March 20, 2009

 

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 30, 2009, 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 nine directors for a one-year term, ratify the selection of the Corporation’s independent auditors, approve a proposal to amend the Corporation’s Certificate of Incorporation regarding the right of holders of at least 25 percent of the Corporation’s shares to call a special meeting of stockholders, reapprove the performance goals under the Corporation’s 2001 Equity Participation Plan, and vote on one stockholder proposal. 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 2008. I encourage you to read the Annual Report for information about your company’s performance and accomplishments in 2008.

 

Sincerely,

 

 

Thomas J. Falk

KIMBERLY-CLARK CORPORATION

 

NOTICE OF ANNUAL MEETING OF STOCKHOLDERS

 

TO BE HELD APRIL 30, 2009

 

 

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 30, 2009, at 11:00 a.m. for the following purposes:

 

 

Stockholders of record at the close of business on March 2, 2009 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 20, 2009

TABLE OF CONTENTS

 

March 20, 2009

 

PROXY STATEMENT

 

PART ONE

VOTING INFORMATION

 

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 30, 2009 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 20, 2009.

 

Each stockholder of record at the close of business on March 2, 2009 will be entitled to one vote for each share registered in the stockholder’s name. On that date, 413,997,443 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 amend the Corporation’s Amended and Restated Certificate of Incorporation regarding the right of holders of at least 25 percent of the Corporation’s issued and outstanding shares of capital stock to call a special meeting of stockholders, for reapproval of the performance goals under the 2001 Equity Participation Plan, and against approval of the stockholder proposal.

 

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 $16,000 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 nine 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, March 2, 2009, 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 2008 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 provide each stockholder of record a copy of the proxy statement and annual report and to arrange for a proxy statement and an annual report to be provided 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 seven times in 2008. All of the 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. All nominees and continuing directors attended the 2008 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 this Committee are John R. Alm, John F. Bergstrom, Robert W. Decherd, and Ian C. Read. The Committee met eight times in 2008. In addition, Mr. Beresford participated in four additional conference calls as Chairman of the Committee to preview earnings press releases during 2008.

 

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 2008, see “Part Three — Proposals to be Voted on at the 2009 Annual Meeting — Ratification of Auditors — Audit Committee Report.”

 

James M. Jenness is the Chairman of our Management Development and Compensation Committee. In addition to Mr. Jenness, the current members of this Committee are Abelardo E. Bru, Mae C. Jemison, M.D., and G. Craig Sullivan. The Committee met eight times in 2008. 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 Processes 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 — Other Important Information — 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 direct annual compensation to be paid to our executive officers, excluding himself. The Committee makes the final determination of the target direct annual compensation to be awarded to each executive officer, including our Chief Executive Officer. While our Chief Executive Officer and Chief Human Resources Officer typically attend Committee meetings, none of the other executive officers is present during the portion of the Committee’s meetings when compensation for 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 — Other Important Information — 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 2008, 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. In 2008, Mercer was retained by the Corporation to provide advice and counsel regarding executive remuneration matters on an ongoing basis, including the following services in connection with our executive compensation program:

 

 

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 2008 included:

 

 

During 2008, Don Delves, the President of The Delves Group, attended all of the in-person Committee meetings, as well as two of the four teleconference 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 — Other Important Information — 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, Mae C. Jemison, M.D., and G. Craig Sullivan. The Committee met four times in 2008. 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.”

 

Marc J. Shapiro is the Chairman of our Executive Committee. In addition to Mr. Shapiro, the current members of this Committee are Dennis R. Beresford, Thomas J. Falk, James M. Jenness, and Linda Johnson Rice. The Committee met one time in 2008.

 

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.

 

None of the members of the Management Development and Compensation Committee are current or former officers or employees of the Corporation. No interlocking relationship exists between the members of our Board of Directors or the Management Development and Compensation Committee and the board of directors or compensation committee of any other company.

 

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. When making these determinations, the Board considered the following:

 

 

The amount involved in each of these items is less than 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 ensure effective service on the Board.

 

 

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 it in identifying and recruiting director candidates meeting the criteria specified by the Committee.

 

The Nominating and Corporate Governance Committee recommends to the Board nominees to fill any vacancies. 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 recommends to the Board nominees for election as directors at our annual meeting of stockholders, as well as assesses the performance of each director at least once every three years in accordance with our Corporate Governance Policies.

 

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 an annual stockholders’ 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 Amended and Restated 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, as set forth in the Amended and Restated Certificate of Incorporation and By-Laws, 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. The notice must also contain information about certain stock holdings of the nominee and the stockholder making the nomination, including derivative holdings, dividend rights that are separated from or separable from the underlying shares and certain performance-related fees, as well as information that would be required to be disclosed in connection with a proxy solicitation (and whether a proxy solicitation will be conducted). The notice is also required to contain information about certain related person transactions, contact and related information regarding the nominee, understandings regarding the nomination of the nominee, and the nominee’s consent to be nominated. 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 requirements set forth in the Amended and Restated Certificate of Incorporation and By-Laws 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.”

 

On November 12, 2008, the Board of Directors adopted amendments to the By-Laws that require any stockholder that nominates a director or submits another proposal to disclose certain information about the stockholder and any additional interests that the stockholder may have, including any derivative positions in the Corporation’s stock held by the stockholder. The amendments provide that these notice requirements will be deemed satisfied by a stockholder with respect to business other than the nomination or election of directors if the stockholder has notified the Corporation of his or her intention to present a proposal at an annual meeting in compliance with the applicable rules and regulations of the Securities Exchange Act of 1934, as amended (“Exchange Act”), and the proposal has been included in the Corporation’s proxy statement. The amendments do not affect, among other things, the rights of stockholders to request inclusion of proposals in the Corporation’s proxy statement pursuant to the applicable rules and regulations under the Exchange Act. The amendments did not change the time periods in which a stockholder may bring business before an annual meeting or to nominate a candidate for election as a director.

 

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 compensation and performance assessments, 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.  The non-management directors elected Mr. Shapiro as Lead Director effective March 1, 2008. Mr. Decherd previously served as Lead Director through the end of his Lead Director term on February 29, 2008. The Lead Director chairs executive session meetings of non-management directors and serves as Chairman of the Executive Committee, among other responsibilities outlined in the Corporate Governance Policies. 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 telephone hotline that allows our employees and others to voice their concerns anonymously. The whistleblower procedures and information on how to access the hotline 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 programs. He reports to the Audit Committee on the programs’ 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 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.  The Corporation’s By-Laws 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.  In 2008, stockholders approved an amendment to our Amended and Restated Certificate of Incorporation to eliminate supermajority voting provisions.

 

Special Stockholder Meetings.  The Board has recommended to stockholders that our Amended and Restated Certificate of Incorporation be amended to allow the holders of not less than 25 percent of the Corporation’s issued and outstanding shares of capital stock to request that a special meeting of stockholders be called. 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.

