**UNITED STATES**

**SECURITIES AND EXCHANGE COMMISSION**

Washington,D.C. 20549

 

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**FORM 10-K/A**

** **

(Amendment No. 1)

 
| x                                                        | ** ** | **ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF  THE SECURITIES EXCHANGE ACT OF 1934**     |
|----------------------------------------------------------|------------|-----------------------------------------------------------------------------------------------|
|                                                     | ** ** | ** **                                                                                    |
| For the fiscal year  ended December 31, 2006

 

OR |
|                                                     | ** ** | ** **                                                                                    |
| o                                                        | ** ** | **TRANSITION REPORT PURSUANT TO SECTION 13 OR  15(d) OF THE SECURITIES EXCHANGE ACT OF 1934** |

 

CommissionFile Number 1-14762

 

**THE SERVICEMASTER COMPANY**

(Exactname of registrant as specified in its charter)

 

| **Delaware**                     |   | **36-3858106**       |
|----------------------------------|--------|----------------------|
| (State or other  jurisdiction of |   | (I.R.S. Employer     |
| incorporation or  organization)  |   | Identification  No.) |

** **

 

**860 Ridge Lake Boulevard, Memphis, Tennessee 38120**

(Addressof principal executive offices, including zip code)

 

**(901) 597-1400**

(Registrant’stelephone number, including area code)

 

Securitiesregistered pursuant to Section 12(b) of the Act:

 

| Title of each class                     |   | Name of each exchange which registered |
|-----------------------------------------|--------|----------------------------------------|
| Common Stock, $0.01 par value per share |   | New York Stock Exchange                |

 

Securitiesregistered pursuant to Section 12(g) of the Act: None

 

Indicate by check mark if the registrantis a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.

Yes x     No o

 

Indicate by check mark if the registrantis not required to file reports pursuant to Section 13 or Section 15(d) of theAct.

Yes o      No x

 

Indicate bycheck mark whether the registrant (1) has filed all reports required to befiled by Section 13 or 15(d) of the Securities Exchange Act of 1934 during thepreceding 12 months (or for such shorter period that the registrant wasrequired to file such reports), and (2) has been subject to such filingrequirements for the past 90 days.

Yes x     No o

 

Indicate bycheck mark if disclosure of delinquent filers pursuant to Item 405 ofRegulation S-K is not contained herein, and will not be contained, to the bestof the registrant’s knowledge, in definitive proxy or information statementsincorporated by reference in Part III of the Form 10-K or any amendment to thisForm 10-K.          o

 

Indicate by check mark whether theregistrant is a large accelerated filer, an accelerated filer, or anon-accelerated filer. See definition of “accelerated filer” in Rule 12b-2 ofthe Exchange Act.

 

Largeaccelerated filer  x              Acceleratedfiler  o                Non-acceleratedfiler  o

 

Indicate by check mark whether theregistrant is a shell company (as defined in Rule 12b-2 of the Act).

Yes o     No x

 

The aggregate market value of shares ofcommon stock held by non-affiliates of the registrant as of June 30, 2006 was$2,971,030,007

 

The number ofshares of the registrant’s common stock outstanding as of March 15, 2007 was291,683,841

 

 

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**EXPLANATORY NOTE**

 

On February27, 2007, The ServiceMaster Company (the “Company”) filed its Annual Report onForm 10-K for the year ended December 31, 2006 with the Securities and ExchangeCommission.  Because the Company has now determinedthat it will not file a definitive proxy statement which involves the electionof directors within 120 days following the last day of its last fiscal year,the Company is providing Items 11 and 12 of Part III of Form 10-K in this Form10-K/A filing.  Except as set forth herein,no other changes are made to the Company’s Annual Report on Form 10-K for thefiscal year ended December 31, 2006.

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**ITEM 11. EXECUTIVE COMPENSATION**

 

**Compensation andLeadership Development Committee Report**

** **

The Committee hasreviewed and discussed the Compensation Discussion and Analysis with theCompany's management and based on its review and discussions, the Committee hasrecommended to the Board of Directors that the Compensation Discussion andAnalysis be included in the Company’s Annual Report on Form 10-K.

 
|        |   | Compensation and Leadership   Development Committee                 |
|--------|--------|---------------------------------------------------------------------|
|   |   |                                                                |
|   |   | Coleman H. Peterson,  *Chairman* Betty Jane Hess   David K. Wessner |

 

**CompensationDiscussion and Analysis**

This section provides information regarding the materialelements of our 2006 compensation program for our principal executive officer,principal financial officer, the three most highly-compensated executiveofficers other than the principal executive officer and principal financialofficer, and two executives whose employment terminated in 2006, including oneformer principal executive officer (“NEOs”).   The Compensation and Leadership DevelopmentCommittee of our Board of Directors (the “Committee”) oversees the design andadministration of our executive compensation program with the assistance ofFrederic W. Cook & Company Inc., an independent consulting firm retained bythe Committee.

Philosophy and Objectives of Our Compensation Program

*                ExecutiveCompensation Philosophy*

 

                ServiceMaster’scompensation plans for executiveofficers are designed to:

 

·                  attract, motivate and retain highlyqualified executives;

·                  align the interests of executive officerswith those of the shareholders through the use of equity-based incentiveawards that link a significant portion of compensation to stock performance;and

·                  link pay and performance by placing asignificant portion of compensation at risk and subject to the achievement offinancial goals and other critical performance criteria.

The objectives of our compensation programfor our NEOs include ensuring alignment between performance achieved andcompensation rewarded, and motivating achievement of both annual goals andsustainable long-term performance.  Tomeet these objectives, theCommittee considers objective and subjective factors in structuring thecompensation program for executive officers. These factors include competitive pay practices, historical compensationlevels, individual performance and potential, and internal compensationequity.  Competitive pay practices arecollected from market data for base salary and total compensation.  In December 2005 the Committee approved theelements of our compensation program for 2006 and authorized a total marketreview that was conducted in 2006 to determine whether our compensation programis competitive and aligned appropriately. Companies used for executive compensation pay comparison included abroad group of companies similar in size to ServiceMaster.  

 

In connection with thisreview, we developed in 2006 a peer group consisting of 69 service, retail andmanufacturing companies with revenues ranging from one-half to two times ourrevenues.  The size of our peer group isin part a function of the breadth of our businesses, as we felt it necessary,in developing the peer group, to include companies that operate in each of themajor sectors in which we operate businesses. The companies in this new peer group are: 

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| Gannett Co                              |   | Interpublic Group of Cos. |   | NCR Corp                     |
|-----------------------------------------|--------|---------------------------|--------|------------------------------|
| Starwood Hotels & Resorts Worldwide |   | Unisys Corp.              |   | Tribune Co.                  |
| Quest Diagnostics Inc                   |   | Kelly Services Inc        |   | Beazer Homes USA Inc         |
| Avaya Inc                               |   | Hilton Hotels Corp        |   | H&R Block Inc            |
| United Stationers Inc                   |   | Fiserv Inc                |   | Warner Music Group Corp      |
| New York Times Co                       |   | Washington Group Intl Inc |   | Convergys Corp               |
| DST Systems Inc                         |   | Brightpoint Inc           |   | Chicago Bridge & Iron Co |
| American Greetings                      |   | Renal Care Group Inc      |   | Ceridian Corp                |
| Dunn & Bradstreet Corp              |   | Equifax Inc               |   | Advo Inc                     |
| Imation Corp                            |   | Covance Inc               |   | Acxiom Corp                  |
| Gatx Corp                               |   | Dollar General Corp       |   | CDW Corp                     |
| Blockbuster Inc                         |   | AutoZone Inc              |   | Darden Restaurants Inc       |
| Ross Stores Inc                         |   | Longs Drug Stores Corp    |   | Big Lots Inc                 |
| Neiman-Marcus Group Inc                 |   | PetSmart Inc              |   | Williams-Sonoma Inc          |
| Retail Ventures Inc                     |   | Charming Shoppes Inc      |   | Payless ShoeSource Inc       |
| Dicks Sporting Goods Inc                |   | Rent-a-Center Inc         |   | Brown Shoe Co Inc            |
| Pep Boys-Manny Moe & Jack           |   | AnnTaylor Stores Corp     |   | Tractor Supply Co            |
| Spartan Stores Inc                      |   | Petco Animal Supplies Inc |   | Pier 1 Imports Inc           |
| Phillips-Van Heusen Corp                |   | Sherwin-Williams Co       |   | Fortune Brands Inc           |
| Black & Decker Corp                 |   | Dover Corp                |   | Brunswick Corp               |
| Avery Dennison Corp                     |   | Whirlpool                 |   | Ecolab Inc                   |
| Clorox Co                               |   | Alberto-Culver Co         |   | Lennox International Inc     |
| Hasbro Inc                              |   | Scotts Miracle-Gro Co     |   | Walter Industries Inc        |

 

We used this new peer group in (i) establishing thecompensation of Mr. Spainhour when he became our Chairman and CEO effective asof June 30, 2006, and (ii) in determining the increases in salary for Mr. Mrozekand Ms. Helmkamp upon their promotions to Vice Chairman and Group President,respectively, effective as of November 1, 2006.

Role of ExecutiveOfficers in Compensation Decisions

The Committee recommendsto the Board of Directors for approval the compensation of the Chairman andCEO, including base salary, annual bonus incentives and long-termincentives.  The Chairman and CEO is notpresent during any discussions regarding his compensation.  The Chairman and CEO recommends to theCommittee for approval the compensation of the remaining executive officers,including base salary, annual bonus incentives and long-term incentives.  The Committee, when determining compensationof the Chairman and CEO, and the Chairman and CEO, when determiningcompensation of the remaining executive officers, arrive at recommendations forcompensation after considering market data, historical compensation levels,individual performance and potential, and internal pay equity.  The Committee can exercise its discretion inmodifying any recommended adjustments or awards to executives.

The Elements of OurCompensation Program

This section describes the elements of our 2006compensation program for NEOs, together with a discussion of what each elementis designed to reward and why we choose to include each element in ourcompensation program.

*Executive Officer CompensationComponents*

For 2006, the compensation package for executiveofficers consisted primarily of the following components:

·                  AnnualCash Compensation:

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·                  salary;

·                  incentivecompensation under our Annual Bonus Plan (“ABP”); and

·                  incentivecompensation under our Corporate Performance Plan (“CPP”).

·                  Long-termEquity Compensation:

·                  Stock-settledstock appreciation rights (“SARs”);

·                  restrictedstock; and

·                  restricted stockunits (“RSUs”).

*Total Compensation*

Total compensation is designed to support ourexecutive compensation philosophy and is comprised of both annual and long-termcompensation.  Annual compensationconsists of salary and at-risk compensation under the ABP and CPP.  For executive officers, approximately 80% oftotal target compensation is annual compensation with more than 60% of targetannual compensation being at-risk and designed to motivate achievement ofannual performance goals.  ServiceMasterhas historically focused on short term incentives to drive annual performancein support of the overall strategic direction set by the Board.  Long-term compensation consists of SARs,restricted stock and RSUs, which link the executive officers’ long-term economicinterest to that of the shareholders. Twenty percent of total target compensation is long-term compensationdesigned to align the interests of executives with those of our shareholdersand to motivate achievement of sustainable long-term performance.  Less than 35% of total target compensation isfixed compensation designed to deliver competitive base salary pay practices.

*2006 Total Compensation Mix*

|                      | ** ** | **% of Total  Compensation** | ** ** | **% of Total  Compensation** | ** ** | **% of Annual  Compensation** | ** ** |
|----------------------|------------|----------------------------------------|------------|----------------------------------------|------------|-----------------------------------------|------------|
| **Name**             | ** ** | **Fixed %  (1)**                  | ** ** | **Variable %  (2)**               | ** ** | **Annual %  (3)**                  | ** ** | **Long-Term %  (4)** | ** ** | **At Risk  (5)** | ** ** | **Fixed  (1)** | ** ** |
| J. Patrick Spainhour |       |                                   | 26         | %                                      |       |                                    | 74         | % |   |   | 52 | % |   |   | 48 | % |   |   | 50 | % |   |   | 50 | % |   |
| Ernest J. Mrozek     |       |                                   | 27         | %                                      |       |                                    | 73         | % |   |   | 82 | % |   |   | 18 | % |   |   | 66 | % |   |   | 34 | % |   |
| Mitchell T. Engel    |       |                                   | 32         | %                                      |       |                                    | 68         | % |   |   | 84 | % |   |   | 16 | % |   |   | 62 | % |   |   | 38 | % |   |
| Jim L. Kaput         |       |                                   | 32         | %                                      |       |                                    | 68         | % |   |   | 84 | % |   |   | 16 | % |   |   | 62 | % |   |   | 38 | % |   |
| Katrina L. Helmkamp  |       |                                   | 35         | %                                      |       |                                    | 65         | % |   |   | 95 | % |   |   | 5 | % |   |   | 63 | % |   |   | 37 | % |   |
| Steven C. Preston    |       |                                   | 50         | %                                      |       |                                    | 50         | % |   |   | 100 | % |   |   | 0 | % |   |   | 50 | % |   |   | 50 | % |   |
| Jonathan P. Ward     |       |                                   | 20         | %                                      |       |                                    | 80         | % |   |   | 67 | % |   |   | 33 | % |   |   | 70 | % |   |   | 30 | % |   |
| **Average**          | ** ** | ** **                             | **31**     | **%**                                  | ** ** | ** **                              | **69**     | **%** | ** ** | ** ** | **79** | **%** | ** ** | ** ** | **21** | **%** | ** ** | ** ** | **61** | **%** | ** ** | ** ** | **39** | **%** | ** ** |

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(1)             Consists of base salary.

(2)             Consists of awards under the ABP and CPP (assumingtarget achievement) and grants of SARs, restricted stock and RSUs.

(3)             Consists of base salary and awards under the ABP andCPP (assuming target achievement).

(4)             Consists of grants of SARs, restricted stock andRSUs.

(5)             Consists of awards under the ABP and CPP (assumingtarget achievement).

*Annual CashCompensation*

Our 2006 compensation program for NEOs was designedsuch that approximately 80% of total target compensation would be delivered inthe form of cash.  Cash compensation waspaid in the form of salary and bonuses under our two annual performance-basednon-equity incentive plans, the ABP and CPP. Salary is included in the compensation package because an appropriateportion of NEO compensation should be fixed and would not, therefore, besubject to the attainment of performance targets.  Performance-based annual cash bonuses wereincluded in the 2006 compensation package because they motivate our NEOs topursue the annual performance targets the Committee believed were consistentwith the overall strategic direction the Board has set for our company.  The components comprising the annual cashportion of total compensation are described below.

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Salary.  Base salary for NEOs for 2006 was generallyfixed by the Committee at its meeting in December 2005 to be effective January1, 2006.  Increases or decreases insalary on a year-over-year basis are dependent on the Committee’s assessment ofcompany, business unit (“BU”) and individual performance and externalcompetitive pay practices.  For executiveofficers with employment agreements, a minimum level of salary is sometimesspecified in the agreement.  For 2006,the Committee approved an overall 3% salary increase.  Following such increases, base salarycomprised less than 35% of total target compensation of all NEOs (other thanMr. Preston, who did not participate in our 2006 ABP or CPP and was not grantedany SARs, restricted stock or RSUs in 2006). Both the overall base increase percent and the percentage of totaltarget compensation are consistent with market data.  In some cases, an individual salary wasadjusted more or less than 3% to reflect market data or individual performance.

