Shareholders

To Be Held April 29, 2009

The Annual Meeting of Shareholders of The McGraw-Hill Companies, Inc. will be held on Wednesday, April 29, 2009, at 11:00 a.m. (EDT) at the Company’s headquarters at 1221 Avenue of the Americas, New York, New York 10020-1095. At the Meeting, shareholders will be asked to:

You may vote at the Meeting if you were a shareholder of the Company at the close of business on March 9, 2009, the record date for the Meeting.

By Order of the Board of Directors.

Scott L. Bennett

Senior Vice President, Associate General

Counsel and Secretary

New York, New York

March 20, 2009

Please sign and return the enclosed proxy card in the postage-paid envelope provided or, if you prefer, please follow the instructions on the enclosed proxy card for voting by telephone or via the Internet. You may access the Company’s Investor Relations Web site at www.mcgraw-hill.com/investor  relations for further Internet voting instructions as well as to view the Proxy Statement and Annual Report online.

Table of Contents

The McGraw-Hill Companies, Inc.

Proxy Statement

2009 Annual Meeting of Shareholders

i

Table of Contents

ii

Table of Contents

The McGraw-Hill Companies, Inc.

Proxy Statement

2009 Annual Meeting of Shareholders

IMPORTANT NOTICE REGARDING THE AVAILABILITY OF PROXY MATERIALS FOR THE SHAREHOLDERS MEETING TO BE HELD ON APRIL 29, 2009.

THE COMPANY’S ANNUAL REPORT, LETTER TO SHAREHOLDERS, NOTICE OF ANNUAL MEETING, PROXY STATEMENT AND PROXY CARD ARE AVAILABLE AT www.mcgraw-hill.com/investor_relations.

GENERAL INFORMATION

Why did I receive this Proxy Statement?

The Board of Directors of The McGraw-Hill Companies, Inc. (the “Company”, “we” or “us”) is soliciting proxies for the 2009 Annual Meeting of Shareholders (the “Annual Meeting” or “Meeting”) to be held on Wednesday, April 29, 2009, at 1221 Avenue of the Americas, New York, New York 10020-1095, at 11:00 a.m. (EDT) and at any adjournment of the Meeting. When the Company asks for your proxy, we must provide you with a Proxy Statement that contains certain information specified by law. This Proxy Statement summarizes the information you need in order to vote at the Meeting.

The Company’s Annual Report, Letter to Shareholders, Notice of Annual Meeting, Proxy Statement and proxy card are being mailed to shareholders beginning on or about March 20, 2009.

What will I vote on?

The following items:

Will there be any other items of business on the agenda?

We do not expect any other items of business at the Annual Meeting. Nonetheless, if there is an unforeseen need, your proxy will give discretionary authority to the persons named on the proxy to vote on any other matters that may be brought before the Meeting. These persons will use their best judgment in voting your proxy.

Who is entitled to vote?

Shareholders as of the close of business on the record date, which is March 9, 2009, may vote at the Annual Meeting.

How many votes do I have?

You have one vote at the Meeting for each share of common stock you held on the record date.

What constitutes a quorum for the Annual Meeting?

A quorum is necessary to conduct business at the Annual Meeting. A quorum requires the presence at the Meeting of a majority of the outstanding shares entitled to vote, in person or represented by proxy. You are part of the quorum if you have voted by proxy. As of the record date, 314,466,991 shares of Company common stock were issued and outstanding.

How do I vote?

You can vote either in person at the Annual Meeting or by proxy without attending the

1

Table of Contents

Meeting. We urge you to vote by proxy even if you plan to attend the Meeting so we will know as soon as possible that enough votes will be present for us to hold the Meeting. If you attend the Meeting in person, you may vote at the Meeting and your earlier proxy will not be counted.

May I vote by telephone or via the Internet?

Yes. Instead of submitting your vote by mail using the enclosed proxy card, you may be able to vote on the Internet or by telephone. Please note that there are separate Internet and telephone voting arrangements depending on whether you hold your shares:

If you are a registered shareholder, you may vote by telephone or via the Internet by following the instructions on your proxy card.

If you are a beneficial owner, please refer to the information forwarded by your bank, broker or other holder of record to see which options are available to you. Most brokers and banks offer voting by telephone and via the Internet as well as by mail.

If you vote via the Internet, you may incur costs, such as usage charges from Internet access providers and telephone companies. You will be responsible for these costs.

What should I do if I want to attend the Annual Meeting?

All shareholders and employees of the Company may attend the Annual Meeting. Please bring your admission ticket or proof of ownership of The McGraw-Hill Companies stock to enter the Annual Meeting. When you arrive at the Annual Meeting, you may be asked to present photo identification, such as a driver’s license, to be admitted. The McGraw-Hill Companies employees wishing to attend the Annual Meeting can present their employee identification card to be admitted.

For safety and security reasons, no cameras, recording equipment, electronic devices, large bags, brief cases or packages will be permitted in the Meeting.

How do I vote my shares in the Company’s Dividend Reinvestment Plan?

If you participate in the Company’s Dividend Reinvestment Plan, any proxy you give will also govern the voting of all shares you hold in this Plan, unless you give us other instructions.

How do I vote my shares in the Company’s employee benefit plans?

If you received this Proxy Statement because you are an employee of the Company who participates in these plans and you have shares of common stock of the Company allocated to your account under these plans, you may vote your shares held in these plans as of March 9, 2009 by mail, by telephone or via the Internet. Instructions are provided on the enclosed proxy card from BNY Mellon Shareowner Services, the Company’s transfer agent. BNY Mellon Shareowner Services must receive your instructions by 1:00 p.m. (EDT) on April 27, 2009 in order to communicate your instructions to the plans’ Trustee, who will vote your shares. Any plan

2

Table of Contents

shares for which we do not receive instructions from the employee will be voted by the Trustee in the same proportion as the shares for which we have received instructions.

Can I revoke or change my vote?

Yes. If you are a shareholder of record, you have the right to revoke your proxy at any time before the Annual Meeting by sending a signed notice to the Company’s Secretary, The McGraw-Hill Companies, Inc., 1221 Avenue of the Americas, New York, New York 10020-1095. If you want to change your vote at any time before the Meeting, you must deliver a later dated proxy by telephone, via the Internet or in writing. You may also change your proxy by voting in person at the Meeting.

If you are a beneficial owner, please refer to the information forwarded by your broker, bank or other holder of record for procedures on revoking or changing your proxy.

What are the costs of soliciting these proxies and who will pay them?

The Company will pay all costs of soliciting these proxies. In addition, some of our officers and employees may solicit proxies by telephone or in person. We will reimburse banks and brokers for the expenses they incur in forwarding the proxy materials to you. Georgeson Inc. is assisting us with the solicitation of proxies for a fee not to exceed $20,000 plus reimbursement for out-of-pocket expenses.

How many votes are required for the approval of each item?

Are abstentions and broker non-votes part of the quorum?

Yes. Abstentions, broker non-votes and votes withheld for Director nominees count as “shares present” at the Annual Meeting for purposes of determining a quorum.

What are broker non-votes?

If your shares are held by a broker, the broker may require your instructions in order to vote your shares. If you give the broker instructions, your shares will be voted as you direct. If you do not give instructions, one of two things can happen depending on the type of proposal. For the election

3

Table of Contents

of Directors, reapproval of the performance goals under the Company’s 2002 Stock Incentive Plan and ratification of the Company’s independent Registered Public Accounting Firm for 2009, the broker may vote your shares in its discretion. For approval of the shareholder proposals, the broker may not vote your shares at all. When that happens, it is called a “broker non-vote”.

Who will count the vote?

Votes at the Annual Meeting will be counted by two independent inspectors of election appointed by the Board.

What if I do not vote for some or all of the matters listed on my proxy card?

If you are a registered shareholder and you return a signed proxy card without indicating your vote for some or all of the matters, your shares will be voted as follows for any matter you did not vote on:

How do I submit a shareholder proposal for the 2010 Annual Meeting?

The Company’s 2010 Annual Meeting is scheduled for April 28, 2010. There are two different deadlines for submitting shareholder proposals. First, if a shareholder wishes to have a proposal considered for inclusion in next year’s Proxy Statement, he or she must submit the proposal in writing so that we receive it by November 20, 2009. Proposals should be addressed to the Company’s Secretary, The McGraw-Hill Companies, Inc., 1221 Avenue of the Americas, New York, New York 10020-1095. If you submit a proposal, it must comply with applicable laws, including Rule 14a-8 of the Securities Exchange Act of 1934.

In addition, the Company’s By-Laws provide that any shareholder wishing to nominate a candidate for Director or to propose any other business at the Annual Meeting must give the Company written notice no earlier than December 30, 2009 and no later than January 29, 2010. This notice must comply with applicable laws and the Company’s By-Laws. Copies of the By-Laws are available to shareholders free of charge on request to the Company’s Secretary, The McGraw-Hill Companies, Inc., 1221 Avenue of the Americas, New York, New York 10020-1095. You may also download the By-Laws from the Corporate Governance section of the Company’s Investor Relations Web site at www.mcgraw-hill.com/investor_relations.

