UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

SCHEDULE 14A

INFORMATION REQUIRED IN PROXY STATEMENT

SCHEDULE 14A INFORMATION

Proxy Statement Pursuant to Section 14(a) of the Securities
Exchange Act of 1934 (Amendment No. )

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

THE TIMBERLAND COMPANY

(Name of Registrant as Specified In Its Charter)

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

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THE TIMBERLAND COMPANY
200 Domain Drive
Stratham, New Hampshire 03885

 

 

March 30, 2010

 

TO THE STOCKHOLDERS:

 

The Board of Directors and Officers of The Timberland Company invite you to attend the 2010 Annual Meeting of Stockholders to be held on Thursday, May 13, 2010, at 9:00 a.m., at the Company’s headquarters located at 200 Domain Drive, Stratham, New Hampshire.

 

Your vote is important. Instructions on how to vote are contained in our Proxy Statement and in the Notice of Internet Availability of Proxy Materials. Please cast your vote by telephone or over the Internet as described in those materials. Alternatively, if you requested a copy of the proxy card by mail, you may mark, sign, date and return the proxy card in the envelope provided.

 

Cordially,

 

Sidney W. Swartz
Chairman

 

 

THE TIMBERLAND COMPANY
200 Domain Drive
Stratham, New Hampshire 03885

 

 

NOTICE OF 2010 ANNUAL MEETING OF STOCKHOLDERS

 

 

 

Purposes for Meeting:

 

 

Holders of Class A Common Stock will vote separately as a class to elect three directors. Holders of Class A Common Stock and holders of Class B Common Stock will vote together as a single class to elect the remaining eight directors, to ratify the appointment of Deloitte & Touche LLP as the Company’s independent registered public accounting firm and to approve the amendments to the Company’s 2007 Incentive Plan.

 

You will receive notice of and may vote and act at the Annual Meeting only if you were a stockholder of record at the close of business on Thursday, March 18, 2010.

 

Important Notice Regarding the Availability of Proxy Materials

for the 2010 Annual Meeting to be held on May 13, 2010

 

Our Notice of Annual Meeting, Proxy Statement and Annual Report to Stockholders are available on the Internet at www.edocumentview.com/TBL. We intend to begin mailing our Notice of Internet Availability of Proxy Materials to stockholders on or about April 2, 2010. At that time, we will also begin mailing paper copies of our proxy materials to stockholders who request them. Please see Page 1 of this Proxy Statement for more information on how these materials will be distributed.

 

By Order of the Board of Directors

 

Danette Wineberg
Secretary

 

March 30, 2010

 

THE TIMBERLAND COMPANY
200 Domain Drive
Stratham, New Hampshire 03885

 

PROXY STATEMENT

 

March 30, 2010

 

TABLE OF CONTENTS

 

 

The Board of Directors of The Timberland Company, a Delaware corporation, is sending you the enclosed proxy in connection with its 2010 Annual Meeting of Stockholders (the “Annual Meeting”) and any adjourned sessions of the Annual Meeting. The Annual Meeting will be held on Thursday, May 13, 2010, at 9:00 a.m., at the Company’s headquarters located at 200 Domain Drive, Stratham, New Hampshire. Throughout this Proxy Statement, we will refer to ourselves as “The Timberland Company”, “Timberland”, “we”, “our”, “its” or the “Company”. The purposes of the Annual Meeting are to:

 

 

You may vote at the Annual Meeting only if you were a stockholder of record as of the close of business on Thursday, March 18, 2010, which we refer to as the record date. As of the record date, the following numbers of shares of the Company’s Common Stock were outstanding:

 

 

The Securities and Exchange Commission, or SEC, has adopted rules that allow us to mail a notice to our stockholders advising them that our Proxy Statement, Annual Report to Stockholders and our Annual Report on Form 10-K are available for viewing, free of charge, on the Internet. Stockholders may then access these materials and vote over the Internet, by telephone, or request delivery of a full set of materials by mail or e-mail. We have elected to utilize this process for the 2010 Annual Meeting. We intend to begin mailing the required notice, called the Notice of Internet Availability of Proxy Materials (the “Notice”), to stockholders on or about April 2, 2010. The proxy materials will be posted on the Internet, at www.edocumentview.com/TBL, no later than the day we begin mailing the Notice. If you receive the Notice, you will not receive copies of the proxy materials by mail or e-mail unless you request them in the manner set forth in the Notice.

 

The Notice contains important information, including:

 

 

These rules give us the opportunity to communicate with you more efficiently by making the proxy materials available quickly online while reducing costs associated with printing and postage.

 

We bear all costs of solicitation of proxies. We may solicit proxies personally or by telephone, mail, telegram or the Internet. None of the Company’s directors, officers or employees will be specially

compensated for soliciting proxies. The SEC has adopted rules that allow us to send in a single envelope our Notice of Internet Availability of Proxy Materials or a single copy of our Proxy Statement and other required Annual Meeting materials to two or more stockholders sharing the same address. If we are sending a Notice, the envelope must contain a separate Notice for each stockholder at the shared address. Each Notice must also contain a unique control number that each stockholder will use to gain access to our proxy materials and vote. If we are mailing a paper copy of our proxy materials, the rules require us to send each stockholder at the shared address a separate proxy card.

 

We believe these rules are beneficial to both our stockholders and to us. Our printing and postage costs are lowered anytime we eliminate duplicate mailings to the same household. However, stockholders at a shared address may revoke their consent to the householding program and receive their Notice in a separate envelope, or, if they have elected to receive our proxy materials in the mail, receive a separate copy of these materials. If you are a registered holder and consented to the householding program and wish to revoke your consent for future years, or if you are a registered holder and have elected to receive proxy materials by mail at an address shared by more than one stockholder and want to receive a separate copy of these materials for our 2010 Annual Meeting, please contact Computershare by telephone at (877) 282-1168, by Internet at www.computershare.com, or in writing at P.O. Box 43078, Providence, Rhode Island, 02940-3078. If a broker, bank or other holder of record holds your shares in the Company, please contact such broker, bank or other holder of record directly if you have questions, require additional copies of the Notice, Proxy Statement or Annual Report, or wish to receive multiple sets of materials by revoking your consent to householding.

 

If you received more than one Notice or set of proxy materials, you may have multiple accounts with us and/or brokers, banks or other nominees. You should vote all of the shares represented by such Notices and proxy materials. Certain brokers, banks and nominees have procedures in place to discontinue duplicate mailings upon a stockholder’s request. You should contact your broker, bank or nominee for more information. Additionally, our transfer agent, Computershare, can assist you if you want to consolidate multiple registered accounts existing in your name. You may contact Computershare by telephone at (877) 282-1168 or by Internet at www.computershare.com.

 

You may vote your shares prior to the Annual Meeting by following the instructions provided in the Notice of Internet Availability of Proxy Materials, this Proxy Statement and the website, www.edocumentview.com/TBL. If you requested a paper copy of the proxy materials, voting instructions are also contained in the proxy card enclosed with those materials.

 

 

By Internet (www.edocumentview.com/TBL): Use the Internet to transmit your voting instructions until 11:59 p.m. EDT on May 12, 2010. Have your Notice of Internet Availability of Proxy Materials with you when you access the website and follow the instructions to obtain your records and to create an electronic voting instruction form.

 

By telephone (1-800-652-VOTE (8683)):  Submit your vote by telephone until 11:59 p.m. EDT on May 12, 2010. Have your Notice of Internet Availability of Proxy Materials with you when you call and follow the instructions you receive from the telephone voting site.