*Salary IncreaseTable*

|                      | ** ** | **Increase %** | ** ** | **New Salary** | ** ** | **Basis for Increase**                        | ** ** | **Committee  Approval** | ** ** | **Effective Date** |
|----------------------|------------|----------------|------------|----------------|------------|-----------------------------------------------|------------|-------------------------|------------|--------------------|
|                      |       |           |       | $800,000       |       | Market Data Interim CEO                       |       | May 15, 2006            |       | 5/16/2006          |
| J. Patrick Spainhour |       |           |       |           |       |                                          |       |                    |       |               |
|                      |       | New Hire       |       | $900,000       |       | Made permanent Chairman and CEO               |       | July 20, 2006           |       | 7/1/2006           |
|                 |       |           |       |           |       |                                          |       |                    |       |               |
|                      |       | 2%             |       | $615,000       |       | Market Data and Individual Performance        |       | December 2005           |       | 1/1/2006           |
| Ernest J. Mrozek     |       |           |       |           |       |                                          |       |                    |       |               |
|                      |       | 8.5%           |       | $667,080       |       | Promotion to Vice Chairman                    |       | October 26, 2006        |       | 11/1/2006          |
|                 |       |           |       |           |       |                                          |       |                    |       |               |
|                      |       | 3%             |       | $437,000       |       | Market Data and Individual Performance        |       | December 2005           |       | 1/1/2006           |
| Mitchell T. Engel    |       |           |       |           |       |                                          |       |                    |       |               |
|                      |       | 2%             |       | $446,000       |       | Adjustment for vehicle lease  elimination (1) |       | June 1, 2006            |       | 6/1/2006           |
|                 |       |           |       |           |       |                                          |       |                    |       |               |
| Jim L. Kaput         |       | 2.5%           |       | $425,000       |       | Market Data and Individual Performance        |       | December 2005           |       | 1/1/2006           |
|                 |       |           |       |           |       |                                          |       |                    |       |               |
|                      |       | 4%             |       | $416,000       |       | Market Data and Individual Performance        |       | December 2005           |       | 1/1/2006           |
| Katrina L. Helmkamp  |       |           |       |           |       |                                          |       |                    |       |               |
|                      |       | 11.4%          |       | $463,500       |       | Promotion to Group President                  |       | October 26, 2006        |       | 11/1/2006          |
|                 |       |           |       |           |       |                                          |       |                    |       |               |
| Jonathan P. Ward     |       | 3%             |       | $811,125       |       | Market Data and Individual Performance        |       | December 2005           |       | 1/1/2006           |

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(1)             Increase was a one time $9,000 adjustment to offsetthe elimination of a company car.  Thispractice is consistent with the company’s policy to eliminate company carsprovided as perquisites.

Mr. Preston did not receive a salaryincrease for 2006.

Bonus Plans.  We had two cash bonus plans in 2006:  the annual bonus plan (“ABP”) and thecorporate performance plan (“CPP”). These plans provide cash compensation to NEOs if performance targets setby the Committee are met.  Target bonusesunder each plan were designed to reward attainment of short-term performance 

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targets supporting theoverall strategic direction the Board set for our company.  Target bonuses under each plan for 2006 wereestablished by the Committee based on the recommendation of Mr. Ward, ourformer Chairman and CEO, after considering market data, historical compensationlevels, individual performance and potential, and internal pay equity.  The amount of 2006 cash compensation providedin the form of ABP and CPP bonuses was designed to exceed 60% of target annualcompensation, assuming that performance targets were met.

In addition to awards under the ABP and CPP, Mr.Spainhour, who became Interim Chairman and CEO on May 16, 2006 and was namedpermanent Chairman and CEO on June 30, 2006, earned a guaranteed bonus of$151,233 (based on 150% of his salary as Interim Chairman and CEO) pursuant tothe terms of his employment agreement. This amount is included in the “Bonus” column of the SummaryCompensation Table.

*ABP*

The table below sets forth information regarding the2006 ABP, including the performance goals, the weight attached to eachperformance goal, the thresholds required for minimum payout and the payout asa percent of target bonus if the threshold, target or maximum performance ismet.  The performance goals and relativeweighting reflect the Committee’s objective of ensuring that a substantialamount of each NEO’s total compensation is tied to company-wide, business unit(“BU”) and individual performance goals. In 2006, the Committee set earnings per share (“EPS”), revenue and BUnet income performance targets under the ABP based on management’s businessplan and budget for the coming year. Generally, the Committee sets aggressive target payout levels consistentwith the relative difficulty of achieving the budget performance levels set forthe coming year.  For the company-widemeasures of EPS and revenue, the Committee set threshold performance levels for2006 at prior-year actual EPS and revenue achieved.  The maximum award is a function of thresholdand target in that the relationship between performance and payout isconsistent from threshold, through target, to the maximum.  Maximum payout reflects goals which can beattained only when business results are exceptional.  In the past three years, the company hasexceeded target twice and fallen below target one time with performance wellwithin the threshold and maximum in each year.

| Participant              | ** ** | **Weighting**                         | ** ** | **Threshold Required  (% of target performance)** | ** ** | **Scale = Payout  (% of target bonus) (1)** |
|--------------------------|------------|---------------------------------------|------------|---------------------------------------------------|------------|---------------------------------------------|
| J. Patrick Spainhour (2) |       | 80% EPS                               |       | EPS                                               |       | 83%                                         |   | Threshold = 50% |
|                          |       |                                  |       |                                              |       |                                        |   |   |
|                          |       | 20% Revenue                           |       | Revenue                                           |       | 87%                                         |   | Target = 100% |
|                          |       |                                  |       |                                              |       |                                        |   |   |
|                          |       |                                  |       |                                              |       |                                        |   | Maximum = 200% |
|                     |       |                                  |       |                                              |       |                                        |   |   |
| Ernest J. Mrozek         |       | 80% EPS                               |       | EPS                                               |       | 87%                                         |   | Threshold = 50% |
|                          |       |                                  |       |                                              |       |                                        |   |   |
| Jonathan P. Ward         |       | 20% Revenue                           |       | Revenue                                           |       | 89%                                         |   | Target = 100% |
|                          |       |                                  |       |                                              |       |                                        |   |   |
|                          |       |                                  |       |                                              |       |                                        |   | Maximum = 120% |
|                     |       |                                  |       |                                              |       |                                        |   |   |
| Mitchell T. Engel        |       | 80% EPS                               |       | EPS                                               |       | 87%                                         |   | Threshold = 50% |
|                          |       |                                  |       |                                              |       |                                        |   |   |
| Jim L. Kaput             |       | 20% Individual goals & objectives |       |                                              |       |                                        |   | Target = 100% |
|                          |       |                                  |       |                                              |       |                                        |   |   |
|                          |       |                                  |       |                                              |       |                                        |   | Maximum = 120% |
|                     |       |                                  |       |                                              |       |                                        |   |   |
| Katrina L. Helmkamp      |       | 60% BU net income                     |       | BU net income                                     |       | 87%                                         |   | Threshold = 50% |
|                          |       |                                  |       |                                              |       |                                        |   |   |
|                          |       | 20% EPS                               |       | EPS                                               |       | 87%                                         |   | Target = 100% |
|                          |       |                                  |       |                                              |       |                                        |   |   |
|                          |       | 20% Individual goals & objectives |       |                                              |       |                                        |   | Maximum = 120% |

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(1)             As further detailed in the table below, target bonuswas 100% of base salary, with the exception of Mr. Ward, whose target bonus was150% of base salary.

(2)             Mr. Spainhour’s goals were based on the six-monthperformance period beginning July 1, 2006.

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The following table sets forth information regardingthe 2006 performance under the ABP, including the percent of performance targetattained and the percent of target bonus earned.

|                           | ** ** | **Target   % of  Salary** | ** ** | **% of EPS  Target  Attained** | ** ** | **% of  Revenue  Target  Attained** | ** ** | **% of Business  Unit Net  Income Target  Attained** | ** ** | **% of  Individual  Goals  Attained** | ** ** | **% of Target  Bonus  Earned** | ** ** |
|---------------------------|------------|-------------------------------------|------------|------------------------------------------|------------|------------------------------------------|------------|--------------------------------------------------------------------------|------------|--------------------------------------------|------------|------------------------------------------|------------|
| J. Patrick Spainhour  (1) |       |                                | 100        | %                                        |       |                                     | 98.06      | %                                                                        |       |                                       | 97.5       | %                                        |       |   | N/A |   |   |   | N/A |   |   |   | 93 | % |   |
| Ernest J. Mrozek          |       |                                | 100        | %                                        |       |                                     | 94.71      | %                                                                        |       |                                       | 94.6       | %                                        |       |   | N/A |   |   |   | N/A |   |   |   | 77 | % |   |
| Mitchell T. Engel         |       |                                | 100        | %                                        |       |                                     | 94.71      | %                                                                        |       |                                       | N/A        |                                     |       |   | N/A |   |   |   | 100.0 | % |   |   | 81 | % |   |
| Jim L. Kaput              |       |                                | 100        | %                                        |       |                                     | 94.71      | %                                                                        |       |                                       | N/A        |                                     |       |   | N/A |   |   |   | 97.5 | % |   |   | 81 | % |   |
| Katrina L. Helmkamp       |       |                                | 100        | %                                        |       |                                     | 94.71      | %                                                                        |       |                                       | N/A        |                                     |       |   | 92.0 | % |   |   | 90.0 | % |   |   | 76 | % |   |
| Jonathan P. Ward (2)      |       |                                | 150        | %                                        |       |                                     | N/A        |                                                                     |       |                                       | N/A        |                                     |       |   | N/A |   |   |   | N/A |   |   |   | N/A |   |   |

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(1)             Mr. Spainhour’s EPS and revenue targets were based onthe six-month performance period beginning July 1, 2006.

(2)             Mr. Ward resigned from the Company effective as ofMay 15, 2006, and he did not receive an ABP payment for 2006.

 

*CPP*

The sole performance goal under the 2006 CPP wasServiceMaster pre-tax income.  Theperformance goal reflects the Committee’s objective of ensuring that asubstantial amount of each NEO’s total compensation is tied to company-wideperformance independent of BU and individual performance.  As with the ABP, in 2006, the Committee setthe pre-tax income performance target under the CPP based on management’sbusiness plan and budget for the coming year. The budget and business plan are considered aggressive and create afinancial stretch goal for the company. The Committee also set threshold and maximum performance levels for 2006approximately 20% below and above, respectively, the target performancelevel.  Generally, the Committee sets thetarget level such that the relative difficulty of achieving the target level isconsistent from year to year and in support of the overall strategic directionthe Board set for our company.  Themaximum award target reflects goals which can be attained only when businessresults are exceptional.  In the pastthree years, the company has exceeded target twice and fallen below target onetime with performance well within the threshold and maximum in each year.

Threshold and maximum bonus levels were set at 80% and120% of target bonus, respectively, for each NEO.  The following table sets forth informationregarding the 2006 CPP, including the target bonus and the amount of bonusearned based on achievement in 2006 of the respective ServiceMaster pre-taxincome performance targets.

|                           | ** ** | **Target Bonus** | ** ** | **Bonus Earned** | ** ** |
|---------------------------|------------|-----------------------|------------|-----------------------|------------|
| J. Patrick Spainhour  (1) |       | $0                    |       | $0                    |       |
| Ernest J. Mrozek          |       | $595,000              |       | $526,116              |       |
| Mitchell T. Engel         |       | $280,000              |       | $274,584              |       |
| Jim L. Kaput              |       | $280,000              |       | $274,584              |       |
| Katrina L. Helmkamp       |       | $297,500              |       | $263,058              |       |
| Jonathan P. Ward (2)      |       | $700,000              |       | $0                    |       |

 

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(1)    In lieu ofparticipation in the CPP for 2006, Mr. Spainhour received a greater number ofequity awards, on an annualized basis, than he otherwise would have received.

(2)    Mr. Wardresigned from the Company effective as of May 15, 2006, and he did not receivea CPP payment for 2006.

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*Long-term Equity Compensation*

Our 2006 compensation program forNEOs was designed such that approximately 20% of total target compensationwould be delivered in the form of long-term equity compensation to align theinterests of executives with those of our shareholders and to motivateachievement of sustainable long-term performance.  The percentage that the Committee selects forthese purposes in a given year depends on the Committee’s assessment, for thatyear, of the appropriate balance between cash and equity compensation and themarket competitiveness of such award values. In making that assessment, the Committee considers factors such as therelative merits of cash and equity as a device for retaining and motivatingNEOs.  Individual grant levels are basedon historical compensation levels and internal compensation equity and adjustedif necessary to maintain a competitive position against total compensationvalues obtained from market data. Long-term compensation was delivered in 2006 in the form of equity witha combination of stock settled stock appreciation rights (“SARs”) andrestricted stock or restricted stock units (“RSUs”).  The Committee determined the equitycompensation for each NEO (other than Mr. Spainhour) for 2006 in December 2005.

Equity awards to our NEOs are madepursuant to our 2003 Equity Incentive Plan (the “EIP”).  The EIP provides for awards in the form ofstock options, SARs, restricted stock, RSUs, deferred stock units andperformance share units.  In 2006, ourNEOs received the target value of their equity awards in a combination of SARsor restricted stock or RSUs.

A description of the equity awardsgranted in 2006 under the EIP follows:

Stock Appreciation Rights.  SARs may become exercisable on the basis ofthe satisfaction of performance conditions established by the Committee or onthe basis of the passage of time and continued employment.  SARs granted in February 2006 as part of thenormal annual grant become exercisable on the basis of the passage of time andcontinued employment over a five-year period, with 20% becoming exercisable oneach anniversary of the grant date, and generally have a ten-year term.  SARs will continue to vest after retirementonly if the awards were granted (1) prior to February 13, 2004 to employees whohave 15 years of service or have reached the age of 63 prior to retirement, or(2) on or after February 13, 2004 to employees who have 15 years of service orwhose combined age and years of service is 65 upon retirement.  Mr. Mrozek is our only NEO who had 15 yearsof service at December 31, 2006.

All SARs are granted with a baseprice equal to the fair market value of our common stock on the date of grant,as determined by the average of the high and low transaction prices on the NewYork Stock Exchange on the date of the grant. Re-pricing is expressly prohibited by our EIP.

Restricted Stock.  Restricted stock awards may vest on the basisof the satisfaction of performance conditions established by the Committee oron the basis of the passage of time and continued employment.  Restricted stock awards granted in February2006 as part of the normal annual grant vest on the basis of the passage oftime and continued employment over a five-year period, with restrictionslapsing on 20% of the shares on March 1 in each of the first five yearsfollowing the grant date.  Pursuant to anagreement with Mr. Mrozek, any restriction period applicable to restrictedstock held as of November 15, 2006 will lapse, and all shares will vest if Mr.Mrozek’s employment is terminated without cause or for good reason prior toDecember 31, 2007 or, after December 31, 2007 through December 31, 2008, Mr.Mrozek’s employment is terminated for any reason other than for cause.   Recipients of restricted stock receivedividends on, and may vote, the shares subject to a grant.  Shares of restricted stock may not, however,be sold or otherwise transferred prior to the lapse of the restrictions.

Restricted Stock Units.  RSUs convert into stock units when therestrictions lapse.  Unlike restrictedstock, where shares of common stock are actually issued and outstanding, an RSUis a book-entry only unit representing one share of common stock for eachRSU.  RSUs may vest on the basis of thesatisfaction of performance conditions established by the Committee or on thebasis of the passage of time and continued employment.  RSUs granted in February 2006 as part of thenormal annual grant vest on the basis of the passage of time and continuedemployment over a five-year period, with restrictions lapsing on 20% of theunits on each anniversary of the grant date. Only Messrs. Mrozek and Ward were granted RSUs in 2006.  RSUs were granted in lieu of an equivalentnumber of shares of restricted stock. The Committee decided to grant RSUs because RSUs allow the individual todefer recognizing taxable income until the underlying common stock isdistributed after the individual’s termination of 

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employment,which ensures that the taxable income will not be subject to the deductionlimit under Section 162(m) of the Internal Revenue Code.  Pursuant to an agreement with Mr. Mrozek, anyrestriction period applicable to his RSUs held as of November 15, 2006 willlapse, and all shares will vest if Mr. Mrozek’s employment is terminatedwithout cause or for good reason prior to December 31, 2007 or, after December31, 2007 through December 31, 2008, Mr. Mrozek’s employment is terminated forany reason other than for cause.  Holdersof RSUs do not have voting rights, but they are credited with payments equal tothe amount of dividends that would be paid on an equivalent number of shares ofcommon stock.  These dividend equivalentamounts are then deemed to be reinvested in book-entry stock units.

