UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

SCHEDULE 14A

(Rule 14a-101)

INFORMATION REQUIRED IN PROXY STATEMENT

SCHEDULE 14A INFORMATION

 

Proxy Statement Pursuant to Section 14(a) of the Securities

Exchange Act of 1934

 

Filed by the Registrant þ

 

Filed by a Party other than the Registrant o

 

Check the appropriate box:

 

o  Preliminary Proxy Statement

o  Confidential, for Use of the Commission Only (as permitted by Rule 14a-6(e)(2))

þ  Definitive Proxy Statement

o  Definitive Additional Materials

o  Soliciting Material Pursuant to § 240.14a-12

 

Sanderson Farms, Inc.

(Name of Registrant as Specified in its Charter)

 

 

(Name of Person(s) Filing Proxy Statement, if Other Than the Registrant)

 

PAYMENT OF FILING FEE (Check the appropriate box):

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

January 14, 2010

Dear Stockholder:

     The 2010 Annual Meeting of Stockholders of the Company will be held in the Multi-Purpose Room of the Company’s General Corporate Offices in Laurel, Mississippi, at 10:00 AM on Thursday, February 18, 2010. The purposes of the Annual Meeting are set forth in the accompanying Notice and Proxy Statement.

     The 2009 Annual Report, which is enclosed, contains financial and other information concerning the Company and its business for the fiscal year ended October 31, 2009. The Annual Report is not to be considered part of the proxy solicitation materials.

     We cordially invite you to attend the Annual Meeting. If you cannot attend, please complete and return the enclosed Proxy using one of the voting methods described in the enclosed materials so that your vote can be recorded.

SANDERSON FARMS, INC.
P.O. Box 988
Laurel, Mississippi 39441

NOTICE OF ANNUAL MEETING OF STOCKHOLDERS

TIME AND DATE		10:00 AM (local time) on Thursday, February 18, 2010
PLACE		The Multi-Purpose Room of the Company’s General Corporate Offices, 127 Flynt Road, Laurel, Mississippi 39443
ITEMS OF BUSINESS		(1) To elect Class C Directors to serve until the 2013 Annual Meeting;
		(2) To consider and act upon a proposal to ratify and approve the selection of Ernst & Young LLP as the Company’s independent auditors for the fiscal year ending October 31, 2010; and
		(3) To transact such other business as may properly come before the meeting or any adjournment.
RECORD DATE		You can vote if you are, or if a nominee through which you hold shares is, a stockholder of record on December 29, 2009.
ANNUAL REPORT AND PROXY STATEMENT		Our 2009 Annual Report, which is not a part of the proxy solicitation material, is enclosed. Details of the business to be transacted at the Annual Meeting are more fully described in the accompanying Proxy Statement.
PROXY VOTING		It is important that your shares be represented and voted at the meeting. You can vote your shares by completing and returning the proxy card sent to you. Most stockholders also have the options of voting their shares on the Internet or by telephone. If Internet or telephone voting is available to you, voting instructions are printed on your proxy card included with your proxy materials. You can revoke your proxy before it is voted at the meeting by following the instructions in the accompanying Proxy Statement.

IMPORTANT NOTICE REGARDING THE AVAILABILITY OF PROXY MATERIALS FOR THE
ANNUAL MEETING OF STOCKHOLDERS TO BE HELD ON FEBRUARY 18, 2010

The Notice of Annual Meeting of Stockholders, the Proxy Statement, and our 2009 Annual Report are also available on-line at:

www.sandersonfarms.com/proxy

TABLE OF CONTENTS

PROXY STATEMENT			1
ELECTION OF DIRECTORS			3
CORPORATE GOVERNANCE			7
EXECUTIVE COMPENSATION			10
2009 Bonus Award Opportunities			16
2009 Bonus Awards — EPS Component			17
2009 Bonus Awards — Operational Performance Component			17
2009 Bonus Award Payments			18
2009 Performance Share Criteria			20
2010 Performance Share Criteria			21
2009 Benefits			22
Stock Ownership Guidelines			22
Fiscal 2010 Compensation Actions			25
Discretionary Restricted Stock Grant			25
Director Cash Fees			26
Summary Compensation Table			28
All Other Compensation			29
Grants of Plan-Based Awards 2009			30
Outstanding Equity Awards at Fiscal 2009 Year-End			33
Option Exercises and Stock Vested 2009			35
Potential Payments Upon Termination or Change-in-Control			35
Potential Payments — Change-in-Control			37
Potential Payments — Termination Without Cause or for Good Reason			37
Potential Payments — Retirement			38
Potential Payments — Disability			38
Potential Payments — Death			38
Director Compensation			39
INDEPENDENT AUDITORS			40
OTHER MATTERS			41
STOCKHOLDER PROPOSALS			41
METHODS AND COST OF SOLICITING PROXIES			42
ADDITIONAL INFORMATION AVAILABLE			42

PROXY STATEMENT

General

     Our Board of Directors is soliciting the enclosed proxy in connection with our 2010 Annual Meeting of Stockholders to be held on February 18, 2010, as well as in connection with any adjournments of that meeting. Our post office address is Sanderson Farms, Inc., P. O. Box 988, Laurel, Mississippi 39441.

     Even if you submit a proxy, you may still attend the annual meeting in person, and you may revoke your proxy by voting in person at the meeting. You may also revoke your proxy before it is voted at the meeting in any of the following ways:

	•		by filing with our Corporate Secretary a written notice of revocation;
	•		by submitting to our Corporate Secretary a properly completed and signed proxy dated a later date; or
	•		by re-voting by Internet or by telephone before 11:59 PM on February 17, 2010 using the instructions contained in the enclosed materials, if telephone or Internet voting is available to you.

     Unless you revoke your proxy, it will be voted at the meeting according to your instructions, as long as you have properly completed and submitted it to us.

     If you properly complete and submit a proxy but you do not specify how your proxy should be voted, then the proxy will be voted FOR:

	•		the election of the nominees for Class C Director set forth in this Proxy Statement and
	•		the ratification and approval of Ernst &Young LLP as the Company’s independent auditors for the fiscal year ending October 31, 2010.

     Our Chief Financial Officer will vote all proxies in his discretion on all other matters that may properly come before the meeting. As of the date of this Proxy Statement, we have not received notice and we are not aware of any business to be transacted at the meeting other than the matters that are listed in the notice and are described in this Proxy Statement.

     If you hold shares of our common stock in your broker’s name (sometimes called “street name” or “nominee name”), then you must provide voting instructions to your broker. If you do not provide instructions to your broker, your shares will not be voted on any matter on which your broker does not have discretionary authority to vote for you. A vote that is not cast for this reason is called a “broker non-vote.” We will treat broker non-votes as shares present for the purpose of determining whether a quorum is present at the meeting, but we will not consider them present for purposes of calculating the vote required on a particular matter, nor will we count them as a vote FOR or AGAINST a matter or as an ABSTENTION on the matter.

     We are paying the cost of soliciting the proxies.

     Our 2009 Annual Report accompanies this Proxy Statement, but is not to be considered a part of the proxy solicitation material. The record date for the Annual Meeting is December 29, 2009. These materials are being mailed to stockholders and posted on-line at www.sandersonfarms.com/proxy on or about January 14, 2010.

Capital Stock

     Our authorized capital stock consists of 5,000,000 shares of non-voting preferred stock, of which 500,000 shares have been designated Series A Junior Participating Preferred Stock, par value $100.00 per share, none of which shares have been issued, and 100,000,000 shares of voting Common Stock, par value $1.00 per share, of which 20,997,107 shares had been issued and were outstanding as of December 29, 2009, the record date for the Annual Meeting. Only stockholders of record at the close of business on such date are entitled to notice of and to vote at the Annual Meeting. Each such stockholder is entitled to one vote for each share of common stock held at that date.

Beneficial Ownership

     The following table sets forth information, as of January 4, 2010, concerning (a) the only stockholders known by us to own beneficially more than 5% of our outstanding common stock, which is our only class of voting securities outstanding, (b) the beneficial ownership of common stock of our executive officers named in the “Summary Compensation Table” below, and (c) the beneficial ownership of common stock by all of our directors and executive officers as a group. On January 4, 2010, there were 21,001,571 shares of our common stock outstanding.

		Amount
		Beneficially				Percent
Beneficial Owner(s) and Address		Owned (1)				of Class
Trustmark National Bank (2)		1,766,381 shares					8.41	%
Joe F. Sanderson, Jr. (3)		1,116,030 shares					5.31	%
Lampkin Butts (5)		114,046 shares						(9)
Mike Cockrell (4)		56,287 shares						(9)
James A. Grimes (6)		27,907 shares						(9)
Artisan Partners Limited Partnership (7)		1,327,300 shares					6.32	%
Royce & Associates, LLC (7)		2,605,232 shares					12.41	%
Barclays Global Investors, NA (7)		1,212,166 shares					5.77	%
All Directors and executive officers as a group (15 persons) (8)		1,501,934 shares					7.15	%

ELECTION OF DIRECTORS

     Our amended Articles of Incorporation provide that our Board of Directors shall be divided into three classes (Class A, Class B and Class C), with each class containing one-third, or as close to one-third as possible, of the total number of directors, and that the total number of directors shall be fixed by the Board of Directors in the By-laws. The Board of Directors has fixed the number of directors at fifteen, resulting in there being five director positions in each class. One Class B director position is currently vacant. At each annual meeting of stockholders, directors constituting one class are elected for a three-year term. At the 2010 Annual Meeting, stockholders will elect five Class C Directors, whose terms will expire at the 2013 Annual Meeting.

     The address of each director is Post Office Box 988, Laurel, Mississippi 39441.

Nominees for Class C Directors

     The Board of Directors proposes for election as Class C Directors the five nominees listed below, each to serve as a Class C Director until the 2013 Annual Meeting or until his or her successor is elected and has qualified. Any vacancy on the Board of Directors may be filled either by the Board of Directors or by the stockholders, and the term of any director elected to fill a vacancy will expire at the next stockholders’ meeting at which directors are elected.

     Proxies in the enclosed form may be voted for the election as Class C Directors only of the nominees named below or of substitute nominees who may be named by the Board of Directors to replace any of the nominees who become unavailable to serve for any reason. No such unavailability is presently known to the Board of Directors. There are no arrangements or understandings relating to any person’s service or prospective service as a Class C Director of the Company. No person listed below will be elected as a Class C Director unless such person receives the affirmative vote of the holders of a majority of the shares entitled to vote and represented (whether in person or by proxy) at the Annual Meeting at which a quorum is present. If more persons than the number of directors to be elected receive a majority vote, then those persons receiving the highest number of votes will be elected. The

Proxyholder named in the accompanying proxy card will vote FOR the nominees listed below (or substitutes as stated above) unless otherwise directed in the proxy. Abstentions by holders of shares entitled to vote and represented at the meeting will be counted as shares present but not voting for the purposes of calculating the vote with respect to the election of Class C Directors. Broker non-votes will be treated as not present for purposes of calculating the vote with respect to the election of the Class C Directors, and will not be counted either as a vote FOR or AGAINST or as an ABSTENTION with respect thereto.