 

By mail:  If you requested delivery of a copy of the proxy materials by mail, mark, sign and date the proxy card enclosed with those materials and return it in the postage-paid envelope provided. To be valid, proxy cards must be received before the start of the Annual Meeting.

 

 

If you are a registered stockholder, you may vote any shares registered in your name in person at the Annual Meeting as the stockholder of record as of the record date.

If your shares are held in street name, you are not a holder of record of those shares and cannot vote them in person at the Annual Meeting unless you have a legal proxy from the holder of record. If you plan to attend the Annual Meeting and vote your street name shares at the Annual Meeting, you should request a legal proxy from your broker, bank or holder of record and bring it with you to the meeting.

 

If you properly return your proxy but do not specify how to vote your shares, then your shares will be voted to fix the number of directors at eleven and to elect all eleven nominees, to ratify the appointment of Deloitte & Touche LLP as the Company’s independent registered public accounting firm and to amend the Company’s 2007 Incentive Plan to increase the number of shares reserved for issuance thereunder from 4,000,000 to 8,000,000.

 

You may revoke your proxy at any time before the Annual Meeting by either:

 

 

If your shares are held in street name, you should contact your broker, bank or other holder of record about revoking your voting instructions and changing your vote prior to the meeting.

 

The Board of Directors knows of no other matters to be presented at the Annual Meeting. If any additional matters should properly come before the Annual Meeting, the persons appointed as proxy to vote on such matters intend to vote in accordance with his, her or their judgment. If a nominee for director is unable to serve as a director, the persons appointed as proxy may, in his, her or their discretion, vote for another person as director or vote to reduce the number of directors to less than eleven, as the Board of Directors may recommend. The Company believes that all of the nominees will be available to serve.

 

A quorum of our stockholders must be present, whether by proxy or in person, for the Annual Meeting to occur. Consistent with Delaware law and under the Company’s By-Laws, a majority of the voting power of all stock issued and outstanding and entitled to vote at the Annual Meeting constitutes a quorum.

 

To determine the presence of a quorum, in addition to shares voted for or against any matter, the following will count as shares present:

 

 

You are entitled to one vote for each share of Class A Common Stock you hold and ten votes for each share of Class B Common Stock you hold. Holders of Class A Common Stock will vote separately as a class to elect nominees Ian W. Diery, John A. Fitzsimmons and Edward W. Moneypenny as directors. Holders of Class A Common Stock and holders of Class B Common Stock will vote together as a single class to elect nominees Sidney W. Swartz, Jeffrey B. Swartz, Virginia H. Kent, Kenneth T. Lombard, Peter R. Moore, Bill Shore, Terdema L. Ussery, II and Carden N. Welsh as directors, to ratify the appointment of Deloitte & Touche LLP as the Company’s independent registered accounting firm and to amend the Company’s 2007 Incentive Plan to increase the number of shares reserved for issuance from 4,000,000 to 8,000,000.

We will appoint one or more inspectors of elections who will count the votes cast by proxy or in person at the Annual Meeting. Under our By-Laws, the eleven nominees for election as directors who receive the greatest number of votes properly cast at the Annual Meeting will be elected. Under our By-Laws, an affirmative vote of a majority of the votes properly cast at the Annual Meeting is necessary to ratify the appointment of Deloitte & Touche LLP as the Company’s independent registered public accounting firm and amend the Company’s 2007 Incentive Plan to increase the number of shares reserved for issuance from 4,000,000 to 8,000,000.

 

For purposes of the vote required under our By-Laws, we will not treat abstentions or broker non-votes as votes cast. Therefore, they will have no effect on the voting for any matter to be voted on at the Annual Meeting under our By-Laws. A broker non-vote occurs when a broker submits a proxy card for shares held in a fiduciary capacity (often referred to as being held in street name), but does not indicate a vote on a particular matter because the broker has not received voting instructions and does not have discretion to vote on that matter without such instructions. Under the rules that govern brokers who are voting shares held in street name, brokers have the discretion to vote those shares on routine matters but not on non-routine matters. At this year’s Annual Meeting, the only routine matter is the ratification of the appointment of Deloitte & Touche LLP as the Company’s independent registered public accounting firm. The election of directors and the amendment of the Company’s 2007 Incentive Plan are considered non-routine matters.

 

Under New York Stock Exchange (“NYSE”) rules, the minimum vote that will constitute stockholder approval of the amendment of the Company’s 2007 Incentive Plan is defined as a majority of votes cast on the proposal, provided that the total vote cast on the proposal represents more than 50% in interest of all shares entitled to vote thereon. Under NYSE rules, abstentions are considered votes cast and broker non-votes are considered entitled to vote. Therefore, abstentions on this proposal will have the effect of a vote against this proposal to the extent that the number of votes cast in favor of the proposal represent less than a majority of the votes cast and broker non-votes will have the effect of a vote against this proposal to the extent that the number of votes cast on the proposal represent less than 50% in interest of all shares entitled to vote on this proposal.

 

The directors elected at each Annual Meeting serve for the following year and until their respective successors are duly elected and qualified. The Company’s By-Laws specify that the Board of Directors or the stockholders may determine the number of directors of the Company. The stockholders or the Board of Directors may increase the number of directors fixed at the Annual Meeting and may fill any vacancy arising on the Board of Directors.

 

The current Board of Directors consists of eleven members. All current directors are nominees for director at the Annual Meeting. The incumbent directors were elected at the 2009 Annual Meeting of Stockholders. The Board of Directors recommends the following nominees for election at the Annual Meeting. These nominees were recommended to the Board by the Governance and Nominating Committee. In making its recommendation, the Governance and Nominating Committee considered the experience, qualifications, attributes and skills of each nominee as set forth in the biographies below.

 

The names, ages, principal occupations during the past five years and certain other information with respect to the nominees for election are as follows:

 

 

THE BOARD OF DIRECTORS RECOMMENDS THAT YOU VOTE

 

FOR

 

THE ELECTION OF ALL 11 NOMINEES FOR DIRECTOR.

 

The Board of Directors has established corporate governance principles for the Board of Directors and committees thereof to follow regarding effective corporate governance and compliance with laws and regulations. The corporate governance principles require the Board of Directors to appoint a Lead Director if the Chairman of the Board of Directors is not independent. Therefore, because Sidney W. Swartz, the Chairman of the Board, is not independent, the Board of Directors appointed John A. Fitzsimmons as the Lead Director in 2009, after the resignation from the Board of Directors of Irene M. Esteves, who had been the Lead Director since 2004. The Lead Director, among other duties, acts as the presiding director at executive sessions of the non-management members of the Board of Directors and assists the Board of Directors and management in setting the agenda for each meeting of the Board of Directors. In addition, the Company has chosen to separate the positions of Chief Executive Officer and Chairman of the Board. The Company believes this separation results in a diversity of viewpoints and better balances the responsibilities incumbent upon each position.

 

The Board and its committees oversee all aspects of the Company’s business, including risk management. On a continual basis, the Board assesses risks to the Company’s business by evaluating the Company’s strategic plans in light of market and economic conditions. In addition, the Board receives reports from each of its standing committees regarding each committee’s particularized areas of focus, as further described below under the heading “Committees of the Board of Directors and Board of Directors Independence.” On an annual basis, the Audit Committee reviews, analyzes and provides feedback on a comprehensive enterprise risk assessment prepared by management. The assessment includes identification and analysis of key enterprise risks and related controls and other mitigation measures. The Audit Committee also meets regularly in executive sessions with the Company’s independent auditor, General Counsel and Director of Internal Audit, and reports any findings or issues to the full Board.

