March 4, 2008

 

Thomas J. Falk

Chairman of the Board and

Chief Executive Officer

 

FELLOW STOCKHOLDERS:

 

     It is my pleasure to invite you to the Annual Meeting of Stockholders of Kimberly-Clark Corporation. The meeting will be held on Thursday, April 17, 2008, at 11:00 a.m. at the Four Seasons Resort and Club, which is located at 4150 North MacArthur Boulevard, Irving, Texas.

 

     At the Annual Meeting, stockholders will be asked to elect five directors for a one-year term, ratify the selection of the Corporation’s independent auditors, approve a proposal eliminating supermajority voting provisions and vote on five stockholder proposals. These matters are fully described in the accompanying Notice of Annual Meeting and proxy statement.

 

     Your vote is important. Regardless of whether you plan to attend the meeting, I urge you to vote your shares as soon as possible. You can vote by marking and dating the enclosed proxy card, by using the Internet or by telephone. Instructions regarding all three methods of voting are contained on the proxy card.

 

     Also enclosed is a copy of our Annual Report for 2007. I encourage you to read the Annual Report for information about your company’s performance and accomplishments in 2007.

 

Sincerely,

 

Thomas J. Falk

KIMBERLY-CLARK CORPORATION

 

NOTICE OF ANNUAL MEETING OF STOCKHOLDERS

 

TO BE HELD APRIL 17, 2008

 

 

The Annual Meeting of Stockholders of Kimberly-Clark Corporation will be held at the Four Seasons Resort and Club, 4150 North MacArthur Boulevard, Irving, Texas, on Thursday, April 17, 2008, at 11:00 a.m. for the following purposes:

 

 

Stockholders of record at the close of business on February 18, 2008 are entitled to notice of and to vote at the meeting or any adjournments.

 

It is important that your shares be represented at the meeting. I urge you to sign, date and promptly return the enclosed proxy card in the enclosed business reply envelope, or vote using the Internet or telephone.

 

The accompanying proxy statement also is being used to solicit voting instructions for shares of Kimberly-Clark common stock that are held by the trustees of our employee benefit and stock purchase plans for the benefit of the participants in the plans. It is important that each participant in the plans signs, dates and returns the voting instruction card, which is enclosed with the proxy statement, in the business reply envelope provided, or indicates his or her preferences using the Internet or telephone.

 

By order of the Board of Directors.

 

 

Timothy C. Everett

Vice President and Secretary

 

P.O. Box 619100

Dallas, Texas 75261-9100

March 4, 2008

TABLE OF CONTENTS

 

 

March 4, 2008

 

PROXY STATEMENT

 

PART ONE

 

The accompanying proxy is solicited on behalf of the Board of Directors of Kimberly-Clark Corporation for use at the Annual Meeting of Stockholders to be held on April 17, 2008 and at any adjournment of the Annual Meeting. We are first mailing this proxy statement and the accompanying proxy to holders of Kimberly-Clark common stock on or about March 11, 2008.

 

Each stockholder of record at the close of business on February 18, 2008 will be entitled to one vote for each share registered in the stockholder’s name. On that date, 420,353,412 shares of our common stock were outstanding.

 

You may vote in person by attending the meeting, by completing and returning a proxy by mail, or by using the Internet or telephone. To vote your proxy by mail, mark your vote on the enclosed proxy card, then follow the instructions on the card. To vote your proxy using the Internet or telephone, see the instructions on the proxy form and have the proxy form available when you access the Internet website or place your telephone call.

 

The named proxies will vote your shares according to your directions. If you sign and return your proxy but do not make any of the selections, the named proxies will vote your shares for the election of directors, for ratification of the selection of our independent auditors, for approval of the proposal to eliminate supermajority voting provisions and against approval of the stockholder proposals.

 

You may revoke your proxy before the time of voting at the meeting in any of the following ways:

 

 

Proxy cards are received by our independent proxy processing agent, and the vote is certified by independent Inspectors of Election. Proxy cards and ballots that identify the vote of stockholders and plan participants will be kept confidential, except as necessary to meet legal requirements, in cases where stockholders and participants request disclosure or write comments on their cards, or in a contested matter involving an opposing proxy solicitation. During the proxy solicitation period, we will receive daily tabulation reports from the independent proxy processing agent, but these reports provide only aggregate data. In addition, the agent may identify stockholders who fail to vote so that we may contact them and request they do so.

 

Kimberly-Clark will bear the cost of preparing, printing and delivering materials in connection with this solicitation of proxies, including the cost of the proxy solicitation and the expenses of brokers, fiduciaries and other nominees in forwarding proxy materials to beneficial owners. In addition to the use of mail and electronic delivery, solicitation may be made by telephone or otherwise by our employees. We have retained D. F. King & Co., Inc. to aid in the solicitation at a cost of approximately $15,000 plus reimbursement of out-of-pocket expenses.

 

A majority of the shares of our common stock, present in person or represented by proxy, will constitute a quorum for purposes of the Annual Meeting. The five nominees for director receiving a majority of the votes cast at the meeting in person or by proxy will be elected. If a nominee does not receive a majority of the votes cast, then the nominee will be subject to the Board’s existing policy regarding resignations by directors who do not receive a majority of “for” votes. The proposed amendment to the Corporation’s Amended and Restated Certificate of Incorporation described in Proposal 3 requires for approval the favorable vote of a majority of shares outstanding as of the record date. All other matters require for approval the favorable vote of a majority of votes cast on the applicable matter at the meeting in person or by proxy.

 

Abstentions are treated as votes against a proposal, and broker non-votes will not be considered present and entitled to vote. Generally, a broker non-vote occurs on a matter when a broker is not permitted to vote on that matter without instructions from the beneficial owner of the shares, and instructions are not given.

 

If a stockholder is a participant in our Automatic Dividend Reinvestment and Stock Purchase Plan, the proxy card represents the number of full shares in the stockholder’s account in the plan, as well as shares registered in the stockholder’s name.

 

We also are sending this proxy statement and voting materials to participants in various Kimberly-Clark employee benefit and stock purchase plans. The trustee of each plan, as the stockholder of record of the shares of our common stock held in the plans, will vote whole shares of stock attributable to each participant’s interest in the plans in accordance with the directions the participant gives or, if no directions are given by the participant, in accordance with the directions of the respective plan committee.

 

Stockholders as of the record date, February 18, 2008, or their duly appointed proxies, may attend the meeting. If you plan to attend the meeting, please check your proxy card in the space provided or so indicate electronically or by telephone. This will assist us with meeting preparations and will help us to expedite your admittance. If your shares are not registered in your own name and you would like to attend the meeting, please ask the broker, trust, bank or other nominee that holds your shares to provide you with evidence of your share ownership, which will enable you to gain admission to the meeting.

 

To obtain directions to attend the meeting and vote in person, please contact Stockholder Services by telephone at (972) 281-1522 or by e-mail at stockholders@kcc.com.

 

The Notice of Annual Meeting and proxy statement and our 2007 Annual Report are available in the Investors section of our website at www.kimberly-clark.com. Instead of receiving copies of the proxy

statement and annual report in the mail, stockholders may elect to receive an e-mail with a link to these documents on the Internet. Receiving your proxy materials online saves us the cost of producing and mailing documents to your home or business and gives you an automatic link to the proxy voting site. Stockholders may enroll to receive proxy materials online as follows:

 

 

Each year in connection with our Annual Meeting, we are required to send to each stockholder of record a proxy statement and annual report, and to arrange for a proxy statement and annual report to be sent to each beneficial stockholder whose shares are held by or in the name of a broker, bank, trust or other nominee. Because many stockholders hold shares of our common stock in multiple accounts or share an address with other stockholders, this process results in duplicate mailings of proxy statements and annual reports. Stockholders may avoid receiving duplicate mailings and save us the cost of producing and mailing duplicate documents as follows:

 

 

 

The Board of Directors met eight times in 2007. All of the incumbent directors attended in excess of 75 percent of the total number of meetings of the Board and committees of the Board on which they served.

 

Although we do not have a formal policy with respect to director attendance at Annual Meetings, since 1997 all nominees and continuing directors have attended the Annual Meetings. Eleven of our directors, which constituted all nominees and continuing directors, attended the 2007 Annual Meeting.

 

The standing committees of the Board include the Audit Committee, Management Development and Compensation Committee, Nominating and Corporate Governance Committee and Executive Committee. In compliance with applicable New York Stock Exchange (“NYSE”) corporate governance listing standards, the Board has adopted charters for the Audit, Management Development and Compensation, and Nominating and Corporate Governance Committees. These charters are available in the Investors section of our website at www.kimberly-clark.com. Stockholders may also contact Stockholder Services, P.O. Box 612606, Dallas, Texas 75261-2606 or call (972) 281-1522 to obtain paper copies of the charters without charge.

 

Dennis R. Beresford is the Chairman of our Audit Committee. The other members of the Audit Committee are John R. Alm, John F. Bergstrom, Mae C. Jemison, M.D., and Ian C. Read. Mr. Read was appointed to this committee effective August 15, 2007. The Committee met eight times in 2007. In addition, Mr. Beresford participated in three additional conference calls as Chairman of the Committee to preview earnings press releases during 2007.

 

Each member of the Audit Committee is an Independent Director under the independence standards set forth in our Corporate Governance Policies. See “Director Independence” for additional information on Independent Directors.

 

Each member of the Audit Committee satisfies the financial literacy requirements of the NYSE, and the Board has determined that Mr. Beresford is an “audit committee financial expert” under the rules and regulations of the Securities and Exchange Commission (“SEC”).

 

The principal functions of the Audit Committee, as specified in its charter, include the following:

 

 

 

 

For additional information about the Audit Committee’s oversight activities in 2007, see “Part Three — Proposals to be Voted on at the 2008 Annual Meeting — Ratification of Auditors — Audit Committee Report.”

 

Marc J. Shapiro is the Chairman of our Management Development and Compensation Committee. In addition to Mr. Shapiro, the current members of this Committee are Abelardo E. Bru, James M. Jenness, and G. Craig Sullivan. The Committee met six times in 2007. Each member of this Committee is an Independent Director.

 

The principal functions of the Management Development and Compensation Committee, as specified in its charter, include the following:

 

 

 

 

Compensation Process and Procedures

 

On an annual basis, the Committee reviews and sets the compensation of our elected officers, including all of our executive officers. The Committee’s charter does not permit the Committee to delegate to anyone the authority to establish any compensation policies or programs for elected officers, including our executive officers. Our Chief Executive Officer has the authority to establish compensation programs for non-elected officers. Additionally, as discussed in “Part Four — Executive Compensation — Compensation Discussion and Analysis,” the Committee has delegated limited authority to our Chief Executive Officer to grant stock options, restricted stock, and restricted share units to non-executive officers for recruiting or retention purposes.

 

Our Chief Executive Officer makes a recommendation to the Committee each year on the appropriate target total annual compensation to be paid to our executive officers, excluding himself. The Committee makes the final determination of the target total annual compensation to be awarded to each executive officer, including our Chief Executive Officer, based on the Committee’s determination of how that compensation will aid in achieving the objectives of our compensation policies. While our Chief Executive Officer typically attends Committee meetings, none of the other executive officers is present during the portion of the Committee’s meetings when compensation for these executive officers is set. In addition, our Chief Executive Officer is not present during the portion of the Committee’s meetings when his compensation is set.

 

For additional information on the Committee’s processes and procedures for determining executive compensation, and for a detailed discussion of our compensation policies, see “Part Four — Executive Compensation — Compensation Discussion and Analysis.”

 

Use of Compensation Consultants

 

The Committee’s charter provides that the Committee has the authority to retain advisors, including compensation consultants, to assist the Committee in its work. The Committee believes that compensation consultants can provide important market information and perspectives that can help

the Committee determine compensation programs that best meet the objectives of our compensation policies.

 

Corporation Consultant.  To assist management and the Committee in assessing and determining appropriate, competitive compensation for our executive officers, we annually engage an outside compensation consultant. In 2007, Mercer Human Resource Consulting (“Mercer”) was retained for this purpose. Mercer has provided consulting services to the Corporation on a wide variety of human resources and compensation matters, both at the officer and non-officer levels. With respect to executive officer compensation, Mercer provides compensation survey data for the Corporation’s peer groups. For additional information on these peer groups, as well as the use of the survey data to design our compensation programs and to make executive pay decisions, see “Part Four — Executive Compensation — Compensation Discussion and Analysis.” Mercer also reviews and provides comments to us regarding proposed executive compensation programs.

