UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of the
Securities Exchange Act of 1934
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AVERY DENNISON CORPORATION | ||||
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Avery Dennison Corporation 150 North Orange Grove Boulevard Pasadena, California 91103 |
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Notice of Annual Meeting |
To Our Stockholders: |
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of Stockholders | Our Annual Meeting of Stockholders will be held at 150 North Orange Grove Boulevard, Pasadena, California on Thursday, April 25, 2013, at 1:30 p.m. Pacific Time for the following purposes: |
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To be held on | ||||
April 25, 2013 | 1. | To elect Bradley Alford, Anthony Anderson, Rolf Börjesson, John Cardis, David Pyott, Dean Scarborough, Patrick Siewert, Julia Stewart and Martha Sullivan to our Board of Directors; | ||
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To approve, on an advisory basis, our 2012 executive compensation; |
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To ratify the appointment of PricewaterhouseCoopers LLP as our independent registered public accounting firm for 2013; and |
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To transact any other business that may properly come before the meeting. |
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Our Board recommends that stockholders vote FOR each of the director nominees named in proposal 1 and FOR proposals 2 and 3. After considering these matters at the meeting, Dean Scarborough, our Chief Executive Officer, will review our 2012 performance and answer your questions. |
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Stockholders of record as of February 25, 2013 are entitled to notice of and to vote at the meeting and any adjournment or postponement thereof. |
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We will be mailing our Notice of Internet Availability of Proxy Materials on or before March 15, 2013. Stockholders who previously elected to receive a paper copy of our proxy materials will be mailed our 2013 proxy statement, 2012 annual report, Chairman's letter to stockholders and a proxy card on or before March 15, 2013. |
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We cordially invite all stockholders to attend the Annual Meeting. |
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BY ORDER OF THE BOARD OF DIRECTORS |
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Susan C. Miller Corporate Secretary |
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Pasadena, California Dated: March 8, 2013 |
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Whether or not you plan to attend the Annual Meeting, it is important that your shares be represented and voted. If you are viewing the proxy statement on the Internet, you may grant your proxy electronically via the Internet by following the instructions on the Notice of Internet Availability of Proxy Materials previously mailed to you and the instructions on the voting website. As an alternative, you may follow the instructions in the Notice to request paper proxy materials. If you are reviewing a paper copy of the proxy statement, you may vote by completing and mailing the proxy card enclosed with the proxy statement, or you may grant your proxy by telephone or electronically on the Internet by following the instructions on the proxy card. |
AVERY DENNISON CORPORATION
150 North Orange Grove Boulevard, Pasadena, California 91103
PROXY STATEMENT FOR 2013 ANNUAL MEETING OF STOCKHOLDERS
TABLE OF CONTENTS
This proxy statement is being furnished to stockholders on behalf of our Board of Directors (our "Board") to solicit proxies for our Annual Meeting of Stockholders (the "Annual Meeting") to be held on Thursday, April 25, 2013, at 1:30 p.m. Pacific Time at 150 North Orange Grove Boulevard, Pasadena, California and at any adjournment or postponement thereof. The matters to be acted upon at the meeting are set forth in the Notice of Annual Meeting of Stockholders, which appears at the beginning of this document.
Our 2012 Annual Report to Stockholders is being mailed or made available to all stockholders of record on or before March 15, 2013.
We have elected to provide access to our proxy materials on the Internet. Accordingly, we are sending a Notice of Internet Availability of Proxy Materials (the "Notice") to our stockholders of record, and brokers, banks and other nominees (collectively, "nominees") who hold shares on behalf of beneficial owners (also called "street name" holders") will send a similar notice. All stockholders will have the ability to access our proxy materials on the website referred to in the Notice or request to receive printed proxy materials. Instructions on how to request printed materials by mail or electronically, including an option to receive paper copies on an ongoing basis, may be found in the Notice and on the website referred to in the Notice.
On or before March 15, 2013, we intend to make this proxy statement available on the Internet and to mail the Notice to all stockholders entitled to vote at the Annual Meeting. We intend to mail this proxy statement, together with a proxy card, to stockholders entitled to vote at the Annual Meeting who properly request paper copies of these materials within three business days of request. If you hold your shares in street name, you may request paper copies of the proxy statement and proxy card from your nominee by following the instructions on the notice your nominee provides to you.
We have adopted a procedure approved by the Securities and Exchange Commission (the "SEC") called "householding." Under this procedure, we are permitted to deliver a single copy of our proxy statement and annual report to stockholders sharing the same address. Householding allows us to reduce our printing and postage costs and limits the volume of duplicative information received at your household. Householding affects only the delivery of proxy materials; it has no impact on the delivery of dividend checks.
For certain holders who share a single address, we are sending only one annual report and proxy statement to that address unless we received instructions to the contrary from any stockholder at that address. If you wish to receive an additional copy of our annual report or proxy statement, you may obtain one by writing to our Corporate Secretary at Avery Dennison Corporation, 150 North Orange Grove Boulevard, Pasadena, California 91103.
If you are a street name holder and wish to revoke your consent to householding and receive separate copies of our proxy statement and annual report in future years, you may call Broadridge Investor Communications Services toll-free at 800.542.1061 or write to them c/o Householding Department, 51 Mercedes Way, Edgewood, New York 11717.
Stockholders of record as of the close of business on February 25, 2013 are entitled to notice of, and to vote at, the Annual Meeting. Our only class of shares outstanding is common stock and there were 100,056,378 shares of our common stock outstanding on February 25, 2013. A list of stockholders entitled to vote will be available for inspection at the Annual Meeting. Each stockholder of record is entitled to one vote for each share of common stock held on the record date.
You may vote by attending the Annual Meeting and voting in person or you may vote by submitting a proxy. If you hold your shares in
street name, you may only vote in person
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at the meeting if you properly request and receive a legal proxy in your name from the nominee that holds your shares.
The method of voting by proxy differs depending on whether you are viewing this proxy statement on the Internet or reviewing a paper copy, as follows:
Telephone and Internet voting facilities will close at midnight Eastern Time the night before the Annual Meeting.
Shares Held in Our DirectSERVICE
Investment Program
If you are a participant in our DirectSERVICE Investment Program, your shares acquired through the program may be voted by following the procedures described above.
Shares Held in Our Employee Savings Plan or Our SHARE Plan
If you are a participant in our Employee Savings (401(k)) Plan or our Stock Holding and Retirement Enhancement (SHARE) Plan, your vote will serve as a voting instruction to Evercore Trust Company, N.A., the trustee of these plans, on how to vote the shares you own through the plans. Your voting instructions must be received by the trustee by 11:59 p.m. Eastern Time on April 21, 2013 for them to be followed as instructed.
If
your instructions are not timely received, the trustee will vote your shares in the same proportion as shares are voted by participants in the applicable plan who timely furnish
instructions. Shares of our common stock that have not been allocated to participant accounts will also be voted by the trustee in the same proportion as shares are voted by
participants in the applicable plan who timely furnish instructions.
REVOKING YOUR PROXY OR CHANGING YOUR VOTE
A stockholder giving a proxy pursuant to this solicitation may revoke it at any time before it is acted upon at the Annual Meeting by (i) submitting another proxy by telephone or on the Internet (your latest telephone or Internet voting instructions will be followed); (ii) sending a later dated paper proxy; (iii) delivering to our Corporate Secretary a written notice of revocation prior to the voting of the proxy at the Annual Meeting; or (iv) voting in person at the Annual Meeting. Simply attending the Annual Meeting will not revoke your proxy.
If your shares are held in street name, you may change your vote by submitting new voting instructions to your nominee. You must contact your nominee to find out how you can change your vote. Shares held in the Employee Savings Plan or SHARE Plan cannot be changed or revoked after 11:59 p.m. Eastern Time on April 21, 2013, nor can they be voted in person at the Annual Meeting.
Except in contested proxy solicitations, when required by law or as expressly authorized by you (including by making a written comment on your proxy card), your vote or voting instruction, irrespective of method of submission, are confidential and will not be disclosed to any other person other than the broker, trustee, agent or other person tabulating your vote.
Votes cast by proxy or in person at the Annual Meeting will be tabulated by Broadridge Financial Solutions, Inc., the independent agent appointed inspector of election by our Board. The inspector of election will also determine whether or not a quorum is present. At the Annual Meeting, determination of the existence of a quorum and tabulation of votes will occur as follows:
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As of the date of this proxy statement, we know of no other business that will be presented for consideration at the
meeting. However, if any other business properly comes before the meeting, votes will be cast in respect of any such other business in accordance with the best judgment of the persons acting pursuant to the proxies.
We will bear all costs related to this solicitation of proxies. We have retained D. F. King & Co., Inc. to assist in soliciting proxies for this meeting for a fee of $12,000, plus reimbursement for out-of-pocket expenses incident to the preparation and mailing of our proxy materials. Some of our employees may solicit proxies in person, by telephone or by email; these employees will not receive any additional compensation for their proxy solicitation efforts. We will reimburse banks, brokers and other custodians, nominees and fiduciaries for reasonable out-of-pocket expenses they incur in forwarding our proxy materials to beneficial owners of our common stock.
ELECTRONIC ACCESS TO PROXY MATERIALS AND ANNUAL REPORT
This proxy statement and our 2012 Annual Report are available on our website at www.averydennison.com. Information on our website is not and should not be considered part of, nor is it incorporated by reference into, this proxy statement. Instead of receiving paper copies of these documents by mail in the future, you can elect to receive an email message that will provide a link to these documents on the Internet. By opting to access proxy materials via the Internet, you will be able to access them more quickly; save us the cost of printing and mailing them to you; reduce the amount of mail you receive from us; and help us preserve environmental resources.
You may enroll to access proxy materials and annual reports electronically for future Annual Meetings by registering online at the following website: https://enroll1.icsdelivery.com/avy/Default.aspx. If you vote on the Internet, simply follow the prompts on the voting website to link to the electronic enrollment website.
TIME AND LOCATION OF ANNUAL MEETING
The Annual Meeting will take place at 1:30 p.m. Pacific Time at our principal executive offices, which are located at 150 North Orange Grove Boulevard, Pasadena, California 91103.
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Admission
If you attend the Annual Meeting, you will be asked to present personal photo identification. If you are a stockholder of record, you may bring the top half of your proxy card or your Notice of Internet Availability to serve as your admission ticket. If you hold your shares in street name, you will be required to present proof of ownership to be admitted into the meeting. Acceptable documentation includes your Notice of Internet Availability, a recent brokerage statement or a letter from your nominee evidencing your beneficial ownership of shares of our common stock as of February 25, 2013. If you would like to receive an admission ticket in advance, you may send a written request with proof of ownership to our Corporate Secretary at 150 North Orange Grove Boulevard, Pasadena, California 91103.
Stockholders will be admitted into the Annual Meeting beginning at 1:00 p.m. Pacific Time and seating will be on a first-come-first-served basis. For safety and security reasons, cameras, camera phones, recording equipment, computers, or large bags, briefcases or other packages will not be permitted into the meeting.
Conduct Procedures
Our Chairman will conduct the Annual Meeting in an orderly and timely manner in accordance with our Amended and Restated Bylaws (our "Bylaws") and Delaware law. To assist the Chairman in fulfilling his responsibilities, we have established rules for stockholders wishing to address the meeting, copies of which will be made available at the meeting. Only stockholders as of the record date or their properly-appointed proxies may address the meeting, and they may do so only after recognized by our Chairman, who will determine the nature and length of discussion on any particular matter.
As a result of time constraints and other considerations, we cannot assure you that every stockholder wishing to address the meeting will have the opportunity to do so. However, all stockholders are invited to direct inquiries or comments regarding business matters to our Investor Relations team by email at investorcom@averydennison.com or by mail at 150 North Orange Grove Boulevard, Pasadena, California 91103. In addition, stockholders wishing to address matters to our Board or any of its members may do so as described under Communicating with Our Board of Directors.
SUBMISSION OF STOCKHOLDER PROPOSALS FOR 2014 ANNUAL MEETING
For potential consideration at the 2014 Annual Meeting, stockholder proposals must be received at our principal executive offices on or before November 15, 2013. Our Bylaws generally provide that stockholders wishing to nominate persons for election to our Board or to bring any other business before the stockholders at an annual meeting must notify our Corporate Secretary in writing 90 to 120 days prior to the first anniversary of the preceding year's annual meeting (with respect to the 2014 Annual Meeting, no earlier than December 26, 2013 and no later than January 25, 2014. The notice must include, among other things, the following:
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We will not permit stockholder proposals that do not comply with the foregoing notice requirements to be brought before the 2014 Annual Meeting.
ALL
STOCKHOLDERS ARE URGED TO VOTE BY TELEPHONE OR ON THE INTERNET BY FOLLOWING THE INSTRUCTIONS ON THE NOTICE OF AVAILABILITY OF PROXY MATERIALS. IF YOU HAVE PROPERLY REQUESTED AND
RECEIVED A PAPER COPY OF THIS PROXY STATEMENT, YOU MAY VOTE YOUR SHARES BY (A) SUBMITTING A PROXY BY TELEPHONE OR ON
THE INTERNET BY FOLLOWING THE INSTRUCTIONS ON THE PROXY CARD OR (B) COMPLETING, DATING AND SIGNING THE PROXY CARD INCLUDED WITH THE PROXY STATEMENT AND PROMPTLY RETURNING IT IN THE PREADDRESSED, POSTAGE PAID ENVELOPE PROVIDED. STOCKHOLDERS OF RECORD MAY OBTAIN A COPY OF THIS PROXY STATEMENT WITHOUT CHARGE BY WRITING TO OUR CORPORATE SECRETARY, AVERY DENNISON CORPORATION, 150 NORTH ORANGE GROVE BOULEVARD, PASADENA, CALIFORNIA 91103.
PROPOSALS FOR 2013 ANNUAL MEETING
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Proposal |
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Board Recommendation |
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Vote Required |
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Discretionary Voting by Brokers |
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1. Election of Directors |
FOR each nominee |
Majority of votes cast |
No |
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2. Advisory Vote to Approve 2012 Executive Compensation |
FOR |
Majority of shares represented at the meeting and entitled to vote on the matter |
No |
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3. Ratification of Appointment of PwC for fiscal year 2013 |
FOR |
Majority of shares represented at the meeting and entitled to vote on the matter |
Yes |
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CORPORATE GOVERNANCE POLICIES AND PRACTICES
Under the oversight of our Board, we have designed our corporate governance program not only to ensure continued compliance with the Exchange Act, the Sarbanes-Oxley Act of 2002 (the "Sarbanes-Oxley Act"), the Dodd-Frank Wall Street Reform and Consumer Protection Act, related regulations, the rules of the SEC and the listing standards of the NYSE, but also to reflect best practices as informed by the policies of other public companies, recommendations of our outside advisors, the voting guidelines of our stockholders and the policies of proxy advisory firms.
Our website includes information about our corporate governance policies and practices, including our Code of Conduct; Code of Ethics for the Chief Executive Officer and Senior Financial Officers; Corporate Governance Guidelines (our "Governance Guidelines"); Charters for the Audit Committee, the Compensation and Executive Personnel Committee (the "Compensation Committee"), and the Governance and Social Responsibility Committee (the "Governance Committee"); and the Audit Committee Complaint Procedures for Accounting and Auditing Matters. Our website also includes copies of our Amended and Restated Certificate of Incorporation (our "Certificate of Incorporation") and our Bylaws. Stockholders may access this information by going to the "Corporate Governance" section of the "Investors" tab of our website at www.averydennison.com, but should note that information on our website is not and should not be considered part of, nor is it incorporated by reference into, this proxy statement. In addition, stockholders may receive copies of these documents, without charge, upon written request to our Corporate Secretary at 150 North Orange Grove Boulevard, Pasadena, California 91103.
This section of the proxy statement contains information about our corporate governance policies and practices, as well as our Board.
Our Board currently consists of the following directors:
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As required by the mandatory director retirement policy contained in our Bylaws and Governance Guidelines, Mr. Mullin will be retiring from our Board on the date of the Annual Meeting.
Our objective is to achieve leadership positions in our global markets by bringing insight, quality and innovation to end-customers who need to elevate their brands at consumer decision points, improve clarity of information and grow their business efficiently. Integrity, service, teamwork, innovation, excellence and community are the values that provide the foundation of everything we do; they are the core beliefs that guide our actions and support our vision to make every brand more inspiring and the world more intelligent. The following leadership principles represent the characteristics and behaviors we expect from our leaders as they pursue our strategies in a manner consistent with our values and ethics:
The values and ethics embodied in these leadership principles provide the foundation for our corporate governance program.