Can I view future proxy materials online instead of receiving them by mail?

Yes. If you are a shareholder of record or own Company shares through one of the Company’s employee benefit plans, you may, if you wish, view future Proxy Statements and Annual Reports online. If you elect this feature, you will receive an e-mail notice which will include the Web address for viewing the materials online. The e-mail notice will also include instructions so you can vote your proxy online or by telephone. If you have more than one account, you may receive separate e-mails for each account. Costs normally associated with electronic delivery, such as usage and telephone charges, as well as any costs incurred in printing documents, will be your responsibility.

During the proxy voting period, the Internet voting system will automatically prompt shareholders for their consent. Throughout the year, registered shareholders can give consent by enrolling in MLink^SM, a secure, online mailbox for electronic delivery of the Annual Report and Proxy Statement, as well as account statements. Go to www.bnymellon.com/shareowner/isd and enter the requested information to enroll in MLink. Owners of shares through one of the Company’s employee benefit plans may consent at www.electronicconsent.com/mhp.

4

Table of Contents

If you are a beneficial owner, please contact your broker, bank or other holder of record for procedures on how to provide your consent.

What are the benefits of electronic delivery?

If you received your Annual Meeting materials by mail, we strongly encourage you to sign up to receive these materials via e-mail. Electronic delivery helps the environment and saves the Company money by reducing printing and mailing costs. It will also make it convenient for you to view your proxy materials and vote your shares online. If you have shares in more than one account, it is also an easy way to eliminate receiving duplicate copies of proxy materials.

What are the costs of electronic delivery?

The Company charges nothing for electronic delivery. You may, of course, incur expenses associated with Internet access such as telephone charges or charges from your Internet service provider.

May I change my mind later?

Yes. You may discontinue electronic delivery and resume mail delivery of the Proxy Statement and Annual Report. Registered shareholders should log in to www.bnymellon.com/shareowner/isd and click “decline” in the MLink Profile tab. Owners of shares through one of the Company’s employee benefit plans can revoke consent at www.electronicconsent.com/mhp.

If you are a beneficial owner, please contact your broker, bank or other holder of record for procedures on how to revoke your consent.

Will I receive a copy of the Company’s Annual Report?

Unless you previously elected to view our Annual Report via the Internet, we mailed our 2008 Annual Report to shareholders beginning on or about March 20, 2009.

What is “householding”?

We have adopted “householding”, a procedure under which beneficial owners who have the same address and last name and do not participate in electronic delivery of proxy materials will receive only one copy of our Annual Report and Proxy Statement unless one or more of these shareholders notifies us that they wish to continue receiving individual copies. This procedure reduces duplicate mailings and thus reduces our printing costs and postage fees. Shareholders who participate in householding will continue to receive separate proxy cards. Householding does not affect dividend check mailings.

What if I want to receive a separate copy of the Proxy Statement or Annual Report?

If you wish to receive a separate copy of the 2008 Annual Report or this Proxy Statement, please call us toll-free at (866) 436-8502, or send an e-mail to investor_relations@mcgraw-hill.com, or write to: Investor Relations, The McGraw-Hill Companies, Inc., 1221 Avenue of the Americas, New York, New York 10020-1095. We will promptly deliver to you the documents you requested.

Where can I find the voting results?

We will publish the voting results in our Form 10-Q for the Second Quarter of 2009, which we will file with the SEC on or about July 29, 2009. To view our Form 10-Q online, go to the Company’s Investor Relations Web site at www.mcgraw-hill.com/investor_relations, and click on the SEC Filings link located in the Digital Investor Kit.

Can shareholders and other interested parties communicate directly with our Board? If so, how?

Yes. You may communicate directly with one or more members of the Board by writing to the Company’s Secretary, The McGraw-Hill Companies, Inc., 1221 Avenue of the Americas, New York, New York 10020-1095, or by sending an e-mail to the Company’s Secretary at corporate_secretary@mcgraw-hill.com. The Company’s Secretary will then forward all questions or comments directly to our Board or a specific Director, as the case may be.

5

Table of Contents

BOARD OF DIRECTORS AND CORPORATE GOVERNANCE

The Company’s business and affairs are overseen by our Board pursuant to the New York Business Corporation Law and our Restated Certificate of Incorporation and By-Laws. Under the Company’s Restated Certificate of Incorporation, the members of the Board are grouped into three classes. The three classes are as equal in number as possible. One class is elected at each Annual Meeting to hold office for a three-year term beginning on the date of the Meeting. New members are assigned to classes upon initial appointment so that the size of each class is as nearly equal as possible.

Three Director nominees, Sir Michael Rake and Messrs. Kurt L. Schmoke and Sidney Taurel, are currently serving as Directors of the Company. All three of these Director nominees are being nominated at the Annual Meeting for three-year terms that will expire in 2012. Mr. James H. Ross, who is also currently serving as a Director of the Company for a term expiring at the Annual Meeting, will be retiring from the Board after the Annual Meeting pursuant to the Board of Directors’ long-standing retirement age policy.

Mr. Harold W. McGraw, Jr., a Director from 1954 to 1988, Chairman of the Board from 1976 to 1988, and Chief Executive Officer from 1975 to 1983, retired from the Board after the 1988 Annual Meeting in accordance with the Board’s retirement age policy. However, in recognition of Mr. McGraw’s past service and contributions to the Company and to assure his continued close association with the Board and the Company, the Board elected Mr. McGraw permanently to the position of Chairman Emeritus.

Director Independence

The Board has determined that all of the Company’s Directors, with the exception of Messrs. Harold McGraw III (the Company’s Chairman, President and Chief Executive Officer) and Robert P. McGraw (the brother of Harold McGraw III), have met the independence requirements of the New York Stock Exchange, based upon the application of objective categorical standards adopted by the Board. To be considered independent, a Director must have no material relationship (other than as a Director) with the Company, or any of its subsidiaries, either directly or as a partner, shareholder or officer of an organization that has a material relationship with the Company or any of its subsidiaries. In making independence determinations, the Board broadly considers all relevant facts and circumstances. In accordance with the Company’s Corporate Governance Guidelines, a Director will not be an independent Director of the Company if:

6

Table of Contents

For purposes of sub-paragraphs (i) through (v) above, an “immediate family member” includes a person’s spouse, parents, children, siblings, mothers and fathers-in-law, sons and daughters-in-law, brothers and sisters-in-law and anyone (other than domestic employees) who shares such person’s home. Individuals who are no longer immediate family members as a result of legal separation or divorce, or those who have died or become incapacitated are not taken into consideration with respect to the determination of a Director’s independence.

Additional Information Regarding Director Independence

In making its independence determinations with respect to our Directors, the Board considered the following transactions that the Company engages in from time to time with organizations in which our independent Directors serve as executive officers or otherwise have a material interest:

7

Table of Contents

All of these transactions are entered into in the ordinary course of business and on terms that are substantially equivalent to those prevailing at the time for comparable transactions with other similarly situated customers or vendors of the Company.

In making its independence determinations with respect to our Directors, the Board reviews the materiality of these transactions not only from the standpoint of the applicable Director but also from the standpoint of the organizations in which they serve. Based on this review, the Board has concluded that these transactions do not interfere with the ability of each such Director to exercise independent judgment in carrying out his or her Board responsibilities.

Annual Meeting Attendance

It is the Company’s policy that, subject to illness or an unavoidable schedule conflict, all Directors will attend and be introduced at the Annual Meeting. All of our Directors attended the 2008 Annual Meeting.

Presiding Director

On April 30, 2008, the Board appointed Ms. Linda Koch Lorimer, the Chair of the Nominating and Corporate Governance Committee, as the Presiding Director of the Board for the period April 30, 2008 through April 29, 2009. In her capacity as the Presiding Director, Ms. Lorimer presides at regularly scheduled executive sessions of the Board at which only non-management Directors are present. Shareholders and other interested parties may communicate with Ms. Lorimer by sending a letter to the Company’s Secretary, The McGraw-Hill Companies, Inc., 1221 Avenue of the Americas, New York, New York 10020-1095 or by sending an e-mail message to the Company’s Secretary at corporate_secretary@mcgraw-hill.com. The Company’s Secretary will then forward your letter or e-mail to Ms. Lorimer.

8

Table of Contents

Directors’ Biographies

Class of 2012

The following three Director nominees are currently serving as Directors of the Company and have been nominated to stand for re-election at the Annual Meeting to serve three-year terms that will expire at the 2012 Annual Meeting. Please see pages 1 through 5 and page 62 of this Proxy Statement for voting information.