 

Independent Committee Consultant.  The Committee has also retained The Delves Group as its independent executive compensation consultant. In February 2008, the Committee adopted a written policy to formalize its understanding that the independent Committee consultant may provide services only to the Committee and not to the Corporation. The Delves Group has no other business relationship with the Corporation and receives no payments from us other than fees for services to the Committee. The Delves Group reports directly to the Committee, and the Committee may replace The Delves Group or hire additional consultants at any time. The Delves Group attends Committee meetings and communicates with the Chairman of the Committee between meetings from time to time.

 

The Committee instructed The Delves Group to provide an independent review of the data and recommendations provided by management and Mercer. The scope of The Delves Group’s engagement in 2007 included:

 

 

During 2007, Don Delves, the President of The Delves Group, attended all Committee meetings at the request of the Committee.

 

Committee Report

 

The Committee has reviewed the “Compensation Discussion and Analysis” section of this proxy statement and has recommended that it be included in this proxy statement. The Committee’s report is located at “Part Four — Executive Compensation — Management Development and Compensation Committee Report.”

 

Linda Johnson Rice is the Chairman of our Nominating and Corporate Governance Committee. In addition to Mrs. Johnson Rice, the current members of this Committee are Abelardo E. Bru, James M. Jenness, and G. Craig Sullivan. The Committee met five times in 2007. Each member of this Committee is an Independent Director.

 

The principal functions of the Nominating and Corporate Governance Committee, as specified in its charter, include the following:

 

 

 

 

 

The Nominating and Corporate Governance Committee, in accordance with its charter and our Amended and Restated Certificate of Incorporation, has established criteria and processes for director nominees, including nominations proposed by stockholders. Those criteria and processes are described in “Director Nominee Criteria and Process” and “Stockholder Nominations for Directors.”

 

Robert W. Decherd is the Chairman of the Executive Committee. In addition to Mr. Decherd, the current members of this Committee are John F. Bergstrom, Thomas J. Falk, and Marc J. Shapiro. The Executive Committee did not meet in 2007.

 

The principal function of the Executive Committee is to exercise the powers of the Board to direct our business and affairs between meetings of the Board.

 

During 2007, the following directors served as members of the Management Development and Compensation Committee of the Board: Abelardo E. Bru, James M. Jenness, Marc J. Shapiro, and G. Craig Sullivan, as well as Pastora San Juan Cafferty through her retirement from the Board on April 26, 2007.

 

Thomas J. Falk, our Chairman of the Board and Chief Executive Officer, served as a member of the Compensation Committee of the Board of Directors of Kimberly-Clark de Mexico, S.A.B. de C.V. Claudio X. Gonzalez, Chairman of the Board and Managing Director of Kimberly-Clark de Mexico, S.A.B. de C.V., served as a member of the Board in 2007 until his retirement from the Board on April 26, 2007.

 

Since 1996, our By-Laws have provided that a majority of our directors be independent directors (“Independent Directors”). In addition, our Corporate Governance Policies adopted by the Board provide independence standards consistent with the rules and regulations of the SEC and the listing standards of the NYSE. Our Corporate Governance Policies are available in the Investors section of our website at www.kimberly-clark.com, and the independence standards are set forth in section 17 of the Corporate Governance Policies.

 

The nominees for director are such that immediately after the election of the nominees to the Board, a majority of all directors holding office will be Independent Directors. Our independent Board helps ensure good corporate governance and strong internal controls. We are in compliance with all corporate governance requirements of the NYSE, the SEC and the Sarbanes-Oxley Act of 2002.

The Board has determined that all directors and nominees, except for Thomas J. Falk, are Independent Directors and meet the independence standards set forth in our Corporate Governance Policies. The Board also determined that Pastora San Juan Cafferty was an Independent Director and met these independence standards during the period in 2007 in which she served as a director. When making these determinations, the Board considered the following:

 

 

 

 

The amount involved in each of these items is below the amounts established by the NYSE and our Corporate Governance Policies as potentially affecting a director’s independence.

 

The Board of Directors is responsible for approving candidates for Board membership. The Board has delegated the screening and recruitment process to the Nominating and Corporate Governance Committee, in consultation with the Chairman of the Board and Chief Executive Officer. The Nominating and Corporate Governance Committee believes that the criteria for director nominees should ensure effective corporate governance, support our strategies and businesses, account for individual director attributes and the effect of the overall mix of those attributes on the Board’s effectiveness, and support the successful recruitment of qualified candidates for the Board.

Qualified candidates for director are those who, in the judgment of the Nominating and Corporate Governance Committee, possess all of the personal attributes and a sufficient mix of the experience attributes listed below to assure effective service on the Board.

 

Personal Attributes		Experience Attributes
• leadership		• financial acumen
• ethical nature		• general business knowledge
• contributing nature		• industry knowledge
• independence		• diversity of viewpoints
• interpersonal skills		• special business experience
• effectiveness		• expertise

 

The Nominating and Corporate Governance Committee may receive recommendations for Board candidates from various sources, including our directors, management and stockholders. In addition, the Nominating and Corporate Governance Committee has retained a search firm to assist the Committee in identifying and recruiting director candidates meeting the criteria specified by the Committee.

 

When a vacancy occurs on the Board, the Nominating and Corporate Governance Committee recommends to the Board a nominee to fill the vacancy. As provided in the Corporation’s Amended and Restated Certificate of Incorporation, the Board elects a new director when a vacancy occurs between Annual Meetings of Stockholders. The Nominating and Corporate Governance Committee also annually evaluates and recommends to the Board nominees for election as directors at our Annual Meeting of Stockholders.

 

The Nominating and Corporate Governance Committee considers nominees recommended by stockholders as candidates for election to the Board of Directors. A stockholder wishing to nominate a candidate for election to the Board at the Annual Meeting is required to give written notice to the Secretary of the Corporation of his or her intention to make a nomination in accordance with the Corporation’s Certificate of Incorporation and By-Laws. The notice of nomination must be received by us not less than 75 days nor more than 100 days prior to the stockholders’ meeting, or if we give less than 75 days notice of the meeting date, the notice of nomination must be received within 10 days after the meeting date is announced. The notice of nomination is required to contain information about both the nominee and the stockholder making the nomination, including information sufficient to allow the Nominating and Corporate Governance Committee to determine if the candidate meets the director nominee criteria described above. We may require that the proposed nominee furnish other information to determine that person’s eligibility to serve as a director. A nomination that does not comply with the above procedure will not be considered for presentation at the Annual Meeting, but will be considered by the Nominating and Corporate Governance Committee for any vacancies arising on the Board between Annual Meetings in accordance with the process described in “Director Nominee Criteria and Process.”

 

The Board has established a process by which stockholders and other interested parties may communicate with the Board. That process can be found in the Investors section of our website at www.kimberly-clark.com.

 

Stockholders and other interested parties may send written correspondence to the Board in care of our Lead Director:

 

Lead Director
Kimberly-Clark Corporation
P. O. Box 619100
Dallas, Texas 75261-9100

 

Corporate Governance Policies.  The Board of Directors adopted Corporate Governance Policies in 1994, which have been amended from time to time in accordance with changes in rules and regulations and developing governance practices. These policies guide the Corporation and the Board on matters of corporate governance, including director responsibilities, Board committees and their charters, director independence, director qualifications, director compensation and evaluations, director orientation and education, director access to management, Board access to outside financial, business and legal advisors, and management development and succession planning. These policies, which include our director independence standards, are available in the Investors section of our website at www.kimberly-clark.com. Stockholders also may contact Stockholder Services, P.O. Box 612606, Dallas, Texas 75261-2606 or call (972) 281-1522 to obtain a copy of the Corporate Governance Policies without charge.

 

Code of Conduct.  Kimberly-Clark has a Code of Conduct that applies to all of our directors, executive officers and employees, including the chief executive officer, chief financial officer, and the principal accounting officer and controller. The Code of Conduct is available in the Investors section of our website at www.kimberly-clark.com. Stockholders also may contact Stockholder Services, P.O. Box 612606, Dallas, Texas 75261-2606 or call (972) 281-1522 to obtain a copy of the Code of Conduct without charge.

 

Lead Director.  Mr. Decherd served as Lead Director in 2007 and through the end of his Lead Director term on February 29, 2008. The non-management directors elected Mr. Shapiro as Lead Director effective March 1, 2008. The Lead Director chairs executive session meetings of non-management directors and serves as Chairman of the Executive Committee, among other responsibilities. The non-management directors are scheduled to meet in executive session without the presence of management at least quarterly.

 

Committee Authority to Retain Independent Advisors.  Each of the Audit, Management Development and Compensation, and Nominating and Corporate Governance Committees has the authority to retain independent advisors and consultants, with all fees and expenses to be paid by the Corporation.

 

Whistleblower Procedures.  The Audit Committee has established procedures for (1) the receipt, retention and treatment of complaints we receive regarding accounting, internal accounting controls or auditing matters, and (2) the confidential and anonymous submission by our employees and others of concerns regarding questionable accounting or auditing matters. We also maintain a toll-free, around-the-clock Code of Conduct hotline that allows our employees and others to voice their concerns anonymously. The whistleblower procedures and information on how to access the line are available in the Investors section of our website at www.kimberly-clark.com.

 

Chief Compliance Officer.  Thomas J. Mielke is the Senior Vice President — Law and Government Affairs and Chief Compliance Officer, overseeing our compliance program. He reports to the Audit Committee on the program’s effectiveness, provides periodic reports to the Board, and works closely with various compliance functions to provide coordination and sharing of best practices across the compliance groups.

 

Disclosure Committee.  We have established a disclosure committee composed of members of management to assist in fulfilling our obligations to maintain disclosure controls and procedures, and to coordinate and oversee the process of preparing our periodic securities filings with the SEC.

 

No Executive Loans.  We do not extend loans to our executive officers or directors and do not have any of these loans outstanding.

 

Stockholder Rights Plan.  The Board has adopted the following policy statement on stockholder rights plans: “Kimberly-Clark does not have a ‘poison pill’ or stockholder rights plan. If Kimberly-Clark were to adopt a stockholder rights plan, the Board would seek prior stockholder approval of the plan unless, due to timing constraints or other reasons, a majority of independent directors of the Board determines that it would be in the best interests of stockholders to adopt a plan before obtaining stockholder approval. If a stockholder rights plan is adopted without prior stockholder approval, the plan must either be ratified by stockholders or must expire, without being renewed or replaced, within one year. The Nominating and

Corporate Governance Committee shall review this policy statement periodically and report to the Board on any recommendations it may have concerning the policy.”

 

Annual Election of Directors.  In April 2007, stockholders approved an amendment to our Restated Certificate of Incorporation to provide that directors will be elected on an annual basis instead of for staggered terms of three years each. Our Amended and Restated Certificate of Incorporation is available in the Investors section of our website at www.kimberly-clark.com.

 

Majority Voting for Election of Directors.  In September 2006, the Board amended the Corporation’s By-Laws to provide that, in uncontested elections, directors will be elected by a majority vote rather than by a plurality. If an incumbent director does not receive a majority of votes, the director is required to tender his or her resignation for consideration by the Board. Our By-Laws are available in the Investors section of our website at www.kimberly-clark.com.

 

Simple Majority Voting Provisions.  The Board has recommended to stockholders the elimination of the supermajority voting provisions contained in our Amended and Restated Certificate of Incorporation. To effect this change, a majority of the shares outstanding must vote in favor of this proposal. See Proposal 3 in Part Three of this proxy statement.

 

Charitable Contributions.  The Nominating and Corporate Governance Committee has adopted guidelines for review and approval of charitable contributions by us and any foundation we control to organizations or entities with which a member of the Board of Directors or an executive officer is or may be affiliated.

 

 

PROPOSAL 1.  ELECTION OF DIRECTORS

 

 

The Board of Directors currently is divided into three classes. As of the date of this proxy statement, the Board of Directors consists of twelve members, including James M. Jenness and Ian C. Read who were elected to the Board by the Board of Directors as of February 1, 2007 and August 15, 2007, respectively. Five of the directors have terms that expire at this year’s Annual Meeting, four have terms that expire at the 2009 Annual Meeting and three have terms that expire at the 2010 Annual Meeting.

 

On April 26, 2007, stockholders approved an amendment to our Restated Certificate of Incorporation to declassify the Board. Under the amendment, directors continue to serve the remainder of their elected terms and, beginning with this year’s Annual Meeting, directors will be elected annually so that by the 2010 Annual Meeting of Stockholders all directors will be elected annually.