     The following table lists the nominees for Class C Directors and shows, as of January 4, 2010, their respective beneficial ownership of common stock of the Company.

										Shares
						Director				Beneficially				Percent
Nominees for Class C Directors		Age				Since				Owned (1)				Of Class
Fred Banks, Jr. (2)			67				2007				10,255				(3	)
Toni D. Cooley (2)			49				2007				7,646				(3	)
Robert C. Khayat (2)			71				2007				8,592				(3	)
Dianne Mooney (2)			66				2007				7,426				(3	)
Gail Jones Pittman (2)			56				2002				8,384				(3	)

     The Board of Directors recommends a vote FOR the election of Fred Banks, Jr., Toni D. Cooley, Robert C. Khayat, Dianne Mooney and Gail Jones Pittman.

Directors Continuing in Office

     The following tables list the Class A and Class B Directors of the Company, whose terms expire at the 2011 and 2012 Annual Meetings, respectively, and show, as of January 4, 2010, the beneficial ownership of common stock by each of them.

										Shares
						Director				Beneficially				Percent
Name of Continuing Director		Age				Since				Owned (1)				Of Class
Class A (Term expiring in 2011)
Lampkin Butts (2)			58				1998				114,046					(7)
Beverly Hogan (3)			58				2004				11,048					(7)
Phil K. Livingston (3)			66				1989				24,492					(7)
Charles W. Ritter, Jr. (3)			72				1988				31,421					(7)
Joe F. Sanderson, Jr. (4)			62				1984				1,116,030				5.31	%

										Shares
						Director				Beneficially				Percent
Name of Continuing Director		Age				Since				Owned (1)				Of Class
Class B (Term expiring in 2012)
John H. Baker, III (5)			68				1994				55,389				(7	)
John Bierbusse (3)			54				2006				6,404				(7	)
Mike Cockrell (6)			52				1998				56,287				(7	)
Rowan H. Taylor (3)			85				1989				16,607				(7	)

Principal Occupations and Certain Directorships

     The following paragraphs identify the principal occupations of all continuing directors and nominees of the Company and directorships they hold in other companies with securities registered with the Securities and Exchange Commission. Except as otherwise indicated, each director has served for at least five years in the position shown.

     John H. Baker, III has been the sole proprietor of John H. Baker Interests, a real estate and development company in Houston, Texas, since 1968.

     Fred Banks, Jr. has been a partner in the General Litigation Group in the Jackson, Mississippi office of the law firm of Phelps Dunbar LLP since 2001. Since 2008, he has been a non-equity senior partner with that firm. From 1991 to 2001, he was a Justice of the Mississippi Supreme Court, and at the time of his retirement from the court in 2001, he was serving as Presiding Justice. Prior to serving on the Mississippi Supreme Court, Mr. Banks served as a Circuit Judge in Hinds and Yazoo Counties, Mississippi for six years. From 1976 until 1985, he served in the Mississippi House of Representatives.

     John Bierbusse was employed by Duff and Phelps, Inc. from 1981 to 1987, and by A.G. Edwards from 1987 to 2004. Mr. Bierbusse served as Assistant Manager, Securities Research between 1999 and 2002 at A.G. Edwards, and as Manager, Research Administration from 2002 until his retirement in 2004. Mr. Bierbusse served on the New York Stock Exchange’s Series 16 Test Committee from 2002 to 2007 and on the New York Stock Exchange’s Research Analyst Qualification Examination Committee from 2003 to 2007. Mr. Bierbusse has been a Chartered Financial Analyst since 1987, and is currently retired.

     Lampkin Butts served from 1996 to 2004 as Vice President-Sales for the Company. On October 21, 2004, Mr. Butts was elected President and Chief Operating Officer of the Company. Mr. Butts is a member of the Company’s Executive Committee, which is a management committee, not a committee of directors.

     Mike Cockrell has served, since 1993, as Treasurer and Chief Financial Officer for the Company. Prior to 1993, Mr. Cockrell was a shareholder and member of the law firm Wise Carter Child & Caraway, Professional Association, of Jackson, Mississippi. Mr. Cockrell is a member of the Company’s Executive Committee, which is a management committee, not a committee of directors.

     Toni D. Cooley has served as president of Systems Consultants Associates, Inc., a management training and consulting firm established with the express purpose of assisting Jackson, Mississippi-based minority firms with capacity building, since 1993. Ms. Cooley has also been president of Systems Electro Coating, LLC, a tier one supplier to Nissan of electro coated frames and other vehicle components, since 2001. Ms. Cooley is also co-owner of Systems IT, Inc., a new horizon computer learning center in Jackson, Mississippi. From 1992 to 1993, Ms. Cooley worked as an International Contract Administrator for the international sales team of the former Turner Broadcasting Systems.

     Beverly Hogan has served, since May 2002, as President of Tougaloo College in Jackson, Mississippi. Prior to becoming President of Tougaloo College, Ms. Hogan served for one year as Interim President. Prior to that, she served for ten years as a Commissioner for the Mississippi Workers Compensation Commission.

     Robert C. Khayat served as the Chancellor of the University of Mississippi from July 1995 until his retirement in July 2009. Prior to that time he served the University in various capacities, including as professor of law at the University of Mississippi School of Law from 1982 to 1995. Mr. Khayat served on the Board of Directors of Mississippi Power Company, a subsidiary of The Southern Company, and Mississippi Valley Title Insurance Company, until his retirement from both boards in 2009.

     Phil K. Livingston served as President and Chief Executive Officer of Citizens National Bancshares, Inc. in Hammond, Louisiana, from its organization in 1983, until its merger into Deposit Guaranty Corporation on May 19, 1995. Mr. Livingston retired in 1998, but served as a banking consultant to AmSouth Corporation from his retirement until 2001.

     Dianne Mooney served as Senior Vice President of Southern Living at Home, a direct sales division of Southern Progress Corporation, from 1999 until her retirement in 2007. She founded Southern Living at Home in 1999. Prior to that time, she was an employee of Southern Progress Corporation for over thirty years in various positions, including Vice President of Business Development and Vice President of Custom Publishing. Southern Progress Corporation is a division of Time, Inc.

     Gail Jones Pittman has served, since its founding in 1979, as Chief Executive Officer of Gail Pittman, Inc., an entrepreneurial business creating individually hand-painted, semi-vitreous china dinnerware and home accessories. It is located in Ridgeland, Mississippi.

     Charles W. Ritter, Jr. served, from 1967 to 2002, as President and a Director of the Attala Company, which is principally engaged in the business of milling and selling feed and corn meal. He now serves as a management consultant to the Attala Company. He has also served as President of JRS, Inc., a family owned real estate investment firm, since 1973. Mr. Ritter is a director of First M & F Corp. and Merchants & Farmers Bank, Kosciusko, Mississippi, and chairs the audit committee of First M & F Corp.’s Board of Directors.

     Joe F. Sanderson, Jr. served as President of the Company from November 1, 1989 to October 21, 2004, and has served as Chief Executive Officer since November 1, 1989 and as Chairman of the Board of Directors since January 8, 1998. Mr. Sanderson continues to serve as Chief Executive Officer and Chairman of the Board of Directors. Mr. Sanderson is a member of the Company’s Executive Committee, which is a management committee, not a committee of directors.

     Rowan H. Taylor served as President of Mississippi Valley Title Insurance Company from 1975 until 1989, and as Chairman of the Board and Chief Executive Officer of that company from 1989 until 1992. Until December 1, 2001, Mr. Taylor served as counsel to the Jackson, Mississippi law firm of Alston & Jones. Mr. Taylor served as an advisory director of Trustmark Corporation and Trustmark National Bank located in Jackson, Mississippi until his retirement from such position in 1995, and served as counsel for First American Title Insurance Company of Santa Ana, California until his retirement in 2002.

CORPORATE GOVERNANCE

Director Independence

     Our Board of Directors has determined that the following directors are “independent” under the listing standards of The Nasdaq Stock Market: Ms. Cooley, Ms. Hogan, Ms. Mooney, Ms. Pittman, and Messrs. Baker, Banks, Khayat, Livingston, Ritter and Taylor.

Leadership Structure

     In 2009, the Board of Directors amended our By-Laws to create the position of a Lead Director, to be filled at any time the Chairman of the Board is also an officer of the Company. The Lead Director must be independent and is appointed by the other independent directors for a one-year term. He or she is responsible for:

	•		presiding at all meetings of the Board of Directors at which the Chairman of the Board is not present, including executive sessions of the independent directors;
	•		serving as a liaison between the Chairman of the Board and the independent directors;
	•		approving information sent to the Board of Directors in preparation for meetings of the Board of Directors;
	•		approving agendas for meetings of the Board of Directors and meeting schedules to ensure that there is sufficient time for discussion of all agenda items; and
	•		being available for communications with the corporation’s stockholders.

     The Lead Director also has the authority to call meetings of the independent directors.

     The independent directors appointed Phil K. Livingston as the Company’s first Lead Director.

     The Board of Directors believes that its leadership structure is appropriate because it strikes an effective balance between management and independent director participation in the Board process. The Lead Director role helps to ensure greater communication between management and the independent directors. It also increases the independent directors’ understanding of management decisions and Company operations and provides an additional layer of independent oversight of the Company.

Board Meetings and Committees of the Board

     During our 2009 fiscal year, the Board of Directors held ten meetings, five of which were telephonic meetings. The Board of Directors strongly encourages all directors to attend the Company’s annual meetings of stockholders, and all directors attended the 2009 Annual Meeting. The Board of Directors has appointed three standing committees: the Audit Committee, the Compensation Committee and the Nominating and Governance Committee. Each member of these committees is “independent” under the listing standards of The Nasdaq Stock Market. Every incumbent director attended at least 75% of the total of (i) all of the Board of Directors meetings held during the period for which he or she was a director and (ii) all of the meetings held by the committees of the Board on which he or she served (during the period in which he or she served).

     The current charter of each committee of the Board of Directors is available in the “Investor Relations” section of our website at www.sandersonfarms.com.

Nominating and Governance Committee

     The members of the Nominating and Governance Committee are Ms. Hogan and Ms. Mooney (Vice Chair) and Messrs. Banks (Chair), Livingston, Ritter and Taylor. The committee considers all director candidates recommended for election to the Board of Directors. It also recommends all compensation paid to our non-employee directors, leads the Board in its annual self-evaluation and from time to time makes recommendations concerning our corporate governance policies. In fiscal 2009, the Committee held four meetings.

     As noted above, the Nominating and Governance Committee considers potential nominees for director proposed by its members, members of the Board of Directors, our stockholders or management. Stockholders who are not also members of our Board of Directors or management should submit notice of their proposed nominees for director in writing to the Nominating and Governance Committee at the Company’s general offices. That address is Post Office Box 988, Laurel, Mississippi 39441.