		Sir Michael Rake, age 61, has been Chairman of BT Group plc (“BT”), one of the largest communications companies in the world, serving customers in more than 170 countries, since September 2007. Prior to being named Chairman of BT, he was Chairman of KPMG International, one of the world’s leading accounting organizations, with operations in 148 countries and more than 113,000 professionals working in member firms worldwide. After joining KPMG in 1972, he served the company in various capacities in Belgium, Luxembourg, the Middle East and London, and led a number of major global clients’ services teams. He joined the company’s UK Board in 1991, was elected UK Senior Partner in 1998 and named International Chairman in 2002. Sir Michael Rake is Chair of the Commission for Employment and Skills in the UK and a Vice President of the Royal National Institute for the Blind. He sits on the Boards of Barclays and the Financial Reporting Council and is a member of the DTI UK/US Taskforce on Regulation. He is a member of the Board of the TransAtlantic Business Dialogue and a member of the CBI International Advisory Board. Educated at Wellington College, where he is a Governor, Sir Michael Rake is qualified as a UK chartered accountant. He was knighted in 2007 for his services to the accounting profession. Sir Michael Rake has served as a Director of the Company since 2007 and is a member of the Audit and Financial Policy Committees.

9

Table of Contents

		Sidney Taurel, age 60, is Chairman Emeritus of Eli Lilly and Company. Prior to that he was Chairman of Eli Lilly and Company from 1999 to December 31, 2008 and Chief Executive Officer from 1999 to March 31, 2008. He was also its President from 1996 through 2005. Mr. Taurel joined Eli Lilly in 1971 and held management positions in the company’s operations in Brazil and Europe before becoming President of Eli Lilly International Corporation in 1986. He was elected a Director of Eli Lilly and Company in 1991, became Executive Vice President in 1993, and President and Chief Operating Officer in 1996. Mr. Taurel is a Director of IBM. He is a member of the Board of Overseers of the Columbia Business School, a member of The Business Council, and a Trustee of the Indianapolis Museum of Art. He is also a Director of BioCrossroads and the Indianapolis Tennis Championships. President George W. Bush appointed Mr. Taurel to the Homeland Security Advisory Council in 2002, to the President’s Export Council in 2003, and to the Advisory Committee for Trade Policy and Negotiations in 2007. Mr. Taurel has served as a Director of the Company since 1996 and is Chair of the Compensation Committee and a member of the Executive and Nominating and Corporate Governance Committees.

Class of 2011

The following four Directors will continue in office until the 2011 Annual Meeting:

		Sir Winfried Bischoff, age 67, was Chairman of Citigroup, Inc. (“Citi”), a global financial services firm, from December 11, 2007 through February 23, 2009. He served as acting Chief Executive Officer of Citi from November 4, 2007 through December 11, 2007 and Chairman of Citi Europe from 2000 until 2009. Sir Winfried Bischoff was Chairman of Schroders plc, an international investment banking and asset management firm headquartered in Great Britain, from 1995 to 2000. Prior to that, Sir Winfried Bischoff was Chairman of J. Henry Schroder Co. (the London investment bank of Schroders plc) from 1983 to 1995 and Group Chief Executive of Schroders plc from 1984 to 1995. He is a Director of Eli Lilly and Company and Prudential plc. He was knighted in 2000 for his services to the banking industry. Sir Winfried Bischoff has served as a Director of the Company since 1999 and is Chair of the Financial Policy Committee and a member of the Executive and Compensation Committees.

10

Table of Contents

		Linda Koch Lorimer, age 57, has been Vice President and Secretary of Yale University since 1995, having returned to Yale as Secretary of the University in 1993. She was President of Randolph-Macon Woman’s College from 1987 to 1993 and was Associate Provost of Yale University from 1983 to 1987. She was a Director of Centel Corporation and First Colony Life Insurance Company. Ms. Lorimer is the former Chairman of the Board of the Association of American Colleges and Universities and the Women’s College Coalition and served as Vice Chair of the Center for Creative Leadership. Ms. Lorimer is a Director of Yale-New Haven Hospital and a Trustee of Hollins University. Ms. Lorimer has served as a Director of the Company since 1994 and is Chair of the Nominating and Corporate Governance Committee and a member of the Compensation and Executive Committees. She also serves as the Presiding Director of the Company’s Board of Directors.

11

Table of Contents

Class of 2010

The following four Directors will continue in office until the 2010 Annual Meeting:

12

Table of Contents

		Robert P. McGraw, age 54, has been Chairman and Chief Executive Officer of Averdale Holdings, LLC since 1999. Prior to that, Mr. McGraw was Executive Vice President of the Professional Publishing Group of the Company from 1989 to 1998. He was Executive Vice President of the Healthcare Group from 1987 to 1989, and Group Vice President of that same group from 1985 to 1987. Prior to that, he served in several key positions in the Health Professions Division of the Company: General Manager from 1983 to 1985; Editorial Director from 1982 to 1983; and Editor from 1979 to 1982. He joined the Company in 1976 as a sales representative for McGraw-Hill Higher Education. Mr. McGraw has served as a Director of the Company since 1995 and is a member of the Financial Policy Committee. (a)

		Hilda Ochoa-Brillembourg, age 64, is the founder and has been since 1987 the President and Chief Executive Officer of Strategic Investment Group, a group of affiliated investment management firms, and Director of Emerging Markets Investment Corporation and Emerging Markets Management, LLC. From 1976 to 1987, she was Chief Investment Officer of the Pension Investment Division at the World Bank. Prior to joining the World Bank, she served as an independent consultant in the fields of economics and finance, as a lecturer at the Universidad Catolica Andres Bello in Venezuela and as Treasurer of the C.A. Luz Electrica de Venezuela in Caracas. Ms. Ochoa-Brillembourg is a Director of General Mills, Inc., the Harvard Management Company, Inc., the Fulbright Association and the Atlantic Council. She is also Vice Chairman, Dean’s Alumni Leadership Council, Harvard Kennedy School of Government. Ms. Ochoa-Brillembourg is Founding Chair of the Youth Orchestra of the Americas and a Trustee and Executive Committee member of the Washington National Opera. She is Vice Chairman, Group of 50, of the Carnegie Endowment for International Peace. She is also an Advisory Board member of the Rockefeller Center for Latin American Studies at Harvard University. Ms. Ochoa-Brillembourg has served as a Director of the Company since 2004 and is a member of the Audit and Financial Policy Committees.

		Edward B. Rust, Jr., age 58, has been since 1987 Chairman of the Board and Chief Executive Officer of State Farm Insurance Companies, the largest insurer of automobiles and homes in the United States. Mr. Rust was also President of State Farm Insurance Companies from 1985 to 1998, and was re-elected President in 2007. Mr. Rust is a Director of Helmerich & Payne, an oil and gas drilling company, and Caterpillar Inc., a manufacturer of construction and mining equipment. Mr. Rust is a Trustee for Illinois Wesleyan University. Additionally, he was a member of President George W. Bush’s Transition Advisory Team Committee on Education. Mr. Rust has served as a Director of the Company since 2001 and is Chair of the Audit Committee and a member of the Executive and Compensation Committees.

(a) Messrs. Harold McGraw III and Robert P. McGraw are brothers and the sons of Mr. Harold W. McGraw, Jr.

13

Table of Contents

Corporate Governance Materials

The following corporate governance materials are available and can be viewed and downloaded from the Corporate Governance section of the Company’s Investor Relations Web site at www.mcgraw-hill.com/investor_relations: (i) the Company’s Restated Certificate of Incorporation; (ii) the Company’s By-Laws; (iii) the Company’s Corporate Governance Guidelines; (iv) Board Committee Charters for the Company’s Audit, Compensation, Executive, Financial Policy and Nominating and Corporate Governance Committees; (v) the Code of Business Ethics applicable to all Company employees; (vi) the Code of Ethics applicable to the Company’s Chief Executive Officer and Senior Financial Officers; (vii) the Code of Business Conduct and Ethics for Directors applicable to all the Company’s Directors; and (viii) the Audit Committee’s Policy concerning Employee Complaint Procedures Regarding Accounting and Auditing Matters. A copy of these materials is available to shareholders free of charge on request to the Company’s Secretary, The McGraw-Hill Companies, Inc., 1221 Avenue of the Americas, New York, New York 10020-1095.

14

Table of Contents

Committees of the Board of Directors

The Company has standing Nominating and Corporate Governance, Audit and Compensation Committees. The Chair of each Committee reports to the full Board as appropriate from time to time. Each Committee has a Charter that is reviewed by the Nominating and Corporate Governance Committee on a regular basis. In addition to these three standing Committees, the Board has an Executive Committee and a Financial Policy Committee. A brief description of the Nominating and Corporate Governance, Audit and Compensation Committees follows.

Nominating and Corporate Governance Committee

The functions performed by the Nominating and Corporate Governance Committee include, among other matters:

Additional information about the Nominating and Corporate Governance Committee follows:

15

Table of Contents

Processes and Procedures for Determining Director Compensation

The Nominating and Corporate Governance Committee is comprised of four Directors, all of whom meet the independence requirements of the New York Stock Exchange. The Board of Directors appoints the Committee Chair and determines which Directors serve on the Committee.

The Committee is solely responsible for determining all matters concerning compensation for the independent members of the Board. It is not authorized to delegate its authority to determine Director compensation. All compensation recommendations by the Committee are submitted to the full Board for review and approval. Directors who are employees of the Company do not receive any compensation for their Board services.