*PracticesRegarding the Grant of Equity Awards*

The Committee has generally followeda practice of making all annual equity award grants to its employees, includingthe NEOs, on a single date each year. Historically, the Committee has approved annual awards with a grant datethat is one full business day after the press release announcing the prior year’sresults of operations.  The Committeebelieves that it is appropriate that annual awards be made at a time whenmaterial information regarding our performance for the preceding year has beendisclosed.  We do not otherwise have anyprogram, plan or practice to time the grant of equity awards to any employeesin coordination with the release of material non-public information.

While the bulk of our equity awardsto NEOs and other employees have historically been made pursuant to our annualgrant program, the Committee retains the discretion to approve awards to NEOsat other times, such as in connection with the initial hiring of a new officer,for retention purposes or otherwise.  Fornew employees, pursuant to a policy adopted in December 2006, the grant date isone full business day after the first press release by ServiceMaster after thedate of hire that announces the most recent quarterly or annual results ofoperations.  Prior to the adoption of theDecember 2006 policy, the awards were granted at the date of hire.  For special recognition or incentive awards,the grant date is one full business day after the first press release byServiceMaster after approval of the award that announces the most recentquarterly or annual results of operations. All equity awards made to our NEOs,or any of our other employees or directors, are made pursuant to our EIP. Priorto the adoption of the December 2006 policy, the awards were granted upon theapproval date.

All stock options and SARs aregranted with an exercise or base price equal to the fair market value of ourcommon stock on the date of grant.  Fairmarket value is the average of the high and the low transaction prices of ashare of our common stock as reported on the New York Stock Exchange CompositeTransaction Tape on the date of grant. We do not have any program, plan or practice of granting stock optionsor SARs and setting the exercise or base price based on the stock’s price on adate other than the grant date.  We donot have a practice of determining the exercise or base price of stock optionsor SARs by using average prices (or lowest prices) of our common stock in aperiod preceding, surrounding or following the grant date.  All equity awards granted to NEOs are approvedby the Committee.

With respect to annual awards under our EIP, stock options and SARs awardedto NEOs generally begin vesting on the first anniversary of the grant date andvest 20% per year over 5 years.  Awardsof restricted stock and RSUs to NEOs generally begin vesting on March 1 of theyear following the grant date and vest 20% per year over 5 years.  Awards of restricted stock to directors aremade in lieu of a portion of an annual cash retainer and vest 100% on March 1of the year following the grant date.

Pursuant to the Company’s policy adopted in December 2006, with respect toequity awards for new hires, stock options and SARs generally begin vesting onthe first anniversary of the date of hire and vest 20% per year over 5years.  Awards of restricted stockgenerally begin vesting on the first March 1, May 10, August 10 or November 10occurring on or after the first anniversary of the grant date and vest 

10

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20% peryear over 5 years. Prior to the adoption of the December 2006 policy, stock options,SARs, and restricted stock began vesting on the first anniversary of the grantdate and vested 20% per year over 5 years, where the grant date was the date ofhire.

Pursuant to the Company’s policy adopted in December 2006, with respect toequity awards granted for special recognition or incentive purposes, stockoptions and SARs generally begin vesting on the first anniversary of the grantdate and vest 20% per year over 5 years. Awards of restricted stock generally begin vesting on the first March 1,May 10, August 10 or November 10 occurring on or after the first anniversary ofthe grant date and vest 20% per year over 5 years. Prior to the adoption of theDecember 2006 policy, stock options and SARs vested in the same manner.Restricted stock and RSUs began vesting on the first anniversary of the grantdate and vested 20% per year over 5 years.

In each of the above cases, alternate vesting schedules may be applied perthe terms set forth in individual agreements as determined by the Committee.

*Individual GrantLevels*

Historically the Committee hasgranted the same level of equity awards from year to year.  However, in 2006, so that long-termcompensation would approach 20% of target compensation for the NEOs as a group,the Committee increased the individual grant levels to several NEOs.  These increases resulted in maintaining theintended level of both long-term equity and total compensation.  The following table sets forth informationregarding equity awards granted in 2006 to our NEOs, including the percentincrease over 2005 and the number of SARs, shares of restricted stock andRSUs.  

|                          | ** ** | **Increase over  2005 grants** | ** ** | **SARs** | ** ** | **Restricted  Stock** | ** ** | **RSUs** | ** ** |
|--------------------------|------------|------------------------------------------|------------|----------|------------|-----------------------|------------|----------|------------|
| J. Patrick Spainhour (1) |       |                                     | New        |     |       | 185,000               |       | 61,667   |       | — |   |
| Ernest J. Mrozek         |       |                                     | 0          | %        |       | 112,500               |       | —   |       | 37,500 |   |
| Mitchell T. Engel        |       |                                     | 10         | %        |       | 55,000                |       | 18,333   |       | — |   |
| Jim L. Kaput             |       |                                     | 10         | %        |       | 55,000                |       | 18,333   |       | — |   |
| Katrina L. Helmkamp      |       |                                     | 33         | %        |       | 40,000                |       | 13,333   |       | — |   |
| Steven C. Preston        |       |                                     | —     |     |       | —                |       | —   |       | — |   |
| Jonathan  P. Ward        |       |                                     | 18         | %        |       | 225,000               |       | —   |       | 75,000 |   |

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(1)             In lieu of participation in the CPP for 2006, Mr.Spainhour received a greater number of equity awards, on an annualized basis,than he otherwise would have received. The amount shown reflects a level prorated for one-half of the yearcorresponding with the amount of time in 2006 Mr. Spainhour served as ourpermanent Chairman and CEO.

*Perquisites*

We provide our executives withperquisites that the Committee believes are reasonable and consistent with theoverall objectives of the compensation program to attract and retain highlyqualified executives. The Committee reviews the perquisites provided to ourNEOs on a regular basis, in an attempt to ensure that they continue to beappropriate in light of the Committee’s overall goal of designing acompensation program for NEOs that maximizes the interests of ourshareholders.  The perquisites providedto our NEOs are membership in social and professional clubs, certain spousaltravel, Company-provided vehicles and, for our CEO and CFO, personal use ofCompany aircraft.  These perquisites areprovided by many companies with which we compete for management talent to theirnamed executive officers and the Committee believes they facilitate retentionand recruitment of executives.

The Committee has established apolicy regarding personal use of the Company aircraft (the “Aircraft Policy”)by our CEO and CFO.  The Aircraft Policyprovides that the CEO and CFO shall recognize taxable income for their personaluse of the Company aircraft occurring in any year and shall reimburse theCompany for personal use of the Company aircraft exceeding the designatedlimits set forth in the Aircraft Policy (up to fifty hours for the CEO, and upto twenty-five hours for the CFO).  Anyamount so reimbursed to the Company shall be applied to reduce the individual’staxable income accordingly.

*DeferredCompensation*

Employees, including the NEOs, are generally eligibleto participate in the ServiceMaster Profit Sharing and Retirement Plan (“PSRP”).  The PSRP is a tax-qualified definedcontribution plan pursuant to which employees 

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areeligible to contribute up to 75% of their annual salary, subject to the limitsprescribed by law.  Certain “highlycompensated employees” (as defined in the IRS Code) may only contribute to thePSRP in a reduced amount; for 2006, this amount was up to 2% of their annualsalary, subject to the limits prescribed by law.  All of the NEOs are “highly compensatedemployees” under the IRS Code and were therefore subject to these contributionlimits in 2006.  For 2006, the Committeeapproved a discretionary employer match equal to 15% of employee contributionsup to a maximum benefit of $2,860.

The ServiceMaster Deferred Compensation Plan (“DCP”)is a non-qualified supplemental plan designed to afford certain highlycompensated employees the opportunity to defer additional amounts ofcompensation on a pretax basis, over and above the amounts allowed under thePSRP.  Deferred amounts are credited withearnings or losses based on the rate of return of mutual funds selected by theparticipants in the DCP.  We matchamounts that are deferred by employees pursuant to the DCP.  Distributions are paid in accordance with thePlan. Distributions upon termination are payable no earlier than the six-monthanniversary of the termination of employment with the Company.

Participants may defer 2% to 75% of compensation.  For 2006, the Committee approved adiscretionary employer match equal to 65% of employee contributions up to amaximum benefit of $2,860.

The DCP is not funded by us, and participants have anunsecured contractual commitment from us to pay the amounts due under theDCP.  When such payments are due, thecash will be distributed from our general assets.

We provide this benefit because the Committee wishesto permit our employees to defer the obligation to pay taxes on certainelements of the compensation that they are entitled to receive.  The DCP permits them to do this while alsoreceiving interest on deferred amounts, as described above.  We believe that provision of this benefit isimportant as a retention and recruitment tool as many if not all of thecompanies with which we compete for executive talent provide a similar plan totheir senior employees.

*Post-TerminationCompensation*

We have entered into agreements withMessrs. Spainhour and Mrozek which provide for certain payments and, for Mr.Mrozek, accelerated vesting of equity awards in the event of certaincircumstances surrounding his termination of employment.  We have also entered into change in controlseverance agreements with each of the NEOs to secure their continued serviceand to ensure their dedication and objectivity in the event of a change incontrol or threatened change in control. In addition to their change in control severance agreements, we havealso entered into separation agreements with Messrs. Engel and Kaput inconnection with the consolidation of our offices in Memphis.  Additional information regarding theseverance provisions of these agreements, including the definition of key termsand a quantification of benefits that would have been received by the NEOs hadtermination occurred on December 31, 2006, is found under the heading “PotentialPayments Upon Termination or Change-in-Control.”

We also had agreements with Mr. Wardand Mr. Preston which provided the amounts they received upon their separationfrom the Company in 2006.  Additionalinformation regarding these payments may also be found under the heading “PotentialPayments Upon Termination or Change-in-Control.”

*Deductibility ofExecutive Compensation*

Section 162(m) of the InternalRevenue Code limits ServiceMaster’s ability to deduct from its incomecompensation in excess of $1,000,000 paid to our NEOs. The limitation does notapply to qualified performance-based compensation, provided that certainconditions are satisfied, including the attainment of performance goalsapproved by ServiceMaster’s shareholders. The Company generally attempts tostructure its compensation programs and, in particular, the ABP, CPP and EIP,to maximize deductibility under §162(m). Nevertheless, the Committee retainsthe discretion it deems necessary to compensate our NEOs in a mannercommensurate with performance and competitive compensation levels even if as aresult ServiceMaster is unable to deduct from its income all of thecompensation paid to the NEOs.

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The table below detailsthe total compensation that was paid or earned by each of the NEOs for thefiscal year ended December 31, 2006.

**SUMMARYCOMPENSATION TABLE**

** **
|                                                | ** ** | ** ** | ** ** | **Salary** | ** ** | **Bonus**  | ** ** | **Stock  Awards** | ** ** | **Option/  SAR  Awards** | ** ** | **Non-Equity  Incentive Plan  Compensation ($)** | ** ** | **All Other  Compen-  sation** | ** ** | **Total**        | ** ** |
|------------------------------------------------|------------|------------|------------|------------|------------|------------|------------|-------------------|------------|--------------------------|------------|------------------------------------------------------------|------------|-------------------------------------|------------|------------------|------------|
| **Name and Principal Position** | ** ** | **Year**   | ** ** | **($)**    | ** ** | **($)**    | ** ** | **($) (2)**  | ** ** | **($) (3)**         | ** ** | **ABP**                                                    | ** ** | **CPP**                             | ** ** | **($) (5)** | ** ** | **($)** | ** ** |
| **J. Patrick Spainhour**                       |       | 2006       |       | 550,000    |       | 151,233    | (1)        | 53,858            |       | 33,095                   |       | 421,200                                                    |       | 0                                   | (4)        | 53,540           |       | 1,262,926 |   |
| Chairman and Chief                             |       |       |       |       |       |       |       |              |       |                     |       |                                                       |       |                                |       |             |       |   |   |
| Executive Officer(6)                           |       |       |       |       |       |       |       |              |       |                     |       |                                                       |       |                                |       |             |       |   |   |
| ** **                                     | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** **        | ** ** | ** **               | ** ** | ** **                                                 | ** ** | ** **                          | ** ** | ** **       | ** ** | ** ** | ** ** |
| **Ernest J. Mrozek**                           |       | 2006       |       | 623,679    |       | 0          |       | 466,875           |       | 286,875                  |       | 491,784                                                    |       | 526,116                             |       | 51,060           |       | 2,446,389 |   |
| Vice Chairman and                              |       |       |       |       |       |       |       |              |       |                     |       |                                                       |       |                                |       |             |       |   |   |
| Chief Financial Officer                        |       |       |       |       |       |       |       |              |       |                     |       |                                                       |       |                                |       |             |       |   |   |
| ** **                                     | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** **        | ** ** | ** **               | ** ** | ** **                                                 | ** ** | ** **                          | ** ** | ** **       | ** ** | ** ** | ** ** |
| **Mitchell T. Engel**                          |       | 2006       |       | 442,250    |       | 0          |       | 153,915           |       | 254,042                  |       | 366,695                                                    |       | 247,584                             |       | 39,260           |       | 1,503,746 |   |
| Chief Marketing Officer                        |       |       |       |       |       |       |       |              |       |                     |       |                                                       |       |                                |       |             |       |   |   |
| ** **                                     | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** **        | ** ** | ** **               | ** ** | ** **                                                 | ** ** | ** **                          | ** ** | ** **       | ** ** | ** ** | ** ** |
| **Jim L. Kaput**                               |       | 2006       |       | 425,000    |       | 0          |       | 160,036           |       | 175,159                  |       | 354,501                                                    |       | 247,584                             |       | 1,080            |       | 1,363,360 |   |
| Senior Vice President                          |       |       |       |       |       |       |       |              |       |                     |       |                                                       |       |                                |       |             |       |   |   |
| and General Counsel                            |       |       |       |       |       |       |       |              |       |                     |       |                                                       |       |                                |       |             |       |   |   |
| ** **                                     | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** **        | ** ** | ** **               | ** ** | ** **                                                 | ** ** | ** **                          | ** ** | ** **       | ** ** | ** ** | ** ** |
| **Katrina L. Helmkamp**                        |       | 2006       |       | 419,958    |       | 0          |       | 65,541            |       | 34,685                   |       | 318,899                                                    |       | 263,058                             |       | 5,720            |       | 1,107,861 |   |
| Group President                                |       |       |       |       |       |       |       |              |       |                     |       |                                                       |       |                                |       |             |       |   |   |
| ** **                                     |       |       |       |       |       |       |       |              |       |                     |       |                                                       |       |                                |       |             |       |   |   |
| **Steven C. Preston**                          |       | 2006       |       | 245,000    |       | 0          |       | 17,404            |       | 37,503                   |       | 0                                                          |       | 0                                   |       | 2,013,925        |       | 2,313,832 |   |
| Former Executive                               |       |       |       |       |       |       |       |              |       |                     |       |                                                       |       |                                |       |             |       |   |   |
| Vice President                                 |       |       |       |       |       |       |       |              |       |                     |       |                                                       |       |                                |       |             |       |   |   |
| ** **                                     |       |       |       |       |       |       |       |              |       |                     |       |                                                       |       |                                |       |             |       |   |   |
| **Jonathan P. Ward**                           |       | 2006       |       | 473,156    |       | 0          |       | 62,155            |       | 88,152                   |       | 0                                                          |       | 0                                   |       | 4,180,481        |       | 4,803,944 |   |
| Former Chairman and                            |       |       |       |       |       |       |       |              |       |                     |       |                                                       |       |                                |       |             |       |   |   |
| Chief Executive Officer                        |       |       |       |       |       |       |       |              |       |                     |       |                                                       |       |                                |       |             |       |   |   |

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(1)             Representsa guaranteed bonus for service as Interim Chairman and CEO from May 15, 2006through June 30, 2006.

