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BELDEN INC.

(Name of Registrant as Specified in Its Charter)

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April 7, 2010

 

Dear Stockholder:

 

I am pleased to invite you to our 2010 Annual Stockholders’ Meeting. We will hold the meeting at 11 a.m. Central time on May 19, 2010 at the Saint Louis Club (16th Floor), Pierre Laclede Center, 7701 Forsyth Boulevard, St. Louis, Missouri.

 

We are pleased to be taking advantage of the U.S. Securities and Exchange Commission rule allowing companies to furnish proxy materials to their stockholders primarily over the Internet. We believe that this e-proxy process should expedite stockholders’ receipt of proxy materials, lower the associated costs, and conserve natural resources.

 

On April 7, 2010, we began mailing our stockholders a notice containing instructions on how to access our 2010 Proxy Statement and 2009 Annual Report and vote online. The notice also included instructions on how to receive a paper copy of your annual meeting materials, including the notice of annual meeting, proxy statement, and proxy card. If you received your annual meeting materials by mail, the notice of annual meeting, proxy statement, and proxy card from our Board of Directors were enclosed. If you received your annual meeting materials via e-mail, the e-mail contained voting instructions and links to the annual report and the proxy statement on the Internet, which are both available at http://investor.belden.com/annuals.cfm.

 

The agenda for this year’s annual meeting includes the following item:

 

 

Please refer to the proxy statement for detailed information on the proposal and the annual meeting. Your vote is important and we kindly request that you cast your vote.

 

Sincerely,

 

 

John Stroup

President and Chief Executive Officer

 

BELDEN INC.
7733 Forsyth Boulevard
Suite 800
St. Louis, Missouri 63105

(314) 854-8000

 

 

NOTICE OF 2010 ANNUAL STOCKHOLDERS’ MEETING

 

 

 

By Authorization of the Board of Directors,

 

 

Kevin Bloomfield

Senior Vice President, Secretary and General Counsel

 

St. Louis, Missouri

April 7, 2010

PROXY STATEMENT FOR THE
2010 ANNUAL MEETING OF STOCKHOLDERS
BELDEN INC.

To be held on Wednesday, May 19, 2010

 

TABLE OF CONTENTS

 

 

Under rules of the United States Securities and Exchange Commission (SEC), we are furnishing proxy materials to our stockholders primarily via the Internet, instead of mailing printed copies of those materials to each stockholder. On April 7, 2010, we began mailing to our stockholders (other than those who previously requested electronic or paper delivery) a Notice of Internet Availability containing instructions on how to access our proxy materials, including our proxy statement and our annual report. The Notice of Internet Availability also instructs you on how to access your proxy card to vote through the Internet or by telephone.

 

This process is designed to expedite stockholders’ receipt of proxy materials, lower the cost of the annual meeting, and help conserve natural resources. However, if you would prefer to receive printed proxy materials, please follow the instructions included in the Notice of Internet Availability. If you have previously elected to receive our proxy materials electronically, you will continue to receive these materials via e-mail unless you elect otherwise.

 

QUESTIONS

 

 

 

 

 

The Belden Board has ten members and three standing committees: Audit, Compensation, and Nominating and Corporate Governance. The Board had seven meetings during 2009; three of which were telephonic. All directors attended 75% or more of the Board meetings and the Board committee meetings on which they served. The maximum number of directors authorized under the Company’s bylaws is ten.

 

 

 

At its regular meeting in February 2010, the Board determined that Ms. Brown, Ms. McLeod and Messrs. Aldrich, Bain, Balk, Cressey, Kalnasy, Monter, and Rethore each met the independence requirements of the NYSE listing standards. As part of this process, the Board determined that each such member had no material relationship with the Company.

 

For some time, the Company has separated the Chief Executive Officer and Board Chairman positions. We believe this separation of roles is most appropriate for the Company and shareholders. Mr. Cressey, who is independent of management and the Company, provides strong leadership experience, strategic vision, and an understanding of the risks associated with our business. Mr. Stroup, as CEO, provides strategic planning, general management experience, and in-depth knowledge of the Company, and, as a member of the Board, acts as an important liaison between management and the Company’s non-employee directors.