     Stockholders should include the following information in their written notice:

	•		The stockholder’s name and address;
	•		A representation that the stockholder is a holder of record or a beneficial owner (in which case evidence of such beneficial ownership must be submitted if requested by the Nominating and Governance Committee) of shares of the Company’s common stock as of the date of the notice;
	•		The name, age, business and residence addresses, and principal occupation and experience of each proposed nominee;
	•		Such other information regarding each proposed nominee that the stockholder wishes the Nominating and Governance Committee to consider;
	•		The consent of each proposed nominee to serve as director of the Company if elected; and
	•		A representation signed by each proposed nominee that states that such proposed nominee meets all of the qualifications set forth in Article IV of our bylaws, which requires that directors must be at least 21 years old and citizens of the United States.

     Persons wishing to propose nominees for consideration at our annual meeting of stockholders must submit notice of their proposed nominee to the Nominating and Governance Committee no later than September 15 of the year prior to the annual meeting.

     Anyone proposing nominees to the Nominating and Governance Committee should consider the minimum qualifications, skills and qualities that the Nominating and Governance Committee believes are necessary for a director of the Company, as follows:

	•		significant business experience in production, preferably related to agriculture, or in marketing, finance, accounting or other professional disciplines;
	•		prominence and a highly respected reputation in his or her profession;
	•		a global business and social perspective;
	•		a proven record of honest and ethical conduct, personal integrity and good judgment;
	•		concern for the long-term interests of our stockholders; and
	•		significant time available to devote to Board activities and to enhance his or her knowledge of our industry.

     The Nominating and Governance Committee may interview candidates for nomination for election as director who are not incumbent directors. The Nominating and Governance Committee may elect to invite members of our management to participate in the interviews. When all interviews are complete, the Nominating and Governance Committee votes to determine a slate of nominees to be submitted to the Board of Directors. The Nominating and Governance Committee uses the same process to evaluate potential nominees proposed by stockholders as it uses to evaluate any other potential nominee.

     Nothing in the committee’s polices will prevent a stockholder from nominating persons for election as directors from the floor at any annual or special meeting of stockholders called for that purpose by following the advance notification procedures set forth in Article III of our bylaws. These procedures are described under “STOCKHOLDER PROPOSALS, Procedure” in this Proxy Statement.

Audit Committee

     The members of the Audit Committee are Ms. Pittman and Ms. Mooney and Messrs. Baker (Vice Chair), Khayat, Livingston, and Ritter (Chair). The committee, among other things, appoints or replaces the independent auditors, reviews the scope of the independent auditors’ audit, reviews our major accounting and financial reporting policies and practices and systems for compliance with applicable statutes and regulations, and reviews our internal auditing functions. The Audit Committee held ten meetings during fiscal 2009, five of which were telephonic meetings.

Audit Committee Report

     To the extent provided by Instruction 1 to Item 407(d) of Regulation S-K of the Securities and Exchange Commission (SEC), this section shall not be deemed to be proxy “soliciting material” or to be “filed” with the SEC or subject to its proxy regulations or to the liabilities imposed by Section 18 of the Exchange Act.

     The Audit Committee has reviewed and discussed the audited financial statements with management, and the Audit Committee has discussed with the independent auditors the matters required to be discussed by SAS 61 (Codification of Statements on Auditing Standards) as adopted by the Public Company Accounting Oversight Board in Rule 3200T. SAS 61 requires the independent auditor to provide the Audit Committee with information regarding the scope and results of an audit that may assist the Audit Committee in overseeing management’s financial reporting and disclosure process. The Audit Committee has received the written disclosures and the letter from the independent auditors required by applicable requirements of the Public Company Accounting Oversight Board, and has discussed with the independent accountants the independent auditors’ independence. Based on the review and discussions referred to above, the Audit Committee recommended that the audited financial statements for the fiscal year ended October 31, 2009 be included in our Annual Report on Form 10-K for that fiscal year for filing with the SEC.

The Audit Committee:

John H. Baker, III (Vice Chair)
Robert Khayat
Phil K. Livingston
Dianne Mooney
Gail J. Pittman
Charles W. Ritter, Jr. (Chair)

Compensation Committee; Compensation Committee Interlocks and Insider Participation

     The members of the Compensation Committee are Ms. Cooley, Ms. Hogan, Ms. Pittman (Vice Chair) and Messrs. Baker, Khayat, Livingston (Chair), Ritter and Taylor. The committee determines the philosophy, components, levels and terms of our executive compensation. In fiscal 2009, the Compensation Committee the Committee held seven meetings, three of which were telephonic.

     The committee’s processes and procedures for the consideration and determination of executive pay, as well as the role of management and outside consultants in that process, are more fully described in the “EXECUTIVE COMPENSATION” section, below.

     The Compensation Committee may form and delegate its authority to subcommittees consisting only of persons who are members of the Compensation Committee.

     During fiscal 2009, none of the members of the Compensation Committee was an officer or employee of the Company and no member of the committee is a former officer of the Company. In addition, during fiscal 2009, none of our executive officers served on the board of directors of any entity whose directors or officers served on our board of directors.

Communications Between Stockholders and the Board of Directors

     The Board of Directors has adopted a formal procedure that stockholders may follow to send communications to the Board of Directors. Stockholders may send communications to the Board by writing to:

Internal Audit Department
Sanderson Farms, Inc.
P. O. Box 988
Laurel, MS 39441-0988

     Stockholders desiring to send a communication to the full Board of Directors should mark the envelope “Attention: Board of Directors.” Envelopes intended for a committee of the Board should be marked to the attention of the particular committee. Stockholders may also communicate with directors who are “independent directors” under the rules of The NASDAQ Stock Market by marking the envelope “Attention: Independent Directors” at the address given above.

     We will forward all communications we receive as addressed on a quarterly basis, unless management determines by individual case that a communication should be forwarded more promptly. However, any stockholder communication concerning employee fraud or accounting matters will be forwarded as addressed, with a copy to the Audit Committee, immediately upon receipt.

Review and Approval of Certain Transactions

     The Audit Committee’s charter charges it with reviewing on an on-going basis certain transactions between the Company and its directors, officers, major stockholders and certain other persons for conflicts of interest. The types of transactions that are subject to this review are those “related party transactions” that must be disclosed in our proxy statement under the rules of the SEC. The Audit Committee must recommend to a special committee of qualified, independent directors whether or not the transaction should be approved. The special committee may retain independent legal, accounting or other advisors to advise it in this process. During our 2009 fiscal year, there were no transactions between the Company and related persons that required review by the Audit Committee or that required disclosure in this proxy statement.

Section 16(a) Beneficial Ownership Reporting Compliance

     Section 16(a) of the Exchange Act requires our directors, officers and persons who own more than 10% of our outstanding common stock to file with the SEC reports of changes in their ownership of our common stock. Officers, directors and greater than 10% stockholders are also required to furnish us with copies of all forms they file under this regulation. Based solely on a review of written information provided by these persons, our officers, directors and greater than 10% stockholders are in compliance with all Section 16(a) filing requirements.

EXECUTIVE COMPENSATION

Compensation Discussion and Analysis

     Executive Summary

     This Compensation Discussion and Analysis (CD&A) describes our compensation philosophies, factors considered in developing our compensation packages and the decision-making process followed in setting compensation for our Named Executive Officers during our 2009 fiscal year. It should be read in conjunction with the tables and accompanying narratives that follow. Other than our principal executive officer and principal financial officer, there are only two individuals at our Company who meet the definition of “executive officer” under SEC rules, and therefore our four executive officers are our only “Named Executive Officers” under the SEC’s proxy statement rules. They are:

	•		Joe F. Sanderson, Jr., Chairman of the Board and Chief Executive Officer (CEO);
	•		Lampkin Butts, President and Chief Operating Officer (COO);
	•		Mike Cockrell, Treasurer and Chief Financial Officer (CFO); and
	•		James A. Grimes, Secretary and Controller (Secretary).

     The goal of this CD&A is to describe our executive compensation philosophies and programs with transparency and clarity. Our Compensation Committee met several times during the year and retained Watson Wyatt & Company as its independent executive compensation consultant. We believe that our executive compensation programs reflect our Company’s philosophy and are effective in retaining and motivating our current executives. Although we generally strive to appoint executives from within our Company, our compensation programs will allow us to attract top management candidates, should the need arise.

     Sanderson Farms has had a pay-for-performance culture since its early days. We expect top performance from our people every year and are willing to pay for that success. Accordingly, a substantial part of the compensation package for each Named Executive Officer is at risk and is only earned if performance so warrants. In addition to base salary, we offer our Named Executive Officers the opportunity to earn an annual bonus if certain performance goals are met, and we also grant long-term incentives to our Named Executive Officers to align their pay with the long-term success of our Company. To date, our long-term incentives have been primarily performance-based, but also have a time-based element to assist us in retaining our management team. We encourage our Named Executive Officers, other members of management and our Board of Directors to follow our stock ownership guidelines. In addition, our executives participate in our Employee Stock Ownership Plan and can elect to participate in our Management Share Purchase Plan, which further aligns them with our stockholders.

     We use a peer group and appropriate published surveys (based on appropriate industry and revenue size comparisons) to set compensation levels. We do not target our compensation levels at any particular point in the range established by data we gather, but we do consider the median of those markets as a general guide, along with a multitude of other factors, in setting our pay opportunity. However, with above-target performance, our Named Executive Officers can earn above-market pay.

     For purposes of our annual bonus award plan, we measure operational performance using Agristats, a private industry benchmarking service that analyzes performance data submitted weekly by a significant majority of the poultry industry, and through earnings per share. Even if we meet the operational and earnings per share targets, executives will not receive payments under the bonus award plan unless we also meet a return on equity threshold. For our long-term performance share plan, we measure performance by return on sales and return on equity, and our stock price also factors into the final amount of the award to the Named Executive Officers.

     In fiscal 2009, market conditions experienced in our industry improved significantly over fiscal 2008, and we paid bonuses under the bonus award plan for 2009 equal to almost 50% of the maximum bonus opportunity. We paid no bonuses for fiscal 2008.

     There are three long-term performance share cycles currently in place under our long-term performance share plans, and the payouts, if achieved, will occur at the end of fiscal 2010, 2011 and 2012.

     We expect top-level performance from our management team over the long term, even during downturns in our industry and during periods of Company expansion. Accordingly, the criteria that the Committee has established for our performance-based awards have been historically very challenging to achieve. Indeed, none of the performance shares we have granted have ever been earned, and we do not currently expect performance shares granted for fiscal 2008 to be earned. Nevertheless, even in years for which we have incurred a net loss, our Company has still performed better than our peers. The Committee has considered these factors in evaluating our compensation plans and has made adjustments to the plans or discretionary awards, described further below, to take into account our strong performance relative to the industry and our significant Company growth.

     Finally, our CEO, at his request, received no equity awards under the long-term incentive program from its inception through our 2009 fiscal year. The CEO requested that he be considered for long-term incentive awards for the 2010 fiscal year.

