CON-WAY INC.

(Name of Registrant as Specified In Its Charter)

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

Notice of Annual Meeting

and

Proxy Statement

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Annual Meeting of Shareholders

MAY 18, 2010

CON-WAY INC.

 

CON-WAY INC.

SAN MATEO, CALIFORNIA 94403

 

 

NOTICE OF ANNUAL MEETING OF SHAREHOLDERS

Tuesday, May 18, 2010

8:30 A.M., local time

Grand Salon, Hotel Sofitel, 223 Twin Dolphin Drive, Redwood City, California

 

FELLOW SHAREHOLDER:

 

The Annual Meeting of Shareholders of Con-way Inc. will be held at 8:30 A.M., local time, on Tuesday, May 18, 2010, to:

 

 

Shareholders of record at the close of business on March 29, 2010, are entitled to notice of and to vote at the meeting.

 

Your vote is important. Whether or not you plan to attend, I urge you to vote your shares following the instructions found under “Proxy Voting Convenience” in the attached Proxy Statement in order that as many shares as possible will be represented at the meeting. If you attend the meeting and prefer to vote in person, you will be able to do so and your vote at the meeting will revoke any proxy you may submit.

 

Sincerely,

 

JENNIFER W. PILEGGI

Secretary

 

April 12, 2010

 

TABLE OF CONTENTS

 

 

CON-WAY INC.

2855 CAMPUS DRIVE, SUITE 300

SAN MATEO, CALIFORNIA 94403

TELEPHONE: 650/378-5200

 

 

 

The proxy statement and annual report, including Form 10-K,
are available at: http://investors.con-way.com

 

Also available on the Web site are the Company’s proxy card, as well as
an instruction card for voting shares of common
stock held in the Company’s 401(k) plans.

 

 

 

April 12, 2010

 

The Annual Meeting of Shareholders of Con-way Inc. (the “Company”) will be held on Tuesday, May 18, 2010. Shareholders of record at the close of business on March 29, 2010 will be entitled to vote at the meeting. This proxy statement and accompanying proxy are first being sent to shareholders on or about April 12, 2010.

 

The Board of Directors of the Company is soliciting your proxy for use at the meeting and any adjournment or postponement of the meeting. The Board recommends a vote “FOR” the election of the nominees for directors described below and “FOR” ratification of the appointment of KPMG LLP as independent auditors.

 

To be effective your vote, whether by properly signed proxies or telephone or Internet voting, must be received by the Company prior to the meeting. The shares represented by your proxy will be voted in accordance with your instructions. However, if you return a signed proxy card and no instructions are given, your shares will be voted in accordance with the recommendations of the Board.

 

A majority of the votes attributable to all voting shares must be represented in person or by proxy at the meeting to establish a quorum for action at the meeting. Directors are elected by a plurality of the votes cast, and the seven nominees who receive the greatest number of votes cast for election of directors at the meeting will be elected directors for a one-year term. The ratification of the appointment of auditors requires a favorable vote of the holders of a majority of the voting power represented at the meeting.

 

In the election of directors, broker non-votes will be disregarded and have no effect on the outcome of the vote. With respect to ratification of the appointment of auditors, abstentions from voting will have the same effect as voting against such matter and broker non-votes will be disregarded and have no effect on the outcome of such vote.

 

At the close of business on March 29, 2010, the record date for the Annual Meeting, there were outstanding and entitled to vote 49,518,070 shares of Common Stock. Each share of Common Stock has

the right to one non-cumulative vote. Therefore, an aggregate of 49,518,070 votes are eligible to be cast at the meeting.

 

You are encouraged to exercise your right to vote.

 

If you are a shareholder of record or a participant in a Company 401(k) plan, you can give your proxy by calling a toll-free number, by using the Internet, or by mailing your signed proxy card or plan instruction card. Specific instructions for voting by means of the telephone or Internet are set forth on the proxy card or plan instruction card. The telephone and Internet voting procedures are designed to authenticate each shareholder’s identity and to allow each shareholder to vote his or her shares and confirm that his or her voting instructions have been properly recorded. If you vote by telephone or on the Internet, you do not have to return your proxy card or plan instruction card. If you do not wish to vote by telephone or via the Internet, please complete, sign and return the proxy card or plan instruction card in the self-addressed, postage-paid envelope provided. You may also vote your shares in person at the meeting.

 

If you hold your shares beneficially (that is, “in street name” through a broker, bank or other nominee), you must follow directions received from the broker, bank or other nominee in order to vote your shares.

 

You may revoke or change your proxy at any time prior to its use at the meeting. There are three ways you may do so: (1) give the Company a written direction to revoke your proxy; (2) submit a later dated proxy card or plan instruction card, or a later dated vote by telephone or Internet, or (3) attend the meeting and vote in person.

 

All shareholders are invited to attend the meeting. Persons who are not shareholders may attend only if invited by the Board of Directors. If you are a shareholder but do not own shares in your name, you must bring proof of ownership (e.g., a current broker’s statement) in order to be admitted to the meeting. If you wish to attend the meeting in person, you can obtain driving directions to the Hotel Sofitel in Redwood City, California at www.sofitel.com.

 

 

The Board of Directors Recommends a Vote “For” All Nominees.

 

The Board of Directors of the Company, pursuant to the By-laws, has determined that the number of directors of the Company shall be ten. There are seven nominees for director at our 2010 Annual Meeting of Shareholders. Under our Certificate of Incorporation, as amended (which was approved at our 2009 Annual Meeting of Shareholders), the classification of our Board was eliminated. Currently three of our directors (Messrs. Murray, Schroeder and White) are serving terms that expire in 2011, and starting with the 2011 Annual Meeting of Shareholders, all directors will be elected annually for terms of one year. All of our directors have previously been elected by shareholders.

 

The following persons, who prior to declassification of our Board of Directors served as Class I and Class III directors, are the nominees of the Board of Directors for election to serve for a one-year term until the 2011 Annual Meeting of Shareholders and until their successors are duly elected and qualified:

 

 

Unless you withhold authority to vote, your proxy will be voted for election of the nominees named above.

 

BIOGRAPHICAL INFORMATION FOR NOMINEES AND CONTINUING DIRECTORS

 

 

NOMINEES FOR ELECTION

 

 

NOT STANDING FOR ELECTION

 

 

 

At last year’s annual meeting, shareholders approved the appointment of KPMG LLP as independent public accountants to audit the consolidated financial statements of the Company for the year ended December 31, 2009. The Board recommends that shareholders vote in favor of ratifying the reappointment of KPMG LLP as the Company’s independent auditors for the year ending December 31, 2010. A representative of the firm will be present at the Annual Meeting of Shareholders with the opportunity to make a statement if he or she desires to do so and to respond to appropriate questions from shareholders. The Company has been informed by KPMG LLP that neither the firm nor any of its members or their associates has any direct financial interest or material indirect financial interest in the Company or its affiliates.

 

Fees

 

During the Company’s fiscal years ended December 31, 2009 and December 31, 2008, the Company was billed the following aggregate fees by KPMG LLP.

 

Audit Fees.  The aggregate fees billed by KPMG LLP to the Company for professional services for the audit of the Company’s annual financial statements for the fiscal year, for reviews of the financial statements included in the Company’s Forms 10-Q for the fiscal year, and for services provided by KPMG LLP in connection with statutory or regulatory filings for the fiscal year, were $2,172,693 for the fiscal year ended 2009 and $2,006,000 for the fiscal year ended 2008.

 

Audit-related Fees.  The aggregate fees billed by KPMG LLP to the Company for assurance and related services were $81,800 for the fiscal year ended 2009 and $76,000 for the fiscal year ended 2008. These fees were for the audit of employee benefit plans.

 

Tax Fees.  The aggregate fees billed by KPMG LLP to the Company for professional services rendered for tax compliance, tax advice and tax planning were $78,450 for the fiscal year ended 2009 and $113,000 for the fiscal year ended 2008.

 

All Other Fees.  No fees were billed by KPMG LLP to the Company for products and services rendered for fiscal year 2008 or 2009, other than the Audit Fees, Audit-related Fees, and Tax Fees described in the preceding three paragraphs.

 

All of the services performed by KPMG LLP during 2009 were pre-approved by the Audit Committee of the Company’s Board of Directors, which concluded that the provision of the non-audit services described above is compatible with maintaining KPMG LLP’s independence.

 

Pre-Approval Policies and Procedures

 

Prior to retaining KPMG LLP to provide services in any fiscal year, the Audit Committee first reviews and approves KPMG’s fee proposal and engagement letter. In the fee proposal, each category of services (Audit, Audit Related, Tax and All Other) is broken down into subcategories that describe the nature of the services to be rendered, and the fees for such services. For 2009, the Audit Committee also approved nominal additional fees (beyond those included in the KMPG fee proposal) for services in a limited number of subcategories, based on the Company’s experience regarding the unanticipated need for such services during the year. The Company’s pre-approval policy provides that the Audit Committee must specifically pre-approve any engagement of KPMG for services outside the scope of the fee proposal and engagement letter.