 

Our Board assesses on an ongoing basis the risks faced by the Company in executing its strategic plan. These risks include financial, technological, competitive, and operational risks. Our Audit Committee also plays an important role in the oversight of the Company’s policies with respect to financial risks and risk management. The Audit Committee will:

 

 

The Audit Committee operates under a Board-approved written charter and each member meets the independence requirements of the NYSE’s listing standards. The Committee assists the Board in overseeing the Company’s accounting and reporting practices by:

 

 

A representative of Ernst & Young LLP is expected to be present at the annual meeting and will have the opportunity to make a statement if the representative desires to do so, and is expected to be available to respond to appropriate questions.

 

At its February 22, 2010 meeting, the Board determined that each of Ms. Brown and Messrs. Rethore and Bain was an Audit Committee Financial Expert as defined in the rules pursuant to the Sarbanes-Oxley Act of 2002 and each is independent.

 

The Audit Committee assists the Company’s Board of Directors in its general oversight of the Company’s financial reporting process. Management is responsible for the preparation and presentation of the Company’s financial statements. Ernst & Young LLP (EY), the Company’s registered public accounting firm for 2009, is responsible for performing an independent audit of the consolidated financial statements and expressing an opinion on the conformity of the Company’s audited financial statements with generally accepted accounting principles.

 

The Committee has reviewed and discussed with management the Company’s audited financial statements for 2009. The Committee has discussed with EY the matters required to be discussed by the Public Company Accounting Oversight Board (PCAOB) AU 380, Communication with Audit Committees. The Committee received the written disclosures and the letter from EY required by PCAOB Ethics and Independence Rule 3526, Communication with Audit Committees Concerning Independence, and discussed with EY its independence from the Company. The Committee has concluded that EY’s provision of non-audit services to the Company and its subsidiaries is compatible with EY’s independence.

 

Based on these reviews and discussions, the Committee recommended to the Board of Directors that the audited financial statements be included in the Company’s Annual Report on Form 10-K for 2009.

 

Bernard G. Rethore (Chair)

Lorne D. Bain

Judy L. Brown

 

The following table presents fees for professional services rendered by EY for the audit of the Company’s annual financial statements and internal control over financial reporting for 2009 and 2008 as well as other permissible audit-related and tax services.

 

 

“Audit fees” primarily represent amounts paid or expected to be paid for audits of the Company’s financial statements and internal control over financial reporting under SOX 404, review of SEC comment letters, reviews of SEC Forms 10-Q, Form S-8, Form 10-K and the proxy statement, and statutory audit requirements at certain non-U.S. locations.

 

“Audit-related fees” are primarily related to due diligence services on completed and potential acquisitions.

 

“Tax fees” for 2009 and 2008 are for domestic and international compliance totaling $406,962 and $541,232, respectively, and tax planning totaling $82,269 and $404,798, respectively.

 

In approving such services, the Audit Committee did not rely on the pre-approval waiver provisions of the applicable rules of the SEC.

 

Audit Fees: For 2009, the Committee reviewed and pre-approved the audit services and estimated fees for the year. Throughout the year, the Committee received project updates and, if appropriate, approved or ratified any amounts exceeding the original estimates.

 

Audit-Related and Non-Audit Services and Fees: Annually, and otherwise as necessary, the Committee reviews and pre-approves all audit-related and non-audit services and the estimated fees for such services. For recurring services, such as tax compliance, expatriate tax returns, and statutory filings, the Committee reviews and pre-approves the services and estimated total fees for such matters by category and location of service. The projected fees are updated quarterly and the Committee considers and, if appropriate, approves any amounts exceeding the original estimates.

 

For non-recurring services, such as special tax projects, due diligence, or other tax services, the Committee reviews and pre-approves the services and estimated fees by individual project. The projections are updated quarterly and the Committee reviews, and, if appropriate, approves any amounts exceeding the original estimates.

 

Should an engagement need pre-approval before the next Committee meeting, the Committee has delegated to the Committee Chair (or if he were unavailable, another Committee member) authority to grant such approval. Thereafter, the entire Committee will review such approval at its next quarterly meeting.

 

The Compensation Committee of Belden determines, approves, and reports to the Board on compensation for the Company’s elected officers. The Committee reviews the design, funding, and competitiveness of the Company’s retirement programs. The Committee also assists the Company in developing compensation and benefit strategies to attract, develop, and retain qualified employees. The Committee operates under a written charter approved by the Board.