     Principles and Objectives of the Executive Compensation Program

     The main objectives of our executive compensation programs have been to reward outstanding performance by our executives appropriately and to ensure that management and stockholder interests are closely aligned. The Committee works hard to structure compensation packages that create incentives for our executives to maximize stockholder value, rather than to maximize their individual pay. A significant portion of our executive compensation opportunity is related to factors that directly and indirectly influence stockholder value, including stock

performance, earnings per share, operational performance, return on sales and return on equity. Another significant factor in the Committee’s decisions to make equity-based awards to our executives is stockholder dilution, and the Committee strives to minimize the dilutive effect of those awards on our stockholders.

     We believe our executive culture is unique within our industry. Our management team is motivated by a strong “tone from the top” that has fostered our core mission to create returns for our stockholders. We believe our executives should be rewarded fairly for their loyalty to that mission, especially in years when we perform at the top of our industry.

     Management, the Board of Directors and the Compensation Committee recognize that our business is cyclical and seasonal, and often times the level of profitability we achieve is significantly influenced by factors beyond our control. These factors include swings in the market prices for our primary product, fresh chicken, and our two primary input costs, corn and soybean meal. Accordingly, the Compensation Committee believes it is important to measure and reward outstanding performance as much by operational performance relative to our peers as in absolute dollars per share and other typical measuring tools. This concept of placing significant emphasis on operational performance relative to our peers permeates our overall compensation plans and philosophy.

     The Committee intends to continue its strategy of employing compensation programs that emphasize performance-based incentive compensation. We have structured our executive compensation packages with an understanding of the cyclical nature of our business, and in an effort to achieve an appropriate balance between our short and long-term performance, and also a balance of emphasis between our operational performance versus the industry and our financial performance on the one hand, and stockholder return on the other.

     As discussed above, our business is primarily driven by the performance of the commodities markets, specifically the markets for fresh chicken, corn and soybean meal. These markets are external to our business and therefore the Committee does not believe that our performance-based compensation promotes excessive or inappropriate risk-taking by our management. Likewise, our performance-based compensation programs do not encourage excessive risk-taking by individual employees or business units because the criteria underlying the plans are uniform for all participants, regardless of their seniority or division in our Company.

     Benchmarking and Competitive Analyses

     The Committee uses information gathered by analyzing the compensation levels and programs of a peer group and, in some cases, composite survey data compiled from companies of appropriate size and industry (although the survey data does not specifically identify contributing companies). The peer group serves as the chief point of comparison of the level and structure of executive pay, and is composed of companies similar to Sanderson Farms in size, industry, geographic location and/or performance. Beginning with fiscal 2008, the Committee also used data from a reference group of direct competitors that are considerably larger than Sanderson Farms as a comparator for components of executive pay, but not for pay levels. Selection of the peer and reference groups was based on the research of Watson Wyatt, with input from the Committee, the CEO, and the CFO.

     The comparator groups yield information about the general level and components of pay for comparable executive positions at other companies. The Committee uses this information as a general guide in its deliberations, but it does not target our executive compensation levels at any point in the range established by the comparisons. Instead, the Committee bases its final decisions on its business judgment, which may be influenced by the median level of that range, as well as a variety of other factors discussed below. The companies comprising the comparator groups for fiscal years 2009 and 2010 are shown below:

2009 Peer Group

Brown-Forman		Lance
Cal-Maine Foods		M&F Worldwide
Central Garden & Pet Company		McCormick
Del Monte Foods		Oxford Industries
Flowers Foods		Ralcorp Holdings
Hain Celestial Group		Seaboard
Imperial Sugar		Seneca Foods
JM Smucker		Treehouse Foods
Lancaster Colony		United Natural Foods

2009 Reference Group

Hormel		Smithfield Foods
Pilgrim’s Pride		Tyson Foods

2010 Peer Group

Brown-Forman		M&F Worldwide
Cal-Maine Foods		McCormick
Central Garden & Pet Company		Oxford Industries
Del Monte Foods		Ralcorp Holdings
Flowers Foods		Seaboard
Hain Celestial Group		Seneca Foods
JM Smucker		Treehouse Foods
Lancaster Colony		United Natural Foods
Lance

2010 Reference Group

Hormel		Tyson Foods
Smithfield Foods

     The Compensation Committee Process and the Role of Management and Compensation Consultants

     Both management and the Compensation Committee recognize the importance of maintaining sound principles for the development and administration of compensation and benefit programs. Our Compensation Committee has taken steps to significantly enhance its ability to effectively carry out its responsibilities, as well as to ensure that the Company maintains strong links between executive pay and performance. Examples of actions that the Committee has taken in the past few years include:

•		Retained an independent compensation consultant, Watson Wyatt & Company, to advise on executive and director compensation issues.
•		Met regularly in executive sessions with the compensation consultant and legal and accounting advisors without Company management present; and
•		Made significant changes to our executive and director compensation programs, including:

	•		Established a peer group for primary comparisons of the level and structure of executive and director pay;
	•		Established a broader reference group of companies with a business environment similar to ours to assist in comparing the elements of executive and director compensation (not levels of pay);
	•		Developed a long-term incentive program for executives designed to offer a variety of equity-based awards that are linked to stockholder value;
	•		Implemented incentive programs to promote increased Company stock ownership by management and non-employee directors;
	•		Instituted share ownership guidelines for both management and non-employee directors;
	•		Undertaken a formalized annual review of executive compensation packages with advice from the compensation consultant in light of market standards, company and industry performance and individual merit;
	•		Designed our equity incentive plans to be competitive with market levels; and
	•		Brought the mix of the CEO’s cash compensation closer to marketplace standards by increasing his maximum performance-based bonus award opportunity from 100% to 150% of his base salary.

     The Committee has the sole authority to retain or terminate Watson Wyatt (or any other compensation consultant) and to approve the consultant’s fees and other terms and conditions of its engagement. The Committee engages Watson Wyatt from time to time to review particular compensation questions at issue. Typically, the Committee chairman meets with representatives from Watson Wyatt at the outset of any engagement to discuss the Committee’s goals and objectives and to outline the parameters of the review that Watson Wyatt will undertake. The CFO is generally present for those meetings as a liaison with management, and Watson Wyatt uses the CFO to

gather internal information necessary for its work. The Committee chairman also corresponds with Watson Wyatt directly during an engagement as questions arise. Because the CEO is the Committee’s chief source of information about the overall performance of the Company and of senior management, the Committee or its chairman may also meet privately with the CEO to inform him of the Committee’s thinking on any particular issue and to get his feedback and recommendations. Although the CEO has substantial influence on the Company’s compensation and could contact or meet with Watson Wyatt or the Committee if he chooses, he is usually not directly involved in the Committee’s decision-making process or in meetings with Watson Wyatt.

     When compensation questions arise for the Committee’s consideration, management is generally present for Watson Wyatt’s presentations and to answer any questions by directors. However, when the Committee sets levels and components of compensation, management is ultimately excused from the meeting to permit the Committee to meet with Watson Wyatt and legal and accounting advisors in executive session and to vote. The Committee may ask the CEO to be present for the deliberations on the compensation of the other Named Executive Officers, but he is excused from the deliberations and vote on his own compensation.

     We retained Watson Wyatt in 2006 to review our overall pay structure for our salaried employees and in January 2008 to review the compensation of the Company’s executive committee (a management committee, not a committee of the Board). The Committee and the Board pre-approved each of those engagements. In December 2009, the Committee retained Watson Wyatt to perform a limited review of the salary ranges of selected salaried employees. The Board or the Nominating and Governance Committee have also retained Watson Wyatt periodically, most recently in September 2009, to review the compensation of our outside directors. The Committee will take measures to ensure that any future engagement of Watson Wyatt by our Company does not impair Watson Wyatt’s independence.

     Elements of Executive Compensation

     The compensation of our executive officers consists of the following elements:

	•		Base Salary
	•		Annual cash incentive (bonus) awards
	•		Long-term equity incentive awards, including:

	•		Restricted Stock
	•		Performance Shares
	•		Management Share Purchase Rights

	•		In-Service and Post-Employment Benefits
	•		Perquisites

     The Committee has used these elements of compensation to create a flexible package that reflects the cyclical nature of the poultry business and can reward both the short and long-term performance of the Company and the individual. Each item of compensation is considered individually, followed by consideration of the overall package, with the goal of treating executives equitably and rewarding outstanding performance. The Committee also considers how our executive pay compares to the peer and reference companies and to similar positions included in published survey data, with respect to both levels and components of total pay. Generally, the Committee does not consider the amounts realizable from prior compensation in setting future benefits. However, the Committee has restructured our long-term performance incentives to reflect more fairly the conditions in our industry when past awards have failed to vest because of cyclical downturns in the poultry market and inefficiencies stemming from our significant internal growth. This is discussed in more detail below.

     The CEO’s total compensation, as reported in the Summary Compensation Table below, was approximately 189% and 299%, respectively, higher than the total compensation for the COO and CFO because of his higher level of responsibility within our Company and his more pervasive influence over our performance. The compensation of the COO and CFO was likewise approximately 325% and 206%, respectively, higher than the Secretary’s for the same reasons. In addition, because the CEO, COO and Secretary are nearer to retirement age than the CFO, the values shown in the Summary Compensation Table as of October 31, 2009 of the CEO’s, COO’s and Secretary’s restricted stock, which vests upon an officer’s retirement, is proportionally greater than that of the CFO.

     In 2009, we entered into employment agreements with the CEO, the COO and the CFO. Among other benefits, the agreements provide for a severance payment to be paid to the officers if:

	•		before a change in control of our Company, the officers are terminated without cause, except in the case of poor performance;
	•		at or after a change in control, the officers are terminated without cause or
	•		the officers resign for good reason.

     The amount of the severance payments will be, in the case of Mr. Sanderson, three times, and in the case of Messrs. Butts and Cockrell, two times, the following amounts:

	•		the officer’s annual base salary in effect at the time of his termination, plus
	•		fifty percent of the maximum bonus available to the executive under the Company’s bonus program in effect for the year of termination.

     The Committee believes these benefits are important officer retention tools that will protect the Company and its stockholders against an unexpected departure of our most senior management. In addition, the commitment to pay severance is counterbalanced by an agreement from the officers not to disclose confidential information about us during and after their employment, and not to engage in certain competitive activity during their employment and for two years after the termination of their employment for any reason other than poor performance. The Committee also believed it was crucial to structure the agreements so that, except in the case of a change in control, the officers will not be paid severance if they are terminated for poor performance. In the context of a change in control, the severance is not payable unless the officer is subsequently terminated without cause. This is sometimes referred to as a “double trigger.” In the case of a merger or other transaction that would allow our stockholders to profit from a sale of control of our Company, such provisions can help ensure that management will not be distracted in the transaction negotiations by concerns that they will be arbitrarily terminated by new management without any economic protection after the change of control is complete.

     The agreements are discussed further below in the narrative following the table entitled, “Grants of Plan-Based Awards.”

