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)

Payment of Filing Fee (Check the appropriate box):
þ		No fee required.
o		Fee computed on table below per Exchange Act Rules 14a-6(i)(1) and 0-11.
		(1)		Title of each class of securities to which transaction applies:
		(2)		Aggregate number of securities to which transaction applies:
		(3)		Per unit price or other underlying value of transaction computed pursuant to Exchange Act Rule 0-11 (set forth the amount on which the filing fee is calculated and state how it was determined):
		(4)		Proposed maximum aggregate value of transaction:
		(5)		Total fee paid:
o		Fee paid previously with preliminary materials.
o		Check box if any part of the fee is offset as provided by Exchange Act Rule 0-11(a)(2) and identify the filing for which the offsetting fee was paid previously. Identify the previous filing by registration statement number, or the Form or Schedule and the date of its filing.
		(1)		Amount Previously Paid:
		(2)		Form, Schedule or Registration Statement No.:
		(3)		Filing Party:
		(4)		Date Filed:

 

 

THE TIMBERLAND COMPANY
200 Domain Drive
Stratham, New Hampshire 03885

 

 

April 17, 2009

 

TO THE STOCKHOLDERS:

 

The Board of Directors and Officers of The Timberland Company invite you to attend the 2009 Annual Meeting of Stockholders to be held on Thursday, May 21, 2009, at 9:00 a.m., at the Company’s headquarters located at 200 Domain Drive, Stratham, New Hampshire.

 

A copy of the Proxy Statement and the proxy are enclosed.

 

If you cannot be present at the meeting, please mark, date and sign the enclosed proxy and return it as soon as possible in the enclosed envelope.

 

Cordially,

 

Sidney W. Swartz
Chairman

 

 

THE TIMBERLAND COMPANY
200 Domain Drive
Stratham, New Hampshire 03885

 

 

NOTICE OF 2009 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 nine 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 ESPP.

 

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 26, 2009.

 

Important Notice Regarding the Availability of Proxy Materials for the Annual Stockholders Meeting to be Held on May 21, 2009: The Proxy Statement and Annual Report to Stockholders are also available at http://materials.proxyvote.com/887100.

 

By Order of the Board of Directors

 

Danette Wineberg
Secretary

 

April 17, 2009

 

THE TIMBERLAND COMPANY
200 Domain Drive
Stratham, New Hampshire 03885

 

PROXY STATEMENT

 

April 17, 2009

 

TABLE OF CONTENTS

 

 

The Board of Directors of The Timberland Company, a Delaware corporation (“we”, “our”, “us”, “its”, “Timberland” or the “Company”), is sending you the enclosed proxy in connection with its 2009 Annual Meeting of Stockholders (the “Annual Meeting”) and any adjourned sessions of the Annual Meeting. The Annual Meeting will be held on Thursday, May 21, 2009, at 9:00 a.m., at the Company’s headquarters located at 200 Domain Drive, Stratham, New Hampshire. The purposes of the Annual Meeting are:

 

 

You may vote at the Annual Meeting only if you are a stockholder of record as of the close of business on Thursday, March 26, 2009, which we refer to as the record date. As of the record date, the following number of shares of the Company’s Common Stock were outstanding:

 

 

We bear all costs of solicitation of proxies. We may solicit proxies personally or by telephone, mail or telegram. None of the Company’s directors, officers or employees will be specially compensated for soliciting proxies. We expect to mail this Proxy Statement and the enclosed proxy to stockholders of record as of the record date on or about April 17, 2009. Unless the Company has received instructions to the contrary, only one Annual Report or Proxy Statement, as applicable, is being delivered to multiple stockholders sharing an address. Upon written or oral request to the Secretary of the Company, by mail at 200 Domain Drive, Stratham, New Hampshire 03885 or by telephone at (603) 772-9500, the Company will promptly deliver a copy of the Annual Report or Proxy Statement to a stockholder if that stockholder shares an address with another stockholder to which a single copy of the applicable document was delivered. To receive a separate Annual Report or Proxy Statement, as applicable, in the future, contact the Secretary of the Company as described above. To request delivery of a single copy of an Annual Report or Proxy Statement for a household currently receiving multiple copies of Annual Reports or Proxy Statements, contact the Secretary of the Company as described above.

 

To vote your shares at the Annual Meeting, you must properly sign, date and return the enclosed proxy. You may specify in the proxy how you want to vote your shares. If you sign and 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 twelve and to elect all twelve nominees, to ratify the appointment of Deloitte & Touche LLP as the Company’s independent registered public accounting firm and to increase the number of shares reserved for issuance under the ESPP from 300,000 to 500,000 and remove the requirements that employees complete six months of continuous service and customarily work more than 20 hours per week in order to participate in the ESPP.