 

The Board of Directors currently is divided into two classes. As of the date of this proxy statement, the Board of Directors consists of twelve members. Nine of the directors have terms that expire at this year’s Annual Meeting and three have terms that expire at the 2010 Annual Meeting.

 

In 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 the 2008 Annual Meeting, directors were elected annually so that by the 2010 Annual Meeting of Stockholders all directors will be elected annually.

 

The nine 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 2010 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 term of the remaining three directors will expire at the 2010 Annual Meeting, 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 27, 2009 and certain other biographical information are set forth on the following pages by the two classes, with directors standing for election in 2009 listed first.

NOMINEES FOR ELECTION TO THE BOARD OF DIRECTORS

 

For a One-Year Term Expiring at the
2010 Annual Meeting of Stockholders

 

John R. Alm, 63, 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.

 

Dennis R. Beresford, 70, 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).

 

John F. Bergstrom, 62, 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 serves on the board of directors of Advance Auto Parts, Inc. 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.

 

Abelardo E. Bru, 60, 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 S. C. Johnson & Son, Inc. and the Education is Freedom Foundation.

 

Robert W. Decherd, 58, 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.

 

Thomas J. Falk, 50, 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 the Corporation’s 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 Catalyst Inc., Centex Corporation and the University of Wisconsin Foundation, and serves as a governor of the Boys & Girls Clubs of America.

 

Mae C. Jemison, M.D., 52, 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 Chairman of the State of Texas Product Development and Small Business Incubator Board, and she is a member of the National Advisory Council for Biomedical Imaging and Bioengineering and the Greater Houston Partnership Executive Committee.

 

Ian C. Read, 55, Director since 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, 69, 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

2010 Annual Meeting of Stockholders

 

James M. Jenness, 62, Director since 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 senior director of the board of directors of Children’s Memorial Hospital and a director of Mercy Home for Boys and Girls. He also serves on the DePaul University College of Commerce Advisory Council, is Vice Chairman of DePaul’s Board of Trustees and is co-trustee of the W. K. Kellogg Foundation Trust.

 

Linda Johnson Rice, 51, 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, 61, 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 2001. 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 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 and 2008.

2008 Compensation.  In 2008, each Outside Director 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.

 

2008 Outside Director Compensation

 

The following table sets forth the compensation paid to each Outside Director in 2008 for his or her service as a director:

 

 

 

 

 

 

 

 

						Number of
						Restricted				Grant Date
		Dividends				Share Units				Fair Value of
		Credited on				Credited for				Restricted Share
Name		Restricted Stock($)				Dividends in 2008(#)				Units Credited($)
John R. Alm			0				190.67				12,266
Dennis R. Beresford			0				436.81				28,174
John F. Bergstrom			6,810				395.20				25,494
Abelardo E. Bru			0				222.34				14,314
Robert W. Decherd			6,810				473.50				30,541
Mae C. Jemison			0				395.20				22,494
James M. Jenness			0				114.68				7,352
Ian C. Read			0				77.73				4,962
Linda Johnson Rice			6,810				425.21				27,424
Marc J. Shapiro			0				436.80				28,174
G. Craig Sullivan			0				274.19				17,667

 

 

 

Other than the cash retainer, grants of restricted share units and the other compensation previously described, no Outside Director received any compensation or perquisites from us for services as a director in 2008.

 

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.

 

2009 Compensation.  In 2008, the Nominating and Corporate Governance Committee, with the assistance of Mercer, evaluated Outside Director compensation to assess whether it still met our objectives for Outside Director compensation as described above. In its assessment, the Committee compared aggregate Outside Director cash and equity compensation to the median compensation of the outside directors of our peer groups, as well as the structure of the compensation programs of our peer groups. For information regarding our peer groups, see “Part Four — Other Important Information — Executive Compensation — Compensation Discussion and Analysis” below. The Committee then recommended to the Board, and the Board approved, changes in compensation for Outside Directors with aggregate cash and equity compensation at or near the median of these peer groups.

 

Beginning in 2009:

 

 

There was no change to the amount of the additional annual retainer paid to committee chairs or to the Lead Director.

 

The Board of Directors unanimously recommends a vote FOR the election of the nine 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 2009, 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, 2008 and 2007 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 if 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 2008 and 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 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 Public Company Accounting Oversight Board (PCAOB) Rule 3526, Communication with Audit Committees Concerning Independence, 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 discussed and reviewed the audited financial statements of the Corporation as of and for the fiscal year ended December 31, 2008, with management and the auditors. The Audit Committee also reviewed management’s assessment of the effectiveness of internal controls as of December 31, 2008 and discussed the auditors’ 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, 2008, 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 2009.

 

AUDIT COMMITTEE OF THE
BOARD OF DIRECTORS

 

Dennis R. Beresford, Chairman
John R. Alm
John F. Bergstrom
Robert W. Decherd
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 a proposed amendment to provisions of our existing Amended and Restated Certificate of Incorporation (the “Existing Certificate”). A stockholder proposal requesting that the holders of 10 percent to 25 percent of outstanding common stock be granted the power to call special meetings of stockholders was included in the 2008 proxy statement and received favorable votes from a majority of the votes cast on the proposal. The Nominating and Corporate Governance Committee of the Board of Directors and the full Board have carefully considered the implications of this proposal.

 

Based on this review, the Board, upon the recommendation of the Nominating and Corporate Governance Committee, has unanimously adopted a resolution approving, subject to stockholder approval, and declaring the advisability of, an amendment to the Existing Certificate to allow holders of not less than 25 percent of the Corporation’s issued and outstanding shares of capital stock entitled to vote to request that a special meeting of stockholders be called, subject to By-Law procedures described below.

 

The Board believes that establishing an ownership threshold of 25 percent in order to request a special meeting strikes a reasonable balance between enhancing stockholder rights and protecting against the risk that a small minority of stockholders could trigger a special meeting and the resulting extraordinary financial and administrative expense of holding a special meeting. We will continue to maintain our existing governance mechanisms that afford management and the Board the ability to respond to proposals and concerns of all stockholders, regardless of the level of share ownership.

 

The Proposed Certificate would amend Article VI, Section (3) of the Existing Certificate as follows (with additions indicated by underlining and deletions indicated by strikeout):

 

(3) Meetings of stockholders of the Corporation may be called only by (i) the Board of Directors pursuant to a resolution adopted by the affirmative vote of a majority of the entire Board of Directors,by(ii) the Chairman of the Board, or by(iii) the Chief Executive Officer, or (iv) the Chairman of the Board or the Secretary of the Corporation at the written request of the holders of not less than twenty-five percent (25%) of the issued and outstanding shares of capital stock entitled to vote on any business proposed to be considered at such special meeting that complies with the procedures for calling a special meeting of stockholders as may be set forth in the By-Laws of the Corporation, as may be amended from time to time.