Code of Conduct
Our Code of Conduct, which applies to all of our directors, officers and employees and is available in the "Investors" section of our website, www.averydennison.com, is built on our leadership principles, reflects our belief that there is no conflict between playing to win and being values-based and encourages ongoing dialogue about the choices we make every day to help us make legal and ethical decisions. It highlights our core policies and guides the behavior of our employees, including compliance with laws; equal opportunity and harassment-free workplace; protection and proper use of company assets and intellectual property; confidential information and insider trading; conflicts of interest; sustainability, community and social responsibility; trade compliance; and anti-corruption. Our Code of Conduct has been translated into 30 languages and our employees receive training on the code and affirm their commitment to comply with it when they first join our company.
Our Business Conduct GuideLine is a telephone and web-based hotline available at all hours for employees or third parties to report potential violations of our Code of Conduct. The hotline is operated by an independent third party and accepts reports in several languages to accommodate the needs of our global workforce. All reports received by the hotline are investigated under the direction of our Chief Compliance Officer and senior management, with oversight from the Governance Committee. Our policies prohibit retaliation for good-faith reporting.
Code of Ethics for CEO and Senior Financial Officers
In addition to our Code of Conduct, we have adopted a Code of Ethics that requires our Chief Executive Officer (CEO), Chief Financial
Officer (CFO) and Corporate Controller to act professionally and ethically in fulfilling their responsibilities. These individuals are expected to avoid
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actual or apparent conflicts between their personal and professional relationships and disclose any material transaction or relationship that could reasonably be expected to give rise to a conflict of interest to the Governance Committee. In addition, they are expected to cause reports and documents filed with the SEC to contain full, fair, accurate and understandable information; respect the confidentiality of information acquired in the course of the performance of their responsibilities; employ corporate assets and resources in a responsible manner; and report violations of our Code of Ethics to the Chairman of either the Audit Committee or the Governance Committee.
Only the Governance Committee or Audit Committee can amend or waive the provisions of the Code of Ethics, and any such amendments or waivers must be posted promptly on our website and timely filed on Form 8-K with the SEC. Since the inception of the Code of Ethics in February 2004, no amendments have been made and no waivers have been granted.
CORPORATE GOVERNANCE GUIDELINES
Our Governance Guidelines provide the corporate governance framework for our company, and represent the beliefs of our Board with respect to the following matters, each of which is discussed in further detail in this section:
Our Bylaws provide for our Board to consist of between eight and 13 directors, with the exact number fixed from time to time by Board
resolution. Our Board currently has set the
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number of directors at 13, nine of whom are nominated for election at the Annual Meeting and one of whom (Mr. Mullin) is scheduled to retire on the date of the Annual Meeting. Our Board currently intends to reduce the size of the Board from 13 to 12 upon Mr. Mullin's retirement. As a result, if all nominees are elected, our Board will consist of 12 directors following the Annual Meeting.
Excluding Mr. Mullin, the ages of our directors range from 56 to 71, with an average age of 60. Their lengths of service range from one month to 13 years, with an average tenure on our Board of approximately seven years. None of our directors serves on more than two other boards of SEC-reporting companies, except for Mr. Anderson, who serves on three other such boards.
Selection of Director Nominees
Director nominees are recommended by the Governance Committee for nomination by our Board and election by our stockholders. Director nominees may also be recommended by the Governance Committee for appointment to our Board, with election by stockholders to follow at the next Annual Meeting. Our Board believes that the backgrounds and qualifications of the directors, considered as a group, should provide a mix of complementary experience, knowledge and abilities that will allow our Board to fulfill its responsibilities.
In
considering whether to recommend a candidate as a director nominee, including candidates recommended by stockholders, the Governance Committee applies a number of criteria described
in our Governance Guidelines. This assessment includes consideration of a potential nominee's ability to qualify as independent, to ensure that a substantial majority of our Board remains independent;
relevant business experience (considering factors such as size, the particular industry, scope, complexity and international operations); time commitments, including other boards on which the nominee
serves; potential conflicts of interest; ability to contribute to the oversight and governance of our company; and ability to represent the balanced interests of stockholders as a whole, rather than
those of any special interest group in the context of the needs of our Board. For incumbent directors, these factors also include contributions to our Board and Committees; attendance record at Board
and Committee meetings; compliance with our director stock
ownership policy; and mandatory retirement date to assist with Board succession planning. The Governance Committee does not assign specific weights to the criteria and no particular criterion is necessarily applicable to all nominees.
The Governance Committee reviews the qualifications of any candidate with those of current directors to determine coverage and gaps in experience in relevant industries and in diverse functional areas, such as finance, manufacturing, technology, and investing. Sources for identifying potential nominees may include existing Board members, our executive officers, third-party search firms, and stockholders.
Consideration of Diversity
Although we do not have a formal policy regarding the consideration of diversity in identifying director nominees, the Governance Committee seeks to recommend nominees with a broad diversity of experience, profession, skill, geographic representation and background, which may include consideration of personal characteristics such as race, color, gender and national origin. While diversity is a consideration, nominees are not chosen or excluded solely or primarily based on race, color, gender or national origin; rather, the Governance Committee focuses on skills, expertise and background to complement the existing Board in light of the diverse and global nature of our businesses and operations.
Stockholder Submission of Director Nominees
Stockholders may recommend director candidates by submitting the candidate's name, together with his or her biographical information, professional experience and written consent to nomination, to:
Julia
A. Stewart, Chairman
Governance Committee
c/o Corporate Secretary
Avery Dennison Corporation
150 North Orange Grove Boulevard
Pasadena, California 91103.
To be considered at the 2014 Annual Meeting, stockholder nominations must comply with the requirements described in Submission of Stockholder Proposals for 2014 Annual Meeting. The Governance Committee considers stockholder nominees on the same basis as it considers all other nominees.
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Qualifications of Current Directors
The qualifications, professional experiences and areas of expertise that are particularly desirable for our directors to possess in order to provide oversight and stewardship of our company include the following:
2012-2013 Director Appointments
Appointment of Mr. Anderson
During the second half of 2012, the Governance Committee oversaw our Board's search for an independent director to fill the vacancy that will be left when Mr. Mullin retires in April 2013, as required by the mandatory director retirement policy contained in our Bylaws and Governance Guidelines. The Committee engaged the executive search firm of Korn/Ferry International ("Korn/Ferry") to conduct the search, including recommending candidates and providing additional information regarding candidates upon request.
During
the course of the search, one of our directors nominated Mr. Anderson in light of his recent availability to serve on boards following his retirement from Ernst &
Young. All of our directors who did not previously know him and members of our executive management team interviewed Mr. Anderson, uniformly determining his ability to contribute value to our
Board. Upon the recommendation of the Governance Committee, our Board appointed Mr. Anderson to the Board on and effective December 6, 2012. Mr. Anderson has extensive financial
expertise, senior
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leadership experience, and significant experience working with public company boards as a worldwide audit engagement partner for various Fortune 500 companies, as described in further detail in his biographical information included in Item 1Election of Directors.
Appointment of Ms. Sullivan
The search for a potential replacement of Mr. Mullin continued through early 2013. Korn/Ferry identified a number of potential candidates for our Board, which were initially vetted by the Governance Committee and our Chairman. After all of the members of the Governance Committee, several of our other directors and members of our executive management interviewed her and unanimously recommended her candidacy and upon the recommendation of the Governance Committee our Board appointed Ms. Sullivan to the Board on and effective February 27, 2013. Ms. Sullivan has demonstrated senior leadership experience leading a company with a market capitalization of almost $6 billion and public company board experience, as described in further detail in her biographical information included in Item 1Election of Directors.
We paid Korn/Ferry $112,000 in fees for their assistance with the director search.
Director Updates Since 2012 Annual Meeting
Our Governance Guidelines require that directors who change the principal occupation, position or responsibility they held when they were elected to our Board should volunteer to resign from the Board. A director who changes his or her position or retires should not necessarily leave the Board, rather the Governance Committee should review the continued appropriateness of Board membership in light of the relevant circumstances. Since the 2012 Annual Meeting, Mr. Alford retired as chairman and chief executive officer of Nestlé USA, Mr. Noski retired as vice chairman of Bank of America and Mr. Barker retired as chairman of California of JPMorgan Chase. Each of these directors volunteered to resign following his retirement. In each case, the Governance Committee discussed the continued appropriateness of the director's Board membership and determined that he should remain on our Board.
Our
Governance Guidelines also require that directors advise our Chairman and the Governance Committee Chairman before accepting an invitation to serve on another public company board
and that the Governance Committee
review a director's continued ability to fulfill his or her responsibilities as a Board member if he or she serves on more than five other public company boards. None of our directors serves on more than five other public company boards. However, the Governance Committee discussed the following additional board appointments or elections since the 2012 Annual Meeting: Mr. Noski to the board of Avon Products, Inc.; Mr. Siewert to the board of Mondelez International, Inc; Mr. Anderson to the board of Exelon Corporation; and Mr. Barker's pending election to the board of Franklin Resources, Inc. In each case, the Governance Committee discussed the director's ability to continue to fulfill his Board responsibilities and determined that he should continue to serve on our Board.
Director Independence Standards
Our Governance Guidelines and NYSE listing standards require that our Board be comprised of a majority of directors who satisfy the criteria for independence under NYSE listing standards. These standards also require that our audit, compensation and nominating committees be comprised entirely of independent directors.
In February 2013, based on its review of evolving governance practices and upon recommendation of the Governance Committee, our Board eliminated our separate categorical independence standards. As a result, an independent director is one who meets the independence requirements of the NYSE and who our Board affirmatively determines has no material relationship with our company, directly or indirectly as a partner, stockholder or officer of an entity with which we have a relationship.
Director Independence Analysis for 2013
Each year, our directors and director nominees complete a questionnaire designed to solicit disclosures that may have a bearing on the
annual independence determination, including all relevant relationships they have with our company, directly or indirectly through our company's sale or purchase of products or services to or from the
companies or firms with which they are affiliated. Our Board, through the Governance Committee, reviews with our General Counsel and Corporate Secretary any relevant disclosures made in the
questionnaires, as well as transactions our company has with director-affiliated entities. For 2012, the Governance Committee reviewed the following director relationships, all
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of which were below the thresholds set forth in the NYSE's independence standards:
Director Independence Determination for 2013
After review and discussion of the relevant facts and circumstances for each director, including the direct and
indirect relationships described above, the Governance Committee concluded that except for Messrs. Mullin and Scarborough none of our directors had
affiliations that were material or impaired the director's independence. As a result, upon recommendation of the Governance Committee, our
Board affirmatively determined the following directors in the following table to be independent.
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INDEPENDENT DIRECTORS |
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Bradley Alford | Ken Hicks | |||||||
Anthony Anderson | Charles Noski | |||||||
Peter Barker | David Pyott | |||||||
Rolf Börjesson | Patrick Siewert | |||||||
John Cardis | Julia Stewart | |||||||
Martha Sullivan |
These 11 directors constitute 85% of our current 13-member Board and will constitute 92% of our 12-member Board after Mr. Mullin retires in April 2012, assuming all of the director nominees named in Proposal 1, election of directors, are elected at the Annual Meeting.
Our President and CEO currently serves as Chairman and we have a Lead Independent Director with broad authority and responsibility. We believe that this structure is appropriate because it allows for one individual to speak as our leader with a cohesive vision for our company, the ability to execute that vision, and the understanding of the significant enterprise risks that need to be mitigated or overcome to achieve that vision. Further, combined leadership at the top allows for the necessary flexibility for us to respond to the changing needs of our diverse businesses in today's globally interdependent economic environment. Balancing our combined Chairman and CEO is our Lead Independent Director who has critical duties in the boardroom to ensure effective and independent oversight. With robust and candid discussions of non-management directors at frequent executive sessions presided over by the Lead Independent Director (who is also the Chairman of the Compensation Committee) and with three other directors serving as independent Chairmen of the three other Committees, we believe our Board leadership structure provides independent oversight of our company.
Our
Board believes that, in part because assigning the responsibilities of the roles of Chairman and CEO can be a useful component of succession planning, our Board
12
leadership structure should be reevaluated periodically by our Board through the Governance Committee. The Governance Committee performed this evaluation in February 2013.
Chairman & Chief Executive Officer Dean Scarborough
Mr. Scarborough currently serves as our Chairman. He joined the Board in May 2000 when he was elected our President and Chief Operating Officer. Mr. Scarborough was elected by our Board as President and CEO in May 2005 and in that capacity is responsible for the general supervision, direction and control of our businesses and affairs. In February 2010, our non-management directors first elected Mr. Scarborough to the additional role of Chairman, effective April 2010. Mr. Scarborough serves in all his capacities at the pleasure of our non-management directors because he does not have an employment agreement and is elected as Chairman only for a one-year term and his service in that capacity could be immediately terminated upon the election and qualification of a successor.
The Governance Committee evaluated our Board leadership structure in February 2013 and recommended to our Board that Mr. Scarborough continue to serve as Chairman, noting that his leadership generated strong financial performance in 2012 and his service on the board of Mattel, Inc. has provided him with additional insights into board processes and decision-making. In addition, he remains best positioned to identify matters of operating and strategic importance for our Board, including the risks to which our businesses and strategies are subject. The Governance Committee recognized that Mr. Scarborough has served as an effective bridge between management and our Board since his election as Chairman, noting that feedback from our non-management directors regarding his performance continued to be favorable during the 2012 Board evaluation process.
Our non-management directors determined to continue Mr. Scarborough's service as Chairman based on their continued belief that the combined leadership structure enhances the Chairman/CEO's ability to provide insight and direction on important strategic initiatives to both our Board and management. Mr. Scarborough was re-elected by our non-management directors as Chairman in February 2013 to serve, subject to his election by our stockholders, a one-year term beginning immediately after the Annual Meeting.
Lead Independent Director David Pyott
With the combined roles of Chairman and CEO, we believe that it is important to have a Lead Independent Director to ensure independent oversight of Board decision-making. Our Governance Guidelines describe the duties of the Lead Independent Director, which grant substantial authority and delineate clear responsibilities to ensure independent stewardship of our Board. These duties include the following:
In connection with its review of our Board leadership structure in February 2013, the Governance Committee determined that Mr. Pyott should remain as Lead Independent Director, noting that evaluations of his performance providing independent stewardship of our Board had been favorable since he has served in that capacity and that his chairmanship of the Compensation Committee and membership on the Governance Committee provide him valuable insights on executive compensation and corporate governance matters that are of significant concern to stockholders.
Upon the Governance Committee's recommendation (with Mr. Pyott abstaining from the vote), our non-management directors (with Mr. Pyott abstaining from the vote) selected Mr. Pyott as Lead Independent Director in February 2013 to serve, subject to his election by our stockholders, for a one-year term beginning immediately after the Annual Meeting.
13
Executive Sessions
Our Board believes it is important to have executive sessions without our Chairman/CEO present, which are scheduled during every regular meeting of the Board and may also occur during special meetings of the Board. During 2012, Mr. Pyott presided as Lead Independent Director at five executive sessions of non-management directors (which excluded Mr. Scarborough) and the one additional executive session of independent directors only (which excluded Messrs. Mullin and Scarborough).
Each of our Board committees has a written charter which describes the purposes, goals and responsibilities of the committee. These
charters, which may be found on our investor website at www.averydennison.com, are reviewed by the respective committee on an annual basis, with any recommended changes adopted upon approval by our
Board and updated charters promptly posted on our website. During
2012, executive sessions during which members of management were not present were scheduled for each regular meeting of the Audit, Compensation and Governance Committees.
Board/Committee Membership, Meetings & Attendance
The following table shows the membership of our Board and Committees, the number of meetings held by each and the percentage of applicable meetings attended by each director, in each case during 2012.
There were five meetings of our Board and 20 meetings of Committees of our Board in 2012. Each of our directors attended at least 91% of the aggregate number of meetings of our Board and Committees of which he or she was a member held during 2012, or if shorter, the period of time he or she served during the year; the average attendance of all directors in 2012 was 99%. All of our then-serving directors attended the 2012 Annual Meeting.