The Committee has sole authority to directly retain external consultants and to commission surveys or analyses that it determines necessary to fulfill its responsibilities.

Executive officers play no role in determining the amount or form of Director compensation. The Committee annually reviews the competitiveness of the Company’s Director compensation using survey data covering U.S. public companies in the publishing, information and media, and financial industries as well as data on similarly sized U.S. public companies from general industry.

Audit Committee

The Company has an Audit Committee that has been established by the Board of Directors for the purpose of overseeing the accounting and financial reporting processes of the Company and the audits of the Company’s financial statements. The Audit Committee’s duties include, among other matters, assisting the Board’s oversight of:

Additional information about the Audit Committee follows:

16

Table of Contents

Compensation Committee

The Compensation Committee’s duties include, among other matters:

Additional information about the Compensation Committee follows:

Processes and Procedures for Determining Executive Compensation

The Compensation Committee is composed of six Directors, all of whom meet the independence requirements of the New York Stock Exchange. The Board of Directors appoints the Committee Chair and determines the composition of the Committee members.

The Committee is responsible for approving all matters concerning the Company’s total compensation philosophy, including the conducting of periodic reviews of the philosophy to ensure it supports the Committee’s objectives and shareholder interests. The Committee is responsible for administering and interpreting the Key Executive Short-Term Incentive Compensation Plan, the Employee Stock Incentive Plans and all other compensation and benefits plans in which the Company’s senior management participate.

The Committee has sole authority to retain and terminate all external consultants and to commission surveys or analyses that it determines necessary to fulfill its responsibilities. Additionally, the Committee has sole authority to approve the fees of the external consultants. The Committee utilizes the services of Frederic W. Cook & Co. as its external compensation advisor for all matters concerning the Company’s senior management compensation programs. Frederic W. Cook & Co. works solely for the Committee. It provides no other executive

17

Table of Contents

compensation consulting or other services to the Company or its management. Frederic W. Cook & Co. works in cooperation with Company management on matters that come before the Committee but always in its capacity as the Committee’s independent advisor and representative. The Committee has entered into a consulting agreement with Frederic W. Cook & Co. that specifies the nature and scope of its responsibilities, which include: (1) reviewing Committee agendas and supporting materials in advance of each meeting and raising questions or issues with management and the Committee Chair as appropriate; (2) at the Committee’s instigation, working with management on major proposals in advance of finalization by, and presentation to, the Committee; (3) reviewing drafts of the Company’s Compensation Discussion and Analysis and the Compensation Committee Report and related tables for inclusion in the Company’s Proxy Statement each year; (4) evaluating the chosen compensation peer group and survey data for competitive comparisons; (5) reviewing comparative data on the compensation of the Chief Executive Officer and providing independent review and recommendations on the Chief Executive Officer’s compensation to the Committee Chair; and (6) proactively advising the Committee on best practices for Board governance of executive compensation.

The Committee annually reviews and approves the corporate goals and objectives for the Chief Executive Officer’s compensation, evaluates the Chief Executive Officer’s performance in light of those goals and objectives, establishes the Chief Executive Officer’s total compensation and refers its recommendations to the independent Directors of the Board of Directors for ratification.

The Committee annually reviews and approves the individual compensation actions for the direct reports to the Chief Executive Officer and for approximately 30 other senior executives. Below this level, the Committee approves the overall design of the total executive compensation program and delegates the discretion to approve individual compensation decisions to the Chief Executive Officer. The other named executive officers recommend compensation actions for the senior executives in their organizations and these compensation actions are then approved by the Chief Executive Officer.

Compensation Committee Report

The Compensation Committee has reviewed and discussed with Company management the Compensation Discussion and Analysis found on pages 24 through 36 of this Proxy Statement, and based on this review and discussion, the Compensation Committee has recommended to the Board of Directors that the Compensation Discussion and Analysis be included in the Company’s Annual Report on Form 10-K and this Proxy Statement.

The foregoing report has been furnished on behalf of the Board of Directors by the members of its Compensation Committee.

Sidney Taurel (Chairman)

Pedro Aspe

Sir Winfried Bischoff

Douglas N. Daft

Linda Koch Lorimer

Edward B. Rust, Jr.

18

Table of Contents

Membership and Meetings of the Board and Its Committees

In 2008, no Director attended fewer than 75 percent of the aggregate of the total number of meetings of the Board and the Committees on which he or she served. Current Committee membership and the number of meetings of the full Board and each Committee held during 2008 are shown in the table below.

In 2008, the non-management Directors met in executive sessions twice without any member of management present. Mr. Robert P. McGraw, who is not an independent Director as defined in the rules of the New York Stock Exchange due to his familial relationship with Mr. Harold McGraw III, the Company’s Chairman, President and Chief Executive Officer, was not present at one of these non-management Director executive sessions.

Compensation Committee Interlocks and Insider Participation

No member of the Compensation Committee has served as one of our officers or employees at any time. None of our executive officers serves as a member of the compensation committee of any other company that has an executive officer serving as a member of our Board of Directors. None of our executive officers serves as a member of the board of directors of any other company that has an executive officer serving as a member of our Board’s Compensation Committee.

19

Table of Contents

Indemnification

Each Director and certain of our executive officers have entered into an indemnification agreement with the Company which provides indemnification for judgments and amounts paid in settlement and related expenses to the fullest extent permitted under the applicable provisions of the New York Business Corporation Law. This indemnification will be reduced to the extent that a Director or executive officer is indemnified by the Company’s Directors’ and Officers’ liability insurance. The Company has for many years carried Directors’ and Officers’ liability insurance coverage. The Company’s current insurance coverage was purchased for the period May 15, 2008 to May 15, 2009 for a premium of approximately $2,260,000. The Company has purchased this coverage from: Illinois National Insurance Co.; Federal Insurance Co.; Great American Insurance Co.; ACE American Insurance Co.; St. Paul Mercury Insurance Co.; Arch Insurance Co.; and AIG Excess Liability Insurance International Limited. This coverage, subject to a number of standard exclusions and certain deductibles, indemnifies the Directors and officers of the Company and its subsidiaries for liabilities or losses incurred in the performance of their duties up to an aggregate sum of $100,000,000. No sums have been paid under this coverage to the Company or any Directors or officers nor have any claims for reimbursement been made under this policy.

20

Table of Contents

Audit Committee Report

The Audit Committee reviews the Company’s financial reporting process on behalf of the Board. All of the members of the Committee are independent Directors in accordance with the listing standards of the New York Stock Exchange. Management has the primary responsibility for the financial statements and the reporting process, including the system of internal controls. The Board has adopted a written Charter for the Audit Committee.

In this context, the Committee has met and held discussions with management and the Company’s independent Registered Public Accounting Firm. Management represented to the Committee that it is responsible for the financial reporting process, including the system of internal controls, for the preparation of the Company’s consolidated financial statements in accordance with generally accepted accounting principles and for the report on the Company’s internal controls over financial reporting. The Committee has reviewed and discussed the consolidated financial statements with management and the Company’s independent Registered Public Accounting Firm, which review included a discussion of the quality, not just the acceptability, of the accounting principles, the reasonableness of significant judgments, and the clarity of disclosures in the financial statements. The Committee also discussed with management the process used to support the certifications required by the Sarbanes-Oxley Act of 2002 and to support management’s annual report on the Company’s internal controls over financial reporting. The Committee discussed with the independent Registered Public Accounting Firm matters required to be discussed by Statement on Auditing Standards No. 61 as amended by Statement on Auditing Standards No. 90 (Communication with Audit Committees), as adopted by the Public Company Accounting Oversight Board (PCAOB), other standards of the PCAOB, rules of the Securities and Exchange Commission, and other applicable regulations.

In addition, the Committee has reviewed and discussed with the Company’s independent Registered Public Accounting Firm the firm’s independence from the Company and its management. The Audit Committee received from the independent Registered Public Accounting Firm the written disclosures and the letter regarding its independence as required by the PCAOB’s applicable requirements.

The Committee has also considered whether the provision of services by the Company’s independent Registered Public Accounting Firm, Ernst & Young LLP, not related to the audit of the financial statements referred to above, is compatible with maintaining Ernst & Young LLP’s independence.

The Committee discussed with the Company’s internal auditors and independent Registered Public Accounting Firm the overall scope and plans for their respective audits. The Committee met with the internal auditors and independent Registered Public Accounting Firm, with and without management present, to discuss the results of their examinations, the evaluations of the Company’s internal controls and the overall quality of the Company’s financial reporting.

In reliance on the reviews and discussions referred to above, the Committee recommended to the Board that the audited financial statements be included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2008, as filed with the Securities and Exchange Commission. The Committee and the Board also have recommended, subject to shareholder ratification, the selection of Ernst & Young LLP as the Company’s independent Registered Public Accounting Firm for 2009.