 

The Proposed Certificate would not amend any other provisions of the Existing Certificate.

 

In addition, if the Proposed Certificate is approved, our By-Laws are anticipated to be amended to, among other things, describe how the record date is to be set to determine the stockholders entitled to request the special meeting, specify information requirements for the request that are similar to those in place for stockholders to bring business or a nominee for director before an annual meeting, and describe how a stockholder may revoke a request.

 

The By-Laws would also be amended to specify when a special meeting requested by stockholders will not be held, including if (1) the request to call a special meeting relates to an item of business that is not a proper subject for stockholder action under applicable law; (2) the Board has called or calls for a meeting of stockholders and the purpose or purposes of such meeting include (among any other matters properly brought before the meeting) the purpose or purposes specified in the request; (3) the request is received by the Corporation during the period commencing 90 days prior to the first anniversary of the date of the immediately preceding annual meeting and ending on the date of the next annual meeting; (4) an identical or substantially similar item was presented at any meeting of stockholders held within 120 days prior to receipt by the Corporation of such request; or (5) an annual or special meeting was held not more than

12 months before the request to call the special meeting was received by the Corporation which included the purpose or purposes specified in the request.

 

A copy of the amendments to the By-Laws that are intended to take effect on the approval of the Proposed Certificate has been provided as an exhibit to a Current Report on Form 8-K, filed by the Corporation with the SEC on November 17, 2008. Following the approval of the Proposed Certificate, the amended By-Laws will also be posted on our website.

 

To be approved, the proposed amendment requires an affirmative vote by the holders of a majority of our common stock outstanding and entitled to vote on the amendment. If approved, this amendment will become effective upon the filing of the Proposed Certificate with the Secretary of State for 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.

 

We are asking stockholders to reapprove the performance goals for our 2001 Equity Participation Plan (as amended, the “2001 Plan”) set forth below, as previously approved by stockholders in 2001 and again when it was amended in 2004. No amendments to the 2001 Plan are being requested. Stockholder approval is necessary for the Corporation to meet one of the requirements for performance-based compensation under Section 162(m) of the Internal Revenue Code.

 

The material terms of the 2001 Plan are summarized below. This summary is qualified by the specific language of the 2001 Plan, which is included as Appendix A to this proxy statement.

 

The purpose of the 2001 Plan is to encourage ownership in the Corporation by those employees who have contributed, or are determined to be in a position to contribute, materially to the success of the Corporation by managerial, scientific or other innovative means, thereby increasing their interest in the Corporation’s long-term success. Equity participation plans are significant factors in attracting and retaining management talent, causing key employees to identify more closely with the interests of the stockholders, and providing incentive and reward for long-term growth and performance. The 2001 Plan will expire on April 25, 2011, unless earlier terminated or extended by the Management Development and Compensation Committee (the “Committee”).

 

Under the 2001 Plan, the Committee can grant awards consisting of restricted stock and restricted share units (see “Restricted Stock and Restricted Share Units” below), options to acquire the Corporation’s common stock (see “Stock Options” below), or a combination of stock options, restricted stock and restricted share units. The 2001 Plan also provides the Committee with discretion to require performance-based standards to be met before awards will vest.

 

The Committee may determine the number of shares of restricted stock or restricted share units to be granted to participants and the periods during which the shares or units may not be transferred. Unless otherwise determined by the Committee, the transferability restrictions will last for a period of three to ten years from the date of grant. During this restricted period, the restricted stock or restricted share units may not be sold or transferred by the participant except in the case of death. Upon expiration of the restricted period, the restricted stock will be delivered to the participant free of restrictions. A participant who is awarded restricted stock will be entitled to vote these shares and to receive dividends declared on these shares during the restricted period. Upon expiration of the restricted period, payment of restricted share units will be made in cash or shares of common stock as determined by the Committee at the time of grant.

During the restricted period, a participant who is awarded restricted share units will not be entitled to vote these units but will receive either cash or a credit equal to dividends declared on the Corporation’s common stock which will be reinvested in restricted share units at the then fair market value of the Corporation’s common stock on the date dividends are paid. The Committee determined that dividend equivalents will not be paid on unvested performance-based restricted share units granted to the named executive officers in February 2009 and thereafter; instead, dividend equivalents on these units will be accumulated and paid after the performance-based restricted share units vest, based on the actual number of shares that vest.

 

The 2001 Plan employs market value as a basis for rewarding performance through the use of incentive stock options under Section 422 of the Internal Revenue Code (“Incentive Stock Options”) and stock options which are not Incentive Stock Options (“Nonqualified Stock Options”) to acquire the Corporation’s common stock. The option price per share will be no less than 100 percent of the market value per share of the Corporation’s common stock at the date of grant. The term of these options will be no more than 10 years from the date of grant. Options will only become exercisable (1) after specified periods of employment after grant (generally, 30 percent after the first year, 30 percent after the second and the remaining 40 percent after the third), (2) if earlier, upon a qualified termination of employment of the employee (see “Part Four — Other Important Information — Executive Compensation — Compensation Discussion and Analysis — 2001 Plan” below), or (3) as otherwise determined by the Committee. The option price, and any withholding tax, is payable in full in cash at the time of exercise, or at the discretion of the Committee in shares of common stock of the Corporation transferable to the Corporation and having a fair market value on the transfer date equal to the amount payable to the Corporation.

 

If the participant terminates employment for any reason other than death, disability, retirement or a qualified termination of employment, however, the then-exercisable portion of the option will only be exercisable for three months following such termination. The entire unexercised portion of the option is exercisable within three years from the date of death or disability of a participant, within five years of the date of retirement of a participant, or within the remaining period of the option, whichever is earlier. The option is not transferable except in the case of death or, in limited circumstances, by gift. Under no circumstances, however, will an option be exercisable beyond 10 years from the date of the grant thereof.

 

Under the 2001 Plan, the Committee, by written notice to a participant, may limit the period in which an Incentive Stock Option may be exercised to a period ending at least three months following the date of such notice, and/or limit or eliminate the number of shares subject to an incentive stock option after a period ending at least three months following the date of such notice.

 

The 2001 Plan provides the Committee with discretion to allow a participant to convert an unexercised stock option to a cash payment equal to the difference between the participant’s option price and the fair market value of the Corporation’s common stock on the date of conversion. Any such conversion will reduce the number of outstanding unexercised stock options by a number of shares of the Corporation’s common stock equal to the options that were converted to a cash payment.