(2)             Theamounts in this column reflect the dollar amount recognized for financialstatement reporting purposes during 2006 for restricted stock and restrictedstock unit awards granted during and prior to 2006.  The assumptions used in the valuation ofthese awards are disclosed in the Shareholders’ Equity footnote toServiceMaster’s audited financial statements for the fiscal year ended December31, 2006 included in ServiceMaster’s Annual Report on Form 10-K filed with theSecurities and Exchange Commission on February 27, 2007. The fair value ofthese awards is equal to the value of the Company’s stock on the date of grant.

(3)             Theamounts in this column reflect the dollar amount recognized for financialstatement reporting purposes during 2006 for stock options and stockappreciation rights granted during and prior to 2006.  The assumptions used in the valuations ofthese awards are included in the Shareholders’ Equity footnote toServiceMaster’s audited financial statements for fiscal years ended December31, 2001 through 2006, and included in ServiceMaster’s Annual Report on Form10-K filed with the Securities and Exchange Commission on March 28, 2002, March31, 2003, March 15, 2004, March 4, 2005, February 28, 2006 and February 27,2007.

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(4)             Mr.Spainhour does not participate in our CPP.

(5)             Amountsincluded in this column include:
| **Name of NEO** | ** ** | **Perquisites  and Other  Personal  Benefits** | ** ** | **Company  Contributions  to PSRP  and DCP** | ** ** | **Tax  Payments** | ** ** | **Company  Contributions  Under  Employee  Stock  Purchase  Plan** | ** ** | **Severance  Payments** | ** ** | **Total** | ** ** |
|---------------------------|------------|-----------------------------------------------------|------------|--------------------------------------------------------|------------|-------------------|------------|--------------------------------------------------------------------|------------|-------------------------|------------|-----------|------------|
| J. Patrick Spainhour      |       |                                                | 49,618     | (a)                                                    |       | 0                 |       | 3,922                                                              |       | 0                       |       | 0         |       | 53,540 |   |
| Ernest J. Mrozek          |       |                                                | 45,340     | (b)                                                    |       | 5,720             |       | 0                                                                  |       | 0                       |       | 0         |       | 51,060 |   |
| Mitchell T. Engel         |       |                                                | 18,196     | (c)                                                    |       | 5,720             |       | 0                                                                  |       | 15,344                  |       | 0         |       | 39,260 |   |
| Jim L. Kaput              |       |                                                | 0          |                                                   |       | 0                 |       | 0                                                                  |       | 1,080                   |       | 0         |       | 1,080 |   |
| Katrina L. Helmkamp       |       |                                                | 0          |                                                   |       | 5,720             |       | 0                                                                  |       | 0                       |       | 0         |       | 5,720 |   |
| Steven C. Preston         |       |                                                | 0          |                                                   |       | 0                 |       | 0                                                                  |       | 0                       |       | 2,013,925 |       | 2,013,925 |   |
| Jonathan P. Ward          |       |                                                | 88,784     | (d)                                                    |       | 0                 |       | 0                                                                  |       | 36,072                  |       | 4,055,625 |       | 4,180,481 |   |

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(a)             Includespersonal use of corporate aircraft, auto related expenses and moving expenses($28,174).

(b)            Includespersonal use of corporate aircraft ($33,067), auto related expenses, company paidspousal travel, company provided lawn service and club dues and membershipfees.

(c)             Includesauto related expenses, company paid spousal travel and club dues and membershipfees.

(d)            Includespersonal use of corporate aircraft ($66,705), auto related expenses, companypaid spousal travel and club dues and membership fees.

Theincremental cost of the use of company aircraft is calculated based on thevariable operating costs to ServiceMaster, including fuel costs, mileage,trip-related maintenance, universal weather-monitoring costs, on-boardcatering, lamp/ramp fees and other miscellaneous variable costs. Fixed costswhich do not change based on usage, such as pilot salaries, the lease costs ofthe company aircraft, and the cost of maintenance not related to trips areexcluded.  The aggregate cost of otherperquisites and personal benefits is measured on the basis of the actual costto the Company.

Auto-related expenses include, and are valuedaccording to the costs actually paid for lease, fuel, repairs andinsurance.  Club dues are valuedaccording to the amount actually reimbursed to the executive.  Moving expenses are valued according to theamount actually paid for the move including taxable (house hunting, fees) andnon-taxable (enroute expenses including moving household goods) items.  Moving expense gross-up of taxes are valuedaccording to the amount of taxes paid on behalf of the executive for taxablerelocation expenses.

 

(6) Prior to being named Interim Chairman andCEO on May 16, 2006, and subsequently permanent Chairman and CEO on June 30,2006, Mr. Spainhour earned $57,500 in the form of equity awards as compensationfor service as a member of our Board of Directors.  For information relating to Mr. Spainhour’scompensation as a director prior to becoming an executive officer ofServiceMaster, see the 2006 Director Compensation Table.

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**2006 GRANTS OF PLAN-BASED AWARDS**
|                              | ** ** | ** **          | ** ** | ** **                          | ** ** | ** **         | ** ** | ** **              | ** ** | ** **                    | ** ** | ** **         | ** ** | ** **       | ** ** | **Grant**        | ** ** |
|------------------------------|------------|---------------------|------------|-------------------------------------|------------|--------------------|------------|-------------------------|------------|-------------------------------|------------|--------------------|------------|------------------|------------|------------------|------------|
| ** **                   | ** ** | ** **          | ** ** | ** **                          | ** ** | ** **         | ** ** | ** **              | ** ** | ** **                    | ** ** | ** **         | ** ** | ** **       | ** ** | **Date**         | ** ** |
| ** **                   | ** ** | ** **          | ** ** | ** **                          | ** ** | ** **         | ** ** | ** **              | ** ** | **All Other**            | ** ** | **All Other** | ** ** | ** **       | ** ** | **Fair**         | ** ** |
| ** **                   | ** ** | ** **          | ** ** | **Estimated  Future Payouts Under** | ** ** | **Stock**          | ** ** | **Option Awards:** | ** ** | ** **                    | ** ** | **Value of**  | ** ** |
| ** **                   | ** ** | ** **          | ** ** | **Non-Equity  Incentive**           | ** ** | **Awards:**        | ** ** | **Number of**      | ** ** | ** **                    | ** ** | **Stock and** | ** ** |
| ** **                   | ** ** | ** **          | ** ** | **Plan  Awards (1)**                | ** ** | **Number of** | ** ** | **Securities**          | ** ** | **Base Price**           | ** ** | **SAR**            | ** ** |
| ** **                   | ** ** | ** **          | ** ** | **Threshold**                       | ** ** | **Target**         | ** ** | **Maximum**             | ** ** | **Shares of Stock** | ** ** | **Underlying**     | ** ** | **of SARs** | ** ** | **Awards**       | ** ** |
| **Name**                     | ** ** | **Grant Date** | ** ** | **($)**                             | ** ** | **($)**            | ** ** | **($)**                 | ** ** | **or Units (3)**    | ** ** | **SARs (4)**  | ** ** | **($/Sh)**       | ** ** | **($) (5)** | ** ** |
| **J. Patrick Spainhour (6)** |       | ABP  (1)            |       |                                | 225,000    |               | 450,000    |                    | 900,000    |                          |       |               |       |             |       |             |       |   |   |   |   |
|                              |       | 8/2/2006            |       |                                |       |               |       |                    |       |                          |       | 61,667             |       |             |       |             |       |   |   | 638,253 |   |
|                              |       | 8/2/2006            |       |                                |       |               |       |                    |       |                          |       |               |       |             | 185,000    |             |       | $ | 10.35 |   | 392,200 |   |
| **Ernest  J. Mrozek**        |       | ABP (1)             |       |                                | 311,840    |               | 623,679    |                    | 748,415    |                          |       |               |       |             |       |             |       |   |   |   |   |
| ** **                   |       | CPP  (2)            |       |                                | 476,000    |               | 595,000    |                    | 714,000    |                          |       |               |       |             |       |             |       |   |   |   |   |
| ** **                   |       | 2/14/2006           |       |                                |       |               |       |                    |       |                          |       | 37,500             |       |             |       |             |       |   |   | 466,875 |   |
| ** **                   |       | 2/14/2006           |       |                                |       |               |       |                    |       |                          |       |               |       |             | 112,500    |             |       | $ | 12.45 |   | 286,875 |   |
| **Mitchell T. Engel**        |       | ABP (1)             |       |                                | 218,500    |               | 437,000    |                    | 524,400    |                          |       |               |       |             |       |             |       |   |   |   |   |
|                              |       | CPP  (2)            |       |                                | 224,000    |               | 280,000    |                    | 336,000    |                          |       |               |       |             |       |             |       |   |   |   |   |
|                              |       | 2/14/2006           |       |                                |       |               |       |                    |       |                          |       | 18,333             |       |             |       |             |       |   |   | 228,246 |   |
|                              |       | 2/14/2006           |       |                                |       |               |       |                    |       |                          |       |               |       |             | 55,000     |             |       | $ | 12.45 |   | 140,250 |   |
| **Jim L.  Kaput**            |       | ABP (1)             |       |                                | 212,500    |               | 425,000    |                    | 510,000    |                          |       |               |       |             |       |             |       |   |   |   |   |
| ** **                   |       | CPP  (2)            |       |                                | 224,000    |               | 280,000    |                    | 336,000    |                          |       |               |       |             |       |             |       |   |   |   |   |
| ** **                   |       | 2/14/2006           |       |                                |       |               |       |                    |       |                          |       | 18,333             |       |             |       |             |       |   |   | 228,246 |   |
| ** **                   |       | 2/14/2006           |       |                                |       |               |       |                    |       |                          |       |               |       |             | 55,000     |             |       | $ | 12.45 |   | 140,250 |   |
| **Katrina L. Helmkamp**      |       | ABP (1)             |       |                                | 209,979    |               | 419,958    |                    | 503,950    |                          |       |               |       |             |       |             |       |   |   |   |   |
|                              |       | CPP  (2)            |       |                                | 238,000    |               | 297,500    |                    | 357,000    |                          |       |               |       |             |       |             |       |   |   |   |   |
|                              |       | 2/14/2006           |       |                                |       |               |       |                    |       |                          |       | 13,333             |       |             |       |             |       |   |   | 165,996 |   |
|                              |       | 2/14/2006           |       |                                |       |               |       |                    |       |                          |       |               |       |             | 40,000     |             |       | $ | 12.45 |   | 102,000 |   |
| **Jonathan  P. Ward**        |       | ABP (1)             |       |                                | 608,344    |               | 1,216,688  |                    | 1,460,025  |                          |       |               |       |             |       |             |       |   |   |   |   |
| ** **                   |       | CPP  (2)            |       |                                | 560,000    |               | 700,000    |                    | 840,000    |                          |       |               |       |             |       |             |       |   |   |   |   |
| ** **                   |       | 2/14/2006           |       |                                |       |               |       |                    |       |                          |       | 75,000             |       |             |       |             |       |   |   | 933,750 |   |
| ** **                   |       | 2/14/2006           |       |                                |       |               |       |                    |       |                          |       |               |       |             | 225,000    |             |       | $ | 12.45 |   | 573,750 |   |

----

(1)             The amounts in thisrow represent potential earnings under the 2006 ABP.  The actual amounts earned by each of the NEOsunder the 2006 ABP are shown in the Non-Equity Incentive Plan Compensationcolumn of the Summary Compensation Table. 

(2)             The amounts in thisrow represent potential earnings under the 2006 CPP.   The actual amounts earned by each of theNEOs under the 2006 CPP are shown in the Non-Equity Incentive Plan Compensationcolumn of the Summary Compensation Table. 

(3)             The amounts in thiscolumn represent (i) the number of shares of restricted stock granted toMessrs. Spainhour, Engel and Kaput and Ms. Helmkamp in 2006 and (ii) the numberof RSUs granted to Messrs. Mrozek and Ward in 2006.

(4)             The amounts in thiscolumn represent the number of shares underlying SARs.  Mr. Ward’s SARs were cancelled upon histermination of employment on July 31, 2006.

(5)             The fair value ofrestricted stock and RSUs, as disclosed in the Shareholders’ Equity footnote toServiceMaster’s audited financial statements for the fiscal year ended December31, 2006 included in ServiceMaster’s Annual Report on Form 10-K filed with theSecurities and Exchange Commission on February 27, 2007, is equal to the valueof the ServiceMaster’s common stock on the date of grant.  The assumptions used in the valuation of SARsgranted in 2006 are also discussed in such footnote.

(6)             Priorto being named Interim Chairman and CEO on May 16, 2006, and subsequentlypermanent Chairman and CEO on June 30, 2006, Mr. Spainhour received a grant of4,618 shares of restricted stock as compensation for his service as a member ofour Board of Directors.  For informationrelating to Mr. Spainhour’s compensation as a director prior to becoming anexecutive officer of ServiceMaster, see the 2006 Director Compensation Table.

15

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*EmploymentAgreement with J. Patrick Spainhour*

On August 16, 2006,ServiceMaster entered into an employment agreement with J. Patrick Spainhour toserve as our Chairman and Chief Executive Officer effective as of June 30,2006.  This employment agreementsuperseded the letter agreement dated May 15, 2006 pursuant to which Mr.Spainhour agreed to serve as our Interim Chairman and Chief ExecutiveOfficer.  The term of the employmentagreement ends on December 31, 2008, with an automatic one-year renewalprovision unless terminated by ServiceMaster or Mr. Spainhour.

The employment agreementprovides Mr. Spainhour with an annual base salary of not less than$900,000.  Mr. Spainhour’s annual bonustarget under the ABP is 100% of his salary, or $900,000, with a maximum payoutof 200% of his salary, or $1,800,000. The actual payouts under the ABP are subject to satisfaction ofperformance targets established by the Committee.  For 2006, Mr. Spainhour earned a guaranteedbonus of 150% of his salary (amounting to $151,233) as Interim Chairman and CEOpursuant to the May 15, 2006 letter agreement.

Mr. Spainhour was noteligible to participate in the 2006 CPP. For 2006, in recognition of the fact that Mr. Spainhour was appointedpermanent Chairman and CEO in mid-year, ServiceMaster granted Mr. Spainhour areduced award of 185,000 SARs with a base price of $10.35 per SAR and 61,667shares of restricted stock on August 2, 2006. Commencing in 2007, Mr. Spainhour will be granted options or otherlong-term equity-based awards with a minimum value of $2,500,000.

Mr. Spainhour’s base salary,target annual bonus, equity awards and all other compensation are subject toapproval each year by the Committee and Board of Directors.

ServiceMaster has alsoentered into a change in control severance agreement with Mr. Spainhour.  This agreement, as well as additionalprovisions of his employment agreement which provide for payments upon thetermination of his employment, are discussed under “Potential Payments UponTermination or Change-in-Control.”

*OtherAgreements*

In addition to theagreements described above, we have entered into (i) separation agreements withMessrs. Engel and Kaput in connection with the consolidation of ServiceMaster’sDowners Grove, Illinois office with its Memphis, Tennessee office, and Mr.Preston in connection with the termination of his employment; and (ii)change-in-control severance agreements with each of the NEOs.  These agreements are further described under “PotentialPayments Upon Termination or Change-in-Control.”

*2006Equity Awards*

*SARs. *SARs were granted in 2006 toeach of the NEOs other than Mr. Preston. These SARs become exercisable on the basis of the passage of time andcontinued employment over a five-year period, with 20% becoming exercisable oneach anniversary of the grant date, and have a ten-year term.