 

We have also adopted a Code of Ethics that applies to all directors, executives, and employees of the Company to deter wrongdoing and promote ethical conduct, compliance with laws and internal reporting of

wrongdoing. The corporate governance principles, the Code of Ethics and the charter for each of the committees of the Board of Directors are available on the Company’s website, www.timberland.com, and may also be obtained by writing to the Company’s Secretary at 200 Domain Drive, Stratham, New Hampshire 03885.

 

Stockholders and other interested parties may send communications to the non-management members of the Board of Directors. Stockholders may send their written communications to the Secretary of the Company at 200 Domain Drive, Stratham, New Hampshire 03885 and all communications will be given directly to the non-management directors unless they would be more appropriately addressed by other departments within the Company, such as customer or vendor services.

 

Committees of the Board

 

The Board of Directors has the following standing committees: Governance and Nominating Committee, Management Development and Compensation Committee, Audit Committee, and Corporate Social Responsibility Committee. As noted above, each of these committees has a charter, a copy of which is available on our website at www.timberland.com or by writing to the Secretary of the Company at 200 Domain Drive, Stratham, New Hampshire 03885.

 

During 2009, the Board of Directors and its committees held the following number of meetings:

 

 

 

All directors attended at least 75% of the total number of meetings held in 2009 of the Board of Directors and the committees of the Board on which he or she served. The Company expects all nominees for the Board of Directors to attend the Annual Meeting of Stockholders. All members of and nominees for the Board of Directors attended last year’s Annual Meeting, except for Ms. Esteves.

 

The membership and responsibilities of each of these committees is described in greater detail below.

 

The members of the Governance and Nominating Committee are Terdema L. Ussery, II, Chair, John A. Fitzsimmons, Virginia H. Kent and Bill Shore. The Governance and Nominating Committee’s responsibilities include, but are not limited to:

 

 

 

The Governance and Nominating Committee has established a process for identifying and evaluating nominees for director. Although the Governance and Nominating Committee will consider nominees recommended by stockholders, the Committee believes that the process it utilizes to identify and evaluate nominees for director is designed to produce nominees that possess the educational, business and personal attributes that are best suited to further the Company’s mission. The Committee may identify nominees through the use of professional search firms that may utilize proprietary screening techniques to match candidates to the Committee’s specified qualifications. The Committee may also receive recommendations from existing directors, executive officers, key business partners, and trade or industry affiliations. In accordance with the Company’s governance principles, the Committee will consider the following factors, among others, in evaluating the composition of the Board and its committees as well as Committee or stockholder recommended nominees: a candidate’s experience, skills, and other qualifications in view of the specific needs of the Board and the Company; diversity of background, including but not limited to viewpoint, professional experience, education, skills, race, gender and national origin; and high ethical standards, integrity and proven business judgment. The Committee thoroughly considers each of these factors in light of then current and anticipated Board structure and needs. The Company’s Chief Executive Officer discusses all prospective nominees with the Committee. The Committee further evaluates each nominee based on the criteria described above prior to approving a nominee for election to the Board. In accordance with the Committee’s charter, the Committee periodically evaluates the overall composition and effectiveness of the Board and its committees.

 

To be considered by the Governance and Nominating Committee for nomination and inclusion in the Company’s Proxy Statement for its 2011 Annual Meeting of Stockholders, stockholder recommendations must be received by the Company’s Secretary no later than November 30, 2010. Stockholders should write to the Company’s Secretary at 200 Domain Drive, Stratham, New Hampshire 03885 and such recommendations must include: (i) the name and address of the candidate, (ii) a brief biographical description as well as qualifications, taking into consideration the criteria described above, and (iii) a signed consent from the candidate indicating his or her consent to be named in the proxy statement and serve if elected.

 

The members of the Management Development and Compensation Committee are Kenneth T. Lombard, Chair, John A. Fitzsimmons, Edward W. Moneypenny and Peter R. Moore. The Management Development and Compensation Committee’s responsibilities include, but are not limited to:

 

 

The members of the Corporate Social Responsibility Committee are Bill Shore, Chair, Virginia H. Kent, Kenneth T. Lombard and Peter R. Moore. The Corporate Social Responsibility Committee’s responsibilities include, but are not limited to:

 

 

 

Edward W. Moneypenny, Chair, Ian W. Diery, John A. Fitzsimmons and Terdema L. Ussery, II are the members of our Audit Committee. The Audit Committee was established in accordance with Section 3(a)(58)(A) of the Securities Exchange Act of 1934, as amended. All of the members of our Audit Committee are independent (as defined in the New York Stock Exchange’s listing standards). The Board has determined that there is at least one audit committee financial expert serving on the Audit Committee. Mr. Moneypenny is the named audit committee financial expert. The primary purpose of the Audit Committee is to assist the Board in its oversight of the Company’s financial reporting process and its responsibilities include, but are not limited to:

 

 

The Audit Committee Report

 

The Audit Committee has (1) reviewed and discussed the Company’s audited consolidated financial statements for the fiscal year ended December 31, 2009 with the Company’s management, (2) discussed with the Company’s independent registered public accounting firm, Deloitte & Touche LLP, the matters required to be discussed by the statement on Auditing Standards No. 61, as amended (AICPA, Professional Standards, Vol. 1, AU Section 380), as adopted by the Public Company Accounting Oversight Board (the “PCAOB”) in Rule 3200T, (3) received the written disclosures and the letter from Deloitte & Touche LLP required by applicable requirements of the PCAOB regarding Deloitte & Touche LLP’s communications with the Audit Committee concerning independence, and (4) discussed with Deloitte & Touche LLP their independence as the Company’s independent registered public accountants.

 

Based on the review and discussions referred to in the preceding paragraph, the Audit Committee recommended to the Board of Directors, and the Board of Directors recommended, that the audited consolidated financial statements for the fiscal year ended December 31, 2009 be included in the Company’s 2009 Annual Report on Form 10-K for the fiscal year ended December 31, 2009 for filing with the Securities and Exchange Commission.

 

Audit Committee:
Edward W. Moneypenny, Chair
Ian W. Diery
John A. Fitzsimmons
Terdema L. Ussery, II

Audit and Non-Audit Fees

 

The aggregate fees billed by Deloitte & Touche LLP, the member firms of Deloitte & Touche Tohmatsu, and their respective affiliates (collectively “Deloitte”) for professional fees rendered in each of the fiscal years ended December 31, 2009 and December 31, 2008 were as follows:

 

Audit Fees:  $2,474,721 and $2,874,313, respectively, for professional services necessary to perform an audit in accordance with the standards of the Public Company Accounting Oversight Board, including services rendered for the Company’s annual financial statements (including services in connection with rendering an opinion under Section 404 of the Sarbanes-Oxley Act of 2002) and for reviews of the financial statements included in the Company’s Quarterly Reports on Form 10-Q. Such fees also include fees for services that are normally incurred in connection with statutory and regulatory filings or engagements, such as comfort letters, statutory audits, attest services, consents and review of documents filed with the Securities and Exchange Commission;

 

Audit-Related Fees:  There were no audit-related fees for 2009 and 2008 that are not included in the preceding paragraph;

 

Tax Fees:  $117,995 and $99,401, respectively, for professional services rendered for tax compliance, tax advice, and tax planning; and

 

All Other Fees:  $44,507 and $104,089, respectively, for products and services other than the services specified under Audit Fees, Audit-Related Fees and Tax Fees. These products and services primarily consisted of tax services for Sidney Swartz in 2009 and internal control assistance services in Switzerland and tax services for Sidney Swartz in 2008.