 

 

 

The following table sets forth information regarding beneficial ownership of the Company’s Common Stock as of January 31, 2010 by the directors, the executive officers identified in the Summary Compensation Table below and by the directors and executive officers as a group.

 

 

 

 

The Board of Directors has determined that each incumbent director other than Douglas W. Stotlar is an independent director under the New York Stock Exchange listing standards.

 

The Company’s Board of Directors seeks to have members with a variety of backgrounds and experiences. Set forth below, for each current member of the Board of Directors, is a brief description of the experience, qualifications, attributes or skills that led the Board to conclude that the director should serve on the Board.

 

John J. Anton

 

Mr. Anton brings a broad base of experience to the Board, including 20 years of corporate management and executive experience with two consumer product companies as well as leveraged buyout and private equity experience. From this experience, Mr. Anton has developed an array of skills, including in the areas of strategic, business and financial planning and corporate development, which he draws upon in his service as a member of the Company’s Board of Directors. In particular, Mr. Anton’s consumer products marketing experience provides insight to the Board’s oversight of the Company’s businesses and was of benefit to the Board when the Company undertook its rebranding initiative in 2006.

 

William R. Corbin

 

Mr. Corbin’s experience derives from a career of over 35 years in the manufacturing, marketing, sales and distribution of timber and forest products. During the course of his career he served as a senior officer in three large corporations, including as Executive Vice President of Weyerhaeuser Company. Having been engaged in line operations, he has expertise in the areas of organizational effectiveness and industrial safety, which are important aspects of the Company’s operations. He also has international experience in Europe, Asia and South America, as well as mergers and acquisition and private equity experience, which provides insight when the Company considers strategic acquisitions.

 

Robert Jaunich II

 

Founder and a managing partner of a private investment company that makes and oversees majority equity investments in operating companies representing a broad spectrum of industries, Mr. Jaunich has over 20 years of operating experience focusing on strategic planning, finance, marketing and human resources. This experience facilitates his understanding of the Company’s business, particularly from the perspective of the customer. Mr. Jaunich’s experience includes prior service on the boards of directors of a number of publicly-traded companies, including in some cases as chair, which provides insights into how boards at other companies have addressed issues similar to those faced by the Company. Appointed to the Company’s Board of Directors in 1992, Mr. Jaunich is also the longest-serving Company director.

 

W. Keith Kennedy, Jr.

 

Dr. Kennedy brings a breadth of experience to the Company’s Board of Directors derived from his prior service as chief executive officer of a large publicly-traded manufacturing company that, like the Company, was engaged in multiple lines of business. He has experience in the areas of acquisitions and dispositions, doing business with the United States government, conducting business overseas and optimizing supply chains. In addition, Dr. Kennedy has knowledge of the Company’s businesses gained

both through his service as a Company director since 1996 and through his service as interim Chief Executive Officer from July 2004 to April 2005.

 

Michael J. Murray

 

Mr. Murray brings over 30 years of banking and finance experience to the Company’s Board. During his career he held a number of senior positions with major financial institutions, including the position of President of Global Corporate and Investment Banking at Bank of America Corporation. His experience advising major corporations and private equity firms on financing issues has enabled him to provide insights to the Board of Directors when the Company considers equity and debt offerings. In addition, having played a key role in the Bank of America/NationsBank merger, Mr. Murray has experience in the area of mergers and acquisitions, which has proved valuable to the Board when considering possible strategic acquisitions by the Company.

 

John C. Pope

 

As a Company director, Mr. Pope draws on experience gained not only from his prior service as chief financial officer of two large publicly-traded companies in the transportation industry (and president and chief operating officer of one of those companies), but also from his current positions as chairman of a private equity firm and as a member of the boards of directors and audit committees of other publicly-traded companies. Through his service on these other boards and audit committees , Mr. Pope is able to share insights with the Company Board and Audit Committee regarding corporate governance best practices.

 

William J. Schroeder

 

Mr. Schroeder has over 25 years of operating experience as president or chief executive officer of various technology companies, including as president or chief executive officer of three publicly-traded companies. He has experience as an entrepreneur, having grown several small technology companies to a size that they could be taken public. Mr. Schroeder’s entrepreneurial skills and his software and operations experience are of benefit to the Board, particularly when evaluating new business opportunities and matters relating to the Company’s Menlo Logistics business unit.

 

Douglas W. Stotlar

 

As the Company’s Chief Executive Officer for the past five years and a career Company employee who previously held a series of increasingly responsible senior leadership positions at the Company’s Con-way Freight business unit, Mr. Stotlar understands the Company, its customers, workforce, operations, culture and key business drivers. During his tenure as Chief Executive Officer, he has gained an understanding of the regulatory environment and evolving corporate governance practices that are important to shareholders and regulatory agencies. Mr. Stotlar also holds leadership positions in a number of industry organizations, through which he gains insights into industry and supply chain shifts and evolving practices which are helpful in shaping Company strategy.

 

Peter W. Stott

 

Mr. Stott brings to the Board 40 years of experience in transportation and logistics services, having founded and operated a large asset-based transportation and logistics company located in the Pacific Northwest. This experience enables Mr. Stott to provide insights into operational and service matters affecting the Company. He also has experience with real estate private equity investments, and is knowledgeable regarding commercial real estate located in the Pacific Northwest, including Portland, Oregon where the Company has significant real estate holdings.

Chelsea C. White III

 

As Schneider National Chair of Transportation and Logistics at the Georgia Institute of Technology, Professor White has knowledge of the transportation and logistics sectors in which the Company operates. His research focuses on topical issues of key importance to the Company, including analyzing the role of real-time information and enabling information technology for improved logistics and, more generally, supply chain productivity and risk mitigation, with special focus on the U.S. trucking industry. Professor White writes and speaks extensively on supply chain and logistics topics such as trends in the industry, the globalization of innovation in the logistics industry, information technology in the trucking industry, and competitive performance in the U.S. trucking industry.

 

During 2009, the Board of Directors held seven meetings. Each incumbent director attended at least 75% of all meetings of the Board and the committees of the Board on which he served.

 

The Company currently has both a Chairman of the Board (Dr. Kennedy) and a Chief Executive Officer (Mr. Stotlar), and except for the period from July 2004 to April 2005 when Dr. Kennedy served both as Chairman of the Board and Interim Chief Executive Officer, has had a separate Chairman and Chief Executive Officer at all times since 1998.

 

Separating these positions allows our Chief Executive Officer to focus on setting the strategic direction of the Company and the day-to-day leadership and performance of the Company, while the Chairman of the Board leads the Board in its role of providing advice to, and overseeing the performance of, the Chief Executive Officer. Although our bylaws and corporate governance guidelines do not require the separation of these positions, the Board of Directors believes that having an independent director serve as Chairman of the Board is the appropriate leadership structure for the Board at the current time.

 

Dr. Kennedy also serves as the Board’s “Lead Non-Management Director.” Non-management members of the Board of Directors meet in executive session on a regularly scheduled basis, with Dr. Kennedy presiding at such executive sessions. Neither the Chief Executive Officer nor any other member of management attends the meetings of non-management directors. For information regarding how to communicate with the Lead Non-Management Director and other members of the Company’s Board of Directors, see “Communications with Directors” below.

 

The Board of Directors currently has the following standing committees: Audit Committee, Compensation Committee, Governance and Nominating Committee and Finance Committee, the members of which are shown in the table below. Each of the Audit, Compensation and Governance and Nominating Committees is governed by a charter, current copies of which are available on the Company’s corporate website at www.con-way.com under the headings “Investors/Corporate Governance.” Copies of the charters are also available in print to shareholders upon request, addressed to the Corporate Secretary at 2855 Campus Drive, Suite 300, San Mateo, California 94403.

 

 

 

Descriptions of the Audit, Compensation and Governance and Nominating Committees follow:

 

Audit Committee: Under its charter, the Audit Committee assists the Board in its oversight of matters involving the accounting, auditing, financial reporting, and internal control functions of the Company. The Committee receives reports on the work of the Company’s outside auditors and internal auditors, and reviews with them the adequacy and effectiveness of the Company’s accounting and internal control policies and procedures. Under the Company’s Corporate Governance Guidelines, the Company’s Chief Executive Officer, Chief Financial Officer, Controller and General Counsel are required to promptly notify the Chair of the Audit Committee upon receiving complaints regarding accounting, internal control and auditing matters involving the Company.

 

Each Committee member has been determined to be an independent director under the New York Stock Exchange listing standards. The Board has determined that Mr. Pope qualifies as an “audit committee financial expert” as such term is defined in rules adopted by the Securities and Exchange Commission. The Board has also determined that Mr. Pope’s service on the audit committees of more than three public companies does not impair his ability to effectively serve on the Company’s Audit Committee. The Committee met twelve times during 2009.