21

Table of Contents

Transactions With Related Persons

Under SEC rules, we are required to disclose material transactions with the Company in which “related persons” have a direct or indirect material interest. Related persons include any Director, nominee for Director, executive officer of the Company, any immediate family members of such persons, and any persons known by the Company to be beneficial owners of more than five percent of the Company’s voting securities. The term “transaction” is broadly defined under SEC rules to include any financial transaction, arrangement or relationship, including any indebtedness transaction or guarantee of indebtedness.

Based on information available to us and provided to us by our Directors and executive officers and other than the Aircraft Time Sharing Agreement referred to below, we do not believe that there were any such material transactions in effect since January 1, 2008, or any such material transactions proposed to be entered into during 2009.

As noted on pages 36, 40 and 41 of this Proxy Statement, for security reasons, Mr. Harold McGraw III is required to use Company provided aircraft for all air travel. When using Company provided aircraft for personal travel, Mr. McGraw is required to reimburse the Company for the equivalent of first class commercial airfare for himself and for each passenger traveling with him. Mr. McGraw and the Company have entered into an Aircraft Time Sharing Agreement, dated as of September 15, 2004, which provides for such reimbursement. The Compensation Committee of the Company’s Board of Directors has approved this Agreement. During 2008, Mr. McGraw made payments to the Company of $226,082 under this Agreement.

The Company’s Board of Directors has adopted a written policy that requires the Board’s Nominating and Corporate Governance Committee to review and approve any related party transactions. At each calendar year’s first regularly scheduled meeting of the Nominating and Corporate Governance Committee, management is required to present to the Committee specific information with respect to any such transaction expected to be entered into or continued during that calendar year. After reviewing this information, the Committee will approve such transaction only if the following two conditions are met: (1) the transaction must be in the best interests (or not inconsistent with the best interests) of the Company and its shareholders; and (2) the transaction must be entered into by the Company on terms that are comparable to those that would be obtained in an arm’s-length transaction with an unrelated third party. If any additional related party transactions are proposed to be entered into subsequent to the Committee’s first calendar year meeting, management is required to present such transactions to the Committee for approval or ratification at a subsequent meeting of the Committee.

22

Table of Contents

EXECUTIVE COMPENSATION

This section contains information on various aspects of compensation of the Company’s executives. In particular, it contains information regarding the cash and equity compensation of the “named executive officers”. The named executive officers of the Company include the Chief Executive Officer (“CEO”), Mr. Harold McGraw III, and the Chief Financial Officer (“CFO”), Mr. Robert J. Bahash. The named executive officers also include the Company’s three most highly compensated executive officers other than the CEO and CFO who were serving as executive officers at the end of the Company’s last completed fiscal year, which ended on December 31, 2008, and Mr. Peter C. Davis, who served as an executive officer of the Company in his capacity as Executive Vice President, Global Strategy of the Company from January 1, 2008 through September 1, 2008, and was not serving as an executive officer of the Company on December 31, 2008. Effective September 2, 2008, Mr. Davis was appointed President, McGraw-Hill Education, a division of the Company. The information provided for Mr. Davis in the Summary Compensation Table found on page 37 of this Proxy Statement covers the full fiscal year of the Company.

23

Table of Contents

Compensation Discussion and Analysis

The Compensation Committee of our Board of Directors oversees our compensation program for senior executives and administers certain aspects of the program. Information about the Compensation Committee and its members can be found on pages 10 through 13 and page 19 of this Proxy Statement.

This Compensation Discussion and Analysis (“CD&A”) describes our executive compensation program and the basis for the compensation paid to our named executive officers for 2008 and the recommended compensation opportunities for 2009.

What Are Our Main Compensation Objectives?

The main objectives of our executive compensation program are as follows:

What Are the Core Principles and Practices We Use to Implement Our Executive Compensation Program?

We use the following core principles and practices to set the pay of our named executive officers:

24

Table of Contents

What Are the Elements of Our Executive Compensation Program?

Our executive compensation program for our named executive officers consists of the following elements:

How Do We Use Market Data in Setting Compensation Levels?

In order to ensure that our salary ranges and incentive grant guidelines are aligned with general market practices, we use market data as reference points for competitive compensation paid in the external market place. In general, we design our executive compensation program to pay median levels of compensation for target levels of achievement, to pay below median for achievement below target, and to pay third quartile or above compensation for significantly higher levels of achievement versus target goals.

For purposes of setting the compensation of the named executive officers, a review was made of the 2008 Towers Perrin Media Industry Executive Survey which contains information on base salaries, annual incentive payments, and equity awards within the publishing, information, and media industries. For 2008, a total of 38 companies participated in this survey. For confidentiality reasons, the survey data does not identify the specific companies who reported compensation information for the positions covered in the survey.

Additionally, for purposes of setting the compensation of our CEO, CFO and General Counsel, a review is also made of the base salaries and annual and long-term incentive payments publicly reported by the companies included in the S&P 500 Financial Services Sector, a total of 83 companies for 2008.

How Do We Link Our Executives’ Compensation to Our Performance?

A significant portion of the compensation paid to our named executive officers is aligned closely with shareholder interests since it is payable in equity and based on growth in earnings per share. Approximately 81% of our CEO’s 2008 compensation opportunity was variable with the payment or value of the awards subject to the achievement of an annual double-digit earnings per share growth goal for the cash bonus opportunity; achievement of a three-year earnings per share growth goal for the Restricted Performance Share award; and, in the case of stock option grants, future increases in the Company’s stock price. For the other named executive officers, the variable percentages of 2008 compensation opportunities ranged from 58% to 70%. We believe that this incentive design provides strong motivation to focus on creating shareholder value. For 2009, the incentive compensation programs have been modified to reflect the current challenging economic conditions.

25

Table of Contents

How Do We Address Risk Taking in Our Incentive Program Design?

The Committee addressed concerns about excessive risk taking in designing our 2009 incentive program by noting that our current executive compensation program strikes an appropriate balance between annual cash incentives (short-term) and stock-based incentives (long-term) in total compensation mix, has two stock-based incentive vehicles (stock options and RPS) rather than one, and reserves for the Committee the use of qualitative criteria in evaluating EPS performance for annual and RPS payment purposes. Further, we made fine-tuning adjustments to an otherwise strong program for 2009 by adopting EPS targets that were reasonable and realistic in the difficult and volatile economic climate we face in 2009; adopting a shallower payout curve than we have used in the past, both above and below the targets; and reducing the maximum 2009 RPS earnout to 150% of target shares rather than 200%. The design of the 2009 annual cash incentive is discussed in greater detail on page 30 of this Proxy Statement, and the design of the 2009 long-term stock-based incentives is discussed in greater detail on pages 31 and 32 of this Proxy Statement.

What Compensation Did We Award to Our Named Executive Officers in 2007 and 2008?

The table below shows the 2007 and 2008 compensation amounts, including base salary, annual incentive payments and the grant date value of the long-term incentive equity based awards for the named executive officers, as approved by the Compensation Committee. As discussed further below, no annual incentive payments were earned by our named executive officers for 2008. Not all of the amounts in this table coincide with amounts reported in the Summary Compensation Table on page 37 of this Proxy Statement. This table supplements, but does not supplant, the information contained in the Summary Compensation Table, which contains the compensation information required by the SEC.

2007-2008 Compensation

What Individual Performance Factors Did We Apply for 2008?

With respect to the CEO, the following summarizes the specific performance factors that the Compensation Committee considered in determining compensation actions based on 2008 performance for purposes of his 2009 base salary and his 2009 long-term incentive awards. No annual incentive was paid to the CEO for 2008.

Harold McGraw III, Chairman, President and Chief Executive Officer:

26

Table of Contents

With respect to the other named executive officers, the following summarizes the specific performance factors considered in determining compensation actions based on their individual 2008 performance in addition to the Company’s 2008 financial performance for purposes of their 2009 base salary and their 2009 long-term incentive awards. As discussed further below, no annual incentive was paid to our named executive officers for 2008.

Robert J. Bahash, Executive Vice President and Chief Financial Officer:

David L. Murphy, Executive Vice President, Human Resources:

Kenneth M. Vittor, Executive Vice President and General Counsel:

Peter C. Davis, President, McGraw-Hill Education (former Executive Vice President, Global Strategy):

27

Table of Contents

Bruce D. Marcus, Executive Vice President, Chief Information Officer

How Do We Set Base Salaries?

The base salaries of our named executive officers are reviewed on an annual basis with median marketplace compensation survey data for comparable positions. Increases to base salary are based on an assessment of the executives’ individual performance evaluated under our Performance Management Process and the increase guidelines established for merit increases.

We use a global Performance Management Process that measures performance against goals, behaviors and competencies to determine individual performance ratings. Those rated at lower levels are not eligible for base salary increases or annual incentive payments unless and until performance improves to meet their manager’s expectations.

The base salary increases for our CEO and our other named executive officers are effective on January 1 of each year. The Compensation Committee evaluates the performance of our CEO and reports its findings and recommendations to the independent members of the Board of Directors in executive session each December. Base salary merit increases for our other named executive officers are recommended annually by the CEO and are reviewed and approved by the Compensation Committee.