 

In accordance with the Sarbanes-Oxley Act of 2002, the Audit Committee established policies and procedures under which all audit and non-audit services performed by the Company’s independent registered public accounting firm must be approved in advance by the Audit Committee. During fiscal 2009 and 2008, all audit and non-audit services performed by Deloitte were pre-approved.

 

Audit Committee Pre-Approval of Audit and Non-Audit Services

 

As part of its responsibility for oversight of the independent registered public accountants, the Audit Committee has established a pre-approval policy for engaging audit and permitted non-audit services provided by the Company’s independent registered public accountants. In accordance with this policy, each type of audit, audit-related, tax and other permitted service to be provided by the independent registered public accounting firm is specifically described and each such service, together with a fee level or budgeted amount for such service, is pre-approved annually by the Audit Committee. The Audit Committee has delegated pre-approval authority to its Chair to pre-approve additional non-audit services (provided such services are not prohibited by applicable law) up to a pre-established aggregate dollar limit. All services pre-approved by the Chair of the Audit Committee must be presented at the next Audit Committee meeting for its review and ratification.

 

Board Independence

 

We believe that all of the members of our Board of Directors, other than Sidney Swartz, Jeffrey Swartz and Carden Welsh, are independent. While we believe, therefore, that the majority of the members of our Board of Directors are independent, the Company is exempt from the listing standards of the New York Stock Exchange requiring that a majority of the Board be independent and that all of the members of the compensation and nominating committees be independent. The Company is relying on the “controlled company” exemption provided by the New York Stock Exchange rules based on the fact that more than 50% of the voting power of the Company’s outstanding voting stock is held by Sidney W. Swartz and The Sidney W. Swartz 1982 Family Trust.

 

The Board has not adopted categorical standards with respect to director independence as it believes it is more appropriate to make independence determinations taking into account all factors and circumstances that

it considers relevant. In March 2009, the Board concluded that no proposed member of the Audit Committee, including any family member, had any personal or financial relationship with the Company that would affect the independence of the Audit Committee member. In making this conclusion, the Board considered the Governance and Nominating Committee’s independence recommendation, and the directors’ and officers’ questionnaires completed by Board members. With respect to the Securities and Exchange Commission and New York Stock Exchange requirements that all members of an Audit Committee be independent, the Board has determined that all current members of, or members who have been nominated to serve on, the Audit Committee, qualify as independent based upon such requirements.

 

DIRECTORS’ COMPENSATION FOR FISCAL YEAR 2009

 

 

 

 

Additional Information to Understand the Directors’ Compensation Table

 

In 2009, we paid fees to our non-employee directors in connection with their service as a director as follows: $50,000 annual retainer to each director; an additional $15,000 annual retainer to the Lead Director; $2,000 for each Board of Directors meeting attended; an additional $12,500 annual retainer to each committee chairperson; and $1,000 for each committee meeting attended.

 

Under the Company’s 2007 Incentive Plan, newly elected or appointed non-employee directors receive an initial award on the date of the annual meeting of stockholders at which the director is first elected (or, if the director is first elected or appointed by the Board, on the date of the first annual meeting of stockholders occurring after such director is elected or appointed) of restricted stock units (“RSUs”) having a value equal to $200,000 on the date of grant based upon the closing price of the Company’s Class A Common Stock quoted on the New York Stock Exchange on such date, which grant vests in three (3) equal annual installments. Re-elected directors receive an award, on the date of the annual meeting of stockholders at which such directors are re-elected, of RSUs having a value equal to $100,000 on the date of grant based upon the closing price of the Company’s Class A Common Stock quoted on the New York Stock Exchange on such date, which grant vests in full on the first anniversary of the date of grant.

 

See the section of this Proxy Statement entitled “Security Ownership of Certain Beneficial Owners and Management” for information regarding ownership of the Company’s securities by directors and any nominees for director.

 

In accordance with its charter, the Audit Committee has selected the firm of Deloitte & Touche LLP, an independent registered public accounting firm, to be the Company’s independent accountants for the year ending December 31, 2010 and, with the endorsement of the Board, recommends to stockholders that they ratify such appointment. Deloitte & Touche LLP served in this capacity for the fiscal year ended December 31, 2009. Its representative will be present at the Annual Meeting and will have an opportunity to make a statement and be available to respond to appropriate questions.

 

THE BOARD OF DIRECTORS AND THE AUDIT COMMITTEE RECOMMEND THAT YOU VOTE

 

FOR

 

APPROVAL OF ITEM 2.

 

On March 4, 2010, upon the recommendation of the Management Development and Compensation Committee, the Board approved, and is submitting for stockholder approval, a proposal to increase the number

of shares of Class A Common Stock reserved for issuance under the Company’s 2007 Incentive Plan, referred to as the Plan, from 4,000,000 to 8,000,000.

 

The following is a summary of the material features of the Plan. Such summary may not contain all of the information important to you. You are urged to read the entire Plan, a copy of which is set forth in Appendix A to the electronic copy of the filing of this Proxy Statement with the Securities and Exchange Commission.

 

General Description of the Plan

 

The Plan was adopted by the Board on February 28, 2007, and approved by stockholders on May 17, 2007. As of March 15, 2010, an aggregate of approximately 692,000 shares remained available for issuance under the Plan. The Plan has been established to advance the interests of the Company by enabling us to grant equity-based or cash incentive awards to participants. The Plan will terminate on February 27, 2017, but previously granted awards may continue beyond that date in accordance with their terms.

 

Eligibility.  Participation is limited to those key employees and directors of, and certain consultants and advisors to, the Company or its affiliates who, in the opinion of the Administrator (as defined below), are in a position to make a significant contribution to the success of the Company and its affiliates and who are selected by the Administrator to receive an award. The group of persons from which the Administrator may select participants consists of approximately 165 individuals.

 

Administration.  The Plan will be administered by the Management Development and Compensation Committee. The term “Administrator” is used in this Proxy Statement to refer to the authority (the Management Development and Compensation Committee and its designees) charged with administering the plan. The Administrator has the authority to interpret the plan; determine eligibility for and grant awards; determine, modify or waive the terms and conditions of any award; prescribe forms, rules and procedures; and otherwise do all things necessary to carry out the purposes of the plan. Awards may be in the form of stock options, stock appreciation rights, restricted or unrestricted stock, restricted or unrestricted stock units, performance awards, cash awards, or any other awards that are convertible into or otherwise based on common stock of the Company. If stockholders approve Item 3, 8,000,000 shares of Class A Common Stock (subject to adjustment for stock splits and similar events) will be reserved for issuance under the Plan.

 

Limits on Shares Deliverable Under the Plan.  The maximum number of shares of common stock that may be delivered in satisfaction of awards made under the Plan is 8,000,000. The maximum number of shares of common stock for which stock options may be granted to any person in any calendar year and the maximum number of shares of common stock subject to stock appreciation rights granted to any person in any calendar year will remain 1,000,000. The maximum number of shares subject to other awards granted to any person in any calendar year will remain 1,000,000. The maximum amount payable to any person in any year under cash awards will remain $6,000,000. The number of shares delivered in satisfaction of awards is determined net of any (i) shares withheld by the Company in payment of the exercise price of the award, (ii) shares withheld in satisfaction of tax withholding requirements with respect to an award, (iii) shares of restricted stock that are forfeited to the Company, (iv) shares subject to an award where cash is delivered to a participant in lieu of such shares, and (v) shares remaining under an award that terminates without having been exercised in full.