 

Compensation Committee: The Compensation Committee’s authority is established in its charter. The Compensation Committee approves the annual base salaries paid to the Chief Executive Officer, the Company’s other policy-making officers and certain other corporate officers. The Company’s Chief Executive Officer approves the annual base salaries for the Company’s other executives. The Compensation Committee also approves, for all executives, the short-term and long-term incentive compensation award opportunities and performance goals applicable to these awards, and annual grants of long-term incentive awards to all executives made under the Company’s equity and incentive plan. In determining the compensation paid to the Chief Executive Officer, it is the practice of the Compensation

Committee to consult with and obtain the concurrence of the other independent members of the Board of Directors. Management has no role in recommending or setting compensation for the Chief Executive Officer. The Committee also reviews the retirement and benefit plans of the Company and its domestic subsidiaries.

 

Each Committee member has been determined to be an independent director under the New York Stock Exchange listing standards. The Committee met eight times during 2009.

 

The Compensation Committee typically engages an independent compensation consultant to assist the Committee in its annual review and approval of executive compensation. For 2009, the Compensation Committee retained Hewitt Associates, LLP as its independent compensation consultant. (See “Compensation Discussion and Analysis — Role of Compensation Consultants” below.)

 

Each year the Chief Executive Officer presents to the Compensation Committee for consideration his recommendations with respect to the compensation of Company executives (other than himself). These recommendations include:

 

 

In developing his recommendations, the Chief Executive Officer typically takes into account:

 

 

The independent compensation consultant is available for consultation with the Committee (without executive officers present) prior to and at the Committee meeting at which executive compensation is approved, as well as at other times during the year. The Compensation Committee also meets with the Chief Executive Officer (without other executive officers present) to discuss his executive compensation recommendations. The Committee then meets in an executive session without management and exercises its independent judgment in deciding whether to accept or revise the Chief Executive Officer’s recommendations.

 

The Compensation Committee charter identifies the Compensation Committee as the Committee with the responsibility to administer the 2006 Equity and Incentive Plan and the short-term and long-term incentive compensation awards made under the Plan. The Committee has delegated to management the authority to administer the plans on a day-to-day basis. However, the Committee retains sole authority to

make awards to the Named Executives and other Section 16 officers of the Company, to establish the terms of these awards (including performance goals) and to determine whether or not modifications to performance goals are to be made.

 

Governance and Nominating Committee: The functions of the Governance and Nominating Committee (formerly known as the Director Affairs Committee), which are set forth in the Committee’s charter, include the following:

 

 

Each Committee member has been determined to be an independent director under the New York Stock Exchange listing standards. The Governance and Nominating Committee met three times during 2009.

 

Not less often than every three years, the Governance and Nominating Committee engages an independent compensation consultant to review the Company’s director compensation. Typically, the Committee engages the same consultant that the Compensation Committee engages to provide advice regarding executive compensation. The Committee instructs the consultant to include in its review prevalent director compensation practices, including compensation in cash, stock and options. For 2009 compensation, the Committee retained Hewitt Associates and based on Hewitt’s advice no modifications were made to director compensation. The Committee does not delegate any of its duties regarding director compensation, and executive officers of the Company have no role in determining or recommending the amount or form of director compensation.

 

The Governance and Nominating Committee will consider director candidates recommended by shareholders. In considering candidates submitted by shareholders, the Governance and Nominating Committee will take into consideration the needs of the Board and the qualifications of the candidate. To have a candidate considered by the Governance and Nominating Committee, a shareholder must submit the recommendation in writing and must include the following information:

 

 

The shareholder recommendation and information described above must be sent to the Corporate Secretary at 2855 Campus Drive, Suite 300, San Mateo, California 94403. The Governance and Nominating Committee will accept recommendations of director candidates throughout the year; however, in order for a recommended director candidate to be considered for nomination to stand for election at an upcoming annual meeting of shareholders, the recommendation must be received by the

Corporate Secretary not less than 120 days prior to the anniversary date of the Company’s most recent annual meeting of shareholders.

 

The Governance and Nominating Committee believes that the minimum qualifications for serving as a director of the Company are that a nominee demonstrate, by significant accomplishment in his or her field, an ability to make a meaningful contribution to the Board’s oversight of the business and affairs of the Company and have a reputation for honest and ethical conduct in both his or her professional and personal activities. In addition, the Governance and Nominating Committee examines a candidate’s specific experiences and skills, time availability in light of other commitments, potential conflicts of interest and independence from management and the Company. Although the Governance and Nominating Committee does not have a formal policy with respect to diversity, it seeks to have a Board of Directors that represents a diversity of backgrounds, skills and experience. The Governance and Nominating Committee assesses its achievement of diversity through the review of Board composition as part of the Board’s annual self-assessment process.

 

The Governance and Nominating Committee identifies potential nominees by asking current directors and executive officers to notify the Committee if they become aware of persons, meeting the criteria described above, who would be good candidates for service on the Board. The Governance and Nominating Committee also, from time to time, may engage firms that specialize in identifying director candidates. As described above, the Committee will also consider candidates recommended by shareholders.

 

Once a person has been identified by the Governance and Nominating Committee as a potential candidate, the Committee may collect and review publicly available information regarding the person to assess whether the person should be considered further. If the Governance and Nominating Committee determines that the candidate warrants further consideration, the Chairman or another member of the Committee contacts the person. Generally, if the person expresses a willingness to be considered and to serve on the Board, the Governance and Nominating Committee requests information from the candidate, reviews the person’s accomplishments and qualifications, including in light of any other candidates that the Committee might be considering, and conducts one or more interviews with the candidate. In certain instances, Committee members may contact one or more references provided by the candidate or may contact other members of the business community or other persons that may have greater first-hand knowledge of the candidate’s accomplishments. The Committee’s evaluation process does not vary based on whether or not a candidate is recommended by a shareholder.

 

The Board of Directors, as a whole and at the committee level, oversees the Company’s management of risks, including operational, financial, legal and regulatory, strategic and reputational risks.

 

The Company has established an internal risk committee made up of employees from different disciplines, including operations, accounting, finance, government relations, legal, compliance and regulatory, risk management, and information technology. Periodically senior management reviews with the Board of Directors the major risks identified by the internal risk committee, as well as steps identified by the Company to mitigate the risks.

 

In addition, our Board committees consider risks within their respective areas of responsibility. For example, the Audit Committee considers risks relating to financial reporting and internal control functions and the Compensation Committee considers risks relating to the Company’s executive compensation programs and policies.

 

The Company has written policies and procedures for the review, approval or ratification of related person transactions. A transaction is subject to the policies and procedures if the transaction involves in excess of $120,000, the Company is a participant in the transaction and any executive officer, director or 5% shareholder, or any of their immediate family members, has a direct or indirect interest in the transaction. The Governance and Nominating Committee of the Board of Directors is responsible for applying these policies and procedures. It is the Company’s policy to enter into or ratify related person transactions only when the Governance and Nominating Committee determines that the transaction in question is in, or is not inconsistent with, the best interests of the Company and its stockholders, including but not limited to situations where the Company may obtain products or services of a nature, quantity or quality, or on other terms, that are not readily available from alternative sources or when the Company provides products or services to related persons on an arm’s length basis on terms comparable to those provided to unrelated third parties or on terms comparable to those provided to employees generally.

 

Since January 1, 2009, the Company has not been a participant in any transaction involving more than $120,000 in which a related person had a direct or indirect material interest, nor is any such transaction currently proposed, except for the transactions described below.

 

Contract Freighters, Inc. (“CFI”), the truckload carrier acquired by the Company in August 2007 and which now is part of Con-way Truckload, engages Contract Transportation Service (“CTS”) to provide shuttle services within the Joplin, Missouri area. CTS has been providing these services to CFI since 1994, and the amount paid by CFI to CTS has risen from approximately $60,000 in 1994 to approximately $150,000 in 2009. CTS is owned and operated by Scott Schmidt, the brother of Herbert J. Schmidt, President of Con-way Truckload and Executive Vice President of the Company. Herbert J. Schmidt has no ownership or other pecuniary interest in CTS and is not involved in the day-to-day management of the relationship between Con-way Truckload and CTS. Pursuant to the Company’s policies and procedures described below, the Governance and Nominating Committee reviewed and ratified the transactions between Con-way Truckload and CTS, concluding that the transactions are in the best interests of the Company and its stockholders.

 

Any shareholder or other interested party desiring to communicate with any director (including the Lead Non-Management Director and the other non-management directors) regarding the Company may directly contact any director or group of directors by submitting such communications in writing to the director or directors in care of the Corporate Secretary, 2855 Campus Drive, Suite 300, San Mateo, California 94403.