     Base Salaries

     Salaries are used to provide a fixed amount of compensation for the executive’s regular work. The Committee reviews the salaries of the Named Executive Officers annually in October, with input from the outside compensation consultant, and makes final salary decisions at that time. Salary increases are based on an evaluation of Company performance, the individual’s performance, and the individual’s level of pay compared to the pay levels for similar positions in the peer group. Although the peer group suggests a range of competitive levels for base salaries, exact levels are determined by the Committee based on each executive’s merit. The Committee also takes into account years of service, responsibilities, our future growth plans and our current ability to pay.

     For fiscal year 2009, the CEO received a 14% salary increase, the COO and the CFO received a 10% salary increase and the Secretary received an 8% salary increase. In determining these increases, the Committee took note of a general 4% cost of living adjustment made to the salaries of all other salaried employees of the Company, as well as each executive’s individual performance.

     The effective date for salary increases typically is November 1 of each year. Salary increases can also occur upon an individual’s promotion.

     Annual Cash Bonus Awards

     We maintain a non-discretionary bonus award plan under which our salaried employees, including the Named Executive Officers, are eligible for fiscal year-end cash incentive awards equal to a percentage of their base salary based on the Company’s performance (“Bonus Award Program”). These awards are designed to reward short-term performance and the achievement of designated operational results. The total award a participant can receive has two components: a percentage based on our achieving certain target earnings per share goals, and a percentage based on our operational performance versus our industry peers as measured by Agristats.

     The earnings per share targets established under the Bonus Award Program are set each year, and reflect our growth and ability to generate earnings. We have experienced significant growth in production capacity over the past 15 years, and our ability to generate earnings has likewise grown significantly. As a result, the earnings per share targets established under the Bonus Award Program have moved higher to reflect our increased earnings capacity. We have historically performed at or near the top of the industry in operational measures, and the targets set for operational goals under the Bonus Award Program reflect our culture and expectations of achieving superior performance relative to our peers. However, it is possible that even if we operate at the top of the industry, we still might not achieve an acceptable level of profitability, due to factors such as the cyclical nature of the industry, external forces that influence profitability that are beyond the control of management, and our significant internal growth in recent years and resulting short term inefficiencies. Therefore, unless we achieve at least an 8% return on average stockholders’ equity (computed after taking into account any bonus to be paid), no payments are made under the Bonus Award Program even if the operational targets are reached, and payments are not cumulative.

     Generally, earnings per share targets are established by reference to our earnings per pound of poultry products sold during years of significant profitability. That is, our rate of earnings per pound in high performing years is applied to pounds we expect to produce and sell in the coming year. We also consider our five-year average return on sales and what earnings level would result in an acceptable return on average equity. Through this exercise, we establish a dollar earnings target that is then translated into an earnings per share target for purposes of the Bonus Award Program. While the Committee recognizes that there are many factors beyond the control of management that might affect our ability to achieve these results, it attempts to make the program competitive by awarding a relatively high percentage of salary payouts in years in which we achieve these aggressive targets. Likewise, the Committee sets aggressive targets when setting operational goals. Unless we operate in the top 30% of the industry in terms of operating profit per head of chickens sold, no operational awards are made. For participants to earn the top bonus, we must operate in the top 10% of the industry.

     The following table shows, for fiscal 2009, the percentage of base salary that the Named Executive Officers were eligible to receive from each component of the bonus award:

2009 Bonus Award Opportunities

						Bonus Opportunity as
		Bonus Opportunity as				Percentage of Base
		Percentage of Base				Salary from
		Salary from EPS				Operational
Position		Component				Component
CEO			75	%			75	%
COO, CFO			50	%			50	%
Secretary			25	%			25	%

     The following table shows, for fiscal 2009, the earnings per share objectives and the corresponding percentages of the earnings per share component of a participant’s bonus award that could have been earned:

2009 Bonus Awards — EPS Component

		Percentage of EPS-
Per Share Return*		Based Award
$4.31			100.0	%
$4.26			95.0	%
$4.20			90.0	%
$4.15			85.0	%
$4.09			80.0	%
$4.03			75.0	%
$3.98			70.0	%
$3.92			65.0	%
$3.87			60.0	%
$3.81			55.0	%
$3.76			50.0	%
$3.70			45.0	%
$3.65			40.0	%
$3.59			35.0	%
$3.53			30.0	%
$3.48			25.0	%
$3.42			20.0	%
$3.37			15.0	%
$3.31			10.0	%
$3.26			5.0	%

     The earnings per share component of the bonus award program is based on our net income net of the bonus. Our fiscal 2009 net earnings, after taking into account bonus accruals we made at the 65% bonus level, were $3.99 per share, which would normally indicate a 70% bonus payout. However, the additional 5% bonus accrual required would have reduced net income below $3.98 per share, which was the threshold for the 65% award. Therefore, the Named Executive Officers received 65% of the portion of their total bonus award that is based on earnings per share.

     The following table shows, for fiscal 2009, the performance objectives based on our performance versus our industry peers as reported by Agristats and the corresponding percentages of the operational component of a participant’s bonus award that could have been earned:

2009 Bonus Awards — Operational Performance Component

		Percentage of
		Operational
		Performance-Based
Agristats Ranking		Award
1			100	%
2			100	%
3			100	%
4			66 2/3	%
5			66 2/3	%
6			33 1/3	%
7			33 1/3	%

     For 2009, the Named Executive Officers received 33 1/3% of the portion of their total bonus award that is derived from operational performance.

     The following table shows, for the 2009 fiscal year, the maximum percentages of base salary that the Named Executive Officers could have received under the Bonus Award Program, the percentage actually received based on the Company’s actual 2009 performance and the dollar amount of actual awards. The actual cash awards are also shown in the “Non-Equity Incentive Plan Compensation” column of the Summary Compensation Table that follows this Compensation Discussion and Analysis. For fiscal 2009, the Company’s actual performance reflected a high level of difficulty for the Bonus Award Program participants given the volatility of the market for the Company’s feed ingredients, general economic conditions affecting demand and pricing of fresh chicken and inefficiencies we experienced due to the ramping up of production at our new Waco complex.

2009 Bonus Award Payments

		Maximum Bonus Award				Percentage of Base
		Opportunity as a				Salary Actually
		Percentage of Base				Earned under Bonus				Dollar Amount of
Position		Salary				Award Program				Actual Awards
CEO			150	%			73.75	%		$	860,288
COO			100	%			49.17	%			285,157
CFO			100	%			49.17	%			244,342
Secretary			50	%			24.58	%			57,787

     Each January, the Committee reviews and reconsiders the Bonus Award Program, the maximum bonus opportunities, the performance criteria under the program and the earnings per share targets for the then-current fiscal year. As part of its review, it receives reports from the outside compensation consultant concerning the level of similar short-term cash incentives paid by the peer group companies. It also receives management’s recommendations as to the appropriate targets for earnings per share and operational performance based on management’s estimates of what would qualify as superior performance.

     The Committee generally adopts the program in January for the current fiscal year. The parameters of the program and the performance criteria are then communicated to the participants. Once the Committee adopts the program, the bonus awards are determined solely according to the program criteria and are not subject to the discretion of the Committee. Bonuses earned for a completed fiscal year are usually paid in December following the fiscal year.

     Long-Term Equity Incentive Awards

     Equity-based compensation and ownership ensures that our executive officers and directors have a continuing stake in the long-term success of the Company. Generally, the Committee considers equity incentive awards to the Named Executive Officers each October, after its annual evaluation of executive pay. The awards, if made, usually become effective in November at the start of the Company’s new fiscal year.

     Under the Stock Incentive Plan, the Board may grant restricted stock, performance shares, stock options, stock appreciation rights, phantom stock, management share purchase rights and other stock-based awards. Since its inception in 2005, awards to the Named Executive Officers under the plan have consisted of restricted stock, performance shares and management share purchase rights.

     When the Board of Directors adopted the Stock Incentive Plan, Watson Wyatt recommended that the Board of Directors grant performance shares to executives every year, and grant a combination of performance shares and restricted stock every other year. This combination helped ensure a predominance of performance-based awards while aiding in the retention of management with time-based vesting awards.

     The Committee, with input from Watson Wyatt, has made specific grants by comparing the executive’s current long-term incentive levels with the market range established by published survey and peer proxy data. Based on market studies, it has then identified a typical multiple of the average base salary for the individual’s management level that his or her long-term incentives should represent. For the fiscal 2007 and 2008 incentive awards, the Committee identified the typical long-term incentive multiple to be 130% for the COO and CFO and 50% for the Secretary. For fiscal 2009, the multiple was 135% for the COO and CFO and 50% for the Secretary. The CEO’s multiple was 240% in 2007, 205% in 2008 and 250% in 2009, but he declined to participate in the program during those years, requesting instead that the Board permit him to have additional vacation time.

     For fiscal 2010, the CEO asked to be considered for equity-based awards. The Committee used multiples for fiscal 2010 compensation of 120% for each of the CEO, COO and CFO, and 40% for the Secretary. (The CEO’s multiple was half of the 240% that Watson Wyatt identified as typical for the market, in light of his receipt of additional vacation time in lieu of equity awards in prior years.) This calculation yields a target annual long-term incentive award level that is then converted into a recommended number of shares to be awarded using the approximate stock price quoted on Nasdaq at that time. As discussed above, the Committee also bases its final decisions as to the award level on factors such as individual merit, responsibilities, individual and Company performance, and the dilutive effect of the award on our stockholders.

     Every other year, the Committee allocated the total recommended share award between performance shares and restricted stock. Awards to the COO and CFO were weighted more heavily toward performance shares than restricted stock, at a ratio of 75% to 25%, because those officers have more influence over the Company’s overall performance that other participants in the plan. The Secretary’s awards were generally allocated 65% to performance shares and 35% to restricted stock.

     However, because they were based on very aggressive performance targets, the first two cycles of performance shares granted by the Company were not earned, and management expects that the performance shares granted for the 2008 fiscal year will likewise not be earned. As a result, in October 2008, the Committee asked management and Watson Wyatt to review the performance share targets to determine whether or not the targets should be modified or whether future long term incentive awards should be structured differently. Based on their findings, the Committee made the following adjustments to the long-term incentive program in January 2009:

	•		The Committee determined to grant an equal number of performance shares and shares of restricted stock each year for future awards to all program participants, instead of granting restricted stock only every other year and instead of weighing awards more heavily to performance shares.
	•		The Committee changed the method by which the performance criteria are calculated, and changed the length of the performance cycle for future performance shares awards from three years to two, as discussed more fully below.

     All of our restricted stock and Management Share Purchase Plan agreements provide that stock awarded under those plans will become fully vested in the event of a change in control of our Company and fully or partially vested upon certain other events, as described more fully in the “Potential Payments Upon Termination or Change-in-Control” section below. These provisions were adopted because they are customary for equity incentive awards of those types and because the Board of Directors deemed them to be reasonable and fair to our management. In the context of a merger or other transaction that would allow our stockholders to profit from a sale of control of our Company, such provisions can help ensure that management will not be distracted in the transaction negotiations by concerns that the value of their awards will decline after the change of control is complete. The potential payments under these provisions played no part in the Committee’s decisions regarding other elements of our executive compensation.