 

The 2001 Plan provides that specific performance goals may be established by the Committee, which, if achieved, will result in the amount of payment, or the early payment, of an award under the 2001 Plan. The performance goals may consist of one or more or any combination of the following criteria: return on invested capital, stock price, market share, sales revenue, cash flow, earnings per share, return on equity, total shareholder return, gross margin, and/or costs. The performance goals may be described in terms that are related to the individual participant, to the Corporation as a whole, or to a subsidiary, division, department, region, function or business unit of the Corporation in which the participant is employed. The Committee, in its discretion, may change or modify these criteria; however, at all times the criteria must

meet the requirements of Section 162(m) of the Internal Revenue Code, or any successor section, to the extent applicable.

 

Under the 2001 Plan, the equivalent of 50,000,000 shares (which may be adjusted for stock dividends, stock splits or other corporate changes) of the Corporation’s common stock will be available, of which not more than 18,000,000 shares may be used for grants of restricted stock and restricted share units. Shares subject to stock options that become ineligible for purchase for any reason other than exercise of the option, restricted share units which are retired through forfeiture or maturity other than those which are retired through the payment of common stock, and shares of restricted stock that are forfeited during the restricted period due to any applicable transferability restrictions will again become available under the 2001 Plan.

 

The maximum number of shares of common stock pursuant to all awards under the 2001 Plan that can be granted to any participant within any two consecutive calendar years shall not exceed 1,500,000 in the aggregate, and all awards to executive officers under the 2001 Plan must be approved by the Committee, which consists entirely of Independent Directors. This limit may be adjusted for stock dividends, stock splits or other corporate changes.

 

Eligibility to participate in the 2001 Plan is limited to employees (including officers and directors who also are employees) of the Corporation and its affiliated companies. Because the granting of options, restricted stock and restricted share unit awards under the 2001 Plan is at the discretion of the Committee, it is not possible to indicate which persons (including the persons identified in the Summary Compensation Table, all current executive officers as a group, all current directors who are not executive officers as a group, and all employees, including current officers who are not executive officers, as a group) may be granted awards. Also, it is not possible to estimate the number of shares which may be awarded.

 

The 2001 Plan is administered by the Committee. The Committee will from time to time select participants, determine the extent of participation and make all other necessary decisions and interpretations under the 2001 Plan. The Committee has the authority to delegate to the Chief Executive Officer the limited authority to grant awards under the 2001 Plan as determined to be reasonable and appropriate by the Chief Executive Officer in connection with recruiting and special employee recognition and retention matters, provided that such limited grants will not exceed 200,000 stock options, shares of restricted stock or restricted share units, in the aggregate, in any calendar year.

 

The 2001 Plan provides that the Committee may amend, suspend, or discontinue the 2001 Plan or amend any or all awards under the 2001 Plan to the extent permitted by law and the rules of any stock exchange on which the Corporation’s common stock is listed, provided that no action may be taken if it would materially increase any benefits under the 2001 Plan, materially increase the number of securities which may be issued, materially modify the requirements for eligibility, result in a failure to comply with applicable provisions of the federal securities or income tax laws or constitute a repricing or reloading of the award. However, in the event of relevant changes in the Exchange Act, the Committee, in its discretion, may amend, suspend, or discontinue the 2001 Plan or amend any or all awards under the 2001 Plan to the extent permitted by the Exchange Act or the rules and regulations under the Exchange Act. Except as provided in the 2001 Plan, no amendment, suspension or termination of the 2001 Plan shall adversely alter any rights granted a participant under the 2001 Plan. However, if an amendment must be approved by the stockholders pursuant to law or the rules of any stock exchange on which the Corporation’s common stock is listed, any such proposed amendment will be submitted to the stockholders for approval.

 

Under current federal tax law, the grant of a restricted stock award has no federal income tax consequences for the participant or the Corporation. Upon the vesting of the restricted stock, the full value of the shares will be taxable to the participant as ordinary income subject to applicable withholding taxes. The participant may accelerate the taxation of the grant by electing to include the value of the shares, at the time of the grant, in gross income for the year in which the grant is made. The Corporation will generally be allowed a tax deduction equal to any ordinary income taxable to the participant upon grant or vesting of the restricted stock.

 

Dividends on restricted stock awards are taxable to the participant as ordinary income and are subject to applicable withholding taxes. Once the restricted stock vests, or if the participant elects to accelerate the taxation of the grant, the dividends are treated as any other dividends. The holding period for purposes of determining whether gain or loss is short or long term on the sale of restricted stock commences on the date the restricted stock vests, unless the participant has elected to accelerate the taxation of the award, in which case the holding period commences on the day after the grant date of the restricted stock.

 

Neither the grant of a restricted share unit award nor the crediting of the dividend shares with respect thereto will subject the participant to any immediate tax or have any federal income tax consequences for the Corporation. However, when the award is paid, or the dividend equivalent is paid in cash, the full amount of the payment will be taxable to the participant as ordinary income subject to withholding taxes, and the Corporation will be allowed a tax deduction equal to that amount.

 

Under current federal tax law, no taxable income will be realized by a participant in the 2001 Plan and the Corporation will not be entitled to any deduction upon the grant of a Nonqualified Stock Option. Upon exercise of a Nonqualified Stock Option, a participant will realize ordinary taxable income on the date of exercise. Such taxable income will equal the difference between the option price and the fair market value of the Corporation’s common stock on the date of exercise. The Corporation will be entitled to a corresponding deduction.

 

Upon the grant of an Incentive Stock Option, no taxable income will be realized by a participant and the Corporation will not be entitled to any deduction. If a participant exercises the option, either while an employee of the Corporation or any of its affiliated companies or at any time during the period three months after the participant terminates employment, then generally, no taxable income will result at the time of the exercise of such option. If a participant holds the shares of common stock transferred to him or her upon exercise of the option for at least the longer of one year after the exercise of the stock option or two years after the grant of the option, any profit (or loss) realized by a participant from a sale or exchange of such stock will be treated as long-term capital gain (or capital loss), and no deduction will be allowable to the Corporation with respect thereto. If a participant fails to hold shares for such period of time, then the disposition generally will result in ordinary income at the time of the disposition in an amount equal to the lesser of (1) the gain on the sale or (2) the difference between the option price and the fair market value of the Corporation’s common stock on the date of exercise. If the gain exceeds the difference between the option price and the fair market value of the Corporation’s common stock on the date of exercise, the excess is a short-term or long-term capital gain depending upon how long the shares are held prior to the sale. If the stock is sold for less than the exercise price, failure to meet the holding period requirement generally will result in a short-term or long-term capital loss, again depending upon how long the shares are held prior to the sale, equal to the difference between the exercise price and the sale price. When a participant exercises an Incentive Stock Option, he or she will realize an item of “tax preference” for purposes of the “alternative minimum tax” equal to the amount by which the fair market value of the stock at the time of exercise exceeds the option price.

 

At the Committee’s discretion, both Incentive Stock Options and Nonqualified Stock Options may be exercised by a participant using shares of the Corporation’s common stock which he or she previously owned; in addition, any resulting withholding tax may be paid with common stock acquired pursuant to the

exercise of the options. The use of previously owned common stock has no tax consequences to the Corporation.

