UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

Washington, DC 20549

SCHEDULE 14A

SCHEDULE 14A INFORMATION

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The St. Joe Company

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THE ST. JOE COMPANY

NOTICE OF ANNUAL MEETING OF SHAREHOLDERS

 

To Be Held May 12, 2009

 

 

The 2009 Annual Meeting of Shareholders of The St. Joe Company will be held in the Riverfront Conference Room at 245 Riverside Avenue, Jacksonville, Florida 32202, on Tuesday, May 12, 2009, at 10:00 a.m., eastern time.

 

Shareholders will vote on the following matters:

 

 

Shareholders of record as of the close of business on March 20, 2009, are entitled to vote at the meeting. Your vote is important. If you are unable to attend the annual meeting, we urge you to cast your vote over the internet (as instructed in the Notice of Internet Availability of Proxy Materials) or by telephone as promptly as possible. You may also request a paper proxy card to submit your vote by mail, if you prefer.

 

Even if you have voted over the internet, by telephone or by returning a completed proxy card, you may still attend the meeting and vote in person. Please note, however, that if your shares are held of record by a broker, bank or other nominee and you wish to vote at the meeting, you must obtain a legally valid proxy issued in your name from that record holder.

 

By Order of the Board of Directors,

 

Christine M. Marx

General Counsel and Corporate Secretary

Dated: March 31, 2009

 

Table of Contents

 

The St. Joe Company

245 Riverside Avenue, Suite 500

Jacksonville, Florida 32202

 

PROXY STATEMENT

 

 

This proxy statement contains information about the 2009 Annual Meeting of Shareholders of The St. Joe Company. The meeting will be held on Tuesday, May 12, 2009, beginning at 10:00 a.m., eastern time, in the Riverfront Conference Room at 245 Riverside Avenue, Jacksonville, Florida 32202. This proxy statement is first being made available to our shareholders on or about March 31, 2009, in connection with the solicitation of proxies by the Board of Directors for the meeting.

 

Important Notice Regarding the Availability of Proxy Materials for the Annual Meeting of Shareholders to be held on May 12, 2009: Our proxy statement and 2008 Annual Report are available at www.proxyvote.com.

 

 

 

You are entitled to vote at the annual meeting if our records show that you held shares of common stock of the Company as of March 20, 2009. At the close of business on March 20, 2009, a total of 92,488,861 shares of common stock of the Company were outstanding and entitled to vote. Each share of common stock has one vote. Your Notice of Internet Availability of Proxy Materials (“Notice”) shows the number of shares you are entitled to vote. Your individual vote is confidential and will not be disclosed to third parties except as required by law.

 

A proxy is your legal designation of another person to vote the stock you own. That other person is called a proxy. If you designate someone as your proxy in a written document, that document may also be called a proxy or a proxy card. Two of our officers, Wm. Britton Greene and Christine M. Marx, will serve as the proxies for the annual meeting. This means that when you submit a proxy card, these two officers will vote your shares on your behalf.

 

If your shares are registered directly in your name with our transfer agent, American Stock Transfer & Trust Company, you are considered the “shareholder of record” for those shares. We are mailing a Notice to you directly.

 

If your shares are held in a brokerage account or by a bank or other nominee, you are considered the “beneficial owner” of shares held in “street name,” and the Notice will be forwarded to you by your bank, broker or other nominee. The bank, broker or other nominee is the shareholder of record of those shares. As the beneficial owner, you have the right to direct your bank, broker or other nominee how to vote. Beneficial owners that receive a

Notice by mail from the shareholder of record should follow the instructions included in the Notice to view the proxy statement and transmit voting instructions.

 

Our shareholders will be voting on the following matters:

 

 

We are not aware of any other matters to be presented at the meeting except for those described in this proxy statement. If any other matters are properly presented at the meeting, the appointed proxies will use their own judgment to determine how to vote your shares. If the meeting is continued or postponed, your common stock may be voted by the proxies at the new meeting as well, unless you revoke your proxy instructions.

 

In accordance with rules and regulations adopted by the Securities and Exchange Commission (“SEC”), instead of mailing a printed copy of our proxy materials to each shareholder, we may now furnish proxy materials via the internet. All shareholders of record will receive from us a Notice Regarding Internet Availability of Proxy Materials. If you are a beneficial owner, you will receive a Notice from your bank, broker or other nominee. The Notice will be mailed on or about March 31, 2009.

 

On the date of mailing of the Notice, shareholders will be able to access all of the proxy materials on www.proxyvote.com, the web site referred to in the Notice. The proxy materials will be available free of charge. The Notice will instruct you as to how you may access and review all of the important information contained in the proxy materials (including our 2008 Annual Report) over the internet. The Notice also instructs you as to how you may submit your proxy over the internet. If you received a Notice and would like to receive printed copies of the proxy materials, you should follow the instructions in the Notice for requesting such materials.

 

Beneficial owners that request a printed copy of the proxy materials also may receive a voting direction card and voting instructions from their bank, broker or other nominee. Those beneficial owners may mail the voting direction card, or may vote by telephone or over the internet as instructed by their bank, broker or other nominee.

 

Shareholders of record may vote using any of the methods described below. If your shares are held in the name of a bank, broker or other nominee, your nominee will provide you with voting instructions.

By Internet or Telephone.  Our internet and telephone voting procedures for shareholders of record are designed to authenticate your identity, allow you to give your voting instructions and confirm that those instructions are properly recorded.

 

You may access the internet voting site at www.proxyvote.com to complete an electronic proxy card. Please have your Notice in hand when you go online. You will receive instructional screen prompts to guide you through the voting process. You also will have the ability to confirm your voting selections before your vote is recorded.

 

You can vote by calling toll free 1-800-690-6903 within the U.S., Canada and Puerto Rico. Please have your Notice in hand when you call. You will receive voice prompts to guide you through the process, and will have an opportunity to confirm your voting selections before your vote is recorded.

 

Internet and telephone voting facilities for shareholders of record will be available 24 hours a day until 11:59 p.m., eastern time, on May 11, 2009.

 

The availability of internet and telephone voting for beneficial owners will depend on the voting processes of your bank, broker or other nominee. You should follow the voting instructions in the materials that you receive from your nominee.

 

By Mail.  If you request a paper copy of the proxy materials, you should mark, date and sign the proxy card and return it in the postage-paid envelope provided. The named proxies will vote any signed but unmarked proxy cards per the Board’s recommendations. If you are a shareholder of record and the prepaid envelope is missing, please mail your completed proxy card to The St. Joe Company, c/o Broadridge Financial Solutions, Inc., 51 Mercedes Way, Edgewood, NY 11717.

 

In Person at the Annual Meeting.  All shareholders may vote in person at the annual meeting. Voting your proxy by internet, telephone or mail does not limit your right to vote at the annual meeting. You also may be represented by another person at the annual meeting by executing a legally valid proxy designating that person to vote on your behalf.

 

If you are a beneficial owner of shares, you must obtain a legally valid proxy from your bank, broker or other nominee and present it to the inspector of elections with your ballot to be able to vote at the annual meeting. A legally valid proxy is an authorization from your bank, broker or other nominee to vote the shares held in the nominee’s name that satisfies Florida and SEC requirements for proxies.

 

Yes. If you are a shareholder of record, you can change your proxy vote or revoke your proxy at any time before the annual meeting by:

 

 

If you are a beneficial owner of shares, you may submit new voting instructions by contacting your bank, broker or other nominee. You may also vote in person at the annual

meeting if you obtain a legally valid proxy from the shareholder of record as described in the answer to the previous question.

 

Your personal attendance at the annual meeting does not revoke your proxy. Your last vote, prior to or at the annual meeting, is the vote that will be counted.

 

Proxies and voting direction cards that are signed and returned but do not contain voting instructions will be voted:

 

 

In order for us to conduct our annual meeting, a majority of the shares outstanding and entitled to vote as of March 20, 2009 must be present in person or by proxy. This is referred to as a quorum. Your shares are counted as present at the annual meeting if you attend the annual meeting and vote in person or if you properly return a proxy by internet, telephone or mail. We will count abstentions and broker non-votes (as defined below) for purposes of determining a quorum.

 

If you are a shareholder of record, your shares will not be voted unless you provide a proxy or vote in person at the annual meeting. If you hold shares through an account with a bank, broker or other nominee and you do not provide voting instructions on a voting direction card, your shares may still be voted on certain matters.

 

Brokerage firms have authority under New York Stock Exchange (“NYSE”) rules to vote shares on routine matters for which their customers do not provide voting instructions at least 10 days before the meeting. The election of directors and the ratification of KPMG LLP as our independent registered public accounting firm for the 2009 fiscal year are considered routine matters. The approval of an equity incentive plan is not considered a routine matter. If a proposal is not routine and the brokerage firm does not receive voting instructions from the beneficial owner, the brokerage firm cannot vote the shares on that proposal. Shares that a broker is not authorized to vote are known as “broker non-votes.” We do not count broker non-votes as votes for or against any proposal. Broker non-votes, however, count for quorum purposes.

 

An “abstention” will occur at the annual meeting if you mark your vote for Proposal 2 or 3 as “abstain” or if you attend the annual meeting, but do not vote on any proposal or other matter which is required to be voted on by our shareholders at the annual meeting. We do not

count abstentions as votes for or against any proposal. Abstentions, however, count for quorum purposes.

 

 

A representative of Broadridge Financial Solutions, Inc. will tabulate the votes and act as inspector of elections for the annual meeting.

 

We will pay the cost of this proxy solicitation. In addition to soliciting proxies by mail, our employees may solicit proxies personally and by telephone. No employee will receive any additional or special compensation for doing this. We will, upon request, reimburse brokers, banks and other nominees for their reasonable expenses in sending proxy materials to their principals and obtaining their proxies.

 

If you and other residents at your mailing address are beneficial owners of shares held in street name, your bank, broker or other nominee may have given you notice that each household will receive only one annual report and proxy statement or Notice, as applicable, for each company in which you hold stock through that broker or bank. This practice is known as “householding.” Unless you responded that you do not wish to participate in householding, you will be deemed to have consented to participating, and only one copy of our Notice will be sent to that address.

 

If you wish to receive your own Notice for this year or for future years, or if you share an address with another shareholder and would like to receive only one Notice, please contact our Corporate Secretary at The St. Joe Company, 245 Riverside Avenue, Suite 500, Jacksonville, Florida 32202 (904-301-4200), being sure to supply the names of all shareholders at the same address, the name of the bank or brokerage firm, and the account number(s). The revocation of a consent to householding will be effective 30 days after the revocation notice is received.