 

All communications received as set forth in the preceding paragraph will be opened by the Corporate Secretary for the sole purpose of determining whether the contents represent a message to the Company’s directors. Any contents that are not in the nature of advertising, promotions of a product or service, or patently offensive material will be forwarded promptly to the addressee. In the case of communications to the Board or any group of directors, the Corporate Secretary will make sufficient copies of the contents to send to each director who is a member of the group to which the envelope is addressed.

 

The Company’s policy regarding director attendance at the Annual Meeting of Shareholders is for the Chairman of the Board of Directors and the Chief Executive Officer (if different from the Chairman) to attend in person, and for other directors to attend in person or electronically. In 2009, the Chairman of the

Board and the Chief Executive Officer each attended the meeting in person and each of the other outside Directors attended telephonically.

 

The Board of Directors and each Committee of the Board is authorized, as it determines necessary to carry out its duties, to engage independent counsel and other advisors. The Company compensates any independent counsel or other advisor retained by the Board or any Committee.

 

The Board of Directors has adopted a Code of Ethics for the Chief Executive and Senior Financial Officers, including the Chief Financial Officer and Controller. The Board of Directors has also adopted a Directors’ Code of Business Conduct and Ethics applicable to all directors, a Code of Business Conduct applicable to all officers and employees, and Corporate Governance Guidelines. Current copies of each of these documents are available on the Company’s corporate website at www.con-way.com under the headings “Investors/Corporate Governance.” Copies are also available in print to shareholders upon request, addressed to the Corporate Secretary at 2855 Campus Drive, Suite 300, San Mateo, California 94403. The Company intends to satisfy any disclosure requirements regarding an amendment to, or waiver from, the Code of Ethics by posting such information on the Company’s website at www.con-way.com.

 

 

 

 

 

 

 

 

 

 

The Board of Directors has approved an annual cash retainer of $70,000 for each non-employee director. For 2009 the Board of Directors also approved an additional annual cash retainer of $150,000 for Dr. Kennedy in recognition of his increased responsibilities as Chairman of the Board. However, as part of the Company’s 2009 cost-savings initiatives, the Board approved a temporary 10% reduction in the annual cash retainers, so that in 2009 each non-employer director’s annual cash retainer was reduced from $70,000 to $63,000 and Dr. Kennedy’s additional annual cash retainer was reduced from $150,000 to $135,000.

 

In addition to the annual cash retainers, the chair of the Company’s Audit Committee receives an annual chair cash retainer of $15,000, and the chairs of the Compensation, Governance and Nominating and Finance Committees each receive an annual chair cash retainer of $8,000. Each member of the Audit Committee, other than the chair, also receives a committee retainer of $5,000. Each of the retainers described above are payable quarterly in arrears. Directors do not receive any fees for attending Board or Committee meetings.

 

Directors may elect to defer payment of their fees under the Company’s deferred compensation plans for directors. Payment of any deferred compensation account balances will be paid in a lump sum or in installments beginning no later than the year following the director’s final year on the Board. In 2009 (as in previous years), interest on amounts deferred prior to 2007 was credited quarterly at the Bank of America prime rate. The Company’s deferred compensation plans for directors provide that balances on amounts deferred in 2007 and subsequent years are not credited with a fixed rate of interest but instead fluctuate based on the value of one or more funds selected by the director from a list of available funds. In addition, directors may elect to have some or all of their pre-2007 account balances treated in the same manner as post-2006 deferrals. Directors may also elect to convert some or all of their deferred compensation account balances into phantom stock units that track the performance of the Company’s common stock.

Prior to shareholder approval of declassification of the Board of Directors in 2009, each non-employee director also received a three-year restricted stock grant having a notional value at the time of grant of $255,000 upon election or re-election to the Board, and did not receive a restricted stock grant in the subsequent two years. However, with the declassification of the Board of Directors, beginning in 2011 each director will stand for election or re-election each year, and if elected or re-elected, each non-employee director will receive a grant of restricted stock with a notional value of $85,000 (or such other annual amount as the Board may approve in the future). The number of shares of restricted stock in each grant is determined by dividing the notional value of the grant by the closing price of the Company’s common stock on the grant date, with any fractional shares paid in cash. Each such grant of restricted stock vests one-third per year, commencing on the first anniversary of the grant date, or earlier upon the occurrence of certain events such as death, disability, retirement or a change in control.

 

In 2009 shareholders approved amendments to the Company’s Certificate of Incorporation providing for declassification of the Board of Directors in a manner so as not to affect the term of any director elected prior to the 2009 Annual Meeting of shareholders. As a result, three directors stood for re-election in 2009, and seven directors are standing for re-election in 2010. In May 2009 Messrs. Corbin, Jaunich and Kennedy were re-elected to the Board, with Messrs. Corbin and Jaunich each receiving a grant of restricted stock with a notional value at the time of grant of $85,000. Dr. Kennedy, who upon re-election as a Class I director in 2007 received a three-year award of restricted stock having a notional value of $255,000 at the time of grant, did not receive a restricted stock award in 2009. Each non-employee director re-elected in 2010 will also receive a grant of restricted stock with a notional value of $85,000 at the time of grant.

 

The Board established stock ownership guidelines for non-employee directors in 2006. Under the guidelines, by the compliance deadline of April 2012 each non-employee director is expected to hold Con-way securities having an aggregate value not less than three times the annual cash retainer of $70,000, or $210,000. To determine compliance with these guidelines, ownership interests are valued as follows:

 

 

Directors are also provided with certain insurance coverage and, in addition, are reimbursed for travel expenses incurred for attending Board and Committee meetings. The Company also offers an Education Matching Gifts Program, pursuant to which the Company matched donations made to an accredited college or university by executives, certain other employees or members of the Company’s Board of Directors. The matching contributions made by the Company in any year on behalf of any executive, employee or Board member are limited to $5,000. However, as part of the Company’s 2009 cost-savings initiatives, the Educational Matching Gift Program was temporarily suspended and remains suspended as of the date of this Proxy Statement. In 2009, no director received compensation in excess of $10,000 for the items described in this paragraph; therefore as permitted under the SEC disclosure rules, we have not included this compensation in the Director Compensation Table.

 

Introduction

 

This Compensation Discussion and Analysis describes the Company’s executive compensation program objectives, policies and procedures as in effect for the 2009 fiscal year.

 

Overview; Significant Changes in 2009

 

The Company’s Compensation Committee engages in a collective evaluation of all components of compensation when establishing the various forms and levels of executive pay. The Compensation Committee seeks to provide a competitive pay package designed to attract, retain and motivate talented executives, and to ensure that equity-based awards make up a significant portion of executive pay, in order to closely align the interests of our executive officers with those of our shareholders.

 

The key components of executive pay are annual base salary, an annual cash incentive award and long-term incentive compensation awards. These key components are referred to as an executive’s “total direct compensation.”

 

The table below shows each of these components, expressed as a percentage of total direct compensation, for each of the Named Executives for 2009.

 

 

This pay structure furthers the objectives of the Company’s executive compensation program by providing for:

 

 

The Named Executives also receive post-employment compensation and perquisites. Post-employment compensation includes (among other things) severance benefits that are available only in the event of a “qualifying” termination of employment, whether in connection with a change in control or

otherwise. However, under no circumstances are severance benefits available upon a termination of employment for cause.

 

The Compensation Committee implemented a number of significant changes to the Company’s executive compensation program in 2009. Among other things, the Compensation Committee:

 

 

Each of these changes is described further below in this Compensation Discussion and Analysis.

 

Role of Compensation Consultants

 

The Compensation Committee considers competitive market data to assess whether the total direct compensation provided to the Named Executives compares reasonably to the total direct compensation provided to executives at peer group companies. The Compensation Committee typically retains an independent compensation consultant to provide comparative market data and to assist the Compensation Committee in its assessment of total direct compensation. The compensation consultant is engaged by and reports to the Compensation Committee, which evaluates the performance of the compensation consultant and decides whether or not to continue to use the consultant’s services.

 

For 2009 the Compensation Committee retained Hewitt Associates, LLP (“Hewitt”) as its independent compensation consultant. At the Compensation Committee’s request, Hewitt:

 

 

 

Except as described above, Hewitt had no role in recommending or determining the 2009 compensation of the Company’s executives.

 

In addition to the executive compensation consulting services provided to the Compensation Committee, in 2009 Hewitt provided director compensation consulting services to the Governance and Nominating Committee of the Board of Directors, for which Hewitt received approximately $6,200. Hewitt provided no other services to the Company in 2009.

 

Comparative Market Data

 

Given its size and the mix of services that it offers, the Company does not have any strictly comparable industry peers against which to compare executive compensation. As a result, to assist it in setting 2009 total direct compensation for the Named Executives, the Compensation Committee instructed its compensation consultant, Hewitt, to provide comparative market data for a focused group of companies and for companies within general industry, as described below.