*RestrictedStock.*  Shares ofrestricted stock were granted in 2006 to Messrs. Spainhour, Engel and Kaput andMs. Helmkamp.  These restricted stockgrants vest on the basis of the passage of time and continued employment over afive-year period, with restrictions lapsing on 20% of the shares on March 1 ineach of the first five years following the grant date.  Pursuant to the agreement with Mr. Mrozek,described under “Potential Payments Upon Termination or Change-in-Control”, anyrestriction period applicable to restricted stock held as of November 15, 2006will lapse, and all shares will vest if Mr. Mrozek’s employment is terminated(i) prior to December 31, 2007, without cause or for good reason, or (ii) afterDecember 31, 2007 but on or before December 31, 2008, without cause or for anyreason other than death or disability.

*RestrictedStock Units.*  Messrs.Mrozek and Ward received RSUs in 2006 in lieu of an equivalent number of sharesof restricted stock.  RSUs granted in2006 vest on the basis of the passage of time and continued employment over afive-year period, with restrictions lapsing on 20% of the units on eachanniversary of the grant date in each of the first five years following thegrant date.  Pursuant to the agreementwith Mr. Mrozek, described under “Potential Payments Upon Termination orChange-in-Control”, any restriction period applicable to his RSUs 

16

----

held as of November 15,2006 will lapse, and all RSUs will vest if Mr. Mrozek’s employment isterminated (i) prior to December 31, 2007, without cause or for good reason, or(ii) after December 31, 2007 but on or before December 31, 2008, without causeor for any reason other than death or disability.

17

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**2006 OUTSTANDINGEQUITY AWARDS AT FISCAL YEAR-END**
|                          | ** ** | **Option/SAR Awards** | ** ** | **Stock Awards**           | ** ** |
|--------------------------|------------|----------------------------|------------|---------------------------------|------------|
| **Name**                 | ** ** | **Award Type**        | ** ** | **Options/  SARs  Grant  Date** | ** ** | **Number of  Securities  Underlying  Unexercised  Options /SARs  (#) Exercisable  (1)** | ** ** | **Number of  Securities  Underlying  Unexercised  Options/  SARs  (#)  Unexercisable** | ** ** | **Option  Exercise  Price or  SAR Base  Price ($)** | ** ** | **Option/  SAR  Expiration  Date** | ** ** | **Stock  Grant  Date** | ** ** | **Number of  Shares or  Units of  Stock That  Have Not  Vested (#)**

**(2)** | ** ** | **Market  Value of  Shares or  Units of  Stock That  Have Not  Vested ($)  (3)** | ** ** |
| **J. Patrick Spainhour** |       | SARs                       |       | 08/02/06                        |       | 0 |   | 185,000 |   | 10.3500 |   | 08/01/16 |   |   |   |   |   |   |   |
|                          |       | Restricted  Stock          |       |                            |       |   |   |   |   |   |   |   |   | 02/14/06 |   | 4,618 |   | 60,542 |   |
|                          |       | Restricted  Stock          |       |                            |       |   |   |   |   |   |   |   |   | 08/02/06 |   | 61,667 |   | 808,454 |   |
|                          |       |                       |       |                            |       |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| **Ernest J. Mrozek**     |       | Options                    |       | 02/13/97                        |       | 303,750 |   | 0 |   | 11.2222 |   | 02/12/07 |   |   |   |   |   |   |   |
| ** **               |       | Options                    |       | 02/16/98                        |       | 52,500 |   | 0 |   | 18.2583 |   | 02/15/08 |   |   |   |   |   |   |   |
| ** **               |       | Options                    |       | 01/29/99                        |       | 82,500 |   | 0 |   | 18.0750 |   | 01/28/09 |   |   |   |   |   |   |   |
| ** **               |       | Options                    |       | 12/10/99                        |       | 42,609 |   | 18,261 |   | 11.5000 |   | 12/31/09 |   |   |   |   |   |   |   |
| ** **               |       | Options                    |       | 08/08/00                        |       | 175,000 |   | 0 |   | 8.7500 |   | 08/07/07 |   |   |   |   |   |   |   |
| ** **               |       | Options                    |       | 03/16/01                        |       | 250,000 |   | 0 |   | 10.5200 |   | 03/15/08 |   |   |   |   |   |   |   |
| ** **               |       | Options                    |       | 02/08/02                        |       | 80,000 |   | 20,000 |   | 13.8300 |   | 02/07/09 |   |   |   |   |   |   |   |
| ** **               |       | Options                    |       | 05/03/02                        |       | 160,000 |   | 40,000 |   | 13.9720 |   | 05/02/09 |   |   |   |   |   |   |   |
| ** **               |       | Options                    |       | 03/18/03                        |       | 79,999 |   | 53,334 |   | 9.8800 |   | 03/17/13 |   |   |   |   |   |   |   |
| ** **               |       | SARs                       |       | 02/13/04                        |       | 40,000 |   | 60,000 |   | 10.7300 |   | 02/12/14 |   |   |   |   |   |   |   |
| ** **               |       | SARs                       |       | 02/11/05                        |       | 22,500 |   | 90,000 |   | 13.4400 |   | 02/10/15 |   |   |   |   |   |   |   |
| ** **               |       | SARs                       |       | 02/14/06                        |       | 0 |   | 112,500 |   | 12.4500 |   | 02/13/16 |   |   |   |   |   |   |   |
| ** **               |       | Restricted  Stock          |       |                            |       |   |   |   |   |   |   |   |   | 03/18/03 |   | 10,222 |   | 134,010 |   |
| ** **               |       | Restricted  Stock          |       |                            |       |   |   |   |   |   |   |   |   | 02/13/04 |   | 28,294 |   | 370,934 |   |
| ** **               |       | Restricted  Stock          |       |                            |       |   |   |   |   |   |   |   |   | 02/11/05 |   | 30,000 |   | 393,300 |   |
| ** **               |       | RSUs                       |       |                            |       |   |   |   |   |   |   |   |   | 02/14/06 |   | 37,500 |   | 491,625 |   |
| ** **               |       |                       |       |                            |       |   |   |   |   |   |   |   |   |   |   |   |   |   |   |

 

18

----

 
| **Mitchell T. Engel**   |   | Options           |   | 04/08/02 |   | 160,000 |   | 40,000 |   | 13.7300 |   | 04/07/09 |   |     |   |   |   |    |   |
|-------------------------|--------|-------------------|--------|----------|--------|---------|--------|--------|--------|---------|--------|----------|--------|----------|--------|--------|--------|---------|--------|
|                         |   | Options           |   | 03/18/03 |   | 36,000  |   | 24,000 |   | 9.8800  |   | 03/17/13 |   |     |   |   |   |    |   |
|                         |   | SARs              |   | 02/13/04 |   | 18,000  |   | 27,000 |   | 10.7300 |   | 02/12/14 |   |     |   |   |   |    |   |
|                         |   | SARs              |   | 02/11/05 |   | 10,000  |   | 40,000 |   | 13.4400 |   | 02/10/15 |   |     |   |   |   |    |   |
|                         |   | SARs              |   | 02/14/06 |   | 0       |   | 55,000 |   | 12.4500 |   | 02/13/16 |   |     |   |   |   |    |   |
|                         |   | Restricted  Stock |   |     |   |    |   |   |   |    |   |     |   | 03/18/03 |   | 4,600  |   | 60,306  |   |
|                         |   | Restricted  Stock |   |     |   |    |   |   |   |    |   |     |   | 02/13/04 |   | 12,903 |   | 169,158 |   |
|                         |   | Restricted  Stock |   |     |   |    |   |   |   |    |   |     |   | 02/11/05 |   | 13,334 |   | 174,809 |   |
|                         |   | Restricted  Stock |   |     |   |    |   |   |   |    |   |     |   | 02/14/06 |   | 18,333 |   | 240,346 |   |
|                         |   |              |   |     |   |    |   |   |   |    |   |     |   |     |   |   |   |    |   |
| **Jim L. Kaput**        |   | Options           |   | 02/08/02 |   | 68,000  |   | 17,000 |   | 13.8300 |   | 02/07/09 |   |     |   |   |   |    |   |
| ** **              |   | Options           |   | 03/18/03 |   | 0       |   | 26,667 |   | 9.8800  |   | 03/17/13 |   |     |   |   |   |    |   |
| ** **              |   | SARs              |   | 02/13/04 |   | 0       |   | 30,000 |   | 10.7300 |   | 02/12/14 |   |     |   |   |   |    |   |
| ** **              |   | SARs              |   | 02/11/05 |   | 10,000  |   | 40,000 |   | 13.4400 |   | 02/10/15 |   |     |   |   |   |    |   |
| ** **              |   | SARs              |   | 02/14/06 |   | 0       |   | 55,000 |   | 12.4500 |   | 02/13/16 |   |     |   |   |   |    |   |
| ** **              |   | Restricted  Stock |   |     |   |    |   |   |   |    |   |     |   | 03/18/03 |   | 5,112  |   | 67,018  |   |
| ** **              |   | Restricted  Stock |   |     |   |    |   |   |   |    |   |     |   | 02/13/04 |   | 13,904 |   | 182,281 |   |
| ** **              |   | Restricted  Stock |   |     |   |    |   |   |   |    |   |     |   | 02/11/05 |   | 13,334 |   | 174,809 |   |
| ** **              |   | Restricted  Stock |   |     |   |    |   |   |   |    |   |     |   | 02/14/06 |   | 18,333 |   | 240,346 |   |
| ** **              |   |              |   |     |   |    |   |   |   |    |   |     |   |     |   |   |   |    |   |
| **Katrina L. Helmkamp** |   | SARs              |   | 01/11/05 |   | 6,000   |   | 24,000 |   | 12.9700 |   | 01/10/15 |   |     |   |   |   |    |   |
|                         |   | SARs              |   | 02/14/06 |   | 0       |   | 40,000 |   | 12.4500 |   | 02/13/16 |   |     |   |   |   |    |   |
|                         |   | Restricted  Stock |   |     |   |    |   |   |   |    |   |     |   | 01/11/05 |   | 11,200 |   | 146,832 |   |
|                         |   | Restricted  Stock |   |     |   |    |   |   |   |    |   |     |   | 02/14/06 |   | 13,333 |   | 174,796 |   |
|                         |   |              |   |     |   |    |   |   |   |    |   |     |   |     |   |   |   |    |   |
| **Jonathan P. Ward**    |   | Options           |   | 2/08/02  |   | 340,000 |   | 0      |   | 13.8300 |   | 01/31/07 |   |     |   |   |   |    |   |
| ** **              |   | SARs              |   | 2/11/05  |   | 38,000  |   | 0      |   | 13.4400 |   | 01/31/07 |   |     |   |   |   |    |   |

----

(1)             SARsand options (with the exception of those granted on December 10, 1999) becomeexercisable on the basis of the passage of time and continued employment over afive-year period, with 20% becoming exercisable on each anniversary of thegrant date, and generally have a ten-year term. Options granted on December 10,1999 have a ten year term and become exercisable on the basis of the passage oftime and continued employment over a nine-year period, with 10% becomingexercisable on each of the first eight anniversaries of the grant date and 20%becoming exercisable on the ninth anniversary of the grant date.

(2)             Forannual awards of restricted stock granted in 2004, 2005 and 2006, the awardsbegin to vest on March 1 of the year following the grant, and continue to vestan additional 20% on each subsequent March 1 until fully vested over afive-year period.  For restricted stockawards granted in 2003, the awards vest in 20% annual increments on the anniversaryof the grant date over a five-year period. RSU awards vest in 20% annualincrements on the anniversary of the grant date, over a five year period.

(3)             Basedon the closing market price of ServiceMaster common stock on the NYSE onDecember 29, 2006, which was $13.11.

19

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**2006 OPTION EXERCISES AND STOCKVESTED**
| ** **               | ** ** | **Option Awards**                                                                            | ** ** | **Stock Awards**                                     | ** ** |
|--------------------------|------------|----------------------------------------------------------------------------------------------|------------|------------------------------------------------------|------------|
| **Name**                 | ** ** | **Number of   Shares   Acquired on   Exercise (#)   (1)** | ** ** | **Value Realized   on Exercise  ($)** | ** ** | **Number of   Shares Acquired  on Vesting (#)   (2)** | ** ** | **Value Realized   on Vesting  ($)** | ** ** |
| **J. Patrick Spainhour** |       | 0                                                                                            |       | 0                                                    |       | 1,971 |   | 19,529 |   |
| ** **               |       |                                                                                         |       |                                                 |       |   |   |   |   |
| **Ernest J. Mrozek**     |       | 0                                                                                            |       | 0                                                    |       | 22,042 |   | 278,398 |   |
| ** **               |       |                                                                                         |       |                                                 |       |   |   |   |   |
| **Mitchell T. Engel**    |       | 0                                                                                            |       | 0                                                    |       | 9,934 |   | 125,469 |   |
| ** **               |       |                                                                                         |       |                                                 |       |   |   |   |   |
| **Jim L. Kaput**         |       | 135,000                                                                                      |       | 316,015                                              |       | 12,522 |   | 156,885 |   |
| ** **               |       |                                                                                         |       |                                                 |       |   |   |   |   |
| **Katrina L. Helmkamp**  |       | 0                                                                                            |       | 0                                                    |       | 2,800 |   | 36,876 |   |
| ** **               |       |                                                                                         |       |                                                 |       |   |   |   |   |
| **Steven C. Preston**    |       | 898,594                                                                                      |       | 2,005,514                                            |       | 13,498 |   | 169,172 |   |
| ** **               |       |                                                                                         |       |                                                 |       |   |   |   |   |
| **Jonathan P. Ward**     |       | 1,809,200                                                                                    |       | 2,802,834                                            |       | 128,583 |   | 1,421,166 |   |

----

(1)             Theamounts in this column represent the number of shares of ServiceMaster commonstock acquired on the exercise of options and SARs.

(2)             Theamounts in this column represent the number of shares of ServiceMaster commonstock acquired on the vesting of restricted stock and RSUs.