 

If you would like a paper copy of our proxy statement, proxy card and 2008 Annual Report (which includes our 2008 Form 10-K), we will provide them without charge, upon request, to any holder of record or beneficial owner of common stock entitled to vote at the annual meeting. Requests for paper copies should be made by telephone or over the internet according to the instructions provided in the Notice.

 

Yes. Although the information contained on our website is not part of this proxy statement, you will find information about the Company, including our Board, charters of Board committees, excerpts from our Amended and Restated Articles of Incorporation and Bylaws, Code of Conduct and Governance Principles and Policies at http://ir.joe.com/governance.cfm. Our filings with the SEC, including our 2008 Annual Report on Form 10-K and this proxy statement, and information about insider transactions are available on our website at http://ir.joe.com/sec.cfm. Additional information about insider transactions may be found at http://ir.joe.com/transactions.cfm.

 

Shareholders may obtain, without charge, paper copies of any of the above documents by writing to: The St. Joe Company, 245 Riverside Avenue, Suite 500, Jacksonville, Florida 32202, Attn: Investor Relations.

 

Eight directors are to be elected at the annual meeting to serve on our Board of Directors, and the nominees are described below. We currently have one vacancy on the Board due to a director resignation in November 2008. The Board’s Governance and Nominating Committee continues to seek a qualified candidate to fill this position. See page 26 for additional information regarding the Governance and Nominating Committee.

 

Each director elected at the annual meeting will hold office until the next annual meeting and the election of a successor. All of the nominees are current directors of the Company. Each has agreed to be named in this proxy statement and to serve if elected.

 

 

 

The Board recommends the shareholders vote FOR election of each of the director nominees listed above to serve until the next annual meeting and the election of a successor.

 

At the Annual Meeting, the shareholders will be asked to approve adoption of The St. Joe Company 2009 Equity Incentive Plan (the “2009 Plan”). The Board of Directors adopted the 2009 Plan on February 10, 2009, subject to approval by the shareholders. The 2009 Plan is intended to replace our 1997 Stock Incentive Plan, 1998 Stock Incentive Plan, 1999 Stock Incentive Plan and 2001 Stock Incentive Plan (the “Existing Plans”). If the shareholders approve the 2009 Plan, it will become effective on the day of the Annual Meeting, and no further awards will be granted under the Existing Plans.

 

Our Board of Directors believes that the 2009 Plan will be a critical part of our overall compensation strategy and is necessary for the purpose of attracting, motivating, retaining and rewarding the best available persons for positions of substantial responsibility in the Company. The 2009 Plan establishes a program that will permit the Compensation Committee to choose

from among a range of equity awards to provide for the periodic grant of share-based compensation to employees and directors. Equity awards under the 2009 Plan will serve to align the interests of our officers, directors and key employees with the interests of our shareholders and will provide appropriate incentives to increase shareholder value and to promote our long-term growth and profitability.

 

Because of the ages of the Existing Plans, the shares reserved for issuance under the Existing Plans have been substantially depleted. As of March 20, 2009, there were only 262,256 shares available for issuance under the Existing Plans. To continue the compensation strategies described above, we need a new equity incentive plan with a new pool of shares available for issuance. If approved, the 2009 Plan will reserve for issuance a new pool of 2,000,000 shares, and the 262,256 shares currently reserved under the Existing Plans will no longer be available for issuance. The 2009 Plan also provides for additional types of equity awards than are available under the Existing Plans, which will provide the flexibility needed to grant equity awards of appropriate size and form.

 

The 2009 Plan is designed to preserve our ability to deduct in full for federal income tax purposes the compensation recognized by our executive officers in connection with certain awards granted under the 2009 Plan. Section 162(m) of the Internal Revenue Code of 1986, as amended (the “Code”), generally denies a corporate tax deduction for annual compensation exceeding $1 million paid to certain highly compensated officers of a publicly held company. However, certain types of compensation, including performance-based compensation, are generally excluded from this deductibility limit. To enable stock options, stock appreciation rights, certain restricted stock and restricted stock unit awards, and performance awards granted under the 2009 Plan to qualify as “performance-based” within the meaning of Section 162(m), the shareholders are asked to approve the 2009 Plan. By approving the adoption of the 2009 Plan, the shareholders will be approving, among other things:

 

 

The material features of the 2009 Plan are summarized below. The summary below is not a complete description of the 2009 Plan and is qualified in its entirety by reference to the 2009 Plan, the full text of which is attached to this proxy statement as Appendix A.

 

Types of Awards.  The 2009 Plan allows us to grant stock options (both incentive stock options and non-qualified stock options), stock appreciation rights (“SARs”), restricted stock, restricted stock units (“RSUs”), performance awards, or any combination of these. These types of awards are more fully described below.

Administration.  The 2009 Plan will be administered by the Compensation Committee of our Board of Directors. The Compensation Committee will determine in its discretion the persons to whom and the times at which awards are granted, the types and sizes of awards, and all of their terms and conditions. Each award granted under the 2009 Plan will be evidenced by a written or electronic agreement between the Company and the participant specifying the terms and conditions of the award. The Compensation Committee will interpret the 2009 Plan and awards granted under the 2009 Plan, and all determinations of the Compensation Committee will be final and binding. Once approved by the shareholders, the 2009 Plan will remain in effect until terminated by the Compensation Committee.

 

Eligibility.  Our directors and employees, and employees of our subsidiaries, are eligible to receive grants of awards under the 2009 Plan. As of March 20, 2009, we had approximately 191 employees and seven directors who would be eligible to participate under the 2009 Plan. Actual participants in the 2009 Plan will be selected from this class of eligible persons by the Compensation Committee. In February 2009, only 56 employees received equity grants under our Existing Plans.

 

Authorized Shares.  A total of 2,000,000 shares of our common stock will be authorized for issuance under the 2009 Plan if it is approved by our shareholders. The Board of Directors will not make any additional awards under the Existing Plans if the shareholders approve the 2009 Plan. The shares of our common stock reserved for issuance pursuant to the 2009 Plan are subject to adjustment in the event of any change in corporate capitalization such as a stock split, stock dividend, reorganization, recapitalization or similar change in our corporate structure or the outstanding shares of our common stock.

 

Adjustment for Certain Unissued Shares or Forfeited Awards.  If any award granted under the 2009 Plan expires, is forfeited or otherwise terminates for any reason without having been vested, exercised or settled in full, the shares subject to such award will again become available for issuance under the 2009 Plan. Shares delivered to or withheld by the Company to pay the exercise price of an option or to satisfy a tax withholding obligation will not again be made available for issuance under the 2009 Plan. Shares will not be treated as having been issued under the 2009 Plan and will not reduce the number of shares available for issuance to the extent an award is settled in cash.

 

Award Limits.  In addition to the limitation described above on the total number of shares of our common stock that will be authorized for issuance, the 2009 Plan limits the number of shares that may be issued under certain types of awards (subject to adjustment as described under “Authorized Shares” above). With respect to grants to a single participant during a calendar year, no more than 500,000 shares of stock may be issued in connection with stock options and SARs; no more than 200,000 shares of stock may be issued in the form of restricted stock and RSUs with performance-based vesting conditions; and no more than 400,000 shares of stock may be issued in connection with other stock-based performance awards. The maximum aggregate amount payable under any cash-based performance awards granted in any year to an employee is $10,000,000. The 2009 Plan also permits all authorized shares to be used for the grant of incentive stock options.

 

Prohibition of Option and SAR Repricing.  Consistent with our corporate governance policies, the 2009 Plan expressly provides that, without the approval of our shareholders, no stock option or SAR granted under the 2009 Plan may be amended to reduce its exercise price and may not be canceled in exchange for cash, other awards or an option or SAR with a lower exercise price.

Stock Options.  The Compensation Committee may grant nonqualified stock options, incentive stock options within the meaning of Section 422 of the Code, or any combination of these under the 2009 Plan. The exercise price of each option may not be less than the fair market value of a share of our common stock on the date of grant. However, any incentive stock option granted to a person who at the time of grant owns stock possessing more than 10% of the total combined voting power of all classes of stock of the Company or any parent or subsidiary corporation of the Company (a “10% Shareholder”) must have an exercise price equal to at least 110% of the fair market value of a share of common stock on the date of grant. On March 20, 2009, the closing price of our common stock on the New York Stock Exchange was $14.59 per share.

 

The term of any stock option will be determined by the Compensation Committee on the date of grant. Notwithstanding the foregoing, the maximum term of any incentive stock option is ten years; provided that an incentive stock option granted to a 10% Shareholder must have a term not exceeding five years. Stock options will be exercisable at such times and be subject to such terms, conditions and restrictions as the Compensation Committee will in each instance approve.

 

The 2009 Plan provides that an option exercise price may be paid (1) in cash, by check or in cash equivalent; (2) by tender to the Company, or attestation to the ownership, of shares of common stock owned by the participant having a fair market value not less than the exercise price; (3) by directing the Company to retain all or a portion of the shares of common stock otherwise issuable to the participant in connection with such exercise; (4) by means of a broker-assisted cashless exercise; (5) by such other lawful consideration as approved by the Compensation Committee; or (6) by any combination of these. Nevertheless, the Compensation Committee may restrict the forms of payment permitted in connection with any option grant.

 

Stock Appreciation Rights.  The Compensation Committee may grant SARs under the 2009 Plan. SARs provide the participant the right to receive the excess, if any, of the fair market value of one share of common stock on the date of exercise, over the exercise price of the SAR as determined by the Compensation Committee, which will not be less than the fair market value of a share of common stock on the date of grant. SARs may be payable in cash, shares of common stock or a combination thereof. The term of any SAR granted under the 2009 Plan will be determined by the Compensation Committee on the date of grant. SARs will be exercisable at such times and be subject to such terms, conditions and restrictions as the Compensation Committee will in each instance approve.

 

Restricted Stock Awards.  The Compensation Committee may grant restricted stock awards under the 2009 Plan. Such awards may be subject to vesting conditions based upon the satisfaction of time-based service requirements or the satisfaction of performance goals, and may contain such other conditions and restrictions, as may be established by the Compensation Committee. Unless otherwise determined by the Compensation Committee, participants holding restricted stock will have the right to vote the shares and to receive any dividends paid, except that dividends or other distributions paid in shares will be subject to the same restrictions as the original award.