 

Focused Group

 

At the Compensation Committee’s request, Hewitt recommended companies for inclusion in a focused group that was used when setting 2007 total direct compensation. However, during 2007 two of the ten companies in the focused group were taken private, and in August 2007 the Company acquired Contract Freighters, Inc., a truckload carrier now operated under the name “Con-way Truckload.” As a result, for 2008 the Compensation Committee requested that Hewitt make recommendations for companies to include in a new focused group. In doing so, Hewitt focused on companies that are in the transportation sector (including companies that provide services similar to those provided by the Company), are of the same relative size as the Company and represent possible competition to the Company for executive talent. Based on these criteria, Hewitt recommended companies from the Dow Jones Transportation Average (other than six companies which are substantially larger than the Company) and certain other direct industry competitors of the Company.

 

For 2009 Hewitt again recommended, and the Compensation Committee agreed to use, this same focused group of companies when considering the reasonableness of the total direct compensation provided to the Named Executives. The fifteen companies included in the focused group are shown in the table below.

(For purposes of comparison, the Company is also included in the table. Revenues shown in the table were obtained from information that was publicly available when 2009 total direct compensation was being considered).

 

 

General Industry Survey Data

 

Survey data was also provided from Hewitt’s Total Compensation Measurement survey for companies from general industry (other than financial services) of the same relative size as the Company. Financial services companies were not considered because the pay structure of those companies differs materially from that of the Company and because the Company does not typically compete with financial services companies for executive talent. For 2009 compensation, companies with revenues between $1 billion and $10 billion were included. By using this range, the compensation consultant was able to generate a substantially larger pool of comparative market data than was available using the Focused Group described above. Comparative market data from a total of approximately 175 companies was considered. The names of the companies are shown in Appendix A to this Proxy Statement.

 

Use of Comparative Market Data

 

In assessing whether the total direct compensation provided to each of the Company’s Named Executives compares reasonably to the comparative market data, the Compensation Committee considers annual base salary together with the annual cash incentive award payout at target performance levels and the fair value of the long-term incentive compensation awards on the grant date. The Compensation Committee looks at the elements comprising total direct compensation in the aggregate, and does not compare each individual element of compensation to comparative market data.

 

The Compensation Committee’s objective is to provide total direct compensation that is between the 50th and 75th percentiles of the total direct compensation of comparable executives at peer group companies. The Compensation Committee believes that the targets it sets for incentive compensation are challenging and that the executives should receive above-median compensation if they are able to meet those targets.

 

The 2009 total direct compensation of Messrs. Stotlar, Bianco, Labrie and Schmidt (who are most likely to be considered for employment by other companies within the transportation and logistics

industry) was within the 50th to 75th percentile when compared to the total direct compensation of executives at companies within the focused group. The total direct compensation of Mr. Bruffett (who as chief financial officer is likely to be considered for employment both outside of as well as within the transportation and logistics industry) was within the 50th to 75% percentile when compared to the total direct compensation of executives at companies within general industry.

 

However, the Compensation Committee does not engage in strict quantitative benchmarking against the comparative market data using objective guidelines or formulae. Instead the Compensation Committee uses the comparative market data as a starting point and relies on its collective judgment when setting Named Executive compensation. The Compensation Committee takes into consideration general economic conditions and overall Company performance, challenges confronting the Company, advice from the independent compensation consultant, information provided by the Company and the recommendations of the Chief Executive Officer. The Compensation Committee also uses subjective information when considering the credentials, length of service, experience, consistent performance, and available competitive alternatives of our Named Executives. We believe that the Compensation Committee is in a unique position, with its knowledge of Company circumstances, the characteristics of the executive team, the market data provided by the consultant, and its general background and experience to use its judgment in setting pay levels.

 

Tax and Accounting Considerations

 

Federal tax law limits the deductibility by the Company of “non-performance based compensation” paid to the Chief Executive Officer and the three other most highly compensated executives, other than the Chief Financial Officer (the “covered employees”). All amounts of non-performance based compensation in excess of the annual statutory maximum of $1 million per covered employee are not deductible. The Company’s general policy is, where feasible, to structure incentive compensation paid to the covered employees so that it qualifies as “performance-based compensation,” which is exempt from the $1 million annual cap and thus is deductible for federal income tax purposes. In 2009 none of the Named Executives received non-performance based compensation in excess of the $1 million limit.

 

However, there may be circumstances where portions of a covered employee’s compensation will not be deductible. For the reasons cited below under “Long-Term Incentive Compensation Awards,” for 2009 the Compensation Committee chose to make significant awards of time-based restricted stock units to the Named Executives. These awards are considered non-performance based compensation, so that upon vesting the value of an award held by any covered employee would be includable when determining whether the $1 million limit is exceeded. Depending on (i) the Company’s stock price at the time the awards vest and (ii) whether one or more of the Named Executives are covered employees for the year during which vesting occurs, some portion of these awards may end up not being deductible. However, the Compensation Committee believes that the motivational and retention benefits of the awards outweigh their potential non-deductibility.

 

The Company did not revise its executive compensation practices relating to equity awards in response to changes in accounting rules pursuant to FAS 123R.

 

Other Considerations

 

The Compensation Committee generally does not consider amounts realized or realizable from prior stock option awards or other long-term incentive awards when approving total direct compensation for the Named Executives. The Compensation Committee believes that incentive awards are effective in motivating executives and that in most cases adjustments based on prior compensation would undermine the effectiveness of these awards. However, as described further below under “Long-Term Incentive Compensation Awards,” in deciding the mix (but not the target value) of long-term incentive awards to be awarded in 2009 the Compensation Committee did consider the fact that recent stock option awards are “underwater” (i.e., that the stock option awards have exercise prices that are

above the current market value of the Company’s common stock), and that no payouts have been earned on other recent long-term incentive awards.

 

Likewise, the Compensation Committee generally does not consider accrued retirement benefits of Named Executives when approving total direct compensation and did not do so when approving 2009 total direct compensation. Executives who have earned substantial levels of retirement benefits under the Company’s pension plans typically have done so by spending significant parts of their careers at the Company, which benefits the Company through the continuity, experience, institutional knowledge and ‘bench strength’ of its management team. In addition, retirement benefits in the form of 401(k) and deferred compensation account balances largely reflect compensation earned for services previously performed which the executive has elected to save for retirement.

 

As in prior years, in 2009 the total direct compensation of the Company’s Chief Executive Officer was higher than that of the other Named Executives. This disparity reflects both the assessment of a chief executive officer’s value relative to that of other senior company executives (as indicated in the various sources of comparative market data reviewed by the Compensation Committee) and the Compensation Committee’s belief that the Chief Executive Officer’s substantially higher level of responsibility and greater potential impact on the Company’s results warrants a higher level of compensation than the other Named Executives.

 

The Company’s annual cash incentive and long-term incentive compensation awards are made under “omnibus” equity and incentive plans approved by the Company’s shareholders. These plans give our Compensation Committee discretion to make equitable and discretionary adjustments to awards granted to executives. However, in 2009 the Compensation Committee made no equitable adjustments to awards granted to the Named Executives.

 

Role of Chief Executive Officer in Setting Total Direct Compensation

 

The role of the Chief Executive Officer in setting total direct compensation is discussed above under “Standing Committees — Compensation Committee.”

 

2009 Total Direct Compensation

 

Annual Base Salary

 

The annual base salaries approved by the Compensation Committee typically reflect adjustments designed to bring the Named Executives’ salaries in line with comparative market data. However, adjustments may also take into account other factors, such as the individual performances of the Named Executives and the Named Executives’ relative levels of responsibility and relative potential to affect business results.

 

For 2009, given the challenging economic conditions and the resulting impact on the Company’s performance, the Compensation Committee determined that annual base salaries for the Named Executives should remain the same as the Named Executives’ 2008 annual base salaries. Subsequently, in April 2009, as part of a cost reduction program undertaken by the Company, the 2009 annual base salaries of Messrs. Stotlar, Bruffett and Labrie were temporarily reduced by 10%. One-half of these temporary base salary reductions were reinstated for Messrs. Bruffett and Labrie effective January 2010. The Compensation Committee may approve reinstatement of the balance of the 2009 temporary salary reductions if, in its judgment, reinstatement is appropriate given the Company’s financial performance.

 

Annual Cash Incentive Awards

 

The Compensation Committee typically grants to each Named Executive an annual cash incentive award with performance metrics and numerical performance goals tied to the short-term business

objectives of the business unit(s) for which the executive is responsible. The annual cash incentive awards granted to the Chief Executive Officer and Chief Financial Officer are tied to the combined operating results of the Company’s three primary business units as described further below.

 

Each Named Executive’s annual cash incentive award is set so as to deliver, at target performance levels, a specified percentage of annual base salary. The percentages applicable to 2009 compensation are shown in the table below.