20

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**2006NONQUALIFIED DEFERRED COMPENSATION**

The ServiceMaster Deferred Compensation Plan (“DCP”) is a non-qualifiedsupplemental plan designed to afford certain highly compensated employees theopportunity to defer additional amounts of compensation on a pretax basis, overand above the amounts allowed under the PSRP. Deferred amounts are credited with earnings or losses based on the rateof return of mutual funds selected by the participants in the DCP.  Participants may defer 2% to 75% ofcompensation.  We offer a discretionaryemployer match on the first 2% to a maximum benefit of $2,860.  Distributions are paid in accordance with theDCP.  Distributions upon termination arepayable no earlier than the six-month anniversary of the termination ofemployment with the Company.
| **Name**                 | ** ** | **Executive  Contributions   in Last FY  ($)(1)** | ** ** | **Registrant  Contributions   in Last FY  ($)(2)** | ** ** | **Aggregate   Earnings in   Last FY  ($)(3)** | ** ** | **Aggregate  Withdrawals /   Distributions ($)** | ** ** | **Aggregate   Balance at   Last FYE  ($)** | ** ** |
|--------------------------|------------|------------------------------------------------------------------|------------|-------------------------------------------------------------------|------------|-------------------------------------------------------------------|------------|-----------------------------------------------------------------|------------|----------------------------------------------------------------|------------|
| **J. Patrick Spainhour** |       | 0                                                                |       | 0                                                                 |       | 0                                                                 |       | 0                                                               |       | 0                                                              |       |
| ** **               | ** ** | ** **                                                       | ** ** | ** **                                                        | ** ** | ** **                                                        | ** ** | ** **                                                      | ** ** | ** **                                                     | ** ** |
| **Ernest J. Mrozek**     |       | 295,788                                                          |       | 2,860                                                             |       | 336,769                                                           |       | 0                                                               |       | 2,194,987                                                      |       |
| ** **               | ** ** | ** **                                                       | ** ** | ** **                                                        | ** ** | ** **                                                        | ** ** | ** **                                                      | ** ** | ** **                                                     | ** ** |
| **Mitchell T. Engel**    |       | 513,002                                                          |       | 2,860                                                             |       | 177,735                                                           |       | 0                                                               |       | 1,865,297                                                      |       |
| ** **               | ** ** | ** **                                                       | ** ** | ** **                                                        | ** ** | ** **                                                        | ** ** | ** **                                                      | ** ** | ** **                                                     | ** ** |
| **Jim L. Kaput**         |       | 0                                                                |       | 0                                                                 |       | 9,322                                                             |       | 0                                                               |       | 83,422                                                         |       |
| ** **               | ** ** | ** **                                                       | ** ** | ** **                                                        | ** ** | ** **                                                        | ** ** | ** **                                                      | ** ** | ** **                                                     | ** ** |
| **Katrina L. Helmkamp**  |       | 115,746                                                          |       | 2,860                                                             |       | 15,299                                                            |       | 0                                                               |       | 185,654                                                        |       |
| ** **               |       |                                                             |       |                                                              |       |                                                              |       |                                                            |       |                                                           |       |
| **Steven C. Preston**    |       | 442,890                                                          |       | 0                                                                 |       | 347,728                                                           |       | 0                                                               |       | 2,938,530                                                      |       |
| ** **               | ** ** | ** **                                                       | ** ** | ** **                                                        | ** ** | ** **                                                        | ** ** | ** **                                                      | ** ** | ** **                                                     | ** ** |
| **Jonathan P. Ward**     |       | 0                                                                |       | 0                                                                 |       | 90,833                                                            |       | 0                                                               |       | 1,352,921                                                      |       |

----

(1)             Amountsshown in this column are included in the Summary Compensation Table asfollows:  (a) as salary, $146,400 for Mr.Mrozek, $44,225 for Mr. Engel and $63,021 for Ms. Helmkamp; and (b) asnon-equity incentive plan compensation, $149,388 for Mr. Mrozek, $468,777 forMr. Engel and $52,725 for Ms. Helmkamp. Mr. Preston’s contribution consists of amounts earned under our 2005 CPPand is therefore not included in the Summary Compensation Table for 2006.

(2)             The amounts in thiscolumn are included in the All Other Compensation column of the SummaryCompensation Table.

(3)             Theamounts in this column do not represent above-market or preferential earningsand therefore are not included in the Summary Compensation Table.

21

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**Potential Payments Upon Termination or Change-in-Control**

*J. Patrick Spainhour*

On May16, 2006, Mr. Spainhour became our Interim Chairman and CEO.  Effective June 30, 2006, Mr. Spainhour agreedto come out of retirement to become our permanent Chairman and CEO.  Under the employment agreement with Mr.Spainhour, if Mr. Spainhour’s employment is terminated by the Company withoutcause or by Mr. Spainhour for good reason, Mr. Spainhour will receive, subjectto the execution of a release by Mr. Spainhour:

·                  accrued salary through the date of termination,

·                  the annual bonus earned in the year immediately priorto the year in which the date of termination occurs (to the extent notpreviously paid),

·                  one times Mr. Spainhour’s highest annual base salaryand highest annual target bonus during the term of his employment agreement ifthe date of termination occurs on or prior to June 30, 2007 (two times if on orafter July 1, 2007),

·                  reimbursement of all proper and reasonable expensesincurred in the performance of his duties, and

·                  continuation of employee benefits, including medicalplan benefits, for two years.

If Mr.Spainhour’s employment is terminated by the Company for cause or by Mr.Spainhour for any reason other than good reason, Mr. Spainhour will not receivethe severance benefits listed above, but will receive accrued salary throughthe date of termination and reimbursement of all proper and reasonable expensesincurred in the performance of his duties. If termination is by reason of death or disability, he (or hisexecutors) will also receive an annual bonus earned in the year immediatelyprior to the year in which the date of termination occurs (to the extent notpreviously paid).

*Ernest J. Mrozek*

Inconnection with Mr. Mrozek’s promotion to Vice Chairman and continuation of hisemployment with the Company, we entered into an agreement with Mr. Mrozek onNovember 16, 2006, which sets forth the rights and obligations of Mr. Mrozekand the Company in the event of Mr. Mrozek’s termination of employment duringthe two-year period commencing January 1, 2007 and ending December 31, 2008.

If Mr.Mrozek’s employment terminates on or after January 1, 2007 and on or prior toDecember 31, 2007, Mr. Mrozek will receive accrued salary through the date oftermination and reimbursement of expenses if his employment is terminated bythe Company for cause or by Mr. Mrozek without good reason or by reason ofretirement, death or disability. If Mr. Mrozek’s employment is terminated bythe Company without cause or by Mr. Mrozek for good reason during such period,Mr. Mrozek will receive:

·                  accrued salary through the date of termination,

·                  reimbursement of all proper and reasonable expensesincurred in the performance of his duties,

·                  two times his highest annual base salary,

·                  two times his target annual bonus,

·                  accelerated vesting of restricted stock and RSUs, and

·                  continuation of employee benefits, including medicalplan benefits, for two years.

If Mr.Mrozek’s employment terminates on or after January 1, 2008 and on or prior toDecember 31, 2008, Mr. Mrozek will receive accrued salary through the date oftermination and reimbursement of expenses if his employment is terminated bythe Company for cause or by reason of Mr. Mrozek’s death or disability.  If Mr. Mrozek’s employment is terminated bythe Company without cause or by Mr. Mrozek for any reason other than death ordisability during such period, Mr. Mrozek will receive:

·                  accrued salary through the date of termination,

·                  reimbursement of all proper and reasonable expensesincurred in the performance of his duties,

·                  two times his highest annual base salary,

22

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·                  two times his target annual bonus,

·                  accelerated vesting of restricted stock and RSUs and

·                  continuation of employee benefits, including medicalplan benefits for two years.

Mr.Mrozek has agreed not to solicit our employees or compete with us untilDecember 31, 2009 (or, if earlier, one year after termination of employment).

*Other Memphis**NEOs (Katrina L. Helmkamp)*

Webelieve it is in the best interest of the Company to provide severance paymentsto those employees who leave the Company involuntarily.

Underour severance guidelines, if Ms. Helmkamp was involuntarily terminated from theCompany she would receive:

·                  separation pay equal to two times the sum of her basesalary and target bonus,

·                  a prorated annual bonus for the year of terminationto the extent earned,

·                  outplacement services, and

·                  a lump sum payment that would cover the executive’scost of continued health coverage for three months (grossed-up for taxes).

Ms.Helmkamp would agree not to solicit our employees or compete with us for aperiod of two years after her separation date, and not to disclose confidentialinformation.  Ms. Helmkamp also mustwaive and release us and our directors, employees and affiliates from anyclaims, damages and liabilities.

*Downers Grove NEOs (Mitchell T. Engel and Jim L. Kaput)*

Inconnection with the consolidation of our offices in Memphis, we have determinedthat it is in our best interest to provide an incentive to our executives basedin Downers Grove who are not relocating to Memphis to remain employed throughtheir individual separation dates and assist with the consolidation.   As a result, we have entered into separationagreements with these executives, including Messrs. Engel and Kaput.

Underthese separation agreements, the executive agrees to remain employed throughthe separation date set forth in the agreement. The scheduled separation dates for Messrs. Engel and Kaput are December31, 2007 and October 31, 2007, respectively.

Eachexecutive who continues in employment to his separation date will receive:

·                  separation pay equal to two times the sum of his basesalary and target ABP bonus,

·                  a prorated ABP and CPP bonus for the year oftermination to the extent earned,

·                  outplacement services, and

·                  a lump sum payment that would cover the executive’scost of continued health coverage for three months (grossed-up for taxes).

Inaddition, each executive will be eligible for a retention bonus equal to theexecutive’s base salary and target ABP bonus during the period from July 1,2007 through the executive’s separation date, payable if the executive works ingood faith through the separation date to effectively transition his duties toMemphis.

If weterminate the executive’s employment prior to his scheduled separation date fora reason other than cause, we will pay the executive’s severance amount,retention bonus, and any earned but unpaid 2007 bonus, prorated through theseparation date and provide outplacement benefits, as though the executive hadworked until his scheduled separation date. If the executive’s employment terminates prior to his separation datefor any reason other than by the Company without cause, the executive forfeitsthese benefits.

Eachexecutive agrees not to solicit our employees or compete with us for a periodof two years after his separation 

23

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date,and not to disclose confidential information. Each executive also must waive and release us and our directors,employees and affiliates from any claims, damages and liabilities.

Each ofthe NEOs in Downers Grove will be entitled to the change in control severancebenefits described below if a change in control occurs on or before theexecutive’s scheduled separation date and either the executive is terminatedwithout cause or resigns for good reason after the change in control.  If the executive remains employed through hisseparation date, the relocation pursuant to the office consolidation willconstitute good reason unless any acquirer affirmatively abandons theconsolidation.  If an executive becomesentitled to the rights and obligations under his change in control severanceagreement (as described below), the executive will have no rights or obligationsunder the separation agreement.

If anypayment pursuant to the separation agreement or otherwise would be subject tothe excise tax imposed on excess parachute payments, then we will make anadditional payment (i.e., a gross-up payment) such that the executive wouldreceive a net amount equal to the amount the executive would have received ifthe excise tax did not apply.

*Jonathan P. Ward*

EffectiveMay 15, 2006, we accepted the resignation of Jonathan P. Ward as our Chairmanand Chief Executive Officer and as a director and, effective July 31, 2006, asan employee.  Under his employmentagreement with us, Mr. Ward was entitled to the following severance benefits,subject to his agreement to release us and our directors, employees andaffiliates from any claims, damages and liabilities: accrued salary through thedate of termination, annual bonus and corporate performance bonus earned withrespect to the prior year, two times highest annual base salary and highesttarget annual bonus (or $4,055,625), reimbursement of all proper and reasonableexpenses incurred in the performance of duties, and continuation of employeebenefits for two years.

Inaddition to these amounts, we agreed to reimburse Mr. Ward for outplacement andrelated services and for the reasonable legal fees which he incurred in connectionwith his termination of employment, in an aggregate amount not to exceed$100,000.  Pursuant to the terms of hisrestricted stock agreement, Mr. Ward’s unvested RSUs vested on a pro rata basisthrough the date of termination, and the remainder was forfeited.  Under the terms of the EIP, (i) all stockoptions and SARs held by Mr. Ward on the termination date which wereexercisable on the termination date remained exercisable for a period of up tosix months after the termination date, (ii) all unexercisable stock options andSARs held by him expired on the termination date and (iii) except to the extentdescribed in the preceding sentence, all shares of restricted stock and RSUsheld by Mr. Ward on the termination date were forfeited on the terminationdate.

Underhis employment agreement, Mr. Ward is subject to an agreement not to compete orsolicit employees or business or disclose or misuse confidential informationfor two years after the date of his termination.

*Steven C. Preston*

OnMarch 1, 2006, we entered into a separation agreement with Steven C. Preston,our former Executive Vice President. The agreement provided that Mr. Preston’sseparation date would be the earlier of June 30, 2006, the acceptance of afulltime position with another employer, or any mutually agreeable date priorto June 30, 2006.  The effective date ofhis separation was June 30, 2006.

Mr.Preston’s change in control severance agreement terminated on his separationdate. In exchange for Mr. Preston’s agreement to non-competition andnon-solicitation restrictions for a period of two years after the separationdate, Mr. Preston received an amount equal to two times his current base salaryand target bonus, or $2,010,400, less applicable tax withholdings.ServiceMaster also agreed to pay for continuation of Mr. Preston’s groupmedical insurance coverage during the 18-month eligibility period requiredunder the Consolidated Omnibus Budget Reconciliation Act. All stock options andSARs held by Mr. Preston on the separation date which were exercisable on theseparation date remained exercisable until December 31, 2006.  All other stock options and SARs expired onthe separation date.  All shares ofrestricted stock held by Mr. Preston on the separation date were forfeited onJune 30, 2006.

24

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Terminationof Employment following a Change in Control

Tosecure the continued service of our executives and to ensure their dedicationand objectivity in the event of a change in control or threatened change incontrol, we have entered into change in control severance agreements with ourexecutives, including each of the NEOs. Each executive who is a party to a change in control severance agreementhas agreed that in the event of an attempted change in control the executivewill not voluntarily resign until the attempt ends or 90 days after a change incontrol occurs.

Achange in control means:

·                  an acquisition by a person or group of 25% or more ofour common stock (other than an acquisition from or by the company or by acompany benefit plan),

·                  a change in a majority of our Board,

·                  consummation of a reorganization, merger orconsolidation or sale of substantially all of our assets (unless stockholdersreceive 60% or more of the stock of the resulting company) or

·                  a liquidation or dissolution of the company.

*Severance Benefits Payable to J. Patrick Spainhour.* If weterminate the employment of Mr. Spainhour without cause or Mr. Spainhourterminates his employment for good reason, in either case within the two-yearperiod beginning on the date on which a change in control occurs, we will payto Mr. Spainhour a lump sum cash payment consisting of:

·                  his accrued salary through the date of termination,

·                  any unpaid previously earned bonus under the ABP,

·                  any accrued and unpaid vacation pay,

·                  a pro rated annual bonus under the ABP through thedate of termination based upon the target bonus for the year in which thechange in control occurs or, if higher, the target bonus for the year in whichthe date of termination occurs,

·                  one times his highest annual base salary during theprior 12 months plus 1/12th of such salary for each completed month ofservice from July 1, 2006, up to a maximum of 24 completed months (i.e., threetimes his highest annual base salary if the termination occurs on or after June30, 2008),

·                  one times his target annual bonus under the ABP forthe year in which the change in control occurs plus 1/12th of such target bonus for eachcompleted month of service from July 1, 2006, up to a maximum of 24 completedmonths (i.e., three times his target annual bonus if the termination occurs onor after June 30, 2008), and

·                  an amount equal to any unvested employer matchingcontributions under our 401(k) plan and nonqualified deferred compensationplan.

Inaddition, we will continue to provide employee benefits, including medical planbenefits, to Mr. Spainhour for a period of one year plus one month for eachcompleted month of service from July 1, 2006, up to a maximum of 24 completedmonths (i.e., three years of coverage if the termination occurs on or afterJune 30, 2008).

*Severance Benefits Payable to Other NEOs. *If we terminate the employment of any currently employed NEO other than Mr.Spainhour for a reason other than cause or if such NEO terminates his or heremployment for good reason, in either case within the two-year period beginningon a change in control, we will pay to the NEO a lump sum cash paymentconsisting of:

·                  accrued salary through the date of termination,

·                  any unpaid previously earned bonus,

·                  any accrued and unpaid vacation pay,

·                  a pro rated ABP and CPP bonus through the date oftermination based upon the target bonus amounts for the year in which thechange in control occurs or, if higher, the year in which the date oftermination occurs,

·                  three times the executive’s highest annual basesalary in the 12 months prior to termination,

25

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·                  three times the executive’s target  ABP and CPP bonus immediately prior to thechange in control, or if higher for the year of the termination, and

·                  an amount equal to any unvested employer matchingcontributions under our 401(k) plan and nonqualified deferred compensationplan.

Inaddition, we will continue to provide the executive with employee benefits,including medical plan benefits, for a three-year period following termination.

Underthese agreements, including Mr. Spainhour’s, “good reason” means a materialreduction in position, duties or responsibilities, a transfer of the executive’shome office by more than 40 miles, a reduction in salary, a failure to maintainsubstantially comparable benefit or compensation plans or to provide benefitssubstantially comparable to other peer employees, or a failure by the Companyto require a successor to assume our obligations under the agreement.