2012 BOARD/COMMITTEE MEMBERSHIP, MEETINGS AND ATTENDANCE
|
||||||||||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
|
Director |
|
Board of Directors |
|
Audit Committee |
|
Compensation Committee |
|
Governance Committee |
|
Finance Committee |
|
||||||||||||
Mr. Alford | M, 100% | M, 83% | ||||||||||||||||||||||
Mr. Anderson(1) | M, 100% | |||||||||||||||||||||||
Mr. Barker | M, 100% | M, 100% | C, 100% | |||||||||||||||||||||
Mr. Börjesson | M, 100% | M, 100% | M, 100% | |||||||||||||||||||||
Mr. Cardis | M, 100% | C, 100% | M, 100% | |||||||||||||||||||||
Mr. Hicks | M, 100% | M, 100% | M, 100% | |||||||||||||||||||||
Mr. Mullin(1) | M, 100% | M, 100% | ||||||||||||||||||||||
Mr. Noski | M, 100% | M, 100% | ||||||||||||||||||||||
Mr. Pyott | LID, 100% | C, 100% | M, 100% | |||||||||||||||||||||
Mr. Scarborough | C, 100% | |||||||||||||||||||||||
Mr. Siewert | M, 100% | M, 100% | M, 100% | |||||||||||||||||||||
Ms. Stewart | M, 100% | M, 100% | C, 100% | |||||||||||||||||||||
Ms. Sullivan(1) | N/A | |||||||||||||||||||||||
Meetings in 2012 (#) | 5 | 8 | 6 | 4 | 2 |
M = Member C = Chairman LID = Lead Independent Director
14
Audit Committee
Responsibilities
The Audit Committee is appointed to assist our Board with overseeing the following:
All members of the Audit Committee satisfy the enhanced independence standards for audit committee members set forth in SEC rules and NYSE listing standards. Our Board has designated each of Messrs. Barker, Cardis and Noski as an "audit committee financial expert" under applicable SEC regulations.
Complaint Procedures for Accounting and Auditing Matters
The Audit Committee is responsible for ensuring that complaints related to accounting, accounting standards, internal accounting
controls and audit practices are treated appropriately and has adopted procedures for the confidential, anonymous submission of complaints regarding these matters. These procedures relate to
complaints for fraud or deliberate error in the preparation, evaluation, review or audit of any of our financial statements or other financial reports; fraud or deliberate error in the recording and
maintaining of our financial records; deficiencies in or noncompliance with our internal accounting controls; misrepresentation or false statement to or by a senior officer or accountant regarding a
matter contained in our financial records, financial statements, or other financial reports; or deviation from full and fair reporting of our financial condition. Any person, including third parties,
may submit a good faith complaint regarding accounting and auditing matters; employees may do so without fear of dismissal or retaliation of any kind. The Audit Committee oversees these procedures,
which are investigated under the direction of our internal audit department in consultation with counsel and
other members of senior management to the extent appropriate under the circumstances.
Stockholders and other interested parties interested in communicating regarding the Audit Committee Complaint Procedures for Accounting and Auditing Matters may (i) make an anonymous, confidential call to our Business Conduct GuideLine at 888.567.4387 toll-free in the United States or at 704.731.0166 collect from outside the United States or (ii) write to:
John
T. Cardis, Chairman
Audit Committee
c/o Corporate Secretary
Avery Dennison Corporation
150 North Orange Grove Boulevard
Pasadena, California 91103.
Compensation and Executive Personnel Committee
Responsibilities
The Compensation Committee is appointed by our Board to oversee the compensation of our non-employee directors, CEO and other executive officers, which includes performing the following functions:
15
The Compensation Committee may form and delegate authority to subcommittees or the CEO when appropriate.
Compensation Committee Interlocks and Insider Participation
None of our current Compensation Committee members is or has ever been an officer or employee of our company. Based on our review of the annual questionnaires completed by our directors and publicly-available information, we know of no relationship involving these individuals or our other directors which requires disclosure in this proxy statement as a "compensation committee interlock."
Committee Compensation Consultant
Committee Authority
Under its charter, the Compensation Committee has the authority, in its sole discretion, to obtain advice and assistance from internal or external advisors. The Compensation Committee may retain and terminate any compensation consultant or other external advisor to assist with the evaluation of compensation for directors, our CEO and other senior executives and has sole authority to approve the advisor's fees and other terms and conditions of the retention and receives appropriate funding from our company for the retention. In retaining its advisors, the Committee must consider the advisor's independence from management, in accordance with SEC rules and NYSE listing standards.
2012 Advisor Services, Fees and Performance
During 2012, the Compensation Committee retained Towers Watson as its compensation consultant. Towers Watson provides the Compensation
Committee with compensation-related guidance, including by providing competitive market compensation data for senior executives;
conducting periodic reviews of elements of our non-employee director, officer and employee compensation programs; identifying best practices in annual and long-term incentive compensation design, including performance objectives and weightings thereof; and sharing executive and non-employee director compensation trends, issues and regulatory developments.
Representatives of Towers Watson were present at every Compensation Committee meeting held in 2012, and may be consulted in between meetings at the Compensation Committee's discretion. Towers Watson performed no services for our company in 2012 other than its work undertaken directly for the Compensation Committee. Towers Watson received $233,728 in compensation, excluding reimbursement for reasonable expenses, from our company, all of which was for professional services performed for the Compensation Committee during the year.
The Compensation Committee conducted its annual assessment of Towers Watson's performance in December 2012, which included a review of various performance measures and evaluation criteria as well as the fees paid for the firm's services. The Compensation Committee determined that it was satisfied with the performance of Towers Watson and the individual members of the team serving the committee, noting that their advice was consistently constructive and helpful.
Advisor Independence
Towers Watson and the Compensation Committee have had the following protocols in place since the commencement of the engagement to establish and maintain Towers Watson's independence from management:
16
The Compensation Committee considered the independence of Towers Watson in December 2012 in accordance with final SEC rules and then-proposed NYSE listing standards, evaluating, among other things, any business or personal relationships between the members of the firm and the members of the Compensation Committee, as well as the firm's policies and procedures designed to prevent conflicts of interest. At that time, the Compensation Committee affirmatively determined Towers Watson and the members of the firm's engagement team advising the Committee to be independent, noting that the firm provided no services to our company outside of its work for the Compensation Committee during the year. In addition, at that time the Compensation Committee conducted a review of potential conflicts of interest of Towers Watson in connection with its annual assessment of the consultant's performance and determined that there were no such conflicts.
Governance and Social Responsibility Committee
Pursuant to its charter, the Governance Committee is appointed by our Board to:
Finance Committee
In addition to the above committees required by applicable SEC rules and NYSE listing standards, we also have a Finance Committee. The Finance Committee is appointed by our Board to oversee matters relating to our financial affairs and capital requirements and in that capacity performs the following activities on behalf of our Board:
Oversight of Risks Confronting Our Businesses
Management is responsible for the day-to-day management of risks confronting our businesses, but our Board has broad oversight responsibility for our risk management programs, including enterprise risk management (ERM) oversight. We have a Chief Compliance Officer who, with assistance from our Vice President of Internal Audit and members of their respective teams, provides support and drives ERM accountability into our businesses, prepares a corporate risk profile based on identified business-specific risks as well as enterprise-wide risks, and ensures that our values and ethics are being maintained globally. Our legal and compliance functions report into our General Counsel to provide independent oversight over our businesses.
17
Our Board as a whole oversees risks related to our corporate and business strategies and operations. In performing its oversight role, our Board is responsible for ensuring that the risk management processes designed and implemented by management are functioning, and that necessary steps are taken to foster a culture of risk-adjusted decision-making within our company. Each year, the full Board receives reports on the strategic plans and risks facing our company as a whole from our Chief Executive Officer and Chief Financial Officer, as well as our individual businesses from our Group Presidents and their management teams. These risks may include financial risks, political and regulatory risks, legal risks, supply chain risks, information technology risks, and risks inherent in the ways in which we do business. Employees who supervise various day-to-day risks provide reports periodically to Board Committees, as well as occasionally to our full Board.
Our Board has delegated to its Committees certain elements of its risk oversight function. In this context, the Audit Committee regularly discusses our risk assessment and mitigation processes to ensure that our risk management programs are effective and periodically meets in executive session with each of our Chief Financial Officer, General Counsel, Vice President of Internal Audit, Chief Compliance Officer, and our independent registered public accounting firm. In addition, the Audit Committee oversees our internal control environment and evaluates the effectiveness of our internal controls at least annually.
Our Board receives reports from Committee Chairmen regarding topics discussed at every Committee meeting, which may include matters involving the areas of risk overseen primarily by the Committees as follows:
The material risks related to our businesses are described under Part I, Item 1A, "Risk Factors," in our 2012 Annual Report on Form 10-K, filed with the SEC on February 27, 2013.
Oversight of Risks Associated with Compensation Policies and Practices
As described in Compensation Discussion and Analysis, we maintain best practices in compensation and corporate governance that collectively encourage ongoing risk assessment and mitigation. The Compensation Committee has designed our executive compensation program to provide incentives that do not encourage our executives to take excessive risks in managing their businesses or functional areas.
The Compensation Committee's independent compensation consultant, Towers Watson, conducted a risk assessment of our executive compensation program and reported to the Compensation Committee regarding its findings in February 2013. Towers Watson's assessment took into account several features of our compensation program in areas including pay plan philosophy and structure, pay plan design, performance metrics and governance, specifically analyzing our Annual Incentive Plan (AIP), long-term incentives (LTIs), stock ownership guidelines, clawback policy, executive retirement plans, severance policies and deferred compensation program. Specifically, the independent compensation consultant noted the following regarding our executive compensation program:
|
Program Element |
|
Risk-Mitigating Factors |
|
||||
---|---|---|---|---|---|---|---|---|
Compensation Philosophy |
Program balances executive retention with rewards for shareholder value creation, while also ensuring that program elements, individually and in the aggregate, do not encourage excessive risk-taking | |||||||
Fixed vs. Variable Compensation |
Substantial majority of pay is variable, with compensation not overly leveraged in any one element and mix that is consistent year to year and with market practices |
18
|
Program Element |
|
Risk-Mitigating Factors |
|
||||
---|---|---|---|---|---|---|---|---|
Short-term vs. Long- term Compensation |
Incentive mix is well-balanced, with short- and long-term performance metrics not overlapping, covering different time periods and balanced among annual financial objectives and long-term economic and shareholder value creation, as well as between growth and efficient use of capital | |||||||
Cash vs. Equity Pay |
Majority of compensation is equity-based to promote long-term performance and sustainable growth |
|||||||
Long-term Incentives |
Equity award vehicles are primarily performance-based, using multiple performance metrics with minimum and maximum numbers of shares that can be earned to limit potential pay risk |
|||||||
Supplemental Retirement and Deferred Compensation |
Benefits under our senior executive retirement plan have been frozen and account earnings under our only currently available deferred compensation plan are based on fixed rates and/or the performance of funds selected by the participant, with no investment options that provide above-market interest rates |
|||||||
Stock Ownership Requirements |
Stock ownership guidelines are meaningful and in line with market practices |
|||||||
Severance Policies |
Change-in-control and general severance provisions are reasonable and appropriate, with change-of-control benefits offered on a double-trigger basis and not grossed up for excise taxes |
|||||||
Compensation/ Performance Calibration |
No guaranteed AIP awards, with below-threshold performance yielding zero payout, and LTI threshold and maximum payout opportunities encouraging appropriate performance focus |
|||||||
Payout Caps |
AIP and LTI programs have payout caps |
|||||||
Equity Award Vesting and Holding Requirements |
Equity awards vest ratably over three or four years |
|||||||
Overlapping vs. Sequential Performance Periods |
LTI awards granted annually, but with overlapping, multi-year cycles to mitigate short-term risky behavior |
|||||||
Deferred Payouts and Clawbacks |
Clawback policy in line with market practice; voluntary deferral of incentive awards is allowed |
|
Program Element |
|
Risk-Mitigating Factors |
|
||||
---|---|---|---|---|---|---|---|---|
Quality and Sustainability of Results |
AIP and LTIs encompass a good balance of profitable growth in the short term and sustainable long-term financial success | |||||||
Top-line vs. Bottom- line Performance Metrics |
AIP and LTI metrics and weightings are well-balanced, with short- and long-term metrics that don't overlap and cover different time periods |
|||||||
Organizational Level of Measure |
AIP and LTI plans use multiple performance metrics and measure performance at multiple levels (corporate, business unit and individual) |
|||||||
Formulaic Awards and Discretion |
The Compensation Committee may exercise limited upward and complete downward discretion to adjust AIP awards for appropriate individual performance and behaviors |
|||||||
Program Design and Process |
Program is tied to financial and strategic goals |
|||||||
Target Setting, Pool Size Determination and Pool Distribution |
Target goals are proposed by management, but reviewed and approved by the Compensation Committee, with awards determined based on actual performance against goals and qualitative assessment of circumstances under which goals were achieved, with appropriate adjustments to payouts |
|||||||
Program Governance |
AIP and LTI program designs and payments are reviewed and approved by the Compensation Committee |
Based on the above factors, Towers Watson and the Compensation Committee concluded that our executive compensation program strikes an appropriate compensation-risk balance and does not encourage excessive risk-taking.
In addition to these compensation program elements, we have a robust ethics and compliance program to educate executives and employees on risk-mitigating behavior, with adverse employment consequences for any actions determined to have been inappropriate. We encourage employees and third parties to report potential violations of our Code of Conduct and actual or perceived conflicts of interest through multiple reporting channels and with no risk of retaliation. See Values and Ethics.
19
Based on the foregoing, the Compensation Committee concluded that our compensation policies and practices do not as a whole create risks that are reasonably likely to have a material adverse effect on our company.
Succession Planning
Our Board is actively engaged and involved in talent management to identify and cultivate our future leaders. We maintain a robust mid-year and annual performance review process for our employees, as well as a leadership development program that cultivates our leadership principles in our future leaders. Management develops leadership at lower levels of our organization by identifying core talent, cultivating the skills and capabilities that will allow identified individuals to become future leaders, assessing their development in embodying our leadership principles and identifying gaps and developmental needs in skills and experience.
The Compensation Committee conducts executive succession planning and reports to our Board during our Board's mid-year review of our business strategies. In July 2012, the Compensation Committee reviewed individuals identified as possible CEO succession candidates, including progress in current job position and career development in terms of strategy, leadership and execution. In addition, the Compensation Committee discussed leadership below the executive officer level, identifying the talent that is currently ready or with continued development on their current trajectory with mentorship from our current leaders will be ready to fill executive officer positions in the event of a vacancy.
Through regular reports to the Board from senior management, our Board has the opportunity to meet with leaders of our company, including executive officers, business group leaders and functional leaders in areas such as legal, finance, information technology, risk, and human resources. In addition, Board members have freedom of access to all employees, and are encouraged to make site visits to meet local management and attend company events.
No Shareholder Rights Plan
We do not currently have a shareholder rights plan ("poison pill") although we have the ability to adopt one through the preferred
stock authorized in our Certificate of
Incorporation. Our Board would seek stockholder approval prior to adoption of a poison pill unless our Board, in the exercise of its fiduciary duties, determines that under the circumstances existing at that time, adopting a poison pill without such approval would be in the best interests of our company and stockholders. In the event a poison pill were adopted without prior stockholder approval, our Board would subsequently seek stockholder ratification thereof.
Director Orientation and Continuing Education
Our director education program consists of periodic visits to our facilities and management presentations regarding our business operations, strategies and risks and our values and ethics, including the policies and practices that guide how we do business. We sponsor in-house orientation and continuing education programs for our Board and provide updates on relevant topics of interest to our Board throughout the meeting calendar. We also reimburse directors who attend accredited director education programs and institutes for program fees and related expenses.
In February 2013, we conducted an orientation program primarily for Mr. Anderson and Ms. Sullivan, our newest directors. In advance of in-person meetings, we provided them with documentation regarding our businesses, strategic plans and competitors; corporate governance policies and practices; Board responsibilities and processes; director compensation policies; conflict of interest policy; sustainability initiatives; and public disclosures. After the directors had been given an opportunity to review these advance materials, our business and functional leaders met over two days with Mr. Anderson, Ms. Sullivan and other members of our Board who asked to participate in the orientation to discuss our corporate vision, strategy and leadership team; investor messaging; the business and strategy of our business groups and divisions; finance matters, including our financial reporting policies and practices, internal control environment, internal audit deployment, tax planning and compliance and capital structure; legal matters, including corporate governance policies and procedures, values and ethics, compliance program, and risk management, including ERM; human resources matters, including executive compensation, succession planning and non-employee director compensation; and our information technology strategy.