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

 

 

If a nominee for director is unable to serve as a director, the persons appointed as proxy for the Annual Meeting may, in his, her or their discretion, vote for another person as director or vote to reduce the number of directors to less than twelve, as the Board of Directors may recommend. The Company believes that all of the nominees will be available to serve.

 

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.

 

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, Irene M. Esteves and John A. Fitzsimmons 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, Edward W. Moneypenny, 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 increase the number of shares reserved for issuance under the ESPP from 300,000 to 500,000 and remove the requirements that employees complete six months of continuous service and customarily work more than 20 hours per week in order to participate in the ESPP.

 

We will appoint election inspectors who will count the votes cast by proxy or in person at the Annual Meeting. The twelve 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 to increase the number of shares reserved for issuance under the ESPP from 300,000 to 500,000 and remove the requirements that employees complete six months of continuous service and customarily work more than 20 hours per week in order to participate in the ESPP. 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.

 

Furthermore, the approval of the amendments to the ESPP is subject to an additional approval requirement under the rules of the New York Stock Exchange (“NYSE”). The minimum vote which will

constitute stockholder approval for NYSE purposes 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. Because the proposed amendments to the ESPP are considered a non-routine matter, if you hold your shares through a broker and do not give your broker instructions on how to vote your shares with respect to this matter, a broker non-vote will result.

 

Under NYSE rules, broker non-votes could have the effect of a vote against the proposal to amend the ESPP, to the extent that, as a result of such broker non-votes, the number of votes cast on the proposal represents less than 50% in interest of all shares entitled to vote thereon. Under NYSE rules, abstentions will have no effect on the voting to amend the ESPP.

 

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. In addition to the current directors, Carden N. Welsh, the Chief Administrative Officer of the Company, has been nominated to serve as a director. The incumbent directors were elected at the 2008 Annual Meeting of Stockholders.

 

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 12 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. Because Sidney W. Swartz is not independent, the Board of Directors originally appointed Irene M. Esteves as the Lead Director in 2004, and she has been reappointed each year since then. 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.

 

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 law 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.

 

During 2008, 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 2008 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 at May 15, 2008, the date of the last Annual Meeting of Stockholders, attended the meeting, except for Mr. Moore.

 

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

 

Board Independence

 

While we believe 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 of Directors 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 May 2008, 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 2008

 

 

 

 

 

Additional Information to Understand the Director Compensation Table

 

In 2008, we paid fees to our non-employee directors in connection with their service as a director as follows: $30,000 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 $7,500 annual retainer to each committee chairperson; and $1,000 for each committee meeting attended.

 

Effective January 1, 2009, we pay 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.

 

Effective January 1, 2009, 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.

 

Prior to January 1, 2009, under the Company’s 2001 Non-Employee Directors Stock Plan, as amended, and the Company’s 2007 Incentive Plan, as applicable, non-employee directors who were newly elected or appointed received an initial award of options to purchase a number of shares of the Company’s Class A Common Stock on the date of election or appointment calculated by multiplying the then current annual director’s retainer by ten and applying the quarterly adjusted Black-Scholes option pricing model using the fair market value of the Class A Common Stock on the date of grant. On each anniversary of the initial award, an annual award was made using the same formula except that the then current annual director’s retainer was multiplied by five. All of these stock options have an exercise price equal to the fair market value on the date of grant, with initial awards vesting in three (3) equal annual installments and annual awards vesting in full on the first anniversary of the date of grant for so long as the director remains a director of the Company.

 

Prior to January 1, 2005, newly elected or appointed directors received an initial award of options to purchase 10,000 shares, and on each anniversary of the initial award received an award of options to purchase 2,500 shares. These options are exercisable at the rate of 25% of the total underlying shares on each of the first four anniversaries of the date of grant for so long as the director remains a director of the Company.

 

All options expire ten years from the date of grant or when the holder ceases to be a director, if earlier. Options granted prior to March 2004 that are vested upon a director’s retirement or voluntary termination of service remain exercisable for three months following such termination. Options granted during and after March 2004 that are vested upon a director’s retirement or voluntary termination also remain exercisable for

three months following such termination unless the director has ten or more years of service in which case they will remain exercisable for the life of the options.

 

During 2008, the Company granted the following stock options to its non-employee directors:

 

 

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 nominees for director.