Withrespect to all executives, including Mr. Spainhour, upon a termination by thecompany for cause, by the executive without good reason, or upon death ordisability, we have no obligation to pay any prospective amounts or provide anybenefits under the agreement.  Ourobligations will consist of those obligations accrued at the date oftermination, including payment of earned salary, reimbursement of expenses andobligations which may otherwise be payable in the event of death or disability.

If anypayment pursuant to the agreements or otherwise would be subject to the excisetax imposed on excess parachute payments, then we will make an additionalpayment (i.e., a gross-up payment) such that the executive would receive a netamount equal to the amount the executive would have received if the excise taxdid not apply.

We are obligated to reimburse each executive, on a current basis, for alllegal fees and expenses incurred in connection with a dispute under his or herchange in control severance agreement. The executive must repay us if his or her claims are denied in total.

The following tables set forthinformation regarding the value of payments and other benefits payable by theCompany to each of the NEOs in the event of termination of employment undervarious scenarios.  The scenarios representedinclude termination in the event of a change in control followed by aqualifying termination of employment, voluntary termination, involuntarytermination, and termination due to death or disability.  The amounts shown do not include deferredcompensation payable in a lump sum upon the six-month anniversary of theexecutive’s termination as disclosed under “2006 Nonqualified DeferredCompensation.”  The amounts shown assumetermination effective as of December 29, 2006.

**Payment upon a Change in Control Followed by Termination as of 12/29/06**
| **Executive  Officer** | ** ** | **Severance  Payment (1)** | ** ** | **Acceleration of  Equity Awards (2)** | ** ** | **Health &   Welfare (3)** | ** ** | **401(k) /   Deferred Comp (4)** | ** ** | **Gross-Up  Adjustment (5)** | ** ** | **Total  Payments Sum (1-5)** | ** ** |
|------------------------|------------|----------------------------|------------|--------------------------------------------------|------------|------------------------------------------|------------|-------------------------------------------------|------------|------------------------------|------------|------------------------------------|------------|
| J. Patrick Spainhour   |       | 2,706,560                  |       | 586,506                                          |       | 10,019                                   |       | —                                          |       | 1,513,123                    |       | 4,816,208                          |       |
| Ernest J. Mrozek       |       | 5,796,679                  |       | 90,628                                           |       | 20,039                                   |       | —                                          |       | 2,353,633                    |       | 8,260,979                          |       |
| Mitchell T. Engel      |       | 3,521,292                  |       | 216,406                                          |       | 20,039                                   |       | —                                          |       | 1,625,036                    |       | 5,382,773                          |       |
| Jim L. Kaput           |       | 3,395,139                  |       | 222,301                                          |       | 20,039                                   |       | —                                          |       | 1,388,921                    |       | 5,026,400                          |       |
| Katrina  L. Helmkamp   |       | 3,679,047                  |       | 113,813                                          |       | 20,039                                   |       | 4,472                                           |       | 1,617,475                    |       | 5,434,846                          |       |

 

26

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**Termination—Voluntary as of 12/29/06 (1)**
| ** **

**Equity valued at $13.11** | ** ** |
|--------------------------------------------------------|------------|
| ** Executive Officer**                       | ** ** | **In the money   Value of Vested Stock  Options/ SARs (2)** | ** ** | **Total** | ** ** | **Value of Unvested  Restricted   Stock Forfeited** | ** ** | **Value of Unvested   Options/ SARs   Forfeited** | ** ** |
|  J. Patrick Spainhour                             |       | — |   | — |   | 738,647 |   | 510,600 |   |
|  Ernest J. Mrozek                                 |       | 2,406,117 |   | 2,406,117 |   | 1,181,389 |   | 418,719 |   |
|  Mitchell T. Engel                                |       | 159,120 |   | 159,120 |   | 547,926 |   | 178,080 |   |
|  Jim L. Kaput                                     |       | — |   | — |   | 564,786 |   | 193,834 |   |
|  Katrina L. Helmkamp                              |       | 840 |   | 840 |   | 273,383 |   | 29,760 |   |

 

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(1) Includes termination asa result of retirement.  

 

(2) Amounts shown in thiscolumn represent previously granted, fully vested options and SARs.

 

Equity awards of stockoptions and SARs that qualify for retirement treatment include (a) for grantsmade prior to February 13, 2004, the executive has 15 years of service with theCompany or has reached age 63 and (b) for grants made on or after February 13,2004, the executive has 15 years of service or the sum of the executive’s ageand years of service with the Company is a least 65 years.  If equity awards qualify for retirementtreatment, options and SARs remain outstanding and continue to vest on theirnormal schedule and may be exercised until the expiration date of thegrant.  Unvested restricted stock isforfeited on the last day of active employment. The only executive with equity awards that qualified for retirementtreatment as of December 29, 2006 was Mr. Mrozek.

 

With respect to equityawards not qualifying for retirement treatment, vesting ceases for options andSARs on the separation date, and the employee has 6 months or until theexpiration date of the grant to exercise vested options and SARs. Unvestedrestricted stock is forfeited on the separation date.

 

 

27

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**Termination —Involuntary Other than for Cause as of 12/29/06 (1)**

 
| ** **                     | ** ** | **Equity valued at $13.11**                               | ** ** |
|--------------------------------|------------|-----------------------------------------------------------|------------|
| Executive Officer         | ** ** | **Severance  Payment  based upon  Base Salary** | ** ** | **Severance  Payment  based  upon ABP** | ** ** | **Severance  Payment  based  upon CPP** | ** ** | **In the Money  Value of  Vested Stock  Options/  SARs (2)** | ** ** | **Value of  Unvested  Restricted  Stock** | ** ** | **Total** | ** ** | **Value of  Unvested  Restricted  Stock  Forfeited (4)** | ** ** | **Value of  Unvested  Options/  SARs  Forfeited (4)** | ** ** |
|  J. Patrick Spainhour (5) |       | 1,800,000                                                 |       | 900,000 |   | — |   | — |   | — |   | 2,700,000 |   | 738,647 |   | 510,600 |   |
|  Ernest J. Mrozek         |       | 2,668,320                                                 |       | 667,080 |   | 595,000 |   | 2,406,117 |   | 1,181,389 | (3) | 7,517,906 |   | — |   | 418,719 |   |
|  Mitchell T. Engel        |       | 1,784,000                                                 |       | 446,000 |   | 280,000 |   | 159,120 |   | — |   | 2,669,120 |   | 547,926 |   | 178,080 |   |
|  Jim L. Kaput             |       | 1,700,000                                                 |       | 425,000 |   | 280,000 |   | — |   | — |   | 2,405,000 |   | 564,786 |   | 193,834 |   |
|  Katrina L. Helmkamp      |       | 1,854,000                                                 |       | 463,500 |   | 297,500 |   | 840 |   | — |   | 2,615,840 |   | 273,383 |   | 29,760 |   |
|                           |       |                                                      |       |   |   |   |   |   |   |   |   |   |   |   |   |   |   |

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(1)             In the event of an involuntary separation other thanfor cause, ServiceMaster’s severance guidelines provide for a payment of 2times base salary and 2 times target annual bonus amount earned for the prioryear plus prorated ABP and prorated CPP earned for the year in whichtermination occurs (unless termination is in first six months of employment andthen zero). If Mr. Spainhour’s employment is involuntarily terminated prior toJune 30, 2007, he would receive 1 times salary and 1 times target ABP; if afterJune 30, 2007, he would receive 2 times salary and 2 times target annual bonusamount. If Mr. Mrozek’s employment is involuntarily terminated between January1, 2007 and December 31, 2008 for any reason other than death or disability, hewould receive 2 times salary, 2 times target annual bonus amount, and allrestricted stock would immediately vest.

(2)             Amounts shown in this column represent previouslygranted, fully vested options and SARs.  

Equityawards of stock options and SARs that qualify for retirement treatment include(a) for grants made prior to February 13, 2004, the executive has 15 years ofservice with the Company or has reached age 63 and (b) for grants made on orafter February 13, 2004, the executive has 15 years of service or the sum ofthe executive’s age and years of service with the Company is a least 65 years.If equity awards qualify for retirement treatment, options and SARs remainoutstanding and continue to vest on their normal schedule and may be exerciseduntil the expiration date of the grant, however, unvested restricted stock isforfeited on the last day of active employment. The only executive with equityawards that qualified for retirement treatment as of December 29, 2006 was Mr.Mrozek.

Withrespect to equity awards not qualifying for retirement treatment, vestingceases for options and SARs on the last day of active employment and theassociate has 6 months or until the expiration date of the grant to exercisevested options and SARs. Unvested restricted stock is forfeited on the last dayof active employment.

(3)             Pursuant to Mr. Mrozek’s previous employmentagreement which expired on December 31, 2006, the restriction period applicableto shares of restricted stock held by Mr. Mrozek as of the date of terminationwould have lapsed, and all such shares would have vested as of the close ofbusiness on the date of termination.

(4)             Under involuntary termination not qualifying forretirement treatment, vesting ceases for options and SARs and the associate has6 months or until the expiration date of the grant to exercise vested optionsand SARs. Unvested restricted stock forfeits on the last day of activeemployment.

(5)             If Mr. Spainhour terminates for good reason prior toJune 30, 2007, he would receive 1 times salary and 1 times target ABP; if afterJune 30, 2007, he would receive 2 times salary, or $1,800,000, and 2 timestarget ABP, or $1,800,000.

28

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**Termination - Death or Disability as of12/29/06 (1)**

 
| ** **             | ** ** | **Equity valued at $13.11**                                                             | ** ** |
|------------------------|------------|-----------------------------------------------------------------------------------------|------------|
| Executive Officer | ** ** | **In the Money  Value of Vested  Stock Options or  SARs** | ** ** | **Accelerated  Value of  Unvested  Restricted  Stock (2)** | ** ** | **Accelerated  Value of  Unvested Options/  SARs(2)** | ** ** | **Total** | ** ** |
| J.  Patrick Spainhour  |       | —                                                                                  |       | 738,647 |   | 510,600 |   | 1,249,247 |   |
| Ernest  J. Mrozek      |       | 2,406,117                                                                               |       | 1,181,389 |   | 418,719 |   | 4,006,225 |   |
| Mitchell  T. Engel     |       | 159,120                                                                                 |       | 547,926 |   | 178,080 |   | 885,126 |   |
| Jim  L. Kaput          |       | —                                                                                  |       | 564,786 |   | 193,834 |   | 758,620 |   |
| Katrina L. Helmkamp    |       | 840                                                                                     |       | 273,383 |   | 29,760 |   | 303,983 |   |

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(1)             The company pays for $300,000 of basic life insurancecoverage.

(2)             In the event of death or disability, vesting onoptions, SARs, and restricted stock accelerate and the options and SARs remainoutstanding for two years. 

29

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**2006DIRECTOR COMPENSATION TABLE**

Each non-employee directorreceives an annual retainer of $115,000. The Chairman of the Audit and Finance Committee receives an additionalretainer of $15,000, the Chairman of the Compensation and Leadership DevelopmentCommittee and the Chairman of the Governance and Nominating Committee eachreceive an additional retainer of $7,500, and the presiding director receivesand additional retainer of $7,500.

Each director must receive atleast 50% of his or her annual retainer in the form of stock options orrestricted stock and each director may elect to receive the remaining 50% ofhis or her retainer in the form of cash, stock options or restricted stock orto defer receipt of that portion of his or her retainer under The ServiceMasterCompany 2002 Directors Deferred Fees Plan (the “Directors Deferred Fees Plan”).

Non-employee directors who electto participate in the Directors Deferred Fees Plan may elect to defer thereceipt of up to 50% of their annual retainer until a later date. Participatingdirectors may invest their deferred amounts in either: (1) a cash accountthat earns interest based on our average five-year borrowing rate (6.0% as ofDecember 31, 2006) or (2) a share equivalent account that is creditedwith a number of share equivalent units equal to the deferred amount divided bythe fair market value of a share of our common stock on the deferral date. Thevalue of a share equivalent unit on any date is equal to the value of a shareof our common stock on that date. Share equivalent unit accounts are creditedwhen we pay dividends on our common stock as if the dividend was reinvested inadditional shares.

ServiceMaster will, in certain limited circumstances, pay for thespouses of directors to accompany the directors on ServiceMaster-related trips.As described below, on two occasions in 2006 the Company paid for airfare forLord Griffiths of Fforestfach’s wife to accompany him to Board meetings.
| **Name**                     | ** ** | **Fees Earned  or Paid  in Cash ($)** | ** ** | **Stock Awards   ($) (1)** | ** ** | **Option/  SARAwards  ($) (2)** | ** ** | **All Other  Compensation   ($)** | ** ** | **Total   ($)** | ** ** |
|------------------------------|------------|-----------------------------------------------------------|------------|-------------------------------------------|------------|--------------------------------------|------------|---------------------------------------------|------------|----------------------|------------|
| **J. Patrick Spainhour (3)** |       | 0                                                         |       | 57,500                                    |       | 0                                    |       | 0                                           |       | 57,500               |       |
| ** **                   | ** ** | ** **                                                | ** ** | ** **                                | ** ** | ** **                           | ** ** | ** **                                  | ** ** | ** **           | ** ** |
| **John Carl**                |       | 12,918                                                    |       | 0                                         |       | 0                                    |       | 0                                           |       | 12,918               |       |
| ** **                   | ** ** | ** **                                                | ** ** | ** **                                | ** ** | ** **                           | ** ** | ** **                                  | ** ** | ** **           | ** ** |
| **Louis Giuliano**           |       | 57,500                                                    |       | 57,500                                    |       | 0                                    |       | 0                                           |       | 115,000              |       |
| ** **                   | ** ** | ** **                                                | ** ** | ** **                                | ** ** | ** **                           | ** ** | ** **                                  | ** ** | ** **           | ** ** |
| **Brian Griffiths**          |       | 57,500                                                    |       | 57,500                                    |       | 0                                    |       | 21,600                                      | (4)        | 136,600              |       |
| ** **                   | ** ** | ** **                                                | ** ** | ** **                                | ** ** | ** **                           | ** ** | ** **                                  | ** ** | ** **           | ** ** |
| **Sidney Harris**            |       | 65,000                                                    |       | 65,000                                    |       | 0                                    |       | 0                                           |       | 130,000              |       |
| ** **                   | ** ** | ** **                                                | ** ** | ** **                                | ** ** | ** **                           | ** ** | ** **                                  | ** ** | ** **           | ** ** |
| **Roberto Herencia**         |       | 65,000                                                    |       | 65,000                                    |       | 0                                    |       | 0                                           |       | 130,000              |       |
| ** **                   | ** ** | ** **                                                | ** ** | ** **                                | ** ** | ** **                           | ** ** | ** **                                  | ** ** | ** **           | ** ** |
| **Betty Jane Hess**          |       | 0                                                         |       | 115,000                                   |       | 0                                    |       | 0                                           |       | 115,000              |       |
| ** **                   | ** ** | ** **                                                | ** ** | ** **                                | ** ** | ** **                           | ** ** | ** **                                  | ** ** | ** **           | ** ** |
| **Eileen Kamerick**          |       | 57,500                                                    |       | 57,500                                    |       | 0                                    |       | 0                                           |       | 115,000              |       |
| ** **                   | ** ** | ** **                                                | ** ** | ** **                                | ** ** | ** **                           | ** ** | ** **                                  | ** ** | ** **           | ** ** |
| **James McLennan**           |       | 57,500                                                    |       | 57,500                                    |       | 0                                    |       | 0                                           |       | 115,000              |       |
| ** **                   | ** ** | ** **                                                | ** ** | ** **                                | ** ** | ** **                           | ** ** | ** **                                  | ** ** | ** **           | ** ** |
| **Coleman Peterson**         |       | 0                                                         |       | 122,500                                   |       | 0                                    |       | 0                                           |       | 122,500              |       |
| ** **                   | ** ** | ** **                                                | ** ** | ** **                                | ** ** | ** **                           | ** ** | ** **                                  | ** ** | ** **           | ** ** |
| **David Wessner**            |       | 57,500                                                    |       | 57,500                                    |       | 0                                    |       | 0                                           |       | 115,000              |       |
| ** **                   | ** ** | ** **                                                | ** ** | ** **                                | ** ** | ** **                           | ** ** | ** **                                  | ** ** | ** **           | ** ** |
| **Dallen Peterson**          |       | 23,958                                                    |       | 23,959                                    |       | 0                                    |       | 0                                           |       | 47,917               |       |
|                         |       |                                                      |       |                                      |       |                                 |       |                                        |       |                 |       |

 

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(1)  Theamounts in this column reflect the dollar amount recognized for financialstatement reporting purposes during 2006 for restricted stock awards grantedduring 2006.  No restricted stock awardsfrom prior years were expensed during 2006. The assumptions used in thevaluation of these awards are disclosed in the Shareholders’ Equity footnote toServiceMaster’s audited financial statements for the fiscal year ended December31, 2006 included in ServiceMaster’s Annual Report on Form 10-K filed with theSecurities and Exchange Commission on February 27, 2007.  The fair value of these awards is equal tothe value of the Company’s stock on the date of grant. The grant date fairvalue of awards made in 2006 was $12.45 per share.  Also included in this column is $57,500 whichreflects the dollar amount recognized for financial statement reportingpurposes in connection with a deferred share award which Ms. Hess elected toreceive as part of her retainer in lieu of cash or stock under the Directors’Deferred Fees Plan.