 

Restricted Stock Units.  The Compensation Committee may grant RSUs under the 2009 Plan, which represent rights to receive shares of our common stock or a cash payment at a future date determined in accordance with the participant’s award agreement. Such awards may be subject to vesting conditions based upon the satisfaction of time-based service requirements or the satisfaction of performance goals, and may contain such other conditions and restrictions, as may be established by the Compensation Committee. Participants have no

voting or dividend rights with respect to RSUs until shares of common stock are issued in settlement of such awards. The Compensation Committee may grant RSUs with dividend equivalent rights, which are rights to receive additional RSUs for a number of shares of common stock whose value is equal to any cash dividends we pay.

 

Performance Awards.  The Compensation Committee may grant performance awards under the 2009 Plan subject to such conditions and the attainment of such performance goals over such periods as the Compensation Committee determines and sets forth in an award agreement. These awards may be designated as performance shares or performance units, which consist of unfunded bookkeeping entries generally having initial values equal to the fair market value of a share of common stock determined on the grant date in the case of performance shares, and a monetary value established by the Compensation Committee at the time of grant in the case of performance units.

 

Performance awards will specify the amount of performance shares or performance units that may be earned by the participant to the extent that one or more performance goals are attained within a performance period, all as established by the Compensation Committee on the date of grant. To the extent earned, performance awards may be settled in cash, shares of common stock or any combination thereof.

 

Participants have no voting or dividend rights with respect to performance awards until shares of common stock are issued in settlement of such awards. The Compensation Committee may grant performance shares that entitle their holders to dividend equivalent rights, which are rights to receive additional performance shares for a number of shares of common stock whose value is equal to any cash dividends the Company pays.

 

Performance-Based Vesting Conditions.  The Compensation Committee may grant restricted stock, RSUs and performance awards subject to performance-based vesting conditions. For each such award, the Compensation Committee will establish in writing the applicable performance period, performance vesting formula and one or more performance goals which, when measured at the end of the performance period, will determine the final value of the award to be paid to the participant.

 

With respect to each award intended to qualify for an exemption from the deduction limit of Code Section 162(m), the Compensation Committee will establish the performance goal(s) and performance vesting formula applicable to each award no later than the earlier of (a) the date 90 days after the commencement of the applicable performance period or (b) the date on which 25% of the performance period has elapsed, and, in any event, at a time when the outcome of the performance goals remains substantially uncertain. Once established, the performance goals and performance vesting formula applicable to an award may not be changed during the performance period, except as may otherwise be permitted by the 2009 Plan or award agreement.

 

Performance goals will be established by the Compensation Committee on the basis of targets to be attained with respect to one or more measures of business or financial performance of the Company and each subsidiary consolidated with the Company for financial reporting purposes, or such division or business unit of the Company as may be selected by the Compensation Committee. Performance measures may be one or more of the following, as determined by the Compensation Committee:

 

(1) revenues;

 

(2) revenue growth;

(3) gross margin;

 

(4) operating margin;

 

(5) operating income;

 

(6) earnings from continuing operations;

 

(7) consolidated pre-tax earnings;

 

(8) earnings before taxes (EBT)

 

(9) earnings before interest and taxes (EBIT);

 

(10) earnings before interest, taxes and depreciation and amortization (EBITDA);

 

(11) net income;

 

(12) expenses;

 

(13) cash flow;

 

(14) cash flow return;

 

(15) market price of the Common Stock;

 

(16) price appreciation of the Common Stock;

 

(17) earnings per share;

 

(18) total shareholder return;

 

(19) return on shareholder equity;

 

(20) return on capital;

 

(21) return on assets;

 

(22) return on net assets;

 

(23) joint ventures, partnerships, leases and other strategic transactions;

 

(24) acquisitions and/or divestitures;

 

(25) land use entitlements;

 

(26) asset value; and

 

(27) economic value added.

 

The Compensation Committee may grant awards which do not qualify for an exemption from the deduction limit of Code Section 162(m). In such instances, the Compensation Committee may establish performance measures other than those described above and may establish other terms and conditions of the award without satisfying the requirements of Section 162(m) of the Code.

 

The degree of attainment of performance measures will be calculated in accordance with generally accepted accounting principles, excluding the effect (whether positive or negative) of the accrual or payment of any performance award for the same performance period, any

changes in accounting standards or any extraordinary, unusual or nonrecurring items occurring after the establishment of the performance goals applicable to a performance award.

 

Performance goals may include a minimum, maximum and target level, as well as additional intermediate levels of performance, with the final value of the award determined under the applicable performance vesting formula by the level attained during the applicable performance period. A performance goal may be expressed in terms of attaining a specified level of the performance measure or the attainment of an increase, decrease or improvement in the particular objective, and may involve comparisons with respect to historical results. A performance goal may be stated as an absolute value, in percentages, or in terms of growth or savings from period to period or growth or savings rates over time. A performance goal may be applied to the performance of the Company relative to a market index, a peer group of other companies or a combination thereof.

 

Following completion of the applicable performance period, the Compensation Committee will certify in writing the extent to which the applicable performance goals have been attained and the resulting value to be provided to the participant. If provided in the applicable award agreement, the Compensation Committee may eliminate or reduce, but not increase, the amount that would otherwise be paid on the basis of the performance goals attained to a participant who is a “covered employee” within the meaning of Section 162(m) of the Code. However, no such reduction may increase the amount provided to any other participant.

 

Death or Disability.  Unless otherwise provided by the Compensation Committee, if a participant’s service terminates due to the participant’s death or disability:

 

 

Retirement.  Unless otherwise provided by the Compensation Committee, if a participant other than a director retires from the Company:

 

 

For purposes of the 2009 Plan, “retirement” means with respect to employees, unless otherwise determined by the Compensation Committee, a voluntary termination of employment with the Company after the participant has completed five years of continuous service and attainment of age 55. A participant will not be deemed “retired” if the participant performs, or plans to perform, services on a substantially full-time basis for any third party.

 

For Cause Terminations.  Unless otherwise provided by the Compensation Committee, if a participant ceases to be a director or employee due to termination for cause:

 

 

For purposes of the 2009 Plan, “cause” means termination due to (a) a participant’s continued failure to substantially perform the participant’s employment duties to the Company (other than any such failure resulting from the participant’s incapacity due to physical or mental illness) which are demonstrably willful and deliberate on the participant’s part and which are not remedied in a reasonable period of time after receipt of written notice from the Company; or (b) the willful engaging by the participant in illegal conduct or gross misconduct that is materially and demonstrably injurious to the Company. No act or failure to act on the part of the participant will be considered “willful” if done, or omitted to be done, by the participant in good faith or with reasonable belief that the participant’s action or omission was in the best interests of the Company.

 

Other Terminations.  Unless otherwise provided by the Compensation Committee or as otherwise described below under “Special Vesting Rules for Directors,” if a participant ceases to be a director or employee for any reason other than death, disability, termination for cause, or retirement:

 

 

Special Vesting Rules for Directors.  Unless otherwise provided by the Compensation Committee, with respect to a director whose period of service ends, either voluntarily or by reason of his or her not seeking re-election to the Board, not being re-nominated to the Board or not being re-elected to the Board, (1) any issued but unvested SARs granted to such director will become immediately vested; and (2) all performance awards and all restricted stock and RSUs with performance-based vesting conditions will be forfeited immediately, but if provided in the applicable award agreement, the director will be eligible to receive a cash payment at the end of the performance period determined by the extent to which the applicable performance goals have been attained with respect to the entire performance period, prorated through the date of the director’s end of service.

Unless otherwise provided by the Compensation Committee, all stock options and restricted stock (except for restricted stock with performance-based vesting conditions) granted to a director will be immediately vested upon the date of grant.

 

Change in Control.  Unless otherwise provided by the Compensation Committee, upon a change in control of the Company:

 

 

Notwithstanding the foregoing, unless otherwise provided in the applicable award agreement, the Compensation Committee may cancel outstanding awards at or immediately prior to the change in control in exchange for payments to the participants in cash or shares equal to the value of the awards.

 

For purposes of the 2009 Plan, a “change in control” is defined as the occurrence of any of the following events:

 

 

Awards Subject to Section 409A of the Code.  Certain awards granted under the 2009 Plan may be deemed to constitute “deferred compensation” within the meaning of Section 409A of the Code, providing rules regarding the taxation of nonqualified deferred compensation plans, and the regulations and other administrative guidance issued pursuant to Section 409A. Any such awards will be required to comply with the requirements of Section 409A. Notwithstanding any provision of the 2009 Plan to the contrary, the Compensation Committee is authorized, in its sole discretion, to amend the 2009 Plan or any award agreement as it deems necessary or appropriate to comply with Section 409A.

 

Amendment or Termination of 2009 Plan.  The 2009 Plan may be amended or terminated by our Board or the Compensation Committee at any time. No such action, however, may adversely affect any rights or obligations with respect to any awards previously granted under the 2009 Plan, unless such action is required by law or any stock exchange

listing requirements or the affected participants consent in writing. In addition, no amendment will become effective without the approval of our shareholders if such approval is necessary for continued compliance with Section 162(m) and Section 422 of the Code, other applicable law or any stock exchange listing requirements.

 

Transferability of Awards.  Unless otherwise provided by the Compensation Committee and set forth in the applicable award agreement consistent with securities and other applicable laws, rules and regulations, no stock option, SAR, performance award, RSU or restricted stock may be sold or transferred by a participant, other than upon the participant’s death to a beneficiary or by will or the laws of descent and distribution. However, the Compensation Committee may not alter the 2009 Plan’s general prohibition against transfers for incentive stock options.

 

Unless otherwise provided by the Compensation Committee and set forth in the applicable award agreement, a stock option, SAR or performance award may be exercised during the participant’s lifetime only by the participant or his or her guardian or legal representative; provided, however, that incentive stock options may be exercised by such guardian or legal representative only if permitted by the Code and any regulations promulgated thereunder. The Compensation Committee may not permit any award agreement to provide for the transfer of an award for value or consideration.

 

Impact of Restatement of Financial Statements upon Previous Awards.  If any of our financial statements are restated as a result of errors, omissions or fraud, the Compensation Committee may direct that we recover all or a portion of any award or payment made to any, all or any class of participants with respect to any fiscal year with financial results that are negatively affected by such restatement. The amount to be recovered from any participant will be the amount by which the affected award or payment exceeded the amount that would have been payable to such participant had the financial statements been initially filed as restated, or any greater or lesser amount that the Compensation Committee determines.