 

Types of Awards

 

Stock Options.  Stock options give the holder the right to purchase shares of common stock of the Company within a specified period of time at a specified price, not less than the fair market value of the common stock at the time of grant. Two types of stock options may be granted under the Plan: incentive stock options, or “ISOs,” which are subject to special tax treatment as described below, and nonstatutory options, or “NSOs.” Eligibility for ISOs is limited to employees of the Company and its subsidiaries. The expiration date of all options cannot be more than ten years after the date of the original grant. The closing price of the Company’s Class A common stock as reported on the New York Stock Exchange on March 15, 2010 was $20.98 per share.

Stock Appreciation Rights (“SARs”).  The Administrator may grant SARs under the Plan. SARs entitle the holder upon exercise to receive an amount, delivered in the form of shares of common stock, determined by reference to appreciation in the value of a share of common stock. The value from which appreciation is measured in the case of an SAR may not be less than the fair market value of the common stock on the date of grant.

 

Stock Awards; Stock Units; Cash Awards.  The Plan provides for awards of nontransferable shares of restricted common stock, as well as unrestricted shares of common stock. Generally, awards of restricted stock are subject to the requirement that the shares be forfeited or resold to the Company unless specified conditions are met. The Plan also provides for stock units, including restricted stock units, entitling the recipient to receive shares of common stock (or cash measured by the value of the common stock) in the future on such conditions as the Administrator may specify.

 

Performance Awards.  The Administrator may also subject awards otherwise available under the Plan to the satisfaction of specified performance criteria. The performance criteria used in connection with a particular performance award will be determined by the Administrator. In the case of performance awards intended to qualify for exemption under Section 162(m) of the Internal Revenue Code, the Administrator will use one or more objectively determinable measures of performance relating to any or any combination of the following (measured either absolutely or by reference to an index or indices and determined either on a consolidated basis or, as the context permits, on a divisional, subsidiary, line of business, project or geographical basis or in combinations thereof): sales; revenues; assets; expenses; earnings before or after deduction for all or any portion of interest, taxes, depreciation, or amortization, whether or not on a continuing operations or an aggregate or per share basis; return on equity, investment, capital or assets; gross margin; inventory levels or turns; one or more operating ratios; borrowing levels, leverage ratios or credit rating; market share; capital expenditures; cash flow; stock price; stockholder return; sales of particular products or services; customer acquisition or retention; other objective operating contributions; acquisitions and divestitures (in whole or in part); joint ventures and strategic alliances; spin-offs, split-ups and the like; reorganizations; or recapitalizations, restructurings, financings (issuance of debt or equity) or refinancings or other transactions that involve a change in the equity ownership of the Company. A performance criterion and any targets with respect thereto determined by the Administrator need not be based upon an increase, a positive or improved result or avoidance of loss. To the extent consistent with the requirements for satisfying the performance-based compensation exception under Section 162(m) of the Internal Revenue Code, the Administrator may provide in the case of any award intended to qualify for such exception that one or more of the performance criteria applicable to such award will be adjusted in an objectively determinable manner to reflect events (for example, but without limitation, acquisitions or dispositions) occurring during the performance period that affect the applicable performance criterion or criteria. The Administrator will determine whether the performance targets or goals that have been chosen for a particular performance award have been met.

 

Generally Applicable Provisions.  Each award will contain such terms as the Administrator determines, and will be construed and administered, such that the award either (i) qualifies for an exemption from the requirements of Section 409A, or (ii) satisfies such requirements. Awards will be granted and administered consistent with the requirements of applicable law relating to the issuance of stock and the consideration to be received therefor, as determined by the Administrator. Stock options and SARs granted under the Plan may not be repriced other than in accordance with the applicable stockholder approval requirements of the New York Stock Exchange.

 

Mergers and Similar Transactions.  In the case of certain mergers, consolidations or similar transactions, including a sale of substantially all the Company’s assets, or a dissolution or liquidation of the Company, the following rules will apply unless otherwise provided in an award:

 

 

 

Amendment and Termination.  The Administrator may at any time or times amend the Plan or any outstanding award for any purpose which may at the time be permitted by law, and may at any time terminate the Plan as to any future grants of awards. The Administrator may not, however, alter the terms of an award so as to affect materially and adversely the participant’s rights under an award without the participant’s consent, unless the terms of the Plan expressly so provide or the Administrator expressly reserved the right to do so at the time of the award.

 

Estimate of Plan Benefits

 

No awards will be granted under the Plan with respect to this requested share reserve increase prior to approval of such increase by the stockholders of the Company. If approved by the stockholders, future awards or options or other rights under the Plan will be granted at the discretion of the Management Development and Compensation Committee and the Administrator, as applicable, and, accordingly, are not yet determinable. In addition, awards under the Plan will depend on a number of factors, including the fair market value of the Company’s Class A Common Stock on future dates, actual Company performance against performance goals established with respect to performance awards, and decisions made by the participants. Consequently, it is not possible to determine the benefits that might be received by participants under the Plan with respect to this share reserve increase.

 

Certain Federal Tax Consequences

 

The following discussion summarizes certain United States federal income tax consequences of the issuance and receipt of options and restricted stock awards under the Plan under the law as in effect on the date of this Proxy Statement. The summary does not purport to cover federal employment tax or other federal tax consequences that may be associated with the Plan, nor does it cover state, local or non-U.S. tax matters.

 

ISOs.  An optionee realizes no taxable income upon the grant or, for regular tax purposes, upon the exercise of an ISO. However, the exercise of an ISO may result in an alternative minimum tax liability to the optionee. With certain exceptions, a disposition of shares purchased under an ISO within two years from the date of grant or within one year after exercise produces ordinary income to the optionee (and a deduction to the Company) equal to the value of the shares at the time of exercise less the exercise price. Any additional gain recognized in the disposition is treated as a capital gain for which the Company is not entitled to a deduction. If the optionee does not dispose of the shares until after the expiration of these one- and two-year holding periods, any gain or loss recognized upon a subsequent sale is treated as a long-term capital gain or loss for which the Company is not entitled to a deduction. In general, an ISO that is exercised by the optionee more than three months after termination of employment is treated as an NSO (see below for treatment of NSOs). ISOs are also treated as NSOs to the extent they first become exercisable by an individual in any calendar year for shares having a fair market value (determined as of the date of grant) in excess of $100,000.

 

NSOs.  In general, in the case of an NSO, the optionee has no taxable income at the time of grant but realizes income in connection with exercise of the option in an amount equal to the excess (at the time of exercise) of the fair market value of the shares acquired upon exercise over the exercise price; a corresponding deduction is available to the Company; and upon a subsequent sale or exchange of the shares, any recognized gain or loss after the date of exercise is treated as capital gain or loss for which the Company is not entitled to a deduction.

Restricted Stock.  The Administrator may make restricted stock awards or award stock options that are exercisable for restricted stock. Under Section 83 of the Internal Revenue Code, the recipient of a restricted stock award, or an optionee who exercises an NSO for restricted stock, will generally have income only when the stock vests, equal to the fair market value of the stock at that time less the exercise price. However, the recipient or the optionee may make a so-called “83(b) election” in connection with the receipt or exercise to recognize taxable income at the time of exercise. Assuming no other applicable limitations, the amount and timing of the deduction available to the Company will correspond to the income recognized by the recipient or the optionee. In the case of an optionee who exercises an ISO for restricted stock, the tax consequences described above with respect to the exercise of ISOs will apply except that (i) the optionee will have no alternative minimum taxable income associated with the exercise until the stock vests, unless the optionee makes a timely “83(b) election,” and (ii) in the event of a disqualifying disposition, the ordinary income recognized by reason of the disposition and the Company’s corresponding deduction will be measured by reference to the fair market value of the stock at the time the stock vested.