 

As a result, beginning with this year’s Annual Meeting, new directors, and incumbent directors whose terms are expiring, will be elected annually for one-year terms instead of for three-year terms. The five nominees for director set forth on the following pages are proposed to be elected at this year’s Annual Meeting to serve for a term to expire at the 2009 Annual Meeting of Stockholders and until their successors are elected and have qualified. Should any nominee become unable to serve, proxies may be voted for another person designated by the Board. All nominees have advised us that they will serve if elected. The remaining seven directors will continue to serve as directors for the terms set forth on the following pages, in accordance with their previous election.

 

 

The names of the nominees and of the other directors continuing in office, their ages as of the date of the Annual Meeting, the year each first became a director, their principal occupations during at least the past five years, other public company directorships held by each as of February 22, 2008 and certain other biographical information are set forth on the following pages by class, in the order of the next class to stand for election.

NOMINEES FOR ELECTION TO THE BOARD OF DIRECTORS

 

For a One-Year Term Expiring at the

2009 Annual Meeting of Stockholders

 

John R. Alm, 62, Director since 2006

 

Retired President and Chief Executive Officer, Coca-Cola Enterprises Inc.

 

Mr. Alm retired as President and Chief Executive Officer of Coca-Cola Enterprises Inc., a beverage company, in 2005. He had been Chief Executive Officer since 2004 and President and Chief Operating Officer since 2000. Mr. Alm joined Coca-Cola Enterprises Inc. in 1992 and held numerous other senior management positions until his retirement.

 

John F. Bergstrom, 61, Director since 1987

 

Chairman and Chief Executive Officer, Bergstrom Corporation

 

Mr. Bergstrom has served as Chairman and Chief Executive Officer of Bergstrom Corporation, Neenah, Wisconsin, for more than the past five years. Bergstrom Corporation owns and operates automobile sales and leasing businesses and a credit life insurance company based in Wisconsin. Mr. Bergstrom is a director of the Wisconsin Energy Corporation and its wholly-owned subsidiary Wisconsin Electric Power Company. He also is a member of the board of directors and chairman of the Theda Clark Hospital Foundation, and a member of the board of directors and executive committee of Green Bay Packers, Inc.

 

Robert W. Decherd, 57, Director since 1996

 

Chairman of the Board, President and Chief Executive Officer, A.H. Belo Corporation

 

Mr. Decherd has served as Chairman of the Board, President and Chief Executive Officer of A.H. Belo Corporation, a newspaper publishing and Internet company, since it was spun off from Belo Corp. in February 2008. Prior to February 2008, Mr. Decherd was Chief Executive Officer of Belo Corp., a broadcasting and publishing company, for 21 years. He is a director of both A.H. Belo Corporation and Belo Corp., where he is non-executive chairman. Mr. Decherd is a member of the Advisory Council for the Harvard University Center for Ethics and the Board of Visitors of the Columbia Graduate School of Journalism. During the past decade, he has held appointments to Presidential and Federal Communications Commission commissions concerned with public policy matters related to the television industry.

 

Ian C. Read, 54, Director since August 2007

 

Senior Vice President, Pfizer, Inc.

 

Mr. Read is a Senior Vice President of Pfizer, Inc., a drug manufacturer, and President of its Worldwide Pharmaceutical Operations. Mr. Read joined Pfizer in 1978 in its financial organization. He worked in Latin America through 1995, holding positions of increasing responsibility, and was appointed President of the Pfizer International Pharmaceuticals Group, Latin America/Canada in 1996. In 2000, Mr. Read was named Executive Vice President of Europe/Canada and was named a corporate Vice President in 2001.

G. Craig Sullivan, 68, Director since 2004

 

Retired Chairman and Chief Executive Officer, The Clorox Company

 

Mr. Sullivan retired as Chairman and Chief Executive Officer of The Clorox Company, a consumer products company, in 2003. He joined The Clorox Company in 1971 and held a number of senior sales and management positions during his career, culminating in his election as Chief Executive Officer and Chairman of the Board in 1992. Mr. Sullivan also serves as a director of Mattel, Inc., The Goodyear Tire & Rubber Company and The American Ireland Fund. He also serves on the capital campaign committee for St. Anthony’s Foundation in San Francisco.

 

MEMBERS OF THE BOARD OF DIRECTORS CONTINUING IN OFFICE

 

Term Expiring at the

2009 Annual Meeting of Stockholders

 

Dennis R. Beresford, 69, Director since 2002

 

Ernst & Young Executive Professor of Accounting, University of Georgia

 

Mr. Beresford has served as Ernst & Young Executive Professor of Accounting at the J.M. Tull School of Accounting, Terry College of Business, University of Georgia since 1997. From 1987 to 1997, he served as the Chairman of the Financial Accounting Standards Board. Prior to that, Mr. Beresford held various positions at the accounting firm of Ernst & Young. He serves on the board of directors and audit committees of Legg Mason, Inc. and the Federal National Mortgage Association (Fannie Mae).

 

Abelardo E. Bru, 59, Director since 2005

 

Retired Vice Chairman, PepsiCo, Inc.

 

Mr. Bru retired as Vice Chairman of PepsiCo, a food and beverage company, in 2005. He joined PepsiCo in 1976. Mr. Bru served from 1999 to 2003 as President and Chief Executive Officer and in 2003 to 2004 as Chief Executive Officer and Chairman of Frito-Lay Inc., a division of PepsiCo. Prior to leading Frito-Lay, Mr. Bru led PepsiCo’s largest international business, Sabritas Mexico, as President and General Manager from 1992 to 1999. Mr. Bru is a member of the board of directors of Office Depot, Inc., S. C. Johnson & Son, Inc. and the Education is Freedom Foundation.

 

Thomas J. Falk, 49, Director since 1999

 

Chairman of the Board and Chief Executive Officer

 

Mr. Falk was elected Chairman of the Board and Chief Executive Officer of the Corporation in 2003 and President and Chief Executive Officer in 2002. Prior to that, he served as President and Chief Operating Officer since 1999. Mr. Falk previously had been elected Group President — Global Tissue, Pulp and Paper in 1998, where he was responsible for the Corporation’s global tissue businesses. Earlier in his career, Mr. Falk had responsibility for our North American Infant Care, Child Care and Wet Wipes businesses. Mr. Falk joined the Corporation in 1983 and has held other senior management positions in the Corporation. He also serves on the board of directors of Centex Corporation, Grocery Manufacturers of America, Inc. and the University of Wisconsin Foundation, and serves as a governor of the Boys & Girls Clubs of America.

Mae C. Jemison, M.D., 51, Director since 2002

 

President, BioSentient Corporation

 

Dr. Jemison is founder and President of The Jemison Group, Inc., a technology consulting company, and BioSentient Corporation, a medical devices company. She chairs The Earth We Share international science camp. Dr. Jemison served as a professor of Environmental Studies at Dartmouth College from 1995 to 2002. From 1987 to 1993, she served as a National Aeronautics and Space Administration (NASA) astronaut. Dr. Jemison serves on the board of directors of Scholastic Corporation, Valspar Corporation and The Dorothy Jemison Foundation for Excellence and is a member of the National Academy of Sciences’ Institute of Medicine. She is also the Chair of the State of Texas Biotechnology and Life Science Cluster Report and the Presiding Officer of the State of Texas Product Development and Small Business Incubator Board.

 

Term Expiring at the
2010 Annual Meeting of Stockholders

 

James M. Jenness, 61, Director since February 2007

 

Chairman of the Board, Kellogg Company

 

Mr. Jenness was elected Chairman of the Board of Kellogg Company, a producer of cereal and convenience foods, in 2005. He also served as Chief Executive Officer of Kellogg from 2004 through 2006. Mr. Jenness was Chief Executive Officer of Integrated Merchandising Systems LLC, a market leader in outsource management for retail promotion and branded merchandising, from 1997 to 2004. He served in various positions of increasing responsibility at Leo Burnett Company, Kellogg’s major advertising agency partner, from 1974 to 1997, including as Vice Chairman, Chief Operating Officer and Director. He is a member of the board of directors of Children’s Memorial Hospital and the Mercy Home for Boys and Girls. He also serves on the DePaul University College of Commerce Advisory Council, is a member of DePaul’s Board of Trustees and is co-trustee of the W. K. Kellogg Foundation Trust.

 

Linda Johnson Rice, 50, Director since 1995

 

President and Chief Executive Officer, Johnson Publishing Company, Inc.

 

Mrs. Johnson Rice has been President and Chief Executive Officer of Johnson Publishing Company, Inc., a multi-media company, since 2002. She joined that company in 1980, became Vice President in 1985 and was elected President and Chief Operating Officer in 1987. Mrs. Johnson Rice is a director of MoneyGram International, Inc. and Omnicom Group, Inc.

 

Marc J. Shapiro, 60, Director since 2001

 

Retired Vice Chairman, JPMorgan Chase & Co.

 

Mr. Shapiro retired in 2003 as Vice Chairman of JPMorgan Chase & Co., a financial services company. Before becoming Vice Chairman of JPMorgan Chase & Co. in 1997, Mr. Shapiro was Chairman, President and Chief Executive Officer of Chase Bank of Texas, a wholly-owned subsidiary of JPMorgan Chase & Co., from 1989 until 1997. He now serves as a consultant to JPMorgan Chase & Co. as a non-executive Chairman of its Texas operations. Mr. Shapiro is a member of the board of directors of Burlington Northern Santa Fe Corporation and The Mexico Fund, and a trustee of Weingarten Realty Investors. He also serves on the boards of M.D. Anderson Cancer Center, Baylor College of Medicine, Rice University and BioHouston.

 

 

Directors who are not officers or employees of the Corporation or any of its subsidiaries, affiliates or equity companies are “Outside Directors” for compensation purposes. Outside Directors are compensated for their services under our Outside Directors’ Compensation Plan, which we adopted in 2003. Our objectives for outside director compensation are to remain competitive with the compensation paid to outside directors of comparable companies, to keep pace with changes in best corporate governance practices in director compensation, to attract qualified candidates for Board service, and to reinforce our practice of encouraging stock ownership by our directors. In 2006, to assist the Nominating and Corporate Governance Committee in assessing and determining appropriate, competitive outside director compensation, the Committee engaged Mercer, an outside compensation consultant. Based on that assessment, in 2006 the Committee recommended to the Board, and the Board approved, the outside director compensation for 2007. The Outside Director compensation policy is not expected to change for 2008.

 

In 2007, each Outside Director who served the full year received:

 

 

Outside Directors who join the Board during a calendar year receive the full quarterly amount of the annual retainer for the quarter in which they join the Board and each quarter thereafter, and a pro-rated grant of restricted share units.

 

Outside Directors who were also chairmen of the Audit, Management Development and Compensation and Nominating and Corporate Governance Committees each received an additional grant of restricted share units with a value of $20,000, and the Lead Director received an additional grant of restricted share units with a value of $30,000. In addition, we reimbursed Outside Directors for expenses incurred as a result of attending Board or committee meetings.

 

Restricted share units are not shares of our common stock. Rather, restricted share units represent the right to receive an amount, payable in shares of our common stock, equal to the value of a specified number of shares of our common stock within 90 days following the restricted period. The restricted period for the restricted share units begins on the date of grant and expires on the date the Outside Director retires from or otherwise terminates service on the Board. During the restricted period, restricted share units may not be sold, assigned, transferred or otherwise disposed of, or mortgaged, pledged or otherwise encumbered. Outside Directors also receive additional restricted share units equivalent in value to the dividends that would have been paid to them if the restricted share units granted to them were shares of our common stock.