 

The aggregate number of restricted stockawards outstanding at 2006 fiscal year end were as follows: Mr. C. Peterson,9,839 shares; Mr. McLennan, 5,618 shares; Ms. Kamerick, 4,618 shares; Ms. Hess,5,618 shares; Mr. Herencia, 6,221 shares; Mr. Harris, 6,221 shares; LordGriffiths of Fforestfach, 5,618 shares; Mr. Giuliano, 4,618 shares; Mr.Wessner, 5,618 shares; and Mr. Spainhour, 4,618 shares.

 

(2) No stock options were granted to directorsin 2006. All prior grants were fully expensed prior to 2006.

 

The aggregate number of option awardsoutstanding at 2006 fiscal year end were as follows: Mr. Carl, 7,500 options;Mr. C. Peterson, 6,890 options; Mr. D. Peterson, 75,147 options; Mr. McLennan,77,548 options; Ms. Hess, 7,500 options; Mr. Herencia, 7,500 options; Mr.Harris, 142,201 options; Lord Griffiths of Fforestfach, 186,226 options; Mr.Giuliano, 25,459 options; and Mr. Wessner, 197,658 options.

 

(3) Mr. Spainhour became our Interim Chairmanand CEO on May 16, 2006, and was subsequently named permanent Chairman and CEOon June 30, 2006.  The amount reflectedin this table for Mr. Spainhour relates to compensation earned for service as adirector prior to being named Interim Chairman and CEO.  For information relating to Mr. Spainhour’scompensation as an executive officer of the Company, see the SummaryCompensation Table.

 

(4) Includes spousal travel of $20,546.

 

Certain CorporateGovernance Information

Sidney E. Harrishas been chosen to preside over each executive session of non-managementdirectors.  Shareholders or other interested parties who wish to sendcommunications to the presiding director or non-management directors as a group(or, more generally, the Board, the Chairman or a Committee Chairman) may do soby writing to the following address: ServiceMaster Board c/o Global ComplianceServices AlertLine Response, PMB 3767, 13950 Ballantyne Corporate Place, Suite300, Charlotte, North Carolina 28277. Shareholders or other interested partiesmay also communicate with the Board by submitting an email to *ServiceMasterBoard@AlertLine.com* or bycalling 1-800-450-4308.

The Audit andFinance Committee approved the process for handling communications receivedfrom shareholders or other interested parties. The third party administratornotifies the Corporate Secretary and the Chairman of the Audit and FinanceCommittee, or his or her designee, upon receipt of any communication directedto the presiding director or non-management directors as a group (or, moregenerally, the Board, the Chairman or a Committee Chairman). The CorporateSecretary is responsible for distributing the communications to eachappropriate director, determining whether any follow-up action is necessary andassigning responsibility to complete any necessary further action. Eachdirector has access to a database containing all communications directed to himor her. The Vice President of Compliance and Ethics distributes a quarterlyreport to the Audit and Finance Committee on all such communications received.The Chairman of the Audit and Finance Committee, or his or her designee, hasongoing access to the contents of the database containing these communications.

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**ITEM12.  SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT ANDRELATED STOCKHOLDER MATTERS**

**Security Ownership of Certain Beneficial Owners andManagement**

This table shows how many sharesof our common stock certain individuals and entities beneficially owned onFebruary 28, 2007, unless otherwise noted. These individuals and entitiesinclude: (1) owners of more than 5% of our outstanding common stock,(2) our directors, (3) the NEOs, and (4) all directors andexecutive officers as a group. A person has beneficial ownership of shares ifthe person has sole or shared voting or investment power over the shares or theright to acquire that power within 60 days. Investment power means thepower to direct the sale or other disposition of the shares. Each person hassole voting and investment power over the shares, except as we describebelow.  With the exception of 707,757shares of stock pledged by Ernest J. Mrozek, none of the shares beneficiallyowned by directors and executive officers and shown in the table below arepledged as security.

 
| **Name of Beneficial Owner(1)**                    | ** ** | **Number of  Shares Owned(2)** | ** ** | **Percent of  Class(%)** | ** ** |
|-------------------------------------------------------------------|------------|------------------------------------------|------------|-------------------------------|------------|
| Capital Research and  Management Company (3)                 |       | 41,482,950                               |       | 14.50                         |       |
| Ariel Capital  Management, Inc. (4)                     |       | 28,877,263                               |       | 10.06                         |       |
| Mitchell T. Engel                                            |       | 360,332                                  |       | *                             |       |
| Louis J. Giuliano                                            |       | 14,801                                   |       | *                             |       |
| Brian Griffiths                                                   |       | 192,111                                  |       | *                             |       |
| Sidney E. Harris                                             |       | 157,827                                  |       | *                             |       |
| Katrina Helmkamp                                                  |       | 47,525                                   |       | *                             |       |
| Roberto R.  Herencia                                         |       | 26,666                                   |       | *                             |       |
| Betty Jane  Hess (5)                                         |       | 254,100                                  |       | *                             |       |
| Eileen A. Kamerick                                           |       | 8,213                                    |       | *                             |       |
| Jim L. Kaput                                                 |       | 163,038                                  |       | *                             |       |
| James D. McLennan                                            |       | 147,189                                  |       | *                             |       |
| Ernest J. Mrozek                                             |       | 1,784,930                                |       | *                             |       |
| Coleman H.  Peterson                                         |       | 22,892                                   |       | *                             |       |
| J. Patrick Spainhour                                              |       | 68,476                                   |       | *                             |       |
| David K.  Wessner (6)                                   |       | 1,109,026                                |       | *                             |       |
| All directors and executive officers as a group (20 persons) |       | 5,376,849                                |       | 1.844                         |       |

 

*             Lessthan one percent.

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(1)                                 Does not includeownership by either Steven Preston or Jonathan Ward as they are no longeremployed by the Company and the Company does not have access to informationregarding their respective ownership.

(2)                                 Includes shares which thedirectors and the NEOs have the right to acquire prior to April 30, 2007through the exercise of stock options as follows:  Mr. Engel, 248,000 shares; Mr.Giuliano, 10,183 shares; LordGriffiths of Fforestfach, 137,944 shares;Mr. Harris, 127,951 shares; Mr. Herencia, 4,500 shares;Ms. Hess, 4,500 shares; Mr. Kaput 98,333 shares;Mr. McLennan, 63,298 shares; Mr. Mrozek, 969,275 shares; Mr.Coleman Peterson, 2,756 shares and Mr. Wessner, 187,291 shares.  Includes shares which the NEOs have the rightto acquire prior to April 30, 2007 through the exercise of SARs calculatedbased on subtracting the base price of the SARs from the fair market value ofServiceMaster stock on February 28, 2007, then multiplying by the number ofexercisable SARs, as follows: Mr. Engel, 6,750 shares; Ms. Helmkamp, 1,191shares; Mr. Kaput, 3,192 shares and Mr. Mrozek, 14,845 shares.  Does not include common stock equivalentsunder the Directors Deferred Fees Plan or the DCP.  At February 28, 2007, the directors and theNEOs held common stock equivalents under those plans as follows:  Mr. Engel, 3,820 shares;Lord Griffiths of Fforestfach, 880 shares;Mr. Harris, 15,128 shares; Ms. Hess, 8,998 shares;Mr. Kaput, 5,557 shares; Mr. McLennan, 3,856 shares;Mr. Mrozek, 3,430 shares and Mr. Wessner,64,443 shares.  All directors andexecutive officers as a group have the right to acquire prior to April 30, 2007through the exercise of stock options and SARs, 2,542,636 shares of our stock.

(3)                                 Capital Research andManagement Company is an investment advisor located at 333 South Hope Street,Los Angeles, California 90071. According to its Schedule 13G/A filedFebruary 12, 2007 with the Securities and Exchange Commission, as ofDecember 31, 2006, it had sole voting power as to 18,109,200 shares,sole investment power as to 41,482,950 shares and disclaims beneficialownership of 41,982,950 shares.

(4)                                 Ariel CapitalManagement, Inc. is an investment advisor located at 200 E. RandolphDrive, Suite 2900, Chicago, Illinois 60601. According to itsSchedule 13G/A filed February 14, 2007 with the Securities and ExchangeCommission, as of December 31, 2006, it had sole voting power as to23,227,893 shares and sole investment power as to 28,783,408 shares.

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(5)                                  Includes230,683 shares as to which Ms. Hess has no voting or investment powerand Ms. Hess disclaims beneficial ownership of the shares.

(6)                                  Includes181,251 shares as to which Mr. Wessner has sole voting and sharedinvestment power, and 18,946 shares as to which Mr. Wessner has sharedvoting and investment power.  Mr. Wessner is a director of DirectorInvestment Co., and he disclaims beneficial ownership of545,620 shares by held by Director Investment Co.

**Equity Compensation Plan Information**

Except as described in the firstfootnote, the following table contains information, as of December 31,2006, about ServiceMaster stock that may be issued under our equitycompensation plans.
| **Plan Category**                                  | ** ** | **Number of   Securities to  be Issued Upon  Exercise of  Outstanding  Options/SARs** | ** ** | **Weighted Average  Exercise Price of  Outstanding Options/SARs** | ** ** | **Number of Securities  Remaining Available for  Future Issuance Under  Equity Compensation  Plans (excluding  securities reflected in  first column)** | ** ** |
|---------------------------------------------------------|------------|---------------------------------------------------------------------------------------------------------------------|------------|---------------------------------------------------------------------------------------|------------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|------------|
| Equity  compensation plans approved by shareholders     |       | 25,213,754                                                                                                          |       | $                                                                                     | 12.3884    |                                                                                                                                                                                                           | 12,286,839 | (1) |
| Equity  compensation plans not approved by shareholders |       | 239,160                                                                                                             | (2)        | $                                                                                | 33.8004    | (3)                                                                                                                                                                                                            | 327,049    | (4) |
| Total                                                   |       | 25,452,914                                                                                                          |       |                                                                                  |       | 12,613,888                                                                                                                                                                                                     |       |

 

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(1)                                  Includes shares availableunder the ServiceMaster 2003 Equity Incentive Plan, including up to 7,138,871shares available for RSUs, stock, deferred stock and restricted stock awards(of which, a maximum of 2,440,597 shares are available for restricted stockawards), shares available under the ServiceMaster 2001 Directors Stock Plan,including up to 3,500,000 shares available for awards (of which, a maximumof 1,500,000 shares are available for stock awards); and 1,647,968 shares availableunder the ServiceMaster 2004 Employee Stock Purchase Plan.

(2)                                  Includes options topurchase ServiceMaster stock issued in connection with ServiceMaster’sacquisitions in 1999 of American Residential Services, Inc. and LandCareUSA, Inc., as well as options to purchase ServiceMaster common stockissued in connection with the merger of WeServeHomes.com into a wholly ownedsubsidiary of ServiceMaster. Upon the consummation of each of thesetransactions, each outstanding option to purchase common stock of the acquiredcompany was converted into an option to purchase shares of ServiceMaster stock.ServiceMaster cannot grant any additional awards under the equity compensationplans pursuant to which the options that were converted were originally issued.The following table reflects information with respect to the options describedin this footnote that were outstanding at December 31, 2006.

| Transaction                    | ** ** | **Number of   Option Shares** | ** ** | **Weighted Average  Exercise Price** | ** ** |
|--------------------------------|------------|----------------------------------------------|------------|------------------------------------------------|------------|
| American  Residential Services |       | 118,639                                      |       | $                                              | 52.0293    |   |
| LandCare USA                   |       | 104,019                                      |       | $                                              | 16.1711    |   |
| WeServeHomes.com               |       | 16,502                                       |       | $                                              | 13.8702    |   |

 

(3)                                  Does not reflect105,700 shares issuable pursuant to the  DCP or 221,349 shares issuable pursuantto Directors Deferred Fees Plan, because the concept of an exercise price isnot meaningful under either plan. The material features of each plan aredescribed below.

(4)                                  The DCP and the DirectorsDeferred Fees Plan do not contain a limit on the number of shares availablethereunder. The material features of each plan are described below.

*ServiceMaster DeferredCompensation Plan.*  The DCP allowsparticipants to defer the receipt of a portion of their compensation.  Deferred compensation is credited to abookkeeping account, where it is deemed invested in a variety of investmentvehicles, including a share equivalent account. A share equivalent is a bookkeeping unit credit equivalent to one shareof our common stock.  Share equivalentbalances are increased when we pay dividends on our common stock as if thedividend was reinvested in additional shares. Amounts deferred into a share equivalent account may not be transferredinto other investment alternatives. Share equivalents are paid in shares of ServiceMaster common stock upondistribution.  The share equivalentalternative was eliminated for future deferrals as of January 1, 2004.

*Directors Deferred Fees Plan.*  The DirectorsDeferred Fees Plan allows non-employee directors to defer receipt of a portionof their annual retainer.  Deferredamounts are credited to a bookkeeping account, where it is deemed invested in avariety of investment vehicles, including a share equivalent account.  A share equivalent is a bookkeeping unitcredit equivalent to one share of our common stock.  Share equivalent balances are increased whenwe pay dividends on our common stock as if the dividend was reinvested inadditional shares.  Amounts deferred intothe share equivalent account may not be transferred into other investmentalternatives.  Share equivalents are paidin shares of ServiceMaster common stock upon distribution.

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**SIGNATURES**

Pursuant to the requirements of Section 13 or 15(d) ofthe Securities Exchange Act of 1934, the registrant has duly caused thisAmendment No. 1 to Form 10-K to be signed on its behalf by the undersigned,thereunto duly authorized.
|                                | THE SERVICEMASTER COMPANY |
|--------------------------------|---------------------------|
|                           |                      |   |
|                           |                      |   |
| Date:  April 2, 2007 | By:                       | /s/ Jim L. Kaput |
|                           |                      | Jim L. Kaput |
|                           |                      | Senior Vice President and General Counsel |

 

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**ExhibitIndex**

**Descriptionof Index**
| 31.1   |   | Certification  of Chief Executive Officer pursuant to Rule 13a-14(a) or 15d-14(a), as  adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. |   |
|--------|--------|-----------------------------------------------------------------------------------------------------------------------------------------------------------|--------|
|   |   |                                                                                                                                                      |   |
| 31.2   |   | Certification of Chief  Financial Officer pursuant to Rule 13a-14(a) or 15d-14(a), as adopted  pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. |   |

 

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