 

The Nominating and Corporate Governance Committee identifies, evaluates, and recommends nominees for the Board for each annual meeting (and to fill vacancies during interim periods); evaluates the composition, organization, and governance of the Board and its committees; oversees senior management succession planning; and develops and recommends corporate governance principles and policies applicable to the Company. The Nominating and Corporate Governance Committee will consider nominees recommended by stockholders if such

nominations are submitted to the Company prior to the deadline for proposals as noted above under the caption “Nomination of Director Candidates.”

 

The Committee’s responsibilities with respect to its governance function include considering matters of corporate governance and reviewing (and recommending to the Board revisions to) the Company’s corporate governance guidelines and its code of ethics, which applies to all Company employees, officers, and directors. The Committee is governed by a written charter approved by the Board.

 

Current copies of the Audit, Compensation, and Nominating and Corporate Governance charters, as well as the Company’s governance principles and code of ethics, are available on the Company’s website at http://investor.belden.com/index.cfm under the heading “Corporate Governance.” Printed copies of these materials are also available to stockholders upon request, addressed to the Corporate Secretary, Belden Inc., 7733 Forsyth Boulevard, Suite 800, St. Louis, Missouri 63105.

 

It is our policy to review all relationships and transactions in which the company and our directors and executive officers or their immediate family members are participants to determine whether such persons have a direct or indirect material interest. Annually, we obtain information from all directors and executive officers with respect to related person transactions to determine, based on the facts and circumstances, whether the Company or a related person has a direct or indirect material interest in any such transaction. As required under SEC rules, transactions that are determined to be directly or indirectly material to the Company or a related person are disclosed in our proxy statement. We have determined that there were no material related party transactions during 2009.

 

None of our executive officers served during 2009 as a member of the board of directors or as a member of a compensation committee of any other company that has an executive officer serving as member of our Board of Directors or Compensation Committee.

 

The Company’s Board has established a process to receive communications from stockholders and other interested parties. Stockholders and other interested parties may contact any member (or all members) of the Board (including Bryan Cressey, Chairman of the Board and presiding director for non-management director meetings), any Board committee, or any chair of any such committee by U.S. mail, through calling the Company’s hotline or via e-mail.

 

To communicate with the Board, any individual director or any group or committee of directors, correspondence should be addressed to the Company’s Board or any such individual directors or group or committee of directors by either name or title. All such correspondence should be sent “c/o Corporate Secretary, Belden Inc.” at 7733 Forsyth Boulevard, Suite 800, St. Louis, MO 63105. To communicate with any of our directors electronically or through the Company’s hotline, stockholders should go to our corporate website at http://investor.belden.com/governance.cfm. On this page, you will find a link to “Contact the Belden Board”, on which are listed the Company’s hotline number (with access codes for dialing from outside the U.S.) and an e-mail address that may be used for writing an electronic message to the Board, any individual directors, or any group or committee of directors. Please follow the instructions on our website to send your message.

 

All communications received as set forth in the preceding paragraph will be opened by (or in the case of the hotline, initially reviewed by) our corporate ombudsman for the sole purpose of determining whether the contents represent a message to our directors. The Belden Ombudsman will not forward certain items which are unrelated to the duties and responsibilities of the Board, including: junk mail, mass mailings, product inquiries, product complaints, resumes and other forms of job inquiries, opinion surveys and polls, business solicitations, promotions of products or services, patently offensive materials, advertisements, and complaints that contain only unspecified or broad allegations of wrongdoing without appropriate information support.

 

In the case of communications to the Board or any group or committee of directors, the corporate ombudsman’s office will send copies of the contents to each director who is a member of the group or committee to which the envelope or e-mail is addressed.

 

In addition, it is the Company’s policy that each director attends the annual meeting absent exceptional circumstances. Each director attended the Company’s 2009 annual meeting.

 

Each non-employee director typically receives a $60,000 annual cash retainer; a time vested (twelve month) annual restricted share (RSU) award of $115,000 divided by the then-current share price; an additional $10,000 per year for the chair of the Audit Committee; an additional $5,000 per year to the chairs of the Compensation and Nominating and Corporate Governance Committees; an additional $5,000 per year to members of the Audit Committee and members of other committees who serve on more than one committee; and upon appointment, a non-employee director receives a time-vested RSU award of 2,500 shares. In May 2009, in response to global economic conditions, the board of directors unanimously approved a reduction in its 2009 compensation. The total reduction for each director was $20,000; a reduction in each director’s base cash retainer to $50,000 and a reduction in the value of the RSU award to $105,000. The reduction did not apply to Mr. Harris who retired from the board in May 2009 and received a full stock award prior to the reduction becoming effective. The following table provides information on non-employee director compensation for 2009.