 

Section 280G.  Under the so-called “golden parachute” provisions of Section 280G of the Internal Revenue Code, the accelerated vesting of awards in connection with a change in ownership or control of the Company may be required to be valued and taken into account in determining whether participants have received compensatory payments, contingent on the change in control, in excess of certain limits. If these limits are exceeded, a substantial portion of amounts payable to the participant, including income recognized by reason of the grant, vesting or exercise of awards under the Plan, may be subject to an additional 20% federal tax and may be nondeductible to the Company.

 

Section 162(m).  Section 162(m) of the Internal Revenue Code limits the deduction a public company may claim in any year for compensation to any of certain key officers to $1,000,000. There are a number of exceptions to this deduction limitation, including an exception for qualifying performance-based compensation. It is intended that stock options and certain other performance-based awards granted under the Plan will be eligible for this performance-based exception.

 

Section 409A.  Section 409A of the Internal Revenue Code provides rules applicable to “nonqualified deferred compensation” as defined therein. A failure to comply with Section 409A where it applies may result in an acceleration of taxable income, plus an additional tax of 20%, plus, in some cases, an interest charge. Stock options granted under the Plan are intended to be exempt from the rules of Section 409A.

 

Stockholder Approval of Plan

 

As stated above under “Required Votes and Method of Tabulation”, under our By-Laws, an affirmative vote of a majority of the votes properly cast at the Annual Meeting is necessary to approve the amendment to the Plan and abstentions and broker non-votes will have no effect on such voting. Under NYSE rules, the minimum vote that will constitute stockholder approval of the amendment to the Plan is defined as a majority of the votes cast on the proposal, provided that the total vote cast on the proposal represents more than 50% in interest of all shares entitled to vote thereon. Under NYSE rules, abstentions are considered votes cast and broker non-votes are considered entitled to vote. Therefore, abstentions on this proposal will have the effect of a vote against this proposal to the extent that the number of votes in favor of the proposal represent less than a majority of the votes cast and broker non-votes will have the effect of a vote against this proposal to the extent that the number of votes cast on the proposal represents less than 50% in interest of all shares entitled to vote on this proposal.

 

THE BOARD OF DIRECTORS RECOMMENDS THAT YOU VOTE

 

FOR

 

APPROVAL OF ITEM 3.

 

Introduction

 

This Compensation Discussion and Analysis (“CD&A”) explains how our compensation programs are designed and how they reward our Named Executive Officers (“NEOs”). Our NEOs include our Chief Executive Officer (“CEO”), Chief Financial Officer (“CFO”), and the three other most highly paid executives of our Company. This CD&A describes our compensation philosophy and examines how each of the primary components of our compensation programs is designed to support that philosophy. We will also explain the results of our pay-for-performance programs in 2009. Finally, we will discuss other benefits and perquisites that we provide to our NEOs and describe several of our key executive compensation policies.

 

Executive Compensation Philosophy

 

Our executive compensation philosophy centers around two primary objectives: to pay for performance that maximizes stockholder value and to provide an externally competitive pay package. These two objectives are described in further detail below.

 

Pay-for-Performance:  We promote a pay-for-performance culture at Timberland and design our executive compensation packages to align executive pay with the interests of our stockholders. Therefore, a significant portion of our executive pay packages are “at risk” to the executive and directly linked to the overall financial performance of the Company in the short- and long-term.

 

Competitive Pay:  We believe that a competitive compensation package is instrumental in attracting and retaining top executive talent. Our objective in developing an executive pay package is to provide an overall level of pay that is competitive within our peer group and the broader industry assuming that targeted levels of performance are achieved. We aim to deliver compensation through a competitive mix of pay using base salary and incentive compensation awards, which we believe results in a more competitive pay package overall.

 

Executive Compensation Program Design

 

We believe that our executive compensation program is appropriate and reasonable because it is aligned with our business objectives and designed with stockholder interests in mind. The Management Development and Compensation Committee (the “Committee”), the Committee’s independent compensation consultant, and Company management all influence the design and effectiveness of our executive compensation package. Below, we will discuss the role of each of these groups in making executive compensation decisions in further detail.

 

The Role of the Management Development and Compensation Committee

 

The Committee is responsible for providing oversight of our executive compensation program and management development plans which includes the compensation of our CEO, CFO, and management personnel in salary grades 12 and above. The Committee annually reviews and evaluates the effectiveness of our executive compensation program to ensure that it is aligned with our compensation philosophy. The Committee retains the discretion to reduce the size of any award earned under our incentive plans. The Committee is also responsible for formulating and presenting all compensation recommendations for the CEO and Chairman to the Board of Directors for action. The “Committees of Our Board” section on page 9 discusses the duties and responsibilities of the Committee in further detail.

 

The Role of the Compensation Consultant

 

The Committee has retained Hewitt Associates as its independent external compensation consultant. Hewitt Associates assists the Committee in its review of executive and director compensation practices, including executive compensation design issues, the competitiveness of pay levels, market trends, and technical considerations. Hewitt Associates does not formulate executive compensation strategies for the Company or

recommend individual compensation. Hewitt Associates is not engaged by the Company for management consulting or any other projects. Our human resources staff uses published reports and competitive market survey data that Hewitt Associates makes available to participating companies to make recommendations to the Committee concerning executive compensation. The Committee periodically reviews the performance of Hewitt Associates and has the sole authority to hire and terminate its consultant. In early 2010, Hewitt Associates announced that certain members of its executive compensation consulting business in North America would be spun off into an independent executive compensation consulting firm, Meridian Compensation Partners, LLC. The Committee intends to engage Meridian as its independent external compensation consultant for services similar to those for which it engaged Hewitt Associates in the past.

 

The Role of Company Management

 

The CEO makes recommendations to the Committee concerning the compensation of the other NEOs and members of senior management. In addition, the CEO and CFO are involved in establishing the business objectives that are used as the performance goals for the short- and long-term incentive plans. Timberland’s Chief Culture Officer and his compensation and benefits staff work closely with the Committee, Hewitt Associates, and management to: (i) ensure that the Committee is provided with the relevant information and data to make its decisions; (ii) propose succession planning, compensation, and benefit program and policy recommendations for the Committee to consider; and (iii) communicate those decisions made by the Committee to management for implementation.

 

Competitive Analysis

 

Our management and the Committee examine and design the executive compensation programs to be reasonable and fair from the perspective of the stockholder, in relation to other companies and with respect to internal equity. We believe the resulting mix of compensation allows us to attract and retain the executive talent that we need to run our business successfully.

 

Stockholder Interests:  The Committee, representing the stockholders’ interests, evaluates all executive compensation programs based on attracting and retaining the talent we need to run the business while allowing us to maintain a competitive position with respect to our compensation expense relative to our peers.

 

External Competitiveness:  Management and the Committee evaluate external competitiveness using two primary sources of compensation data: a competitive peer group and broader market data gathered from published salary surveys and reports. The Committee annually reviews and approves a list of companies, as recommended by Timberland’s management, to serve as the peer group. Our peer group consists of 19 publicly-traded companies with which we may compete for talent, which reasonably approximate our financial and market performance, and which are in related industries. For 2009, the peer group of companies includes:

 

 

As part of the competitive analysis, we examine all elements of pay, including base salary, total cash compensation (base salary plus annual bonus opportunity), and total direct compensation (total cash compensation plus the value of long-term incentives). This data, combined with compensation survey data from Hewitt Associates and Mercer, LLC, is used to establish a range and mix of pay that we believe to be competitive in the marketplace. For the purposes of our analysis, all competitive compensation data is adjusted to reflect our Company’s revenue size either through regression analysis, or by limiting the data set to companies with annual revenues of approximately the same size. While we do not target a specific data point in the range, such as the average or median, to determine an executive’s pay, we do evaluate each executive on an

individual basis and use the data to guide our specific recommendations regarding amount and mix of compensation.