In formulating his base salary recommendations for our other named executive officers for the following year, the CEO reviews the named executive officers’ current year base salary, individual achievements and contributions, financial results, the competitive market data described above and his expectations for the named executive officers for the year. The criteria used to evaluate financial performance include, among other things, our earnings per share growth, net income growth and revenue growth. The CEO also considers the annual base salary merit increase guidelines that are established by the Compensation Committee for the following year. For 2008, the merit budget for Corporate employees was set at 3.6% of the prior year’s annual base salaries. The 2008 individual increases for our named executive officers were in a range between 0 and 10%. For 2009, the merit budget for Corporate employees was set at 3% of the prior year’s annual base salaries. The CEO recommended that the 2009 individual increases for the named executive officers not exceed the 3% merit budget.

Independently, the Compensation Committee determines the CEO’s annual base salary adjustment for each year. These decisions are made in executive session with input from Frederic W. Cook & Co. The CEO position is not included in the salary bands that cover other senior executives. Instead, the Compensation Committee establishes his base salary so that, together with his target annual incentive and stock-based awards, his compensation is competitive in total against market reference points for the publishing, information, media and financial services industries, taking into account differences in pay mix and his individual performance for the applicable year.

Based on the individual achievements described above and in recognition of their leadership and

28

Table of Contents

expertise in their respective areas of responsibility, our named executive officers were granted 3% salary increases for 2009. The amount of each executive’s increase for 2009 was adjusted downward from prior year levels in recognition of the challenging 2009 economic environment.

Each named executive officer’s 2007 and 2008 base salaries are shown in the supplemental 2007-2008 Compensation Table on page 26 of this Proxy Statement.

How Do We Set Annual Incentives?

For Named Executive Officers Other Than the CEO. Our annual bonus program has an incentive pool design for each of the named executive officers other than our CEO. The amount of our annual incentive pool for Corporate employees, which includes the named executive officers, is approved at the start of each year by the Compensation Committee. For 2009, the target incentive pool will be adjusted for additions and deletions related to changes in participant headcount, with the actual pool payment based on the achievement of 2009 earnings per share goals established by the Compensation Committee.

For the CEO. The CEO position is not included in the incentive pools that cover other senior executives. Instead, the Compensation Committee establishes an annual target opportunity, together with his base salary and equity grants, to be competitive with market reference points reflecting survey information from media industry and financial services companies and input from the Committee’s external compensation consultant, Frederic W. Cook & Co. In December 2008, the Committee established the CEO’s 2009 annual target incentive opportunity at the same $1,080,000 amount that was in effect for 2008, based on its review of the competitive market data and the difficult economic challenges facing the Company in 2009.

How Was the Performance Goal Established for 2008?

As indicated above, no annual incentive payments were made to our named executive officers for the 2008 Plan Year.

The 2008 performance goal established for the CEO’s target opportunity and the annual incentive pool as described above was a double-digit growth target that paid 100% for the achievement of 10% growth over the prior year in earnings per share. Funding was earned on a straight line basis from 0% to 100% for growth between 0% and 10%; each 1% growth in earnings per share funds 10% payment. Further, the payment could exceed 100% for earnings per share growth in excess of 10%; each 1% growth in earnings per share above 10% funds an additional 20% up to a maximum of 200% for 15% or greater growth over the prior year. The funding mechanism was designed to result in a proportionately larger funding for earnings per share growth in excess of 10% to reflect the efforts required by senior executives to achieve earnings growth at these levels.

Additionally, each year, we establish a definition of earnings per share to be used for determining the achievement of diluted earnings per share growth goals. We exclude an identified item from the definition of earnings per share if it represents a non-recurring item that does not have an effect on our ongoing operations. For the 2008 performance year, earnings per share was defined as diluted earnings per share as shown on the Consolidated Statement of Income in the Company’s Annual Report adjusted, at the discretion of the Committee, to exclude all or a portion of the positive or negative effects of the following items: (1) discontinued operations, (2) extraordinary items and any other unusual or non-recurring items, including restructurings, (3) changes in accounting principles, (4) acquisitions or divestitures, (5) changes in federal corporate tax rates, and (6) any other item of gain or loss as determined by the Committee.

The 2008 reported diluted earnings per share of $2.509 was adjusted to exclude the $0.144 restructuring charges resulting in adjusted 2008 earnings per share of $2.653. This reflected an 11% decrease from 2007 adjusted earnings per share of $2.99 and was below the minimum growth goal established by the Committee at the start of the 2008 Plan Year.

29

Table of Contents

How Is the Performance Goal Being Established for 2009?

For purposes of establishing the 2009 performance goal for determining the CEO’s 2009 annual incentive, and for purposes of funding the 2009 incentive pool for other executive participants in the Corporate incentive pool, the Committee established a 2009 goal within the 2009 earnings per share guidance provided by the Company of $2.20 to $2.30.

The Committee made the decision to set the Company’s 2009 EPS performance goal for the annual incentive plan within this range in light of the difficult economic and uncertain business environment that the Company is facing in 2009.

Under the new Committee-approved performance goal design for 2009, the 0% payment point is set at achieving 80% of the EPS goal, the 100% payment point is set at achieving the EPS goal, the 150% payment point is set at achieving 120% of the EPS goal, and the maximum 200% payment point is set at achieving or exceeding 130% of the EPS goal.

Key Executive Short-Term Incentive Compensation Plan

2009 Goal & Funding Schedule

As stated above the CEO position is not included in the incentive pools that cover the other senior executives. In December 2008, the Committee established the CEO’s 2009 annual target incentive opportunity at the same $1,080,000 amount that was in effect for 2008.

How Do We Determine the Amount and Type of Our Long-Term Stock-Based Incentives?

Long-term equity incentives for our named executive officers’ compensation consist of annual awards of Restricted Performance Shares (“RPS”) and stock options. These awards promote executive share ownership and, in the case of the RPS awards, provide additional performance incentives based on three-year growth in earnings per share.

Each year, the Committee approves dollar-denominated incentive award pools that are allocated to Corporate and the business operations for purposes of distributing the long-term incentive awards to executives and other participants. For 2009 the total dollar pool amount was reduced by approximately 5% from the 2008 pool in order to adjust for changes in headcount.

As noted above, at the end of each year, the CEO reviews individual performance factors in developing his compensation recommendations for the named executive officers for the following year. With respect to Mr. Marcus, the CEO conferred with Mr. Robert Bahash, to whom Mr. Marcus directly reports. Individual long-term incentive payments from preceding years are not used as factors in determining recommendations for the long-term compensation opportunity for an upcoming year. The CEO then reviews his recommendations with the Compensation Committee for approval.

Also, each December, as with base salary and the annual bonus target, the Committee determines, in executive session, the CEO’s long-term equity grant for the following year. The CEO position is not included in the incentive pools that cover other senior executives. Instead, the Compensation Committee establishes his stock-based awards, together with base salary and target annual incentive, to be competitive in total against market reference points in light of the CEO’s performance for the applicable year.

Beginning in 2006, we changed the mix of our long-term equity incentives to place greater emphasis on RPS awards. We made this change to reduce the number of shares granted annually and to recognize the impact of the SFAS 123(R) accounting regulations that require the expensing of stock option shares. We believe that our combined grants of options and RPS awards provide an appropriate balance between risk and potential reward and act as effective retention tools for superior performers.

30

Table of Contents

For 2009, the stock award mix guidelines continue to be:

We believe that the CEO should have a greater portion of long-term incentive compensation tied to stock options to provide greater upside and downside leverage based on share price performance. If our share price performance fails to result in an increase in the value delivered to our shareholders, we believe the equity gains realized by the CEO should have greater alignment with this outcome than the other named executive officers.

How Were the Outstanding RPS Awards Designed Prior to 2009?

For purposes of the 2006, 2007 and 2008 RPS Awards, the Awards were granted annually and vest at the end of a three-year award cycle based on achievement of cumulative compound annual growth in diluted earnings per share above the adjusted earnings per share for the year before the award cycle (i.e., the base year). These awards are subject to forfeiture if the minimum performance goal does not exceed 5% cumulative compound annual growth during the award cycle. Each 1% of growth above 5% equals 20% vesting with 100% vesting for target achievement of 10% cumulative compound annual growth as established by the Compensation Committee. Additional shares are earned for above-target growth, up to a maximum of 200% of the shares awarded for achievement at or above 15% cumulative compound growth in earnings per share.

The payment schedule for the 2006, 2007 and 2008 RPS awards is summarized as follows:

The Company previously awarded RPS in 2006, for the 2006-2008 award cycles, in 2007, for the 2007-2009 award cycles, and in 2008, for the 2008-2010 award cycles, as described above.

For purposes of determining achievement of earnings per share growth under the 2006 awards that matured on December 31, 2008, the 2008 earnings per share plus the adjusted earnings per share for the years 2007 and 2006 totaled $8.143 and represented 12.52% cumulative compound EPS growth for the award cycle. This achievement resulted in a payment of 149.73% under the payment scheduled described above.