 

The Compensation Committee may determine to recover different amounts from different participants or different classes of participants on such basis as it deems appropriate. In no event will the amount to be recovered by the Company from a participant be less than the amount required to be repaid or recovered as a matter of law. The Compensation Committee will determine whether we will effect any such recovery (1) by seeking repayment from the participant, (2) by reducing the amount that would otherwise be payable to the participant under any compensatory plan, program or arrangement maintained by the Company, (3) by withholding payment of future increases in compensation or grants of compensatory awards, including bonuses, that would otherwise have been made in accordance with our otherwise applicable compensation practices, or (4) by any combination of the foregoing or otherwise.

 

The following summary is intended only as a general guide to the U.S. federal income tax consequences of participation in the 2009 Plan and does not attempt to describe all possible federal or other tax consequences of such participation or tax consequences based on particular circumstances.

 

Incentive Stock Options.  A participant recognizes no taxable income for regular income tax purposes as a result of the grant or exercise of an incentive stock option qualifying under Section 422 of the Code. Participants who neither dispose of their shares within two years following the date the option was granted nor within one year following the exercise of the option will normally recognize a capital gain or loss upon the sale of the shares equal to the

difference, if any, between the sale price and the purchase price of the shares. If a participant satisfies such holding periods upon a sale of the shares, we will not be entitled to any deduction for federal income tax purposes. If a participant disposes of shares within two years after the date of grant or within one year after the date of exercise (a “disqualifying disposition”), the difference between the fair market value of the shares on the option exercise date and the exercise price (not to exceed the gain realized on the sale if the disposition is a transaction with respect to which a loss, if sustained, would be recognized) will be taxed as ordinary income at the time of disposition. Any gain in excess of that amount will be a capital gain. If a loss is recognized, there will be no ordinary income, and such loss will be a capital loss. Any ordinary income recognized by the participant upon the disqualifying disposition of the shares generally should be deductible by us for federal income tax purposes, except to the extent such deduction is limited by applicable provisions of the Code.

 

In general, the difference between the option exercise price and the fair market value of the shares on the date of exercise of an incentive stock option is treated as an adjustment in computing the participant’s alternative minimum taxable income and may be subject to an alternative minimum tax which is paid if such tax exceeds the regular tax for the year. Special rules may apply with respect to certain subsequent sales of the shares in a disqualifying disposition, certain basis adjustments for purposes of computing the alternative minimum taxable income on a subsequent sale of the shares and certain tax credits which may arise with respect to participants subject to the alternative minimum tax.

 

Nonqualified Stock Options.  Options not designated or qualifying as incentive stock options are nonqualified stock options having no special tax status. A participant generally recognizes no taxable income upon receipt of such an option. Upon exercising a nonqualified stock option, the participant normally recognizes ordinary income equal to the difference between the exercise price paid and the fair market value of the shares on the date when the option is exercised. If the participant is an employee, such ordinary income generally is subject to withholding of income and employment taxes. Upon the sale of stock acquired by the exercise of a nonqualified stock option, any gain or loss, based on the difference between the sale price and the fair market value of the shares on the exercise date, will be taxed as capital gain or loss. We generally should be entitled to a tax deduction equal to the amount of ordinary income recognized by the participant as a result of the exercise of a nonqualified stock option, except to the extent such deduction is limited by applicable provisions of the Code.

 

Stock Appreciation Rights.  A participant recognizes no taxable income upon the receipt of a stock appreciation right. Upon the exercise of a stock appreciation right, the participant generally will recognize ordinary income in an amount equal to the excess of the fair market value of the underlying shares of common stock on the exercise date over the exercise price. If the participant is an employee, such ordinary income generally is subject to withholding of income and employment taxes. We generally should be entitled to a deduction equal to the amount of ordinary income recognized by the participant in connection with the exercise of the stock appreciation right, except to the extent such deduction is limited by applicable provisions of the Code.

 

Restricted Stock.  A participant acquiring restricted stock generally will recognize ordinary income equal to the excess of the fair market value of the shares on the “determination date” over the price paid, if any, for such shares. The “determination date” is the date on which the participant acquires the shares unless the shares are subject to a substantial risk of forfeiture and are not transferable, in which case the determination date is the earlier of (i) the date on which the shares become transferable or (ii) the date on which the shares are no

longer subject to a substantial risk of forfeiture (e.g., when they become vested). If the determination date follows the date on which the participant acquires the shares, the participant may elect, pursuant to Section 83(b) of the Code, to designate the date of acquisition as the determination date by filing an election with the Internal Revenue Service no later than 30 days after the date on which the shares are acquired. If the participant is an employee, such ordinary income generally is subject to withholding of income and employment taxes. Upon the sale of shares acquired pursuant to a restricted stock award, any gain or loss, based on the difference between the sale price and the fair market value of the shares on the determination date, will be taxed as capital gain or loss. We generally should be entitled to a deduction equal to the amount of ordinary income recognized by the participant on the determination date, except to the extent such deduction is limited by applicable provisions of the Code.

 

Performance Awards and RSUs.  A participant generally will recognize no income upon the receipt of a performance award or RSU. Upon the settlement of such awards, participants normally will recognize ordinary income in the year of receipt in an amount equal to the cash received and the fair market value of any substantially vested shares received. If the participant is an employee, such ordinary income generally is subject to withholding of income and employment taxes. Upon the sale of any shares received, any gain or loss, based on the difference between the sale price and the fair market value on the “determination date” (as defined above under “Restricted Stock”), will be taxed as capital gain or loss. We generally should be entitled to a deduction equal to the amount of ordinary income recognized by the participant on the determination date, except to the extent such deduction is limited by applicable provisions of the Code.

 

No awards will be granted under the 2009 Plan prior to its approval by our shareholders. All awards will be granted at the discretion of the Compensation Committee, and, accordingly, are not yet determinable. The following table, however, shows a hypothetical example of annual equity grants under the 2009 Plan based primarily on our equity grants under the Existing Plans in February 2009.

 

 

 

Our shareholders have approved all of our Existing Plans. These plans are designed to further align our directors’ and management’s interests with our long-term performance and the long-term interests of our shareholders.

 

The following table summarizes the number of shares of our common stock available for issuance under our Existing Plans as of December 31, 2008:

 

 

 

 

For additional information regarding our existing equity compensation plans, refer to note 2 of our financial statements under the heading “Stock-Based Compensation” in our

Form 10-K for the year ended December 31, 2008, as filed with the SEC on February 24, 2009.

 

The Board recommends the shareholders vote FOR approval of The St. Joe Company 2009 Equity Incentive Plan.

 

The Audit and Finance Committee has appointed the firm of KPMG LLP, an independent registered public accounting firm, to audit our consolidated financial statements for the 2009 fiscal year and has directed that such appointment be submitted to our shareholders for ratification at the annual meeting. If the shareholders do not ratify the appointment of KPMG LLP as our independent registered public accounting firm, the Audit and Finance Committee will reconsider the appointment.

 

KPMG LLP has served as our independent accountants since 1990. A representative of KPMG LLP will be present at the meeting to answer pertinent shareholder questions and will be given an opportunity to make a statement. For more information regarding KPMG’s 2008 engagement, see “Independent Registered Public Accounting Firm Information” on page 29.

 

The Board recommends the shareholders vote FOR ratification of KPMG LLP as our independent registered public accounting firm for the 2009 fiscal year.

 

The Board of Directors does not know of any other business to be presented at the meeting. If, however, any other matters come before the meeting, it is the intention of the proxies to vote your shares in accordance with their own judgment in such matters.

 

Our Board of Directors has adopted corporate governance principles and policies to provide, along with the charters of the Board committees, a framework for the governance and management of the Company in accordance with high ethical standards and in recognition of its responsibilities to various constituencies. These principles are intended to reflect the Board’s long-standing commitment to the ethical conduct of our business in compliance with the letter and the spirit of applicable laws, regulations and accounting principles. Recognizing that corporate governance is subject to on-going and energetic debate, the Board reviews these principles and other aspects of the Company’s governance at least once a year.

 

Our corporate governance principles address the role of the Board, the composition of the Board, Board leadership, the functioning of the Board, the committees of the Board, management succession, ethics and conflicts of interest. These principles specifically provide

that two-thirds of the members of the Board must be outside directors who meet the independence criteria established by the NYSE and that no more than one member of the Board will be an employee of the Company unless the Board, in its discretion, determines that an additional employee-director would facilitate the Company’s succession plan.

 

The top priority of our Board of Directors is the ethical management of the Company for profitable, long-term growth for the benefit of our shareholders. To that end, the Board has adopted corporate governance policies to align management and shareholder interests. Some of the more noteworthy of these corporate governance policies include:

 

 

Our Board of Directors has adopted a Code of Conduct applicable to all directors, officers and employees. Its purpose is to promote our commitment to the Company’s standards for ethical business practices. The Code of Conduct provides that it is our policy that our business be conducted in accordance with the highest legal and ethical standards. Our reputation for integrity is one of our most valuable assets, and each employee and member of the Board is expected to contribute to the care and preservation of that asset. Our Code of Conduct addresses a number of issues, including conflicts of interest, corporate opportunities, protection of company assets, confidentiality, insider trading, accounting matters, record keeping, working with governments, antitrust, legal compliance and fair dealing. Under our corporate governance principles, no waiver of any ethics policy is permitted for directors and executive officers. Our directors review the Code of Conduct annually to ensure that it appropriately addresses the business practices of the Company.

 

Our corporate governance principles and policies and our Code of Conduct are available on our website at http://ir.joe.com/governance.cfm. We intend to post on our website information regarding any amendment to the Code of Conduct or any waiver granted under the Code of Conduct covered by Item 5.05 of Form 8-K. Please note that the information on our website is not incorporated by reference in this proxy statement.

Copies of our corporate governance principles and policies and our Code of Conduct are also available upon request by contacting us at the following address: The St. Joe Company, 245 Riverside Avenue, Suite 500, Jacksonville, Florida 32202, Attn: Corporate Secretary.

 

The Board met seven times in 2008. Each member of the Board attended at least 75% of the meetings of the Board and committees on which he or she served in 2008, except for Harry H. Frampton, III, who resigned from the Board in November 2008 due to personal time constraints. Non-management directors meet in executive session without management at each regularly scheduled Board meeting. Mr. Durden, our Chairman of the Board, presides during such sessions. Board members are expected to attend our annual meetings. At our 2008 annual meeting, all members of the Board were present.

 

The Board annually determines the independence of directors based on a review by the directors and the recommendation of the Governance and Nominating Committee. The Governance and Nominating Committee considers director independence when making its recommendations regarding director nominees. No director is considered independent unless the Board has determined that he or she has no material relationship with the Company, either directly or as a partner, shareholder, or officer of an organization that has a material relationship with the Company. Material relationships can include commercial, industrial, banking, consulting, legal, accounting, charitable, and familial relationships, among others.