 

 

 

 

 

The Board’s policy is that each non-employee director holds Company stock equal in value to five times his or her annual cash retainer (currently 5 times $60,000). Upon appointment, a member has five years to meet this requirement, but must meet interim goals during the five-year period of: 20% after one year; 40% after two years; 60% after three years; and 80% after four years. The in-the-money value of vested stock options and the value of unvested RSUs are included in making this determination at the higher of their grant date value or current market value. Each non-employee director meets either the full-period or interim-period holding requirement: Messrs. Bain, Balk, Cressey, Harris, Kalnasy, Monter and Rethore each meet 100% of the stock holding requirement. Mr. Aldrich, who was appointed to the Board in February 2007, meets the third-year interim requirement and Ms. Brown and Ms. McLeod, who were appointed to the Board in February 2008, each meet the second-year interim requirement.

 

The Company has ten directors – Ms. Brown, Ms. McLeod, and Messrs. Aldrich, Bain, Balk, Cressey, Kalnasy, Monter, Rethore and Stroup. The term of each director will expire at this annual meeting and the Board proposes that each of them be reelected for a new term of one year and until their successors are duly elected and qualified. Each nominee has consented to serve if elected. If any of them becomes unavailable to serve as a director, the Board may designate a substitute nominee. In that case, the persons named as proxies will vote for the substitute nominee designated by the Board.

 

 

THE BELDEN BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS A VOTE “FOR” THE
NOMINATED SLATE OF DIRECTORS.

 

 

 

The following table shows the amount of Belden common stock beneficially owned (unless otherwise indicated) by our directors, the executive officers named in the Summary Compensation Table below and the directors and named executive officers as a group. Except as otherwise noted, all information is as of March 22, 2010.

 

 

 

Based upon a review of filings with the Securities and Exchange Commission and other reports submitted by our directors and officers, we believe that all of our directors and executive officers complied during 2009 with the reporting requirements of Section 16(a) of the Securities Exchange Act of 1934 with two exceptions. On April 7, 2009, we inadvertently filed a Form 4 on behalf of John Stroup one day late. In January 2010, we discovered some discrepancies between our records and those of John Monter, including a discovery that a purchase made in February 2008 was never recorded on a Form 4. Subsequent to this discovery, we filed a corrective Form 4 to bring the public record in line with Mr. Monter’s actual ownership.

 

The following table shows information regarding those shareholders known to the Company to beneficially own more than 5% of the outstanding Belden shares for the period ending on December 31, 2009.

 

 

 

The Compensation Committee has reviewed and discussed with management the following Compensation Discussion and Analysis section of this proxy statement. Based on such review and discussion, the Committee recommended to the Board of Belden that the Compensation Discussion and Analysis be included in the proxy statement.

 

Glenn Kalnasy (Chair)
David Aldrich
Mary McLeod
John Monter

 

This Compensation Discussion and Analysis explains how our executive compensation programs are designed and operate with respect to our named executive officers listed below (also referred to as NEOs) and provides an overview of our compensation programs for other associates.

 

For 2009, our named executive officers are: John Stroup, President and Chief Executive Officer; Gray Benoist, Senior Vice President, Finance, Chief Financial Officer, and Chief Accounting Officer; Kevin Bloomfield, Senior Vice President, Secretary and General Counsel; Naresh Kumra, Executive Vice President, Asia-Pacific Operations; and Denis Suggs, Executive Vice President, Americas Operations and Global Cable Products.

 

This Compensation Discussion and Analysis is divided into three sections. The “Year in Review” provides a summary of key compensation decisions for 2009. The “Compensation Design, Objectives, and Process” provides an overview of our executive compensation programs and an analysis of how the key elements of the program serve to achieve our compensation objectives. The “2009 Compensation Analysis” provides an analysis of compensation decisions for 2009.

 

Each section should be read in conjunction with the tables and narrative discussion of our executive compensation program that follows this discussion.