 

Annual Cash Incentive Award Opportunities
(at Target, as a Percentage of Base Salary)

 

 

In 2008 the Company undertook an extensive market study of its annual variable pay programs. Based on the results of that study the Company revised its variable pay plans for many of its employees for 2009, with the Compensation Committee approving changes to the annual cash incentive awards made to the affected Named Executives. As part of those changes, the Compensation Committee reduced the annual cash incentive award opportunity at target from 75% (the percentage applicable for 2008) to 70% of annual base salary for each of Messrs Bruffett, Bianco and Schmidt in order to bring the total direct compensation of those Named Executives in line with market. Each of these Named Executives received the same percentage of annual base salary in order to promote internal pay equity.

 

Because Con-way Freight’s management and employees were focused on network restructurings and other major initiatives then underway at Con-way Freight, the Company decided that it was not an opportune time for Con-way Freight’s approximately 20,000 employees to transition to the new variable pay plans, and the Compensation Committee agreed that for 2009 Mr. Labrie would continue to participate in Con-way Freight’s existing variable pay program and that his 2009 annual cash incentive award at target would continue to be based on 75% of annual base salary. All of Con-way Freight’s employees (including Mr. Labrie) are transitioning to the new variable pay plans for 2010.

 

The Compensation Committee approves the performance metrics and also approves the specific numerical performance goals that govern the level of payout on each annual cash incentive award. The performance metrics applicable to the 2009 annual cash incentive awards for Messrs. Bianco, Labrie and Schmidt (the heads of the Company’s three primary business units) are shown in the table below.

 

Performance Metrics Applicable to 2009 Annual Cash Incentive Awards
(Business Unit Heads)

 

As used in the table above, “Operating Income” refers to operating income as determined in accordance with United States generally accepted accounting principles (“US GAAP”), “Pre-Incentive Operating Income” means Operating Income before incentive compensation payments are made, and “Adjusted Operating Income” refers to operating income as determined in accordance with US GAAP, as adjusted for (i) any and all asset impairments pursuant to FAS 142 and 144, (ii) any and all restructuring charges pursuant to FAS 146 and (iii) any and all accounting changes pursuant to FAS 154. Mr. Labrie’s award was based on the Pre-Incentive Operating Income of Con-way Freight so that his annual cash incentive award would be based on the same performance metric as all other Con-way Freight employees. The adjustments to the Operating Income of Menlo Worldwide Logistics and Con-way Truckload described above were included within the performance metric so that each affected Named Executive would have an incentive to take actions that are in the best interests of the business unit in the long-term but that might otherwise adversely affect payouts on the annual cash incentive awards.

 

When establishing performance metrics to apply to an award, one of the factors considered by the Compensation Committee is whether the award creates an incentive for executives to take excessive risks in order to increase the amount of the payouts they will receive. The Compensation Committee believes that basing the Company’s annual cash incentive awards on the performance metrics of pre-incentive operating income and adjusted operating income properly aligns executives’ interest with those of shareholders and does not create or provide an incentive for executives to take excessive risks.

 

The table below shows the numerical performance goals that applied to the awards to those Named Executives, as well as the level of achievement in 2009.

 

Performance Goals Applicable to 2009 Annual Cash Incentive Awards
(Business Unit Heads)

 

 

Numerical performance goals are set for threshold, target and maximum performance levels. For performance levels between threshold and target, or target and maximum, the actual payout is determined by interpolation. The maximum payout that an executive can receive for this award is 200% of the target payout.

 

The Compensation Committee considered projected performance as reflected in the one-year financial plans developed by the Company and its business units when setting the goals set forth in the table above. In evaluating financial plans, among the factors the Compensation Committee considers are market conditions, the business cycle and operating plan priorities. It also tries to gauge the relative degree of difficulty the Company and its business units will face in meeting the financial plans. The Compensation Committee also discusses the financial plans with the Chief Executive Officer and takes into consideration his recommended performance goals and corresponding payout levels. Based on its independent assessment of all of these factors, the Compensation Committee sets the numerical

performance goals. The Compensation Committee typically does not consider historical analyses that attempt to correlate performance goals established in prior years with actual payouts in those years and did not do so when establishing performance goals in 2009.

 

The 2009 annual cash incentive awards of Con-way Inc. executives Messrs. Stotlar and Bruffett were based on the respective performances of Con-way Freight, Con-way Truckload and Menlo Worldwide Logistics, as shown in the table below.

 

2009 Annual Cash Incentive Awards
(Chief Executive Officer and Chief Financial Officer)

 

 

 

 

As shown in the tables above, due to the economic downturn and deteriorating pricing resulting from excess capacity in the less-than-truckload and truckload markets, in 2009 neither Con-way Freight nor Con-way Truckload achieved the threshold level of the applicable performance metric (Pre-Incentive Operating Income and Adjusted Operating Income, respectively), and as a result Messrs. Labrie and Schmidt received no payouts on their 2009 annual cash incentive awards. In contrast, due to Menlo’s ability to grow its customer base beyond expected levels and to maintain tight cost controls, Menlo’s 2009 Adjusted Operating Income exceeded the specified maximum level and as a result Mr. Bianco received a payout equal to twice his target award amount. Likewise, Messrs. Stotlar and Bruffett received no payout based on the 2009 performances of Con-way Freight and Con-way Truckload but received a payout of 200% on the 12% portion of their annual cash incentive awards that were based on the performance of Menlo Worldwide Logistics, for a total payout equal to 24% of their target awards.

 

Under “clawback” provisions, Named Executives and other policy-making executive officers of the Company are required to repay overpayments of annual incentive compensation awards in the event of fraud, or in the event of financial statement restatement occurring within one year following the award payment. To date, the Company has not had any occasion to consider seeking recovery from its executives of performance award overpayments.

Long-Term Incentive Compensation Awards

 

The total dollar values of long-term incentive compensation opportunities for the Named Executives, at target performance levels, are determined based on multiples of annual base salary. The multiples applicable to 2009 compensation are shown in the table below.

 

Long-Term Incentive Compensation Opportunities as a Multiple of Base Salary

 

 

The number of long-term incentive awards to be granted to each Named Executive is then calculated using the total dollar value determined from the table above, the Compensation Committee’s allocation of this total dollar value among types of awards (e.g., for 2009, 50% stock options and 50% restricted stock units), and the per-unit value of each type of award. (See “Stock Option Awards” and “Restricted Stock Unit Awards” below.)

 

The positions held by each of the Named Executives other than Mr. Stotlar are classified at the same grade level within the Company’s executive grade level structure, and the Compensation Committee’s objective in specifying the same 225% multiple of annual base salary for each of these Named Executives for 2009 was to promote internal pay equity. However, for implementation on a going forward basis the Compensation Committee has established, for each executive grade level, a range of multiples, with each Named Executive’s actual multiple being set within the applicable range based on the Compensation Committee’s subjective evaluation of the Named Executive’s individual performance. For 2010 compensation the range applicable to Mr. Stotlar was set at 350% to 450% and the range applicable to the other Named Executives was set at 175% to 225%.

 

Each Named Executive’s total long-term incentive compensation opportunity has typically been delivered one-half in the form of stock options and one-half in another type of award (although as shown in the table below and as described in the Company’s 2009 proxy statement a slightly different approach was taken for 2008 compensation).

 

The table below shows how these opportunities were provided in each of the years from 2007 through 2009:

 

Long-Term Incentive Compensation Opportunities

 

For 2009 the Compensation Committee chose to deliver the long-term incentive compensation opportunities one-half in the form of stock options and one-half in the form of time-based restricted stock units, for the following reasons:

 

 

The Compensation Committee believes the 2009 stock option and restricted stock unit awards, taken together, provide a balanced mix of long-term equity awards that closely align the interests of executives with those of shareholders. Although executives benefit from stock option awards only if shareholders also benefit (through a higher stock price), concerns are sometimes expressed that stock option awards may incentivize executives to take actions designed to increase a company’s common stock price in the short-term but that may be harmful to the company in the longer term. The Compensation Committee believes that the risk of such behavior is mitigated by the simultaneous grant of restricted stock unit awards because the value of the restricted stock unit awards, which are subject to three-year cliff vesting and to the stock retention policy described below, would likely be adversely affected by the executives’ short-term actions.

 

In addition, the highly cyclical nature of the Company’s business, exacerbated by the unusually sharp economic downturn that began in 2008, and the volatility of the Company’s common stock, have eroded the motivational and retention benefits of the long-term incentive compensation awards made to the Named Executives over the past several years. The performance goals for the Performance Share Plan Unit awards made in 2007 and 2008 were based on significantly stronger economic assumptions than those that materialized. As a result, the goals became far out of reach relatively early during the applicable performance periods, resulting in the early perception that no payouts would be earned on these awards, which in fact proved to be the case. Likewise, due to the significant decline in the Company’s common stock price since the 2008 economic and market downturn, the stock option grants made from 2005 through 2008, at exercise prices ranging from $44.09 to $55.20, became significantly “underwater” and therefore of little incentive value to the Named Executives. The 2009 mix of stock option and restricted stock unit grants is designed to increase the Named Executives’ motivation to remain with the Company and to improve the Company’s operating results.