2007 Outside Director Compensation

 

The following table sets forth the compensation paid to each Outside Director in 2007 for his or her service as a director:

 

 

 

 

 

		Restricted Share
		Units				Grant Date
Name		Granted in 2007(#)				Fair Value($)
John R. Alm			1,913				130,000
Dennis R. Beresford			2,208				150,000
John F. Bergstrom			1,913				130,000
Abelardo E. Bru			1,913				130,000
Pastora San Juan Cafferty			1,913				130,000
Robert W. Decherd			2,355				160,000
Mae C. Jemison			1,913				130,000
James M. Jenness			1,715				119,167
Ian C. Read			710				48,750
Linda Johnson Rice			2,208				150,000
Marc J. Shapiro			2,208				150,000
G. Craig Sullivan			1,913				130,000

 

 

		Restricted				Restricted				Stock
Name		Stock(#)				Share Units(#)				Options(#)
John R. Alm			0				3,891				0
Dennis R. Beresford			0				10,588				5,084
John F. Bergstrom			3,000				9,644				8,032
Abelardo E. Bru			0				4,782				0
Pastora San Juan Cafferty			0				3,743				8,337
Robert W. Decherd			3,000				11,506				8,236
Mae C. Jemison			0				9,644				5,084
James M. Jenness			0				1,754				0
Ian C. Read			0				715				0
Linda Johnson Rice			3,000				10,262				7,626
Marc J. Shapiro			0				10,588				17,924
G. Craig Sullivan			0				6,240				0

 

 

 

														Matching
		Travel to								Tax				Gifts
		Board				Retirement				Gross-ups				Program
Name		Events($)(a)				Gifts($)(b)				($)(c)				($)(d)				Total($)
John R. Alm			22,716				0				16,825				0				39,541
Dennis R. Beresford			0				0				0				0				0
John F. Bergstrom			5,475				0				10,045				10,000				25,520
Abelardo E. Bru			17,047				0				13,371				3,000				33,418
Pastora San Juan Cafferty			29,315				3,688				2,268				18,655				53,926
Robert W. Decherd			21,735				0				15,222				10,000				46,957
Claudio X. Gonzalez			48,031				5,529				0				0				53,560
Mae C. Jemison			17,190				0				14,655				0				31,845
James M. Jenness			7,656				0				10,947				0				18,603
Ian C. Read			0				0				0				0				0
Linda Johnson Rice			0				0				0				0				0
Marc J. Shapiro			14,726				0				11,806				0				26,532
G. Craig Sullivan			14,635				0				12,608				10,000				37,243

 

 

 

 

 

						Number of
						Restricted				Grant Date
		Dividends				Share Units				Fair Value of
		Credited on				Credited for				Restricted Share
Name		Restricted Stock($)				Dividends in 2007(#)				Units Credited($)
John R. Alm			0				101.59				7,015
Dennis R. Beresford			0				297.71				20,542
John F. Bergstrom			6,240				271.87				18,759
Abelardo E. Bru			0				127.95				8,833
Pastora San Juan Cafferty			3,060				192.14				13,236
Robert W. Decherd			6,240				323.85				22,346
Mae C. Jemison			0				271.87				18,759
James M. Jenness			0				39.73				2,748
Ian C. Read			0				5.32				376
Linda Johnson Rice			6,240				288.06				19,877
Marc J. Shapiro			0				297.71				20,542
G. Craig Sullivan			0				171.12				11,810

 

 

 

 

Other than the cash retainer, grants of restricted share units and the other compensation described above, no Outside Director received any compensation or perquisites from us for services as a director in 2007.

 

A director who is not an Outside Director does not receive any compensation for services as a member of the Board or any committee, but is reimbursed for expenses incurred as a result of the services.

 

The Board of Directors unanimously recommends a vote FOR the election of the five nominees for director.

 

The Audit Committee of the Board of Directors has selected Deloitte & Touche LLP as the independent registered public accounting firm to audit the financial statements of the Corporation for 2008, subject to ratification by the stockholders. If the stockholders do not ratify the selection of Deloitte & Touche LLP, the selection of other independent auditors will be considered by the Audit Committee. Deloitte & Touche LLP have been our independent auditors since 1928.

Representatives of Deloitte & Touche LLP are expected to be present at the Annual Meeting with the opportunity to make a statement if they desire to do so, and will be available to respond to appropriate questions.

 

The aggregate fees (excluding value added taxes) billed to the Corporation and its subsidiaries for the fiscal years ended December 31, 2007 and 2006 by the Corporation’s principal accounting firm, Deloitte & Touche LLP, the member firms of Deloitte Touche Tohmatsu and their respective affiliates (collectively, “Deloitte”), were:

 

 

 

 

 

All audit and non-audit services provided by Deloitte to the Corporation require pre-approval by the Audit Committee. The Audit Committee utilizes the following procedures in pre-approving all audit and non-audit services provided by Deloitte. At or before the first meeting of the Audit Committee each year, our Vice President and Controller prepares a detailed memorandum outlining the audit services to be provided by Deloitte together with the related fees. In addition, our business and staff units prepare individual requests for non-audit services to be provided by Deloitte during the year. These requests describe the services to be provided, the estimated cost of these services, why the requested service is not inconsistent with the independence rules of the SEC, and why it is appropriate to have Deloitte provide such services. Our Vice President and Controller reviews and summarizes the individual non-audit service requests and fees (separately describing audit-related services, tax services and other services) to be provided by Deloitte. Before each subsequent meeting of the Committee, our Vice President and Controller prepares an additional memorandum that includes updated information regarding approved services and highlights any new audit and non-audit services to be provided by Deloitte. All new non-audit services to be provided are described in individual requests for services. The Audit Committee reviews these memoranda and the individual requests for non-audit services and approves the services described therein if such services are acceptable to the Committee.

 

To ensure prompt handling of unexpected matters, the Committee delegates to the Chairman of the Audit Committee the authority to amend or modify the list of audit and non-audit services and fees, as long

as the additional or amended services do not affect Deloitte’s independence under applicable SEC rules. The Chairman reports action taken to the Audit Committee at its next Committee meeting.

 

All Deloitte services and fees in 2007 were pre-approved by the Audit Committee.

 

The Board of Directors unanimously recommends a vote FOR ratification of this selection.

 

In accordance with its written charter adopted by the Board of Directors, the Audit Committee of the Board assists the Board in fulfilling its responsibility for oversight of the quality and integrity of the accounting, auditing and financial reporting practices of the Corporation.

 

In discharging its oversight responsibility as to the audit process, the Audit Committee obtained from the independent registered public accounting firm (the “auditors”) a formal written statement describing all relationships between the auditors and the Corporation that might bear on the auditors’ independence, as required by Independence Standards Board Standard No. 1, “Independence Discussions with Audit Committees,” as adopted by the Public Company Accounting Oversight Board (PCAOB), discussed with the auditors any relationships that may impact their objectivity and independence and satisfied itself as to the auditors’ independence. The Audit Committee also discussed with management, the internal auditors, and the auditors the quality and adequacy of the Corporation’s internal controls and the internal audit function’s organization, responsibilities, and budget and staffing. The Audit Committee reviewed with both the auditors and the internal auditors their audit plans, audit scope and identification of audit risks.

 

The Audit Committee discussed and reviewed with the auditors all communications required by the auditing standards of the PCAOB, including those required by PCAOB AU 380, “Communications with Audit Committees,” and, with and without management present, discussed and reviewed the results of the auditors’ examination of the financial statements and the Corporation’s internal control over financial reporting. The Committee also discussed the results of the internal audit examinations.

 

The Audit Committee reviewed the audited financial statements of the Corporation as of and for the fiscal year ended December 31, 2007, with management and the auditors. The Audit Committee also reviewed management’s assessment of the effectiveness of internal controls as of December 31, 2007 and discussed the auditor’s examination of the effectiveness of the Corporation’s internal control over financial reporting. Management has the responsibility for preparing the Corporation’s financial statements in accordance with accounting principles generally accepted in the United States of America (GAAP) and for establishing and maintaining the Corporation’s internal control over financial reporting. The auditors have the responsibility for performing an independent audit of the Corporation’s financial statements and internal control over financial reporting, and expressing opinions on the conformity of the Corporation’s financial statements with GAAP and the effectiveness of internal control over financial reporting.

 

Based on the above-mentioned review and discussions with management and the auditors, the Audit Committee recommended to the Board that the Corporation’s audited financial statements be included in its Annual Report on Form 10-K for the fiscal year ended December 31, 2007, for filing with the Securities and Exchange Commission. The Audit Committee also has selected and recommended to stockholders for ratification the reappointment of Deloitte & Touche LLP as the independent registered public accounting firm for 2008.

 

AUDIT COMMITTEE OF THE
BOARD OF DIRECTORS

 

Dennis R. Beresford, Chairman
John R. Alm
John F. Bergstrom
Mae C. Jemison, M.D.
Ian C. Read

 

The Board of Directors is proposing, for approval by our stockholders, an Amended and Restated Certificate of Incorporation (the “Proposed Certificate”) that incorporates proposed amendments to provisions of our existing Amended and Restated Certificate of Incorporation (the “Existing Certificate”). A stockholder proposal to eliminate provisions in the Existing Certificate that require more than a simple majority vote for certain actions was included in the 2007 Proxy Statement and received favorable votes from a majority of the shares of our common stock outstanding and entitled to vote. The Nominating and Corporate Governance Committee of the Board of Directors and the full Board have carefully considered the advantages and disadvantages of eliminating the supermajority voting provisions and, in light of the vote of stockholders at last year’s Annual Meeting, have determined that it is appropriate to propose the corresponding amendments to the Existing Certificate described below.

 

The Board has unanimously adopted a resolution approving, subject to stockholder approval, and declaring the advisability of, an amendment to the Existing Certificate to eliminate the supermajority voting provisions in the Existing Certificate, as follows:

 

 

The full text of the Proposed Certificate is attached as Appendix A to this proxy statement, with additions indicated by underlining and deletions indicated by strikeout. All the proposed amendments are included in the Proposed Certificate. The Corporation’s By-Laws do not contain any supermajority voting provisions.

 

To be approved, the proposed amendments require an affirmative vote by the holders of a majority of our common stock outstanding and entitled to vote on the amendments. If approved, these amendments will become effective upon the filing of the Proposed Certificate with the Secretary of State of the State of Delaware, which we would do promptly after the Annual Meeting.

 

The Board of Directors unanimously recommends a vote FOR approval of this proposal.

 

Dr. Sydney K. Kay, 5718 Harvest Hill Road, Dallas, Texas 75230-1253, owning 106.25 shares of our common stock, has given notice that he intends to present for action at the Annual Meeting the resolution set forth below. The Board of Directors opposes this stockholder proposal for the reasons set forth below the proposal.

 

Proxies solicited by management will be voted against the stockholder proposal below unless stockholders specify a contrary choice in their proxies.

 

In accordance with applicable rules of the SEC, we have set forth Dr. Kay’s proposal below:

 

QUALIFICATIONS FOR DIRECTOR NOMINEES

 

WHEREAS Most Director nominees come from businesses totally unrelated to the corporation to which they have been nominated.

 

WHEREAS It is known, throughout the financial industry, that Chairmen and CEOs have the power to appoint their own Boards of Directors. John Kenneth Galbraith, the renown economist, said it bluntly: “Senior Executives in the great corporations of this country set their own salaries.....and stock option deals...subject to the approval of the Board of Directors that they have appointed. Not surprisingly, the Directors go along.” (The Dallas Morning News, 1-16-2000, p. 1/10E);

 

WHEREAS Most corporate Boards in the United States consist of present or past Chairmen and/or CEOs and Presidents of other corporations who, back home, have or had the power to nominate their own Boards of Directors;

 

WHEREAS Directors, nominated in such a fashion, have been called “Puppets.” by the author of this Proposal; “Flunkies” by David Broder of The Washington Post, and “Rubber-Stampers” by Steve Hamm of Business Week;

 

WHEREAS Paul Volcker, former Chairman of the Federal Reserve Board, said, “Stock options have been the principal source of egregious excesses in executive compensation over the past decade without exception.” (Nightly Business Report, PBS, 9-17-2002)

 

WHEREAS Arthur Levitt, past Chairman of the Securities and Exchange Commission, said, “I spoke time and time again of the failure of the Board of Directors to do anything but act like absolute lambs in the face of their management companies.” (Wall Street Week with Fortune, 11-8-2003, PBS-TV)

 

WHEREAS Sir J. E.E. Dalberg said, “Power tends to corrupt and absolute power corrupts absolutely”;

 

WHEREAS ALL the non-employee Directors, COMBINED, often do not own enough shares in the corporations to which they have been nominated to have genuine feelings of fiduciary responsibility to its shareholders. Their allegiance tends to be directed to the Chairmen or CEOs who appointed them, as revealed in the enormously distorted Compensation Packages awarded to these Principal Executives that are often totally unrelated to corporate Performance as measured by the “Net Income” reported to the SEC and recorded in the Annual Report.

 

WHEREAS Salaried employees shall NOT qualify as Director Nominees: Their presence on the Board corrupts and destroys its function as a truly and totally independent executive governance body.