 

Our external competitive analysis also includes a comparison of our financial performance to that of the other companies in our peer group based on a number of financial metrics, such as revenue growth, operating contribution margin, net income margin, and total stockholder return over 1-, 3-, and 5-year periods.

 

Internal Competitiveness:  We also examine how each of our NEOs is compensated relative to one another and other executives within the Company. We consider factors such as the executive’s experience, past performance, current level of performance, level of responsibility and any anticipated increases, potential to make significant contributions, and succession planning retention strategies.

 

The Primary Components of our 2009 Executive Compensation Program

 

The primary components of our Executive Compensation Program in 2009 include base salary, our annual, cash-based Short-Term Incentive Plan (“STIP”) based on the Company’s financial results and our Long-Term Incentive Plan (“LTIP”) which includes performance stock options to align the interests of the NEOs with stockholders, and performance stock units to provide incentives consistent with stockholder returns and to supply a strong retention incentive. Our executive compensation program is more heavily weighted toward performance-based variable pay, rather than fixed base salary, in order to promote a pay-for-performance culture. During 2009, 80% of our CEO’s total compensation opportunity consisted of performance-based variable compensation. For the other NEOs, performance-based variable compensation made up 60-75% of total compensation opportunity. We believe that this mix of pay provides our NEOs with significant upside earning potential for the achievement of actual results above expectations, and significantly lower earning potential for results that are below expectations.

 

At the beginning of the year, we determined that 2009 would be a challenging year for the Company. After reviewing the final operating budget for 2009, we concluded that achieving the financial objectives in the Company’s operating budget would not support a full target payout for our STIP and LTIP programs. Rather than reducing the total incentive opportunities for our NEOs, we designed the incentives so that achieving the Company’s budgeted financial objectives instead would result in a 60% payout of our STIP and 50% payout of our LTIP. Our executives would only receive targeted payouts under the incentive plans if the Company’s budgeted performance was exceeded. Further details about the incentive plan designs will be discussed below.

 

Base Salary

 

Each year, the Committee considers recommendations made by the CEO, along with his assessment of each NEO’s performance, with respect to making changes to base salaries. The Committee makes final determinations regarding base salary changes in executive session without the CEO being present. Additionally, the Committee presents proposed salary adjustments for the Chairman and CEO to the Board of Directors for consideration and approval. These recommendations are discussed and final determinations are made during the Board’s executive session without the Chairman or the CEO present. The factors considered in determining base salary include, among others, the Company’s performance, the individual’s performance in the prior year, expectations regarding the individual’s future performance, experience in the position or a similar position, any anticipated increase in the individual’s responsibilities, internal and external pay equity, and succession planning strategies. In March 2009, the CEO recommended no increase to base salaries for the NEOs under the purview of the Committee, including himself, as 2008 business performance was below expectations. The CEO did approve a 1.45% increase in base salary for Mr. Pazzani in consideration of his performance during 2008. On July 1, 2009, the base salaries of Messrs. Harrison and Pazzani were increased by $6,000 to recognize the elimination of a legacy auto allowance perquisite.

 

Short Term Incentive Plan

 

Our STIP is designed to reward actual performance during the fiscal year against predetermined financial performance targets. This annual cash-based incentive plan encourages our management team to drive annual

performance which in turn helps to create stockholder value. If we exceed our financial objectives, we will pay more; if we fail to reach them, we will pay less or nothing at all. The annual incentive award opportunity for each NEO is expressed as a percentage of their base salary based on the individual’s pay grade assignment. The incentive opportunity as a percentage of annual base salary is 100% for Mr. Swartz, 80% for Messrs. Harrison and Welsh, and 65% for Ms. Teffner and Mr. Pazzani.

 

For 2009, our STIP was based on Company earnings and asset management. Company earnings, measured as operating contribution, or “OC”, represent 75% of the incentive opportunity of the 2009 STIP. This measure was heavily weighted because it directly impacts stockholder value through profitability and is a measure over which management can exert influence. In the STIP, OC is generally defined as total revenues, less cost of goods sold and operating expenses, excluding items such as restructuring charges and other one-time, nonrecurring expenses. Asset management, measured as operating assets as a percentage of revenue (“OAR”), represents 25% of the incentive opportunity of the 2009 STIP. OAR measures the successful management of our inventory and cash flow and is generally defined as our quarterly average of accounts receivable plus inventory, divided by total revenue. Management can affect overall OAR performance through the effective management of accounts receivable and inventory. Successful asset management creates stockholder value by reducing the Company’s investment requirements and increasing the Company’s return on investment.

 

For 2009, the STIP structure, performance targets, and actual results were as follows:

 

 

Based on the “Total Payout as a Percent of Target Opportunity,” the payments to our NEOs under the 2009 STIP were as follows:

 

 

 

 

Long Term Incentive Plan

 

Our LTIP represents a significant portion of potential compensation for our NEOs. These equity-based awards are provided to retain and motivate our executives and focus their efforts on activities that enhance stockholder value over the long term. Long-term incentives are structured so that rewards are earned in line with performance, with above-market rewards for superior performance and below-market or no rewards for inferior performance. During 2008, we conducted a review of our long-term incentive plan design and recommended plan changes to the Committee for the 2009 Executive Long-Term Incentive Plan (“2009 LTIP”). In March 2009, the Committee approved the plan design changes to focus management’s efforts on improving Company earnings over a one- and three-year performance period.

 

The awards granted under our 2009 LTIP were, and are, subject to the Company’s future performance, and consist of performance stock units (“PSUs”) equal in value to one share of the Company’s Class A

Common Stock, and performance stock options (“PSOs”) with an exercise price equal to the closing price of the Company’s Class A Common Stock as quoted on the New York Stock Exchange on the date of grant. The awards were granted so that 60% of the award value is allocated to PSUs and 40% of the award value is allocated to PSOs. The Committee sets the performance metrics and the value of the awards based on its judgment of what it believes will maximize stockholder returns and represent a desirable mix of long-term compensation, the impact of the individual within the Company, and external and internal pay equity.

 

The PSUs earned, as determined by the Committee, and the Board of Directors in the case of the CEO, will be converted into shares of Class A Common Stock and will vest following the applicable performance period. The performance period for the PSUs is the three-year period from January 1, 2009 through December 31, 2011. Stock ownership and stock-based incentive awards align the interests of our NEOs with the interests of our stockholders, as the value of this incentive rises and falls with the stock price, consistent with stockholder returns. The PSUs promote executive retention as unvested PSUs held at the time the NEOs employment is terminated are forfeited.

 

The PSOs earned under the LTIP, as determined by the Committee, and the Board of Directors in the case of the CEO, will vest in three equal annual installments following the end of the applicable performance period and approval by the Committee, or the Board of Directors in the case of the CEO. The performance period for the PSOs was the twelve-month period from January 1, 2009 through December 31, 2009. Executives are rewarded only if Company performance exceeds the threshold target for the performance period and the market price of our stock rises. Executives do not earn any PSOs if Company performance falls below the threshold target. Additionally, if awards are earned and the stock price falls below the exercise price, the PSOs have no value. This is designed to align the interests of the Company’s executives with those of stockholders by encouraging executives to enhance the value of the Company on a long-term basis.