•

Restricted Stock

     Shares of restricted stock are a promise to pay to the recipients actual shares of Sanderson Farms stock at the end of a vesting period when the restrictions lapse. The COO, CFO and Secretary and certain other salaried employees of the Company received restricted stock as part of their long-term incentive award in January 2009 for the 2009 fiscal year. These shares vest, in general, on the fourth anniversary of the award, as long as the holder remains continuously employed by us during the restricted period.

     Recipients of restricted stock have all the rights of a stockholder of the Company, including the right to receive dividends, beginning on the grant date. In the event a recipient forfeits shares of restricted stock before such shares vest, all dividends paid on such stock must be returned to the Company, and the shares are cancelled.

•

Performance Shares

     Performance shares provide a material incentive to executives by offering potential increased stock ownership in the Company tied directly to our stockholders’ return. The COO, CFO, Secretary and certain other salaried employees received performance share grants as part of their long-term incentive awards in January 2009. The performance share program entitles the holder to earn shares of Sanderson Farms common stock if we achieve

certain relative levels of performance on stockholder return over a multi-year period following the grant, as long as the holder remains continuously employed by us until the end of the performance period and any additional holding period. The length of the performance period reflects the cyclical nature of the poultry business, and is designed, generally, to measure our performance over an industry cycle.

     Performance shares carry no dividend or voting rights until they are issued after achievement of the performance objectives.

     The Board of Directors may pay earned performance shares in cash, shares of Sanderson Farms common stock, or in a combination of both. Once the performance criteria are established and the awards are granted, the payment of earned shares is not subject to the discretion of the Committee or the Board.

     Performance share awards are made in a target amount of shares based on our average return on equity (which we call ROE) and a target amount based on our average return on sales (which we call ROS). The award establishes three possible non-discretionary percentages of those target amounts that the recipient could actually receive, depending on our actual performance measured at the end of the performance period.

     Over time, it became clear that the performance goals that had been established for fiscal 2006, 2007 and 2008 awards were too demanding and would not result in competitive compensation levels over a multi-year period, even considering adjustments to the program that the Committee made for the 2008 awards. Therefore, after study by both management and Watson Wyatt, the Committee made the following additional adjustments to the performance share awards granted in January 2009 for the 2009 fiscal year:

	•		The performance goals were determined by averaging ROE and ROS historically over 18 two-year periods, rather than using three-year figures.
	•		The performance period was also shortened from three years to two, but there is an additional one year holding period before earned shares are paid.

     As a result, the performance criteria for fiscal 2009 awards were structured as follows:

2009 Performance Share Criteria

						Threshold				Target				Maximum
Measure		Weight				(50% Payout)				(100% Payout)				(200% Payout)
ROE			50	%			10.1	%			12.77	%			20.64	%
ROS			50	%			3.37	%			3.93	%			5.23	%

     If our average ROE or average ROS is otherwise between the threshold and maximum percentages, the number of performance shares received will be calculated using a straight-line interpolation. If average ROE or ROS is less than the threshold, the recipient will not be entitled to receive any shares of the applicable target award.

     The threshold level represents our median performance over the course of the historical 18 two-year periods. The target level represents the 65th percentile of performance during the historical measurement period and the maximum level represents the 83rd percentile. Average ROE is equal to the mathematical average of the net return on average equity for each of the two years in the performance period. Net return on average equity is computed by adding together stockholders’ equity at the beginning and end of each fiscal year on our audited financial statements and dividing by two. The resulting number is then divided into net income for the fiscal year as reported on our audited financial statements to reach net return on average equity for the year. Average ROS is equal to the mathematical average of the net return on net sales for the two years in the performance period. Net return on net sales is computed by dividing net income by net sales, as both numbers are reported on our audited financial statements for the year.

     Using the same methodology, the performance criteria for the fiscal 2010 awards were established as follows:

2010 Performance Share Criteria

						Threshold				Target				Maximum
Measure		Weight				(50% Payout)				(100% Payout)				(200% Payout)
ROE			50	%			9.7	%			11.0	%			20.6	%
ROS			50	%			3.0	%			3.5	%			4.7	%

     Management and Watson Wyatt believe that the adjustments to the program, along with the change in the mix of performance shares and restricted stock to an annual 50-50 ratio, will cause the long term-equity incentive plan to be more competitive with market standards, but will maintain a very demanding performance-oriented focus that is part of our Company culture.

     The performance share agreements and Bonus Award Program do not provide for the adjustment or recovery of an award or payout under those programs in the event that the performance measures on which they are based are restated or adjusted in a manner that would reduce the size of an award or payout.

•

Management Share Purchase Rights

     Under our Management Share Purchase Plan, executive officers and other key employees may defer up to 15% of their annual base salaries and up to 75% of their bonuses earned under the Bonus Award Program for the purchase of restricted stock at current market price. The Company matches 25% of the employee’s contribution to the plan to purchase additional shares. The shares purchased or granted through the plan generally vest on the third anniversary of their acquisition by the participant. In fiscal 2009, the COO was the only Named Executive Officer to participate in the plan. You can find more information about the plan in the narrative accompanying the Grant of Plan-Based Awards table, below.

     In-Service and Post-Employment Benefits

     As mentioned above, we believe strongly in aligning the interests of management with those of our stockholders. We were among the first in our industry to adopt an Employee Stock Ownership Plan, and each of the Named Executive Officers participates in the plan on the same basis as all of our other employees. Participants are automatically enrolled in the plan after one year of service and become fully vested after six years. We contribute funds to the plan in profitable years, and on October 31, 2009, we contributed $6.0 million to the plan.

     We also sponsor a 401(k) retirement plan that is available to all of our employees after one year of service. The Named Executive Officers participate on the same basis as all other employees. Eligible employees may contribute up to 15% of their salary to the plan on a pre-tax basis through payroll deductions. We began matching employee contributions to the plan in 2000, and will match 100% of an employee’s contribution up to 3% of his or her salary, and 50% of such contribution that exceeds 3% but does not exceed 5% of his or her salary. Sanderson Farms common stock is not an investment option under the plan.

     We also provide other benefits such as medical, dental and long-term/short-term disability (up to 66 2/3% of salary not exceeding $270,000 per year in long-term disability payments) coverage, as well as vacation and other paid holidays. Beginning with our 2001 fiscal year, we began paying premiums on term life insurance policies for all employees who participate in our health plan. The death benefit under these policies equals the employee’s annual salary, up to a maximum of $100,000 and a minimum of $50,000. These benefit programs are comparable to those provided at other large companies. They are designed to provide certain basic quality of life benefits and protections to our employees and at the same time enhance our attractiveness as an employer.

     In 2008, the Committee adopted a Supplemental Disability Plan for the CEO. The plan provides that if the CEO becomes disabled as defined in our long term disability plan for all our salaried employees, he will receive a monthly benefit equal to 66 2/3% of his salary beginning one year from the date of disability until the date that he has received five years of payments or his 70th birthday, whichever occurs first. This is the same benefit that is provided to all participants in our long term disability plan. However, the Committee adopted the supplemental plan because our long term disability plan places an annual dollar limit on the benefit that participants can receive, which would have resulted, if the CEO became disabled at the time the supplemental plan was adopted, in a benefit to him of only 26% of his then current salary. The employment agreements that the Company entered into with the COO and CFO in 2009 made those officers participants in the supplemental plan.

     The Company’s portion of the cost of health benefits provided in the 2009 fiscal year for the Named Executive Officers was as follows:

2009 Benefits

		Cost to Company of Active
Officer		Health Benefits
CEO		$	7,079
COO		$	7,079
CFO		$	7,079
Secretary		$	7,079

     The 401(k) contribution and the payment of life insurance premiums is ratified by the Committee in January of the year following the year for which they were made. The Board of Directors approves the annual ESOP contribution, if any, in October of each year.

     All employees may elect to continue participating in our health benefit plan following their retirement, but they must pay 100% of the premium cost.

     In rare instances, we have continued, because of the applicable circumstances, to pay the base salaries of certain key employees for a short period of time after their deaths. None of those employees served at any time as an executive officer of Sanderson Farms. However, the employment agreements we entered into with the CEO, COO and CFO in 2009 provide that we will continue to make base salary payments to their designated beneficiary or estate for a period of one year from the date of the officer’s death.

     Perquisites

     We provide certain perquisites to our executives, which consist primarily of personal use of our Company aircraft by the CEO and his immediate family. This perquisite provides flexibility to the CEO and increases travel efficiencies, allowing more productive use of executive time, in turn allowing greater focus on Sanderson Farms-related activities. The Company also permits the COO and CFO to use Company aircraft in times of family or other emergencies. In some cases, the Company also permits and pays for the Named Executive Officers’ spouses to accompany them on the corporate aircraft. We also reimbursed the CEO for the cost of the preparation of his annual income tax return during 2007 and 2009, although the practice will be discontinued going forward. The amounts of these perquisites are ratified by the Committee in January of the year following payment. More detail on our perquisites may be found in the narrative following the Summary Compensation Table, below.

     Stock Ownership Guidelines

     In October 2004, the Committee recommended and the Board of Directors adopted non-binding stock ownership guidelines for our management, in an effort to encourage increased ownership of our Company by key employees. In 2008, Watson Wyatt reviewed the guidelines and advised the Committee that they continue to be appropriate. We believe that these guidelines are reasonable to achieve and will be a long-term benefit to all of our stockholders by helping to align management and stockholder interests. They also encourage directors and officers to hold purchased shares and vested option shares, restricted stock and performance shares, as applicable, for long-term investment. “Stock ownership” includes stock owned directly, indirectly through the 401(k) plan or Employee Stock Ownership Plan, restricted stock, and earned or unearned performance shares. The guidelines are based on a multiple of base salary at 2005 levels, and are set forth in the table below. All of our Named Executive Officers and directors have exceeded the guidelines below.

Stock Ownership Guidelines

		Average Base				Desired		Number of
		Salary or				Ownership		Shares (assuming
Position		Director’s Fee				Multiple		$45 per share)1
CEO		$	800,000			6			107,000
COO, CFO		$	300,000			4			27,000
Secretary		$	170,000			3			11,000

     See the section entitled “Director Compensation,” below, for a discussion of stock ownership guidelines applicable to directors.

     It is Sanderson Farms’ policy that our directors and all employees, including the Named Executive Officers, not trade their Sanderson Farms stock, other than shares underlying options, on a short-term basis (i.e., shares must be held for a minimum of six months). Additionally, employees and directors may not purchase Sanderson Farms stock on margin, nor may they buy or sell put or call options linked to Sanderson Farms stock.