 

WHEREAS To have a truly and totally independent executive governance Board of Directors the nominees must come from sources over which Chairmen, Presidents, CEOs, and the other Principal Corporative Executives have no input or control whatsoever;

THEREFORE, IT is RECOMMENDED that, to return ethics to the selection process, beginning with the 2009 Annual Meeting of the shareholders, to qualify for nomination to the Board of Directors ALL nominees shall be:

 

1. Individual Investors who shall, for at least the past three (3) years, have been and currently are, the sole owner of at least three million dollars ($3,000,000) of the corporation’s shares, and/or:

 

2. Individuals representing Mutual, Pension, State Treasuries of Teacher, Labor or Employee Funds, Foundations or Brokerages holding at least five million (5,000,000) voting shares in the corporation to which they stand for nomination.

 

 

The Board of Directors unanimously recommends a vote AGAINST this proposal for the reasons set forth below.

 

The Board believes that maintaining a board that consists of well-qualified directors, a majority of whom are independent, is an important part of good corporate governance practices. As discussed under “Part Two — Corporate Governance Information — Director Nominee Criteria and Process,” the Nominating and Corporate Governance Committee has identified specific criteria, attributes and experience levels for director nominees and has established a formal annual review process to evaluate directors prior to recommending a slate of directors to the Board for nomination. The Committee and the Board also use a formal search process to identify qualified candidates for director positions. The Board believes these processes sufficiently address the concerns raised in this proposal.

 

Furthermore, a significant portion of director compensation is in the form of restricted share units. These restricted share units, which directors cannot transfer until they no longer serve on the Board, further align directors’ interests with those of stockholders, and address the proposal’s concerns.

 

In addition, the Board’s strong emphasis on independence is evidenced by the Lead Director position, which chairs executive session meetings of our non-management directors, as well as by the fact that all of the Corporation’s directors, other than the Chairman and Chief Executive Officer, are considered Independent Directors. The Board strongly disagrees with the proponent’s suggestion that a director can only be independent if he or she satisfies the very high stock ownership requirements of the proposal. Owning $3 million in stock of the Corporation does not in itself make a candidate qualified to serve as director.

 

If the proposal were implemented, it would set exorbitantly high stock ownership requirements, limiting the Corporation’s ability to identify highly-qualified, independent candidates for Board membership. The Board does not believe it would be in the best interest of the Corporation to limit the pool of director candidates to those wealthy enough to hold a $3 million investment in the Corporation. Rather, the Board believes that a diverse pool of director candidates serves the best interest of the Corporation. This proposal would severely limit the number of candidates, and the Corporation would be unable to capitalize on the qualifications, insights and experiences of many otherwise highly-qualified candidates.

 

As a result, the Board believes that its current processes to identify and evaluate nominees, as well as its emphasis on independence, align the directors’ interests with those of its stockholders, while providing the Board with the flexibility to identify highly-qualified and diverse candidates.

 

The Board unanimously recommends that the stockholders vote AGAINST the adoption of this proposal.

 

The Comptroller of New York City, as custodian and trustee of the New York City Employees’ Retirement System, the New York City Teachers’ Retirement System, the New York City Police Pension Fund, and the New York City Fire Department Pension Fund, and custodian of the New York City Board of Education Retirement System, 1 Centre Street, New York, New York 10007-2341 (the “Funds”), owning an aggregate amount of 1,327,957 shares of our common stock, has given notice that he intends to present for action at the Annual Meeting the resolution set forth below. The Board of Directors opposes this stockholder proposal for the reasons set forth below the proposal.

 

Proxies solicited by management will be voted against the stockholder proposal below unless stockholders specify a contrary choice in their proxies.

 

 

In accordance with applicable rules of the SEC, we have set forth the Funds’ proposal below:

 

KIMBERLY-CLARK CORPORATION
GLOBAL HUMAN RIGHTS STANDARDS

 

Submitted by William C. Thompson, Jr., Comptroller, City of New York,

on behalf of the Boards of Trustees of the New York City Pension Funds

 

Whereas, Kimberly-Clark Corporation currently has overseas operations, and

 

Whereas, reports of human rights abuses in the overseas subsidiaries and suppliers of U.S.-based corporations have led to an increased public awareness of the problems of child labor, “sweatshop” conditions, and the denial of labor rights in U.S. corporate overseas operations, and

 

Whereas, corporate violations of human rights in these overseas operations can lead to negative publicity, public protests, and a loss of consumer confidence which can have a negative impact on shareholder value, and

 

Whereas, a number of corporations have implemented independent monitoring programs with respected human rights and religious organizations to strengthen compliance with international human rights norms in subsidiary and supplier factories, and

 

Whereas, many of these programs incorporate the conventions of the International Labor Organization (ILO) on workplace human rights, and the United Nations’ Norms on the Responsibilities of Transnational Corporations with Regard to Human Rights (“UN Norms”), which include the following principles:

 

 

5. There shall be no use of child labor. (ILO Convention 138; UN Norms, section D6), and,

 

Whereas, independent monitoring of corporate adherence to these internationally recognized principles is essential if consumer and investor confidence in our company’s commitment to human rights is to be maintained,

 

Therefore, be it resolved that the shareholders request that the company commit itself to the implementation of a code of conduct based on the aforementioned ILO human rights standards and United Nations’ Norms on the Responsibilities of Transnational Corporations with Regard to Human Rights, by its international suppliers and in its own international production facilities, and commit to a program of outside, independent monitoring of compliance with these standards.

 

 

The Board of Directors unanimously recommends a vote AGAINST this proposal for the reasons set forth below.

 

Although the Board agrees with the principles expressed by the proponent relative to human rights in employment, the Board does not believe that adoption of this proposal is in the best interests of the Corporation and our stockholders.

 

The Corporation has received a similar proposal for the past three years, which has received support from less than 10 percent of the votes cast each year.

 

Kimberly-Clark has a long-standing and well-recognized record of support for the rights of our employees, with emphasis placed on the importance of their health and safety. The Corporation unequivocally prohibits discrimination on the basis of race, color, sex, sexual orientation, age, religion, national origin, disability and other categories. We are committed to conducting business according to the highest ethical standards and in full compliance with applicable laws in every country in which we operate. We hold managers from all of our businesses worldwide responsible for overseeing the proper implementation of these policies and for being knowledgeable about all laws and regulations related to employees’ human rights. Suppliers, vendors and contractors of the Corporation are expected to meet similar standards.

 

Our Code of Conduct, as described in “Part Two — Corporate Governance Information — Other Corporate Governance Matters — Code of Conduct,” provides a uniform set of workplace standards and principles that apply to the worldwide operations of the Corporation and its subsidiaries. We also have a Code of Conduct hotline for employees to report violations anonymously, and we thoroughly investigate alleged violations.

 

All Kimberly-Clark manufacturing facilities uphold established principles and unifying practices that guide our operations. We also hold these facilities accountable for applying the same standards of safety, human resources, quality, ethics, cost, asset management and customer service. In facilities where union representation exists, we work to build partnerships that meet our collective needs.

 

The Corporation’s policies and procedures have consistently reflected our position on human rights in the workplace. Our purchase order terms and conditions require our suppliers to warrant that all services have been performed and that all goods shipped to the Corporation have been produced in compliance with all applicable laws, standards or codes. We will not knowingly conduct business with vendors that employ child, prison, indentured or bonded labor, or use corporal punishment or other forms of mental or physical coercion as a form of discipline in their operations.

 

The Board believes that the Corporation’s Code of Conduct and our business practices address the substantive areas covered by the proposal, and that our existing monitoring processes effectively ensure compliance with the business principles and human rights standards advocated by the proponent. In addition, the Corporation’s compliance with applicable laws is periodically reviewed by federal, state and local government agencies that are empowered to perform reviews. The Board believes that third party monitoring of the Corporation and our suppliers would require expenditure beyond any benefit which reasonably could be expected, and is not in the best interests of our stockholders.

 

The Board unanimously recommends that the stockholders vote AGAINST the adoption of this proposal.

 

Mr. Chris Rossi, P.O. Box 249, Boonville, California 95415-0249, owning 3,120 shares of our common stock, has given notice that he or his designee intends to present for action at the Annual Meeting the resolution set forth below. The Board of Directors opposes this stockholder proposal for the reasons set forth below the proposal.

 

Proxies solicited by management will be voted against the stockholder proposal below unless stockholders specify a contrary choice in their proxies.

 

In accordance with applicable rules of the SEC, we have set forth Mr. Rossi’s proposal below:

 

6 — Special Shareholder Meetings

 

RESOLVED, Shareholders ask our board to amend our bylaws and any other appropriate governing documents to give holders of 10% to 25% of our outstanding common stock the power to call a special shareholder meeting, in compliance with applicable law. This proposal favors 10% from the above range.

 

Special meetings allow investors to vote on important matters, such as a takeover offer, that can arise between annual meetings. If shareholders cannot call special meetings, management may become insulated and investor returns may suffer.

 

Shareholders should have the ability to call a special meeting when they think a matter is sufficiently important to merit expeditious consideration. Shareholder control over timing is especially important in the context of a major acquisition or restructuring, when events unfold quickly and issues may become moot by the next annual meeting.

 

Fidelity and Vanguard are among the mutual funds supporting a shareholder right to call a special meeting. The proxy voting guidelines of many public employee pension funds, including the New York City Employees Retirement System, also favor this right. Governance ratings services, such as The Corporate Library and Governance Metrics International, take special meeting rights into account when assigning company ratings.

 

Eighteen (18) proposals on this topic averaged 56%-support in 2007 — including 74%-support at Honeywell (HON) according to RiskMetrics (formerly Institutional Shareholder Services).

 

Please encourage our Board to adopt this higher standard:

 

Special Shareholder Meetings
Yes on 6

 

The Board of Directors unanimously recommends a vote AGAINST this proposal for the reasons set forth below.

 

Under the Corporation’s Certificate of Incorporation, a special meeting of the stockholders may be called by a majority of the Board, the Chairman of the Board or the Chief Executive Officer. The Board believes that this provides the Corporation with the flexibility to convene special stockholder meetings under circumstances that the Board deems appropriate in the exercise of its fiduciary duties.

 

Under this proposal, holders of 10 to 25 percent of the Corporation’s common stock could call a special meeting. If implemented, this could provide a forum for self-interested parties holding a relatively small amount of shares to call meetings that would serve their narrow purposes rather than those of the Corporation and the majority of its stockholders.

 

The annual meeting of stockholders already provides ample opportunity to raise appropriate matters. Stockholders have frequently used the annual stockholder meetings to have their concerns communicated to all of the Corporation’s stockholders, including through proposals such as this proposal. For those extraordinary circumstances where a matter cannot wait until the next annual meeting, the Corporation’s By-Laws, consistent with Delaware law, permit a special meeting to be called as described above. The Board, rather than a group of minority stockholders, is best positioned to determine when it is in the best interest of the stockholders as a whole to incur the extraordinary financial and administrative expense of holding a special meeting.

 

The Board believes that the current process to allow stockholders to submit a proposal and bring a matter to an annual meeting for a vote is an effective means for stockholders to voice their concerns, as well as a more efficient use of the Corporation’s resources than is called for in the proposal.

 

The Board unanimously recommends that the stockholders vote AGAINST the adoption of this proposal.

 

 

 

Mr. Mark Filiberto, General Partner, The Great Neck Capital Appreciation LTD Partnership, 1981 Marcus Ave., Suite C114, Lake Success, New York 11042, owning an aggregate amount of 300 shares of our common stock, has given notice that he or his designee intends to present for action at the Annual Meeting the resolution set forth below. The Board of Directors opposes this stockholder proposal for the reasons set forth below the proposal.

 

Proxies solicited by management will be voted against the stockholder proposal below unless stockholders specify a contrary choice in their proxies.

 

In accordance with applicable rules of the SEC, we have set forth Mr. Filiberto’s proposal below:

 

7 — Cumulative Voting

 

RESOLVED:  Cumulative Voting. Shareholders recommend that our Board adopt cumulative voting. Cumulative voting means that each shareholder may cast as many votes as equal to number of shares held, multiplied by the number of directors to be elected. A shareholder may cast all such cumulated votes for a single candidate or split votes between multiple candidates, as that shareholder sees fit. Under cumulative voting shareholders can withhold votes from certain nominees in order to cast multiple votes for others.

 

Cumulative voting won impressive yes-votes of 54% at Aetna and 56% at Alaska Air in 2005. And then it received 55% at GM in 2006. The Council of Institutional Investors www.cii.org has recommended adoption of this proposal topic. CalPERS has also recommend a yes-vote for proposals on this topic.