20
Board and Committee Evaluations
The Governance Committee leads an annual assessment of the performance of our Board, including our Chairman and Lead Independent Director, and our Board Committees, including the Committee Chairmen. Many of the changes to our Governance Guidelines, Committee Charters, corporate governance practices and Board processes have resulted from the annual evaluation process. Our Board views the annual evaluation process as an integral part of its commitment to cultivating excellence and best practices in its performance.
COMMUNICATING WITH OUR BOARD OF DIRECTORS
Stockholders and other interested parties may write to our Board, Chairman, Lead Independent Director, any Committee or Committee
Chairman, or any other individual
director concerning business-related matters by writing to the group or individual as follows:
Board
of Directors
(or a particular subgroup or individual director)
c/o Corporate Secretary
Avery Dennison Corporation
150 North Orange Grove Boulevard
Pasadena, California 91103.
Our Corporate Secretary reviews all communications received and forwards them as addressed. However, unsolicited advertisements, business solicitations, surveys, product-related inquiries, junk mail or mass mailings, resumes or other job-related inquiries or offensive, illegal or otherwise inappropriate communications that do not substantively relate to the duties and responsibilities of our Board may not be forwarded.
21
BOARD OF DIRECTORS MATTERS
PROPOSAL 1 ELECTION OF DIRECTORS
Our Bylaws provide for a Board of between eight and 13 directors, with the exact number fixed from time to time by a resolution of our Board. There are currently 13 directors on our Board, nine of whom are to be elected at the Annual Meeting. At the 2011 Annual Meeting, stockholders voted to declassify our Board; as a result, director nominees elected at the Annual Meeting will hold office until the 2014 Annual Meeting and until their successors are duly elected and qualified, or until their earlier death, resignation or retirement. Continuing directors will hold office until the expiration of their current term in 2014. All directors nominated for election at the 2014 Annual Meeting will be nominated for a one-year term.
Each of the nine nominees is presently serving as our director, with Ms. Stewart and Messrs. Cardis, Pyott and Scarborough having been last elected at the 2012 Annual Meeting; Messrs. Alford, Börjesson and Siewert having been last elected at the 2010 Annual Meeting; and Mr. Anderson and Ms. Sullivan having been appointed by our Board in December 2012 and February 2013, respectively. All of the nominees have consented to being named in this proxy statement and to continue serving if elected.
Majority Voting Standard for Director Elections
Our Bylaws provide for the majority voting of directors in uncontested elections like this one and require that an incumbent director who is not re-elected tender his or her resignation from the Board. Our Board, excluding the tendering director, is required to determine whether to accept the resignation taking into account the recommendation of the Governance Committee and any other factors or information it considers appropriate and relevant and publicly disclose its decision regarding the tendered resignation, including the rationale for the decision, within 90 days from the date election results are certified. In a contested election, plurality voting is the standard for election of directors.
In voting for the election of directors, each share has one vote for each position to be filled and there is no cumulative voting.
Recommendation of Board of Directors
Your Board of Directors recommends that you vote FOR each of the director nominees. The persons named as proxies will vote for the election of each of the nine nominees, unless you specify otherwise. If any of the director nominees were to become unavailable prior to the Annual Meeting, your proxy would be voted for a substitute nominee designated by our Board or we would reduce the size of our Board.
2013 Director Nominees and Continuing Directors
The following pages provide information for each nominee for election at the Annual Meeting and each director whose term continues, including his or her age, positions held, current principal occupation and business experience during at least the past five years. We also indicate the names of any other public companies on which each director currently serves, or has served during the past five years, as a director; for these purposes, "public company" means a company that is required to file reports with the SEC.
In addition to the information presented below regarding each director's experience, qualifications, attributes and skills that led our Board to the conclusion that he or she should serve as a director which includes senior leadership experience, industry knowledge, global operations experience, financial expertise, and public company board and corporate governance experience we believe that each of our directors has integrity, adheres to high ethical standards, and represents the long-term interests of our stockholders. Each of them also has demonstrated an ability to exercise sound judgment, as well as a commitment to overseeing our company and serving our stockholders.
22
|
|||||||||||||||||||||||||||||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
|
Name |
|
Age |
|
Director Since |
|
Principal Occupation |
|
Independent |
|
AC |
|
CC |
|
GC |
|
FC |
|
Other Public Boards |
|
|||||||||||||||||||||||
|
Mr. Alford | 56 | 2010 | Retired Chairman & CEO, Nestlé USA |
Yes | M | 0 | ||||||||||||||||||||||||||||||||||||
|
Mr. Anderson | 57 | 2012 | Retired Vice Chair & Managing Partner, Ernst & Young LLP |
Yes | 3 | |||||||||||||||||||||||||||||||||||||
|
Mr. Börjesson | 70 | 2005 | Retired Chairman, Rexam PLC |
Yes | M | M | 0 | |||||||||||||||||||||||||||||||||||
|
Mr. Cardis | 71 | 2004 | Retired Managing Partner, Deloitte & Touche USA LLP |
Yes | C | M | 1 | |||||||||||||||||||||||||||||||||||
|
Mr. Pyott (LID) | 59 | 1999 | Chairman, President & CEO, Allergan, Inc. |
Yes | C | M | 2 | |||||||||||||||||||||||||||||||||||
|
Mr. Scarborough | 57 | 2000 | Chairman, President & CEO, Avery Dennison Corporation |
No | 1 | |||||||||||||||||||||||||||||||||||||
|
Mr. Siewert | 57 | 2005 | Managing Director, The Carlyle Group |
Yes | M | M | 1 | |||||||||||||||||||||||||||||||||||
|
Ms. Stewart | 57 | 2003 | Chairman & CEO, DineEquity, Inc. |
Yes | M | C | 1 | |||||||||||||||||||||||||||||||||||
|
Ms. Sullivan | 57 | 2013 | President & CEO, Sensata Technologies Holding N.V. |
Yes | 1 |
AC = Audit Committee CC = Compensation & Executive Personnel Committee GC = Governance & Social Responsibility Committee
FC = Finance Committee M = Member C = Chairman LID = Lead Independent Director
23
2013 DIRECTOR NOMINEES (cont.)
Bradley A. Alford |
Age 56
Director since April 2010
Board Roles:
Compensation Committee Member
Current Public Company Directorships:
None
Public Company Directorships in Past 5 Years:
None
Anthony K. Anderson |
Age 57
Director since December 2012
Board Roles:
None
Current Public Company Directorships:
AAR Corporation
Exelon Corporation
First American Financial Corporation
Public Company Directorships in Past 5 Years:
None
Business Experience:
Nestlé
USA,
a nutrition, health and wellness company
Nestlé
Brands Company,
an operating unit of Nestlé USA
Skills and Qualifications:
Substantial leadership experience
Substantial leadership experience
Global operations experience
Business Experience:
Ernst &
Young LLP,
an assurance, tax, transaction and
advisory services firm
Skills and Qualifications:
Substantial leadership experience
Financial expertise
Public board experience
24
2013 DIRECTOR NOMINEES (cont.)
Rolf L. Börjesson |
Age 70
Director since January 2005
Board Roles:
Finance Committee Member
Governance Committee Member
Current Public Company Directorships:
None
Public Company Directorships in Past 5 Years:
None
John T. Cardis |
Age 71
Director since October 2004
Board Roles:
Audit Committee Chairman
Finance Committee Member
Current Public Company Directorships:
Edwards Lifesciences Corporation
Public Company Directorships in Past 5 Years:
Energy East Corporation
Business Experience:
Rexam PLC,
a consumer packaging company
Skills and Qualifications:
Substantial leadership experience
Industry knowledge
Global operations experience
Business Experience:
Deloitte &
Touche USA LLP,
an audit, tax, consulting and
financial advisory services firm
Skills and Qualifications:
Substantial leadership experience
Financial expertise
Public board experience
25
2013 DIRECTOR NOMINEES (cont.)
David E. I. Pyott |
Age 59
Director since November 1999
Board Roles:
Lead Independent Director
Compensation Committee Chairman
Governance Committee Member
Current Public Company Directorships:
Allergan, Inc. (Chairman)
Edwards Lifesciences Corporation
Public Company Directorships in Past 5 Years:
None
Dean A. Scarborough |
Age 57
Director since May 2000
Board Roles:
Chairman
Current Public Company Directorships:
Mattel, Inc.
Public Company Directorships in Past 5 Years:
None
Business Experience:
Allergan, Inc.,
a global health care company
Skills and Qualifications:
Substantial leadership experience
Global operations experience
Public board experience
Business Experience:
Avery Dennison Corporation
Skills and Qualifications:
Substantial leadership experience
Global operations experience
Public board experience
26
2013 DIRECTOR NOMINEES (cont.)
Patrick T. Siewert |
Age 57
Director since April 2005
Board Roles:
Audit Committee Member
Finance Committee Member
Current Public Company Directorships:
Mondelez International, Inc.
Public Company Directorships in Past 5 Years:
None
Julia A. Stewart |
Age 57
Director since January 2003
Board Roles:
Governance Committee Chairman
Compensation Committee Member
Current Public Company Directorships:
DineEquity, Inc. (Chairman)
Public Company Directorships in Past 5 Years:
IHOP Corporation (DineEquity predecessor)
Business Experience:
The
Carlyle Group,
a global alternative investment firm
The
Coca-Cola Company,
the world's largest beverage company
Skills and Qualifications:
Industry knowledge
Global operations experience
Financial expertise
Public board experience
Business Experience:
DineEquity, Inc.,
owner, operator and franchisor of IHOP and
Applebee's restaurants globally
IHOP
Corporation,
DineEquity's predecessor entity
Skills and Qualifications:
Substantial leadership experience
Global operations experience
Public board experience
27
2013 DIRECTOR NOMINEES (cont.)
Martha N. Sullivan |
Age 56
Director since February 2013
Board Roles:
None
Current Public Company Directorships:
Sensata Technologies Holding N.V.
Public Company Directorships in Past 5 Years:
None
Business Experience:
Sensata
Technologies Holding N.V.,
a leading supplier of sensors and controls
Texas
Instruments, Inc.,
Sensata's predecessor entity
Skills and Qualifications:
Substantial leadership experience
Global operations experience
Public board experience
28
Peter K. Barker |
Age 64
Director since January 2003
Term expires in 2014
Board Roles:
Finance Committee Chairman
Audit Committee Member
Current Public Company Directorships:
Fluor Corporation
Public Company Directorships in Past 5 Years:
GSC Investment Corp.
Ken C. Hicks |
Age 60
Director since July 2007
Term expires in 2014
Board Roles:
Audit Committee Member
Governance Committee Member
Current Public Company Directorships:
Foot Locker, Inc. (Chairman)
Public Company Directorships in Past 5 Years:
J.C. Penney Company, Inc.
Business Experience:
JPMorgan
Chase & Company,
a global financial services firm
Goldman
Sachs & Co.,
an investment banking, securities and
investment management firm
Skills and Qualifications:
Substantial leadership experience
Financial expertise
Public board experience
Business Experience:
Foot
Locker, Inc.,
a specialty athletic retailer
J.C.
Penney Company, Inc.,
a retail company
Payless
ShoeSource, Inc.,
a specialty family footwear retailer
Skills and Qualifications:
Substantial leadership experience
Industry knowledge
Public board experience
29
CONTINUING DIRECTORS (cont.)
Charles H. Noski |
Age 60
Director since November 2011
Term expires in 2014
Board Roles:
Audit Committee Member
Current Public Company Directorships:
Avon Products, Inc.
Microsoft Corporation
Public Company Directorships in Past 5 Years:
Air Products & Chemicals, Inc.
Automatic Data Processing, Inc.
Morgan Stanley
Business Experience:
Bank
of America Corporation,
a global financial services firm
Northrop
Grumman Corporation,
a military and defense contractor
AT&T
Corporation,
a telecommunications company
Skills and Qualifications:
Substantial leadership experience
Financial expertise
Public board experience
30
BOARD OF DIRECTORS MATTERS
NON-EMPLOYEE DIRECTOR COMPENSATION
The table on page 33 provides information regarding the compensation earned by or awarded to our non-employee directors during 2012. The components of this compensation are described below, as is our director stock ownership policy and recent changes to our non-employee director compensation program approved by the Compensation Committee.
2012 Deferrable Cash Compensation
In 2012, our non-employee directors earned an annual retainer of $65,000, except that (i) the Lead Independent Director earned an annual retainer of $85,000 and (ii) the retainer was prorated for any director's partial service during the year. In addition, the Chairman of the Audit, Compensation, Finance and Governance Committees received an annual retainer of $15,000, $12,500, $7,500 and $7,500, respectively, for his or her service in that capacity. Non-employee directors also received $1,500 per Board meeting attended; $2,000 per Committee meeting attended as Chairman; and $1,500 per Committee meeting attended as member. These amounts were paid quarterly in arrears. Directors were also reimbursed for travel expenses incurred to attend Board meetings.
Non-employee directors may choose to receive their retainers and meeting fees in (i) cash; (ii) deferred stock units ("DSUs") credited to an individual account established in their name under the Directors Deferred Equity Compensation Plan ("DDECP") or Directors Variable Deferred Compensation Plan ("DVDCP"); or (iii) a combination of cash and DSUs. When a director retires or otherwise ceases serving as a director, the dollar value of the DSUs in his or her account is divided by the closing price of our common stock on the last date of the director's service, with the resulting number of shares of our common stock issued to the director. Dividend equivalents, representing the value of dividends per share paid on shares of our common stock calculated with reference to the number of DSUs held as of a dividend record date, are reinvested on the respective payable date in the form of additional DSUs credited to the accounts of directors who participate in the DDECP. Fees deferred under the DVDCP accrue earnings at the rate of return of certain bond and equity investment funds managed by an insurance company.
During
2012, Messrs. Anderson, Börjesson, Cardis and Siewert received their retainers and meeting fees in cash and
Mr. Hicks received half of his retainer and meeting fees in cash and the other half in DSUs. The remaining directors received their retainers and meeting fees entirely in DSUs, except for Mr. Mullin who deferred his fees into the DVDCP.
2012 Equity Compensation
Each non-employee director who was a member of our Board on April 26, 2012 received an annual equity grant of approximately $100,000, denominated 50% in restricted stock units ("RSUs") and 50% in stock options, both of which vest ratably over three years, except that all unvested RSUs and stock options held by a director retiring from our Board at or after age 72 fully vest on the retirement date. Each such director received 1,569 RSUs and an option to purchase 6,318 shares of our common stock at an exercise price of $31.87, the average of the high and low prices of our common stock on the date of grant. In connection with his election to our Board on December 6, 2012, Mr. Anderson received an equity grant that was prorated from the date of his election to the date of the Annual Meeting, resulting in his receipt of 688 RSUs and an option to purchase 2,770 shares of our common stock at an exercise price of $33.32, the average of the high and low prices of our common stock on the date of grant.
Matching Gift Program
We match up to $10,000 per year of each non-employee director's contributions to charitable organizations or educational institutions.
Director Stock Ownership
To further align our directors' interests with those of our stockholders, our stock ownership policy requires that non-employee directors acquire and maintain a minimum equity interest in our company equal to the lesser of (i) five times the annual Board retainer (currently $325,000) divided by our stock price or (ii) 6,500 shares.
The Governance Committee reviewed non-employee director stock ownership in February 2013, noting that 11 of our 12 then-serving directors had exceeded the minimum ownership level required by the policy and Mr. Anderson was on track to meet the minimum ownership level within the requisite five years of joining our Board.
31
To our knowledge, based solely on our review of their written representations, none of our directors (i) purchased financial instruments (including prepaid variable forward contracts, equity swaps, collars and exchange funds) designed to hedge or offset any decrease in the market value of our common stock held, directly or indirectly, by them or (ii) pledged any of their shares of common stock to secure personal loans or other obligations, including by holding such shares in a margin account. Based on those facts and forthcoming SEC rules on these matters, we have not formally adopted a policy expressly prohibiting hedging or pledging of shares but expect to do so in accordance with SEC rules.
2013 Director Compensation Program
In February 2013, the Compensation Committee considered the design of our non-employee director compensation program, which had not been changed for over three years. At the Committee's request, Towers Watson reviewed trends in board compensation and assessed the competitiveness of our non-employee director compensation program. The firm analyzed all components of the program, including cash compensation (Board and Committee retainers and meeting fees); equity grants; total direct compensation (annual cash plus equity); and total remuneration (which includes an annualized value of initial-election equity grants); stock ownership guidelines; and the additional retainer for our Lead Independent Director.