 

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, professional 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. The Committee will consider, among other factors, the following to evaluate Committee or stockholder recommended nominees: candidates’ experience, skills, and other qualifications in view of the specific needs of the Board of Directors and the Company; diversity of backgrounds, skills, and expertise; and high ethical

standards, integrity and proven business judgment. 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 of Directors.

 

The Governance and Nominating Committee will consider nominations to the Board of Directors from stockholders using the same criteria described above. To be considered by the Governance and Nominating Committee for nomination and inclusion in the Company’s proxy statement for its 2010 Annual Meeting of Stockholders, stockholder recommendations must be received by the Company’s Secretary no later than December 18, 2009. 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, Irene M. Esteves, 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 Corporate Social Responsibility Committee was formed in late 2006. It held its first meeting in early 2007. 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, Irene M. Esteves 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 of Directors has determined that there is at least one audit committee financial expert serving on the Audit Committee. Ms. Esteves is the named audit committee financial expert. The primary purpose of the Audit Committee is to assist the Board of Directors 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, 2008 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, 2008 be included in the Company’s 2008 Annual Report on Form 10-K for the fiscal year ended December 31, 2008 for filing with the Securities and Exchange Commission.

 

Audit Committee:

 

Edward W. Moneypenny, Chair
Ian W. Diery
Irene M. Esteves
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, 2008 and December 31, 2007 were as follows:

 

Audit Fees:  $2,874,313 and $3,193,951, 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 incurred 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. Also includes 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:  $0 and $124,500, respectively, for assurance and related services that were reasonably related to the performance of services specified under Audit Fees but not included in Audit Fees. In 2007, these services consisted of services performed relating to employee benefit plans;

 

Tax Fees:  $99,401 and $255,918, respectively, for professional services rendered for tax compliance, tax advice, and tax planning; and

 

All Other Fees:  $104,089 and $39,053, 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 internal control assistance services in Switzerland and tax services for Sidney Swartz in 2008, and tax services for Sidney Swartz in 2007.

 

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 2008, all audit and non-audit services performed by Deloitte were pre-approved. During fiscal 2007, fees totaling $132,035, or less than five percent of total fees for 2007, were paid to an affiliate of Deloitte for a tax services related engagement in a foreign location that were not pre-approved, but were approved by the Audit Committee promptly after the inadvertent omission from the pre-approval process was discovered.

 

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.

 

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, 2009 and, with the endorsement of the Board of Directors, recommends to stockholders that they ratify such appointment. Deloitte & Touche LLP served in this capacity for the fiscal year ended December 31, 2008. 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.

 

A total of 300,000 shares of the Company’s Class A Common Stock have been reserved for issuance under the ESPP. The Company believes the ESPP encourages employee stock ownership and increases the employees’ proprietary interest in the Company’s success by providing an opportunity for eligible employees to purchase shares of Class A Common Stock at a reduced price. As of April 3, 2009, there were 68,139 shares of Class A Common Stock available for issuance under the ESPP. The Company expects that such available shares will be purchased by December 31, 2009. The Board believes that it is important to continue to encourage employee stock ownership in the Company. As a result, on March 5, 2009, 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 ESPP from 300,000 shares to 500,000 shares.

 

The ESPP, as amended through May 20, 1999, imposed the following three service requirements upon employees in order to participate: (1) each employee must complete six months or more of continuous service; (2) each employee’s customary employment must be in excess of 20 hours per week; and (3) each employee’s customary employment must be in excess of five months in each calendar year. To further encourage employee stock ownership in the Company, on March 5, 2009, the Board approved, and is submitting for stockholder approval, a proposal to eliminate the first two service requirements listed above. The ESPP will continue to require that employees customarily work in excess of five months in each calendar year.

 

General Description of the ESPP

 

The ESPP was adopted by the Board of Directors on February 22, 1991 and approved by the stockholders on May 16, 1991. On May 18, 1995, the stockholders approved an increase in the number of shares of Class A Common Stock reserved for issuance under the ESPP from 100,000 shares to 200,000 shares. On May 20, 1999, stockholders approved another increase in the number of shares of Class A Common Stock reserved for issuance under the ESPP from 200,000 to 300,000 shares. If stockholders approve Item 3, the number of shares of Class A Common Stock reserved for issuance under the ESPP will increase from 300,000 shares to 500,000 shares.