 

Cumulative voting encourages management to maximize shareholder value by making it easier for a would-be acquirer to gain board representation. Cumulative voting also allows a significant group of shareholders to elect a director of its choice — safeguarding minority shareholder interests and bringing independent perspectives to Board decisions. Most importantly cumulative voting encourages management to maximize shareholder value by making it easier for a would-be acquirer to gain board representation.

 

Please encourage our board to respond positively to this proposal:

 

Cumulative Voting
Yes on 7

 

As with most other major corporations, directors at the Corporation are elected by giving stockholders one vote per share for each Board seat. The Board believes this method of voting promotes the election of a balanced and effective Board, in which each director represents the interests of all stockholders.

 

The Corporation has adopted a true majority vote standard in the election of directors in uncontested elections. A nominee in an uncontested election who does not receive a majority of votes cast will not be elected, and any incumbent director who is not re-elected must tender his or her resignation for consideration by the Board. Majority voting for directors in uncontested elections is broadly recognized as providing a voice for minority stockholders in the election of directors, while promoting the democratic election of directors for, and corresponding accountability to, all stockholders.

 

Majority voting for directors has received high stockholder support when presented in the form of a stockholder proposal. Many supporters of majority voting do not, however, support cumulative voting in combination with majority voting because of the risk that the combination could be destabilizing and imprudent.

 

Instead of the traditional “one-share, one-vote” approach currently used by the Corporation, cumulative voting allows stockholders to pool all of their votes and vote them in whatever proportions they choose among the director nominees. As a result, cumulative voting creates the possibility of allowing relatively small constituencies of stockholders to stack their votes in favor of “special interest” directors, granting these groups a voice in director elections that may be disproportionate to their economic investment in the Corporation.

 

For example, if cumulative voting were implemented, a dissident stockholder group owning approximately eight percent of the Corporation’s stock could launch a proxy contest to elect a nominee designated by this group. This group, with ownership levels of less than ten percent, could use cumulative voting to install its nominee on the Board, even if the nominee failed to receive a majority of the outstanding votes. This nominee would be elected in lieu of the candidate nominated by the Board in the exercise of its fiduciary duties to all of the stockholders.

 

Directors elected by these special interests may feel obligated to represent the groups’ narrow interests, rather than the interests of all stockholders. Ultimately, this support by directors of the special interests of the constituencies that elected them could create partisanship and divisiveness, and impair the Board’s ability to operate effectively as a governing body, to the detriment of all stockholders.

 

Furthermore, the Board believes cumulative voting may interfere with the continuing efforts of the Corporation’s Nominating and Corporate Governance Committee to develop and maintain a diverse Board comprised of individuals with the wide range of knowledge, experience and expertise necessary to best serve the Corporation.

 

In addition, the Board believes that cumulative voting is unnecessary because the Corporation has strong corporate governance provisions and practices in place that are responsive to stockholder concerns:

 

 

For these reasons, the Board believes that cumulative voting is not in the best interests of the Corporation or its stockholders.

 

The Board unanimously recommends that the stockholders vote AGAINST the adoption of this proposal.

 

Mr. Paul Haible, 546 30th Street, San Francisco, California 94131, owning 200 shares of our common stock, has given notice that he or his designee intends to present for action at the Annual Meeting the resolution set forth below. The Board of Directors opposes this stockholder proposal for the reasons set forth below the proposal.

 

Proxies solicited by management will be voted against the stockholder proposal below unless stockholders specify a contrary choice in their proxies.

 

In accordance with applicable rules of the SEC, we have set forth Mr. Haible’s proposal below.

 

Stockholder Proposal to Amend Corporate Bylaws Establishing a Board Committee on
Sustainability

 

RESOLVED:  To amend the Bylaws, by inserting the following new section after section 55 of the bylaws.

 

 56. Board Committee on Sustainability

 

A) There is established a Board Committee on Sustainability. The committee is authorized to address corporate policies, above and beyond matters of legal compliance, in order to ensure our corporation’s sustained viability. The committee shall strive to enhance shareholder value by responding to changing conditions, knowledge, and associated risks of the natural environment, including but not limited to: natural resource limitations, energy use, water scarcity and quality, waste disposal, toxic and hazardous substance proliferation, and climate change.

 

B) The Board of Directors is authorized in its discretion, consistent with these Bylaws and applicable law to: (1) select the members of the Board Committee on Sustainability, (2) provide said committee with funds for operating expenses, (3) adopt a charter, regulations or guidelines to govern said Committee’s operations, (4) empower said Committee to solicit public input and to issue periodic reports to shareholders and the public, at reasonable expense and excluding confidential information, on the Committee’s activities, findings and recommendations, and (5) adopt any other measures within the Board’s discretion consistent with these Bylaws and applicable law.

 

C) Nothing herein shall restrict the power of the Board of Directors to manage the business and affairs of the company. The Board Committee on Sustainability shall not incur any costs to the company except as authorized by the Board of Directors.

 

 Supporting Statement

 

Kimberly-Clark has avoided setting numerical goals or benchmarks for the use of recycled content for its North American consumer product lines, which in the opinion of the proponents makes our company vulnerable to boycotts and to competitors who have integrated higher percentages of quality recycled fiber into their products.

 

The Ontario Forest Management Plan for the Kenogami Forest (MU #350, 2000-2005 and 2005-2010) establishes that pulp milling is impacting intact and endangered forest, including critical habitat for

woodland caribou in Canada’s Boreal Forest. Kimberly-Clark has been associated with the purchase of Kenogami Forest sourced pulp.

 

With company operations expanding globally and existing fiber supplies changing, proponents believe there is an increased likelihood that wood from forests associated with human rights abuses, land disputes, severe habitat destruction, and conflict with indigenous communities will enter the Kimberly-Clark supply stream.

 

Proponents believe the company’s current practices are unsustainable and therefore merit higher level consideration as would be encouraged by a Board-level committee. The committee would be authorized to initiate, review, and make policy recommendations regarding the company’s preparation to adapt to changes in marketplace and environmental conditions that may present risks and opportunities that affect the sustainability of our business. Issues related to sustainability might include, but are not limited to: vulnerability of natural resource supplies, global climate change contributing to political instability, human rights issues related to resource extraction, emerging concerns regarding toxicity of materials, and biodiversity loss.

 

The Board of Directors unanimously recommends a vote AGAINST this proposal for the reasons set forth below.

 

Kimberly-Clark has a long history of responsible use of natural resources and is committed to the principles of sustainability. The Board does not believe, however, that establishing a dedicated Board committee is the most effective and efficient way to support these principles.

 

The entire Board is already actively involved in reviewing sustainability issues and monitors the Corporation’s activities in this area. The Board’s activities include reviewing fiber policy matters as well as providing oversight on sustainability issues as part of its ongoing review of the Corporation’s overall strategy. Because of the entire Board’s engagement in this process, the Board believes that the creation of a separate sustainability committee is not necessary or desirable and is not an efficient use of resources.

 

In addition, the Corporation has addressed many of the concerns underlying the proposal through the implementation of various sustainability practices and initiatives. We frequently review our sustainable forestry policies and practices to enhance our efforts to influence sustainable forestry practices on a global level. Our dedication to sustainable forestry is highlighted on our website, which includes important information regarding our practices in this area.

 

Our website also includes our annual sustainability report, which presents much the same information that the proponent suggests the new Board committee would provide. Topics discussed in our sustainability report include our fiber procurement practices, environmental stewardship and climate change.

 

We have also recently chartered an outside Sustainability Advisory Board, which we established to provide an independent perspective to aid us in addressing sustainability issues. The mission of the Sustainability Advisory Board is to provide advice to the Corporation regarding a range of sustainability initiatives, including the Corporation’s fiber policies and development of our sustainability programs. The Sustainability Advisory Board will also review our sustainability documentation such as our sustainability report. It is also expected to provide additional expertise related to current sustainability matters, such as developing and emerging markets, forestry, and social issues. Members of the Sustainability Advisory Board are selected based on their background and experience in the sustainability area.

 

The Corporation is also a member of the World Business Council for Sustainable Development. This membership broadens our perspective on the ways we can contribute to global sustainable development solutions.

 

In recognition of our efforts in sustainability, we have been named as the Personal Products Industry Sustainability Leader for the 2007/2008 Dow Jones Sustainability Index. This marks the third consecutive year in which we have received this recognition. The Corporation is the only personal products company in

this index, and only about 10 percent of the 2,500 largest companies worldwide qualify for inclusion. In addition, we ranked 23^rd on the “100 Best Corporate Citizens” list for 2007, which was published in the Corporate Responsibility Officer magazine, in recognition of our leadership role in corporate citizenship.

 

Because of the entire Board’s involvement in reviewing sustainability matters for the Corporation, as well as the Corporation’s ongoing efforts in this area, the Board believes that the creation of a separate Board committee, as suggested by the proponent, is not necessary or desirable for the Corporation to continue its commitment to sustainability principles and practices. Accordingly, the Board believes the proposal is not in the best interests of the Corporation or its stockholders.

 

The Board unanimously recommends that the stockholders vote AGAINST the adoption of this proposal.

 

The following table sets forth information as of December 31, 2007 regarding the number of shares of our common stock beneficially owned by each director and nominee, by each executive officer named in “Executive Compensation” (collectively, the “named executive officers”), and by all directors, nominees and executive officers as a group.

 

		Amount and Nature of
Name		Beneficial Ownership(1)(2)(3)(4)(5)
Robert E. Abernathy			642,410	(6)
John R. Alm			7,391	(7)
Dennis R. Beresford			17,171	(6)
John F. Bergstrom			33,676	(6)(8)
Robert W. Black			35,085	(6)
Abelardo E. Bru			4,782
Mark A. Buthman			350,631	(6)
Robert W. Decherd			48,992	(6)(9)
Thomas J. Falk			1,941,452	(6)(10)
Mae C. Jemison, M.D.			14,858	(6)
James M. Jenness			1,754
Steven R. Kalmanson			631,988	(6)(11)
Ian C. Read			1,415
Linda Johnson Rice			23,188	(6)(12)
Marc J. Shapiro			29,512	(6)
G. Craig Sullivan			8,240	(13)
All directors, nominees and executive officers as a group (19 persons)			4,209,115	(6)(14)

 

 

 

 

		Time-Vested				Performance-Based
		Restricted Share				Restricted Share				Shares of
Name of Individual		Units(#)				Units(#)				Restricted Stock(#)
Robert E. Abernathy			35,833				29,633				7,000
Robert W. Black			13,876				10,313				0
Mark A. Buthman			31,637				26,270				10,000
Thomas J. Falk			148,538				121,871				0
Steven R. Kalmanson			36,121				29,387				7,000

 

 

		Number of Shares That Could be Acquired
Name of Individual		Within 60 Days of December 31, 2007
Robert E. Abernathy			461,422
Dennis R. Beresford			5,084
John F. Bergstrom			8,032
Robert W. Black			10,896
Mark A. Buthman			249,702
Robert W. Decherd			8,236
Thomas J. Falk			1,419,517
Mae C. Jemison, M.D.			5,084
Steven R. Kalmanson			451,104
Linda Johnson Rice			7,626
Marc J. Shapiro			17,924

 

 

 

To further align management’s financial interests with those of the stockholders, the Corporation maintains stock ownership guidelines for key managers, including the named executive officers (see “Part Four — Executive Compensation — Compensation Discussion and Analysis — Additional Compensation Information — Target Stock Ownership Guidelines”).

 

This Compensation Discussion and Analysis is intended to provide investors with an understanding of our compensation policies and decisions regarding our named executive officers for 2007. Our named executive officers are our Chief Executive Officer, Chief Financial Officer and our three other most highly compensated executive officers.

 

We will discuss and analyze the following topics in this Compensation Discussion and Analysis:

 

 

  Executive Compensation Objectives and Policies

 

Our Management Development and Compensation Committee (the “Committee”) is responsible for establishing and administering our policies governing the compensation of our elected officers, including our named executive officers. In accordance with its charter, the Committee has adopted executive compensation policies that are designed to achieve the following four objectives:

 

 

These compensation objectives and policies seek to align the compensation of our officers, including our named executive officers, with the objectives of our Global Business Plan. Our Global Business Plan, which was established by our senior management and the Board, is designed to make the Corporation a stronger and more competitive company.