Towers
Watson noted that, after remaining unchanged during the economic downturn of 2008 and 2009, U.S. board compensation increased in both 2010 and 2011 due to greater time
requirements and increased accountability, responsibility and risk associated with directorships. Using data from public filings of companies ranked in the Fortune 250-500 with median
annual revenues of $6.6 billion, Towers Watson determined that our total annual remuneration of approximately $195,000 was below the median. As a result, Towers Watson recommended that the
Committee modify the program to maintain its market-competitiveness and continue allowing us to attract qualified directors to fulfill our
Board's oversight functions on behalf of our stockholders. In accordance with the recommendations of its independent compensation consultant, the Compensation Committee recommended approval of the following changes to the program:
Upon the Compensation Committee's recommendation, the Board approved the revised program summarized below, effective as of the Annual Meeting.
2013 NON-EMPLOYEE DIRECTOR COMPENSATION PROGRAM
Annual Board Retainers: |
||||
Base Retainer |
$ | 90,000 | ||
Additional Retainer for Lead Independent Director |
$ | 20,000 | ||
Additional Retainer for Audit Committee Chairman |
$ | 20,000 | ||
Additional Retainer for Compensation Committee Chairman |
$ | 15,000 | ||
Additional Retainer for Governance Committee Chairman |
$ | 15,000 | ||
Additional Retainer for Finance Committee Chairman |
$ | 15,000 | ||
Annual Equity Grant: |
||||
Restricted Stock Units (3-year ratable vesting from May 1) |
$ | 125,000 |
32
Name
|
Fees Earned or Paid in Cash(1) |
Stock Awards(2) |
Option Awards(3) |
Change in Pension Value and Nonqualified Deferred Compensation Earnings(4) |
All Other Compensation(5) |
Total | ||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|
Mr. Alford |
$ 80,000 | $46,609 | $43,935 | | $10,000 | $180,544 | ||||||
Mr. Anderson(6) |
$ 6,916 | $21,435 | $18,174 | | | $ 46,525 | ||||||
Mr. Barker |
$ 99,000 | $46,609 | $43,935 | | $10,000 | $199,544 | ||||||
Mr. Börjesson |
$ 84,500 | $46,609 | $43,935 | | | $175,044 | ||||||
Mr. Cardis |
$109,500 | $46,609 | $43,935 | | $10,000 | $210,044 | ||||||
Mr. Hicks |
$ 93,500 | $46,609 | $43,935 | | $10,000 | $194,044 | ||||||
Mr. Mullin(6) |
$ 78,500 | $46,609 | $43,935 | $36,076 | $10,000 | $215,120 | ||||||
Mr. Noski |
$ 87,500 | $46,609 | $43,935 | | $10,000 | $188,044 | ||||||
Mr. Pyott |
$124,500 | $46,609 | $43,935 | $18,339 | $10,000 | $243,383 | ||||||
Mr. Siewert |
$ 90,500 | $46,609 | $43,935 | | $ 2,290 | $183,334 | ||||||
Ms. Stewart |
$100,000 | $46,609 | $43,935 | | $10,000 | $200,544 | ||||||
Ms. Sullivan(6) |
| | | | | |
Director
|
Roles in Addition to Non-Employee Director
|
Board Retainer |
Committee Chairman Retainer |
Meeting Fees |
||||
---|---|---|---|---|---|---|---|---|
Mr. Alford | Compensation Committee Member | $65,000 | | $15,000 | ||||
Mr. Anderson | None | $ 5,416 | | $ 1,500 | ||||
Mr. Barker | Finance Committee Chairman; Audit Committee Member | $65,000 | $ 7,500 | $26,500 | ||||
Mr. Börjesson | Finance Committee Member; Governance Committee Member | $65,000 | | $19,500 | ||||
Mr. Cardis | Audit Committee Chairman; Finance Committee Member | $65,000 | $15,000 | $29,500 | ||||
Mr. Hicks | Audit Committee Member; Governance Committee Member | $65,000 | | $28,500 | ||||
Mr. Mullin | Finance Committee Member | $65,000 | | $13,500 | ||||
Mr. Noski | Audit Committee Member | $65,000 | | $22,500 | ||||
Mr. Pyott | Lead Independent Director; Compensation Committee Chairman; Governance Committee Member | $85,000 | $12,500 | $27,000 | ||||
Mr. Siewert | Audit Committee Member; Finance Committee Member | $65,000 | | $25,500 | ||||
Ms. Stewart | Governance Committee Chairman; Compensation Committee Member | $65,000 | $ 7,500 | $27,500 |
33
EXECUTIVE COMPENSATION MATTERS
COMPENSATION DISCUSSION AND ANALYSIS
This Compensation Discussion and Analysis (this "CD&A") provides an overview and analysis of the principles and practices underlying our executive compensation program. In Compensation Tables, we provide a series of tables with compensation information for our following named executive officers (our "NEOs") for 2012:
President, Materials Group.
As previously announced, Mr. Clyde will be departing our company effective March 31, 2013.
Stockholders are urged to carefully review and consider this CD&A, together with the information contained in Compensation Tables, in casting their advisory vote to approve our 2012 executive compensation. See Proposal 2Advisory Vote to Approve Executive Compensation.
THIS
CD&A CONTAINS "FORWARD-LOOKING STATEMENTS" WITHIN THE MEANING OF THE PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995. THESE FORWARD-LOOKING STATEMENTS ARE SUBJECT TO CERTAIN
RISKS AND UNCERTAINTIES, WHICH COULD CAUSE ACTUAL RESULTS TO DIFFER MATERIALLY FROM THE RESULTS, PERFORMANCE OR ACHIEVEMENTS EXPRESSED OR IMPLIED BY THE FORWARD-LOOKING STATEMENTS. FOR A DETAILED
DISCUSSION OF THESE RISKS, SEE PART I, ITEM 1A. "RISK FACTORS" AND PART II, ITEM 7.
"MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS" IN OUR 2012 ANNUAL REPORT ON FORM 10-K, FILED ON FEBRUARY 27, 2013 WITH THE SEC ("OUR 2012 ANNUAL REPORT"). THE FORWARD-LOOKING STATEMENTS INCLUDED IN THIS PROXY STATEMENT ARE MADE ONLY AS OF THE DATES INDICATED, AND WE UNDERTAKE NO OBLIGATION TO UPDATE THESE STATEMENTS TO REFLECT SUBSEQUENT EVENTS OR CIRCUMSTANCES.
Our executive compensation program is designed to reflect the Compensation Committee's pay-for-performance philosophy by (i) aligning management's interests with the long-term interests of our stockholders and (ii) providing compensation on the basis of corporate and individual performance that advances our financial goals and strategic objectives, with incentives designed to prevent excessive risk-taking by our NEOs.
Our 2012 Performance
Unless otherwise indicated, the following discussion of our performance is focused on our continuing operations as of the end of our 2012 fiscal year. At year-end, we were engaged in a sale process to divest our Office and Consumer Products (OCP) business and results for that business were classified as discontinued operations; although the pending sale of that business to CCL Industries, Inc. (CCL) also includes our Designed and Engineered Solutions (DES) business, the DES business was included in continuing operations for 2012. In addition, as described in our 2012 Annual Report, segment results have been reclassified to reflect our new operating structure.
For
complete information regarding our 2012 performance, including the definitions of and qualifications for the non-GAAP financial measures used in this CD&A and a
reconciliation of those measures to the most directly comparable GAAP measures, see the 2012 AIP Results table in this CD&A and read "Management's
Discussion and
Analysis of Financial Condition and Results of Operations," in particular the information contained under the heading "Non-GAAP Financial Measures," and the audited consolidated financial
statements and accompanying notes thereto contained in our 2012 Annual Report.
34
Strong Consolidated Financial Results
In May 2012, we communicated to investors our long-term financial targets we plan to realize by the end of 2015. We delivered strong financial performance that met or exceeded each of these targets in 2012, as well as the guidance ranges for adjusted earnings per share (EPS) and free cash flow we provided to our investors in February 2012, as shown in the following table.
|
||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|
|
Financial Metric (non-GAAP) |
|
Long-term Targets |
|
2012 Results |
|
||||||
Organic sales growth* | 3%-5% | 4%* | ||||||||||
Adjusted EPS growth* | 15%-20% | 20%* | ||||||||||
Free cash flow* | $300+ mil. | $312 mil.* |
We achieved the following results in 2012, with strong momentum in the second half of the year:
Our 2012 total shareholder return of 26% outperformed the S&P 500® Index, which reported a total shareholder return of 16% for the year.
We remain committed to substantial earnings growth, a healthy balance sheet and strong free cash flow. For 2013, we expect our Adjusted EPS to grow 15% to 35% over 2012 and we expect to return most of our free cash flow to our stockholders.
Strong Segment Results
The businesses in our Pressure-sensitive Materials (PSM) segment grew organic sales by 4%* in 2012, within our target range for these businesses of 3%-5%. Reported operating margin improved 20 basis points to 8.5%. In addition, the Materials Group exceeded its goal for sales from new products and launched 14 innovations at the industry's biggest trade show, Labelexpo.
Our Retail Branding and Information Solutions (RBIS) businesses had year-over-year organic sales growth of 3%*, within our target range for these businesses of 3%-5%. Reported operating margin improved 80 basis points to 3.6%. The business' RFID inlay manufacturing business increased sales to apparel retailers by more than 70% in 2012, and is now solidly profitable with an annual run rate of sales in excess of $100 million.
Increased Return of Cash to Stockholders
In 2012, we maintained a healthy balance sheet, ending the year with a net debt to earnings before interest, taxes, depreciation and amortization (EBITDA) ratio of 1.8* while further delivering on our commitment to allocate free cash flow to our stockholders through dividend payments and share repurchases. We returned 98% of our 2012 free cash flow (including discontinued operations) to our stockholders through the following means:
* Non-GAAP financial measure. Reconciliation to most directly comparable GAAP measure can be found in 2012 AIP Results table in this CD&A or "Management's Discussion and Analysis of Financial Condition and Results of Operations" in our 2012 Annual Report.
35
Pending Divestiture of OCP and DES Businesses; Sharpened Focus on Core Businesses
In January 2013, we entered into an agreement to sell our OCP and DES businesses to CCL for a total purchase price of $500 million, subject to adjustment in accordance with the terms of the agreement. The transaction is subject to customary closing conditions and regulatory approvals, and is expected to be completed in mid-2013. We expect net proceeds of approximately $400 million from the transaction, which we intend to use to repurchase shares and make an additional pension plan contribution. We believe that the transaction represents the best opportunity to maximize the value of these businesses for our stockholders.
After the sale, we expect to continue to be well-positioned for profitable growth and increased shareholder returns with our talent and resources sharply focused on our industry-leading PSM and RBIS businesses, which have significant strategic advantages, including global reach and scale; broad product portfolios; strength in emerging markets; proprietary technology and process expertise; innovation excellence; and strong relationships with end users and direct customers.
Greater Productivity through Restructuring
In 2012, we initiated a restructuring program to achieve more than $100 million in annualized savings by mid-2013. We launched this program to build on our competitive advantages and further strengthen our ability to deliver our long-term targets. This program involved the following key initiatives:
We realized approximately $20 million (net of transition costs) of the annualized savings from this program in 2012, and expect to realize most of the remaining $80 million in 2013.
2012 Executive Compensation
Strong 2012 Performance Resulted in Financial Modifier of 117% for 2012 AIP Awards and Payout of 117% for Performance Units Eligible for Vesting
While we provide consistent, market-competitive total direct compensation opportunities for our NEOs, the actual compensation realized by them varies year-to-year based on our performance. Our 2012 performance exceeded the target level for each of the performance objectives established by the Compensation Committee for our 2012 Annual Incentive Plan (AIP), resulting in a financial modifier of 117%.
2012 AIP RESULTS VS. TARGETS
|
||||||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
|
Performance Objective |
|
Weigh- ting |
|
2012 Target |
|
2012 Results |
|
%age of Target |
|
||||||||||
Adj. sales growth | 20% | 2.8% | 3.6% | 116% | ||||||||||||||||
Adj. EPS | 60% | $2.01 | $2.08 | 118% | ||||||||||||||||
Free cash flow | 20% | $300 mil. | $312 mil. | 114% |
In addition, we exceeded the target level for two of the three performance objectives established by the Compensation Committee for our 2010-2012 Mid-Term Incentive Plan (MTIP), resulting in an overall payout of 117% of the target number of performance units ("PUs") granted thereunder.
36
2010-2012 MTIP RESULTS VS. TARGETS
|
||||||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
|
Performance Objective |
|
Weigh- ting |
|
Target Set in 2010 |
|
Results Achieved in 2012 |
|
Payout as %age of Target |
|
||||||||||
Sales (compound annual growth rate) |
33% | 3.9% | 4.3% | 152% | ||||||||||||||||
Cumulative EVA (economic value added) |
33% | $414 mil. | $536 mil. | 200% | ||||||||||||||||
Relative TSR(1) (total shareholder return) |
33% | 50th %ile | 8th %ile | 0% |
No Base Salary Increase for CEO/Limited Increases for Other NEOs; No Increases to Bonus Opportunities
Our CEO, at his recommendation, did not receive a base salary increase in 2012. Our other NEOs received limited base salary increases of 4% or less, consistent with the average percentage increase for our other U.S. employees, except for Mr. Butier. Mr. Butier, who was promoted internally to CFO in 2010, received a 9% increase to bring his base salary closer to the market median and the other NEOs' base salary levels. Additionally, our NEOs' target bonus opportunities under the 2012 AIP remained at the same level as in 2011.
2012 NEO Total Realized Compensation
The following table shows the compensation actually earned by our NEOs for 2012. It is not intended, nor should it be considered as, a substitute for the Summary Compensation Table required by SEC regulations. Whereas the Summary Compensation Table includes the change in the actuarial present value of pension benefits to which NEOs are entitled, the Total Realized Compensation Table excludes these amounts because they are based on the assumptions we use for financial reporting purposes and do not reflect amounts paid to or realized by our NEOs. In addition, amounts under the "Stock Awards" and "Option Awards" columns of the Summary Compensation Table reflect the fair value of these awards granted to NEOs based on the awards' grant date value for financial reporting purposes. The Total Realized Compensation Table instead includes any value realized by our NEOs from the exercise of stock options and vesting of RSUs and PUs (before payment of applicable withholding taxes and brokerage commissions).
As shown in the table, the total compensation realized by our CEO was 45% of his total compensation reflected in the Summary Compensation Table and the average total compensation realized by our other NEOs was significantly lower than their average total compensation shown in the Summary Compensation Table. In addition, the total compensation realized by our CEO for 2012 was less than three times the average total compensation realized by our other NEOs.
TOTAL REALIZED COMPENSATION TABLE
Name
|
Salary
|
Non-Equity Incentive Compensation(1) |
Performance Units(2) |
RSUs(3)
|
Stock Options(4) |
All Other Compensation(5) |
Total | |||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Mr. Scarborough |
$ | 1,040,000 | $ | 1,947,000 | $ | 1,675,060 | | | $ | 287,334 | $ | 4,949,394 | ||||||||||
Mr. Butier |
$ | 533,785 | $ | 573,922 | $ | 232,218 | $ | 127,223 | | $ | 122,655 | $ | 1,589,803 | |||||||||
Mr. Clyde |
$ | 546,417 | $ | 387,309 | $ | 459,281 | | $ | 793,253 | $ | 144,929 | $ | 2,331,189 | |||||||||
Mr. Neville |
$ | 539,938 | $ | 381,362 | $ | 436,375 | | | $ | 128,237 | $ | 1,485,912 | ||||||||||
Mr. Nolan |
$ | 567,842 | $ | 750,000 | $ | 459,281 | | | $ | 148,142 | $ | 1,925,265 |
37
EXECUTIVE COMPENSATION BEST PRACTICES
Our executive compensation program incorporates the following best practices, which we believe collectively ensure that the program serves the long-term interests of our stockholders:
38
The Compensation Committee has developed an executive compensation program that ties a substantial majority of compensation to our success in meeting predetermined performance objectives and positively influencing the appreciation of our stock price. The objectives of this strategy are to attract and retain the best possible executive talent, motivate these executives to achieve our short- and long-term financial and strategic goals, align the interests of our executives with those of stockholders and recognize individual contributions in light of our overall business results.
Substantial Majority of NEO Compensation at Risk
The Compensation Committee establishes target total direct compensation to provide our NEOs compensation that aligns with our financial performance over time, with reference to market practices. The Compensation Committee structures our compensation program to reward NEOs based on our corporate performance, as well as the individual executive's contributions (which incorporates the performance of their respective business or function), to motivate our executives and align their compensation with stockholder interests. As shown in dark gray in the following charts, the substantial majority of our NEOs' total direct compensation opportunity in 2012 was incentive-based and at risk.