 

To evaluate the materiality of any director relationship with the Company, the Board applies the categorical independence standards found in the NYSE listing guidelines. The NYSE guidelines state that a director will not be deemed independent in any of the following circumstances:

 

 

 

In addition to the NYSE standards for director independence, the Board has adopted an additional categorical standard for director independence. The Board has determined that transactions with the Company involving a director or candidate for director or an entity with whom the director or candidate is affiliated that are conducted on an arm’s-length basis in the ordinary course of business will not be deemed to affect a director’s independence. This categorical standard for independence may be found in our Governance Principles on our website at http://ir.joe.com/governanceprinciples.cfm.

 

Members of the Audit and Finance Committee, Compensation Committee and Governance and Nominating Committee must also meet all applicable independence tests of the NYSE, the SEC and the Internal Revenue Service.

 

In January 2009, all directors completed questionnaires which asked them about their relationships with the Company (and those of their immediate family members) and other potential conflicts of interest. The responses to these questionnaires did not reveal any transaction or relationship between the directors and the Company requiring board consideration in connection with the determination of director independence.

 

Based on the review and recommendations of the Governance and Nominating Committee, the Board determined that all of the nominees, other than Mr. Greene, are independent as required by the NYSE in that they have no material relationships with the Company, either directly or indirectly. The Board also determined that all the members of the Audit and Finance, Compensation and Governance and Nominating Committees also meet the applicable independence tests. With 87.5% independence, our Board exceeds the required number of independent directors set forth in our corporate governance principles (two-thirds) and the rules of the NYSE (majority).

 

The Board has the following three standing committees: Governance and Nominating Committee, Audit and Finance Committee and Compensation Committee. In September 2008, the Board combined our separate Audit Committee and Finance Committee into one Audit and Finance Committee. Each committee is further described below.

 

The Board of Directors has adopted a written charter for each committee. These charters are available on our website at http://ir.joe.com/governance.cfm. Please note that the information on our website is not incorporated by reference in this proxy statement. Copies of our Board committee charters are also available upon request by contacting us at the following address: The St. Joe Company, 245 Riverside Avenue, Suite 500, Jacksonville, Florida 32202, Attn: Corporate Secretary.

 

The members of the Governance and Nominating Committee are Mr. Lord (Chair), Mr. Ainslie, Mr. Durden, Dr. Herbert and Mr. Revell. Each member is independent as required by the NYSE. The Governance and Nominating Committee met five times in 2008. The primary functions of the Governance and Nominating Committee are to:

 

 

In fulfilling its duty to recommend nominees for election as directors, the Committee seeks a diverse group of candidates (in the broadest sense, including with respect to age, gender, ethnic background and national origin) who combine a broad spectrum of backgrounds, experience, skills and expertise and who would make a significant contribution to the Board, the Company and our shareholders. The Committee considers, among other things, the following criteria:

 

 

The Governance and Nominating Committee has generally identified director candidates through the business relationships, experience and networking of our directors and executive officers. The Committee has not used professional search firms. When a potential candidate is identified, the Committee evaluates the candidate’s qualifications through candidate interviews and background checks.

 

The Governance and Nominating Committee would consider qualified candidates for director suggested by our shareholders and would evaluate such candidates according to the same criteria used for other director nominees. Shareholders can suggest qualified candidates

for director by writing to The St. Joe Company, 245 Riverside Avenue, Suite 500, Jacksonville, Florida 32202, Attn: Corporate Secretary. Submissions that meet the criteria outlined above, on our website and in the Committee charter will be forwarded to the Chair of the Governance and Nominating Committee for further review and consideration.

 

The current members of the Audit and Finance Committee are Mr. Fanning (Chair), Dr. Herbert, Ms. Kesler, Mr. Lord and Mr. Revell. Each of the Committee members is independent as required by the NYSE. During 2008, prior to the combination of the Audit and Finance Committees, the Audit Committee met seven times, and the Finance Committee met three times. The combined Audit and Finance Committee met two times in 2008. The primary functions of the Audit and Finance Committee are to:

 

 

The Board has determined that:

 

 

See the “Audit and Finance Committee Report” on page 28 for more information on the responsibilities of the Audit and Finance Committee.

 

The current members of the Compensation Committee are Mr. Ainslie (Chair), Mr. Durden, Mr. Fanning and Ms. Kesler. Each member is independent as required by the NYSE. The functions of the Compensation Committee are to review and approve compensation and benefits for our executive officers, and to supervise the administration of all employee benefit plans.

 

The Committee meets at least four times each year (eight times in 2008). Committee agendas are established in consultation with the Committee chair, the Committee’s compensation consultant and management. The Committee meets in executive session following each regular meeting to discuss compensation issues.

 

The Committee has engaged a compensation consulting firm, Towers Perrin, to advise the Committee on evaluating executive compensation programs and in setting executive officers’ compensation. Towers Perrin has advised the Committee since May 2005. A senior

representative from Towers Perrin participates in most Committee meetings and is available between meetings to act as a resource for the Committee and management. The use of a compensation consultant provides additional assurance that our executive compensation programs are reasonable and consistent with Company objectives and balanced with the marketplace where we compete for talent. The consultant also provides valuable information and advice regarding compensation trends and best practices, plan design and the appropriateness of individual awards.

 

Our President and CEO and Vice President — Human Resources and Corporate Development, in consultation with the Committee’s compensation consultant, formulate recommendations on base salaries, bonus awards and equity incentives for executive officers (other than the CEO). The President and CEO provides the Committee with a performance assessment for each of the other executive officers in order to assist the Committee in making decisions with respect to compensation recommendations. The President and CEO, the Vice President — Human Resources and Corporate Development and our General Counsel generally attend Committee meetings but are not present for the executive sessions or for any specific discussion of their own compensation.

 

See the “Compensation Discussion and Analysis” on page 32, the “Compensation Committee Report” on page 42 and “Compensation Committee Interlocks and Insider Participation” on page 42 for more information regarding the Compensation Committee.

 

Any shareholder or other interested party who desires to contact any member of the Board of Directors (including our independent Chairman, Mr. Durden, or the non-management directors as a group) may do so in one of the following three ways:

 

 

Communications relating to relevant business matters are distributed by the Corporate Secretary to the members of the Board as appropriate depending on the facts and circumstances outlined in the communication received. For example, any complaints regarding accounting, internal accounting controls and auditing matters would be forwarded by the Corporate Secretary to the Chair of the Audit and Finance Committee for review.

 

The role of the Audit and Finance Committee is to provide independent and objective oversight of the Company’s accounting functions and internal controls and to monitor the objectivity of the Company’s financial statements.

 

In the performance of its oversight function, the Committee has reviewed and discussed the audited financial statements with management and our independent registered public accounting firm, KPMG LLP. The Committee has also discussed with KPMG LLP the matters required to be discussed by Statement on Auditing Standards No. 61, Communication with Audit Committees, as currently in effect, as adopted by the Public Company Accounting

Oversight Board (“PCAOB”). The Committee has received the written disclosures and the letter from KPMG LLP required by PCAOB Rule 3526, Communications with Audit Committees Concerning Independence, as currently in effect, and has discussed with KPMG LLP its independence.

 

Finally, the Committee also has discussed with management the non-audit services provided by KPMG LLP to the Company and has considered whether the provision of non-audit services by KPMG LLP to the Company is consistent with maintaining KPMG LLP’s independence.

 

All members of the Audit and Finance Committee are financially literate under applicable NYSE rules, and Messrs. Fanning, Lord and Revell are audit committee financial experts as defined by the rules of the SEC. As described in the Audit and Finance Committee Charter, the Committee’s responsibility is one of oversight. Members of the Committee rely on the information provided to them and on the representations made by management, internal auditors and the independent auditors.

 

Based on the review and discussions described in this report, and subject to the limitations on the role and responsibilities of the Committee referred to above and in the Audit and Finance Committee Charter, the Audit and Finance Committee recommended to the Board of Directors that the Company’s audited financial statements be included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2008, filed with the SEC.

 

Approved and submitted by the Audit and Finance Committee:

 

Thomas A. Fanning, Chair

Dr. Adam W. Herbert, Jr.

Delores M. Kesler

John S. Lord

Walter L. Revell

 

The Audit and Finance Committee is responsible for approving every engagement of KPMG LLP to perform audit or permitted non-audit services on behalf of the Company or any of its subsidiaries before KPMG LLP is engaged to provide those services, subject to the de minimis exceptions permitted by the rules of the SEC.

 

In accordance with Audit and Finance Committee policy and legal requirements, all services to be provided by our independent registered public accounting firm, including audit services, audit-related services, tax services and any other services, are required to be pre-approved by the Audit and Finance Committee prior to engagement. In most cases, pre-approval is provided by the full Audit and Finance Committee for a particular defined task or scope of work and is subject to a specific budget. For unexpected matters, the Chair of the Audit and Finance Committee has been delegated authority to pre-approve additional services, subject to certain dollar limitations, and the Audit and Finance Committee is then informed of each such service.

 

The following table sets forth fees billed to the Company by KPMG LLP in or for the fiscal years 2008 and 2007. The aggregate fees included in the Audit Fees category are fees

billed for the fiscal years, and the aggregate fees included in each of the other categories are fees billed in the fiscal years. All fees described in the table below were approved by the Audit and Finance Committee in accordance with our pre-approval policy.

 

 

 

 

KPMG LLP also serves as independent auditors for The St. Joe Community Foundation (the “Foundation”). The Foundation paid KPMG LLP audit fees in the amount of $11,500 during 2008 and $11,000 during 2007. The Foundation also paid KPMG LLP fees for tax services in the amount of $3,250 in 2008 and $3,150 in 2007.

 

KPMG LLP also serves as independent auditors for three joint ventures in which the Company is a partner. These joint ventures paid KPMG LLP audit fees in the amount of $59,000 in 2008 and $60,000 in 2007; and tax fees of $5,700 in 2008 and $5,550 in 2007.

 

Related Person Transactions Policy and Procedures.  The Board has adopted a policy prohibiting transactions involving the Company and its employees, officers and directors (“related persons”), with certain exceptions. The policy is part of our Code of Conduct. The policy states that related persons may not have any direct or indirect material interest in any transaction, arrangement or relationship in which the Company, or a competitor of the Company, is a participant. Indirect interests include those through (1) an immediate family member; (2) any person acting on the related person’s behalf; or (3) any entity in which the related person or any of his or her immediate family members are an employee, officer, partner or principal or with which a related person or his or her immediate family members have a significant business relationship.