 

 

In response to the global economic downturn, we froze executive officer salaries last year. To support management, our Board of Directors reduced their 2009 compensation by $20,000 per director.

 

Because of the uncertainty of when and at what pace an economic recovery would occur, we set two performance periods for 2009 (January through June and July through December) when developing performance targets for two of our management incentive programs – our annual cash incentive plan (ACIP) and performance-based equity awards program for which performance share units (or PSUs) are issued that have value only if performance goals are met. For the attainment of the PSU performance goals, plan participants will receive restricted share units (RSUs) that vest equally over two years.

 

The overarching goal of our incentive compensation programs is to link pay to the achievement of stretch goals without encouraging undue risk. For each performance period of each program, we used two performance goals. Those related to improving our net income (including business unit operating income for executives who oversee business units) and improving our working capital turns. Having two performance periods gave us the flexibility to potentially adjust our targets mid-year to reflect the then current economic conditions. If the global recession continued beyond the first half (which occurred), we did not want annual targets, set in February, to become unachievable mid-year, thereby making it unlikely the Company would benefit from these programs. Our approach allowed us to motivate our associates up to year-end.

 

In developing second half net income/operating income targets, given the remaining uncertainty in the economy, we decided to set targets at five percent above the actual first half results. For working capital turns, the inconsistent first half performance among our various divisions led us to leave the targets steady for the second half.

The following tables show the annual cash incentive payments and PSU awards to our named executive officers for each period.

 

 

 

As shown in the above table, “2009 First Half,” the Company did not meet the threshold for the first half 2009 PSU performance period and, as a result, none of the executives received RSUs in February 2010 for the first half PSU performance period. Also, although not shown in the above tables, none of our executives received RSUs in 2009 for the PSUs they received in 2008 because the Company did not meet the performance threshold for the 2008 PSU grants. The dollar value of the first half 2009 PSUs and the 2008 PSUs for which no RSUs were awarded represented $2,028,848 for Mr. Stroup; $612,048 for Mr. Benoist; $287,224 for Mr. Bloomfield; $373,152 for Mr. Kumra; and $309,468 for Mr. Suggs. The grant date fair values for each PSU award were used to determine dollar value.

 

As shown in the above table, “2009 Second Half,” the Company did meet the threshold for the second half 2009 PSU performance period, resulting in plan participants receiving RSUs for the second half 2009 PSU performance period, including the following grants to the named executive officers: Mr. Stroup, 66,150; Mr. Benoist, 20,250; Mr. Bloomfield, 9,375; Mr. Kumra, 15,000; and Mr. Suggs, 11,625. Aside from the above awards, the NEOs, along with other plan participants, received stock appreciations rights (SARs) in February 2009 that vest equally over three years and have value to the participant only if our stock price appreciates. See below “Grants of Plan-Based Awards” for information on these awards.

 

 

Our executive compensation program is designed to provide a competitive level of total compensation necessary to attract and retain executives to achieve our business strategy and to motivate them to contribute to our short- and long-term success. To achieve these goals, our executive compensation program follows these principles:

 

 

 

To fulfill these objectives, our 2009 compensation program for executives had three primary elements: competitive base salaries; short-term cash incentive opportunities for attaining objective performance metrics and personal goals; and performance-based long-term equity awards and stock appreciation rights (SARs) that have value only if Belden’s stock price increases. Targets for the cash incentive opportunity and long-term equity awards are expressed as a percentage of the executive’s annual base salary. Based on survey and peer group data (which are discussed below) and our own experience, we believe these are the key components that we must offer to recruit and keep the talent necessary to meet our business goals.

 

In 2009, we targeted base salaries at the 50^th percentile of the competitive market and targeted total direct compensation (base salary, short-term cash incentive opportunity and long-term equity awards) at the 75^th percentile of the competitive market. The competitive market is based on peer group and published compensation survey data. Based on the survey and peer group data, each named executive officer’s base salary and total direct compensation approximate these targets, except for Mr. Kumra, whose base salary and total direct compensation both exceed the 75^th percentile survey data specific to the region in which Mr. Kumra resides, but approximated the 75^th percentile of U.S. survey data compiled for this position. The U.S. survey data served as a guide in setting Mr. Kumra’s compensation.