 

The foregoing discussion on tax consequences of stock options, restricted stock and restricted share units is not intended to cover all tax consequences of participation in the 2001 Plan. The tax consequences outlined above apply only with respect to an employee whose income is subject to United States federal income tax. Different or additional rules may apply to individuals who are subject to income tax in a foreign jurisdiction and/or are subject to state or local income tax in the United States.

 

The closing quotation of the common stock of the Corporation on February 27, 2009 was $47.11 per share.

 

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

 

The following table gives information about the Corporation’s common stock that may be issued upon the exercise of options, warrants, and rights under all of the Corporation’s equity compensation plans as of December 31, 2008.

 

 

 

 

Outside Directors’ Compensation Plan

 

In 2001, the Corporation’s Board of Directors approved the Outside Directors’ Compensation Plan. A maximum of 1,000,000 shares of the Corporation’s common stock is available for grant under this plan. The Board may grant awards in the form of stock options, stock appreciation rights, restricted stock, restricted share units, or any combination of cash, stock options, stock appreciation rights, restricted stock or restricted share units under this plan.

 

Mr. Chris Rossi, P.O. Box 249, Boonville, California 95415, 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:

 

5 — Cumulative Voting

 

RESOLVED: Cumulative Voting. Shareholders recommend that our Board take steps necessary to 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. Under cumulative voting shareholders can withhold votes from certain poor-performing nominees in order to cast multiple votes for others.

 

Statement of Chris Rossi

 

Cumulative voting won 54%-support at Aetna and greater than 51%-support at Alaska Air in 2005 and 2008. It also received greater than 53%-support at General Motors (GM) in 2006 and 2008. The Council of Institutional Investors www.cii.org recommended adoption of this proposal topic. CalPERS also recommend a yes-vote for proposals on this topic.

 

Cumulative voting allows a significant group of shareholders to elect a director of its choice — safeguarding minority shareholder interests and bringing independent perspectives to Board decisions. Cumulative voting also encourages management to maximize shareholder value by making it easier for a would-be acquirer to gain board representation. It is not necessarily intended that a would-be acquirer materialize, however that very possibility represents a powerful incentive for improved management of our company.

 

The merits of this Cumulative Voting proposal should also be considered in the context of the need for improvements in our company’s corporate governance and in individual director performance. For instance in 2008 the following governance and performance issues were identified:

 

 

 

Dennis Beresford		Fannie Mae (FNM)
Dennis Beresford		Legg Mason (LM)
Craig Sullivan		Mattel (MAT)
Craig Sullivan		Goodyear (GT)
Abelardo Bru		Office Depot (ODP)
Thomas Falk		Centex (CTX)
Mae Jemison		Scholastic Corp. (SCHL)
Linda Johnson Rice		Omnicom Group (OMC)

 

 

Cumulative voting.
To act by written consent.
To call a special meeting.
An Independent Board Chairman.

 

The above concerns shows there is need for improvement. Please encourage our board to respond positively to this proposal:

 

Cumulative Voting
Yes on 5

 

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

 

As with most other large companies, 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 by a majority of votes cast 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. Because of these risks, the Board would consider stockholder approval of cumulative voting to be a strong indication of stockholders’ corresponding disapproval of majority voting.

 

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 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:

 

 

Stockholders may be interested to know that stockholders did not approve a similar cumulative voting proposal that was submitted to them for a vote last year.

 

For the reasons outlined above, 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.

 

The following table sets forth information as of December 31, 2008 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			698,788	(6)
John R. Alm			9,471	(7)
Dennis R. Beresford			19,787	(6)
John F. Bergstrom			35,960	(6)(8)
Robert W. Black			67,301	(6)
Abelardo E. Bru			6,893
Mark A. Buthman			400,002	(6)
Robert W. Decherd			51,791	(6)(9)
Thomas J. Falk			2,173,708	(6)(10)
Mae C. Jemison, M.D.			17,142	(6)
James M. Jenness			3,758
Anthony J. Palmer			39,929	(6)
Ian C. Read			3,382
Linda Johnson Rice			25,793	(6)(11)
Marc J. Shapiro			41,128	(6)
G. Craig Sullivan			10,403	(12)
All directors, nominees and executive officers as a group (21 persons)			4,147,836	(6)(13)

 

 

 

		Time-Vested				Performance-Based
		Restricted Share				Restricted Share
Name of Individual		Units(#)				Units(#)
Robert E. Abernathy			29,576				44,124
Robert W. Black			14,003				25,940
Mark A. Buthman			25,887				36,864
Thomas J. Falk			121,224				163,273
Anthony J. Palmer			14,810				16,097

 

 

		Number of Shares That Could be Acquired
Name of Individual		Within 60 Days of December 31, 2008
Robert E. Abernathy			500,771
Dennis R. Beresford			5,084
John F. Bergstrom			8,032
Robert W. Black			27,358
Mark A. Buthman			284,906
Robert W. Decherd			8,236
Thomas J. Falk			1,582,539
Mae C. Jemison, M.D.			5,084
Anthony J. Palmer			9,022
Linda Johnson Rice			7,626
Marc J. Shapiro			17,924
All directors, nominees and executive officers as a group (21 persons)			2,823,426

 

 

TKM, Ltd. also has the right to acquire 94,790 shares within 60 days of December 31, 2008. These 94,790 shares are included in the 1,582,539 shares listed for Mr. Falk in footnote (6) above

 

 

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 — Other Important Information — Executive Compensation — Compensation Discussion and Analysis — Additional Compensation Information — Target Stock Ownership Guidelines.”

 

In addition, our Corporate Governance Policies provide that, within three years of joining the Board, all Outside Directors should own an amount of the Corporation’s stock or stock units at least equal in value to three times the annual Board cash compensation. For the purpose of these stock ownership guidelines, a director is deemed to own beneficially-owned shares, as well as restricted stock and restricted share units (whether or not any applicable restrictions have lapsed), but not stock options (whether vested or unvested). As of December 31, 2008, the stock ownership levels specified by these guidelines had been met or exceeded by each of the Outside Directors, other than Messrs. Jenness and Read, who became directors in 2007.          

 

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 2008. 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 Summary

 

The Management Development and Compensation Committee (the “Committee”) authorized an executive compensation program in 2008 that is designed to achieve our executive compensation objectives described below. Consistent with our pay-for-performance objective, a significant portion of the 2008 direct annual compensation targets for the named executive officers consisted of performance-based compensation in the form of annual cash incentives and long-term equity incentive compensation.

 

In February 2008, base salaries for the named executive officers were set based on market levels, individual performance and experience and our salary guidelines. The Committee did not increase Mr. Falk’s base salary in 2008. Base salaries for the other named executive officers increased an average of 9.7 percent from 2007, and this increase considers some changes in senior management duties in addition to the factors described above.