 

Our policy prohibiting related person transactions does not apply to interests in transactions arising from (1) arms-length purchases or sales of goods, real property or services; (2) a related person’s position as a director of another corporation or organization that is a party to the transaction; (3) the direct or indirect ownership of less than a 5% equity interest in a public company which is a party to the transaction; and (4) our benefit policies and programs.

 

Executive officers must disclose to the compliance officer any proposed related person transaction. The compliance officer will then report such proposed transaction to the Board. For related person transactions involving a director, the director must notify the Chairman of the Governance and Nominating Committee and the compliance officer, who will then bring

the matter before the full Board. The Board will resolve any conflict of interest question involving an executive officer or director without compromising the Company’s interests. During its review, the Board will consider the nature of the related person’s interest in the transaction; the material terms of the transaction; whether or not the transaction would qualify for an exception to the policy; and any other matters the Board deems appropriate. Any director or executive officer involved in the transaction would be recused from all discussions and decisions about the transaction.

 

Our legal staff is primarily responsible for the development and implementation of processes and controls to monitor and obtain information with respect to related person transactions. Although shareholders are not subject to our Code of Conduct, we do apply the policy against related person transactions to shareholders owning five percent or more of our outstanding common stock.

 

Reportable Transactions.  The only reportable transactions during 2008 were previously reported in our 2008 proxy statement filed with the SEC on March 28, 2008. There are no currently proposed reportable transactions.

 

Section 16(a) of the Securities Exchange Act of 1934, as amended, requires our directors, executive officers and beneficial owners of more than 10% of our common stock to file reports with the SEC reporting ownership of and transactions in common stock and to furnish copies of the reports to the Company. We believe all such reports were timely filed during 2008.

 

You may submit proposals on matters appropriate for shareholder action for the 2010 Annual Meeting of Shareholders. These proposals must be made in accordance with the rules of the SEC and our Bylaws. A proposal for the 2010 annual meeting must be received by our Corporate Secretary at The St. Joe Company, 245 Riverside Avenue, Suite 500, Jacksonville, Florida 32202 as follows:

 

IV.  Executive Compensation and Other Information

 

Wm. Britton Greene, 54, has served as Chief Executive Officer of the Company since May 2008 and as President since October 2007. He was promoted to Chief Operating Officer in August 2006. He joined us in January 1998 as Vice President of West Florida residential and resort operations and was appointed President of West Florida in 2000, President of St. Joe Towns & Resorts in February 2004 and President of St. Joe Commercial in March 2006. Prior to joining us, Mr. Greene was president of Markborough Florida, a real estate development firm, from 1992 to 1997. Mr. Greene is a current Trustee and past president of The St. Joe Community Foundation, a member of the Florida Council of 100, a member of the University of Florida Real Estate Advisory Board, and a director of the University of North Florida Foundation.

 

William S. McCalmont, 53, has served since May 2007 as Chief Financial Officer and was promoted to Executive Vice President in January 2009. Prior to joining the Company, Mr. McCalmont served as Executive Vice President and Chief Financial Officer of Ace Cash Express, Inc. from August 2003 to January 2007 and as a member of a real estate consulting group from 2001 to 2003. Prior to that time, Mr. McCalmont had senior management experience at several companies including Harrah’s Entertainment, Inc., La Quinta Inns, Inc. and Embassy Suites, Inc. Mr. McCalmont is a director of LaSalle Hotel Properties, a real estate investment trust.

 

Christine M. Marx, 57, has served as our General Counsel and Corporate Secretary since March 2003. Prior to joining us, Ms. Marx was a partner in the law firm of Duane Morris LLP concentrating in securities and corporate law. From 1985 to 2000 she was a partner in the law firm of Edwards & Angell LLP.

 

Stephen W. Solomon, 47, has served as our Senior Vice President and Treasurer since May 2004. He joined the Company as Vice President and Treasurer in May 1999. Prior to that time, Mr. Solomon spent over eight years at H.F. Ahmanson & Company, most recently as Senior Vice President and Director of Corporate Planning where he was responsible for the company’s financial analysis and capital planning functions. Prior to joining H.F. Ahmanson in 1990, he worked for Great Western Bank since 1984 in a variety of financial planning roles.

 

The persons described above are all of our executive officers. They are included in the “Summary Compensation Table” on page 43 and are sometimes referred to herein as our “named executives.” In addition, Peter S. Rummell, our former Chairman and Chief Executive Officer, and Christopher T. Corr, our former Executive Vice President and Chief Strategy Officer, served as executive officers for a portion of 2008 and are also included as named executives pursuant to SEC rules.

 

This Compensation Discussion and Analysis (“CD&A”) contains a discussion of our compensation policies and practices and the material elements of compensation awarded to the named executives for 2008.

 

We are one of the largest real estate development companies in Florida. We own approximately 586,000 acres concentrated primarily in Northwest Florida and are engaged in residential and commercial real estate development and rural land sales. We also have significant interests in timber.

 

During 2008, our business continued to experience the significant adverse effects of the severe downturn in the residential real estate markets in Florida and across the nation, as well as recessionary economic conditions and a severe liquidity crisis among financial institutions. We took the following important steps in 2008 to help manage these conditions:

 

 

In this difficult and challenging environment, our compensation program has been focused primarily on retaining our executive team stability while motivating them to optimize the operational performance of the Company and focus on long-term value creation for our shareholders. For these reasons, our compensation program is designed to:

 

 

To accomplish these objectives, we have implemented a compensation program for our executive officers consisting of base salaries, annual performance-based cash bonuses, equity awards and comprehensive fringe benefits. Each element of total compensation is linked to a compensation objective:

 

 

As part of our analysis in determining executive officer compensation, we look to compensation practices at other companies that could be considered part of a “peer group” for the Company. We last undertook a formal peer group analysis in connection with establishing compensation levels for 2006. At that time, we directed our compensation consultant, Towers Perrin, to recommend a peer group of companies within a market capitalization range of $1.5 to $5.0 billion (the “Market Cap Peer Group”). Towers Perrin assembled this data from its internal database of information collected through its annual surveys and proxy statement analyses. Approximately 150 companies were included in the Market Cap Peer Group. The names of the companies included in the Market Cap Peer Group are listed on Appendix B to this proxy statement.

 

As part of our analysis, we compared the total compensation package for each executive officer with similar positions at other companies within the Market Cap Peer Group — a practice known as “benchmarking.” The purpose of the benchmarking process is to ascertain whether or not our compensation practices are in line with other similarly situated companies. During the benchmarking process, we used the following guidelines for setting what we believed to be competitive compensation targets:

 

 

For compensation events since 2006, such as the hiring of Mr. McCalmont as CFO in 2007 and the promotion of Mr. Greene to CEO in 2008, we have referred back to the benchmarking data from the 2006 analysis. We intend to undertake a new peer group analysis in 2009 in order to obtain updated information based on current market conditions.

 

Factors Considered.  When structuring the compensation levels of the named executives as compared to each other, we consider various factors, including the following:

 

 

In addition, current market dynamics may exert pressure from time to time as competing organizations attempt to attract talented individuals with the skills to navigate the challenges related to the real estate and economic downturn. Such tactics include luring executives with underwater stock options to a competing company with large stock option grants offered at lower stock prices.

 

Discussion of Current Named Executives.  Mr. Greene was promoted to CEO during 2008, and his total compensation is significantly higher than the other named executives. See the “Summary Compensation Table” on page 43. Mr. Greene has served the Company since 1998 and has extensive experience successfully managing various aspects of our business. This knowledge of the Company and depth of operational experience is valuable to us during the current challenging operating environment, and Mr. Greene’s compensation reflects the Committee’s desire to retain his services and motivate his performance. Mr. Greene’s role is also important in providing continuity of leadership to our large shareholders, government officials and the Company as a whole in the transition from a long-serving former CEO. Further, as CEO, Mr. Greene manages the executive team, holds the highest level of operational and organizational responsibility within Company management and is exposed to personal legal liability (for example, signing annual and quarterly financial statement certifications).

 

As Chief Financial Officer, Mr. McCalmont’s 2008 compensation was also significantly higher than the other named executives (other than Mr. Rummell, our former CEO). This difference reflects Mr. McCalmont’s critically important role in proactively managing and responding to our current challenging operating conditions. For example, Mr. McCalmont has been instrumental in virtually eliminating our debt and in implementing significant cost-saving measures which better position the Company to withstand the difficult conditions in the economy and in our real estate markets. He is also exposed to personal legal liability (for example, signing annual and quarterly financial statement certifications).

 

The other current named executives were hired into roles with less operational responsibility or were promoted from more junior positions within the Company to assume greater responsibility over time.

 

The base salaries of our named executives at December 31, 2008 (or in the case of Mr. Rummell and Mr. Corr, at the conclusion of their employment with the Company) were as follows:

 

We last analyzed the base salaries of our executive officers in 2006, when we determined that the base salaries were within 10% of the 50th percentile for corresponding position benchmarks within the Market Cap Peer Group described above. Since that time, except in the case of promotions, the named executives have received modest annual base salary increases at the same rates of increase awarded to other employees. When Mr. Greene was promoted to CEO during 2008, he received a 35% increase in his base salary for the reasons described above under “Internal Pay Equity.”

 

We believe that a base salary of approximately 33% to 50% of an executive officer’s target total compensation (base salary + target bonus + target equity award) reflects an appropriate mix of fixed compensation and performance-based compensation. We believe having a significant, or even a majority, of an executive’s total compensation linked to the performance of the Company serves to more effectively align executives’ and shareholders’ interests. For 2008, the proportion of base salary to target total compensation for our named executives ranged from 31% (for Mr. Greene) to 44% (for Mr. Solomon).

 

The Committee adopted in 2008 an annual incentive plan designed to reward short term performance by linking cash bonus awards with the achievement of annual Company performance goals. We believe that making such compensation “at risk” provides significant motivation for increasing individual and Company performance.

 

Mechanics of the Plan.  In early 2008, the Committee assigned each named executive a designated target award calculated as a percentage of the named executive’s base salary. The bonus target awards were determined in accordance with the Market Cap Peer Group position benchmarks and internal pay equity factors as described above. For 2008, the target awards expressed as a percentage of base salary were as follows: Mr. Greene, 100%; Mr. McCalmont, 65%; Ms. Marx, 60%; Mr. Solomon, 50%; Mr. Rummell, 100%; and Mr. Corr, 60%.