     Tax and Accounting Considerations

     For income tax purposes, we may not deduct any portion of compensation that is in excess of $1 million paid in a taxable year to the CEO, CFO, COO and Secretary, unless that compensation qualifies as “performance-based compensation” under Section 162(m) of the Internal Revenue Code of 1986, as amended (referred to as the “Code”). Some of the components of our executive compensation, such as the Bonus Award Program and certain awards that we could make under the Stock Incentive Plan, may not qualify as “performance-based compensation.” For example, while the Committee believes that the goals established under the Bonus Award Program are performance-based, Section 162(m) of the Code requires that the Program be approved by our stockholders to meet the definition of “performance-based” and thus make the awards deductible. While the Committee generally strives to structure employee compensation in order to preserve maximum deductibility, it may from time to time make awards that do not meet the Code’s definition of “performance-based compensation” and that would result upon vesting in the recognition of income to an employee in a taxable year greater than $1 million, resulting in a loss of the deduction. We do not anticipate, however, that compensation paid to any employee under the Company’s compensation programs now in effect, or under the Stock Incentive Plan, will result in a loss of material tax deductions.

     In the first quarter of our 2006 fiscal year, we adopted Revised Statement of Financial Accounting Standards No. 123, “Share-Based Payment” (FAS 123(R)). FAS 123(R) requires all share-based payments to employees, including grants of employee stock options, restricted stock and performance shares, to be recognized in our income statement based on their fair values. Before the adoption of FAS 123(R), we accounted for share-based payments to employees using an intrinsic value method and, therefore, we generally recognized no compensation cost for employee stock options. Based upon the provisions of FAS 123(R), we are required to accrue stock based compensation expense as it is earned. This change in accounting rules has influenced the Committee to make restricted stock and performance share awards in lieu of option awards. Other factors that have made restricted stock and performance share awards more attractive than option awards include their generally smaller dilutive effect and the performance incentive they provide even in times when our stock price is depressed.

     Evaluation of Executive Performance in Fiscal 2009

     In evaluating the performance of the individual Named Executive Officers before setting or adjusting compensation, the Committee and the Board of Directors do not rely solely on predetermined formulas. Rather, they focus on those officers’ individual objectives. The Committee evaluates the CEO’s performance in consultation with the Board, and it evaluates the other Named Executive Officers with the input of the CEO.

      In 2008, the Committee and the Board based their decisions for fiscal 2009 compensation on the assessment of the Company’s fiscal 2008 performance and the Named Executive Officers’ objectives and strategies, as follows:

	•		We successfully started up our new Waco, Texas facility and ramped up that plant’s production to 88% capacity as of October 2008.
	•		During a period of challenging and unprecedented market conditions involving high grain costs, an oversupply of fresh chicken and weak consumer demand, we minimized our losses significantly as compared with our peers.
	•		The officers completed the detailed due diligence necessary to locate a new poultry complex in North Carolina, and received Board of Directors approval for the new complex after a complete and thorough presentation on the Company’s strategic plan. After detailed study and analysis, management made the strategic recommendation that we delay construction of the new complex.
	•		Our CEO continued his exceptionally strong and pragmatic leadership of our company, focusing on long term strategy and inspiring confidence in the investment community by maintaining an open dialog with our stockholders, even during a period of extremely unfavorable market conditions.
	•		Our COO led our successful effort to increase sales of our retail products; skillfully managed both our live production and processing operations, making those two operations among the least costly and most efficient in the industry; and played a key role in our grain purchasing strategy.
	•		Our CFO continued to perform atypically in our Company, overseeing not only all aspects of our accounting practices, financial reporting, audit functions, investor relations, financial strategy and capital raising, but also playing a key role in our grain purchasing strategy and operational matters, as well as in legal affairs and risk management.
	•		The CEO was pleased with the performance of the other senior officers and recommended the Committee award them substantial salary increases.
	•		The Committee took into account the 4% cost of living adjustment that we awarded to all our salaried employees other than the Named Executive Officers, and Watson Wyatt’s recommendation that no extraordinary market adjustments for the Named Executive Officers’ compensation were needed for 2009.

      In 2009, the Committee considered the following factors in setting fiscal 2010 salaries:

	•		We successfully ramped up production at our Waco, Texas facility to 100% capacity in the third quarter of fiscal 2009.
	•		Although market conditions continued to be difficult, including improved, but still historically high grain costs, a continued oversupply of fresh chicken during much of the year, a weak national economy and consumer demand worse than even 2008 levels, we earned $3.99 per fully diluted share for the year, and had the highest quarterly earnings in our Company’s history of $2.09 per fully diluted share for our third fiscal quarter.
	•		After detailed study and analysis, management recommended and the Board approved the resumption of the development of our new poultry complex in Kinston, North Carolina. As a result of the strategic delay that management recommended in June 2008, the cost of the project was reduced and resulted in $5.1 million of savings to the Company. The new plant will add 1.25 million head of chicken to our total processing volume and continues our plan of strategic growth.
	•		We continued to outperform our peers, finishing in the top third of our industry as measured by Agristats, due primarily to our efficient, low-cost operations and the additional processing volume we gained from our new plants in Waco and Moultrie, Georgia.
	•		Our CEO again demonstrated his exceptional leadership, highlighted by his vision for long term growth to build value for our stockholders. He continued to impress the investment community with his skill, including at our first ever investor conference held in October 2009.
	•		Our COO led our successful effort to ramp up operations at our Waco plant to profitable levels more rapidly than our prior new plant start-ups, especially in light of hot weather conditions in Texas that typically result in lower bird weights.

	•		Our CFO did an outstanding job of managing our balance sheet and continuing our conservative approach and favorable debt to capital ratio. In addition, he continues to have a variety of other important financial, operational and administrative responsibilities that are not typical for chief financial officers of public companies, as discussed above.
	•		The CEO was pleased with the performance of the other senior officers and the Company’s performance overall.
	•		The Committee took note of the CEO’s request that he be considered for long-term incentive awards, in contrast to prior years when he declined such awards.
	•		The Committee also took into account Watson Wyatt’s recommendation that no extraordinary market adjustments for the Named Executive Officers’ compensation were needed for 2010.

      Based on the assessment detailed above, the Committee approved the following compensation for the Named Executive Officers for fiscal 2010.

Fiscal 2010 Compensation Actions

										Number
										of Shares				Grant								Grant Value of
										of				Value of				Number of				Target
						Percent				Restricted				Restricted				Performance				Performance
Position		Salary				Increase				Stock				Stock Awards				Shares				Share Awards
CEO		$	1,213,152				4	%			18,500			$	711,140				18,500			$	711,140
COO		$	603,180				4	%			8,500			$	326,740				8,500			$	326,740
CFO		$	516,852				4	%			8,500			$	326,740				8,500			$	326,740
Secretary		$	244,476				4	%			1,050			$	40,362				1,050			$	40,362

     Elements of compensation paid for the 2009 fiscal year are set forth in the Summary Compensation Table, below.

     Discretionary Restricted Stock Grant

     In evaluating management’s outstanding performance during fiscal 2009, the Committee determined that it would be appropriate and in the best interest of our stockholders to make a one-time, discretionary grant of restricted stock to participants in the long-term incentive program. The consensus of the Committee and its advisors was that the Company performed remarkably well under extraordinary circumstances in the poultry and grain markets and the national economy. Moreover, management was able to achieve that performance even given the inefficiencies that naturally resulted from the opening of our new Waco and Moultrie complexes and the start of construction of our new North Carolina complex.

     In light of these factors, in December 2009, the Committee approved a one-time grant of restricted stock for our management in an amount equal to 10% of the average base salary for an individual’s management level, divided by an assumed stock price of $38 per share, including for our Named Executive Officers as follows:

Discretionary Restricted Stock Grant

						Grant Value of
		Number of Shares				Restricted Stock
Position		of Restricted Stock				Awards
CEO			3,100			$	130,014
COO			1,400			$	58,716
CFO			1,400			$	58,716
Secretary			530			$	22,228

     Fifty percent of the shares granted vested immediately on the grant date. The remaining 50% vests on the first anniversary of the grant, so that the award will be fully vested on December 21, 2010.

     Director Compensation

     The Nominating and Governance Committee is charged with recommending all cash and non-cash compensation of our non-employee directors. Watson Wyatt reviews and reassesses our director pay every other year and makes recommendations to the Nominating and Governance Committee. In fiscal 2009, our non-employee directors received cash fees for their service on the Board and its committees as set forth below:

Director Cash Fees

		Amount
Annual Stipend		$	20,000
Each Board of Directors meeting attended		$	6,000
Each telephonic Board of Directors or Board committee meeting attended		$	1,000	(1)
Each committee meeting attended not in conjunction with a Board meeting		$	6,000
Received annually by Audit Committee Chair		$	10,000 annually
Received annually by other committee chairs		$	6,000 annually

     Directors were also subject to a non-binding stock ownership guideline encouraging directors to own shares of our stock valued at ten times the annual director’s retainer of $20,000, or $200,000.

     Before October 2007, non-employee directors received a grant of 3,000 shares of restricted stock upon their election or reelection to the Board. Those shares generally vest upon the expiration of the director’s term if he or she served continuously on the Board through the vesting date. In October 2007, Watson Wyatt determined that our equity grants were below those paid by our peer group and below the market generally. They recommended that we make annual restricted stock grants to all outside directors, in an amount that would result in each director receiving a total of 5,000 shares every three years. The first annual grant was made following our 2009 annual meeting of stockholders. The restricted periods for each annual grant are staggered, so that all 5,000 shares would vest at once at the end of a director’s three year term. The new grant and vesting schedule will be phased in over a three year period.

     In October 2009, the Nominating and Governance Committee retained Watson Wyatt to review our director pay. Based on studies of the peer group and published surveys, Watson Wyatt determined that our director pay was below median market levels. The Nominating and Governance Committee recommended and the Board adopted Watson Wyatt’s recommendation that we make the following changes to directors’ pay:

	•		Increase the annual cash retainer from $20,000 to $25,000.
	•		Increase the Board meeting fee from $6,000 to $7,500.
	•		Increase the number of restricted shares granted annually from 1,667 (or 5,000 shares over a three-year period) to 2,300 shares (or 6,900 shares over a three-year period), to target an approximately 60-40 equity and cash pay mix.
	•		Reduce the stock ownership guideline to eight times the annual retainer to maintain a roughly $200,000 value guideline.

     Also in October 2009, the Nominating and Governance Committee recommended and the Board approved an annual allowance of up to $5,000 for outside directors to attend continuing education seminars related to corporate board of directors service and other topics relevant to the Company. The Nominating and Governance Committee must pre-approve the particular seminar requested by a director for reimbursement.

     In addition, in October 2009, the Nominating and Governance Committee recommended and the Board approved a special annual fee to be paid to the Lead Director in the amount of $15,000. This amount represents the median lead director fee for companies in our peer group as determined by Watson Wyatt, and the Nominating and Governance Committee believes that it is appropriate in light of additional time and responsibilities required of the Lead Director.