 

Currently, employees of the Company and its participating subsidiaries who have worked for the Company for at least six continuous months and customarily work in excess of 20 hours per week and five months in each calendar year are eligible to participate in the ESPP. If stockholders approve Item 3, employees of the Company and its participating subsidiaries who customarily work in excess of five months in each calendar year will be eligible to participate in the ESPP. Employees who own 5% or more of the Class A Common Stock are not eligible to participate in the ESPP under any circumstances. As of January 1, 2009, approximately 1,227 employees were eligible to participate in the ESPP. As participation in the ESPP is voluntary, we cannot now determine the extent of participation by any particular officer, employee or group thereof.

 

Eligible employees may contribute, through payroll withholdings, from 2% to 10% of their regular base compensation during six-month participation periods. The number of shares purchased is determined by dividing the balance in the employee’s withholding account on the last day of the participation period by 85% of the fair market value of Class A Common Stock on either the first or the last day of the participation period, whichever is lower. An employee may not purchase an amount of Class A Common Stock with a fair market value exceeding $25,000 (determined at the first trading day of each participation period) in any calendar year.

 

An employee may cancel his or her participation at any time prior to the last day of a participation period. If an employee terminates his participation, then the Company will return to him the balance of his withholding account without interest. No employee may sell, pledge, assign or otherwise transfer rights to purchase shares under the ESPP. The ESPP does not and should not be construed to give an employee the right to be employed by the Company.

In the event there is a change in the outstanding stock of the Company due to a stock dividend, stock split, combination of shares, recapitalization, merger or other capital change, the aggregate number of shares available under the ESPP, the purchase price and other relevant provisions will be appropriately adjusted.

 

The ESPP is administered by the Company’s Compensation and Benefits Committee, which consists of certain members of management appointed by the Management Development and Compensation Committee (“MDCC”) of the Board of Directors or the Board of Directors. Only the MDCC or Board of Directors, however, has the power to amend the ESPP (other than amendments relating to the number of shares to be issued under the ESPP or the employees or class of employees eligible to participate in the ESPP, which are subject to stockholder approval) or to terminate the ESPP. If the number of shares of Class A Common Stock to be issued to participants (calculated by dividing the total amount of all payroll deductions during the participation period by the applicable purchase price) exceeds the number of shares then available under the ESPP, the Compensation and Benefits Committee will reduce proportionally the number of shares to be issued.

 

Federal Tax Effects

 

For U.S. Federal income tax purposes, neither the participation in the ESPP nor the purchase of stock under the ESPP will produce ordinary income to the employee or a deduction to the Company.

 

In general, an employee who disposes of shares purchased under the ESPP within two years after the first day of the participation period relating to those shares will recognize: (i) ordinary income on the difference between the purchase price and the fair market value on the last day of the applicable participation period, and (ii) a capital gain or loss on the difference between the amount realized on the sale and the employee’s basis in the shares (i.e., the purchase price plus any ordinary income recognized by reason of the sale).

 

If an employee disposes of shares purchased under the ESPP more than two years after the first day of the participation period relating to the purchased shares, or dies at any time while holding such shares, ordinary income will be recognized equal to the lesser of (i) the excess of the fair market value of the shares at the time of disposition or death over the purchase price, or (ii) 15% of the fair market value of the shares on the first day of the participation period relating to the purchased shares. The Company will not be entitled to a deduction for this amount. In addition to ordinary income, capital gain will be recognized on the excess, if any, of the amount realized on a sale or exchange over the employee’s basis in the shares (i.e., the purchase price paid by the employee plus any ordinary income recognized by reason of the sale).

 

The foregoing is intended as a summary of U.S. Federal income tax consequences associated with the ESPP and does not involve any discussion of other U.S. Federal tax consequences or of state, local or non-U.S. taxes.

 

THE BOARD OF DIRECTORS RECOMMENDS THAT YOU VOTE

 

FOR

 

APPROVAL OF ITEM 3.

 

Introduction

 

This Compensation Discussion and Analysis explains how our compensation programs are designed and how they reward our named executive officers (“NEOs”), which consist of our Chief Executive Officer (“CEO”), Chief Financial Officer (“CFO”), and the three other most highly compensated executives of our Company. The Compensation Discussion and Analysis 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 2008. 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 provide a competitive pay package and to pay for performance. These two objectives are described in further detail below.

 

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. In addition to providing an overall level of pay that is competitive we aim to achieve this through a mix of pay using a combination of base salary and incentive compensation awards.

 

Pay for Performance:  We promote a pay for performance culture at Timberland and design our executive compensation package to align executive pay with the interests of our stockholders. Therefore, a significant portion of our executive pay package is at risk for our executives and directly linked to the overall financial performance of the Company. To achieve our pay for performance objectives, a large portion of the executive compensation package is delivered in the form of incentive awards for both short-and long-term Company performance.