 

In 2008, we were able to deliver continued progress in our top-line growth strategies, while continuing to operate our business efficiently. These advances, however, were not enough to offset a rapid run-up in our commodity costs during the first half of the year, as well as general economic weakness. As a result, adjusted earnings per share and adjusted return on invested capital (“ROIC”) were lower than planned. Consistent with our pay-for-performance philosophy described below, the Committee determined that the corporate performance component of the annual cash incentives for 2008 should be below target, at 55 percent. As a result, Mr. Falk’s annual incentive payout for 2008 was 55 percent of target, and after applying business unit or staff function performance, payouts for the other named executive officers ranged from 66 to 119 percent of target. The annual cash incentive for Mr. Falk decreased 62 percent from 2007 and for the other named executive officers decreased on average 38 percent from 2007. See “Committee Assessment of 2008 Performance” for more information regarding target levels and our 2008 performance.

 

In 2008, the Committee did not award time-vested restricted share units to our named executive officers in order to further emphasize the pay-for-performance aspect of this element of direct compensation. Long-term equity incentive compensation awards for named executive officers consisted of performance-based restricted share units and stock options.

 

As part of its ongoing review of our executive compensation program in comparison to developing trends, as well as in response to challenging economic conditions, the Committee has implemented several changes to our executive compensation program in late 2008 and in 2009, including:

 

 

The Committee believes these measures to be appropriate in light of the current economic environment while still providing a competitive compensation package to our executive officers.

 

Executive Compensation Objectives and Policies

 

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 elected 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 Executive Compensation Program

 

For 2008, 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 direct 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 direct annual compensation. See “Direct 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 2008 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, 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. We believe that combining these groups provides a useful view of other compensation programs, in light of the broad range of companies with which we compete for executive talent.

 

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 2008, we removed five companies from the Consumer Goods Peer Group as a result of mergers and acquisitions involving these companies. Also in 2008, we removed six companies from and added seven 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 2008 compensation and performance objectives were determined:

 

						Range of Individual
		Median Annual Revenue				Company Revenues
Consumer Goods Peer Group		$	12.4 billion			$	4.8 billion to $76.5 billion
General Industry Peer Group		$	18.6 billion			$	11.5 billion to $35.2 billion

 

Our net sales for 2007 were $18.3 billion.

 

Direct Annual Compensation

 

In setting 2008 compensation for our executive officers, including our Chief Executive Officer, the Committee focused on direct annual compensation, which consists of annual cash compensation (base salary and annual cash incentive) and long-term equity incentive compensation (performance-based restricted share units and stock options). The Committee considers annual cash and long-term equity incentive compensation both separately and as a package to help ensure that our executive compensation objectives are met.

 

Consistent with its approach to direct annual compensation, the Committee established 2008 direct annual compensation targets for each of our named executive officers. These target amounts formed the basis for the Committee’s compensation decisions in 2008, and the Committee believes that the 2008 target amounts it established were appropriate and consistent with our executive compensation objectives. For 2008, the direct annual compensation targets for our named executive officers were as follows:

 

		2008 Direct Annual
Name		Compensation Target
Thomas J. Falk		$	10,940,000
Mark A. Buthman		$	3,121,000
Robert E. Abernathy		$	3,456,300
Robert W. Black		$	2,536,000
Anthony J. Palmer		$	2,025,000

 

As described in more detail below, there is a significant performance-based compensation component included in these direct annual compensation targets. Therefore, our results and our stock price performance have a significant impact on the value realized. For example, although we expect our results and stock price to improve in future years, the value of this direct compensation package as of December 31, 2008 for Mr. Falk was 74 percent less than the above direct annual compensation target and

for the other named executive officers was, on average, 60 percent less than these targets. These percentages are based on the base salary set for 2008, the actual annual cash incentive payment made for 2008, the value of stock options granted in 2008 (based on the closing price of our common stock on December 31, 2008) and the value of performance-based restricted share units granted in 2008 (based on the closing price of our common stock on December 31, 2008 and a 15 percent vesting rate as described in “Long-Term Equity Incentive Compensation — Performance-Based Restricted Share Units”).

 

The 2008 direct annual compensation target amounts differ from the amounts set forth in the Summary Compensation Table because:

 

 

As shown in the following charts, performance-based compensation (annual cash incentive, performance-based restricted share units and stock options) constituted a significant portion of our named executive officers’ direct annual compensation targets. Similarly, a large percentage of the direct compensation targets was in the form of equity (performance-based restricted share units and stock options).

 

 

Process for Setting Direct Annual Compensation.  In setting the direct 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 compared to the median of the peer groups described above. In order to reinforce a “pay-for-performance” culture, targets for individual executive officers may be set

above or below this 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 comparing target levels to the median, setting targets as described above, and providing incentive compensation opportunities that will enable executives to earn above target compensation if they deliver above-target performance on these goals, 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 successfully recruit 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 Direct Annual Compensation.  Mr. Falk’s direct annual compensation is determined by the Committee in the same manner as the direct annual compensation of the other named executive officers, based on the policies and process described above. Mr. Falk’s direct annual compensation is at or near the median of direct compensation for chief executive officers of companies included in the peer group comparison 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 cash 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 our peer group companies. Executives may be paid above or below the median depending on their experience and performance.

In 2008, the Committee did not increase Mr. Falk’s base salary, based on the Committee’s determination that Mr. Falk’s base salary was at or near the median of our peer group companies.

 

As a result of Steven R. Kalmanson’s retirement in 2008, Mr. Abernathy was appointed Group President — North Atlantic Consumer Products, and Mr. Black replaced Mr. Abernathy as Group President — Developing and Emerging Markets. The Committee considered these changes in duties, as well as the other factors described above, when approving the base salaries for Messrs. Abernathy and Black. The Committee approved base salary increases for the remaining named executive officers as a result of the process described above.

 

The base salaries paid to our named executive officers in 2008 can be found in the Summary Compensation Table.

 

Annual Cash 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 that percentage is compared to the median of the peer group comparison described above and is set as described under “Direct Annual Compensation.” In 2008, to enhance the alignment of the target level of the annual cash incentive payments with our peer groups, this target payment percentage was increased from 120 percent to 140 percent of base salary for Mr. Falk and from 80 percent to 85 percent of base salary for the other named executive officers. 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 2008 were as follows:

 

 

Under the program, a significant percentage of the annual cash incentive is dependent on performance measured against corporate goals and business unit or staff 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 2008, the Committee established the following performance goals and relative weights for our named executive officers:

 

 

Corporate performance consists of (i) corporate key financial goals and (ii) other corporate financial and strategic performance goals, with these components weighted 70 percent and 30 percent, respectively.

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. Each year, the Committee determines the appropriate split between corporate and business unit or staff function performance goals based on its assessment of the appropriate balance.