 

The 2009 restricted stock unit awards are also subject to the Company’s retention policy (discussed below) and are expected to assist the Named Executives in meeting the Company’s stock ownership guidelines. Compliance with the guidelines will result in the Named Executives building meaningful equity positions in the Company, thereby more closely aligning their interests with the interests of shareholders.

 

Stock Option Awards:

 

Stock option grants to the Named Executives are approved by the Compensation Committee, are granted at fair market value on the date of grant and have a term of ten years. The options granted in 2009 are scheduled to vest in three equal installments, on January 1 of 2010, 2011 and 2012, or earlier in certain circumstances including upon death, disability or a change in control. For each Named Executive in 2009, stock option awards were determined by dividing an amount equal to one-half of his long-term incentive compensation opportunity by $7.92, the estimated value of a single option as determined using valuation assumptions provided by Hewitt, the Compensation Committee’s independent compensation consultant. These assumptions differ from the assumptions used to determine the FASB ASO Topic 718 grant date fair value of the awards shown in the Summary Compensation Table and more closely approximate the assumptions used by investor advisory services, thereby resulting in a higher valuation of a single option than if the FASB ASO Topic 718 assumptions were used.

The Compensation Committee’s practice has been to make annual stock option grants to the Named Executives at the Committee’s pre-scheduled January meeting, whether or not at the time of the grants the Company was in possession of material information that had not yet been released to the public. This practice was observed when the Compensation Committee made stock options grants to the Named Executives in 2009. However, the Company now expects to release each year’s fourth quarter earnings in February of the following year (close to the time that the Company files its Report on Form 10-K), rather than in January as it has in the past. As a result, the Compensation Committee has decided to change its practice so that starting in 2010 annual grants of stock options will be made on the third business day after the Company’s fourth quarter earnings have been announced.

 

To our knowledge, no Company stock options have ever been backdated, nor has the exercise price of any outstanding option ever been lowered (other than as part of an equitable adjustment, such as the adjustment that was made when the Company completed the spin-off of Consolidated Freightways Corporation to shareholders in 1996).

 

Restricted Stock Unit Awards

 

For each Named Executive in 2009, restricted stock unit awards were determined by dividing an amount equal to one-half of his long-term incentive compensation opportunity by $20.27, the closing price of the Company’s Common Stock on January 26, 2009. The awards are scheduled to vest on January 26, 2012 (the third anniversary of the grant date) and, except in limited circumstances such as upon death, disability, or a change in control, provide for forfeiture of the restricted stock units if an executive leaves the Company prior to the end of the three-year period. Upon vesting, the restricted stock units are settled in shares of Company common stock. The restricted stock units do not pay dividend equivalents in the event that a cash dividend is declared on the Company’s common stock, but do pay dividend equivalents if stock dividends are declared.

 

Annual awards of restricted stock units are made at the same time as annual grants of stock options (see “Stock Option Awards” above). Company common stock received upon settlement of restricted stock and restricted stock unit awards made to senior executives are subject to a retention policy that, taken together with the Company’s stock ownership guidelines, are expected to result in those executives building meaningful equity positions in the Company. The stock ownership guidelines and retention policy are described below.

 

Performance Plan Unit Awards

 

As noted above, Performance Share Plan Unit awards were included as part of the Named Executives’ long-term incentive compensation awards made in 2007 and 2008. The three-year performance cycle applicable to the 2007 Performance Share Plan Unit awards ended on December 31, 2009, with no payouts earned on these awards. The performance metric applicable to the 2007 Performance Share Plan Unit awards was cumulative revenue, which was made subject to a profitability modifier that would reduce or eliminate payouts if the cumulative revenue was not sufficiently profitable. Although the cumulative revenue of $11 billion for the 2007 — 2009 performance period exceeded the target level of $10.775 billion, the revenue was not sufficiently profitable to support award payments. The performance goals applicable to the 2007 Performance Share Plan Unit awards are disclosed on page 41 of the Company’s 2008 proxy statement, which is available on the Company’s corporate website at www.con-way.com under the headings “Investors/SEC and Other Filings.”

Stock Ownership Guidelines; Stock Retention Policy; Hedging; Pledges of Stock

 

The Company believes that its top executives should have a meaningful stake in the risks and rewards of long-term ownership of the Company. To this end, the Company has established stock ownership guidelines for its top three levels of executive officers, which currently includes a total of 14 executive officers. The following guidelines identify levels of ownership, expressed as a multiple of each executive’s base salary:

 

 

To determine compliance with these guidelines, ownership interests are valued as follows:

 

 

Executives receive no credit for Performance Share Plan Units unless and until the Units vest and are paid in Company stock. In addition, executives no longer receive credit for vested in-the-money stock options and unvested restricted stock, each of which was previously credited at 50% of value.

 

Previously, the Compensation Committee set deadlines for executives’ compliance with the stock ownership guidelines. However, given the substantial decrease in market value of Company common stock since the economic and market downturn began in 2008 and the increasing use of stock retention guidelines, in January 2009 the Compensation Committee elected to replace these deadlines with a retention policy for shares received in settlement of restricted stock and restricted stock unit awards. Under the policy, each executive is required to retain 70% of all shares of Company common stock received in settlement of restricted stock and restricted stock unit awards as and when such awards vest (after withholding of shares required to satisfy applicable taxes) if at the time the award vests the executive is not in compliance with the stock ownership guidelines outlined above. An executive may later sell stock retained pursuant to the retention policy if and to the extent the executive’s ownership interest, determined as of the previous compliance measurement date, exceeds the level required under the stock ownership guidelines.

 

Company policy prohibits short sales of Company stock and other similar transactions that could be used to hedge the economic risk of the ownership of Company stock. The Company does not prohibit the pledging of Company stock by executives but strongly discourages the practice, including pledges of Company stock held in margin accounts. As noted in the footnotes to the Stock Ownership Table above, none of the Named Executives has reported pledging any shares of which he is the beneficial owner.

 

Post-Employment Compensation

 

Executives are entitled to receive post-employment compensation in the form of (i) retirement benefits, (ii) deferred compensation account balances (for those executives who elect to participate in the Company’s deferred compensation plans), (iii) contingent payments and benefits that are available only upon a qualifying termination of employment in connection with a change-in-control and (iv) contingent payments and benefits that are available only upon a termination of employment under certain other circumstances (but not upon a termination for cause).

 

Post-employment compensation is made available under plans or agreements that either set the levels of compensation or include formulas that set the levels of compensation. The Compensation

Committee periodically reviews the terms of these plans and agreements and reassesses the competitiveness of the compensation provided under the plans.

 

Retirement Benefits

 

The Company maintains defined benefit pension plans and 401(k) plans to provide employees with an opportunity to accumulate benefits for retirement. These plans are not limited to executives as many other Company employees are eligible to participate in these plans.

 

In 2006, the Company decided to make certain changes to its retirement benefit programs, effective January 1, 2007. The changes de-emphasized the defined benefit pension plans by providing that credited service would no longer accrue after December 31, 2006, and that employees joining the Company after December 31, 2005 would not be eligible to participate in the defined benefit pension plans. At the same time, the changes put additional emphasis on the Con-way Retirement Savings Plan (the Company’s primary 401(k) plan) by increasing Company matching contributions and introducing Company basic and transition contributions.

 

In response to the economic environment and as part of a cost reduction program, the Company reduced its basic contribution and suspended its other matching and transition contributions to the Retirement Savings Plan, effective April 2009. The basic contribution remains reduced and the other contributions remain suspended as of the date of this Proxy Statement. The Company also amended its defined benefit pension plans to provide that a participant’s average final compensation (which is used when determining benefits available under the plans) will only take into account compensation paid through April 2009.

 

Employees of the Company (including the Named Executives) who are subject to federal tax law limits on the compensation that can be taken into account for the defined benefit pension plans and 401(k) plans also participate in non-qualified supplemental plans maintained by the Company. Plan participants receive benefits under the supplemental plans that they would have received under the defined benefit pension plans and 401(k) plans if not for the federal tax law limits, and do not receive credit for additional service time or other incremental benefits under the supplemental plans. The Company maintains the supplemental plans in order to provide competitive post-retirement benefits to the Company’s executives.

 

The post-employment compensation of the Named Executives described above is earned under plans that were established from time to time by the Compensation Committee, in consultation with independent compensation consultants, to provide a competitive compensation package to executives. The Compensation Committee believes that this post-employment compensation provided to the Named Executives is reasonable and appropriate.

 

For additional information regarding the pension benefits available to the Named Executives, see the “2009 Pension Benefits” table below and the narrative that follows that table, and for additional information regarding Company contributions to the 401(k) accounts of the Named Executives, see the Summary Compensation Table and accompanying footnotes.

