March 23, 2009

 

Dear Fellow AutoNation Stockholder:

 

We are pleased to invite you to attend the 2009 Annual Meeting of Stockholders of AutoNation, Inc. to be held at 9:00 a.m. Eastern Time on Wednesday, May 6, 2009, at the AutoNation Tower, located at 110 S.E. 6th Street, Fort Lauderdale, Florida 33301.

 

At this year’s Annual Meeting, the agenda includes the annual election of directors; ratification of the selection of our independent registered public accounting firm; and consideration of two stockholder proposals, if properly presented at the annual meeting. We will also report on our progress and provide an opportunity for you to ask questions of general interest.

 

The Board of Directors recommends that you vote FOR the election of the director nominees, FOR ratification of the selection of our independent registered public accounting firm, and AGAINST the two stockholder proposals. Please refer to the proxy statement for detailed information on each of the proposals and the annual meeting. Your AutoNation stockholder vote is important, and we ask that you please cast your vote as soon as possible.

 

We look forward to seeing you on May 6, 2009 in Fort Lauderdale. Thank you.

 

Sincerely,

 

Mike Jackson
Chairman of the Board and
Chief Executive Officer

 

 

NOTICE OF THE 2009 ANNUAL MEETING OF STOCKHOLDERS

 

 

To Stockholders of AutoNation, Inc.:

 

The 2009 Annual Meeting of Stockholders of AutoNation, Inc. will be held at the AutoNation Tower, located at 110 S.E. 6th Street, Fort Lauderdale, Florida 33301 on Wednesday, May 6, 2009 at 9:00 a.m. Eastern Time for the following purposes, as more fully described in the proxy statement:

 

 

Only stockholders of record as of 5:00 p.m. Eastern Time on March 11, 2009, the record date, are entitled to receive notice of the Annual Meeting and to vote at the Annual Meeting or any adjournments or postponements of the Annual Meeting.

 

We cordially invite you to attend the Annual Meeting in person. Even if you plan to attend the Annual Meeting, we ask that you please cast your vote as soon as possible. You may revoke your proxy and reclaim your right to vote at any time prior to its use. The proxy statement includes information on what you will need to attend the Annual Meeting.

 

By Order of the Board of Directors,

 

Jonathan P. Ferrando
Executive Vice President,
General Counsel and Secretary

 

March 23, 2009

 

AUTONATION, INC.

 

PROXY STATEMENT

 

TABLE OF CONTENTS

 

 

 

PROXY STATEMENT

 

This Proxy Statement contains information relating to the solicitation of proxies by the Board of Directors of AutoNation, Inc. (“AutoNation” or the “Company”) for use at our 2009 Annual Meeting of Stockholders. Our Annual Meeting will be held at the AutoNation Tower, located at 110 S.E. 6th Street, Fort Lauderdale, Florida 33301 on Wednesday, May 6, 2009 at 9:00 a.m. Eastern Time.

 

Only stockholders of record as of 5:00 p.m. Eastern Time on March 11, 2009 (the “Record Date”) are entitled to receive notice of the Annual Meeting and to vote at the Annual Meeting or any adjournments or postponements of the Annual Meeting. As of the Record Date, there were 177,059,720 shares of AutoNation common stock issued and outstanding and entitled to vote at the Annual Meeting. We made copies of this proxy statement available to our stockholders beginning on March 23, 2009.

 

What is the purpose of our 2009 Annual Meeting?

 

Our 2009 Annual Meeting will be held for the following purposes:

 

 

In addition, senior management will report on our business and respond to your questions.

 

Why did I receive a notice regarding the availability of proxy materials on the Internet instead of a full set of proxy materials?

 

Pursuant to the “notice and access” rules adopted by the Securities and Exchange Commission (“SEC”), we have elected to provide access to our proxy materials via the Internet. A Notice of Internet Availability of Proxy Materials (“Notice”) will be mailed to most of our registered stockholders and beneficial owners. The Notice contains instructions on how to access the proxy materials on the Internet, how to vote, and how to request printed copies. In addition,

stockholders may request to receive all future proxy materials in printed form by mail or electronically by e-mail by following the instructions contained in the Notice.

 

How can I attend the Annual Meeting?

 

You are entitled to attend the annual meeting only if you were an AutoNation stockholder as of the Record Date or you hold a valid proxy for the annual meeting. You should be prepared to present photo identification for admittance. If your shares are held by a brokerage firm, bank, or a trustee, you should provide proof of beneficial ownership as of the Record Date, such as a bank or brokerage account statement or other similar evidence of ownership. Even if you plan to attend the Annual Meeting, please cast your vote as soon as possible.

 

What are the voting rights of AutoNation stockholders?

 

Each stockholder is entitled to one vote on each of the eight director nominees and one vote on each other matter properly presented at the Annual Meeting for each share of common stock owned by that stockholder on the Record Date.

 

What constitutes a quorum?

 

In order for us to conduct business at our Annual Meeting, we must have a quorum of at least 88,529,861 shares of common stock represented at the Annual Meeting, in person or by proxy, and entitled to vote. If you submit a properly executed proxy or vote instruction card or properly cast your vote by telephone or via the Internet, your shares will be considered part of the quorum, even if you abstain from voting or withhold authority to vote as to a particular proposal. We also will consider as present for purposes of determining whether a quorum exists any shares represented by “broker non-votes” as to a particular proposal.

 

What are “broker non-votes”?

 

“Broker non-votes” occur when shares held by a brokerage firm are not voted with respect to a proposal because the firm has not received voting instructions from the stockholder and the firm does not have the authority to vote the shares in its discretion. Under the rules of the New York Stock Exchange (“NYSE”), brokerage firms may have the authority to vote their customers’ shares on certain routine matters for which they do not receive voting instructions, such as the election of our Board’s nominees for director and the ratification of the selection of our independent registered public accounting firm. However, if other matters are properly brought before the Annual Meeting and they are not considered routine under the applicable NYSE rules, such as the two stockholder proposals, shares held by brokerage firms will not be voted on such non-routine matters by the brokerage firms unless they have received voting instructions and, accordingly, any such shares will be “broker non-votes” and will not be counted with respect to such matters.

 

Will my shares be voted if I do not provide my proxy?

 

If your shares are held by a brokerage firm, they may be voted by the brokerage firm in certain circumstances (as described above), even if you do not give the brokerage firm specific voting instructions. If you hold your shares directly in your own name, your shares will not be voted unless you provide a proxy or fill out a written ballot in person at the Annual Meeting. If

you hold shares through the AutoNation 401(k) Plan, your shares will be voted as described below even if you do not provide voting instructions.