  Elements of Our Executive Compensation Program

 

For 2007, the Committee authorized an executive compensation program to effect these objectives. The following table provides additional information regarding how the program is designed to achieve these objectives:

 

 

When setting compensation for our executive officers, the Committee considers total annual compensation, which consists of the base salary, annual cash incentive, and long-term equity

incentive compensation elements described above. While the Committee reviews each of these compensation elements, the Committee’s decisions regarding a particular element are not necessarily impacted by other elements, other than to the extent that they affect total annual compensation. See “Total Annual Compensation.”

 

  Peer Groups for Executive Compensation Purposes

 

To ensure that our compensation programs are reasonable and competitive in the marketplace, the Committee compared our programs to those at other companies. To facilitate this comparison, in 2007 the Committee used two peer groups, the Consumer Goods Peer Group and the General Industry Peer Group:

 

 

Consumer Goods Peer Group

 

 

General Industry Peer Group

 

 

The Consumer Goods Peer Group represents companies in our industry and with whom we compete, while the General Industry Peer Group consists of companies that are similar in size to us and against which we believe we compete for executive talent. We average the results of the two peer groups together for the purposes of establishing comparative data. Because we compete with a broad range of companies for executive talent, we believe that combining the groups provides a more complete view of other compensation programs.

 

The peer groups are developed without consideration of individual company compensation practices, and no company has been included or excluded from our peer groups because they are known to pay above-average or below-average compensation. We, the Committee and compensation consultants retained by us and the Committee also periodically review the peer groups, and the peer groups are

revised as appropriate to ensure that they continue to represent similar global organizations with which we compete for executive talent in the marketplace. In 2007, we removed one company from the Consumer Goods Peer Group for which public data is no longer available, and we added eight companies to this peer group to reflect our increasing international focus as well as to ensure that the peer group is more reflective of our industry. Also in 2007, we removed seven companies from and added nine companies to the General Industry Peer Group. These changes were made to ensure that the companies in this peer group remain in a range that is comparable with our size.

 

The following table sets forth comparative data regarding the peer groups, at the time our 2007 compensation and performance objectives were determined:

 

						Range of Individual
		Median Annual Revenue				Company Revenues
Consumer Goods Peer Group		$	11.6 billion			$	4.6 billion to $68.2 billion
General Industry Peer Group		$	16.7 billion			$	10.0 billion to $45.1 billion

 

Our net sales for 2006 were $16.7 billion.

 

Total Annual Compensation

 

In setting 2007 compensation for our executive officers, including our Chief Executive Officer, the Committee focused on total annual compensation, which consists of:

 

		Relative Weight
		Chief		Other Named
Element		Executive Officer		Executive Officers
• Annual cash compensation (base salary and annual cash incentive)		26% of target total annual compensation		34% - 48% of target total annual compensation
• Long-term equity incentive compensation		74% of target total annual compensation		52% - 66% of target total annual compensation

 

The Committee considers annual cash and long-term equity incentive compensation separately and as a package to help ensure that our compensation objectives are met.

 

Consistent with its approach to total annual compensation, the Committee established 2007 total annual compensation targets for each of our named executive officers, as follows:

 

		2007 Total Annual
Name		Compensation Target
Thomas J. Falk		$	10,445,000
Mark A. Buthman		$	2,680,000
Robert E. Abernathy		$	2,890,000
Robert W. Black		$	1,936,000
Steven R. Kalmanson		$	2,961,000

 

These target amounts formed the basis for the Committee’s compensation decisions in 2007, and the Committee believes that the 2007 target amounts it established were appropriate and consistent with our compensation objectives.

 

The 2007 target amounts differ from the amounts set forth in the Summary Compensation Table because:

 

 

 

Process for Setting Total Annual Compensation.  In setting the total annual compensation of our executive officers, the Committee evaluates both market data provided by the compensation consultants and information on the performance of each executive officer for prior years. In order to remain competitive in the marketplace for executive talent, the target levels for the executive officers’ compensation elements, including our Chief Executive Officer, are set at or near the median of the peer group comparisons described above. In order to reinforce a “pay-for-performance” culture, targets for individual executive officers may be set above or below the median depending on the individual’s performance in prior years and experience in the position, as well as any applicable retention concerns. The Committee believes that setting target levels at the median, permitting these adjustments to targets, and providing incentive compensation opportunities that will enable executives to earn above target compensation if they perform well, are consistent with the objectives of our compensation policies. In particular, the Committee believes that this approach enables us to attract and retain skilled and talented executives to guide and lead our businesses and supports a “pay-for-performance” culture.

 

In setting compensation for executive officers who join us from other companies, the Committee evaluates both market data for the position to be filled as well as the officer candidate’s compensation history at other companies. The Committee recognizes that, in order to be able to successfully recruit the candidates to leave their current position and to join us, the candidates’ compensation package will likely have to exceed their current compensation and may put an executive’s compensation above the median of the peer groups.

 

Chief Executive Officer Total Annual Compensation.  Mr. Falk’s total annual compensation is determined by the Committee in the same manner as the total annual compensation of the other named executive officers, based on the policies and process described above. Mr. Falk’s total annual compensation is at or near the median of total compensation for chief executive officers of companies included in the peer group comparisons with comparable levels of responsibilities.

 

The difference between Mr. Falk’s compensation and that of the other named executive officers reflects the significant difference in their relative responsibilities. Mr. Falk’s responsibilities for management and oversight of a global enterprise are significantly higher than those of the other executive officers. A contributing factor in the disparity of responsibilities is that the Corporation’s organizational structure does not include a Chief Operating Officer. As a result, the market pay level for Mr. Falk is substantially higher than the market pay for other officer positions.

 

Annual Cash Compensation

 

In order to attract and retain high caliber executives, we pay our executives an annual cash amount that is considered by the Committee to be competitive in the marketplace. The cash compensation is divided between base salary and an annual performance-based incentive payment.

 

Base Salary.  Salary ranges and individual salaries for executive officers are reviewed annually, and salary adjustments are generally effective on April 1 of each year. In determining individual salaries, the Committee considers the market levels of similar positions at our peer group companies, the individual executive’s performance and experience in the position, and our salary increase guidelines. These guidelines permitted annual salary increases from zero to ten percent, depending on the executive’s individual performance during the prior year against results-based objectives established at the beginning

of each year, and the executive’s leadership performance as measured against the following six leadership attributes:

 

 

In addition, executives and other employees may receive an additional increase if warranted because of promotion, retention concerns, or market conditions. In general, an experienced executive who is performing at a satisfactory level will receive a base salary at or around the median of the peer companies. Executives may be paid above or below the median depending on their experience and performance. The base salaries paid to our named executive officers in 2007 can be found in the Summary Compensation Table.

 

Annual Incentives.  Consistent with our compensation objective to support a performance-oriented environment, our executive compensation program includes an annual cash incentive program to motivate and reward executives in achieving our annual financial performance objectives.

 

The target level for these annual payments is a percentage of the executive’s base salary and, subject to adjustments as described under “Total Annual Compensation,” that percentage is set at or near the median of the peer group comparison described above. The range of possible payouts is expressed as a percentage of the target level and was determined based on competitive factors and the goal of encouraging a performance-oriented environment. The target payment amounts and range of possible payouts for 2007 were as follows:

 

 

Under the program, a significant percentage of annual cash compensation is dependent on performance measured against corporate goals and business unit or function goals established by the Committee at the beginning of each year. These performance goals, which are communicated to our executives at the beginning of each year, are derived from the financial and strategic goals stated in our Global Business Plan. These performance goals and target levels represent an exercise of discretion by the Committee under this program to limit the amount of the incentive payments. Under the program, in the absence of this exercise of discretion, each of the executives would be entitled to an award equal to 0.3 percent of the Corporation’s adjusted earnings.

 

For 2007, the Committee established the following performance goals and relative weights for the named executive officers:

 

The Committee has established these allocations to strike an appropriate balance between aligning the executives with our overall corporate objectives and with individual performance accountability for each executive’s area of responsibility. The Committee determines each year the appropriate split between corporate and business unit or function performance goals based on its assessment of the appropriate balance.

 

 

 

Diluted Net Income Per Share		$	4.09
Adjustments for:
Add — Charges for Strategic Cost Reduction Plan and related implementation costs			0.18
Subtract — Gain on settlement of litigation relating to prior year’s operations in Latin America			(0.02	)
Subtract — Benefit from tax credits for synthetic fuel investments			(0.03	)
Subtract — Benefit from Accelerated Share Repurchase			(0.03	)
Adjusted EPS		$	4.19

 

 

 

 

 

 

Actual performance in these areas is reviewed following the end of the year, and the Committee determines a payout percentage based on its assessment of the achievement of these goals.

 

From 2003 through 2007, the average payout for corporate goals (the combination of corporate key financial goals and other corporate financial and strategic performance goals) has been 122 percent. During this period, we achieved performance in excess of the target level twice and below the target level three times, and did not achieve the maximum performance level in any of these years. From 2005 through 2007 (the period for which business unit or function performance has been included in the determination of annual incentive payments), total payout percentages (including business unit or function performance) for the current named executive officers ranged from 90 percent to 187 percent of the participant’s target award opportunity, with an average approximate payout percentage over the past three years of 120 percent of the target award opportunity. Generally, the Committee sets the minimum, target and maximum levels such that the relative difficulty of achieving the target level is consistent from year to year.

 

Committee Assessment of 2007 Performance.

 

 

		Potential Payout as a Percentage of Target
		0%				100%				200%				Actual
Adjusted EPS		$	3.90			$	4.10			$	4.25			$	4.19
Net Sales (billions)		$	17.10			$	17.50			$	18.10			$	18.27
			0.8 x				1.0 x				1.2 x
Adjusted ROIC multiplier (basis point (bps) improvement)			0 bps				10 bps				50 bps				20 bps

 

 

 

 

Payouts for 2007.  The following table summarizes the payout opportunities and shows the actual payout of annual incentive cash payments for 2007 for the named executive officers:

 

 

The incentive payments were paid to the executives in February 2008 and are included in the Summary Compensation Table.

 

Long-Term Equity Incentive Compensation

 

The Committee awards long-term equity incentive grants to executive officers as part of their overall compensation package. These awards are consistent with the Committee’s objectives of offering competitive compensation packages, supporting our performance-oriented environment, focusing on our long-term success and aligning our senior leaders with the financial interests of our stockholders. When determining the amount of long-term equity incentive plan awards to be granted to executives, the Committee considered the following factors, among others: the specific responsibilities and performance of the executive, our business performance, our stock price performance and other market factors. The 2007 long-term equity incentive awards were granted in April 2007 based on an assessment of those factors at that time. Because these awards are part of our annual compensation program that targets total annual compensation at or near the median of our peer group comparison, subject to adjustment as described under “Total Annual Compensation,” grants from prior years were not considered when setting 2007 targets or granting awards.

 

For 2007, the Committee set the long-term equity incentive compensation grant value for each executive based on the goal of first targeting total annual compensation at the median of the peer groups, subject to adjustment as described under “Total Annual Compensation,” and then adjusting that target to reflect the performance of the executive officer. This grant value was then divided into three grants of equal dollar value, described in more detail below, consisting of:

 

 

Restricted Share Unit Awards.  In 2007, executives received awards of both time-vested and performance-based restricted share units with a value equal to one-third each of the target grant date value for long-term equity incentive compensation. For this purpose, time-vested and performance-based restricted share units are valued on the basis that one unit has the same value as one share of our common stock on the date of grant.

 

Time-vested restricted share units granted in 2007 vest in three annual installments of 33 percent, 33 percent and 34 percent, beginning on the third anniversary of the date of grant.

 

For the performance-based restricted share unit awards granted in 2007, the actual number of shares to be received by the executives will range from zero to 150 percent of the target levels established by the Committee for each executive, depending on the degree to which the performance objective is met. The

performance objective for the 2007 awards is based on the average adjusted ROIC for the period January 1, 2007 through December 31, 2009, as follows:

 

		Potential Payout as a Percentage of Target
Goal		0%				50%				100%				150%
Adjusted ROIC			14.7	%			15.2	%			15.7	%			16.2	%

 

For the 2007 awards, adjusted ROIC is calculated in the same manner as described above for purposes of determining annual cash incentive amounts. This goal is based on an 80 basis point improvement over our 2006 adjusted ROIC, as well as the performance of our peers, and also furthers our Global Business Plan objective to improve adjusted ROIC 40 to 50 basis points per year during this period. Information regarding restricted share unit awards granted to our named executive officers can be found under “Summary Compensation Table,” “Grants of Plan-Based Awards” and “Discussion of Summary Compensation and Plan-Based Awards Tables.”