How Are the Numbers of Shares Being Determined for the 2009 Stock-Based Incentive Awards?

Beginning in 2006, with the introduction of the SFAS 123(R) accounting regulations requiring expensing of stock option grants, the Company shifted the design of the long-term equity incentive program from dollar opportunities for Restricted Performance Share Awards and share grants for stock option awards to a design based solely on dollar opportunity amounts.

Each year, the long-term incentive dollar opportunity amounts determined for participants are divided into a portion for RPS awards and a portion for stock option grants. For the years 2006, 2007 and 2008, the stock price used to determine the number of RPS shares was the closing price on the first business day in April. A corresponding fair value amount was determined for the stock option grants using a binomial lattice model.

For purposes of determining the 2009 stock-based incentive awards - Restricted Performance Shares and stock options - the Committee considered the economic and business environment, and the significant decrease in the Company’s stock price as compared to April 2008 when the prior year’s stock-based incentive awards were granted.

Being mindful of the impact of the decreased stock price on our shareholders and concerned

31

Table of Contents

about a balanced approach in establishing the 2009 stock-based incentive awards for executives and other participants, the Committee determined that for purposes of converting dollar-based opportunities for the 2009 long-term incentive awards into shares for the 2009 RPS Awards, the share price on the date of grant of 2008 RPS Awards in April 2008 of $38.67 would be used. This action by the Committee will result in executives and other participants being awarded the same number of shares in 2009 as they received in 2008 if they receive the same dollar amount of long-term incentive opportunity. The Committee and the senior leadership did not believe it was appropriate for management to receive significantly more RPS shares in 2009 than those provided in 2008 as a result of a lower stock price in 2009.

The Committee applied this same methodology in determining the number of 2009 stock option shares by using the same fair value of $9.75 as was used to convert the 2008 long-term incentive opportunity dollars into stock option shares. Therefore, a participant receiving the same dollar award in 2009 as he or she received in 2008 will receive the same number of stock option shares in 2009 as he or she received in 2008.

The expense for both the 2009 RPS Awards and 2009 stock option grants will be based on the actual closing price of the Company’s stock on April 1, 2009.

How Is the 2009 Restricted Performance Share Award Being Designed?

For purposes of the design of the three-year 2009 Restricted Performance Share Award cycle, the Committee considered the current business environment, and the difficulties involved in attempting to forecast earnings growth beyond 2009 into the years 2010 and 2011. After careful consideration of these issues, a review of what other companies are doing with respect to long-term incentives, and the desire to implement a fair and balanced program for our executives and shareholders, the Committee determined that the 2009 RPS Award will be structured as follows:

The 2009 RPS Award will be measured on a one-year performance goal within the range of the Company’s 2009 EPS guidance of $2.20 to $2.30. At the end of 2009, based on the achievement of the 2009 performance goal, the earned shares, if any, will be determined and then further restricted until the vesting date of December 31, 2011. The earned shares will be paid to participants in early 2012. Further, the earned shares will be prorated for participants who are terminated by the Company and receive severance or who retire prior to the December 31, 2011 vesting date. Participants who terminate of their own accord or are terminated for cause by the Company prior to the early 2012 payout will not be eligible to receive earned shares.

In designing the goal and payment schedule for the 2009 RPS Award, the Committee established a threshold payment of 50% of the target shares for achievement of 80% of the 2009 EPS goal. The 100% payment point was set at achieving the 2009 EPS goal, and the maximum 150% payment point was set at achieving 120% or more of the 2009 EPS goal.

2009 RPS Award Goal & Payment Schedule

For 2009 RPS Award participants other than the named executive officers and other selected senior executives, the Committee included a 50% minimum payment for achieving less than 80% of the 2009 EPS goal, as a retention feature, subject to the Company maintaining profitability in 2009.

How Are Our Stock Option Grants Designed?

Stock options are granted annually and provide the right to purchase shares of our common stock at the grant date fair market value of the

32

Table of Contents

shares. Options are intended to directly link the executive’s compensation to value creation for shareholders. Options have a ten-year term and vest in equal annual installments over a two-year period.

For purposes of setting the grant price for the 2009 stock option shares, the Committee determined that the 2009 stock option grant exercise price will be the closing price of the Company’s stock on April 1, 2009.

What Are the 2009 Long-Term Incentive Opportunities for the Named Executive Officers?

For 2009, the CEO and other named executive officers will receive the same number of RPS shares and stock option shares as they did in 2008 as a result of the decision to use the same dollar opportunities, share price and fair value as was used for the 2008 stock awards.

The 2008 and 2009 long-term incentive opportunities for each of our named executive officers (other than Mr. Davis who ceased to be an executive officer on September 2, 2008) are set forth in the table below:

2008 and 2009 Long-Term Incentive Opportunities

What Impact Do the Accounting Rules Have on the Type of Equity Awards We Make?

As noted above, we consider the impact of SFAS 123(R) on the type and mix of our equity awards. Under this accounting standard, RPS awards are recorded using fixed award date accounting and the expense associated with the awards may be reversed if they are not earned in accordance with the performance goals established for each award. Further, we expect that our increased use of RPS awards and reduced stock option grants will result in reduced dilution levels.

How Do We Determine the Timing of Our Equity Grants?

Under our annual equity grant procedures established in 2001, we set the first business day of April each year as the award date for equity awards to all our executives, including the named executive officers. This award date was selected to align with the common base salary increase review date used by the Company for all employee base salary increases, except those made to the approximately top 30 executives on January 1 of each year. Given the large number of employees receiving stock-based awards, it was determined that adopting a universal, annual award date following the Company’s employee performance review process would enable us to complete the employee performance reviews, communicate to employees, and use a common stock grant price and award date common to all participants.

How Does IRC Section 162(m) Affect Our Executives’ Compensation and Why?

Section 162(m) of the Internal Revenue Code limits the amount of compensation paid to each named executive officer that may be deducted by the Company to $1 million in any year, unless the compensation qualifies as “performance-

33

Table of Contents

based”. Our annual cash bonuses and long-term incentive compensation are intended to meet the requirements for performance-based compensation and be fully deductible. However, we do not have a policy requiring that all compensation be deductible. In 2008, approximately $422,000 of the compensation paid to the CEO was not deductible by the Company. It was comprised of the portion of the CEO’s base salary above $1 million, payments of dividend equivalents made on outstanding unearned RPS and imputed income on Company-provided perquisites. None of the other named executive officers earned non-deductible compensation in 2008.

How Do We Encourage a Significant Ownership Stake in the Company?

We are committed to ensuring that our executive officers have a significant ownership stake in order to strengthen the alignment of our executives’ interests with those of our shareholders.

As noted above, a significant portion of the annual compensation for our named executive officers is composed of stock-based incentive compensation consisting of RPS and stock options. For 2008, stock-based compensation components for the CEO represent approximately 66% of total compensation, while the stock-based compensation components for the other named executives range between 44% and 52% of total compensation.

The direct stock ownership and the dollar value of these owned shares for the named executive officers are shown on the accompanying table along with the value of the owned shares expressed as a multiple of each executive’s base salary. According to data provided by Frederic W. Cook & Co. for companies that have executive stock ownership guidelines, the median ownership guideline for CEOs is approximately five times base salary and, for the other named executive officers, ownership guidelines are generally two or three times base salary.

In view of the significant ownership interest held by our named executive officers other than Messrs. Davis and Marcus, we have not established formal stock ownership guidelines for our executive officers. Mr. Davis is relatively new to the Company and may begin showing increased ownership in future years, including interests acquired under our long-term incentive program.

At the close of 2008, our named executive officers owned shares of our common stock valued at the following multiples of the named executive officer’s base salary:

Stock Ownership for Named Executive Officers

What Retirement and Other Benefits Do We Pay to Our Executives Following Their Termination of Employment and Why?

In connection with their retirement or other termination of employment, the named executive officers will generally be eligible to receive benefits under our savings and retirement plans and, depending on the circumstances of an executive’s termination, severance benefits and accelerated vesting of annual and long-term incentive awards. These post-termination benefits are described in detail beginning on page 46 of this Proxy Statement.

34

Table of Contents

As discussed in greater detail below, annual incentives under our Key Executive Short-Term Incentive Compensation Plan and stock options awarded under our 2002 Stock Incentive Plan have a “single trigger” that accelerates vesting and/or payment on a defined change-in-control, without requiring the executive’s employment to be terminated. In the case of RPS, earnings per share growth targets are deemed to be met on a change-in-control.

In the case of annual incentive payments and RPS awards, we have adopted this approach because it would be impractical, and potentially unfair, following a change-in-control, to continue to measure Company performance based on earnings per share goals that were initially set for a separate, independent enterprise. In the case of stock options, the purpose of accelerated vesting on a change-in-control is to put employee option holders in the same position as our shareholders in enabling them to capture market value appreciation through the date of the change-in-control.