2012 Target Total Direct Compensation Mix CEO
39
2012 Average Target Total Direct Compensation Mix Other NEOs
CONSIDERATION OF 2012 SAY-ON-PAY VOTE
We provide our stockholders with the opportunity annually to vote to approve our executive compensation. Although the vote is advisory and non-binding, the Compensation Committee considers the outcome of the vote as part of its executive compensation planning process, which also gives consideration to market practices, changes in laws and regulations, the proxy guidelines of our institutional stockholders and the policies of proxy advisory firms.
Active Engagement with Stockholders
At the 2012 Annual Meeting, approximately 83% of the votes cast on our executive compensation proposal approved the 2011 compensation
of our NEOs. Our management continued its long-standing practice of transparency and open dialogue with stockholders both before and after the 2012 Annual Meeting. During 2012, we
proactively contacted our twenty largest institutional stockholders, representing over 60% of our then-outstanding shares, to solicit their views on our executive compensation program and
make management available to answer questions or address concerns based on publicly-available information. As a result of our outreach efforts, we engaged in telephonic discussions with shareholders
representing approximately 30% of our outstanding shares. In addition, we reviewed correspondence submitted by institutional stockholders to our Board and management, discussed matters raised by our
stockholders, assessed market practices, considered the advice and expertise of the Compensation Committee's independent compensation
consultant and reviewed reports issued by proxy advisory firms.
While we believe approval by a substantial majority of our stockholders affirms our overall executive compensation program, the Compensation Committee critically evaluated the results with Towers Watson and management, giving consideration to the proxy guidelines of our institutional stockholders and the policies of proxy advisory firms. The Compensation Committee believes that negative votes were primarily driven by disappointment with our 2011 financial performance and secondarily by our proposal to increase the number of authorized shares issuable under the Equity Plan despite our relatively high burn rate, which is a measure of the number of equity awards granted to employees divided by the number of shares of our outstanding common stock. As we informed our stockholders during our discussions with them, the Compensation Committee believes that our 2011 executive compensation reflected pay-for-performance alignment because (i) the threshold level for the performance objective established by the Committee for the PUs granted under the 2009-2011 MTIP, which was solely to achieve a certain percentile of total shareholder return (TSR, which measures the return that we have provided for our stockholders, including stock price movement and dividends reinvested) relative to the S&P 500® Industrials and Materials subsets, was not achieved, resulting in the cancellation of the PUs and our NEOs realizing no compensation from the grants, and (ii) none of the targets established for our 2011 AIP were achieved, resulting in no AIP awards being paid to our NEOs for that year.
2012 Compensation Committee Actions
No specific component of 2012 NEO compensation was altered based on the Compensation Committee's review of the 2012 vote results and
engagement with stockholders since the vote occurred after the program had been determined in February 2012. However, as part of its overall review of our executive compensation program and as
described in greater detail later in this CD&A, the Compensation Committee determined to establish a more tailored peer group of 50 public companies against which we will measure our relative TSR for
purposes of the PUs granted under the 2012-2014 MTIP in light of the then-pending sale of the OCP business. In addition, given stockholder concerns regarding our burn rate, we began
granting our non-executive employees long-term incentive units ("LTI Units") in lieu of RSUs; these incentive vehicles have similar terms and conditions to RSUs, but are
cash-based rather than equity-based. We also simplified the
40
disclosure in this CD&A to improve clarity and understanding of our executive compensation program and redesigned the corporate governance section of our website to improve clarity and understanding of our governance program.
2013 Compensation Committee Actions
We further considered the 2012 vote results in formulating our executive incentive program for 2013, implementing the following changes, in part to address stockholder concerns:
The Compensation Committee will consider the outcome of the 2013 advisory stockholder say-on-pay vote when planning and determining executive compensation and disclose the nature and extent of such consideration in our 2014 proxy statement. We remain committed to continued engagement with our stockholders to solicit their viewpoints and discuss and demonstrate why we believe our executive compensation program properly aligns to our business strategies and long-term operating and financial performance.
The Compensation Committee welcomes feedback regarding our executive compensation program. Stockholders may communicate with the Compensation Committee by writing to:
David
E. I. Pyott, Chairman
Compensation Committee
c/o Corporate Secretary
Avery Dennison Corporation
150 North Orange Grove Boulevard
Pasadena, California 91103.
The Compensation Committee designs our incentive plans based on our mid- and long-term corporate objectives to provide upside opportunity for exceeding performance targets and downside risk for missing performance targets. In addition, the program balances retention with reward for stockholder value creation, while also ensuring that the elements of the program, individually and in the aggregate, do not encourage excessive risk-taking.
41
The
key elements of our 2012 NEO compensation program are shown in the following table. Although the Compensation Committee is responsible for establishing the
program under its Charter, its annual executive compensation decisions are reviewed and ratified by our independent directors.
2012 EXECUTIVE COMPENSATION PROGRAM
|
||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|
|
Compensation Element |
|
Purpose |
|
Evaluation Criteria |
|
||||||
Base Salary | Provides fixed, monthly income for performing day-to-day responsibilities | Eligible for annual increase, giving consideration to responsibilities of the position; individual experience and prior-year performance; company and business group financial results; internal equity; the competition for executive talent; and salary information from market surveys | ||||||||||
Target AIP Award | Provides variable, cash-based incentive to reward for achievement of annual performance objectives with targets established to motivate our NEOs to achieve our annual financial goals and strategic objectives | Calculated using the following formula: Year-end Base Salary X Target AIP Opportunity (based on market survey data and consistent with total direct compensation positioning strategy) X Financial Modifier (based on corporate performance against objectives determined at the beginning of the year) X Individual Modifier (based on achievement of individual objectives determined at the beginning of the year) |
||||||||||
Target LTI Award (40% PUs, 30% stock options, 30% RSUs) |
Provides variable, equity-based incentive compensation designed to enhance the alignment with stockholder value creation by providing the opportunity for increased equity ownership; realized only if we deliver greater value creation and higher stockholder returns by achieving our long-term business objectives | LTI opportunity based on market survey data and consistent with total direct compensation positioning strategy | ||||||||||
Perquisites | Assist in attracting and retaining our NEOs | Modest perquisites consistent with market practices | ||||||||||
Benefits | Provide a benefit program that is competitive with other companies with which we compete for executive talent to support the recruiting and retention of our NEOs | NEOs are eligible for benefits made available to all our U.S. employees, including benefits under retirement, savings, health and welfare, and disability plans, and participate on the same basis as other employees; NEOs are also eligible for a few benefits only made available to certain employees, primarily our executives |
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Base Salary
In February 2012, the Compensation Committee approved the base salary increases shown in the following table for our NEOs. The amounts in the table do not conform to the amounts set forth in the Summary Compensation Table, which reflects the salary actually earned during 2012, because salary increases, if any, became effective as of April 1, 2012. Increases are generally driven by the NEO's prior-year performance, within the context of the average percentage merit increase provided to our U.S. employees and market salaries for positions with similar scope and responsibility.
2012 BASE SALARY INCREASES
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|
NEO |
|
Previous Base Salary |
|
% Incr. |
|
New Base Salary |
|
Rationale |
|
||||||||||||
Mr. Scarborough | $ | 1,040,000 | 0% | $ | 1,040,000 | At his recommendation, no increase due to below-target 2011 company performance | ||||||||||||||||
Mr. Butier | $ | 500,033 | 9% | $ | 545,035 | Gradual increase to market median since his internal promotion to CFO in 2010 | ||||||||||||||||
Mr. Clyde | $ | 530,502 | 4% | $ | 551,722 | Position salary around market median; consistent with average increase for U.S. employees | ||||||||||||||||
Mr. Neville | $ | 530,000 | 2.5% | $ | 543,250 | Position salary around market median; consistent with average increase for U.S. employees, adjusted downward due to below-target 2011 RBIS performance | ||||||||||||||||
Mr. Nolan | $ | 551,303 | 4% | $ | 573,355 | Position salary around market median; consistent with average increase for U.S. employees |
Incentive Compensation
We structure our incentive compensation to reward our NEOs based on our performance, as well as the individual
executive's contributions (which incorporates the performance of their respective business or function), to motivate our executives and align their interests with those of stockholders generally. The Compensation Committee allocates incentive compensation between cash and equity based on its assessment of our objectives and market practices.
Our incentive compensation for 2012 consisted of a target AIP award based on performance against goals established by the Compensation Committee in February 2012, and target LTI awards granted by the Compensation Committee in February 2012.
2012 AIP Awards
The 2012 AIP was designed to further our pay-for-performance strategy and give management additional incentive to provide for long-term stockholder value creation.
2012 Financial Modifier
The performance objectives for the 2012 AIP were based on financial metrics established and weighted by the Compensation Committee, in consultation with Towers Watson, in February 2012 based on the corporate goals for our 2012 annual operating plan approved by the Board at that time. The performance objectives were designed to be achievable only if we substantially improved upon our 2011 performance by executing our strategies and realizing our stretch targets for sales growth, EPS and free cash flow.
For 2012, the Compensation Committee changed the weightings of the performance objectives from 2011 to reflect management's continued focus on executing its strategies to increase profitability and improve productivity, resulting in adjusted sales growth decreasing from 30% to 20% and adjusted EPS increasing from 50% to 60%.
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2012 AIP PERFORMANCE OBJECTIVES
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---|---|---|---|---|---|---|---|---|---|---|---|---|---|
|
Performance Objective |
|
Weighting |
|
Rationale |
|
|||||||
Adjusted sales growth | 20 | % | Measures growth of our businesses and serves as leading indicator of value creation | ||||||||||
Adjusted EPS | 60 | % | Indicates sustained long-term performance and reflects growth measurement used by stockholders to evaluate our performance | ||||||||||
Free cash flow | 20 | % | Provides the cash to invest in our businesses for the future and deliver strong shareholder returns through dividends and share repurchases |
Consistent with the way in which we measure our financial performance, in evaluating our achievement of these performance objectives, the Compensation Committee has the discretion to exclude the impact, positive or negative, of extraordinary items such as currency translation; acquisitions and divestitures; changes in accounting principles, tax codes or related regulations and rulings; natural disasters, terrorism and war; costs related to the early extinguishment of debt; costs of litigation outside the normal course of business; and non-cash charges. The financial modifier is capped at 200%.
As shown in the following table, we exceeded the target level established for these performance objectives in 2012, resulting in an AIP financial modifier of 117%.
2012 AIP RESULTS
|
Adjusted Sales Growth (weighted 20%) |
Adjusted EPS (weighted 60%) |
Free Cash Flow ($MM) (weighted 20%) |
Financial Modifier |
|||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|
AIP Threshold (50%) |
0.7 | % | $ | 1.81 | $ | 275.0 | |||||||
AIP Target (100%) |
2.8 | % | $ | 2.01 | $ | 300.0 | |||||||
AIP 150% Upside |
5.3 | % | $ | 2.20 | $ | 345.0 | |||||||
AIP 200% Upside (Maximum) |
7.9 | % | $ | 2.40 | $ | 365.0 | |||||||
As reported(1) |
0.2 |
% |
$ |
2.08 |
$ |
352.6 |
|||||||
Impact of currency translation(2) |
3.4 | % | | | |||||||||
As adjusted for impact of currency translation |
3.6 | % | $ | 2.08 | $ | 352.6 | |||||||
Restructuring costs and other items(3) |
| $ | 0.45 | | |||||||||
Discontinued operations(4) |
| $ | (0.45 | ) | $ | (40.4 | ) | ||||||
2012 AIP Performance |
3.6 |
% |
$ |
2.08 |
$ |
312.2 |
|||||||
Percentage of AIP Target Achieved |
116 | % | 118 | % | 114 | % | |||||||
Weighted Percentage Achieved |
23 | % | 71 | % | 23 | % | 117 | % |
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Target AIP Opportunity
The target AIP opportunity for 2012 was 125% and 60% for our CEO and other NEOs, respectively.
2012 NEO Individual Modifiers
Our NEOs are evaluated against financial and strategic goals established in their individual performance plans during the first quarter of the year, with the Compensation Committee approving the CEO's goals for the year and the CEO approving the goals of the other NEOs. These goals reflect our overall business performance as well as the performance of the business group or function that they lead. The NEOs' performance is assessed in February of the following year, measured against their goals and their exercise of our leadership principles in achieving them, giving consideration to the totality of the individual's performance rather than assigning specific weights to any of the applicable performance criteria. Individual modifiers generally do not exceed 150%, although the Compensation Committee may exercise its discretion if it believes a particular individual's performance merits a higher individual modifier.
The Compensation Committee determines the individual modifier for our CEO based on its assessment of his performance. Our CEO recommends the individual modifiers for our other NEOs based on his assessment of their performance and the Compensation Committee considers our CEO's recommendations before approving the individual modifiers for our other NEOs.
For 2012, the Compensation Committee evaluated the performance of our NEOs and determined that they met or exceeded their respective performance objectives established at the beginning of the year, noting their following key achievements:
Based on the above assessment, the Compensation Committee determined the individual modifiers in the following table for our NEOs.
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2012 INDIVIDUAL MODIFIERS
|
||||||||
---|---|---|---|---|---|---|---|---|
|
NEO |
|
Individual Modifier |
|
||||
Mr. Scarborough | 128% | |||||||
Mr. Butier | 150% | |||||||
Mr. Clyde | 100% | |||||||
Mr. Neville | 100% | |||||||
Mr. Nolan | 186%(1) |
Our NEOs received the AIP awards shown in the following table based on corporate and individual performance (which incorporates the performance of their applicable business or function) during 2012.
2012 AIP AWARDS
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|
NEO |
|
2012 YE Base Salary |
|
Bonus Opportunity |
|
Target AIP Award |
|
Financial Modifier |
|
Individual Modifier |
|
Actual AIP Award |
|
||||||||||||||||||||
Mr. Scarborough | $ | 1,040,000 | 125 | % | $ | 1,300,000 | 117 | % | 128 | % | $ | 1,947,000 | ||||||||||||||||||||||
Mr. Butier | $ | 545,035 | 60 | % | $ | 327,021 | 117 | % | 150 | % | $ | 573,922 | ||||||||||||||||||||||
Mr. Clyde | $ | 551,722 | 60 | % | $ | 331,033 | 117 | % | 100 | % | $ | 387,309 | ||||||||||||||||||||||
Mr. Neville | $ | 543,250 | 60 | % | $ | 325,950 | 117 | % | 100 | % | $ | 381,362 | ||||||||||||||||||||||
Mr. Nolan | $ | 573,355 | 60 | % | $ | 344,013 | 117 | % | 186 | % | $ | 750,000 |
2012 LTI Awards
LTI awards are granted every year on the day our Board has its February meeting. The Compensation Committee does not offset the loss or gain of prior year grants in determining current year grants as doing so would compromise the intended risk/reward nature of these incentives.
Target LTI Opportunity
For 2012, the target opportunities were 420% for our CEO and 180% for our other NEOs, in each case of prior year-end base salary. The target 2012 LTI award opportunity represented approximately 78% and 75% of our CEO's and other NEOs' total incentive compensation, respectively.
LTI Award Vehicles
In 2012, after discussions with Towers Watson, the Compensation Committee awarded LTI awards to our NEOs in the following forms:
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The Compensation Committee believes that these incentives appropriately align executive compensation with the long-term interests of stockholders because appreciation of our stock price directly impacts the value realized upon the exercise of stock options and the number of shares that may be payable with respect to the vesting of PUs given that relative TSR is the sole performance objective. RSUs further retention goals because restrictions lapse ratably over four years and unvested RSUs are generally forfeited upon resignation or other termination.
2012 NEO LTI Awards
Our NEOs received the 2012 LTI awards shown in the following table. Actual values awarded exceeded adjusted target values based on the fair market value of our common stock on the February 23, 2012 date of grant.