 

Stock Option Awards.  In 2007, executive officers also received awards of stock options with a value equal to one-third of the target grant date value for long-term equity incentive compensation. For this purpose, stock options are valued on the basis that one option has the same value as 25% of one share of the Corporation’s common stock on the date of grant. The value we use for this purpose is higher than the value we use for financial statement purposes. The Committee believes that this value is an appropriate way to determine the number of options to be granted under the Corporation’s 2001 equity participation plan (the “2001 Plan”) because it provides more consistent application and is not subject to the volatility inherent in the Black-Scholes-Merton valuation method used for financial statement purposes. Information regarding stock options granted to our named executive officers can be found under “Summary Compensation Table,” “Grants of Plan-Based Awards” and “Discussion of Summary Compensation and Plan-Based Awards Tables.”

 

Retirement Benefits

 

In addition to cash and long-term equity incentive compensation, we also maintain a funded, tax-qualified, non-contributing defined benefit pension plan for employees that joined the Corporation before January 1, 1997, as well as a tax-qualified defined contribution plan (the Incentive Investment Plan), that cover certain employees, including our named executive officers. We also maintain supplemental pension plans that provide benefits to the participants in the pension plan as are necessary to fulfill the intent of our pension plan without regard to the limitations imposed by the Internal Revenue Code on qualified pension plans. For a more detailed explanation of our pension plans, and the present value of the accumulated benefits of our named executive officers, see “Pension Benefits.”

 

For employees who joined the Corporation on or after January 1, 1997, or for those employees who elected to opt out of continuing participation in our pension plans, we maintain an additional tax-qualified defined contribution plan (the Retirement Contribution Plan). In addition, we maintain a supplemental Retirement Contribution Program (the Retirement Contribution Excess Benefit Program), which is a nonqualified defined contribution plan that is intended to provide benefits to the extent necessary to fulfill the intent of the Retirement Contribution Plan without regard to the limitations imposed by the Internal Revenue Code. For a more detailed explanation of the Retirement Contribution Plan and supplemental Retirement Contribution Program, and the current balance of amounts contributed on behalf of our named executive officers who participate in these plans, see “Nonqualified Deferred Compensation.”

 

The Committee believes that the retirement benefit and contribution plans described above are important parts of our compensation program. These plans are consistent with those maintained by our peer companies and are therefore necessary in order to remain competitive with them for recruiting and retaining executive talent. Additionally, these plans help encourage retention of our senior executives because their retirement benefits under these plans increase for each year they remain employed by us.

Other Compensation

 

We provide our executive officers with the following perquisites: personal financial planning services provided by an independent firm, an executive health screening program where executives may receive comprehensive physical examinations from an independent health care provider and personal use of corporate aircraft. The personal financial planning program is designed to provide executives with access to knowledgeable resources that understand our compensation and benefit plans and can assist our executives in efficiently and effectively managing their financial and tax planning issues. Beginning in 2007, our Chief Executive Officer no longer receives personal financial planning services pursuant to our program. The executive health screening program provides executives with additional services that help maintain their overall health. We encourage our executives to take advantage of this service.

 

The Board of Directors has approved an executive security program for our Chief Executive Officer. Under this program, our Chief Executive Officer is required to use our corporate aircraft for all business and personal travel, and security services are provided for him at all times, including at his office, other company locations and his residences. Periodically, a security assessment is conducted by an independent security consultant, and the program is reviewed by the Board, to ensure that security measures provided by us are appropriate. The Board considers these security arrangements to be appropriate and reasonable in light of the security risks identified in the independent security assessment. The incremental cost to us of providing security services at Mr. Falk’s residences and his personal travel on our corporate aircraft, and the related tax reimbursements and gross-ups, are included in “All Other Compensation” in the Summary Compensation Table.

 

In general, these perquisites make up less than two percent of total compensation for the named executive officers.

 

Post-Termination Benefits

 

We maintain several severance plans for our executive officers, depending on the circumstances that resulted in their termination. Benefits under these plans are payable only if the executive’s employment terminates as specified in the applicable severance plan. These severance plans are described under “Potential Payments on Termination or Change in Control — Severance Benefits.” An executive officer may not receive severance under more than one severance plan.

 

We believe that our severance plans are consistent with those maintained by our peer companies and are therefore important for attracting and retaining executives who are critical to our long-term success and competitiveness. Two of our severance pay plans are specifically designed to provide an incentive for executive officers to stay with us during periods of uncertainty. One of those plans relates to the implementation of our Global Business Plan and the related Strategic Cost Reduction Plan, including the announced reduction in workforce. At the time this severance plan was established, there was uncertainty regarding which employees would be affected by the workforce reductions. The other plan relates to potential changes in control, and the resulting uncertainty of continued employment following any such change in control.

 

Executive Compensation for 2008

 

In February 2008, the Committee established objectives for 2008 annual cash incentives payable in 2009 to our executive officers. Depending on actual performance in 2008 against the financial and non-financial goals, 2008 incentive payments could range from zero to 240 percent of each executive officer’s target payment.

 

As discussed in “Annual Cash Compensation — Annual Incentives,” the Committee sets the appropriate split among corporate key financial goals, other corporate financial and strategic performance goals, and business unit or function objectives each year.

 

Incentive payments for 2008 will be based on the Committee’s judgment regarding our corporate and the executive officers’ performance in 2008 against those objectives. The key corporate financial goals for

2008 are aligned with our long-term Global Business Plan objectives and include growth in adjusted earnings per share, growth in net sales and improvement in adjusted ROIC.

 

The Committee also established other corporate financial and non-financial goals for 2008. These goals, intended to further align compensation with achieving our Global Business Plan, include:

 

 

In addition, goals have been established for each executive officer, other than our Chief Executive Officer, relating to his or her specific function or business unit.

 

Additional Compensation Information

 

Use of Independent Compensation Consultant.  As previously discussed, the Committee engaged The Delves Group as its independent consultant to assist it in determining the appropriate executive officer compensation in 2007 pursuant to our compensation policies described above. The Delves Group had no other business relationship with the Corporation and received no payments from us other than fees for services to the Committee. See “Part Two — Corporate Governance Information — Management Development and Compensation Committee” for information about the use of compensation consultants.

 

Role of the Chief Executive Officer in Compensation Decisions.  Our Chief Executive Officer makes a recommendation to the Committee each year on the appropriate target total annual compensation to be paid to our executive officers, excluding himself. The Committee makes the final determination of the target total annual compensation to be awarded to each executive officer, including our Chief Executive Officer, based on the Committee’s determination of how that compensation will aid in achieving the objectives of our compensation policies. While our Chief Executive Officer typically attends Committee meetings, none of the other executive officers is present during the portion of the Committee’s meetings when compensation for these executive officers is set. In addition, our Chief Executive Officer is not present during the portion of the Committee’s meetings when his compensation is set.

 

Timing of Long-Term Equity Grants.  Our policies and stock option plans require options to be granted at no less than the closing price of our common stock on the date of grant. The Committee’s practice is to award options at its April Committee meeting. Committee meeting dates are set by the Committee at least one year in advance. The April Committee meeting is typically one to four days after our first quarter earnings release. We do not have any process or practice to time the grant of equity awards in advance of our release of earnings or other material non-public information.

 

Since 2004, the Committee has awarded executive officers restricted share units at its April Committee meeting, the same time as has granted stock options as part of the annual long-term incentive compensation awards described above. Prior to 2004, restricted stock was awarded at various meetings of the Committee for retention purposes. Our executives are not permitted to choose the grant date for their individual restricted stock or restricted share unit awards.

 

The Committee administers our equity plans, which were approved by our stockholders in 1992 and 2001. Two categories of stock grants have been made under our equity plans: annual grants and recruiting or retention grants. Annual grants are made each year at a meeting of the Committee, as described above. Annual grants have accounted for more than 99.5 percent of all options granted under these plans since 1993. Our executives are not permitted to choose the grant date for their individual stock option grants.

Our Chief Executive Officer has limited authority to grant employee stock options, restricted stock and restricted share units in connection with recruiting and special employee recognition and retention matters. Any recruiting and retention grants may not exceed 200,000 stock options, restricted stock or restricted share units, in the aggregate, in any calendar year. These recruiting and retention grants are made on a pre-determined date following the release of our earnings during each quarter. Our Chief Executive Officer is not permitted to make any recruiting and retention grants to any of our executive officers.

 

Policy on Incentive Compensation Claw-back.  As described above, a significant percentage of our executive officer compensation is incentive-based. This is an important aspect of our “pay-for-performance” culture. The determination of the extent to which the incentive objectives are achieved is based in part on the Committee’s discretion and in part on our published financial results. The Committee has the right to reassess its determination of the performance awards if the financial statements on which it relied are restated. The Committee has the right to direct the Corporation to seek to recover from any executive officer any amounts determined to have been inappropriately received by the individual executive officer. In addition, the Sarbanes-Oxley Act of 2002 mandates that the chief executive officer and the chief financial officer reimburse us for any bonus or other incentive-based or equity-based compensation paid to them in a year following the issuance of financial statements that are later required to be restated as a result of misconduct.

 

Target Stock Ownership Guidelines.  We strongly believe that the financial interests of our executives should be aligned with those of our stockholders. Accordingly, the Committee has established stock ownership guidelines for our corporate officers, including the named executive officers.

 

All executive officers are expected to own our common stock in an amount equivalent to three times their annual base salary. The Chief Executive Officer is expected to own an amount of our common stock which is six times his annual base salary. Failure to attain targeted stock ownership levels within five years can result in a reduction in future long-term incentive awards granted to the executive. These stock ownership levels specified by guidelines have been met or exceeded by each of the named executive officers, other than Mr. Black, who joined the Corporation in 2006.

 

In determining whether our stock ownership guidelines have been met, restricted stock and time-vested restricted share units are considered as being owned and performance-based restricted share units are excluded until they vest.

 

In 2007, the Committee reviewed our stock ownership guidelines, including an evaluation of the program’s objectives and a competitive practice analysis. Based on the review, the ownership requirement for employees at and below the vice president level was modified. No changes were made to the ownership levels for executive officers, including the named executive officers. The time to reach compliance with the guidelines was increased from three years to five years.

 

We have a policy that mandates that all executive officers must review transactions involving our common stock or other securities related to our common stock with our legal department prior to entering into the transactions.

 

Although we do not have a formal policy prohibiting transactions that hedge an executive officer’s economic risk of owning shares of our common stock, an executive officer must obtain prior clearance from our legal department prior to engaging in any hedging transaction in order to ensure compliance with applicable laws. Any shares that an employee may own subject to a market put or call option are excluded for purposes of determining compliance with our stock ownership guidelines. None of our executive officers engaged in any hedging transactions in 2007.

 

Tax Deduction for Executive Compensation.  The United States income tax laws generally limit the deductibility of compensation paid to each named executive officer to $1,000,000 per annum. An exception to this general rule exists for performance-based compensation that meets certain Internal Revenue Service requirements. The annual incentive payments and option grants to executive officers are designed to meet these requirements for deductibility. The other long-term incentive awards described above may be subject to the $1,000,000 deductibility limit.

Although deductibility of compensation is preferred, tax deductibility is not a primary objective of our compensation programs. In our view and the view of the Committee, meeting the compensation objectives set forth above is more important than the benefit of being able to deduct the compensation for tax purposes.

 

In accordance with its written charter adopted by the Board, the Management Development and Compensation Committee has oversight of compensation policies designed to align compensation with our overall business strategy, values and management initiatives. In discharging its oversight responsibility, the Committee has retained an independent compensation consultant to advise the Committee regarding market and general compensation trends.

 

The Committee has reviewed and discussed the Compensation Discussion and Analysis with our management, which has the responsibility for preparing the Compensation Discussion and Analysis. Based upon this review and discussion, the Committee recommended to the Board that the Compensation Discussion and Analysis be included in this proxy statement and incorporated by reference in our Annual Report on Form 10-K filed with the Securities and Exchange Commission for the fiscal year ended December 31, 2007.

 

MANAGEMENT DEVELOPMENT AND
COMPENSATION COMMITTEE OF THE BOARD OF DIRECTORS

 

Marc J. Shapiro, Chairman
Abelardo E. Bru
James M. Jenness
G. Craig Sullivan

 

The following table contains information concerning compensation awarded to, earned by, or paid to our named executive officers in the last three years. Our named executive officers include our Chief Executive Officer, Chief Financial Officer and our three other most highly compensated executive officers serving as of December 31, 2007. Additional information regarding the items reflected in each column follows the table.

 

Summary Compensation Table