 

We adopted changes to our long-term incentive compensation for 2010 to strengthen its pay-for-performance and employee retention features by increasing SAR awards to seventy-five percent of the total long-term equity opportunity and issuing restricted share units (RSUs) for the remaining twenty-five percent. The RSUs, which serve to enhance retention, have a three-year value, are issued once every three years, and vest over five years. Vesting commences in year three in accordance with the following increments: fifty percent after three years, twenty-five percent after four years, and the remainder after five years. Starting in 2010, executives and other plan participants will also have the right to exchange up to fifty percent of the grant date value of the SAR award for a cash incentive opportunity that is based on the achievement of certain performance metrics over a three-year cycle. See “Compensation Elements” for a discussion of each element of total compensation.

 

As discussed under “Determining Named Executive Officer Compensation,” the Compensation Committee annually reviews and approves the compensation elements for our executive officers. Working with our Nominating and Corporate Governance Committee (which organizes the Board’s annual performance review of Mr. Stroup), the Committee submits its compensation recommendations regarding Mr. Stroup to the Board for approval.

 

For other executive officers, Mr. Stroup makes recommendations regarding their compensation to the Committee for its approval. Mr. Stroup may adjust base salaries of other executive officers in accordance with salary merit increase guidelines that are reviewed by the Committee. The Committee’s complete role and responsibilities are set out in its written charter adopted by the Board of Directors, which can be found at www.belden.com.

 

The Compensation Committee has retained Deloitte Consulting LLP (Deloitte) as its independent compensation consultant. Deloitte reports directly to the Committee. The Committee generally relies on Deloitte to provide it with comparison group benchmarking data and information as to market practices and trends, and to provide advice on key Committee decisions.

 

In 2009, Deloitte provided advice to the Compensation Committee and management in connection with a proposed new long-term incentive compensation program, the composition of peer companies we use for benchmarking purposes, the design of our ACIP and long-term incentive awards, and our executive employment agreements. For their compensation consulting in 2009, we paid Deloitte $157,955.

 

In 2009, our financial management engaged Deloitte to perform other services involving internal controls auditing, (including a review of import and customs practices at our Asian operations), tax compliance, Canadian pension and transfer price audits, and a tax study involving costs incurred in connection with our purchase of a business. For these audit and tax services, we paid Deloitte approximately $538,654.

 

Our CEO and Senior Vice President of Human Resources, working with Deloitte, design our executive compensation programs and recommend modifications to existing or the adoption of new plans and programs. Our CEO also recommends to the Committee the performance metrics used to determine payouts under our short- and long-term incentive compensation programs, and each executive officer’s individual performance goals, who report directly to the CEO, are jointly developed by the executive and the CEO.

 

Before the Committee makes compensation decisions, the CEO provides his assessment of each executive officer’s performance, other than his own. The CEO then makes specific award recommendations. In preparing compensation recommendations for the Committee, our CEO and Senior Vice President of Human Resources review peer company and published compensation survey data compiled by Deloitte for comparable executive positions.

 

Management, in making recommendations to the Committee, and the Committee, in making compensation decisions, will consider current peer group data compiled by Deloitte and market survey data on executive compensation and executive compensation philosophy, strategy and design.

 

In its most recent review in February 2010, the Committee concluded that total direct compensation of executive officers, with respect to compensation levels as well as structure, remained consistent with our compensation design and objectives. For 2009, the Committee and management considered survey data from Economic Research Institute, Watson Wyatt, and Mercer. The survey data was adjusted to reflect our revenue size.

 

The peer group we use consists of the following companies:

 

 

Periodically, the Committee will review our peer group for appropriateness based on revenues, market capitalization, and business scope. Because comparative compensation information is one of several tools used in setting executive compensation, the Committee uses its discretion in determining the nature and extent of its use.

 

We consider the variable, pay-for-performance components of our compensation programs to assess the level of risk-taking these elements may create. The variable components of our compensation programs offered to management (including our executives) are our annual cash incentive plan and performance-based equity awards program. We believe the way we select and set performance goals and targets with multiple levels of performance; use gradually-sloped payout curves that do not provide large payouts for small incremental improvements; and confirm the achievement of performance before issuing the awards, all reduce the potential for management’s excessive risk-taking or poor judgment. Consistent with sound risk management, we limit the annual cash incentive award by capping the financial factor component at two times the target (unless approved by our Compensation Committee) and the long-term incentive to a fixed percentage of the participant’s base salary. In addition, we require that executive officers adhere to stock ownership guidelines to promote a long-term focus.