 

At the conclusion of the annual performance period, the actual bonus was calculated by adjusting the target award up or down based on the level of achievement of Company performance goals. The plan was designed such that for each percentage variation from the applicable performance objective, the amount of the projected award is increased or decreased, as applicable, at twice the rate. For example, goals achieved by 50% or less will result in a 0% projected award, and goals that are exceeded by 50% or more will result in a 200% projected award. The maximum possible payout under the plan is 200% of the target award.

 

2008 Performance Goals.  In the past, we primarily used the Company’s earnings per share as the performance measure for short-term incentive. In the current operating environment in which our real estate markets are experiencing extremely low levels of activity due to the ongoing real estate downturn, the credit crisis and recessionary economic conditions, we decided that earnings per share was not an appropriate objective with which to measure executive performance. At the time the short-term incentive plan was approved, we knew that the executive team would need to focus on a variety of activities necessary to strengthen the Company to withstand the current adverse market conditions and to create long term shareholder value, none of which would be measured solely by an earnings per share objective.

 

For the 2008 plan, we established performance goals based on three equally-weighted components of Company performance: (1) the achievement of specified entitlement, enhancement and economic inducer initiatives intended to increase the Company’s land values, together with corporate strategy initiatives primarily aimed at reducing costs and improving

the Company’s balance sheet; (2) the execution of a specified number of new business-to-business agreements; and (3) a total revenue target. These goals are described as follows:

 

Category (1) Goals:

 

In the first category, there were 28 detailed performance goals intended to drive specific value creation efforts. These goals are described generally as follows:

 

 

 

Category (2) Goals:

 

The second goal category required the execution of agreements with at least five business partners for important projects involving Company land. An important strategy of the Company is to attract new developers to Northwest Florida to promote interest in the region and to share the capital costs for development projects. For example, in August 2008 we signed a joint venture agreement with Glimcher Realty Trust to jointly develop an anchored retail shopping center on 58 acres in Panama City Beach. This goal was 100% achieved.

Category (3) Goals:

 

In addition to strategic goals in support of value creation strategies, we realized the continued need to produce revenues to support Company operations. We established a 2008 revenue target for the Company of $388.9 million. This goal was approximately 70% achieved.

 

In order to determine the payout under the short-term incentive plan, the achievements for all three goal categories were combined, producing an overall goal achievement under the plan of 85%. Because our actual performance fell short of the target, the projected awards were decreased by twice the amount of the shortfall pursuant to the terms of the plan, and the named executives were paid only 70% of their target bonuses for 2008. See the “Summary Compensation Table” on page 43 and “Grants of Plan-Based Awards in 2008” on page 48 for more information regarding the 2008 awards under the annual incentive plan.

 

Our long-term incentive program is designed to align executive and shareholder interests and encourage long-term executive performance and retention. We maintain several substantially identical stock incentive plans that are administered by the Committee. Each of these plans has been approved by our shareholders. In order to continue the long-term incentive program, the Board has adopted The St. Joe Company 2009 Equity Incentive Plan, subject to approval by the shareholders at the annual meeting. Refer to “Proposal No. 2 — Approval of The St. Joe Company 2009 Equity Incentive Plan” on page 9 for additional information.

 

Equity Grant Practices.  Our practice has been to make at least one equity award each year to our named executives (other than Mr. Rummell) as part of their total annual compensation. These awards are based on an established percentage of their base salaries. For 2008, the equity target award percentages for the named executives were determined by reference to the Market Cap Peer Group position benchmarks and the internal pay equity factors, as described above. The Committee also considers the recommendations of our President and CEO, the Vice President — Human Resources and Corporate Development and the Committee’s compensation consultant when making equity awards. The target award percentages for the named executives for 2008 were as follows: Mr. Greene, 150%; Mr. McCalmont, 100%; Ms. Marx, 75%; Mr. Solomon, 75%; and Mr. Corr, 100%. In connection with his promotion to CEO, Mr. Greene’s target award percentage was increased to 185%, effective beginning with the 2009 annual equity grant. Mr. Rummell did not receive any equity grants in 2008.

 

Awards of restricted stock are initially denominated in dollars, which amounts are then converted to shares by dividing the approved dollar value of the award by the closing share price on the date of grant. No options were granted in 2008.

 

Annual equity awards are granted in February at the regular quarterly meeting of the Committee. The Committee’s quarterly meetings are scheduled in September of the prior year. Committee meetings are scheduled without regard to anticipated earnings announcements or the release of other material, non-public information. Generally, the date the Committee takes action with respect to an award is the same date as the grant date for the awards. We do not backdate stock options.

 

2008 Equity Grants.  Each named executive (other than Mr. Rummell) was granted an annual equity award of shares of restricted stock with performance-based vesting conditions. The performance period for these shares started on the grant date and continues through

January 31, 2011. The shares will vest according to how well our total shareholder return during the performance period compares to the total shareholder returns of companies within two peer groups established by reference to the S&P 500 Index and the S&P Super-Composite Homebuilder Index. See “Grants of Plan-Based Awards in 2008” on page 48 for more information about these equity grants and the performance-based vesting conditions.

 

In the past, we have granted restricted stock and stock options with time-based vesting. Traditionally, restricted stock has been a more effective retention tool because, unlike options, it delivers value when the restrictions lapse even if the share price has decreased from the date of grant. Restricted stock grants also deliver value more efficiently than stock options by delivering intended value with fewer shares. This benefits existing shareholders through less dilution of their ownership and the delivery of value while using fewer authorized shares under our equity incentive plans. Stock options, while less efficiently utilizing shares, promote performance and align executive incentives with stock price appreciation.

 

We believe that restricted stock with performance-based vesting conditions combines the best attributes of both restricted stock and stock options. These grants provide the perceived certainty of restricted stock awards and align the financial interests of executives with shareholders by promoting stock price appreciation. Because of the fluctuations in our stock price due to uncertainties in the financial markets, stock options would not have provided the same level of perceived value as restricted stock subject to performance-based conditions. In addition, at the time of grant, stock options have no intrinsic value. We use the Black-Scholes valuation methodology when assigning values to stock options at the time of grant, but this model requires a two to three times price increase in order to produce the intended value of the award at the time of grant.

 

Furthermore, in order to create a strong retention incentive during a challenging operating environment and a significant restructuring of the Company, these awards were calculated at twice the value of the named executives’ target annual equity awards. Using this double value approach provides perceived certainty that some value will be realized from the awards even if our stock price performs only moderately well (50% of the shares vest if we rank in the 50th percentile), while providing the opportunity to realize the full value of the awards if our stock price performs very well (100% of the shares vest if we rank in the 75th percentile or above).

 

Mr. Greene and Mr. Corr were also granted shares of restricted stock with time-based vesting. Time-based vesting conditions were used for these awards in order to provide these executives with a strong retention incentive and the stability of incentive payouts during the current down business cycle. Although less effective than stock options or restricted stock with performance-based vesting conditions, restricted stock with time-based vesting also serves to motivate performance as its value increases with stock price increases.

 

Policies Regarding Equity Ownership.  In order to promote the alignment of the financial interests of our senior management and directors with our shareholders, the Committee adopted a Stock Ownership Policy in May 2008. The policy requires senior management, including the named executives, to own a minimum amount of Company stock (either a minimum number of shares or a minimum value of owned shares) ranging from 5,000 shares or $275,000 to 100,000 shares or $5.5 million. For directors, the minimum amount of Company stock required to be owned under the policy is 5,000 shares or $275,000.

 

The executives subject to the policy have five years from the date of adoption to reach the minimum ownership thresholds. The thresholds for those age 55 or older will be reduced by 10% per year up to 50% because the Committee thought it reasonable to allow for a

certain amount of investment diversification as the executives approach retirement age in light of the volatility of stock prices in the real estate industry.

 

We do not reprice stock options to account for decreases in our share price after the date of grant. We prohibit short sales on our stock, and the purchase or sale of options, puts, calls or other derivative securities that are directly linked to our stock, by named executives and other officers and directors. Certain members of management, including the named executives and directors, are required to receive permission from our legal department prior to conducting transactions in Company securities. We have quarterly “blackout” periods, and unscheduled blackout periods from time-to-time, during which no trading is permitted by these persons.

 

The Company provides retirement benefits to the named executives through a cash balance defined benefit pension plan (the “Pension Plan”), a 401(k) retirement plan, a non-qualified supplemental executive retirement plan (“SERP”) and a non-qualified deferred capital accumulation plan (“DCAP”). The terms of these plans and the benefits accrued to the named executives under the plans are described under “Pension Benefits in 2008” on page 53 and “Nonqualified Deferred Compensation in 2008” on page 55. We believe that these retirement benefits are important tools for retaining and rewarding executive officers’ service by providing meaningful retirement savings through tax-favorable plans. Although we have no target percentage for retirement plans to contribute to total compensation, we do consider retirement benefits when setting an executive officer’s total compensation.

 

We provide our named executives with other benefits, reflected in the All Other Compensation column in the “Summary Compensation Table” on page 43, that we believe are reasonable, competitive, supported by a clear business rationale and consistent with our overall executive compensation program. The costs of these benefits constitute only a small percentage of each named executive’s total compensation, and include, among other things, financial planning expenses, relocation costs, premiums paid on life insurance policies and the cost of an annual physical.

 

We made significant payments to Mr. Corr in connection with his termination of employment in June 2008. These amounts are described under the heading “All Other Compensation” on page 46. In addition to the amounts required to be paid pursuant to Mr. Corr’s employment agreement and Company policy, the Committee awarded him an additional cash payment of $500,000. This award was made in recognition of the significant value creation role Mr. Corr played in successfully leading efforts to obtain entitlements and to develop and execute inducer strategies designed to stimulate economic activity and accelerate growth, including strategies involving the Panama City-Bay County International Airport relocation, Sacred Heart Health Systems hospitals and regional road improvements. For these reasons, the Committee also chose to pay the 2008 bonus payment required by Mr. Corr’s employment agreement at its full target value (prorated through his date of termination) instead of at the 70% value paid to the other named executives.

 

The Committee made special compensation arrangements for Mr. Rummell in connection with his retirement from his position as Chief Executive Officer on May 13, 2008. The actual payments are described under the heading “All Other Compensation” on page 46. In addition to the amounts required to be paid pursuant to Mr. Rummell’s employment agreement and Company policy, Mr. Rummell was paid $62,500 for his continued service as Chairman of the Board through his resignation from the Board in August 2008. The Committee also approved the payment of $25,000 to Mr. Rummell for the purpose of improving his home office in light of his anticipated duties as Chairman of the Board.