 

How do I vote my 401(k) shares?

 

If you participate in the AutoNation 401(k) Plan, you may vote the number of shares credited to your account as of 5:00 p.m. Eastern Time on March 11, 2009, by following the instructions provided by the Plan’s trustee, Merrill Lynch & Co. (“Merrill Lynch”). If you do not provide clear voting instructions, Merrill Lynch will vote the shares in your account in the same proportion that it votes shares for which it received valid and timely instructions.

 

How do I vote?

 

Registered Stockholders

 

If you are a registered stockholder (you hold your shares in your own name through our transfer agent), you may vote in person at the Annual Meeting. We will give you a ballot when you arrive. If you do not wish to vote in person or if you will not be attending the Annual Meeting, you may vote by proxy. You can vote by proxy over the Internet by following the instructions provided in the Notice, or, if you receive printed copies of the proxy materials by mail, you can also vote by mail or telephone by following the instructions provided on the proxy card.

 

Beneficial Owners

 

If you are a beneficial owner of shares (your shares are held in the name of a brokerage firm, bank, or a trustee) and you wish to vote in person at the Annual Meeting, you must obtain a valid proxy from the organization that holds your shares. If you do not wish to vote in person or you will not be attending the Annual Meeting, you may vote by proxy. You may vote by proxy over the Internet by following the instructions provided in the Notice, or, if you receive printed copies of the proxy materials by mail, you can also vote by mail or telephone by following the instructions provided on the proxy card. Please also refer to the instructions you receive from your brokerage firm, bank, or trustee on how to vote your shares.

 

Can I change my vote after I have voted?

 

You may revoke your proxy and change your vote at any time before the final vote at the meeting. You may vote again on a later date on the Internet or by telephone (only your latest Internet or telephone proxy submitted prior to the meeting will be counted), or by signing and returning a new proxy card with a later date, or by attending the meeting and voting in person. However, your attendance at the Annual Meeting will not automatically revoke your proxy unless you vote again at the meeting or specifically request in writing that your prior proxy be revoked.

 

What vote is required to elect directors or take other action at the Annual Meeting?

 

In order to be approved, any proposal that comes before the Annual Meeting, including the proposal to elect directors, the proposal to ratify the selection of our independent registered public accounting firm, and each of the stockholder proposals, must receive the affirmative vote of a majority of the shares present in person or by proxy and entitled to vote at the

Annual Meeting with respect to such proposal. If you mark your proxy or vote instruction card “withhold” with respect to any director or “abstain” with respect to any other proposal, you will effectively be voting against the election of such director or against the approval of such proposal. If your shares are not voted by your brokerage firm or nominee with respect to a particular proposal, or if you direct your proxy holder not to vote all or a portion of your shares with respect to a particular proposal, such shares will not be considered to be present at the Annual Meeting for purposes of considering such proposal and will not be counted.

 

How does the Board recommend I vote on the proposals?

 

The Board recommends that you vote FOR the election of the director nominees (see “Proposal 1: Election of Directors”), FOR ratification of the selection of our independent registered public accounting firm (see “Proposal 2: Ratification of the Selection of Our Independent Registered Public Accounting Firm”), and AGAINST the two stockholder proposals (see “Proposal 3: Stockholder Proposal” and “Proposal 4: Stockholder Proposal”).

 

How will the persons named as proxies vote?

 

If you complete and submit a proxy, the persons named as proxies will follow your instructions. If you submit a proxy but do not provide instructions or if your instructions are unclear, the persons named as proxies will vote your shares as follows: FOR the election of the director nominees, FOR ratification of the selection of our independent registered public accounting firm, and AGAINST each of the stockholder proposals. With respect to any other proposal that properly comes before the Annual Meeting, the persons named as proxies will vote as recommended by our Board of Directors or, if no recommendation is given, in their own discretion.

 

How much did this proxy solicitation cost?

 

We engaged Innisfree M&A Incorporated to assist with the solicitation of proxies for a fee not to exceed $12,000, plus reimbursement for out-of-pocket expenses. In addition to soliciting proxies by mail, certain of our employees also may solicit proxies personally, by telephone, or otherwise, but such persons will not receive any special compensation for such services. As is customary, we will reimburse brokerage firms, banks, fiduciaries, voting trustees, and other nominees for forwarding the soliciting material to each beneficial owner of stock held of record by them. We will pay the entire cost of the solicitation.

 

Important Notice Regarding the Availability of Proxy Materials
for the Stockholder Meeting to be Held on May 6, 2009

 

Our 2008 Annual Report and this proxy statement are available at www.edocumentview.com/AN.

 

 

Our Board of Directors currently consists of eight members. Except for David B. Edelson, who is standing for election for the first time, each of our current directors was elected by our stockholders at our Annual Meeting of Stockholders in 2008. Upon the recommendation of the Corporate Governance and Nominating Committee, our Board appointed Mr. Edelson as a member of the Board effective July 30, 2008.

 

Upon the recommendation of the Corporate Governance and Nominating Committee, our Board has nominated the eight persons listed below to stand for election for a new term expiring at the Annual Meeting of Stockholders in 2010 or until their successors are duly elected and qualified. Each of the nominees listed below is currently serving as a director and is willing and able to serve as a director of AutoNation.

 

 

 

NOMINEES FOR OUR BOARD OF DIRECTORS

 

Information concerning our directors, as of March 11, 2009, all of whom have been nominated for election at the Annual Meeting, is set forth below.

 

Mike Jackson

 

Mike Jackson (age 60) has served as our Chairman of the Board since January 2003 and as our Chief Executive Officer and Director since September 1999. From October 1998 until September 1999, Mr. Jackson served as Chief Executive Officer of Mercedes-Benz USA, LLC, a North American operating unit of DaimlerChrysler AG, a multinational automotive manufacturing company. From April 1997 until September 1999, Mr. Jackson also served as President of Mercedes-Benz USA. From July 1990 until March 1997, Mr. Jackson served in various capacities at Mercedes-Benz USA, including as Executive Vice President immediately prior to his appointment as President of Mercedes-Benz USA. Mr. Jackson was also the managing partner from March 1979 to July 1990 of Euro Motorcars of Bethesda, Maryland, a regional group that owned and operated eleven automotive dealership franchises, including Mercedes-Benz and other brands of automobiles.

 

Rick L. Burdick

 

Rick L. Burdick (age 57) has served as one of our directors since May 1991. Since 1988, Mr. Burdick has been a partner in Akin, Gump, Strauss, Hauer & Feld, L.L.P., a global full service law firm. Mr. Burdick is managing partner (international) of the firm. Mr. Burdick also serves as Lead Director of CBIZ, Inc. (formerly, Century Business Services, Inc.), a provider of outsourced business services to small and medium-sized companies in the United States.

 

William C. Crowley

 

William C. Crowley (age 51) has served as one of our directors since January 2002. Since January 1999, Mr. Crowley has been President and Chief Operating Officer of ESL Investments, Inc., a private investment firm. Since March 2005, Mr. Crowley has served as a director of Sears Holdings Corporation, a broadline retailer. Additionally, he has served as Executive Vice President of Sears Holdings Corporation since March 2005 and as Chief Administrative Officer of Sears Holdings Corporation since September 2005. Mr. Crowley also served as the Chief Financial Officer of Sears Holdings Corporation from March 2005 until September 2006 and from January 2007 until October 2007. Mr. Crowley has served as a director of Sears Canada Inc. since March 2005 and as the Chairman of the Board of Sears Canada Inc. since December 2006. From May 2003 until March 2005, Mr. Crowley served as director and Senior Vice President, Finance of Kmart Holding Corporation. Prior to joining ESL Investments in 1999, Mr. Crowley was a Managing Director at Goldman, Sachs & Co., a leading global investment banking and securities firm.

 

David B. Edelson

 

David B. Edelson, (age 49), has served as one of our directors since July 2008. Mr. Edelson is Senior Vice President of Loews Corporation, a diversified holding company with subsidiaries in the property-casualty insurance, offshore drilling, natural gas transmission and storage, natural gas exploration and production, and lodging industries. He joined Loews in May 2005. Prior to joining Loews, Mr. Edelson was Executive Vice President & Corporate Treasurer of JPMorgan Chase & Co. He was named Corporate Treasurer in April 2001 and promoted to Executive Vice President in February 2003.

Mr. Edelson spent the first 15 years of his career as an investment banker, first with Goldman Sachs & Co. and subsequently with JPMorgan Chase & Co. He has served as a director of CNA Surety Corporation, a 62%-owned subsidiary of CNA Financial Corporation, which is a 90%-owned subsidiary of Loews Corporation, since February 2007 and in 2009 became its Chairman of the Board.

 

Kim C. Goodman

 

Kim C. Goodman (age 43) has served as one of our directors since February 2007. In September 2007, Ms. Goodman joined American Express Company, a global payments and travel company, as Executive Vice President, Merchant Services North America. From September 2005 until July 2007, Ms. Goodman served as Vice President of Software and Peripherals of Dell Inc., a worldwide supplier of technology products and services. From September 2000 until August 2005, Ms. Goodman served in various other capacities at Dell Inc., including as Vice President of Public Sector Marketing and Transactional Sales, Vice President of Dell Networking and Vice President of Business Development. Prior to joining Dell Inc., Ms. Goodman was a Partner and Vice President of Bain & Company, Inc., a strategic consulting firm.

 

Robert R. Grusky

 

Robert R. Grusky (age 51) has served as one of our directors since June 2006. In 2000, Mr. Grusky founded Hope Capital Management, LLC, an investment firm for which he serves as Managing Member. He co-founded New Mountain Capital, LLC, a private equity and public equity firm, in 2000 and was a Principal, Managing Director and Member of New Mountain Capital from 2000 to 2005 and has been a Senior Advisor since then. From 1998 to 2000, Mr. Grusky served as President of RSL Investments Corporation, the primary investment vehicle for the Hon. Ronald S. Lauder. Prior thereto, Mr. Grusky also served in a variety of capacities at Goldman, Sachs & Co. in its Mergers & Acquisitions Department and Principal Investment Area. Mr. Grusky is a director of Strayer Education, Inc., an education services company, and AutoZone, Inc., a specialty retailer of automotive parts.

 

Michael E. Maroone

 

Michael E. Maroone (age 55) has served as one of our directors since July 2005 and as our President and Chief Operating Officer since August 1999. Following our acquisition of the Maroone Automotive Group in January 1997, Mr. Maroone served as President of our New Vehicle Dealer Division. In January 1998, Mr. Maroone was named President of our Automotive Retail Group with responsibility for our new and used vehicle operations. Prior to joining AutoNation, Mr. Maroone was President and Chief Executive Officer of the Maroone Automotive Group, one of the country’s largest privately-held automotive retail groups prior to its acquisition by us.

 

Carlos A. Migoya

 

Carlos A. Migoya (age 58) has served as one of our directors since June 2006. Since December 2007, Mr. Migoya has served as Regional President – North Carolina with Wachovia Corporation, a Wells Fargo Company. From June 2006 until December 2007, Mr. Migoya served as State CEO for the Atlantic Region of Wachovia Corporation. In this position, Mr. Migoya was responsible for Wachovia’s general banking businesses in New Jersey, Connecticut and New York. From 1987 until 2006, Mr. Migoya served as Regional President – Dade and Monroe Counties of Wachovia Corporation, with responsibility for Wachovia’s general banking businesses in the region. Mr. Migoya has more than 34 years of experience in banking.

 

Our business and affairs are managed under the direction of our Board of Directors, which is AutoNation’s ultimate decision-making body except with respect to those matters reserved to our stockholders. Our Board’s mission is to maximize long-term stockholder value. Our Board establishes our overall corporate policies, and selects and evaluates our senior management team, which is charged with the conduct of our business and acts as an advisor and counselor to senior management. Our Board also oversees AutoNation’s business strategy and the performance of management in executing our business strategy and managing our day-to-day operations.

 

Does AutoNation have corporate governance principles?

 

Yes. Our Board is committed to sound corporate governance principles and practices. Our Board’s core principles of corporate governance are set forth in the AutoNation, Inc. Corporate Governance Guidelines (the “Guidelines”), which were adopted by the Board in March 2003 and most recently amended as of February 12, 2009. A copy of the Guidelines is available on AutoNation’s corporate website at http://corp.autonation.com/investors/. You also may obtain a printed copy of the Guidelines by sending a written request to: Investor Relations, AutoNation, Inc., 110 S.E. 6th Street, Fort Lauderdale, Florida 33301. The Guidelines, which exceed NYSE corporate governance listing standard requirements, serve as a framework within which our Board conducts its operations. The Corporate Governance and Nominating Committee of our Board has been charged with periodically reviewing the Guidelines and recommending to our Board appropriate changes in light of applicable laws and regulations, the governance standards identified by leading governance authorities, and our Company’s evolving needs.

 

Do we have a policy regarding our Board’s attendance at our Annual Meeting of stockholders?

 

Yes. Our directors are expected to attend our Annual Meeting of Stockholders. A director who is unable to attend our Annual Meeting is expected to notify the Chairman of the Board in advance of the Annual Meeting. Except for Mr. Edelson, who became a member of the Board on July 30, 2008, and Ms. Goodman, who could not attend for good reason, all of our incumbent directors attended the 2008 Annual Meeting of Stockholders.

 

How many times did our Board meet during 2008?

 

Our Board of Directors held 11 meetings and took one action by unanimous written consent during 2008. During 2008, each of our incumbent directors attended at least 75% of the total number of meetings of our Board of Directors and any Board committee on which he or she served (held during the period in which such director served).

 

What Committees has our Board established?

 

Our Board of Directors has established three separately designated standing committees to assist it in discharging its responsibilities: the Audit Committee, the Compensation Committee and the Corporate Governance and Nominating Committee. In addition, our Board has established the Executive Compensation Subcommittee, which is a subcommittee of the Compensation Committee. The charters for our Board committees are in compliance with SEC rules and the NYSE’s listing standards. Our Board Committee charters are available at http://corp.autonation.com/investors/, and you may obtain a printed copy of these charters by

sending a written request to: Investor Relations, AutoNation, Inc., 110 S.E. 6th Street, Fort Lauderdale, Florida 33301.

 

The following chart reflects the current membership of each of our Board’s committees:

 

 

 

Audit Committee. The Audit Committee primarily assists our Board in fulfilling its oversight responsibilities by reviewing our financial reporting and audit processes and our systems of internal control over financial reporting and disclosure controls. Among the Committee’s core responsibilities are the following: (i) overseeing the integrity of our financial statements, for which management is responsible, and reviewing and approving the scope of the annual audit; (ii) selecting, retaining, compensating, overseeing and evaluating our independent registered public accounting firm; (iii) reviewing the Company’s critical accounting policies; (iv) reviewing the Company’s quarterly and annual financial statements prior to their filing with the SEC; (v) preparing the Audit Committee report for inclusion in our annual proxy statement; and (vi) reviewing with management significant financial risks or exposures and assessing the steps management has taken to minimize, monitor and control such risks or exposures. For a complete description of our Audit Committee’s responsibilities, you should refer to the Audit Committee Charter, which is available at http://corp.autonation.com/investors/.

 

The Audit Committee currently consists of four directors. Our Board has determined that the Audit Committee members have the requisite independence and other qualifications for audit committee membership under SEC rules, NYSE listing standards, our Audit Committee Charter, and the independence standards set forth in the Guidelines (as discussed below). Our Board also has determined that each of Mr. Grusky and Mr. Edelson is an “audit committee financial expert” within the meaning of Item 407(d)(5) of Regulation S-K under the Securities Exchange Act of 1934, as amended (the “Exchange Act”). See “Nominees for our Board of Directors” under “Proposal 1: Election of Directors” for a description of the business experience of each of Mr. Grusky and Mr. Edelson. The Audit Committee held 11 meetings and took no actions by unanimous written consent during 2008. The Audit Committee Report for fiscal 2008, which contains a description of the Audit Committee’s responsibilities and its recommendation with respect to our audited consolidated financial statements for the year ended December 31, 2008, is set forth below under “Audit Committee Report.”

 

Compensation Committee. The Compensation Committee primarily assists our Board in fulfilling its compensation and management development and succession planning oversight responsibilities by, among other things: (i) reviewing our director compensation program;

(ii) reviewing and approving the compensation of our chief executive officer and other senior executive officers and, except as expressly delegated to the Executive Compensation Subcommittee, setting annual and long-term performance goals for these individuals; (iii) reviewing and approving the compensation of all of our corporate officers; and (iv) reviewing the Company’s program for management development and succession planning. The Committee reviews executive compensation at its meetings throughout the year and sets executive compensation. The Committee also reviews director compensation annually. As part of its review of executive compensation, the Committee reviews the compensation arrangements at other retail companies. The Committee reviews the data at a high level in order to evaluate and confirm whether our executive compensation is within a reasonably competitive range. The Committee, however, does not set executive compensation at a set target percentile based on the data. See “Compensation Discussion and Analysis – Setting Compensation Levels of Executive Officers.” Additionally, our Chief Executive Officer reviews the performance of each named executive officer and makes recommendations to the Committee with respect to compensation adjustments for such officers. However, the Committee determines in its sole discretion whether to make any adjustments to the compensation paid to such executive officers. The Committee did not engage a compensation consultant to advise the Committee with respect to executive or director compensation for 2008.

 

Our Board has determined that the Compensation Committee members have the requisite independence for Compensation Committee membership under NYSE listing standards and the independence standards set forth in the Guidelines. The Compensation Committee held five meetings and took one action by unanimous written consent during 2008. For more information on the responsibilities and activities of the Compensation Committee, including the Committee’s processes for determining executive compensation, see “Compensation Discussion and Analysis,” “Compensation Committee and Executive Compensation Subcommittee Report” and “Executive Compensation” below, as well as the Compensation Committee’s charter which is available at http://corp.autonation.com/investors/.

 

Executive Compensation Subcommittee. The Executive Compensation Subcommittee is a subcommittee of the Compensation Committee. The Subcommittee assists the Board and the Compensation Committee in fulfilling their compensation oversight responsibilities by performing the following duties: (i) reviewing and approving performance-based compensation of executive officers as contemplated under Section 162(m) of the Internal Revenue Code of 1986, as amended (the “Code”), including bonuses and stock-based awards; (ii) administering the AutoNation, Inc. Senior Executive Incentive Bonus Plan, including establishing performance goals and certifying whether such goals are attained as contemplated under Section 162(m) of the Code; and (iii) administering our equity compensation plans, including approving stock-based awards. Our Board has determined that each member of the Subcommittee qualifies as a “non-employee director” within the meaning of Rule 16b-3 under the Exchange Act, and as an “outside director” under Section 162(m) of the Code. The Executive Compensation Subcommittee held five meetings and took one action by unanimous written consent during 2008. Our Executive Compensation Subcommittee’s charter is available at http://corp.autonation.com/investors/.

 

Corporate Governance and Nominating Committee. On May 7, 2008, the Board combined our Corporate Governance Committee and our Nominating Subcommittee to form the Corporate Governance and Nominating Committee. The Corporate Governance and Nominating Committee assists our Board in fulfilling its oversight responsibilities by performing the

following duties: (i) periodically reviewing the corporate governance principles and practices set forth in the Guidelines, in comparison to the governance standards identified by leading governance authorities and our evolving needs, and making recommendations to the Board with respect to any appropriate amendment to the Guidelines; (ii) leading annual evaluations of Board and Board committee performance; (iii) assessing periodically our Board’s needs in terms of skills and qualifications and recommending to our Board candidates for nomination and election to our Board; (iv) reviewing Board candidates recommended by our stockholders; and (v) recommending to our Board assignments to committees. Our Board has determined that each Corporate Governance and Nominating Committee member is independent under NYSE listing standards and the independence standards set forth in the Guidelines. Between January 1, 2008 and May 7, 2008, the Corporate Governance Committee held two meetings and took no actions by unanimous written consent, and the Nominating Subcommittee held two meetings and took no actions by unanimous written consent. Between May 8, 2008 and December 31, 2008, the Corporate Governance and Nominating Committee held two meetings and took no actions by unanimous written consent. Our Corporate Governance and Nominating Committee’s charter is available at http://corp.autonation.com/investors/.

 

Is a majority of our Board independent under our director independence standards and applicable New York Stock Exchange rules?

 

Yes. Under our Corporate Governance Guidelines, our Board has committed that a substantial majority of our directors be independent. Our Board has adopted director independence standards to assist it in determining whether a director is independent. The full text of our director independence standards is set forth in the AutoNation, Inc. Corporate Governance Guidelines, which is available at http://corp.autonation.com/investors/.

 

In accordance with the NYSE listing standards, our Board affirmatively determines the independence of each director and nominee for election as a director in accordance with the NYSE listing standards and our independence standards. Based on these standards, the Board determined that each of the following non-employee directors is independent and has no material relationship with the Company, except as a director and stockholder of the Company: Rick L. Burdick, William C. Crowley, David B. Edelson, Kim C. Goodman, Robert R. Grusky and Carlos A. Migoya. The Board also determined that Robert J. Brown, who served for part of 2008, was independent and had no material relationship with the Company, except as a director and stockholder of the Company.

 

In making these determinations, our Board considered the relationships described under “Does the Board have a written policy with regard to related party transactions?” below. In addition, the Board considered the following relationships: (1) with respect to Mr. Burdick, our use of the law firm of Akin, Gump, Strauss, Hauer & Feld, L.L.P. for certain legal services (which use was discontinued as of January 1, 2008); (2) with respect to Mr. Brown, our banking relationship with Wachovia Corporation and its affiliates; (3) with respect to Mr. Crowley, ESL Investments, Inc.’s significant ownership stake in AutoNation, Inc.; (4) with respect to Mr. Edelson, our payment of certain insurance premiums to a subsidiary of CNA Financial Corporation, which is a 90%-owned subsidiary of Loews Corporation (“Loews”), and our use of a hotel owned by Loews Hotel Holdings Corporation, a wholly-owned subsidiary of Loews; (5) with respect to Ms. Goodman, our payment of credit card fees to American Express; (6) with respect to Mr. Grusky, his minority investment in ESL Partners, L.P.; and (7) with respect to Mr. Migoya, our banking relationship with Wachovia Corporation, Wells Fargo &

Co. and their affiliates. In each case, the relationships did not violate our independence standards or the NYSE listing standards, and the Board concluded that such relationships would not impact the independence of our non-employee directors.

 

Do our independent directors meet at regularly scheduled sessions without management present?

 

Yes. Our independent directors (each director other than Messrs. Jackson and Maroone) meet in regularly scheduled sessions without management of our Company present. The presiding director for each executive session is rotated among the chairs of our Board committees. In 2008, our independent directors held four executive sessions without management of our Company present.

 

Can our stockholders and interested parties communicate with our directors?

 

Yes. To communicate with our Board, any Board committee, any individual director, any group of directors (such as our independent directors), or our presiding director, our stockholders or interested parties should send written correspondence to AutoNation, Inc. Board of Directors, c/o Corporate Secretary, AutoNation, Inc., 110 S.E. 6th Street, 29th Floor, Fort Lauderdale, Florida 33301. You may also ask questions at the Annual Meeting of Stockholders.

 

How does the Corporate Governance and Nominating Committee identify and evaluate nominees for director?

 

Potential candidates may come to the attention of the Corporate Governance and Nominating Committee through recommendations made by current directors, stockholders, executive or director search firms retained by the Corporate Governance and Nominating Committee, or other persons. All of our nominees for director, whether or not recommended by a stockholder, will be selected on the basis of, among other things, broad experience, wisdom, integrity, ability to make independent analytical inquiries, understanding of our business environment, and willingness and ability to devote adequate time to our Board’s duties, all in the context of the needs of our Board at that point in time as assessed by our Corporate Governance and Nominating Committee and with the objective of ensuring diversity in the background, experience, and viewpoints of our Board members. Our Corporate Governance and Nominating Committee is responsible for assessing the appropriate balance of skills and characteristics required of our Board members.

 

Does the Corporate Governance and Nominating Committee have a policy with regard to the consideration of any director candidates recommended by our stockholders?

 

Yes. The Corporate Governance and Nominating Committee has a policy pursuant to which it considers director candidates recommended by our stockholders. As described above, all director candidates recommended by our stockholders are considered for selection to the Board on the same basis as if such candidates were recommended by one or more of our directors or other sources. To recommend a director candidate for consideration by our Corporate Governance and Nominating Committee, a stockholder must submit the recommendation in writing to our Corporate Secretary not later than one hundred twenty (120) calendar days prior to the anniversary date of our proxy statement distributed to our stockholders in connection with our most recent annual meeting of stockholders, and the recommendation must provide the following information: (i) the name of the stockholder making the recommendation; (ii) the

name of the candidate; (iii) the candidate’s resume or a listing of his or her qualifications to be a director; (iv) the proposed candidate’s written consent to being named as a nominee and to serving as one of our directors if elected; and (v) a description of all relationships, arrangements, or understandings, if any, between the proposed candidate and the recommending stockholder and between the proposed candidate and us so that the candidate’s independence may be assessed. The stockholder or the director candidate also must provide any additional information requested by our Corporate Governance and Nominating Committee to assist the Committee in appropriately evaluating the candidate.

 

Does AutoNation have a code of ethics?

 

Yes. In order to clearly set forth our commitment to conduct our operations in accordance with our high standards of business ethics and applicable laws and regulations, we have a Company-wide Business Ethics Program, which includes a Code of Business Ethics applicable to all of our employees. We also maintain a 24-hour Alert-Line for employees to report any Company policy violations under our Business Ethics Program. In addition, our Board has adopted the Code of Ethics for Senior Officers and the Code of Business Ethics for the Board of Directors. Copies of these codes are available at http://corp.autonation.com/investors/, and you may obtain a printed copy of these codes by sending a written request to: Investor Relations, AutoNation, Inc., 110 S.E. 6th Street, Fort Lauderdale, Florida 33301. These codes comply with NYSE listing standards.

 

Does the Board have a written policy with regard to related party transactions?

 

Yes. Our Board’s written policy requires that transactions with related parties must be entered into in good faith on fair and reasonable terms that are no less favorable to us than those that would be available in a comparable transaction in arm’s-length dealings with an unrelated third party. Based on our experience, we believe that each of the transactions described below complied with our Board’s policy at the time the transaction was effected. Our Board, by a vote of the disinterested directors, must approve all related party transactions valued over $500,000, while our Audit Committee must approve all related party transactions valued between $100,000 and $500,000 and review with management all other related party transactions. The following is a summary of related party transactions since January 1, 2008.

 

We enter into commercial transactions with Sears Holdings Corporation and its affiliates (collectively, “Sears”), which are related to ESL Investments, Inc., in the ordinary course of business. As of March 11, 2009, ESL Investments, Inc., together with its investment affiliates (collectively, “ESL”), beneficially owns approximately 45% of the outstanding shares of our common stock, and Mr. Crowley, one of our directors, is the President and Chief Operating Officer of ESL Investments, Inc. In 2008, we paid Sears approximately $375,000 primarily for automotive parts and accessories, and Sears paid us approximately $15,000 primarily for automotive parts, accessories and services. ESL owns approximately 53% of the outstanding common stock of Sears (based on publicly available data as of March 11, 2009), and Edward S. Lampert, the Chairman, Chief Executive Officer and controlling principal of ESL Investments, Inc., serves as the Chairman of the Board of Directors of Sears. Additionally, Mr. Crowley serves as a director, Executive Vice President and Chief Administrative Officer of Sears, and as the Chairman of the Board of Sears Canada Inc.

We also enter into commercial transactions with AutoZone, Inc. (“AutoZone”) in the ordinary course of business. ESL owns approximately 41% of the outstanding common stock of AutoZone (based on publicly available data as of March 11, 2009), and Messrs. Crowley and Grusky, two of our directors, serve as directors of AutoZone. In 2008, we paid AutoZone approximately $13,000 primarily for automotive parts and accessories, and AutoZone paid us approximately $560,000 primarily for automotive parts and accessories.

 

In January 2009, our Board authorized and approved letter agreements with certain automotive manufacturers in order to, among other things, eliminate any potential adverse consequences under our framework agreements with those manufacturers in the event that ESL acquires 50% or more of our common stock. The letter agreements with American Honda Motor Co., Inc. (“Honda”) and Toyota Motor Sales, U.S.A., Inc. (“Toyota”) also contain governance-related and other provisions as described below. Also a party to both the Honda and Toyota Agreements is ESL, our largest stockholder.

 

Under the terms of the Honda Agreement, Honda has agreed not to assert its right to purchase our Honda and Acura franchises and/or similar remedies under the manufacturer framework agreement between Honda and the Company in the event that ESL acquires 50% or more of our common stock. If ESL acquires more than 50% of our common stock, ESL has agreed to vote all shares in excess of 50% in the same proportion as all non-ESL-owned shares are voted. In addition, we have agreed to ensure that a majority of our Board is independent of both the Company and ESL under existing NYSE listing standards. Furthermore, the Honda Agreement provides that Honda’s consent does not apply to a “going private” transaction under Rule 13e-3 of the Exchange Act. The terms and conditions of the Honda Agreement will only apply at such time and for so long as ESL owns more than 50% of our common stock.

 

Under the terms of the Toyota Agreement, Toyota has agreed not to assert its right to purchase our Toyota and Lexus franchises and/or similar remedies under the manufacturer framework agreement between Toyota and the Company in the event that ESL acquires 50% or more of our common stock. If ESL acquires more than 50% of our common stock, ESL has agreed to vote all shares in excess of 50% in the same proportion as all non-ESL-owned shares are voted. Furthermore, we have agreed that a majority of our Board will be independent from both the Company and from ESL under existing NYSE listing standards. We have also agreed not to merge, consolidate, or combine with any entity owned or controlled by ESL unless Toyota consents thereto. In addition, the Toyota Agreement provides that in the event that we appoint a Chief Operating Officer who, in the good faith judgment of our Board, does not have sufficient breadth and depth of experience, a relevant, successful automotive track record, and extensive successful automotive experience, ESL shall be required to divest its shares in excess of 50% within nine months or its voting interest will be limited to 25%, and if ESL does not divest such shares within 18 months, it will lose all voting rights until it divests such shares. The terms and conditions of the Toyota Agreement will only apply at such time and for so long as ESL owns more than 50% of our common stock and will terminate on December 31, 2009 with respect to future stock acquisitions by ESL, provided that ESL may seek successive annual one-year extensions, and Toyota may not unreasonably withhold or delay its consent thereto.

 

In connection with the Toyota and Honda agreements described above, in January 2009, our Board authorized and approved a separate letter agreement between the Company and ESL in which ESL has agreed to vote shares of our common stock owned by ESL in excess of 45% in

the same proportion as all non-ESL-owned shares are voted. The ESL Agreement expires on January 28, 2010, unless extended by mutual agreement of the parties.

 

We have also entered into separate letter agreements with certain other manufacturers that eliminate any potential adverse consequences under our framework agreements with those manufacturers in the event that ESL acquires 50% or more of our common stock. ESL is not a party to any of those agreements.

 

Each of our non-employee directors receives the following annual fees for service on our Board:

 

 

Additionally, our AutoNation, Inc. 2007 Non-Employee Director Stock Option Plan (the “2007 Non-Employee Director Plan”) provides for an initial grant of stock options to purchase 50,000 shares of our stock immediately upon the appointment of a non-employee director to our Board. The 2007 Non-Employee Director Plan also provides for an annual grant of options to purchase 20,000 shares of our common stock at the beginning of each fiscal year to each non-employee director serving on the Board at such date. Unless otherwise provided, all options granted under the 2007 Non-Employee Director Plan are fully vested and immediately exercisable. Under the 2007 Non-Employee Director Plan, each grant of options to a non-employee director remains exercisable for a term of ten years from the grant date so long as the director remains a member of the Board. The options are exercisable at a price per share equal to the closing price per share of our stock on the NYSE on the date immediately prior to the grant date.

 

In accordance with the terms of the 2007 Non-Employee Director Plan, on January 2, 2008, Messrs. Brown (a former director), Burdick, Crowley, Grusky and Migoya and Ms. Goodman were each automatically granted an option to purchase 20,000 shares of our common stock at an exercise price equal to $15.66 per share, the closing price per share of Company common stock on December 31, 2007. In connection with his appointment to the Board, on July 30, 2008, Mr. Edelson was automatically granted an option to purchase 50,000 shares of our common stock at an exercise price per share of $10.43, the closing price per share of Company common stock on July 29, 2008. The table below sets forth compensation paid to our non-employee directors during fiscal 2008.

DIRECTOR COMPENSATION IN FISCAL 2008

 

 

 

DIRECTOR STOCK OWNERSHIP GUIDELINES

 

The Board believes that directors should be stockholders and have a financial stake in the Company. Toward this end, the Board expects that each director will invest at least $100,000 in the Company’s common stock within five years of first becoming a director (prior to February 12, 2009, our Guidelines provided that each director should “own shares of the Company’s common stock having a market value of at least $100,000” – in light of market volatility impacting our stock price, our Guidelines were amended to require each director to “invest at least $100,000” in our common stock). Exceptions to this requirement may only be made by the Board under compelling mitigating circumstances. The following table sets forth information regarding investments made by our directors in our common stock as of March 11, 2009.

 

 

 

 

The following table sets forth certain information as of March 11, 2009 with respect to the beneficial ownership of our common stock by (1) each person who is known by us to be a beneficial owner of more than 5% of our stock outstanding, (2) each of our directors, (3) each of our named executive officers, and (4) all of our current directors and executive officers as a group. Share amounts and percentages include shares of our stock that may be acquired by such individual, entity or group upon exercise of all options exercisable on March 11, 2009 or within sixty days thereafter. At March 11, 2009, we had 177,059,720 shares of our common stock outstanding.

 

 

Section 16(a) of the Securities Exchange Act of 1934, as amended, requires that our directors, executive officers and persons who beneficially own 10% or more of our stock file with the Securities and Exchange Commission initial reports of ownership and reports of changes in ownership of our stock and our other equity securities. To our knowledge, based solely on a review of the copies of such reports furnished to us and written representations that no other reports were required, during the year ended December 31, 2008, our directors, executive officers and greater than 10% beneficial owners complied with all such applicable filing requirements.

 

Overview

 

Our compensation programs are administered by the Compensation Committee (the “Committee”) and the Executive Compensation Subcommittee (the “Subcommittee”) of the Committee. The Committee primarily assists the Board in fulfilling its oversight responsibilities by, among other things: (i) reviewing our director compensation program; (ii) reviewing and approving the compensation of our chief executive officer (“CEO”) and other senior executive officers and, except as expressly delegated to the Subcommittee, setting annual and long-term performance goals for these individuals and reviewing the performance of these individuals; and (iii) reviewing and approving the compensation of all of our corporate officers.

 

The Subcommittee assists the Board and the Committee in fulfilling their responsibilities by performing the following duties: (i) reviewing and approving performance-based compensation of executive officers as contemplated under Section 162(m) of the Internal Revenue Code of 1986, as amended (the “Code”), including bonuses and stock-based awards; (ii) administering the AutoNation, Inc. Senior Executive Incentive Bonus Plan, including establishing performance goals and certifying whether such goals are attained as contemplated under Section 162(m) of the Code; and (iii) administering our equity compensation plans, including approving stock-based awards.

 

From January 1, 2008 until May 7, 2008, the Committee consisted of William C. Crowley (Chair), Robert J. Brown and Carlos A. Migoya, and the Subcommittee consisted of Mr. Migoya (Chair) and Mr. Brown. From May 7, 2008 until December 31, 2008, the Committee consisted of William C. Crowley (Chair), Rick L. Burdick, Kim C. Goodman and Carlos A. Migoya, and the Subcommittee consisted of Mr. Migoya (Chair) and Kim C. Goodman. Since January 1, 2009, the Committee has consisted of William C. Crowley (Chair), Rick L. Burdick and Carlos A. Migoya, and the Subcommittee has consisted of Mr. Migoya (Chair) and Rick L. Burdick.

 

For the fiscal year ended December 31, 2008, our “named executive officers” were: Mike Jackson, our Chairman and Chief Executive Officer; Michael E. Maroone, our President and Chief Operating Officer; Michael J. Short, our Executive Vice President and Chief Financial Officer; Jonathan P. Ferrando, our Executive Vice President, General Counsel and Secretary; and Kevin P. Westfall, our Senior Vice President, Sales.

 

Compensation Philosophy and Objectives

 

The Committee’s fundamental philosophy is to closely link executive compensation with the achievement of Company performance goals and to create an owner-oriented, pay-for-performance culture. The Committee’s objectives in administering our compensation program for executive officers are to ensure that we are able to attract and retain highly-skilled executives and to provide a compensation program that incentivizes management to optimize business performance, deploy capital productively and increase long-term stockholder value. The Committee also believes that overall compensation should be fair for the services rendered and that the compensation structure should be transparent, which is why the key components of executive compensation are limited to a base salary, an annual performance bonus based solely on the achievement of financial targets and stock-based awards.

Setting Compensation Levels of Executive Officers

 

The Committee reviews executive compensation at its meetings throughout the year and sets executive compensation based primarily on our financial and operating performance and on executive management’s performance in developing and executing the Company’s business strategy, managing the Company’s day-to-day business operations, optimizing the Company’s business performance and productivity of its business operations, and creating stockholder value. The Committee also considers the scope of an executive’s duties and responsibilities and individual executive performance. Our Chief Executive Officer reviews the performance of each named executive officer and makes recommendations to the Committee with respect to compensation adjustments for such officers. However, the Committee determines in its sole discretion whether to make any adjustments to the compensation paid to such executive officers.