The following 50 companies comprised the peer group for purposes of the 2012-2014 MTIP: A. Schulman, Inc.; Albermarle Corp.; AptarGroup, Inc.; Ashland Inc.; Ball Corporation; Bemis Company, Inc.; Boise Inc.; Cabot Corp; Celanese Corporation; Clearwater Paper Corporation; Crown Holdings Inc.; Cytec Industries Inc.; Eastman Chemical Co; Ecolab Inc.; Ferro Corp.; FMC Corp; Graphic Packaging Holding Company; Greif Inc.; HB Fuller Co.; Huntsman Corporation; International Flavors & Fragrances Inc.; Kraton Performance Polymers Inc.; MeadWestvaco Corporation; Minerals Technologies Inc.;
New Market Corp.; Olin Corp.; OM Group Inc.; OMNOVA Solutions Inc.; Owens-Illinois Inc.; Packaging Corp. of America; PH Glatfelter Co.; PolyOne Corporation; PPG Industries Inc.; Rock-Tenn Co.; Rockwood Holdings Inc.; RPM International Inc.; Sealed Air Corporation; Sensient Technologies Corporation; Sigma-Aldrich Corporation; Silgan Holdings Inc.; Solutia Inc.; Sonoco Products Co.; Stepan Company; Temple-Inland Inc.; The Sherwin Williams Company; The Valspar Corporation; Valhi Inc.; Verso Paper Corp.; W.R. Grace & Co.; and Wausau Paper Corp.
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2012 LTI AWARDS
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|
NEO |
|
2011 YE Base Salary |
|
Target LTI Oppor. |
|
Target LTI Value |
|
Adjustment Factor(1) |
|
PUs (#) |
|
PUs ($) |
|
Stock Options (#) |
|
Stock Options ($) |
|
RSUs (#) |
|
RSUs ($) |
|
||||||||||||||||||||||||||||||||
Mr. Scarborough | $ | 1,040,000 | 420 | % | $ | 4,368,000 | 0 | % | 60,688 | $ | 2,089.488 | 183,273 | $ | 1,298,306 | 45,516 | $ | 1,265,996 | |||||||||||||||||||||||||||||||||||||
Mr. Butier | $ | 500,033 | 180 | % | $ | 900,059 | 25 | % | 15,631 | $ | 538,175 | 47,206 | $ | 334,407 | 11,724 | $ | 326,095 | |||||||||||||||||||||||||||||||||||||
Mr. Clyde | $ | 530,502 | 180 | % | $ | 954,903 | 25 | % | 16,584 | $ | 570,987 | 50,082 | $ | 354,781 | 12,438 | $ | 345,954 | |||||||||||||||||||||||||||||||||||||
Mr. Neville | $ | 530,000 | 180 | % | $ | 954,000 | 25 | % | 16,568 | $ | 570,436 | 50,035 | $ | 354,448 | 12,426 | $ | 345,621 | |||||||||||||||||||||||||||||||||||||
Mr. Nolan | $ | 551,303 | 180 | % | $ | 992,345 | 25 | % | 17,234 | $ | 593,366 | 52,046 | $ | 368,694 | 12,926 | $ | 359,528 |
2010-2012 MTIP Performance Units Eligible for Vesting
The PUs granted to our NEOs under our 2010-2012 MTIP were eligible for vesting based 33% on our relative TSR compared to the other companies in the S&P 500® Industrials and Materials subsets; 33% on our sales compound annual growth rate (CAGR); and 33% on our cumulative economic value added (EVA, which measures the cumulative profit we earned over the three-year period less the cost of financing our capital), in each case as of year-end 2012. As shown below, while one of the objectives did not reach the threshold level of performance, the target level for two of the three performance objectives was substantially exceeded; as a result, the PUs were paid out at 117% of target.
2010-2012 MTIP RESULTS
|
|
|
|
|
|
|
|
|
|
|
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---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
|
|
|
Sales CAGR (33%) |
|
Cumulative EVA (33%) |
|
Relative TSR (33%)(1) |
|
|
|
||||||||||
Threshold | 2.6% | $373 mil. | 40th %ile | |||||||||||||||||
Target | 3.9% | $414 mil. | 50th %ile | |||||||||||||||||
Maximum | 4.6% | $455 mil. | 80th %ile | |||||||||||||||||
MTIP Performance | 4.3% | $536 mil. | 8th %ile | |||||||||||||||||
MTIP Payout | 152% | 200% | 0% | 117% |
Incentive Compensation Clawback
In the event of fraud or other intentional misconduct on the part of an NEO that necessitates a restatement of our financial results, the NEO would be required to reimburse our company for any AIP or LTI awards paid or issued to him in excess of the amount that would have been paid or issued based on the restated financial results. These remedies would be in addition to, not instead of, any actions imposed by law enforcement agencies, regulators or other authorities. This policy is one of the terms and conditions in both our AIP and our Equity Plan. It is contractually acknowledged by our NEOs upon the execution of their LTI award agreements, which also expressly incorporate the clawback policy.
While compliance with applicable laws and regulations is a cornerstone of our values and ethics, the Compensation Committee approved our incentive compensation clawback policy in December 2009 to subject incentive compensation to forfeiture if our results are not achieved consistent with our high ethical standards. The Compensation Committee expects that it will review and modify the policy as may be required to comply with NYSE listing standards based on SEC rules expected to be issued in 2013.
Perquisites
In 2012, our NEOs received an average of $79,060 in perquisites, making them a relatively insignificant component of their overall compensation. We do not reimburse our NEOs for the tax consequences of their receipt of perquisites.
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The Compensation Committee periodically reviews the perquisites provided to our NEOs and makes any changes it determines are appropriate to reflect market practices.
Executive Benefit Allowance
The Compensation Committee believes that providing U.S. executives a flat annual executive allowance reduces the expenses associated with administering a variety of separate perquisites and provides senior executives with greater flexibility to select perquisite-type benefits based on their needs or preferences. The 2012 executive benefit allowance was $70,000 for our CEO and $65,000 for our other NEOs. These amounts were taxable and not grossed-up for taxes.
Financial Counseling Reimbursement
Our CEO and other NEOs are eligible for a separate reimbursement for financial counseling and tax preparation expenses of up to $25,000 and $15,000 per year, respectively. These amounts are paid only to the extent actually used, and are taxable compensation to the NEO. These amounts are also not subject to gross-up for taxes.
Annual Physical Examination
Our NEOs are strongly encouraged to have an annual physical examination, which we pay for because their maintaining good overall health benefits our company and our stockholders. This benefit is not taxable to the NEO.
Benefits
Defined Retirement Benefits
We provide retirement benefits for eligible employees under our pension plan. We also provide them with additional retirement benefits under our benefit restoration plan. Our NEOs participate in these plans subject to the same eligibility and benefit terms as our other U.S. employees. These plans are administered by our Retirement Planning Committee, consisting of members of management, and not the Compensation Committee.
All NEOs, except Mr. Neville, currently are eligible for benefits under these plans. Because we froze benefits for the active participants under these plans as of December 31, 2010, none of our NEOs accrued retirement benefits during 2012. For additional information regarding these plans and accrued NEO benefits thereunder, see Pension Benefits in Compensation Tables.
Executive Retirement Benefits
We have a supplemental executive retirement plan that provides designated executives with supplemental benefits upon retirement to induce them to remain with our company and further our long-term growth. Our CEO is the only NEO who is a participant under the plan, and the Compensation Committee does not currently intend to designate any of our other NEOs as a participant in the plan.
Our CEO's benefits under the supplemental executive retirement plan were frozen based on his average compensation as of December 31, 2010. As a result, his plan benefits generally would commence upon the earlier of his turning 60 and his separation from service at a benefit level of 62.5% of his average compensation as of December 31, 2010, reduced by the benefits to which he would be entitled from our other retirement plans, our company match to his contributions to our employee savings plan, fixed amounts representative of his contributions plus interest to our deferred compensation plans, and estimated Social Security payments.
For additional information on the supplemental executive retirement plan and our CEO's accrued benefits thereunder, see Pension Benefits in Compensation Tables.
Defined Contribution Benefits
Our NEOs are eligible to participate in our qualified 401(k) savings plan, which permits U.S. employees to defer the lesser of 25% of their eligible earnings and the limit prescribed by the Internal Revenue Service to the plan on a before-tax basis. Employee deferrals are immediately vested upon contribution and we make a contribution up to 6% of an employee's eligible compensation, 3% of which is an automatic contribution and up to 3% of which is a match of 50% of the employee's contributions up to 6%, subject to certain other Internal Revenue Code ("Code") limits. Participants vest in company contributions to their savings plan account after two years of service.
Employees are immediately eligible to participate in the savings plan, and all our NEOs currently participate in the plan. Our NEOs participate in these plans subject to the same eligibility and benefit terms and conditions as our other U.S. employees. The plan is administered by our Retirement Planning Committee, consisting of members of management, and not the Compensation Committee.
49
Nonqualified Deferred Compensation Benefits
Our NEOs are eligible to participate in our executive variable deferred retirement plan, which allows eligible employees to defer up to 75% of their base salary and up to 90% of their AIP award. The plan provides NEOs and other eligible employees with a long-term capital accumulation opportunity because savings accumulate on a pre-tax basis. Participating executives may select from among a number of investment opportunities, including fixed income and mutual fund alternatives. Deferrals are 100% vested.
We made an annual contribution in 2012 to the deferred compensation account of any employee who earned eligible compensation over the Code compensation limit in 2011 equal to 6% of 401(k) eligible earnings in excess of the Code compensation limit. This benefit was designed to supplement 401(k) contributions that are limited under the Code. This contribution was added to the account of each active employee as of December 31, 2011 who met the eligibility criteria, which included all our NEOs, in early 2012.
Our CEO also participated in deferred compensation plans that are no longer available for new deferrals. None of our currently open plans offer investment options that provide above-market interest rates.
For additional information regarding our deferred compensation plans and accrued NEO benefits thereunder, see Nonqualified Deferred Compensation Benefits in Compensation Tables.
Retiree Medical Benefits
Under our retiree medical plan, certain retirees, including our NEOs, may be eligible for medical coverage until they are eligible for Medicare if they (i) elect to retire immediately following separation of service; (ii) receive a benefit from the defined benefit retirement plan; and (iii) are age 55 or older with 15 or more years of service. We share the cost for this coverage with retirees who are at least age 60 and have 20 years of service, except that medical premiums for eligible retirees who retire after December 31, 2013 will no longer be subsidized.
Life Insurance Benefits
In addition to the $50,000 in life insurance benefits we provide to all U.S. employees, our NEOs are provided with supplemental life
insurance benefits equal to three times the
NEO's base salary less $50,000, up to a maximum coverage amount of $1 million.
Personal Excess Liability Insurance Benefits
We provide $3 million of personal excess liability insurance coverage to our NEOs, with the option for them to purchase up to $25 million of coverage at their own expense. Personal excess liability coverage is similar to umbrella insurance, providing an additional layer of liability coverage that supplements the coverage provided by the individual's personal liability insurance. In order to receive any benefit from the personal excess liability coverage, the individual must maintain certain minimum coverage requirements under a personal liability policy.
The rights of our NEOs in the event of termination not for cause are governed by our Executive Severance Plan (the "Severance Plan") and our Key Employee Change of Control Severance Plan (the "COC Severance Plan"). We use these plans, rather than individually negotiated agreements, to provide us with the flexibility to change the severance benefits for which our NEOs are eligible to reflect evolving market practices without the need to obtain the individual consent of our NEOs. In addition, this plan-based approach eliminates the time and expense it would require to individually negotiate separation payments and ensures that our NEOs are eligible for benefits that are comparable to employees with similar levels of responsibility.
For additional information regarding the Severance Plan, the COC Severance Plan and potential NEO benefits under these plans, see Potential Payments Upon Termination or Change of Control in Compensation Tables.
Severance Following Involuntary Termination Not for Cause
Under the Severance Plan, our NEOs are eligible to receive severance benefits upon involuntary termination of employment not for "cause," determined in accordance with the terms and subject to the conditions of the plan.
In the event of a qualifying termination of employment, our CEO would be eligible to receive two times the sum of his annual pay, his highest AIP award received in the preceding three years and the cash value of 12 months of his qualified medical and dental benefits, and each of our other NEOs would be eligible to receive one times his respective sum of
50
these amounts. All NEOs would also be eligible to receive up to $25,000 in outplacement services for up to one year following termination of employment. Any payments made under the Severance Plan would be offset by any payments received by the NEO under any statutory, legislative and regulatory requirement or, if applicable, the COC Severance Plan.
Severance Following Change of Control
Under the COC Severance Plan, our NEOs are eligible for severance payments upon termination of employment not for "cause" or by the executive for "good reason" within 24 months of a "change of control" of our company, determined in accordance with the terms and subject to the conditions of the plan.
In the event of a qualifying termination of employment following a change of control, our CEO would be eligible to receive three times the sum of his annual pay and his highest AIP award received in the preceding three years, as well as the cash value of 36 months of his qualified medical and dental benefits. Each of our other NEOs would be eligible to receive two times the sum of his annual pay and his highest annual AIP award received in the preceding three years, as well as the cash value of 24 months of his qualified medical and dental benefits. Each of our NEOs would also be eligible to receive a pro-rata AIP award for the year of termination based on the highest AIP award received by him in the preceding three years and up to $25,000 in outplacement services for up to one year following termination of employment. Under the Equity Plan, unvested equity awards granted to our NEOs after the 2012 Annual Meeting would vest only in the event of termination of service within 24 months after the change in control; however, unvested equity awards granted to them prior to the 2012 Annual Meeting would vest on a change in control in accordance with the terms of the Equity Plan in effect on the dates of grant. Any payments under the COC Severance Plan would be offset by any payments received by the NEO under the Severance Plan and any other statutory, legislative and regulatory requirement.
Our NEOs are not eligible to receive any excise tax gross-up on amounts payable under the COC Severance Plan. However, if an NEO would otherwise incur excise taxes under Section 4999 of the Code, the NEO's payments under the COC Severance Plan may be reduced at his option so that no excise taxes would be due.
None of our NEOs has an employment agreement. The absence of employment agreements reflects our pay-for-performance philosophy; if an NEO is no longer performing at the expected level, he can be terminated immediately without receiving a contractually-guaranteed payment.
To further align their interests with those of our stockholders, our stock ownership policy requires that our CEO and other NEOs acquire and maintain a minimum equity interest in our company equal to the lesser of (i) five and three times their annual base salary, respectively, or (ii) 95,000 and 27,000 shares, respectively.
The Compensation Committee reviewed executive ownership levels in December 2012 and determined that our CEO and three of our other NEOs had exceeded their respective guideline level required by the policy. Although he had not yet met his requirement, Mr. Neville was on track to achieve the level by January 1, 2015, as required by the policy.
NO HEDGING OR PLEDGING BY NEOS
To our knowledge, based solely on our review of their written representations, none of our executive officers (i) purchased financial instruments (including prepaid variable forward contracts, equity swaps, collars and exchange funds) designed to hedge or offset any decrease in the market value of our common stock held, directly or indirectly, by them or (ii) pledged any of their shares of common stock to secure personal loans or other obligations, including by holding such shares in a margin account. Based on those facts and forthcoming SEC rules on these matters, we have not formally adopted a policy expressly prohibiting hedging or pledging of shares but expect to do so in accordance with the SEC rules when issued.
INDEPENDENT BOARD OVERSIGHT AND EXPERTISE
Our Board believes that hiring and retaining effective executives and providing them with market-competitive incentives are essential
to the success of our company and advance the interests of our stockholders. The Compensation Committee, which is comprised solely of independent directors, has responsibility for establishing and
implementing our executive compensation program. For a
51
detailed description of the Compensation Committee's responsibilities, see Compensation and Executive Personnel Committee in Corporate Governance Policies and Practices.
The Compensation Committee has retained Towers Watson, an independent executive compensation consultant, to assist with designing our incentive compensation program and provide information regarding compensation best practices. Representatives of Towers Watson were present at every Compensation Committee meeting held in 2012, and may be consulted in between meetings at the Committee's discretion.
During 2012, Towers Watson performed the following services for the Compensation Committee:
ROBUST PLANNING AND EVALUATION PROCESSES
Total Direct Compensation Positioning
The Compensation Committee aims to position total direct compensation for NEOs at or around the median of companies similar in size, global scope and complexity with which we compete for executive talent. Total direct compensation includes base salary plus target AIP opportunity and target LTI opportunity. The Compensation Committee believes this positioning is appropriate given our business portfolio mix, product diversity and the global nature of our operations, which require our executives to have a wide range of business leadership experience and skills.
The Compensation Committee aims to have base salaries at the lower end of the third quartile and closer to the market median, with the substantial majority of NEO compensation consisting of incentive compensation to advance the Compensation Committee's pay-for-performance philosophy. This methodology drives higher realized compensation when our financial performance is strong and lower realized compensation when our financial performance is weaker. In addition, it provides the Compensation Committee with the flexibility to respond to changing business conditions, manage compensation in accordance with career progression, and adjust compensation to reflect differences in executive experience and performance.