As indicated above, none of our named executive officers is a party to an employment agreement and our severance arrangements with the named executives are governed by our Senior Executive Plan, with the exception of Mr. Marcus, who participates in the Executive Severance Plan. Our severance plans, including the Senior Executive and Executive Severance Plans, were originally adopted by our Board of Directors in the late 1980s and are part of a human resources program that has been in place for many years. Our severance plans are designed to promote employee loyalty, to provide employees with security and reasonable compensation upon a termination of employment, and to ensure the continued commitment of employees in the event of a potential or actual change-in-control. The existence of our Senior Executive and Executive Severance Plans do not affect, in any manner, the compensation decisions made for our named executive officers.

Generally, the Senior Executive and Executive Severance Plans provide for base salary and benefits continuation in the event of a Company initiated termination (including a “constructive” termination) or in certain circumstances following a change-in-control. In general, the severance benefit is service-based, in that longer tenured executives receive larger payment amounts in the event of termination. The maximum benefit is payable under the Senior Executive and Executive Severance Plans for all participants, regardless of their years of service, if they terminate employment under specified circumstances following a change-in-control. In addition, following a change-in-control, payment amounts are increased to include the executive’s annual target bonus. The Compensation Committee continues to believe that the level of severance benefits payable under the Senior Executive and Executive Severance Plans is appropriate, and has been advised by Frederic W. Cook & Co. that it is consistent with market levels for public companies generally.

Certain payments that would be provided to our named executive officers in connection with a change-in-control may be classified as “excess parachute payments” under Section 280G of the Internal Revenue Code and may not be deductible as compensation by the Company. In addition, Section 4999 of the Internal Revenue Code imposes an excise tax on executives that receive an excess parachute payment equal to 20% of such amount. The excise tax is not reimbursed or “grossed up” by the Company. In addition, as discussed on page 52 of this Proxy Statement, in certain circumstances, we may “cut back” the amount of severance benefits payable under our Senior Executive and Executive Severance Plans if they would not be deductible by the Company under Section 280G.

What Health and Welfare Benefits Do We Provide to Our Executives and Why?

The Company provides a uniform healthcare benefits program for all domestic U.S. employees, including the named executive officers, to provide financial security for employees and their families. The employee healthcare contributions are differentiated by salary levels, with

35

Table of Contents

the higher paid employees required to make larger contributions for their healthcare coverage. We provide no supplemental executive healthcare benefits other than a Company-paid annual physical examination for the named executive officers and approximately 55 other senior executives. Additionally, approximately 170 executives participate in the Management Supplemental Death and Disability Benefits Plan, which provides a supplemental long-term disability benefit equal to 50% of the executive’s monthly earnings, as defined in the Plan, less other Company paid benefits and Social Security benefit payments.

What Perquisites and Other Fringe Benefits Do We Provide to Our Executives and Why?

We provide the following perquisites, which we believe are reasonable and competitive, to the named executive officers to enable them to conduct Company business more effectively and to allow greater focus on the demands of their positions:

Additionally, pursuant to a third-party security study undertaken for the Company, the CEO is required by the Company to use Company provided aircraft for all air travel. When using Company provided aircraft for personal travel, the CEO and any passengers traveling with him are required to reimburse the Company for the equivalent of first class commercial airfare. The CEO is also provided a Company car and security personnel. We believe these security costs are legitimate business expenses, but we recognize that they convey a personal benefit. As such, the incremental cost to the Company for providing them is reported in the Summary Compensation Table on page 37 of this Proxy Statement.

Conclusion

We believe that the caliber and motivation of the Company’s named executive officers, other executives and key employees and the quality of their leadership make a significant difference in the performance of the Company. Further, we believe that compensation should vary with the Company’s financial performance so that executives are well rewarded when performance exceeds the rigorous performance goals established by the Compensation Committee, and that there should be commensurate risks to compensation when performance does not meet these goals. We believe that the Company’s executive compensation program is meeting the goals and objectives outlined above.

36

Table of Contents

Summary Compensation Table

The following table contains information concerning compensation paid or accrued to the named executive officers for services rendered in all capacities to the Company in 2008, 2007 and 2006:

37

Table of Contents

Grants of Plan-Based Awards Table

The following table includes each grant of an award made to the named executive officers in 2008 under any equity-based and non-equity incentive plan of the Company:

38

Table of Contents

Additional Information Concerning the Summary Compensation Table and

Grants of Plan-Based Awards Table

The following disclosures supplement the information provided in the Summary Compensation Table found on page 37 of this Proxy Statement and the Grants of Plan-Based Awards Table found on page 38 of this Proxy Statement.

Stock Awards Column. The amounts shown in the Stock Awards Column of the Summary Compensation Table represent the amount of the grant date fair value of the performance-based Long-Term Incentive Restricted Performance Shares granted under the 2002 Stock Incentive Plan that is recognized for financial reporting purposes for 2008. Under this Plan, Restricted Performance Share awards vest at the end of a three-year award cycle, with payment ranging up to a maximum of 200% of the shares awarded based on the achievement of cumulative compound diluted earnings per share growth goals established by the Compensation Committee of the Board of Directors at the beginning of each award cycle. The Restricted Performance Share awards are subject to forfeiture if the minimum performance goal is not attained or if a named executive officer’s employment is terminated for certain reasons before the shares become vested. During the award cycle, the named executive officers receive dividends on and have the right to vote the awarded shares. Based on the cumulative compound earnings per share growth for the 2006-2008 award cycle exceeding the 10% growth target established by the Compensation Committee at the beginning of the cycle, the 2006 Award paid out at 149.73%. A new grant on the same terms was made in 2008 covering the 2008-2010 performance. In the event of a change-in-control of the Company, as discussed on pages 51 through 56 of this Proxy Statement, all of the financial goals are deemed to have been satisfied and the named executive officers would receive the target amount no later than the normal maturity date of the award. In addition, dividend equivalent payments equal to the dividend paid on the Company’s common stock were paid in cash in 2008 on the Restricted Performance Shares.

Option Awards Column. The amounts shown in the Option Awards Column of the Summary Compensation Table represent the amount of the grant date fair value of stock options granted pursuant to the Company’s 2002 Stock Incentive Plan that is recognized for financial reporting purposes for 2008. Under this Plan, these grants were for non-qualified stock options, one-half of which vest on the first anniversary of the grant and the remaining one-half on the second anniversary of the grant. In the event of a change-in-control of the Company, as discussed on pages 51 through 56 of this Proxy Statement, the options become fully vested. Stock options provide the named executive officers with the right to purchase shares of the Company’s common stock at its market value on the date of the grant. Each stock option grant has a ten-year maximum term. The amounts shown in this column for 2006 also include grants of a stock option enhancement called a Restoration Stock Option (“RSO” ) as further described below. The following breakdown indicates the value of the annual awards and any RSO awards for each named executive officer in 2006:

Restoration Stock Option (“RSO”) Grants. The Compensation Committee approved RSO grants in 1997. If shares of the Company’s common stock were delivered in payment of the exercise price of a stock option, as opposed to the use of cash or “cashless exercises”, an RSO was granted equal to the number of shares used to exercise the stock option. The expiration date of these RSO grants (which were made pursuant to the Company’s 2002 Stock Incentive Plan) remains the last day the underlying grant was exercisable. Additionally, if shares were withheld to satisfy the tax obligation on the realized gain, the RSO will include shares equal to

39

Table of Contents

the number of shares withheld for taxes. RSO grants were non-qualified and were first exercisable six months after the date of grant at the market value on the date of grant of the RSO. Only one RSO was granted for each original stock option granted. In the event of a change-in-control of the Company, as discussed on pages 51 through 56 of this Proxy Statement, all options would become fully vested.

The Compensation Committee eliminated the RSO feature as of March 30, 2006 so that no new RSO grants would be awarded under the Company’s 2002 Stock Incentive Plan. However, RSO grants made prior to March 30, 2006 will continue until their exercise or expiration date.

Non-Equity Incentive Plan Compensation Column. The amounts shown in the Non-Equity Incentive Plan Compensation Column of the Summary Compensation Table represent the cash awards paid under the Company’s Key Executive Short-Term Incentive Compensation Plan. Under this Plan, annual incentives are payable for the achievement of annual financial performance goals established by the Compensation Committee and for individual performance and contribution. The Corporate performance goal is based on double-digit diluted earnings per share growth. The earned incentive pool amounts are based on actual performance versus the performance goals established for minimum, target and maximum pool achievement. Under these goals, target achievement results in 100% pool funding, the maximum pool funding is 200% of the target incentive pool, and below target achievement may range down to zero pool funding. Based on the Company’s 2008 diluted earnings per share growth not meeting the threshold established by the Compensation Committee at the beginning of the year, the Corporate pool did not fund.

All Other Compensation Column. The amounts shown in the All Other Compensation Column of the Summary Compensation Table for 2008 include the items described below.

40

Table of Contents

41

Table of Contents

Outstanding Equity Awards at Fiscal Year-End

The following table contains information concerning unexercised options, stock that has not vested, and equity incentive plan awards outstanding on December 31, 2008 for each of the named executive officers: