UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

 

SCHEDULE 14A

(RULE 14a-101)

 

INFORMATION REQUIRED IN PROXY STATEMENT

 

SCHEDULE 14A INFORMATION

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

Exchange Act of 1934 (Amendment No.  )

 

Filed by the Registrant þ

 

Filed by a Party other than the Registrant o

 

Check the appropriate box:

 

Ryder System, Inc.

(Name of Registrant as Specified In Its Charter)

 

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

 

Payment of Filing Fee (Check the appropriate box):

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Ryder System, Inc.

11690 N.W. 105^th Street
Miami, Florida 33178

 

NOTICE OF 2008 ANNUAL MEETING OF SHAREHOLDERS

 

 

By order of the Board of Directors,

 

Robert D. Fatovic

Executive Vice President, Chief Legal Officer and Corporate Secretary

 

Miami, Florida

March 21, 2008

 

TABLE OF CONTENTS

 

RYDER SYSTEM, INC.

11690 N.W. 105th STREET
MIAMI, FLORIDA 33178

 

 

PROXY STATEMENT

 

 

 

You are receiving this proxy statement because you own shares of Ryder common stock that entitle you to vote at the 2008 annual meeting of shareholders. Our Board of Directors is soliciting proxies from shareholders who wish to vote at the meeting. By use of a proxy, you can vote even if you do not attend the meeting. This proxy statement describes the matters on which you are being asked to vote and provides information on those matters so that you can make an informed decision. The notice of annual meeting, this proxy statement and the proxy card are being mailed to shareholders on or about March 21, 2008.

 

IMPORTANT NOTICE REGARDING THE AVAILABILITY OF PROXY MATERIALS FOR THE SHAREHOLDER MEETING TO BE HELD ON MAY 2, 2008.

 

The Company’s Proxy Statement and Annual Report are available online at: http://annualmeeting.ryder.com

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(Proposal 1)

 

Under our By-Laws, directors are elected for three-year terms, typically with one-third of the directors standing for election in any given year. The three directors whose terms expire at the 2008 Annual Meeting of Shareholders are L. Patrick Hassey, Lynn M. Martin and Hansel E. Tookes, II. Upon the recommendation of the Corporate Governance and Nominating Committee, our Board of Directors has nominated Mr. Hassey, Ms. Martin and Mr. Tookes for re-election at the 2008 Annual Meeting of Shareholders for a three-year term that expires at the 2011 Annual Meeting of Shareholders, and each have consented to serve if elected.

 

Our Board of Directors determined that each director nominee qualifies as independent under applicable regulations, our By-Laws, and the categorical director independence standards adopted by our Board of Directors and set forth under “Director Independence” on page 11 of this proxy statement.

 

John M. Berra, Luis P. Nieto, Jr., E. Follin Smith and Gregory T. Swienton are currently serving terms that expire at the 2009 Annual Meeting of Shareholders. David I. Fuente, Eugene A. Renna, Abbie J. Smith and Christine A. Varney are currently serving terms that expire at the 2010 Annual Meeting of Shareholders.

 

The principal occupation and certain other information about each director and director nominee appears on the following pages.

 

The Board of Directors recommends a vote FOR the election of each of the director nominees.

NOMINEES FOR DIRECTOR
FOR A TERM OF OFFICE EXPIRING AT THE 2011 ANNUAL MEETING

 

 

 

 

DIRECTORS CONTINUING IN OFFICE

 

 

We maintain a Corporate Governance page on our website at www.ryder.com, which includes our Corporate Governance Guidelines, Principles of Business Conduct and Board Committee charters. The Corporate Governance Guidelines set forth our governance principles relating to, among other things: director independence (including our categorical director independence standards); director qualifications and responsibilities; Board structure; director compensation; management succession; and the periodic performance evaluation of the Board. The Principles of Business Conduct apply to our officers, employees and Board members and cover all areas of professional conduct including conflicts of interest, confidentiality, compliance with law, and mechanisms to report known or suspected wrongdoing. The Principles of Business Conduct include a Finance Code of Ethics applicable to our Chief Executive Officer, Chief Financial Officer, controller and senior financial management. Any changes to these documents and any waivers granted by the Corporate Governance and Nominating Committee (Governance Committee) with respect to our Principles of Business Conduct will be posted on our website. Any waivers with respect to our Principles of Business Conduct shall also be disclosed in a public filing made with the SEC.

 

Shareholders may submit requests for free printed copies of our Corporate Governance Guidelines, Principles of Business Conduct (including the Finance Code of Ethics) and Board Committee Charters in writing to: Ryder System, Inc., Attention: Corporate Secretary, 11690 N.W. 105^th Street, Miami, Florida 33178.

 

It is our policy that a substantial majority of the members of our Board of Directors and all of the members of our Audit Committee, Compensation Committee, Governance Committee and Finance Committee qualify as independent as required by the New York Stock Exchange (NYSE) corporate governance listing standards and our By-Laws.

 

To assist it in making independence determinations, our Board of Directors has adopted categorical director independence standards. The Board determined that each of the following transactions or relationships will not, by itself, be deemed to create a material relationship for the purpose of determining a director’s independence:

 

 

 

For purposes of these independence standards, an “immediate family member” includes a director’s spouse, parents, children, siblings, mother- and father-in-law, sons- and daughters-in-law, brothers- and sisters-in-law, and anyone (other than domestic employees) who shares such director’s home.

 

Pursuant to our Corporate Governance Guidelines, the Board undertook its annual review of director independence in February 2008, which included a review of each director’s responses to questionnaires asking about any relationships with us. This review is designed to identify and evaluate any transactions or relationships between a director or any member of his or her immediate family and us, or members of our senior management, and all relevant facts and circumstances regarding any such transactions or relationships.

 

As part of this review, other than the relationship with Mr. Swienton, our CEO, the Governance Committee and the Board identified and considered the following two transactions:

 

In his role as President of Emerson Process Management, John M. Berra also serves as Executive Vice President of Emerson Electric Company. We have entered into a commercial relationship with Emerson Electric Company relating to Emerson’s lease of vehicles from us. The transaction falls outside of the NYSE’s independence requirements and our categorical director independence standards relating to commercial relationships, and therefore, the Board determined that this relationship did not impair Mr. Berra’s independence.

 

An immediate family member of E. Follin Smith serves as an executive of Dow Jones & Company, Inc.. We have entered into a commercial relationship with Dow Jones pursuant to which Dow Jones leases vehicles from us. The transaction falls outside of the NYSE’s independence requirements and our categorical director independence standards relating to commercial relationships, and therefore, the Board determined that this relationship did not impair Ms. Smith’s independence.

 

Based on its independence review and after considering the transactions described above, the Board determined that each of the following directors (which together constitute all of the members of the Board other than Mr. Swienton) is independent: John M. Berra, David I. Fuente, L. Patrick Hassey, Lynn M. Martin, Luis P. Nieto, Jr., Eugene A. Renna, Abbie J. Smith, E. Follin Smith, Hansel E. Tookes, II and Christine A. Varney.

 

Shareholders and other interested parties can communicate with our independent directors as a group through the Corporate Governance page of our website at www.ryder.com, or by mailing their communication to Independent Directors, c/o Corporate Secretary, Ryder System, Inc., 11690 N.W. 105th Street, Miami, Florida 33178. Any communications received from interested parties in the manner described above will be collected and organized by our Corporate Secretary and will be periodically, but in any event prior to each regularly-scheduled Board meeting, reported and/or delivered to our independent directors. The Corporate Secretary will not forward spam, junk mail, mass mailings, service complaints or inquiries, job inquiries, surveys, business solicitations or advertisements, or patently offensive or otherwise inappropriate materials to the independent directors. Correspondence relating to certain of these matters such as service issues may be distributed internally for review and possible response. The procedures for communicating with our independent directors as a group are available on the Corporate Governance page of our website at www.ryder.com.

 

Our Audit Committee has established procedures for the receipt, retention and treatment of complaints regarding questionable accounting, internal control, financial improprieties or auditing matters. Any of our employees or members of the general public may confidentially communicate concerns about any of these matters to any supervisor or manager, the Vice President of Internal Audit, the Vice President, Global Compliance and Business Standards/Deputy General Counsel, or on a confidential and/or anonymous basis by way of an external toll-free hotline number, an internal ethics phone line, ethics@ryder.com, or to members of our Audit Committee at audit@ryder.com. All of the reporting mechanisms are publicized on our website at www.ryder.com, in our Principles of Business Conduct, through compliance training and wallet cards, brochures and location posters. Upon receipt of a complaint or concern, a determination will be made whether it pertains to accounting, internal

control or auditing matters and if it does, it will be handled in accordance with the procedures established by the Audit Committee. A summary of all complaints, of whatever type, received through the reporting mechanisms are reported to the Audit Committee at each regularly-scheduled Audit Committee meeting. Matters requiring immediate attention are promptly forwarded to the Chair of the Audit Committee.

 

The Board of Directors held six regular and two special meetings in 2007. Each of the directors attended 75% or more of the aggregate number of meetings of the Board and Committees on which the director served in 2007. Attendance by all directors at Board and Committee meetings averaged 97% in 2007. Our independent directors meet in executive session without management present as part of each regularly-scheduled Board meeting. The Chair of our Governance Committee presides over these executive Board sessions.

 

We expect each of our directors to attend our annual meeting of shareholders. Because the Board of Directors holds one of its regular meetings in conjunction with our annual meeting of shareholders, unless one or more members of the Board are unable to attend, all of the members of the Board are present for the annual meeting. All of our directors attended the 2007 Annual Meeting of Shareholders.

 

The Board has four standing committees — Audit, Compensation, Finance and Corporate Governance and Nominating. All of the Committees are composed entirely of independent directors who meet in executive session without management present as part of each regularly-scheduled Committee meeting. We have adopted written charters for each of the Committees that comply with the NYSE’s corporate governance listing standards, applicable provisions of the Sarbanes-Oxley Act of 2002 (Sarbanes-Oxley) and SEC rules. Each Committee charter sets forth the respective Committee’s responsibilities, and provides for a periodic review of such charter and an annual evaluation of the respective Committee’s performance. The charters grant each Committee the authority to obtain the advice and assistance of, and receive appropriate funding from us for, outside legal, accounting or other advisors as the Committee deems necessary to fulfill its obligations.

 

 

Responsibilities

 

The Audit Committee is responsible for appointing, overseeing and determining the compensation and independence of our independent auditor. The Audit Committee approves the scope of the annual audit and the related audit fees as well as the scope of internal audit procedures. The Audit Committee reviews audit results, financial disclosure and earnings guidance, and is responsible for overseeing investigations into accounting and financial complaints. The Audit Committee also reviews, discusses and oversees the process by which the Company assesses and manages risk.

 

The Audit Committee meets in executive session, consisting exclusively of independent directors, at the end of every regularly-scheduled Audit Committee meeting (excluding telephonic meetings). The Audit Committee also meets individually with each of our Vice President of Internal Audit, our independent auditor, and our Chief Financial Officer, at the end of every regularly-scheduled Audit Committee meeting (excluding telephonic meetings).

 

The specific powers and responsibilities of the Audit Committee are set forth in more detail in the Audit Committee’s charter, which is available on the Corporate Governance page of our website at www.ryder.com. The charter is reviewed annually by the Audit Committee and our Governance Committee. Any changes to the charter are approved by the full Board.

Independence and Financial Expertise

 

In addition to the independence standards applicable to all Board members, rules promulgated by the SEC in response to Sarbanes-Oxley require that all members of our Audit Committee meet additional independence standards. Under NYSE rules, each member of the Audit Committee must be financially literate and at least one member must have accounting or related financial management expertise. The SEC requires that at least one Audit Committee member be an “audit committee financial expert.”

 

The Board reviewed the background, experience and independence of Audit Committee members based in large part on the directors’ responses to questions relating to their background and experience. Based on this review, the Board determined that each member of the Audit Committee meets the independence requirements of the NYSE’s corporate governance listing standards and our categorical director independence standards; meets the enhanced independence standards for audit committee members required by the SEC; is financially literate, knowledgeable and qualified to review financial statements; and qualifies as an “audit committee financial expert” under SEC rules.

 

 

 

Responsibilities

 

The Compensation Committee of our Board of Directors oversees, reviews and approves our executive and director compensation policies and programs and regularly reports to the Board of Directors on these matters. The Compensation Committee is also responsible for approving compensation actions for direct reports to the CEO, and recommending compensation actions for the CEO for consideration by the independent directors. The Compensation Committee approves and recommends the appointment of new officers and reviews and discusses the Compensation Discussion and Analysis included in this proxy statement to determine whether to recommend it for inclusion in our proxy statement.

 

The specific powers and responsibilities of the Compensation Committee are set forth in more detail in the Compensation Committee’s Charter, which is available on the Corporate Governance page of our website at www.ryder.com. The charter is reviewed annually by the Compensation Committee and our Governance Committee. Any changes to the charter are approved by the full Board.

 

Compensation Committee Processes and Procedures

 

Meetings.  The Compensation Committee meets at least five times each year in February, May, July, October and December. Each year in December, the Compensation Committee reviews and approves an agenda schedule for the following year. The agenda schedule outlines the various topics the Compensation Committee will consider during the year to ensure that the Compensation Committee adequately fulfills its responsibilities under its Committee Charter. The Compensation Committee considers other topics during the year as needed to fulfill its responsibilities.

 

Our Chief Human Resources Officer (CHRO) works closely with the Chair of the Compensation Committee prior to each Committee meeting to ensure that the information presented to the Compensation Committee in connection with the items to be discussed and/or approved by the Compensation Committee is clear and comprehensive. The information is then provided to the Compensation Committee for its review and consideration typically one week prior to the meeting.

 

The CHRO, CEO, Vice President of Compensation and Benefits and a representative from our legal department attend all regularly-scheduled Compensation Committee meetings to assist the Committee in its discussion and analysis of the various agenda items. These individuals are generally excused from the meetings as appropriate, including for discussions regarding their own compensation. The Compensation Committee meets in executive session, consisting exclusively of independent directors, at the end of every regularly-scheduled meeting.

 

Authority, Role of Management and Delegation.  The Compensation Committee is responsible for reviewing and approving all of the components of our executive compensation program as well as the compensation program for

our Board of Directors. New executive compensation plans and programs must be approved by the full Board based on recommendations made by the Compensation Committee. Our independent directors acting as a group are responsible for setting CEO compensation based on recommendations from the Compensation Committee in consultation with the Governance Committee. The Compensation Committee, with input from our CEO, is responsible for setting the compensation of all of our other named executive officers (NEOs). For our NEOs who do not report directly to our CEO, recommendations from the NEO’s direct supervisor are considered by the CEO when making his recommendation to the Compensation Committee. All compensation decisions for our Board of Directors are made by the Board based in part on recommendations made by the Compensation Committee and the Governance Committee.

 

The Compensation Committee previously delegated to our CEO, CFO and CHRO, collectively, the authority to approve off-cycle equity awards to our employees and new hires, other than awards to current and prospective members of our Leadership Team (which includes all of the NEOs), provided that amounts approved did not exceed the applicable guidelines for equity awards previously set by the Compensation Committee. Management did not exercise this delegated authority at any time during 2007. In February 2007, the Compensation Committee approved a Policy on Equity Granting Practices. The Policy provides that all grants of equity awards (except in the case of new hires) must be approved by the Compensation Committee, or in the case of the CEO, the independent directors acting as a group. In the case of new hires (excluding executive officers and other direct reports to our CEO), equity grants may be approved by the Chair of the Compensation Committee.

 

Use of Compensation Consultants.  The Compensation Committee has authority to retain compensation consultants, outside legal counsel and other advisors to assist it in fulfilling its responsibilities. Although we do not have a written policy regarding which members of management may engage compensation consultants to assist in the evaluation of executive compensation, historically, in addition to the Compensation Committee, only our CHRO, Vice-President of Compensation and Benefits and Chief Legal Officer have engaged compensation consultants and outside legal counsel on behalf of the Company to assist in the evaluation of executive compensation. Outside legal counsel for the Company may only be retained by and with the approval of the legal department. A description of all compensation consultants and legal counsel engaged by management or the Compensation Committee in 2007 is set forth in the Compensation Discussion and Analysis on page 27 of this proxy statement.

 

Compensation Committee Interlocks and Insider Participation.  In 2007, none of our executive officers or directors was a member of the board of directors of any other company where the relationship would be considered a committee interlock under SEC rules.

 

 

 

Responsibilities

 

The Corporate Governance and Nominating Committee is responsible for recommending criteria for Board membership, identifying qualified individuals to serve as directors, reviewing the qualifications of director candidates, including those recommended by our shareholders pursuant to our By-Laws, and recommending to the Board the nominees to be proposed by the Board for election as directors at our annual meeting of shareholders. The Governance Committee recommends the size, structure, composition and functions of Board Committees and reviews and recommends changes to the charters of each committee of the Board of Directors. The Governance Committee oversees the Board evaluation process as well as the annual CEO evaluation process. The Governance Committee reviews and recommends changes to our Corporate Governance Guidelines and Principles of Business Conduct. The Governance Committee is also responsible for identifying and analyzing trends in public policy, public affairs and corporate responsibility.

 

Our Chief Legal Officer (CLO) attends all regularly-scheduled Governance Committee meetings to assist the Governance Committee in its discussion and analysis of the various agenda items. The CLO and other members of management are generally excused from the Governance Committee meetings as appropriate.

The specific powers and responsibilities of the Governance Committee are set forth in more detail in the Governance Committee’s charter, which is available on the Corporate Governance page of our website at www.ryder.com. The charter is reviewed annually by the Governance Committee. Any changes to the charter are approved by the full Board.

 

Process for Nominating Directors

 

In identifying individuals to nominate for election to our Board, the Governance Committee seeks candidates that:

 

 

The Governance Committee will seek to identify individuals who would qualify as independent under applicable NYSE listing standards, our categorical director independence standards and our By-Laws and who are independent of any particular constituency. The Governance Committee may, based on the composition of the Board, seek individuals that have specialized skills or expertise, experience as a leader of another public company or major complex organization, or relevant industry experience. In addition, the Governance Committee will attempt to select candidates who will assist in making the Board a diverse body in terms of age, gender, ethnic background and professional experience.

 

Generally, the Governance Committee identifies individuals for service on our Board through the Committee’s retention of experienced director search firms that are paid to use their extensive resources and networks to find qualified individuals who meet the qualifications established by the Board. These search firms create a comprehensive record of a candidate’s background, business and professional experience and other information that would be relevant to the Governance Committee in determining a candidate’s capabilities and suitability. The Governance Committee will also consider qualified candidates who are proposed by other members of the Board, our senior management and, to the extent submitted in accordance with the procedures described below, our shareholders. The Governance Committee will not consider a director candidate unless the candidate has expressed his or her willingness to serve on the Board if elected and the Governance Committee has received sufficient information relating to the candidate to determine whether he or she meets the qualifications established by the Board.

 

If a shareholder would like to recommend a director candidate to the Governance Committee, he or she must deliver to the Governance Committee the same information and statement of willingness to serve described above. In addition, the recommending shareholder must deliver to the Governance Committee a representation that the shareholder owns shares of our common stock and intends to continue holding those shares until the relevant annual meeting of shareholders as well as a representation regarding the shareholder’s direct and indirect relationship to the suggested candidate. This information should be delivered to us at 11690 N.W. 105th Street, Miami, Florida 33178, Attention: Corporate Secretary, for delivery to the Governance Committee no later than 90 days prior to the date of the annual meeting of shareholders. Any candidates properly recommended by a shareholder will be considered and evaluated in the same way as any other candidate submitted to the Governance Committee.

 

Upon receipt of this information, the Governance Committee will evaluate and discuss the candidate’s qualifications, skills and characteristics in light of the current composition of the Board. The Governance Committee may request additional information from the recommending party or the candidate in order to complete its initial evaluation. If the Governance Committee determines that the individual would be a suitable candidate to serve as one of our directors, the candidate will be asked to meet with members of the Governance Committee, members of the Board and/or members of senior management, including in each case, our CEO, to discuss the candidate’s qualifications and ability to serve on the Board. Based on the Governance Committee’s discussions and the results of these meetings, the Governance Committee will recommend a nominee or nominees for election to the Board either by our shareholders at our annual meeting of shareholders or by the Board to fill vacancies on the Board between annual meetings. The Board will, after consideration of the Governance Committee’s recommendations, nominate a slate of directors for election by our shareholders, or with regards to filling vacancies, elect a nominee to the Board.

 

 

Responsibilities

 

The Finance Committee is responsible for reviewing our overall financial goals, position, arrangements and requirements. The Committee reviews, approves and recommends certain capital expenditures, issuances of debt and equity securities, dividend policy and pension contributions. The Committee is also responsible for reviewing our relationships with rating agencies, banks and analysts, and reviewing and managing our economic and insurance risk program and tax planning strategies.

 

Our Chief Financial Officer attends all regularly-scheduled Finance Committee meetings to assist the Finance Committee in its discussion and analysis of the various agenda items. Members of management are generally excused from the Finance Committee meetings as appropriate.

 

The specific powers and responsibilities of the Finance Committee are set forth in more detail in the Finance Committee’s charter which is available on the Corporate Governance page of our website at www.ryder.com. The charter is reviewed annually by the Finance Committee and our Governance Committee. Any changes to the charter are approved by the full Board.

 

 

We recognize that related person transactions can present potential or actual conflicts of interest and create the appearance that our decisions are based on considerations other than in our best interests and that of our shareholders. Accordingly, as a general matter, it is our preference to avoid related person transactions. Nevertheless, we recognize that there are situations where related person transactions may be in, or may not be inconsistent with, our and our shareholders’ best interests. For example, there may be times where we can obtain products or services from related persons that are of a nature, quantity or quality, or on terms, that are not readily available from alternative sources.

 

In December 2007, the Governance Committee adopted revised and enhanced written Policies and Procedures Relating to Related Person Transactions. In accordance with the Policy, all “related person transactions” are subject to review, approval or ratification by the Governance Committee. For purposes of the Policy, and consistent with Item 404 of Regulation S-K, a “related person transaction” is (i) any transaction in which we or a subsidiary of ours is a participant, the amount involved exceeds $120,000 and a “related person” has a direct or indirect material interest, or (ii) any material amendment to an existing related person transaction. “Related persons” are our executive officers, directors, nominees for director, any person who is known to be the beneficial owner of more than 5% of any class of our voting securities, and any immediate family member of any of the foregoing persons.

 

Our legal department is primarily responsible for the development and implementation of procedures and controls to obtain information from our directors and officers relating to related person transactions and then determining, based on the facts and circumstances, and in consultation with management and outside counsel, whether the related person has a direct or indirect material interest in the transaction. The Governance Committee is responsible for reviewing and determining whether to approve related person transactions.

 

In considering whether to approve a related person transaction, the Governance Committee considers the following factors, to the extent relevant: (i) whether the terms of the related person transaction are fair to us and on the same basis as would apply if the transaction did not involve a related person; (ii) whether there are business reasons for us to enter into the related person transaction; (iii) whether the related person transaction would impair the independence of an outside director; and (iv) whether the related person transaction would present an improper conflict of interest for any of our directors or executive officers, taking into account the size of the transaction, the overall financial position of the director, executive officer or related person, the direct or indirect nature of the director’s, executive officer’s or related person’s interest in the transaction and the ongoing nature of any proposed relationship, and any other factors the Governance Committee deems relevant. Any member of the Governance Committee who has an interest in the transaction under discussion will abstain from voting on the approval of the related person transaction.

 

There were no related person transactions during 2007.

 

At the annual meeting, shareholders will be asked to approve an amendment to the Ryder System, Inc. 2005 Equity Compensation Plan (the “2005 Plan”) to increase the total number of shares available for grant under the 2005 Plan and to increase the limit on the number of shares available for issuance under “full-value” awards under the 2005 Plan. The 2005 Plan was adopted by the Board of Directors on February 10, 2005 and was ratified by the shareholders at the 2005 annual meeting. Currently, 5,000,000 shares of our common stock, par value $.50 per share, are authorized to be issued under the 2005 Plan. Information regarding outstanding options and rights previously granted pursuant to the 2005 Plan and any securities remaining available for future issuance under the 2005 Plan can be found under the heading “Securities Authorized for Issuance Under Equity Compensation Plans” on page 22. On March 7, 2008, the closing price of a share of our common stock on the New York Stock Exchange Composite Index was $55.51.

 

On February 8, 2008, the Board of Directors approved, subject to shareholder approval, an increase in the number of shares of common stock available for grant under the 2005 Plan to 8,000,000 shares (from 5,000,000). On such date, the Board of Directors also approved, subject to shareholder approval, an amendment to increase the number of shares of common stock that may be issued pursuant to grants of “full value” awards (as described below) under the 2005 Plan to 1,500,000 (from 1,000,000). The full text of the Ryder System, Inc. 2005 Equity Compensation Plan, reflecting the proposed amendments, is set forth as Appendix A to this Proxy Statement.

 

Reasons for the Amendment

 

The 2005 Plan is designed to provide incentive compensation to our Board of Directors, officers and other key employees (certain director and manager level employees) in order to attract, motivate and retain experienced, highly-qualified directors and employees who will contribute to our financial success, and to align the interests of our directors and employees with those of our shareholders. The Board of Directors believes that it is in our best interests to increase (i) the maximum number of shares of common stock available for grant under the 2005 Plan and (ii) the number of shares of common stock available for issuance pursuant to grants of “full-value” awards under the 2005 Plan so as to maintain the purpose of the 2005 Plan.

 

The 2005 Plan allows the Compensation Committee to grant a variety of stock-based awards to our directors, officers and other key employees. The 2005 Plan serves as the umbrella plan for all of our stock-based and cash-based incentive compensation programs for our directors, officers and other key employees. The Board of Directors believes that the 2005 Plan has enhanced our position in the highly competitive market for executive officers and key employees, and has determined to continue to grant options and other equity awards under the 2005 Plan as a means of enhancing and encouraging the recruitment, retention and motivation of those individuals who contribute significantly to our continued success.

 

Description of the 2005 Plan

 

The following is a brief description of the material features of the 2005 Plan. This description is qualified in its entirety by reference to the full text of the 2005 Plan, a copy of which is attached as Appendix A to our 2005 Proxy Statement, filed with the SEC on March 30, 2005, and the proposed Amended 2005 Plan, a copy of which is attached as Appendix A to this Proxy Statement. The proposed amendment to the 2005 Plan will become effective at the 2008 annual meeting of shareholders only if approved by the required vote of our shareholders.

 

Administration.  The Compensation Committee has the authority to select award recipients, determine the type, size and other terms and conditions of the award, and make all other decisions and determinations as may be required under the terms of the 2005 Plan or as the Compensation Committee may deem necessary or advisable for the administration of the 2005 Plan. The Compensation Committee is composed of persons who are both non-employee directors, as defined under Section 16b-3 of the Securities Exchange Act of 1934, as amended, and “outside directors” within the meaning of Section 162(m) of the Internal Revenue Code. Pursuant to the 2005 Plan, the Compensation Committee is permitted to delegate to one or more senior executives of the Company the authority to make grants of awards to officers (other than executive officers) and employees of the Company and such other administrative responsibilities as the Compensation Committee may deem necessary or advisable, to the extent such delegation is consistent with applicable law. In February 2007, however, the

Compensation Committee approved a Policy on Equity Granting Practices, which provides that all grants of equity awards (except in the case of new hires) must be approved by the Compensation Committee (or in the case of the CEO, the independent directors acting as a group). In the case of new hires (other than executive officers or other direct reports to the CEO), equity grants may be approved by the Chair of the Compensation Committee. Prior to the adoption of this Policy, the Compensation Committee had delegated to our CEO, CFO and CHRO, collectively, the authority to approve off-cycle equity awards to our employees and new hires, other than awards to current and prospective members or our Leadership Team (which includes all of the NEOs), provided that amounts approved did not exceed the applicable guidelines for equity awards previously set by the Compensation Committee.

 

Eligibility.  Officers, employees and non-employee directors of the Company and its subsidiaries are eligible to be selected as award recipients. As of March 7, 2008, approximately 10 non-employee directors, 58 officers and 1,743 key employees are eligible to participate in the 2005 Plan.

 

Type of Awards.  The 2005 Plan gives the Compensation Committee the flexibility to grant a variety of other equity instruments in addition to stock options and restricted stock including bonus shares, stock appreciation rights, share units, performance units and dividend equivalents. Awards may be granted alone or in combination with any other award granted under the 2005 Plan or any other plan. The Compensation Committee will determine the size of each award to be granted (including, where applicable, the number of shares to which an award will relate), and all other terms and conditions of each award, provided that (i) no award will expire more than seven years from the date of grant, (ii) no full-value award (other than a full-value award that is performance-based or granted to non-employee directors) will fully vest within three years of the date of grant, and (iii) no full-value award that is performance-based will fully vest within one year of the date of grant. Below is a description of the types of awards that may be issued under the 2005 Plan:

 

Stock Options and Stock Appreciation Rights.  A stock option is a right to purchase a specified number of shares of Ryder common stock at an exercise price established at the date of grant. Stock options granted may be either non-qualified stock options or incentive stock options (which are intended to qualify as “incentive stock options” within Section 422 of the Internal Revenue Code). The exercise price of any stock option granted may not be less than the fair market value of the Ryder common stock on the date of grant. A stock appreciation right (SAR) entitles the recipient to receive, upon surrender of the SAR, an amount of cash or number of shares of Ryder common stock having a fair market value equal to the positive difference, if any, between the fair market value of one share of common stock on the date of exercise and the exercise price of the SAR (which exercise price shall not be less than the fair market value of the Ryder common stock on the date of grant). The Compensation Committee will specify at the time an option or SAR is granted, when, and in what proportions, an option or SAR becomes vested and exercisable

 

Restricted Stock and Restricted Stock Units.  An award of restricted stock is an issuance of shares of Ryder common stock that is subject to certain restrictions established by the Compensation Committee and to forfeiture to the Company if the holder does not satisfy certain requirements (including, for example, continued employment with the Company for a specified period of time). Recipients of restricted stock do not receive the stock until the restrictions are satisfied. Upon grant, the shares are included in the Company’s total number of shares outstanding and accrue and pay dividend equivalents. An award of restricted stock units entitles the recipient to receive shares of Ryder common stock at some later date once the holder has satisfied certain requirements. At that time (and not before), the shares will be delivered and the recipient will be entitled to all shareholder rights. Thus, upon grant, the shares of common stock covered by the restricted stock units are not considered issued and are not included in the Company’s total number of shares outstanding until all conditions have been satisfied. Dividend equivalents accrue on restricted stock units.

 

Performance-Based Awards.  The Compensation Committee may grant performance awards, which may be cash- or stock-based. Generally, performance awards require satisfaction of pre-established performance goals, consisting of one or more business criteria and a targeted performance level with respect to such criteria as a condition of awards being granted, becoming exercisable or settleable, or as a condition to accelerating the timing of such events. The Compensation Committee will set the performance goals used to determine the amount payable pursuant to a performance award. In order to avoid the limitations on tax deductibility under Section 162(m) of the Internal Revenue Code, the business criteria used by the Compensation Committee in establishing performance goals applicable to performance awards to the covered

employees must be selected from among the following: earnings per share; revenues; cash flow; cash flow return on investment; return on net assets; return on assets; return on investment; return on invested capital; return on equity; profitability; economic value added; operating margins or profit margins; income or earnings before or after taxes; pretax earnings; pretax earnings before interest, depreciation and amortization; operating earnings; pretax operating earnings, before or after interest expense and before or after incentives, and extraordinary or special items; net income; total stockholder return or stock price; book value per share; expense management; improvements in capital structure; working capital; and costs. Performance goals may be set based on consolidated Company performance and/or for specified subsidiaries, divisions, or other business units, and may be with fixed, quantitative targets; targets relative to past performance; or targets compared to the performance of other companies, such as a published or special index or a group of companies selected by the Compensation Committee for comparison.

 

Limitations on Stock-Based Awards.  Subject to shareholder approval of the proposed amendment to the 2005 Plan, the aggregate number of shares of common stock that may be issued to directors, officers, and employees under the 2005 Plan will not exceed 8,000,000 (representing the original 5,000,000 authorized in 2005 and 3,000,000 additional shares); provided that no more than 1,500,000 shares of common stock (which represents an increase from 1,000,000 originally authorized in 2005) may be issued pursuant to full-value awards. For purposes of the 2005 Plan, full-value awards are awards that do not require the employee or director to pay (in cash, foregone cash compensation, or consideration other than the performance of services) the full fair market value (determined on the grant date) for the shares (e.g., stock options with an exercise price equal to fair market value) or that are not otherwise based solely on the appreciation of the shares from the fair market value of the shares as determined on the date the award is granted (e.g., stock appreciation rights). In addition, in any calendar year, no employee or director may be granted stock-based awards that relate to more than 500,000 shares, or cash-based awards that can be settled for more than $5,000,000. Shares issued under the 2005 Plan that are reacquired by the Company in connection with a cancellation, forfeiture, termination or other failure to satisfy performance conditions will not be treated as issued for purposes of the share limitation provided that upon the exercise of any stock appreciation right, the full number of shares underlying such stock appreciation right on the date of grant will be counted against the aggregate share limitation irrespective of the manner in which such stock appreciation right is settled. Shares delivered under the Plan may be newly issued shares, treasury shares or shares acquired in the open market.

 

Adjustments.  In the event of a reorganization, recapitalization, merger, amalgamation, consolidation, spin-off, combination or exchange of shares, repurchase, liquidation, dissolution or other corporate exchange, any large, special and non-recurring dividend or distribution, or other similar corporate transaction or event affecting the Company’s common stock, the Compensation Committee may adjust the number and kind of shares subject to the aggregate and individual share limitations described above, as it deems to be equitable and in order to preserve, without enlarging, the rights of participants. These adjustments may include changes to the number and kind of shares subject to an award and the exercise price, grant price or purchase price referenced in the award terms. The Compensation Committee is also authorized to adjust performance conditions and other terms of awards in response to these kinds of events or to changes in applicable laws, regulations or accounting principles.

 

Restrictions on Repricing.  The 2005 Plan includes a restriction that, unless authorized by shareholders, the Company will not amend or replace options previously granted under the 2005 Plan in a transaction that constitutes a “repricing” as that term is defined under NYSE rules, including amending the terms of outstanding awards to reduce the exercise price of outstanding options or SARs or cancelling outstanding options or SARS in exchange for other equity awards or options or SARs with an exercise price that is less than the exercise price of the original options or SARs. Adjustments to the exercise price or number of shares subject to an option to reflect the effects of a stock split or other extraordinary corporate transaction will not constitute a “repricing.”

 

Amendment, Termination.  The Board may amend, suspend, discontinue or terminate the 2005 Plan or the Compensation Committee’s authority to grant awards under the 2005 Plan without shareholder approval, provided that shareholder approval will be required for any amendment that will (i) materially modify the terms of the 2005 Plan or (ii) require shareholder approval as a matter of law or regulation or under the NYSE rules. Unless earlier terminated, the 2005 Plan will terminate on May 5, 2015.

Tax Consequences

 

The federal income tax consequences arising with respect to awards granted under the 2005 Plan depends on the type of award. From the recipients’ standpoint, as a general rule, ordinary income will be recognized at the time of payment of cash or delivery of actual shares. Future appreciation on shares held beyond the ordinary income recognition event will be taxable at capital gains rates when the shares are sold. The Company, as a general rule, is entitled to a tax deduction that corresponds in time and amount to the ordinary income recognized by the recipient, and the Company is not entitled to any tax deduction in respect of capital gain income recognized by the recipient. Exceptions to these general rules may arise under the following circumstances: (i) if shares, when delivered, are subject to a substantial risk of forfeiture by reason of failure to satisfy any employment or performance-related condition, ordinary income taxation and the Company’s tax deduction will be delayed until the risk of forfeiture lapses (unless the recipient makes a special election to ignore the risk of forfeiture); (ii) if an employee is granted an option that qualifies as “incentive stock option,” no ordinary income will be recognized, and the Company will not be entitled to any tax deduction, if shares acquired upon exercise of such option are held more than the longer of one year from the date of exercise and two years from the date of grant; (iii) the Company will not be entitled to a tax deduction for compensation attributable to awards granted to one of its covered employees, if and to the extent such compensation does not qualify as “performance-based” compensation under Section 162(m) of the Internal Revenue Code, and such compensation, along with any other non-performance-based compensation paid in the same calendar year, exceeds $1 million; and (iv) an award may be taxable at 20 percentage points above ordinary income tax rates at the time it becomes vested, even if that is prior to the delivery of the cash or stock in settlement of the award, if the award constitutes “deferred compensation” under Code Section 409A, and the requirements of Code Section 409A are not satisfied.

 

The foregoing provides only a general description of the application of federal income tax laws to certain awards under the 2005 Plan. This discussion is intended for the information of shareholders considering how to vote at the 2008 annual meeting of shareholders and not as tax guidance to participants in the 2005 Plan, as the tax consequences may vary with the types of awards made, the identity of the recipients and the method of payment or settlement. This summary does not address the effects of other federal taxes (including possible “golden parachute” excise taxes) or taxes imposed under state, local or foreign tax laws.

 

New Plan Benefits

 

Future benefits under the 2005 Plan generally will be granted at the discretion of the Compensation Committee and are therefore not currently determinable. During 2007, stock options and shares of performance-based restricted stock (with tandem cash awards) were granted under the 2005 Plan to the named executive officers as set forth herein in the tables captioned Summary Compensation Table and 2007 Grants of Plan-Based Awards. The amount and/or value of restricted stock granted in 2007 under the 2005 Plan to the Company’s non-employee directors is set forth herein under 2007 Director Compensation.

 

Vote Required

 

The affirmative vote of the holders of a majority of the total number of shares outstanding and entitled to vote is required for the approval of this amendment to the 2005 Plan.

 

If you are a beneficial shareholder, under NYSE rules, your broker may not vote your shares on this proposal absent instructions from you. Without your instructions on this proposal, your shares may not be voted on this matter and will not be counted in determining the number of shares necessary for approval.

 

The Board of Directors recommends a vote FOR this amendment to

the Ryder System, Inc. 2005 Equity Compensation Plan.

 

The following table includes information as of December 31, 2007 about certain plans which provide for the issuance of common stock in connection with the exercise of stock options and other share-based awards.

 

 

 

 

As of February 29, 2008, there were (i) 3,131,355 stock options outstanding with a weighted average exercise price of $45.26 and weighted average term of 5.02 years and (ii) 540,239 issued restricted shares that had not vested and remained subject to forfeiture. As of February 29, 2008, there were 1,985,518 shares of common stock available for grant under broad based employee stock option plans and 41,471 shares of common stock available for grant under non-employee director stock plans.

 

Our Audit Committee appointed PricewaterhouseCoopers LLP as our independent auditor for the 2008 fiscal year. Although shareholder ratification of the appointment of PricewaterhouseCoopers LLP is not required, the Board of Directors believes that submitting the appointment to the shareholders for ratification is a matter of good corporate governance. The Audit Committee will consider the outcome of this vote in future deliberations regarding the appointment of our independent auditor. Representatives of PricewaterhouseCoopers LLP will be present at the 2008 Annual Meeting of Shareholders to respond to questions and to make a statement if they desire to do so.

 

Fees billed for services by PricewaterhouseCoopers LLP for the 2007 and 2006 fiscal years were as follows ($ in millions):

 

 

 

 

Audit Fees primarily represent amounts for services related to the audit of our consolidated financial statements and internal control over financial reporting, a review of financial statements included in our Forms 10-Q (or other periodic reports or documents filed with the SEC), statutory or financial audits for our subsidiaries or affiliates, and consultations relating to financial accounting or reporting standards.

 

Audit-Related Fees represent amounts for assurance and related services that are reasonably related to the performance of the audit or review of our financial statements. These services include audits of employee benefit plans, consultations concerning matters relating to Section 404 of Sarbanes-Oxley and due diligence.

 

Tax Fees represent amounts for U.S. and international tax compliance services (including review of our federal, state, local and international tax returns), tax advice and tax planning, in accordance with our approval policies described below.

 

All services rendered by our independent auditor are either specifically approved (including the annual financial statement audit) or are pre-approved by the Audit Committee in each instance in accordance with our Approval Policy for Independent Auditor Services (Approval Policy), and are monitored both as to spending level and work content by the Audit Committee to maintain the appropriate objectivity and independence of the independent auditor’s core service, which is the audit of our consolidated financial statements. Under the Approval Policy, the terms and fees of annual audit services, and any changes thereto, must be approved by the Audit Committee. The Approval Policy also sets forth detailed pre-approved categories of other audit, audit-related, tax and other non-audit services that may be performed by our independent auditor during the fiscal year, subject to the dollar limitations set by the Audit Committee. The Audit Committee may, in accordance with the Approval Policy, delegate to any member of the Audit Committee the authority to approve audit and non-audit services to be performed by the independent auditor. The Audit Committee has delegated to the Chair of the Audit Committee the authority to approve audit and non-audit services if it is not practical to bring the matter before the full Audit Committee and the estimated fee does not exceed $100,000. Any Audit Committee member who exercises his or her delegated authority, including the Chair, must report any approval decisions to the Audit Committee at its next scheduled meeting. All of the services provided in 2007 were approved by the Audit Committee in accordance with the Approval Policy.

 

The Board of Directors recommends a vote FOR ratification of

the appointment of PricewaterhouseCoopers LLP as our independent auditor.

 

The following report of the Audit Committee shall not be deemed to be “soliciting material” or to be “filed” with the SEC nor shall this information be incorporated by reference into any future filing under the Securities Act of 1933 or the Securities Exchange Act of 1934, each as amended, except to the extent that Ryder System, Inc. specifically incorporates it by reference into a filing.

 

The Audit Committee of the Board of Directors of Ryder System, Inc. (Company) is comprised of five outside directors, all of whom are independent under the rules of the New York Stock Exchange, our categorical director independence standards and applicable rules of the Securities and Exchange Commission (SEC). The Committee operates under a written charter that specifies the Committee’s responsibilities. The full text of the Committee’s charter is available on the Corporate Governance page of the Company’s website (www.ryder.com). The Audit Committee members are not auditors and their functions are not intended to duplicate or to certify the activities of management and the independent auditor.

 

The Audit Committee oversees the Company’s financial reporting process on behalf of the Board of Directors. The Company’s management has the responsibility for preparing the consolidated financial statements, for maintaining effective internal control over financial reporting, and for assessing the effectiveness of internal control over financial reporting. The Company’s independent auditor is responsible for performing an integrated audit of the Company’s year-end consolidated financial statements and internal control over financial reporting as of the end of the year in accordance with the standards of the Public Company Accounting Oversight Board (PCAOB), and expressing opinions on (i) whether the financial statements present fairly, in all material respects, the financial condition and results of operations and cash flows of the Company in conformity with accounting principles generally accepted in the United States, and (ii) whether the Company maintained effective internal control over financial reporting based on criteria established in “Internal Control — Integrated Framework” issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). In fulfilling its oversight responsibilities, the Committee reviewed and discussed the audited consolidated financial statements in the Annual Report on Form 10-K for the fiscal year ended December 31, 2007 and management’s assessment of the effectiveness of internal control over financial reporting with Company management, including a discussion of the quality of the accounting principles, the reasonableness of significant judgments, and the clarity of disclosures in the financial statements.

 

The Committee reviewed with the independent auditor its judgments as to the quality of the Company’s accounting principles and such other matters as are required to be discussed with the Committee by Statement on Auditing Standards No. 61, “Communications with Audit Committees,” as amended, PCAOB Standards, rules of the SEC, and other applicable regulations. In addition, the Committee has discussed with the independent auditor the firm’s independence from Company management and the Company, reviewed the written disclosures and letter from the independent auditor required by Independence Standards Board Standard No. 1, “Independence Discussions with Audit Committees,” and considered the compatibility of non-audit services with the independent auditor’s independence.

 

The Committee discussed with the Company’s internal auditor and the independent auditor the overall scope and plans for their respective audits. The Committee met with the internal auditor and the independent auditor, with and without management present, to discuss the results of their audits; their evaluations of the Company’s internal control, including internal control over financial reporting; and the overall quality of the Company’s financial reporting.

 

In reliance on the reviews and discussions referred to above, the Committee recommended to the Board of Directors, and the Board has approved, that the audited consolidated financial statements and management’s assessment of the effectiveness of the Company’s internal control over financial reporting be included in the Annual Report on Form 10-K for the year ended December 31, 2007 filed by the Company with the SEC. The Committee has also approved, subject to shareholder ratification, the selection of PricewaterhouseCoopers LLP as the Company’s independent auditor.

 

Submitted by the Audit Committee of the Board of Directors.

 

Abbie J. Smith (Chair)

Luis P. Nieto, Jr.

Eugene A. Renna

E. Follin Smith

Hansel E. Tookes, II

 

The following table shows the number of shares of common stock beneficially owned as of January 9, 2008, by each director and each executive officer named in the Summary Compensation Table herein, individually, and all directors and executive officers as a group. No family relationships exist among our directors and executive officers.

 

 

 

 

Section 16(a) of the Securities Exchange Act of 1934 requires our directors and executive officers, and persons who beneficially own more than 10% of a registered class of our equity securities, to file reports with the SEC relating to their common stock ownership and changes in such ownership. To our knowledge, based solely on our records and certain written representations received from our executive officers and directors, during the year ended December 31, 2007, all Section 16(a) filing requirements applicable to directors, executive officers and greater than 10% shareholders were complied with on a timely basis.

 

The following table shows the number of shares of common stock held by all persons who are known by us to beneficially own or exercise voting or dispositive control over more than five percent of our outstanding common stock.

 

 

 

 

This Compensation Discussion and Analysis is designed to provide our shareholders with a clear understanding of the compensation philosophy and objectives, compensation-setting process, and compensation programs and actions for our named executive officers. Our named executive officers are those executive officers listed below, whose compensation is disclosed in the Summary Compensation Table on page 42 of this proxy statement (“named executive officers” or “NEOs”):

 

 

Executive Summary

 

The following provides a brief overview of the more detailed disclosure set forth in our Compensation Discussion and Analysis.

 

 

 

Oversight and Authority over Executive Officer Compensation

 

Compensation Setting Process

 

The Committee is responsible for determining the compensation philosophy and objectives for our named executive officers and for reviewing and recommending to the Board of Directors the approval of all components of our executive compensation program. Our independent directors, acting as a group, are responsible for setting CEO compensation based on recommendations from the Committee. The Committee, with input from our CEO, is responsible for setting the compensation of all of our other named executive officers.

 

With respect to compensation decisions for named executive officers (excluding our CEO), in February of each year our CEO gives the Committee a performance assessment and compensation recommendation for each named executive officer. The performance assessment includes strengths, weaknesses and succession potential and is based on individual performance evaluations conducted by the CEO and the executive officer’s direct supervisor (if different from the CEO). Our CEO also reviews compensation data provided by our compensation group, legal department and outside consultants. At the Board’s annual Strategic Summit Meeting in October of each year, each NEO is also evaluated by the full Board as part of the succession planning process.

 

In February of each year (in connection with the conclusion of our business planning process), the Committee conducts its annual review of the compensation packages for each of our named executive officers. Based on this review, the Committee approves (a) base salary changes, (b) any cash payout amounts earned under the previous year’s annual bonus program, (c) equity grants and (d) performance targets and target opportunity under any incentive compensation programs for the current year. The Committee may take other individual compensation actions during the year as needed. While the Committee considers competitive market compensation paid by other companies, it does not attempt to maintain a certain target percentile within a comparative group. Rather, the Committee’s objective is to target executive pay at levels that are market competitive based on Company and individual performance. Specifically, the Committee’s goal is to design a compensation program and set compensation levels to provide market compensation for achieving target financial results, and below-market compensation when Company and/or individual performance fail to meet expectations. While compensation levels may differ among NEOs based on competitive factors and the role, responsibilities and performance of each specific NEO, there are no material differences in the compensation philosophies, objectives or policies for our NEOs, nor do we have a policy regarding internal pay equity.

 

In determining the compensation package for Mr. Swienton, the Committee and the independent directors consider the results of Mr. Swienton’s annual performance evaluation, comparative compensation data and information on our competitive position and operating/financial performance, as discussed further under the captions “Compensation Philosophy and Objectives,” “Benchmarking” and “Use of Compensation Consultants”. At the beginning of each fiscal year, the Committee and the independent directors conduct a performance review of the CEO. For the review, the CEO and each independent director complete a comprehensive CEO evaluation questionnaire. The 2007 questionnaire focused on (a) our historical and forecasted performance, (b) Mr. Swienton’s effectiveness in leading the organization, the Board and external constituencies, and (c) his effectiveness at team building and succession planning and development. At the Committee’s February meeting, the CEO presents his personal performance results for the prior fiscal year and responds to any questions that the Committee may have. At the completion of his performance review, the Committee discusses the CEO’s performance review in executive session and formulates its recommendation. At the February Board meeting, in executive session without the CEO present, the independent directors determine the CEO’s compensation based on the recommendations of the Committee.

Compensation Philosophy and Objectives

 

The most important objective of our executive compensation program is to recruit, retain and motivate high-quality executives who possess diverse skills and talents that can help us achieve our short-term goals and long-term strategies. In addition, we strive to design, implement and maintain an executive compensation program that accomplishes the following three key goals:

 

 

The Committee regularly evaluates the effectiveness of our executive compensation programs, considering the cost to us and the value to the executive of each element of compensation, in light of the above stated compensation objectives.

 

Benchmarking

 

In evaluating each element of our executive compensation program, the Committee considers the executive compensation program and practices, as well as the financial performance of comparative groups of companies. Management and the Committee view this data as one factor in making compensation decisions, but do not rely solely on this information.

 

Our business is comprised of three distinct, complex business units: Fleet Management Solutions, Supply Chain Solutions and Dedicated Contract Carriage. Although there are other public companies that operate in one or more of our business segments, we do not believe there are any public companies that provide similar fleet management services (which represents nearly 60% of our consolidated revenues) or that provide the same mix of services, and that publicly disclose financial performance and compensation data relating to that business. As a result, we do not have access to relevant compensation data for our direct competitors.

 

In determining 2007 compensation, management and the Committee, with the assistance of Frederic W. Cook & Co., Inc., assembled a peer group which was determined to provide the most useful comparison with respect to our CEO. The peer group companies include a significant part of the Dow Jones Transportation Index (excluding air and rail companies) and several leasing companies, and specifically consists of:

 

 

Management and the Committee believe this peer group provides a useful basis of comparison for our CEO compensation because, similar to Ryder, many of these companies are asset-based providers of transportation or transportation-related services or otherwise provide leasing or rental services. Furthermore, many are impacted by similar economic factors affecting our Company including freight demand and fuel prices. However, for the reasons described above, unlike with many other companies who are able to compile a more relevant peer group, we do not believe information relating to our peer group is necessarily the most significant factor in determining executive compensation. Consequently, when making compensation decisions regarding our CEO for 2007, the Committee also considered compensation data compiled by management and outside consultants (at the request

of the Committee) for companies that are included in the S&P 500 and that are of similar size (i.e., revenue of between $5.5 billion and $6.5 billion), scope (i.e., similar industries/global) and performance. Although the Committee and management consider this data, their compensation recommendations and decisions are not based on maintaining a certain target percentile within the comparative group(s). The “Industry,” “Performance” and “Revenue” peer groups considered by the Committee during 2007 were as follows:

 

Industry Peer Group (17 Companies)

 

 

Performance Peer Group (20 Companies) — These companies were determined to be comparable to us from a financial performance perspective based on a variety of financial criteria, including one- and three-year performance on sales growth, profit growth, return to shareholders, profit margin and return on equity.

 

 

Revenue Peer Group (65 Companies)

 

 

For our other NEOs, we continue to rely on broad-based published surveys, specifically the Mercer Benchmark Database — Executive Positions, which is comprised of 2,473 U.S.-based companies across all industries. A list of those companies is included in Appendix B to this Proxy Statement. We also utilize compensation data and benchmarking tools provided online by Equilar, Inc. We do not utilize the peer groups identified above to benchmark compensation for our other NEOs because we believe that sufficient information is not available from any peer group with respect to comparable positions and levels of our other NEOs. The Mercer Benchmark Database is a position-specific database which is searchable based on a variety of factors. For any specific position, narrowed by revenue and scope, the Database provides detailed compensation data with respect to base salary, short-term incentives and long-term incentives. Management uses this data to determine the range of compensation amounts for the companies included in the Database and benchmarks amounts paid to our named executive officers against these published amounts.

 

The Committee uses benchmark comparisons to peer groups or published surveys, as applicable, to ensure that it is acting responsibly and to establish points of reference to determine whether and to what extent it is establishing competitive levels of compensation for our executives. The Committee compares numerous elements of executive compensation, including base salaries, annual incentive compensation, long-term cash and equity-based incentives and retirement benefits, to assist in determining whether proposed compensation programs are competitive. The Committee then uses its experience and judgment to make final compensation decisions.

 

Use of Compensation Consultants

 

The Committee has authority to retain compensation consultants, outside legal counsel and other advisors to assist it in fulfilling its responsibilities. Historically, in addition to the Committee, our Chief Human Resources Officer (CHRO), Vice President of Compensation and Benefits and Chief Legal Officer have from time-to-time engaged compensation consultants and outside legal counsel on our behalf to assist in the evaluation of executive compensation.

 

During 2007, the Committee engaged Frederic W. Cook & Co., Inc. (Cook), to assist in the review and competitive analysis of the CEO’s compensation package. Cook was engaged to review data and competitive analyses prepared by management regarding CEO compensation, and to work directly with the Chair of the Committee to prepare a proposal for 2007 CEO compensation to be considered by the Committee and the independent directors. Based upon Cook’s review of the compensation data of the companies comprising the “Peer,” “Revenue” and “Performance” groups listed above, and their own internal analysis, Cook provided recommendations to the Committee for a competitive total CEO compensation package. The Committee

considered Cook’s recommendation as one factor in approving the CEO’s 2007 compensation. Management did not engage Cook for any compensation-related matter during 2007.

 

As discussed in further detail below under “Severance and Change of Control Benefits,” management (at the request of the Committee) retained Deloitte & Touche LLP (Deloitte) and Mercer LLC (Mercer) during 2006 to review and evaluate our severance and change of control severance programs relative to market standards. As a result of this review, in January 2007 the Board approved changes to our severance and change of control severance programs that generally reduced our officers’ severance benefits. Mercer compared the type and amount of severance and change of control severance benefits provided by us as well as the general terms and conditions of our programs with those of comparable companies within Mercer’s proprietary database. Deloitte provided comprehensive data and calculations regarding potential change of control severance payments under our existing program and various other scenarios. Management also retained outside legal counsel to review the terms and conditions of our existing severance and change of control severance programs in light of market trends and emerging governance practices. Each of the consulting firms provided a report to management which summarized their findings. The consulting firms did not interact or cooperate in preparing or presenting their recommendations to the Committee, however, representatives of the Committee consulted directly with outside counsel to discuss the recommendations of the consulting firms. Management did not engage Mercer for any other purpose during 2007, but did participate in and utilize the Mercer Benchmark Database — Executive Positions, during 2007. Management did not engage Deloitte during 2007 for any other compensation related matter, except that Deloitte was engaged to perform certain calculations required for the executive compensation tables contained herein. The Company also engages Deloitte from time-to-time for non-compensation related matters.

 

Elements of our 2007 Executive Compensation Program

 

Our executive officers do not have employment agreements in order to provide the Committee with flexibility to change the executive compensation program with respect to components, pay mix and amounts. Our NEOs do, however, have individual severance agreements which are described in more detail under the heading “Severance and Change of Control Benefits.”

 

In 2007, our executive compensation program consisted of base salary, annual bonus, long-term incentives, and benefits and perquisites. We do not have a formal policy relating to the allocation of total compensation among the various components. However, both management and the Committee believe that the more senior the position an executive holds, the more influence they have over our financial performance. As such, a greater amount of NEO compensation should be at-risk based on Company performance. The compensation mix for our CEO for 2007 was targeted as set forth in the following chart.

 

Pay Mix for Chief Executive Officer (at target)

 

The chart below is representative of the overall target pay mix for our other named executive officers (excluding our CEO) in office at year end.

 

Pay Mix for Other Named Executive Officers (at target)

 

 

The actual compensation mix for each named executive officer may vary based on job responsibilities, Company performance, individual performance and contributions to the organization. Following is a description of each component of executive compensation for 2007:

 

 

 

Other Compensation

 

Historically, we have also maintained cash-based long-term incentive plans and have awarded time-based restricted stock rights, as discussed below. In February 2006, the Committee decided to allocate more of our executive officer’s long-term compensation from cash to equity and approved a new long-term incentive program. As a result, the Committee ceased granting long-term cash awards and instead began granting the PBRSRs with tandem cash awards, which are described in more detail above under “Long-Term Incentives”.

 

Cash Awards

 

In May 2005, the Committee approved a cash based long-term incentive plan (Cash LTIP) for our named executive officers that provides cash compensation if the Company achieves certain levels of operating revenue growth, earning per share growth and return on capital during the period from April 1, 2005 through December 31, 2007. Based on the performance period that ended December 31, 2007, the named executive officers earned 54.4% of target. Amounts earned under the awards will vest in June and be paid in July 2008. The target payout amount for all executive officers is 75% of base salary (other than our CEO, whose target payout amount is 150% of base salary). The Committee set the target payout amounts based on the same targets in use under the previous cash LTIP program. Mr. Swienton was awarded a higher target payout amount than the other NEOs due to his role as the CEO and the corresponding level of responsibility for the operations of the Company that accompanies this position, as well as his proven performance related to objectives. This target was also consistent with the benchmarking and compensation data reviewed by the Committee. The awards provide for a threshold payout amount (equal to 50% of the target payout amount) if we met the threshold performance targets and a maximum payout amount (equal to two times the target payout amount) if we met the maximum performance targets.

 

The following chart sets forth the performance measures, weights and targets under the Cash LTIP plan:

 

 

 

 

Time-Vested Restricted Stock Rights

 

In the past, the Committee approved annual grants of time-vested restricted stock rights to our named executive officers. Generally, the restricted stock rights vested in three equal annual installments regardless of Company

performance. Beginning in 2006, the Committee granted performance-based restricted stock rights with tandem cash awards in lieu of the time-vested restricted stock rights as the Committee believes that performance-based restricted stock rights are more consistent with its compensation objectives. Time-vested restricted stock continues to be used for retention concerns and new hires. The time-vested restricted stock rights include a right to receive dividend equivalents during the vesting period.

 

The Committee did not grant any time-vested restricted stock rights to NEOs in 2007.

 

Severance and Change of Control Benefits

 

All officers (including all executive officers) are currently eligible for certain severance benefits under either individual severance agreements (in the case of our NEOs) or the terms of our new executive severance plan, as discussed below. These benefits are described in more detail under the heading “Potential Payments Upon Termination or Change of Control” on page 49. Severance benefits are intended to ease the consequences of an unexpected termination of employment. These benefits are also designed to prevent our senior executives from seeking employment with our competitors after termination or soliciting our employees or customers during the restricted period. The change of control benefits are designed to preserve productivity, avoid disruption and prevent attrition during a period when we are, or are rumored to be, involved in a change of control transaction. The change of control severance program also motivates executives to pursue transactions that are in our shareholders’ best interests notwithstanding the potential negative impact of the transaction on their future employment. While cognizant of their terms, the Committee does not view the change of control and severance arrangements as an element of current compensation, and such arrangements do not necessarily affect the Committee’s annual compensation decisions.

 

During 2007 and through January 30, 2008, all officers (including all executive officers) were eligible for certain severance benefits under the terms of our severance agreement and change of control benefits under the terms of our change of control severance agreement, forms of which are on file with the SEC. These benefits are described in more detail under the heading “Potential Payments Upon Termination or Change of Control” on page 49.

 

During 2006, the Committee conducted a comprehensive review and evaluation of our severance and change of control severance benefits. Management (at the request of the Committee) retained Deloitte and Mercer to review and evaluate our severance and change of control severance programs relative to market standards. Mercer compared the type and amount of severance and change of control severance benefits provided by us as well as the general terms and conditions of our programs with those of comparable companies within Mercer’s proprietary database. Deloitte provided comprehensive data and calculations regarding potential change of control severance payments under our existing program and various other scenarios. Management also retained outside legal counsel to review the terms and conditions of our existing severance and change of control severance programs in light of market trends and emerging governance practices. Each of the consulting firms and outside counsel provided a report to management which summarized their findings. The Committee also considered benchmarking data assembled by management for a 20 company peer group from 5 industry groups, each of which engage in some or all of our business activities.

 

Specifically, that peer group consisted of:

 

 

This information, together with management’s recommendations, was communicated to the Committee and the Board in connection with their review of our then existing severance and change of control severance programs and their consideration of changes to the programs. In reviewing and approving the changes, the Committee and the Board considered a variety of potential termination scenarios and stock prices and the resulting payouts to

each of our NEOs in each scenario. The Committee also considered the aggregate payouts to all NEOs and all other employees under the various change of control scenarios.

 

In January 2007, based on the results of the Committee’s comprehensive evaluation of our severance and change of control severance programs and practices, our Board (based on the recommendations of the Committee) decided to terminate all existing severance and change of control severance agreements and adopt a new program that would reflect a number of changes to the current severance and change of control severance benefits and generally reduce the severance and change of control benefits available to our officers. Although the Committee and management determined that our previous severance and change of control benefits were reasonable, they believe the approved changes are more consistent with current market standards and emerging governance trends.

 

The new severance and change of control severance benefits for the named executive officers, including Mr. Swienton, are provided under new individual severance agreements, a form of which was filed with the SEC on April 4, 2007, and which replaced the executive’s previous severance and change of control severance agreements effective January 30, 2008. The Committee retained its own legal counsel to prepare the individual severance agreements for each of our executive officers, including Mr. Swienton, based on the terms approved by the Committee. Any new executive officers appointed after January 1, 2007 received an individual severance and change of control severance agreement containing the new severance and change of control severance benefits.

 

A description of the previous severance and change of control severance benefits (which were in effect for all current executive officers until January 31, 2008) and the approved changes to the severance and change of control severance benefits (which are in effect for all current officers since January 30, 2008 and for all new executive officers appointed after January 1, 2007) as well as a summary of potential payments relating to these and other termination events, can be found under the heading “Potential Payments Upon Termination or Change of Control” on page 49.

 

On November 29, 2007, management recommended and the Committee approved a severance package for Vicki A. O’Meara, our former President of U.S. Supply Chain Solutions, in connection with her departure from the Company. The terms of the severance package were in accordance with the material provisions of the severance agreement between the Company and Ms. O’Meara, dated June 18, 1997, including provisions concerning noncompetition, nonsolicitation and nondisparagement. In addition, management recommended and the Committee approved payment of (i) a pro-rata portion of the 2007 bonus to be made if and when bonus payments are paid in February 2008 and (ii) amounts previously earned by Ms. O’Meara under the 2004-2006 cash LTIP, which would otherwise be forfeited due to Ms. O’Meara’s failure to be actively employed on the relevant payment dates. Actual amounts paid to Ms. O’Meara in connection with her severance are set forth under the heading “Potential Payments Upon Termination or Change of Control — 2007 Events” on page 52.

 

Equity Granting Practices

 

In February 2007, the Committee approved a Policy on Equity Granting Practices, which provides that all grants of equity awards must be approved by the Committee (or in the case of the CEO, the independent directors acting as a group), at a Board or Committee meeting and not by written consent except in the case of new hires (excluding executive officers and other direct reports to our CEO), when equity grants may be approved by the Chair of the Committee. The grant date of any equity awards shall be the date of the Board or Committee meeting at which the award was approved, provided that the grant date for a new hire will be the later of (i) the date of the Board or Committee meeting at which the award was approved and (ii) the date on which the new hire commences employment. The exercise price of any stock option issued by us will be the average of the high and low sales price on the grant date (as required by our current equity compensation plans). We do not time our equity award grants relative to the release of material non-public information.

 

Stock Ownership Requirements

 

To demonstrate the importance of linking executive management and shareholder interests, we established formal stock ownership requirements for all of our officers. The CEO must own Company stock or stock equivalents (including any unvested restricted stock rights) having a value equal to at least two times his annual base salary, and all other officers must own Company stock or stock equivalents having a value equal to at least one times their base salary. The ownership requirements must be proportionately satisfied within five years of being appointed an officer. As of December 31, 2007, all named executive officers were in compliance with their stock ownership requirements.

Tax and Accounting Implications

 

Deductibility of Executive Compensation

 

Section 162(m) of the Internal Revenue Code of 1986, as amended, precludes public companies from taking a federal income tax deduction for compensation in excess of $1 million paid to our named executive officers unless certain specific and detailed criteria are met, including the requirement that compensation be “performance-based” and under a plan approved by our shareholders.

 

We review all components of our executive compensation program based upon the requirements of Section 162(m) of the Internal Revenue Code. Stock-based awards under our current equity compensation plan are designed to meet the requirements of Section 162(m), and accordingly, stock options and other stock-based awards granted to the named executive officers under this plan are eligible for the “performance-based” exception to Section 162(m). Our 2007 annual bonus awards were granted under the Ryder System, Inc. 2005 Equity Compensation Plan, which was approved by our shareholders in May 2005. While the long-term cash incentive awards granted from 2002 to 2004 are performance-based, the relevant plan was not submitted to our shareholders for their approval and, therefore, we will not be able to deduct amounts paid under those awards in calculating our taxes.

 

The Committee believes that preserving its flexibility in awarding compensation is in our best interest and that of our shareholders and may determine, in light of all applicable circumstances, to award compensation in a manner that will not preserve the deductibility of such compensation under Section 162(m).

 

Nonqualified Deferred Compensation

 

On October 22, 2004, the American Jobs Creation Act of 2004 was signed into law, changing the tax rules applicable to nonqualified deferred compensation arrangements. The final regulations became effective in April 2007 and we believe we are operating in good faith compliance with the statutory provisions. We have amended our practices as necessary and will amend our relevant compensation plans during 2008 to the extent necessary to comply with the final regulations.

 

 

The following report of the Compensation Committee shall not be deemed to be “soliciting material” or to be “filed” with the SEC nor shall this information be incorporated by reference into any future filing under the Securities Act of 1933 or the Securities Exchange Act of 1934, each as amended, except to the extent that Ryder System, Inc. specifically incorporates it by reference into a filing.

 

Our Committee has reviewed and discussed the Compensation Discussion and Analysis contained in this Proxy Statement with management. Based on our review and discussions, we have recommended to the Board of Directors that the Compensation Discussion and Analysis be included in this Proxy Statement.

 

Submitted by the Compensation Committee of the Board of Directors.

 

John M. Berra (Chair)

David I. Fuente

L. Patrick Hassey

Lynn M. Martin

Christine A. Varney

 

The following table sets forth the 2007 compensation for:

 

 

We refer to the executive officers included in the Summary Compensation Table as our “named executive officers.” A detailed description of the plans and programs under which our named executive officers received the following compensation can be found in the Compensation Discussion and Analysis beginning on page 27.