     Non-employee directors may participate in the Management Share Purchase Plan by deferring up to 100% of their director fees toward the purchase of restricted shares of Sanderson Farms common stock. The Company matches 25% of the director’s contribution to purchase additional restricted shares. Restricted shares held through the plan generally vest on the third anniversary of their acquisition by the director, as long as he or she has served on the Board continuously through that date.

     Non-employee directors may also participate in the Company’s medical plan, but they must pay 100% of the premium cost with after-tax dollars.

     More information about the actual compensation paid to non-employee directors is set forth in the Director Compensation table, below.

Compensation Committee Report

     The Compensation Committee has reviewed and discussed with management the foregoing Compensation Discussion and Analysis section of our 2010 Proxy Statement. Based on its review and discussions with management, the Compensation Committee recommended to the Board of Directors that the Compensation Discussion and Analysis be included in our Proxy Statement for 2010.

The Compensation Committee:

		John H. Baker		Phil K. Livingston (Chair)
		Toni D. Cooley		Gail Jones Pittman
		Beverly Wade Hogan		Charles W. Ritter, Jr.
		Robert C. Khayat		Rowan H. Taylor

Executive Compensation Tables

     The table below includes information about compensation paid to or earned by our Named Executive Officers for our fiscal years ended October 31, 2007, 2008 and 2009.

Summary Compensation Table

																								Change in
																								Pension
																								Value and
																								Nonqualified
																				Non-Equity				Deferred
												Stock				Option				Incentive Plan				Compensation				All Other
Name and Principal												Awards2				Awards				Compensation3				Earnings				Compensation				Total
Position		Year				Salary ($)1				Bonus ($)			($)			($)				($)				($)				($)				($)
Joe F. Sanderson, Jr. Chairman of the Board of Directors and Chief Executive Officer			2009				1,166,496				—		1,172,352				—				860,288				—				118,785				3,317,921
			2008				1,023,240				—		891,200				—				0				—				141,586				2,056,026
			2007				927,200				—		891,200				—				649,040				—				83,433				2,550,873
Lampkin Butts, President and Chief Operating Officer			2009				579,984				—		842,552				—				285,157				—				44,959				1,752,652
			2008				527,256				—		192,749				—				0				—				35,475				755,480
			2007				477,690				—		322,266				—				222,922				—				34,659				1,057,537
Mike Cockrell, Treasurer and Chief Financial Officer			2009				496,968				—		328,893				—				244,342				—				40,063				1,110,666
			2008				451,788				—		84,397				—				0				—				27,864				564,049
			2007				409,442				—		196,844				—				191,073				—				26,806				824,165
James A. Grimes, Secretary			2009				235,068				—		224,131				—				57,787				—				21,696				538,682
			2008				217,656				—		96,745				—				0				—				13,259				326,660
			2007				203,414				—		122,349				—				47,463				—				19,795				393,021

     The amounts included in the table above under “All Other Compensation” consist of the following:

All Other Compensation

																														Amounts
										Dividends				401(k)								Term Life								Reimbursed
						Matching				Paid on				Matching				ESOP				Insurance								for the Payment of
						Charitable				Restricted				Contribution				Contribution				Premium				Perquisites1				Taxes2
Name		Year				Contributions				Stock				($)				($)				($)				($)				($)
Mr. Sanderson			2009				2,500				57,000				8,250				7,819				233				42,983				0
			2008				2,500				56,000				6,973				0				233				59,598				16,282
			2007				2,500				50,000				8,900				8,288				204				10,282				3,259
Mr. Butts			2009				2,500				23,158				9,429				7,819				233				1,820				0
			2008				2,500				21,393				8,470				0				233				2,797				82
			2007				2,500				12,138				8,900				8,288				204				2,629				0
Mr. Cockrell			2009				0				22,249				9,762				7,819				233				0				0
			2008				2,500				16,075				9,036				0				233				0				20
			2007				2,500				6,916				8,900				8,288				204				0				0
Mr. Grimes			2009				1,000				7,898				4,746				7,819				233				0				0
			2008				1,000				6,947				5,079				0				233				0				0
			2007				1,000				5,700				5,228				7,663				204				0				0

Grants of Plan-Based Awards
2009

Exercise

All Other

All Other

or

Stock Awards:

Option Awards:

Base

Grant Date

Estimated Future Payouts

Number of

Number of

Price

Fair Value of

Estimated Future Payouts Under

Under Equity Incentive Plan

Shares of

Securities

of

Stock and

Non-Equity Incentive Plan Awards1

Awards2

Stock or

Underlying

Option

Option

Grant

Approval

Threshold

Target

Maximum

Threshold

Target

Maximum

Units

Options

Awards

Awards

Name

Date

Date

($)

($)

($)

(#)

(#)

(#)

(#)

(#)

($/Sh)

($)

Joe F. Sanderson, Jr.

335,076

1,020,713

1,749,744

Chairman of the Board of Directors and Chief Executive Officer

Lampkin Butts President and Chief Operating Officer

111,154

338,334

579,984

01/29/09

01/29/09

4,900

9,800

19,600

9,800

749,504

Various

02/17/05

155

(3)

5,941

Mike Cockrell, Treasurer and Chief Financial Officer

95,244

289,906

496,968

01/29/09

01/29/09

4,900

9,800

19,600

9,800

749,504

Various

02/17/05

43

(3)

1,486

James A. Grimes, Secretary

22,508

68,563

117,534

01/29/09

01/29/09

725

1,450

2,900

1,450

120,454

Discussion of Summary Compensation and Grants of Plan-Based Awards Tables

     Performance shares granted for the 2009 fiscal year are subject to a two-year performance period and an additional one year holding period. The number of shares actually paid out depends on our achieving certain prescribed levels of return on equity and return on sales, as described above in the CD&A section.

     Shares of restricted stock granted directly under our restricted stock program vest generally on the fourth anniversary of the award, as long as the holder remains continuously employed by us during the restricted period.

     Shares of restricted stock granted as matching contributions under our Management Share Purchase Plan are subject to a three-year vesting period starting on the date they are acquired by the participant. The participant must remain continuously employed by us during the vesting period.

     In 2009, we entered into employment agreements with the CEO, the COO and the CFO. The term of each agreement began September 15, 2009 and ends when the officer’s employment terminates under the provisions of the agreement. Each agreement provides for the officer’s fiscal 2009 salary and bonus to be paid in accordance with the levels and bonus program that we previously disclosed in our definitive proxy statement for our 2009 annual meeting of stockholders. The officers’ compensation will be reassessed annually.

     The agreements provide for a severance payment to be paid to the officers if:

	•		before a change in control of our Company, the officers are terminated without cause, except in the case of poor performance;
	•		at or after a change in control, the officers are terminated without cause or
	•		the officers resign for good reason.

     “Cause” means, among other things, conviction of certain felonies, willful misconduct by the officer, failure or refusal by the officer to comply with our policies or a material breach by the officer of the employment agreement. “Good reason” means, among other things, a material breach of the agreement by us, a reduction of the officer’s base salary or bonus that is not part of a reduction program affecting all senior executives generally, the relocation of the officer’s principal place of employment by more than 40 miles, or after a change in control, the alteration of the officer’s position that results in a material diminution of his position.

     The amount of the severance payments will be, in the case of Mr. Sanderson, three times, and in the case of Messrs. Butts and Cockrell, two times, the following amounts:

	•		the officer’s annual base salary in effect at the time of his termination, plus
	•		fifty percent of the maximum bonus available to the executive under the Company’s bonus program in effect for the year of termination.

     In addition, the agreement provides, in the case of the officer’s death, for the continuation of his annual salary payments for one year from the date of his death. The agreements for Messrs. Butts and Cockrell also designate them as participants in the Registrant’s Supplemental Disability Plan.

     The agreements prohibit the officers from disclosing confidential information about the Registrant during and after their employment, and prohibit the officers from engaging in certain competitive activity with the Registrant during their employment and for two years after the termination of their employment for any reason other than poor performance.

     See the “Potential Payments Upon Termination or Change-in-Control” section, below, for a discussion of the impact of a change in control of our Company and certain other events, including competitive activity, on an officer’s unearned performance shares or restricted stock. Dividends are paid at rates applicable to all our stockholders on performance shares once they are earned. Dividends (at normal rates) are paid on shares of restricted stock as soon as the shares are issued to the officer.

     Amounts that could have been earned for fiscal 2009 under our Bonus Award Program were determined by reference to our earnings per share and operational performance versus our peers as described in the CD&A section, above. Unless severance is payable under the provisions of the employment agreements described above, a participant must have been employed in a designated position at Sanderson Farms for nine months before the end of the fiscal year, and must have been employed on October 31 of the applicable fiscal year, to receive a bonus. However, if a Bonus Award Program participant dies, becomes disabled or retires before the end of the fiscal year, and if the participant had been employed at Sanderson Farms in a designated position for at least nine months, he or she will still receive a bonus award for the fiscal year (assuming the performance criteria are met). See the “Potential Payments Upon Termination or Change-in-Control” section, below, for a discussion of the impact of certain events on a participant’s annual bonus award.

     For fiscal 2009, salary accounted for the following percentage of each officer’s total compensation:

		Salary as a
		Percentage of Total
Name		Compensation
Mr. Sanderson			35.2	%
Mr. Butts			33.1	%
Mr. Cockrell			44.8	%
Mr. Grimes			43.6	%

Outstanding Equity Awards at Fiscal 2009 Year-End

Option Awards

Stock Awards2

Equity

Incentive

Equity

Equity Incentive

Plan Awards:

Incentive

Plan Awards:

Market or

Plan Awards:

Market

Number of

Payout Value

Number of

Number of

Number of

Number of

Value of

Unearned

of Unearned

Securities

Securities

Securities

Shares or

Shares or

Shares, Units

Shares, Units

Underlying

Underlying

Underlying

Units of

Units of

or Other

or Other

Unexercised

Unexercised

Unexercised

Option

Stock That

Stock That

Rights That

Rights That

Options

Options

Unearned

Exercise

Option

Have Not

Have Not

Have Not

Have Not

(#)

(#)

Options

Price

Expiration

Vested1

Vested2

Vested

Vested

Name

Grant Date

Exercisable

Unexercisable

(#)

($)

Date

(#)

($)

(#)

($)

Joe F. Sanderson, Jr. Chairman of the Board of Directors and Chief Executive Officer

3/3/05

100,000

3,659,000

Lampkin Butts, President and Chief Operating Officer

3/3/05

20,000

731,800

11/28/05

3,750

137,213

11/01/07

3,879

141,933

5,819

212,917

01/29/09

9,800

358,582

9,800

358,582

Various

466

1

17,051

Mike Cockrell, Treasurer and Chief Financial Officer

3/3/05

20,000

731,800

11/28/05

3,750

137,213

11/01/07

3,879

141,933

5,819

212,917

01/29/09

9,800

358,582

9,800

358,582

Various

318

1

11,636

James A. Grimes, Secretary

3/3/05

10,000

365,900

11/28/05

1,400

51,226

11/01/07

1,006

36,809

934

34,175

01/29/09

1,450

53,056

1,450

53,056