 

Deferred Compensation Account Balances

 

The Company maintains deferred compensation plans for eligible highly compensated key employees (currently, employees at director-level and above with annual base salaries of at least $125,000) to provide an additional tax-deferred vehicle to save for retirement. The Company does not make contributions to the deferred compensation plans on behalf of executives or other participants in the plans. The Company’s obligation to pay deferred compensation account balances is unsecured.

 

The Compensation Committee views the Company’s deferred compensation plans as providing a reasonable and appropriate means for the Named Executives and other highly compensated key employees to save for retirement, particularly given that (i) plan participants do not receive

Company-provided contributions to these plans and (ii) the Company has taken actions over the past few years to deemphasize its defined benefit pension plan (described above under “Retirement Benefits”), which in the past was an important part of retirement planning for the Named Executives and other Company employees.

 

For additional information regarding the deferred compensation accounts of the Named Executives, see the “2009 Nonqualified Deferred Compensation” table below.

 

Severance Payments

 

Severance Payments (Other Than In Connection with a Change-in-Control):

 

The Company does not have employment agreements with the Named Executives, and in the past has not had any other formal arrangements providing for the payment of severance benefits to the Named Executives, other than in connection with a change in control (discussed below). However, the Compensation Committee believes that it is important to engender loyalty to, and productive employment tenure with, the Company by its executives, and in 2009 decided to implement for the first time a non-change in control executive severance program.

 

Under the new program, each of the Named Executives is party to a severance agreement with the Con-way company that employs him (Con-way Inc. for Messrs. Stotlar and Bruffett, Con-way Freight for Mr. Labrie, Menlo Worldwide Logistics for Mr. Bianco and Con-way Truckload for Mr. Schmidt). The agreements provide for severance benefits to be provided upon a termination of employment other than in connection with a change in control and other than for cause, and for partial vesting of equity awards. The Compensation Committee believes that the certainty provided by these agreements is of benefit both to the Named Executives and to the Company. The levels of benefits payable to the Named Executives under the agreements were determined based on comparative market data supplied by Hewitt (the compensation consultant to the Compensation Committee) and are less than the levels of benefits payable under the Company’s change in control severance program (described below).

 

Additional information regarding the Company’s non-change in control executive severance program, as well as a table showing the payments and benefits that the Named Executives would have been eligible to receive under the non-change in control severance program if a qualifying termination of employment had occurred on December 31, 2009, can be found under “Other Potential Post-Employment Payments” below.

 

Severance Payments In Connection with a Change-in-Control:

 

The Compensation Committee has authorized and the Company maintains a “change in control” executive severance program that provides for certain benefits to be made available to the Named Executives in the event of a qualifying termination in connection with a change in control. The change in control program was revised in December 2009 and at that time each of the Named Executives received a new individual change in control severance agreement with the Con-way company that employs the executive. Among other changes, the new agreements do not include a Company-provided gross-up for excise taxes owed under Internal Revenue Code Section 280G, and include covenants regarding confidentiality, non-solicitation of employees and non-disparagement with which the Named Executives must comply. At the same time, the Compensation Committee determined that all equity awards made to the Named Executives after 2009 would be subject to “double trigger” vesting (that is, the awards would vest only if there is both a change in control and a qualifying termination of employment).

 

This change in control severance program recognizes the significant distraction that can arise from a possible sale or other disposition of the Company or a business unit and thus provides incentives for executives to:

 

 

 

The levels of payments and benefits provided under these agreements were established based on comparative market data provided by an independent compensation consultant retained by the Compensation Committee and are periodically reviewed by the Compensation Committee to reassess the competitiveness of the benefits offered. In connection with such an assessment that was completed in September 2007 based on an analysis performed by Hewitt, the Compensation Committee decided that executives who are hired at or promoted to executive grade level 4 after that date would receive a lesser level of severance payments and benefits.

 

The Compensation Committee believes that the benefits provided under the change in control severance program are reasonably designed to achieve the Company’s goal of encouraging the Named Executives to remain in the employ of the Company and actively support a Board-approved change in control prior to and during the pendency of an actual or potential change in control event.

 

In the Compensation Committee’s view, the value of the stock options and other long-term equity awards that would vest in connection with a change in control, taken alone, would not provide a sufficient incentive for the Named Executives to remain with the Company and actively support a change in control transaction deemed by the Board of Directors to be in the best interests of shareholders but that might result in the executive’s loss of his or her position with the Company. The cash payments and other benefits offered under the Company’s executive severance program, which are consistent with comparative market data, are considered necessary to promote the Company’s goal of retaining Named Executives, as described above, and incentivizing the active support for a change in control transaction.

 

The Compensation Committee does not take into account other forms of wealth accumulation of the Named Executives, such as earnings on vested stock option and restricted stock awards and accumulated retirement benefits under the Company’s pension, 401(k) and deferred compensation plans, when assessing the reasonableness of the severance benefits offered to the Named Executives in connection with a change in control. In the Compensation Committee’s view, accumulated retirement benefits do not serve as an incentive for the Named Executives to remain with the Company, since the executives are entitled to receive these benefits whether or not they stay with the Company. In addition, the Compensation Committee recognizes that it is not uncommon for companies seeking to recruit executives to make the executives whole for equity awards that the executive loses when leaving his or her current employer, so the potential forfeiture of these awards may not deter executives from leaving the Company.

 

Additional information regarding the Company’s change in control executive severance program, as well as a table showing the payments and benefits that the Named Executives would have been eligible to receive under the severance program if a qualifying termination of employment in connection with a change in control had occurred on December 31, 2009, can be found under “Other Potential Post-Employment Payments” below.

 

Perquisites

 

Under the Company’s Flexible Perquisites Program implemented in 2008, executives are entitled to receive $8,000 per year (payable in two installments, less applicable taxes) to use for benefits no longer eligible for reimbursement from the Company (including an annual physical examination, which executives are required to undergo each year, tax preparation and estate and financial planning services, and long-term care insurance), or for other benefits at the discretion of the executive. In addition, executives receive the use of a Company car and are eligible to participate in the Company’s Educational Matching Gifts Program and to receive relocation assistance.

In April 2009, as part of a cost reduction program undertaken by the Company, the Flexible Perquisites Program was temporarily suspended. As a result, although the Named Executives received the first $4,000 installment paid under the Flexible Perquisites Program, the Named Executives did not receive the second $4,000 installment in 2009 or the first $4,000 installment in 2010. The Educational Matching Gifts Program was also temporarily suspended in 2009 and remains suspended as of the date of this Proxy Statement.

 

The perquisites received by the Named Executives in 2009 are shown below in footnote 10 to the Summary Compensation Table.

 

The Compensation Committee has reviewed and discussed with management the Compensation Discussion and Analysis which appears in the Company’s 2010 Notice of Annual Meeting and Proxy Statement.

 

Based on the review and discussions referred to above, the Compensation Committee recommended to the Board of Directors that the Compensation Discussion and Analysis be included in the Company’s 2010 Notice of Annual Meeting and Proxy Statement for filing with the Securities and Exchange Commission.

 

THE COMPENSATION COMMITTEE

 

 

The following table sets forth the compensation received by the Company’s Chief Executive Officer, Chief Financial Officer and the other executive officers for whom disclosure is required, for the fiscal years ended December 31, 2009, December 31, 2008, and December 31, 2007 except as otherwise noted. As used in this Proxy Statement, “Named Executives” means the officers identified in this Summary Compensation Table.

 

 

 

 

 

 

 

 

 

 

 

The following table includes plan-based awards made to the Named Executives in 2009. The actual payouts received by the Named Executives on the annual cash incentive awards listed below are shown in the Summary Compensation Table above, and were 24% of target for Messrs. Stotlar and Bruffett, 200% of target for Mr. Bianco, and 0% of target for Messrs. Labrie and Schmidt.

 

 

 

 

 

The amounts shown above in the “Estimated Possible Payouts Under Non-Equity Incentive Plan Awards” column reflect the amounts payable at threshold, target, and maximum achievement levels for the 2009 annual cash incentive awards. The performance goals applicable to the awards are discussed in the Compensation Discussion and Analysis above.

 

The option awards listed in the Grants of Plan-Based Awards table have a term of ten years and vest in three equal installments, on January 1 of 2010, 2011 and 2012. Any unvested portion of the option awards vest on death or disability, retirement at age 65 or on achieving “rule of 85” (combined age and years of service equal to 85 or more) or upon a change in control of the Company.

 

The restricted stock unit awards listed in the Grants of Plan-Based Awards table are scheduled to vest on January 26, 2012 (the third anniversary of the grant date) and, except in limited circumstances such as upon death, disability, or a change in control, provide for forfeiture of the restricted stock units if an executive leaves the Company prior to the end of the three-year period. Upon vesting, the restricted stock units are settled in shares of Company common stock.

 

The following table identifies the exercisable and unexercisable option awards and unvested stock awards for each of the Named Executives as of December 31, 2009.