 

The payout of the performance awards issued pursuant to the 2009 LTIP will be based on the Company’s achievement of certain levels of earnings before interest, taxes, depreciation and amortization (“EBITDA”), with threshold, budget, target and maximum award levels based upon actual EBITDA of the Company during the applicable performance periods equaling or exceeding such levels. No awards will be made or earned, as the case may be, unless the threshold goal is attained, and the maximum payout may not exceed 200% of the target award.

 

For 2009, the PSO structure, performance targets, and actual results were as follows:

 

 

Based on the “Total Payout as a Percent of Target Opportunity,” the PSOs earned by our NEOs under the 2009 LTIP were as follows:

 

 

Results of Our 2009 Executive Compensation Program

 

Annually, the Committee reviews the effectiveness of our pay-for-performance programs by examining the total direct compensation earned by our NEOs. We compare this value against the earnings opportunity at various levels of performance. Based on the Company’s financial results in 2009, and for incentive awards earned during the 2009 performance period, our NEOs earned total direct compensation that was above targeted levels commensurate with Company performance. We believe that this level of compensation is consistent with our pay-for-performance philosophy considering the Company’s overall performance.

Equity Grant Practices

 

The Board of Directors retains the sole authority to grant equity awards to our CEO, while the Committee has the sole authority to grant equity awards to our other NEOs under their purview, and delegates granting authority to our CEO for equity awards to all other employees. All equity awards are generally granted on the same date as one of the five regularly scheduled meetings of our Board of Directors. The exercise price for all stock option awards is the closing price of the Company’s Class A Common Stock on the New York Stock Exchange on the date of the grant. In March 2009, Messrs. Swartz, Harrison, and Welsh received stock options and restricted stock awards tied to the final results of the 2008 LTIP as described in last year’s Proxy Statement. Also in March 2009, Messrs. Swartz, Harrison, Welsh, and Pazzani received PSU and PSO awards under the 2009 LTIP. In December 2009, Ms. Teffner received an initial award of 27,500 stock options and 10,000 restricted stock units in connection with her joining the Company as Vice President and Chief Financial Officer.

 

Benefits and Perquisites

 

NEOs participate in medical, disability, and life insurance benefits and annual contributions to qualified savings plans on the same basis as all salaried employees based in the United States. The Company does not provide pension arrangements (supplemental or otherwise), post-retirement healthcare coverage or similar benefits to such executives.

 

Due to the scope of the Company’s international operations, the NEOs use a Company-owned aircraft for business travel. The aircraft provides increased security for the NEOs and increases the efficiency with which they can conduct Company business. The CEO may use the aircraft for personal travel. For security and efficiency, the CEO is provided with transportation to and from work in a Company-owned vehicle driven by a Company-provided driver. Further, the CEO is provided the use of administrative assistant services for personal matters. Additional information on perquisites can be found in Note 3 to the “Summary Compensation Table” in this Proxy Statement.

 

NEOs, along with other highly-compensated, key management employees based in the United States, are also eligible to participate in the Deferred Compensation Plan (“DCP”). In this program, eligible employees can defer up to 100% of their base salary and 100% of their cash bonus subject to the Company’s withholding for applicable taxes and employee benefit plans withholding. The Company does not make matching contributions to the DCP. The DCP is offered, in addition to the Company’s 401(k) plan, to provide NEOs with an additional opportunity to defer compensation which may assist them with their retirement planning. Benefits under the DCP will be paid no earlier than six (6) months following the participant’s retirement or termination. Additional information on the DCP and the participation of NEOs in 2009, which are identified in the “Summary Compensation Table,” can be found in the “Nonqualified Deferred Compensation Plan” section of this Proxy Statement.

 

Severance Benefits / Change of Control

 

The Company has entered into Change of Control Severance Agreements (the “Agreements”) with each of the NEOs and other key employees. For NEOs and key employees who entered into such Agreements prior to December 2008, including Mssrs. Swartz, Harrison, Welsh and Pazzani, the general terms of the Agreements described below were designed to promote stability and continuity of senior management if a triggering event occurs in order to align the interests of executives and stockholders. If a change of control occurs, executives would receive certain compensation if their employment is terminated without “Cause” or for “Good Reason” within 24 months following the change of control. This compensation is intended to retain the executives. The benefit encourages them to remain with the Company, despite uncertainty, with guaranteed financial protection upon loss of employment. In addition, under the terms of the Agreements, executives may voluntarily terminate their employment during the 13th full calendar month after the change of control and receive certain reduced compensation. This provision increases the likelihood that key executives will be retained during the critical first year transition period.

NEOs and key employees who entered into such Agreements after December 2008, including Ms. Teffner, have similar terms as described above. However, such agreements do not provide any payments to executives who voluntarily terminate their employment during the 13th full calendar month after the change of control.

 

Additional information regarding the Agreements, applicable payments thereunder, and other plans for the covered executive officers is provided in the “Potential Payments upon Termination of Employment and Potential Payments upon a Change-in-Control” section of this Proxy Statement.

 

Impact of Regulatory Requirements on Compensation (Tax Considerations)

 

Section 162(m) of the Internal Revenue Code generally disallows a tax deduction to a public company for compensation over $1,000,000 paid to the company’s NEOs. However, eligible performance-based compensation awards are not subject to the deduction limits if certain requirements are satisfied. The Committee takes the limitations of Section 162(m) into account in determining the design of incentive awards made to these executive officers. Neither base salary nor other non-performance based compensation programs exceeded $1,000,000 in 2009 for any of these NEOs.

 

The Management Development and Compensation Committee Report

 

The Committee has reviewed and discussed the Compensation Discussion and Analysis found in this Proxy Statement with the Company’s management. Based on this review and discussion, the Committee recommended to the Board of Directors, and the Board of Directors recommended, that the Compensation Discussion and Analysis be included in this Proxy Statement and the Company’s 2009 Annual Report on Form 10-K for the fiscal year ended December 31, 2009 for filing with the Securities and Exchange Commission.

 

MANAGEMENT DEVELOPMENT
AND COMPENSATION COMMITTEE

 

Kenneth T. Lombard, Chair

John A. Fitzsimmons

Edward W. Moneypenny

Peter R. Moore

 

The following table and footnotes discuss the compensation awarded to, earned by, or paid to the Chief Executive Officer, the Chief Financial Officer and the three other most highly compensated executive officers of the Company who served as such at December 31, 2009 (together, the “NEOs”). The table and footnotes also discuss compensation awarded to, earned by, or paid to two former executive officers who were not serving as executive officers of the Company at December 31, 2009.

 

 

 

 

The following table sets forth information for each of the NEOs as to grants of non-equity and equity incentive plan awards, stock and option awards, the exercise price of option awards and the grant date fair value of stock and option awards made to each of such NEOs in 2009.

 

 

 

 

 

 

The following table sets forth information for each of the NEOs as to options exercised in 2009, the dollar value realized upon exercise, the number of shares of stock that have vested, and the dollar value realized upon the vesting of stock.

 

 

 

 

The following table sets forth information for each of the NEOs (i) as to each outstanding option award, the total number that were exercisable, unexercisable, and unearned held at December 31, 2009 (columns (b) (c), and (d)), each option’s exercise price and its expiration date (columns (e) and (f)) and (ii) as to the total number of shares held at December 31, 2009 that were not then vested or earned and the total market value of those shares based on the closing price of the Company’s Class A Common Stock on December 31, 2009 ($17.93) (columns (g), (h), (i), and (j)).

 

OUTSTANDING EQUITY AWARDS AT FISCAL YEAR-END