 

Executive Compensation Program Design

 

We believe that our executive compensation package 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 (“Committee”), the Committee’s 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 NEOs. The Committee annually reviews and evaluates the effectiveness of our executive compensation program, ensures that it is aligned with our compensation philosophy, and retains the discretion to reduce the size of any award earned under our incentive plans. The section of this Proxy Statement entitled “Management Development and Compensation Committee” beginning on page 10 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. As such, Hewitt Associates assists the Committee in its review of executive and director compensation practices, including the competitiveness of pay levels, executive compensation design issues, market trends, and technical considerations. Hewitt Associates is not engaged by the Company for management consulting or any other projects. Our human resources staff acquires and uses published reports and the competitive market survey data that Hewitt Associates makes available to participating companies. The Committee periodically reviews Hewitt Associates’ performance and has the sole authority to hire and terminate its consultant.

 

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. The Corporate 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 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, external competitiveness and internal equity. The Committee, representing the stockholders’ perspective, 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.

 

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 2008, the peer group of companies included:

 

 

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) (“TDC”). 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 pay recommendations.

 

Our external competitive analysis also includes a comparison of our financial performance to that of the other companies in our peer group 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.

 

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 and past performance, current level of performance, level of responsibility and any anticipated increases, their potential to make significant contributions, and succession planning retention strategies.

 

We believe that externally competitive compensation packages that are also fair when compared to internal peers help to attract and retain the executive talent we need to successfully run our business.

 

The Primary Components of our 2008 Executive Compensation Program

 

The primary components of our Executive Compensation Program in 2008 include:

 

 

Our executive compensation program has historically been more heavily weighted toward performance-based variable pay, rather than base salary, in order to promote a pay for performance culture. During 2008, 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 realized that 2008 would be a challenging year for the Company. After reviewing the final operating budget for 2008, we determined that achieving our budget would not support a full payout for our STIP and LTIP programs. As a result, we determined that attainment of budgeted performance should instead support a 50% payout of our incentive plans and created the plans accordingly. Rather than reducing the incentive opportunities for our NEOs, we adjusted the payout ranges to reflect our expectations of Company performance in light of the challenging market conditions. Our executives would only receive targeted payouts under the incentive plans if budgeted performance was exceeded. Further details about the incentive plan designs will be discussed below.

 

The sections below will examine each of the primary components independently and explain what action the Committee took with respect to each component.

 

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. Effective January 1, 2008, Mr. McCarthy received a base pay increase of $75,000 associated with being promoted to Co-President, Timberland Brand. No changes were recommended or made to the base salaries of our other NEOs based upon the Company’s business performance in 2007.

 

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. The annual incentive award opportunity for each NEO is expressed as a percentage of the NEO’s base salary as determined by the individual’s pay grade assignment. The incentive opportunity for Mr. Swartz is 100% of his annual base salary, 80% for Messrs. Harrison, McCarthy, and Welsh, and 65% for Mr. Crimmins.

 

In 2008, we chose to focus on two financial metrics: Company earnings and asset management. Company earnings, measured as operating contribution, represent 75% of the incentive opportunity of the 2008 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, operating contribution (“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 working capital (“OWC”), represents 25% of the incentive opportunity of the 2008 STIP. OWC measures the successful management of our inventory and cash flow and is generally defined as our quarterly average of accounts receivable plus inventory less accounts payable, divided by total revenue. Management can affect overall OWC performance through the effective management of accounts receivable, inventory, and accounts payable. Successful asset management creates stockholder value by reducing the Company’s investment requirements and increasing the Company’s return on investment.

For 2008, 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 2008 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.

 

The 2008 Executive Long-Term Incentive Plan (“2008 LTIP”) was designed to focus management’s efforts on exceeding the 2008 net income budget. For the purposes of the 2008 LTIP, net income is generally defined as net income as shown on the audited consolidated statements of income included in the Company’s Annual Report on Form 10-K, adjusted for items such as changes in federal tax rates, extraordinary items of loss or expense, and any other unusual or nonrecurring items of loss or expense including restructuring charges. The 2008 LTIP award grants were denominated in dollar values and, if awarded, would be settled in equity. Under the terms of the 2008 LTIP, awards are scheduled to be settled 60% in stock options that vest in equal installments over three years, and 40% in restricted shares of Company stock that vest in equal installments over two years. The number of stock options granted would be determined by using the Black-Scholes valuation model on the date of grant. The number of restricted shares granted would be based on the fair market value of the Company’s stock on the date of grant. The 2008 LTIP performance targets, payout levels, and actual results were as follows:

 

Based on the “Calculated Payout as a Percent of Target Opportunity,” the equity awards earned by our NEOs under the 2008 LTIP were valued as follows:

 

 

Results of Our 2008 Executive Compensation Program

 

Annually, we review the effectiveness of our pay for performance programs by examining our NEOs’ actual TDC. We compare this value against the earnings opportunity at various levels of performance. Based on actual Company performance in 2008, our executives earned TDC that was above the Threshold and well below the Targeted level of compensation. We believe that this level of compensation is consistent with our pay for performance philosophy considering the Company’s overall performance. Below are illustrations of how actual Company performance affected each of our NEO’s TDC in 2008.

 

 

 

 

Equity Grant Practices

 

The Board of Directors retains the sole authority to grant equity awards to our CEO, while the Committee retains the sole authority to grant equity awards to our other NEOs, 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 2008, no equity grants were made to our NEOs other than those resulting from the 2007 Long-Term Incentive Plan.

 

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 also 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 Footnote 3 to the “Summary Compensation Table” included in this Proxy Statement.

 

At the time of his hire in April of 2006, Mr. McCarthy entered into an agreement with the Company pursuant to which the Company reimburses Mr. McCarthy for certain lodging, meal, and transportation expenses. These reimbursements are grossed up for income tax purposes. In 2008, Mr. McCarthy received a total of $34,951 for such reimbursements.

 

NEOs, along with certain other 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 2008, which are reflected in the

“Summary Compensation Table,” can be found in the “Nonqualified Deferred Compensation Plan” section of this Proxy Statement.

 

Severance Benefits / Change in Control

 

In December 2008, we amended and restated the Change of Control Severance Agreements (as amended, the “Change of Control Agreements”) with each of the NEOs and other key employees primarily to bring the agreements into compliance with Section 409A of the Internal Revenue Code of 1986, as amended, and the regulations promulgated thereunder. The provisions of the Change of Control Agreements described below were not changed and are 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 Change of Control 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. Additional information regarding the Change of Control Agreements, applicable payments thereunder and other plans for the covered executives 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 $1.0 million 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 executives. Neither base salary nor other non-performance based compensation programs exceeded $1.0 million in 2008 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 the review and discussion outlined in the preceding sentence, the Committee recommended to the Board of Directors, and the Board of Directors recommended, that the Compensation Discussion and Analysis be included in the Company’s 2008 Annual Report on Form 10-K for the fiscal year ended December 31, 2008 for filing with the Securities and Exchange Commission.

 

MANAGEMENT DEVELOPMENT AND COMPENSATION COMMITTEE

 

Kenneth T. Lombard, Chair
Irene M. Esteves
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, 2008 (together, the “NEOs”).

 

 

 

 

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 2008.

 

 

Key:

 

STIP = Short-Term Incentive Plan

 

LTIP = Long-Term Incentive Plan

 

 

 

The following table sets forth information for each of the NEOs as to options exercised in 2008, 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 and unexercisable held at December 31, 2008 (columns (b) and (c)), 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, 2008 that were not then vested and the total market value of those shares based on the closing price of the Company’s Class A Common Stock on December 31, 2008 ($11.55) (columns (g) and (h)).

 

OUTSTANDING EQUITY AWARDS AT FISCAL YEAR-END

 

 

 

 

 

The information in the following table relates to our Deferred Compensation Plan which permits our U.S.-based executives, members of our Board of Directors, and certain of our salaried employees to defer salary, bonuses, fees, commissions and refunds of 401(k) plan contributions. Participants in this Plan may defer up to that amount of the compensation described which leaves an amount necessary for current payments such as FICA (including Medicare), income taxes and employee benefit plan withholding requirements. Each eligible participant is required to make deferral elections prior to earning the amounts subject to the deferral elections. Each participant designates a percentage of the deferred amounts to be deemed invested in money market, bond and equity funds which measure the notional or hypothetical investment return on deferred amounts. Participants will receive their cash balance, including any investment gains or losses, upon retirement, termination of employment or at certain other times, including at scheduled withdrawal dates, in a lump-sum or in installments, as previously elected by the participant. A participant may extend a scheduled withdrawal date provided the extension occurs at least twelve (12) months prior to a scheduled withdrawal date and defers the payment date by at least five (5) years.