 

Mr. Greene, Mr. McCalmont, Ms. Marx and Mr. Solomon all have employment agreements with the Company, the primary purpose of which is to provide compensation to the executive in the event of termination without cause. Mr. Greene, Mr. McCalmont and Ms. Marx all have the same form of employment agreement, standardized in 2007, which provides a “1.5 multiple” (1.5 times the sum of the executive’s base salary plus target bonus) for termination events occurring prior to a change in control (except for Mr. Greene, who was granted a 2.0 multiple in connection with his promotion to CEO). The standard employment agreements provide for a “2.0 multiple” for termination events occurring after a change in control. The standard employment agreements have “double triggers” in that a change in control alone will not require payments, unless a termination event occurs as well.

 

Mr. Solomon elected to retain his existing employment and severance agreements entered into in 1999 when he joined the Company instead of signing the new standard form of employment agreement in 2007. Mr. Solomon’s employment agreement provides for a “1.5 multiple” (1.5 times the sum of his base salary plus 50% of his prior year bonus amount) for termination events occurring prior to a change in control. Mr. Solomon’s severance agreement provides for a “3.0 multiple” (3.0 times the sum of his base salary plus the average of his bonus for the three prior years) for termination events occurring after a change in control. Mr. Solomon’s severance agreement has a “modified single trigger” in that Mr. Solomon may voluntarily resign during a certain window period after a change in control and receive payments, in addition to receiving payments upon an involuntary termination or termination for good reason following a change in control.

 

These employment agreements promote two objectives beneficial to the Company. First, they provide our named executives with the financial security needed to allow them to fully focus on their operational responsibilities. The Company is facing a very challenging operating environment which requires full management attention. Secondly, we believe that the benefits provided by the employment agreements of Mr. Greene, Mr. McCalmont and Ms. Marx are in-line with current compensation practices of other public companies that could be competitors for our executive talent. Without these employment agreements, we could have difficulty retaining our named executives.

 

The termination provisions of the employment agreements and the potential payments under the employment agreements in connection with specific termination events, whether before or after a change in control, are described under “Potential Payments Upon Termination or Change in Control” on page 57.

 

Other than termination benefits, the employment agreements provide that the named executives are entitled to receive at least the base salary in effect for the executive on the date of the employment agreement, together with guaranteed participation in our annual bonus plan

and other incentive, retirement and savings plans. The agreements for Mr. Greene, Mr. McCalmont and Ms. Marx also provide for an annual physical and up to $10,000 per year for financial planning expenses (which benefits are also available to Mr. Solomon by virtue of his position). The employment agreements have no termination date.

 

The Compensation Committee has reviewed and discussed with management the Compensation Discussion and Analysis included in this proxy statement. Based on its review and discussions with management, the Committee recommended to our Board of Directors that the Compensation Discussion and Analysis be included in the Company’s 2009 proxy statement. This report is provided by the following independent directors, who comprise the Committee:

 

Michael L. Ainslie, Chair

Hugh M. Durden

Thomas A. Fanning

Delores M. Kesler

 

In addition to the current members of the Compensation Committee listed above, Mr. Frampton and Mr. Revell also served on the Committee for a portion of 2008. During 2008, the Compensation Committee consisted of, and it currently consists of, independent members of the Board of Directors. No current or former member of the Committee is or was during 2008 an executive officer of another company on whose board or its comparable committee one of our executive officers serves.

 

The table below summarizes the total compensation paid or awarded to each of the named executives for the years ended December 31, 2008, 2007 and 2006, calculated in accordance with SEC rules.

 

 

 

A discussion of the 2008 base salaries of the named executives is set forth under “Base Salaries” in the CD&A on page 35. The discussion under “Internal Pay Equity” in the CD&A on page 34 provides information regarding the varying salary levels of the named executives. The 2008 salary shown for Mr. Rummell includes amounts paid to him through the termination date of his employment agreement, August 19, 2008. His annual base salary rate was $867,210. The 2008 salary shown for Mr. Corr includes amounts paid to him through his termination date on June 9, 2008. His annual base salary rate was $357,127.

 

For a discussion of our long-term incentive program and our 2008 equity grants, refer to “Long-Term Incentive Program” in the CD&A on page 38.

 

The amounts shown reflect the dollar amounts recognized as an expense for financial statement reporting purposes for 2008 for restricted stock and stock options granted in 2008, as well as prior years, in accordance with SFAS 123R, excluding any contingency for forfeitures. The assumptions used in the calculation of these amounts for 2008 are described in note 2 of our financial statements in our Form 10-K for the year ended December 31, 2008, as filed with the SEC on February 24, 2009. Since these amounts reflect our accounting expense for these awards, they may not correspond to the actual value that will be recognized by the named executives.

 

The amounts are difficult to compare between the named executives for 2008 and also from year to year. This is mainly because the numbers represent the accounting expense for portions of awards from prior years. For example, Mr. Rummell received no stock awards in 2008, 2007 or 2006, but large stock award amounts are shown for him in the table. These amounts reflect the expense recognized in this three year period for an equity grant awarded to Mr. Rummell in 2003 in connection with his execution of a five-year employment agreement. To see the value of awards made to the named executives in 2008, refer to “Grants of Plan-Based Awards in 2008” on page 48. To see the value actually received by the named executives in 2008 from equity awards, refer to “Option Exercises and Stock Vested in 2008” on page 53.

 

Mr. Corr forfeited 105,165 shares of restricted stock and 28,779 options in connection with his termination of employment. The negative amounts shown under “Stock Awards” and “Option Awards” include 2008 credits of $705,332 and $193,088, respectively, for expense recognized in 2006 and 2007 for such awards.

 

The amounts reported in the Non-Equity Incentive Plan Compensation column reflect the amounts earned by the named executives under our annual incentive plan in 2008. The material provisions of that plan are described in the CD&A under “Annual Performance-Based Bonuses” on page 36. These amounts are the actual amounts earned by each named executive under the awards described under “Grants of Plan-Based Awards in 2008” on page 48. Payments under the annual incentive plan were based on the Company’s performance during 2008 as described in the CD&A under “Annual Performance-Based Bonuses — 2008 Performance Goals” on page 36.

 

The amounts reported in this column represent the sum of (1) the change in present values of the pension plan benefits for each named executive and (2) the above-market interest earned on each named executive’s account in the DCAP. The following table summarizes the amounts attributable to each category for the named executives:

 

 

The changes in pension values shown reflect the changes in the present value of pension benefits from one year end to the next. Factors affecting the changes in present values include the impact of the value of benefits earned in the current year, the growth in the value of benefits earned in prior years due to the passage of time and the impact of changes in assumptions. This present value calculation is based on actuarial assumptions and discounting and is not a direct reflection of the change in each participant’s actual account balance in the pension plan during the year. The amount shown for Mr. Rummell and Mr. Corr is zero, as they were no longer employed at December 31, 2008. Refer to “Pension Benefits in 2008” on page 53 for information regarding pension benefits paid to Mr. Rummell and Mr. Corr in 2008 in connection with their termination of employment.

 

The assumptions used to calculate the change in present values include a discount rate of 6.35% at December 31, 2008 and 6.21% at December 31, 2007; future interest crediting rate of 4.25% at December 31, 2008 and 4.75% at December 31, 2007; lump sum form of payment; and a normal retirement age of 65. Turnover, disability, future salary increases, pre-retirement mortality and increases in IRC 401(a)(17) compensation limits were ignored for calculation purposes.

 

Refer to “Pension Benefits in 2008” on page 53 for more information about the pension benefits available to the named executives.

 

We pay 7% interest on participants’ accounts in the DCAP. The amounts shown above reflect the portion of the interest payment in excess of 5.88%, or 120% of the applicable federal long-term interest rate. These payments are deemed by the SEC to be above-market interest payments. The total interest payment to the DCAP for each named executive is shown under “Nonqualified Deferred Compensation in 2008” on page 55.

 

The following table describes each component of the amounts shown in the All Other Compensation column for 2008.

 

Company Contributions to SERP, 401(k) and DCAP.  We make annual contributions to each named executive’s account maintained in connection with the SERP, DCAP and 401(k) plan. A discussion of these retirement plans is found in the CD&A under “Retirement Plans” on page 40. More information regarding the SERP and DCAP is found under “Nonqualified Deferred Compensation in 2008” on page 55. With respect to the Company contributions to the 401(k) plan and the DCAP, the Company contributed $8,050 to each named executive’s account in the 401(k) plan, and any amount in excess of $8,050 for a named executive reflects contributions to the DCAP.

 

Personal Airplane Use.  During 2008, we provided Mr. Rummell with the use of a corporate airplane for personal purposes for approximately 10 hours of flight time. We purchased these hours of flight time through our participation in a fractional ownership program. Mr. Rummell reimbursed a portion of the costs associated with his personal airplane use in accordance with the methodology set forth in Treasury Regulations for federal income tax purposes. The amount shown in the table above represents the difference between our actual cost for the airplane use and the amount reimbursed by Mr. Rummell. We no longer provide hours of personal flight time at our expense to any named executive. Infrequently, however, spouses of named executives may accompany named executives during business flights. This spousal use has no incremental cost to the Company.

 

Financial Planning Expenses.  Each named executive may be reimbursed for up to $10,000 annually for financial planning expenses. We believe that this benefit helps the named executives to optimize the value received from all of the compensation elements offered by the Company.

 

Term Life Insurance Premiums.  This column reports taxable payments made to the named executives to cover term life insurance premiums for policies providing coverage based on their base salaries up to $600,000.

 

Annual Physical Exam.  Each named executive may be reimbursed for up to $5,000 annually for the cost of a physical exam.

Retirement/Severance Benefits.  The amount shown for Mr. Rummell includes the following cash payments in connection with his retirement:

 

 

The amount shown for Mr. Corr includes the following cash payments in connection with his termination of employment:

 

 

Refer to “Retirement Payments to Mr. Rummell” on page 41 and “Severance Payments to Mr. Corr” on page 40 for more information about the retirement and severance payments to Mr. Rummell and Mr. Corr.

 

Other Benefits.  We maintain private box leases in a football stadium (expiring in 2009) and a sports and entertainment arena for business purposes. Occasionally, named executives will invite family members and friends to use these venues for personal purposes. This personal use has no incremental costs to the Company other than incidental catering charges. The named executives may have received additional incidental perquisites not subject to SEC reporting.

 

The following table provides information about equity and non-equity awards granted to the named executives in 2008.