Use of Market Survey Data
The Compensation Committee regularly reviews market survey data to target total direct compensation, looking at a broad cross section of U.S. companies to reflect the broad talent market across which we seek our executives, as disclosed in response to executive compensation surveys. Each year, the Compensation Committee reviews results from surveys prepared by third parties to understand market compensation practices and assess our competitiveness, in some cases narrowing the scope of the results to account for variations caused by company size.
In
February 2012, the Compensation Committee reviewed industry-wide data from the following published compensation surveys, with executive matches based on job and functional
responsibility: (i) the most recent Towers Watson U.S. Compensation Database General Industry Database, which was narrowed in scope to focus on the data of the 68 participants with
$6 billion to $10 billion in annual revenues, and (ii) the most recent Hewitt Total
52
Compensation Measurement Survey, which included data for 464 public and private companies that was not narrowed in scope. The Compensation Committee believed it was appropriate to use the Hewitt survey data, in conjunction with the more narrowly focused Towers Watson survey data, as a second point of reference. The Compensation Committee reviewed the data from each survey on an aggregated basis, with no individual consideration of either survey's respective component companies, which were not determined or known by the Compensation Committee.
The Compensation Committee does not benchmark to a particular percentile in positioning total direct compensation, rather it uses the market survey data as a reference point, giving consideration to such factors as tenure, individual performance, any unique circumstances of the NEO's position based on the individual's responsibilities, market factors, and succession and retention considerations. In 2012, the target total direct compensation of our NEOs fell around the median of the Hewitt and Towers Watson data.
Use of Peer Groups
For determining our relative TSR for purposes of the vesting of PUs granted under the 2010-2012 MTIP and the 2011-2013 MTIP, the Compensation Committee used a peer group comprised of companies in the S&P 500® Industrials and Materials subsets, the constituents of which are publicly available. We are a member of the S&P 500® Industrials subset. For determining our relative TSR for purposes of vesting PUs granted under the 2012-2014 MTIP, the Compensation Committee used a peer group comprised of 50 companies in the United States satisfying objective criteria for industry classification and revenue size. The Compensation Committee does not utilize a peer group for any other purpose.
Annual Performance Review
The Compensation Committee reviews and evaluates our CEO's annual performance and determines any base salary adjustment and AIP and LTI
awards, taking into account our performance, his performance against objectives established at the beginning of the year, his self-assessment of his performance and market reference and
other data provided by Towers Watson. Our CEO is not involved in the decisions regarding his own compensation, which are determined by the Compensation Committee meeting in executive session with
Towers Watson. Our CEO makes compensation recommendations, including proposed
salary adjustments and incentive awards, to the Compensation Committee for our other NEOs based on his annual review of their performance. These recommendations are provided to the Compensation Committee, but the Committee retains the discretion to approve different salary adjustments and incentive compensation than what our CEO has recommended.
Our CEO, CFO and Chief Human Resources Officer participate during portions of the meeting during which the Compensation Committee reviews and recommends performance objectives for our LTI awards, analyzes performance against these objectives, and assesses changes to our executive compensation program.
Use of Tally Sheets
In determining executive compensation, the Compensation Committee reviews tally sheets for each NEO designed to assist the Committee with understanding the actual values of the compensation and benefits for which our NEOs may be eligible. The tally sheets include the following information for the most recently completed year, as well as the previous two years:
The
Compensation Committee believes that tally sheets are useful in determining compensation because they provide a historical perspective on NEO compensation and
53
reflect information that will be included in our proxy statement.
TAX AND ACCOUNTING IMPLICATIONS OF EXECUTIVE COMPENSATION
The Compensation Committee aims to compensate our NEOs in a manner that is tax effective for our company. We account for executive compensation as required by generally accepted accounting principles in the United States.
Code Section 162(m)
Under the 1993 Omnibus Budget Reconciliation Act and Code Section 162(m), our federal income tax deductions for executive compensation are limited to the extent total compensation for certain executive officers exceeds $1 million in any one year, unless it qualifies as "performance-based." To qualify as performance-based, compensation must be based solely upon the achievement of objective performance goals and made under a plan that is administered by a compensation committee comprised solely of "outside directors." In addition, the material terms of the plan must be disclosed to and approved by our stockholders and the Compensation Committee must certify that the performance goals were achieved before payments can be made.
Our Senior Executive Annual Incentive Plan (SEAIP) was designed to comply with the provisions of Section 162(m) and was approved by our stockholders in 2009. Under the SEAIP, our NEOs are eligible to receive a maximum annual cash incentive compensation award based on a specified percentage of our gross profit less marketing, general and administrative expenses, in each case as reported on our consolidated statement of operations for the applicable fiscal year. The Compensation Committee annually reviews the SEAIP award ceiling and may exercise its discretion to decrease, but not increase, an NEO's award.
The
Compensation Committee has designed certain of our compensation programs to comply with Section 162(m) of the Code and related regulations so that total compensation paid to
any employee covered by Section 162(m) generally should not exceed $1 million in any one year, except for compensation payments that qualify as "performance-based." Although the
Compensation Committee believes that deductibility of executive compensation is an important consideration, it reserves the right to approve executive compensation arrangements that
are not fully tax deductible if it believes that doing so is in the best interests of our company and our stockholders.
Code Section 409A
Nonqualified deferred compensation must be deferred and paid under plans or arrangements that satisfy the requirements of Code Section 409A with respect to the timing of deferral elections and payments and certain other matters. Failure to satisfy these requirements could expose individuals to accelerated income tax liabilities, penalty taxes and interest on their compensation deferred under these plans. As a general matter, we design and administer our compensation and benefit plans and arrangements so that they are either exempt from, or satisfy the requirements of, Section 409A.
Code Section 280G
Code Section 280G disallows a tax deduction with respect to excess parachute payments to certain executives of companies that undergo a change in control. In addition, Code Section 4999 imposes a 20% penalty on the individual receiving the excess payment. Parachute payments are compensation that is linked to or triggered by a change in control and may include, but are not limited to, AIP awards, severance payments, certain fringe benefits, and payments and acceleration of vesting of LTI awards. Excess parachute payments are parachute payments that exceed a threshold determined under Section 280G based on the executive's prior compensation.
The Compensation Committee considers the costs to us of providing executive compensation, including the potential impact of Section 280G.
Accounting Standards
Accounting Standards Codification Topic 718, "Compensation Stock Compensation" (ASC 718) requires us to recognize an expense for the fair value of LTI awards. Grants of these awards are accounted for under ASC 718. The Compensation Committee acknowledges the accounting implications of significant compensation decisions, especially in connection with decisions related to our LTI award plans and grants. As accounting standards change, the Compensation Committee may revise our executive compensation program as appropriate to manage the accounting expenses associated with equity awards.
54
EXECUTIVE COMPENSATION MATTERS
COMPENSATION AND EXECUTIVE PERSONNEL COMMITTEE REPORT
The Compensation and Executive Personnel Committee of the Board of Directors has reviewed and discussed the Compensation Discussion and Analysis required by Item 402(b) of Regulation S-K with management and, based on its review and these discussions, has recommended to the Board of Directors that the Compensation Discussion and Analysis be included or incorporated by reference in the Company's 2012 Annual Report on Form 10-K and 2013 proxy statement.
David
E. I. Pyott, Chairman
Bradley A. Alford
Julia A. Stewart
This Compensation and Executive Personnel Committee Report does not constitute soliciting material and should not be deemed filed or incorporated by reference into any of our filings under the Securities Act of 1933, as amended (the "Securities Act") or the Exchange Act, whether made before or after the date hereof, unless specifically incorporated by reference therein.
55
EXECUTIVE COMPENSATION MATTERS
Summary Compensation Table
The following table shows the compensation earned by or awarded to our NEOs during 2012, 2011 and 2010 in accordance with SEC regulations. Compensation as shown in the table does not necessarily reflect the compensation actually realized by our NEOs for these years. For example, the amounts set forth under "Stock Awards" do not represent the actual amounts realized by our NEOs, rather they represent the aggregate grant date fair value for financial reporting purposes of PUs granted in those years (which are subject to our achievement of certain performance objectives measured at the end of a three-year period and ultimately may result in no such compensation being realized by the
NEO), and, for 2012, also of RSUs. In addition, the amounts under "Change in Pension Value and Nonqualified Deferred Compensation Earnings" primarily reflect the change in the actuarial present value of accumulated pension benefits based on the assumptions we use for financial reporting purposes, and do not reflect amounts paid to or realized by our NEOs. The Total Realized Compensation Table in our CD&A contains information regarding the compensation realized by our NEOs for 2012 and is provided as a supplement to, not as a substitute for, the following Summary Compensation Table prepared in accordance with SEC regulations.
Name and Principal Position |
Year |
Salary(1) |
Stock Awards(2) |
Option Awards(3) |
Non-Equity Incentive Plan Compensation(4) |
Change in Pension Value and NQDC Earnings(5) |
All Other Compensation(6) |
Total |
||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Dean A. Scarborough | 2012 | $1,040,000 | $3,355,484 | $1,298,306 | $1,947,000 | $3,162,525 | $287,334 | $11,090,649 | ||||||||
Chairman, President & | 2011 | $1,018,333 | $1,766,940 | $2,357,500 | | $1,953,764 | $175,797 | $ 7,272,334 | ||||||||
Chief Executive Officer | 2010 | $ 965,000 | $1,010,217 | $3,822,160 | $2,150,000 | $4,051,215 | $145,073 | $12,143,665 | ||||||||
Mitchell R. Butier |
2012 |
$ 533,785 |
$ 864,270 |
$ 334,407 |
$ 573,922 |
$ 164,961 |
$122,655 |
$ 2,594,000 |
||||||||
Senior Vice President & | 2011 | $ 491,688 | $ 343,796 | $ 614,298 | | $ 41,437 | $ 94,932 | $ 1,586,151 | ||||||||
Chief Financial Officer | 2010 | $ 425,000 | $ 540,788 | $ 378,472 | $ 530,414 | $ 165,872 | $ 56,518 | $ 2,097,064 | ||||||||
Timothy S. Clyde |
2012 |
$ 546,417 |
$ 916,941 |
$ 354,781 |
$ 387,309 |
$ 317,002 |
$144,929 |
$ 2,667,379 |
||||||||
President, Specialty | 2011 | $ 525,334 | $ 372,740 | $ 582,774 | | $ 258,350 | $106,262 | $ 1,845,460 | ||||||||
Materials and New | 2010 | $ 510,000 | $ 277,001 | $ 464,116 | $ 618,000 | $ 299,076 | $ 82,763 | $ 2,250,956 | ||||||||
Growth Platforms | ||||||||||||||||
R. Shawn Neville |
2012 |
$ 539,938 |
$ 916,057 |
$ 354,448 |
$ 381,362 |
$ 538 |
$128,237 |
$ 2,320,580 |
||||||||
President, | 2011 | $ 520,000 | $ 361,886 | $ 727,458 | | $ (2,086) | $ 95,301 | $ 1,702,559 | ||||||||
Retail Branding and | 2010 | $ 491,667 | $ 263,176 | $1,085,518 | $ 600,000 | $ 1,933 | $ 75,476 | $ 2,517,770 | ||||||||
Information Solutions | ||||||||||||||||
Donald A. Nolan |
2012 |
$ 567,842 |
$ 952,894 |
$ 368,694 |
$ 750,000 |
$ 70,426 |
$148,142 |
$ 2,857,998 |
||||||||
President, | 2011 | $ 542,535 | $ 379,976 | $ 715,784 | | $ 43,749 | $116,761 | $ 1,798,805 | ||||||||
Materials Group | 2010 | $ 516,667 | $ 277,001 | $1,323,593 | $ 630,000 | $ 121,187 | $ 89,334 | $ 2,957,782 |
56
Amounts
include the grant date fair value of PUs, without adjustment for forfeitures, that are payable in shares of our common stock at the end of a three-year period provided that certain
performance objectives are achieved as of the end of the period. Over the period, the number of issuable shares of our common stock is adjusted based upon the probability of our achieving these
performance objectives. The actual number of
shares issued can range from 0% to 200% of the target shares at the time of grant. The single measure that determines the number of units to be earned for the PUs granted during 2012 is our TSR,
compared with the average TSR of companies in the designated peer group, computed over the three-year performance period (2012-2014) applicable to the award, which is a market
condition under ASC 718. Since these awards do not have performance conditions as defined under ASC 718, they have no maximum grant date fair values that differ from the fair values presented in the
table above. The fair value of PUs was determined as of the date of grant using the Monte-Carlo simulation method, which utilizes multiple input variables to estimate the probability of meeting the
performance objectives established by the Compensation Committee for the award, including the expected volatility of our stock price and other assumptions appropriate for determining fair value.
In 2012 (and in 2010 for Mr. Butier only), amounts also include the grant date fair value of RSUs, without adjustment for forfeitures. These RSUs vest ratably over four years. The fair value of
these RSUs was determined based on the closing price of our common stock on the grant date, adjusted for foregone dividends.
Grant Year
|
Risk-Free Interest Rate |
Expected Stock Price Volatility |
Expected Dividend Yield |
Expected Option Term |
Weighted- average Fair Value Per Share of Option Award |
|||||
---|---|---|---|---|---|---|---|---|---|---|
2012 | 1.82% | 32.81% | 3.30% | 6.0 yrs | $7.08 | |||||
2011 |
2.22% |
30.70% |
2.76% |
6.2 yrs |
$9.45 |
|||||
2010 |
2.61% |
31.99% |
2.51% |
6.0 yrs |
$8.76 |
|
Perquisites | Benefits | |
|||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Name
|
Executive Benefit Allowance |
Financial Planning |
Other*
|
Company Match, Employee Savings Plan |
Company Match, Deferred Comp. Plan |
Excess Life Insurance |
Executive Long-Term Disability |
Executive Liability |
Total
|
|||||||||
Mr. Scarborough | $70,000 | $23,405 | $7,500 | $7,500 | $175,424 | $1,440 | $1,592 | $473 | $287,334 | |||||||||
Mr. Butier |
$65,000 |
|
|
$7,500 |
$ 46,650 |
$1,440 |
$1,592 |
$473 |
$122,655 |
|||||||||
Mr. Clyde |
$65,000 |
$15,000 |
|
$7,500 |
$ 53,924 |
$1,440 |
$1,592 |
$473 |
$144,929 |
|||||||||
Mr. Neville |
$65,000 |
$ 1,300 |
|
$7,500 |
$ 52,524 |
$1,440 |
|
$473 |
$128,237 |
|||||||||
Mr. Nolan |
$65,000 |
$15,000 |
$3,095 |
$7,500 |
$ 54,042 |
$1,440 |
$1,592 |
$473 |
$148,142 |
57
The following table provides information regarding grants of plan-based incentive awards made to our NEOs during 2012.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
All Other Stock Awards: Number of Shares of Stock or Units (#) |
|
|
|
|
|
|
|
|||||||||||||||||||||||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
All Other Option Awards: Number of Securities Underlying Options (#) |
|
|
|
|
|
||||||||||||||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exercise or Base Price of Option Awards ($) |
|
|
|
|||||||||||||||||||||||||||||||||||||||
|
|
|
|
|
|
|
Estimated Future Payouts Under Non-Equity Incentive Plan Awards ($)(1) |
|
Estimated Future Payouts Under Equity Incentive Plan Awards (#)(2) |
|
|
|
|
Grant Date Fair Value of Stock and Option Awards ($)(3) |
|
||||||||||||||||||||||||||||||||||||||||||||||||
|
|
|
Award Type |
|
Grant Date |
|
|
|
|
|
|
|
|||||||||||||||||||||||||||||||||||||||||||||||||||
|
Name |
|
|
|
Threshold |
|
Target |
|
Maximum |
|
Threshold |
|
Target |
|
Maximum |
|
|
|
|
|
|||||||||||||||||||||||||||||||||||||||||||
|
Mr. Scarborough | Stock Options | 2/23/12 | | | | | | | | 183,273 | $ | 30.50 | $ | 1,298,306 | ||||||||||||||||||||||||||||||||||||||||||||||||
|
RSUs |
2/23/12 |
|
|
|
|
|
|
45,516 |
|
|
$ |
1,265,996 |
||||||||||||||||||||||||||||||||||||||||||||||||||
|
PUs |
2/23/12 |
|
|
|
30,344 |
60,688 |
121,376 |
|
|
|
$ |
2,089,488 |
||||||||||||||||||||||||||||||||||||||||||||||||||
|
AIP Award |
$ |
650,000 |
$ |
1,300,000 |
$ |
3,900,000 |