 

 

 

Diluted Net Income Per Share		$	4.04
Adjustments for:
Add — Charges for Strategic Cost Reduction Plan			0.09
Add — Extraordinary loss related to consolidation of financing entities			0.02
Subtract — Rounding			(0.01	)
Adjusted EPS		$	4.14

 

 

 

 

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 degree to which these goals are achieved.

 

 

From 2004 through 2008, the average payout for corporate goals (the combination of corporate key financial goals and other corporate financial and strategic performance goals) has been 119 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 2008 (the period for which business unit or staff function performance has been included in the determination of annual cash incentive payments), total payout percentages (including business unit or staff function performance) for the current named executive officers ranged from 55 percent to 187 percent of the participant’s target award opportunity, with an average approximate payout percentage over the past four years of 110 percent of the target award opportunity. Generally, the Committee seeks to set 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 2008 Performance.

 

 

		Potential Payout as a Percentage of Target
		0%				100%				200%				Actual
Adjusted EPS		$	4.25			$	4.50			$	4.75			$  4.14
Net Sales (billions)		$	18.30			$	19.30			$	20.30			$ 19.42
			0.8 x				1.0 x				1.2 x
Adjusted ROIC multiplier (basis point (bps) improvement)			0 bps				10 bps				40 bps			(110) bps

 

Based on these results, the Committee determined that the payout percentage for achieving the key financial goals should be 44 percent of target.

 

 

Payouts for 2008.  The following table summarizes the payout opportunities and shows the actual payout of annual cash incentives for 2008 for our named executive officers:

 

 

Due to the change in his duties in March 2008, the payout of the annual cash incentive for 2008 for Mr. Abernathy was pro-rated to take into account the change in business unit responsibilities.

 

The cash incentive payments were paid to the executives in February 2009 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 aligning our senior leaders with the financial interests of our stockholders, focusing on our long-term success, supporting our performance-oriented environment, and offering competitive compensation packages. 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 2008 long-term equity incentive awards were granted in April 2008 based on an assessment of those factors at that time. Because these awards are part of our annual compensation program that compares direct annual compensation to the median of our peer group comparison, adjusted as described under “Direct Annual Compensation,” grants from prior years were not considered when setting 2008 targets or granting awards.

 

For 2008, the Committee set the long-term equity incentive compensation grant value for each executive based on the goal of first comparing direct annual compensation to the median of the peer groups, adjusted as described under “Direct Annual Compensation” and to reflect the performance of the executive officer. This grant value was then divided into grants, described in more detail below, consisting of:

 

 

In previous years, named executive officers also received grants of time-vested restricted share units as part of their long-term equity incentive compensation grant. In order to further emphasize the pay-for-performance aspect of this element of direct compensation, time-vested restricted share units were not awarded in 2008.

 

Performance-Based Restricted Share Unit Awards.  In 2008, executives received awards of performance-based restricted share units with a value equal to two-thirds of the target grant date value for long-term equity incentive compensation. For this purpose, 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.

 

For the performance-based restricted share unit awards granted in 2008, 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 objectives are met. The

performance objectives for the 2008 awards are based on average net sales growth and the average adjusted ROIC for the period January 1, 2008 through December 31, 2010, as follows:

 

		Relative				Potential Payout as a Percentage of Target
Goal		Weight				0%				50%				100%				150%
Net Sales Growth			50	%			1.00	%			3.00	%			5.00	%			7.00	%
Adjusted ROIC			50	%			15.20	%			15.35	%			15.50	%			15.65	%

 

For the 2008 awards, adjusted ROIC is calculated in the same manner as described above for purposes of determining annual cash incentive amounts.

 

The performance objectives attempt to balance our Global Business Plan objectives, including annual net sales growth of three to five percent and average adjusted ROIC improvement of 40 to 50 basis points per year during this period, peer group performance and our past and future performance. 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.”

 

In April 2008, the Committee reviewed the results of the 2005 through 2007 performance period for the performance-based restricted share units granted in 2005. Based on this review, the Committee determined that the Corporation’s adjusted ROIC for this period had exceeded the target and approached the maximum, resulting in a payout percentage of 140 percent. The following chart includes information about the opportunities and payouts regarding this grant:

 

 

When these grants were made in 2005, Messrs. Black and Palmer were not employed by the Corporation. The shares underlying this performance-based restricted share unit award were distributed to the executives in April 2008 and are included in the Option Exercises and Stock Vested in 2008 table.

 

As of February 10, 2009, the performance-based restricted share units granted in 2008, 2007 and 2006 were on pace to vest at the following levels: 15 percent for the 2008 award, 10 percent for the 2007 award, and 30 percent for the 2006 award.

 

Stock Option Awards.  In 2008, 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 20 percent of the price of one share of the Corporation’s common stock on the date of grant. The value we use for this purpose differs from, and in 2008 was 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 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. This value was reduced from 25 percent to 20 percent in 2008, as a result of reduced volatility in the Corporation’s stock price. 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 maintain a funded, tax-qualified, non-contributing defined benefit pension plan for employees, including named executive officers, who joined the Corporation before January 1, 1997. 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 service accruals in our pension plans, we maintain an additional tax-qualified defined contribution plan (the Retirement Contribution Plan). In addition, we maintain the Retirement Contribution Excess Benefit Program (the “supplemental Retirement Contribution 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.”

 

We also maintain a tax-qualified defined contribution plan (the Incentive Investment Plan), which is a 401(k) plan that covers eligible employees, including our named executive officers. For more information, see “Nonqualified Deferred Compensation — Overview of Qualified and Non-Qualified Plans.”

 

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 group 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 generally increase for each year they remain employed by us.

 

Other Compensation

 

We provide our executive officers with perquisites, including 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. Our Chief Executive Officer no longer receives personal financial planning services pursuant to this 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. In addition, if a corporate aircraft is already scheduled for business purposes and can accommodate additional passengers, executive officers and their guests may, under certain circumstances, join flights for personal travel. The incremental cost to us of providing security services at Mr. Falk’s residences, personal travel for our named executive officers and their guests on our corporate aircraft, and any related tax reimbursements and gross-ups is included in “All Other Compensation” in the Summary Compensation

Table. In February 2009, the Committee adopted a policy that limits the personal use of corporate aircraft by the Chief Executive Officer to an aggregate annual incremental cost to the Corporation of $100,000, and generally prohibits the personal use of corporate aircraft by other executive officers unless there is no incremental cost to the Corporation for the use. In addition, the Committee adopted a policy in February 2009 providing that executive officers will no longer receive tax reimbursement and a related gross-up for perquisites (including personal use of corporate aircraft), except for certain relocation benefits.

 

In general, these perquisites made up less than three percent of total compensation for our named executive officers in 2008.

 

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. 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 group companies and that they are therefore important for attracting and retaining executives who are critical to our long-term success and competitiveness. For more information about these severance plans and their terms, see “Potential Payments on Termination or Change in Control — Severance Benefits.”