 

We also consider our variable compensation programs offered to other associates. These are primarily incentive programs offered to sales and marketing associates. We believe the way we administer these programs reduce the potential of their causing a material adverse impact on the Company through excessive risk-taking. We have customer contract practices with respect to operating margins, customer creditworthiness, and channel management that are designed to reduce poor judgment in connection with entering into sales contracts having unreasonable

terms. Sales targets are not designed to provide large payouts that are either based on small incremental improvement or overly aggressive goals that could induce excessive risk-taking by the salesperson. These programs are monitored throughout the performance period to ensure they are being properly administered.

 

The key compensation elements for 2009 for the named executive officers are summarized below.

 

 

Our Committee will review annually a tally sheet, a summary of the following key components of compensation, for each officer.

 

 

The Committee will compare the tally sheets with peer and survey data to assess the competitiveness of these elements with respect to our compensation program design and objectives. See “Benchmarking Data” above for additional information.

 

Mr. Stroup, in conducting his annual performance reviews of officers, will score them on achieving:

 

 

Aside from giving each officer an overall score of 1 (least effective) to 5 (exceptional) that will be used to determine any adjustment in their base salaries, he also will score each of them on achieving his or her annual personal objectives: 0.5 (lowest) to 1.5 (highest). This score (referred to as a Personal Performance Factor) is one of the two components used in determining annual cash incentive awards under our ACIP and the number of PSUs granted under our long-term equity plan. See “Personal Performance Factor” for more information on how overall scores and Personal Performance Factors are used in determining merit increases and incentive awards, respectively.

 

On an ongoing basis, the Board conducts performance reviews of Mr. Stroup’s performance. The Chair of the Nominating and Corporate Governance Committee will interview each director to obtain his or her thoughts on Mr. Stroup’s capabilities and performance as CEO. The Committee Chair will then, on behalf of the Board, meet with Mr. Stroup to review a summary of their comments and assign a Personal Performance Factor of between 0.8 and 1.2. Given Mr. Stroup’s position, the Compensation Committee thought that the Company Financial Factor should play a more significant role in determining his annual cash incentive opportunity. The Committee therefore reduced and narrowed Mr. Stroup’s personal performance factor range to 0.8 to 1.2. See “Chief Executive Officer Compensation” for more information on Mr. Stroup’s compensation.

 

Each executive officer has an employment agreement with the Company that addresses compensation and amounts payable upon separation from the Company in the event of resignation, retirement, termination for cause, termination without cause, change-of-control of the company, disability and death. A quantitative summary of these events for each listed officer is provided below under the caption “Payments upon Termination or Change of Control.” For each executive officer, the Committee, with the assistance of Deloitte, reviewed the key provisions of these agreements to ensure they were competitive based on peer group and leading practice data. The termination provisions of these agreements were provided to address the competitive market for the positions filled by each officer and to allay executive concerns about their own personal situation in the event of a change in control of the Company. In consultation with Deloitte, the Committee determined that it was preferable to provide executive officers with a predetermined separation arrangement in the event they were to leave the Company under certain circumstances rather than negotiate such terms on a case-by-case basis. Beginning in 2010, new executive employment agreements will no longer contain a gross-up to compensate the executives for an Internal Revenue Code Section 280G excise tax. Instead the executives will be given the option of either (a) collecting their full severance and paying the excise tax themselves with no assistance from the Company or (b) reducing the severance payments to an amount that prevents the excise tax from being imposed.

 

 

Salaries of executive officers are reviewed annually and at the time of a promotion or other change in responsibilities. Increases in salary are based on a review of the individual’s performance, the competitive market, the individual’s experience and internal equity. For executives that earn an overall performance score of 3 or more, base salaries (which were frozen for 2009 for executive officers) may be adjusted using a merit salary increase matrix, discussed below. An executive who scores less than 3 and fails to improve his or her performance may be subject to disciplinary action, including dismissal.

 

The executive is scored on our merit salary increase matrix that is annually reviewed and, if appropriate, revised to reflect the competitive market based on the salary survey data noted above. The Committee reviews the merit budget and salary increase matrix. The executive’s salary is classified based on three categories – below market, market and above market.