 

Severance Pay Plan.  Our Severance Pay Plan provides severance benefits to most of our hourly and salaried employees, including our named executive officers, who are involuntarily terminated under the circumstances described in the plan. The objective of this plan is to facilitate the employee’s transition to his or her next position, and it is not intended to serve as a reward for the employee’s past service. Following a review of benchmarking of competitive practices at peer group companies, the Committee approved an amendment to this plan, effective January 1, 2009, to reflect the expiration of the Global Business Plan Severance Pay Plan on December 31, 2008 and to bring the terms of the Severance Pay Plan in line with competitive practices at our peer group companies. See “Potential Payments on Termination or Change in Control — Severance Benefits.”

 

Executive Severance Plan.  Our Executive Severance Plan provides severance benefits to eligible employees, including our named executive officers, in the event of a qualified termination of employment (as defined in the plan) in connection with a change in control. For an eligible employee to receive a payment under this plan, both a change in control must occur and the employee’s employment must be terminated (often referred to as a “double trigger”).

 

In 2008, the Committee benchmarked practices at peer group companies. Following this review, the Committee revised the plan in November 2008 to reduce the severance benefits payable in connection with a change in control. In particular, the amounts of salary, bonus and certain other benefits payable to the named executive officers have been reduced from three years to two years under the amended plan, as follows:

 

 

Each of the named executive officers entered into new agreements under the revised plan that expire on December 31, 2011.

 

Agreement with Mr. Kalmanson.  On March 17, 2008, we entered into an agreement with Steven R. Kalmanson, formerly Group President — North Atlantic Consumer Products, under which he agreed to

serve as an Executive Vice President from April 1, 2008 until December 31, 2008. In this new role, he worked full time through June 30, 2008 and received a reduced salary from July 1, 2008 through December 31, 2008. On July 1, 2008, his base salary was reduced by 50 percent to reflect his reduced responsibilities at that time. In addition, he was eligible for a pro-rated portion of any 2008 annual cash incentive award he would otherwise have been provided under the terms of that program.

 

Upon his retirement, Mr. Kalmanson became eligible for severance benefits under our Global Business Plan Severance Pay Plan. In accordance with the terms of this plan, he elected to receive an unreduced pension benefit plus $10,000 in lieu of the other severance benefits provided in that plan. In addition, we will pay for the first six months of medical benefits under COBRA. For more information regarding the Global Business Plan Severance Pay Plan, see “Potential Payments on Termination or Change in Control — Severance Benefits.”

 

Mr. Kalmanson has agreed to remain available to consult with us for two years following his retirement and will be paid a total fee of $400,000 over this consulting period. During this time, he is prohibited from competing against us or soliciting our employees to work for a competitor. He has also agreed that he will not disclose our confidential information or disparage us. In addition, the agreement provides for his release of us from legal claims.

 

Executive Compensation for 2009

 

Base Salary.  In February 2009, the Committee approved the following base salaries for our named executive officers, effective on April 1, 2009:

 

 

For Mr. Falk, this base salary has not changed since April 1, 2007. For the remaining named executive officers, these base salaries are unchanged from April 1, 2008.

 

Annual Cash Incentives.  In February 2009, the Committee also established objectives for 2009 annual cash incentives payable in 2010 to our executive officers. Depending on actual performance in 2009 against the financial and non-financial goals, 2009 incentive payments could range from zero to 200 percent of the named executive officers’ target payments.

 

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

 

Incentive payments for 2009 will be based on the Committee’s judgment regarding our corporate and the executive officers’ performance in 2009 against those objectives. The corporate key financial goals for 2009 are designed to permit a continued focus on executing our long-term Global Business Plan objectives and include achieving adjusted earnings per share, net sales and adjusted ROIC goals.

 

The Committee also established other corporate financial and non-financial goals for 2009. These goals, intended to further align compensation with achieving our Global Business Plan, include:

 

 

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

 

Long-Term Equity Incentive Compensation.  The Committee granted performance-based restricted share units to our named executive officers in February 2009. The performance objectives for the performance-based restricted share unit awards granted in 2009 are based on average net sales growth and the average adjusted ROIC for the period January 1, 2009 through December 31, 2011. The actual number of shares to be received by the executives will range from zero to 200 percent of the target levels established by the Committee for each executive, depending on the degree to which the performance objectives are met. See “Summary Compensation Table,” “Grants of Plan-Based Awards” and “Discussion of Summary Compensation and Plan-Based Awards Tables.”

 

Dividend equivalents will not be paid on unvested performance-based restricted share units granted to the named executive officers in February 2009 and thereafter; instead, dividend equivalents on these units will be accumulated and paid after the performance-based restricted share units vest, based on the actual number of shares that vest.

 

Information regarding the performance-based restricted share unit awards granted on February 26, 2009 to our named executive officers is set forth below.

 

 

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 2008 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 direct annual compensation to be paid to our executive officers, excluding himself. The Committee makes the final determination of the target direct 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 and Chief Human Resources Officer typically attend Committee meetings, none of the other executive officers is present during the portion of the Committee’s meetings when compensation for 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. 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.

 

Through 2008, the Committee has awarded executive officers restricted share units at the same time it has granted stock options. In 2009, the Committee awarded performance-based restricted share units to

executive officers at its February Committee meeting, and it intends to continue this practice. We believe this practice is consistent with award practices at other large public companies. 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 approximately 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, shares of 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. 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 our 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 equity incentive awards granted to the executive. 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. Executive officer stock ownership levels were reviewed in mid- to late-2008 for compliance with these guidelines, based on our stock price as of August 15, 2008. This review date permitted executive officers not in compliance with the guidelines sufficient time to acquire additional shares prior to the end of the year and the determination of long-term equity incentive award grants in 2009. Based on our stock price on this review date of August 15, 2008, as well as on December 31, 2008, the stock ownership levels specified by the guidelines have been met or exceeded by each of our named executive officers, other than Messrs. Black and Palmer, who joined the Corporation in 2006.

 

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 2008.

 

Tax Deduction for Executive Compensation.  The United States income tax laws generally limit the deductibility of compensation paid to the chief executive officer and each of the three highest-paid executive officers (not including the chief financial officer) to $1,000,000 per annum. An exception to this general rule exists for performance-based compensation that meets certain regulatory requirements. Several classes of executive compensation including the option awards to executive officers are designed to meet the requirements for deductibility. Other classes of executive compensation including the long-term equity grants as 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, 2008.

 

MANAGEMENT DEVELOPMENT AND COMPENSATION COMMITTEE OF THE BOARD OF DIRECTORS

 

James M. Jenness, Chairman

Abelardo E. Bru

Mae C. Jemison, M.D.

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, 2008. Additional information regarding the items reflected in each column follows the table.

 

Summary Compensation Table