 

2009 Merit Increase Guidelines for U.S. Employees (including all of the Named Executive Officers)

 

 

The timing and amount of any salary adjustment will be based on the executive’s annual overall performance ranking and whether the executive falls “below,” “at” or “above” market as compared to the applicable survey data noted above.

 

For example, an executive with an overall ranking of “5” who is “above market” will receive a lower salary increase than an executive with a ranking of “5” who is “below market”.

 

The named executive officers’ salaries and market scorings are provided in the following table:

 

 

 

Executive officers participate in our annual cash incentive plan. We had 1,242 employees participate in the plan’s 2009 performance offering. Under the plan, participants earn cash awards based on the achievement of Company and individual performance goals. For 2009, the amount paid under the plan to all participants was $12,345,831 or 0.87% of 2009 revenue.

 

Annual cash incentive awards primarily reward short-term financial and operational performance goals (referred to below as a “Financial Factor) and the accomplishment of the participant’s personal goals (referred to above and in greater detail below as the “Personal Performance Factor”).

The award is computed using the following formula:

 

Actual Award = Target Award X Financial Factor X Personal Performance Factor.

 

To ensure the company can deduct the awards as an ordinary business expense under IRC Section 162(m) (which limits the deductibility of compensation in excess of $1 million to certain officers unless such excess compensation is “performance-based”), the 2009 awards to the named executive officers who are subject to the tax provision were initially set to achieve a maximum payout subject to the Compensation Committee’s right to reduce the award, which the Committee did in arriving at the amounts noted below.

 

2009 Annual Cash Incentive Awards

 

First Half (January 1, 2009 through June 28, 2009)

 

 

 

Second Half (June 29, 2009 through December 31, 2009)

 

 

 

Financial Factor

 

The Financial Factor for Messrs. Stroup, Benoist and Bloomfield was based entirely on our consolidated results — 80% on consolidated net income from continuing operations and 20% on consolidated working capital turns. These

performance metrics were chosen because they are, in the view of the Committee and management, the key drivers to improve operating results and achieve our strategic objectives.

 

The Financial Factor for Messrs. Kumra and Suggs, who as named executive officers that oversee business units, was divided between their division results (70%) and consolidated results (30%). We chose this split to provide division presidents with the appropriate focus on achieving their division operating and financial goals.

 

Definitions used in calculating the Financial Factor

 

 

The Committee reserves the right to adjust these measures for unusual events that may occur during the year. See “Adjustments” for more information.

 

The performance metrics we use that make up the Financial Factor support our short- and long-range business objectives and strategy. We have selected two financial metrics for both our short- and long-term incentive plans because we believe no one metric is sufficient to capture the performance we are seeking to achieve and any one metric in isolation may not promote appropriate management performance.

 

In setting performance goals, we consider our annual and long-range business plans and factors such as our past variance to targeted performance, economic and industry conditions, and our industry performance. We set challenging, realistic goals that will motivate performance. We recognize that the metrics may need to change over time to reflect new priorities and, accordingly, review these performance metrics annually.

 

The 2009 thresholds and targets of the performance goals that make up the Financial Factor reflect a significant level of difficulty for the executives given the business environment and challenges faced by the Company in 2009. The first half target for the consolidated net income component of the Financial Factor was one-half of the consolidated net income component used by the Company in its 2009 operating budget and the first half target for the working capital turns component of the Financial Factor was the actual year-end 2008 working capital turns plus one-half turn improvement. In developing second half targets, we set the net income target at five percent greater than actual net income for the first half and we did not adjust the working capital turns target for the second half.

 

The targets for each period represented stretch goals in light of the economic downturn that began in the fourth quarter of 2008. Any Financial Factor exceeding 2.0 requires Compensation Committee approval and individual awards may not exceed $5 million per year. The amount payable to all participants in any one-year performance period is capped at three times the total target amounts for all participants.

 

For purposes of determining the Financial Factor for cash incentive payouts in 2009, the two performance metrics were considered independent of one another. That is, a cash incentive award can be granted if either the threshold of net income or the threshold of working capital turns, but not both, is met.

 

The table below shows thresholds, targets, actual levels of performance and the Financial Factors for each performance period of 2009 for the Named Executive Officers.

2009 Financial Factor for Consolidated Results
(Income figures in thousands of dollars)