 

As part of its review of executive compensation, the Committee reviews the executive compensation arrangements at peer group companies. Our peer group includes comparable specialty retail companies based on specific financial measures, including, but not limited to, revenue, total assets, market capitalization, and net income. For 2008, our peer group consisted of the following companies: AutoZone, Inc., Best Buy Co., Inc., Circuit City Stores, Inc., Foot Locker, Inc., The Gap, Inc., Kohl’s Corporation, Limited Brands, Inc., Macy’s, Inc., Office Depot, Inc., RadioShack Corporation, Ross Stores, Inc., Saks Incorporated, Staples, Inc., and The TJX Companies, Inc. The Committee’s practice has been to make changes to our peer group when in the Committee’s judgment comparison to a company is no longer appropriate. For 2007, our peer group consisted of the companies listed above as well as CVS Caremark Corporation (using fiscal 2006 data), which was removed for 2008 because the merger of CVS Corporation and Caremark Rx, Inc. made a comparison to CVS Caremark Corporation, given its size following the merger, no longer appropriate. The Committee reviews the executive compensation benchmark data at a high level in order to evaluate and confirm whether our executive compensation is within a reasonably competitive range. The Committee, however, does not set executive compensation at a set target percentile within the peer group. Instead, the Committee focuses on providing compensation that is fair for the services rendered and transparent, closely linking executive compensation with the achievement of Company performance goals, and creating an owner-oriented, pay-for-performance culture, where the interests of our executive officers are aligned with the long-term interests of our stockholders.

 

The Committee has no pre-established target for the allocation between either cash and non-cash or short-term and long-term incentive compensation. However, pursuant to the Committee’s pay-for-performance philosophy, a significant portion of each executive officer’s total compensation is allocated to incentive compensation in the form of an annual performance-based bonus and non-cash compensation in the form of stock-based awards, which are designed to incentivize management to build long-term stockholder value for the Company over time and to align executives’ and stockholders’ interests. The Committee reviews and considers total compensation in setting each element of compensation for our named executive officers.

 

2008 Executive Compensation Elements

 

The key elements of our executive compensation program for the year ended December 31, 2008 were:

 

•  base salary;

•  annual incentive bonus; and

 

•  stock-based awards.

 

Executive officers are also entitled to limited perquisites and other benefits as outlined below. The following is a summary of the considerations underlying each component of compensation paid to our named executive officers for 2008.

 

Base Salary

 

We provide our named executive officers and other officers with a base salary to compensate them for services rendered during the fiscal year. The Committee reviews and, as appropriate, adjusts the base salaries for our named executive officers. The factors that the Committee considers in setting salaries include the scope of job responsibilities, individual contributions to our success, Company-wide performance and market compensation. However, the Committee does not as a practice grant annual base salary adjustments for executive officers, and it did not grant any base salary adjustments during 2008 for any of the named executive officers, except for Mr. Short, who received a $36,000 increase in February 2008, and Mr. Westfall, who received a $14,040 increase to his base salary in February 2008.

 

Annual Incentive Bonus

 

A core component of our compensation program is the AutoNation Operating Performance Plan (the “AOP”), the annual bonus program in which bonus-eligible, corporate-level employees participate. The AOP is designed to incentivize management to continually improve our operating performance and to use capital to maximize returns. The Subcommittee structured the AOP for 2008 to reward participants upon the achievement of specified levels of adjusted operating income per basic share and adjusted operating income as a percentage of gross margin. Bonus awards under the AOP were payable on a sliding scale based on our actual achievement relative to the predetermined goals, with the possibility that bonuses earned could exceed or be less than the targeted payout level. The following table sets forth the 2008 bonus metrics under the AOP.

 

 

 

In calculating the level of our performance under the AOP, operating income per basic share is adjusted to reflect a capital charge for acquisitions and the repurchase of shares of our common stock, as well as to exclude the effect of certain extraordinary or other items. Certain other adjustments are made as well to ensure operating performance is measured to incentivize management appropriately (for example, floorplan interest expense is charged against operating income to ensure management manages this expense; on a generally accepted accounting principles basis, floorplan interest expense is not included in operating income). The capital charge is designed to encourage more productive uses

of capital and to discourage less productive uses of capital. The adjusted operating income as a percentage of gross margin metric is designed to incentivize management to increase variability in our expense structure and to increase the productivity of our operations so that bottom-line profitability and stockholder value are maximized.

 

Each year, the Subcommittee, in its sole discretion, determines which of our named executive officers or other key employees will participate in the AutoNation, Inc. Senior Executive Incentive Bonus Plan (the “Executive Incentive Plan”). The Executive Incentive Plan is designed to create a direct link between pay and performance for our named executive officers and to ensure that annual cash performance bonuses payable to executive officers of the Company are tax-deductible by the Company pursuant to Section 162(m) of the Code. Historically, the Subcommittee has selected only those officers who were likely to receive annual compensation in excess of $1 million. Our executive officers may participate in either the AOP or the Executive Incentive Plan, but not both. The Subcommittee is also responsible for identifying annual “performance factors” and establishing specific performance targets with respect thereto that must be met in order for annual bonuses to be paid under the Executive Incentive Plan. The Subcommittee retains absolute “negative discretion” to eliminate or reduce the amount of any award under the Executive Incentive Plan and to make all determinations under the Executive Incentive Plan.

 

In February 2008, the Subcommittee established an incentive bonus program for 2008 for certain of our named executive officers under the Executive Incentive Plan. For 2008, the Subcommittee selected Mike Jackson, Michael E. Maroone, Michael J. Short and Jonathan P. Ferrando to participate in the Executive Incentive Plan. Under the terms of the Executive Incentive Plan, the Subcommittee set specific annual performance goals and established an objective formula for calculating the amount of the target awards for participants. The 2008 bonus metrics that the Subcommittee established under the Executive Incentive Plan were the same as those that the Committee established for 2008 under the AOP for all other corporate bonus plan participants, including Mr. Westfall. The Subcommittee believes that symmetry between the AOP and the Executive Incentive Plan assures that all participants are appropriately aligned to achieve our objectives. One hundred percent of the target award for each participant in the Executive Incentive Plan was based upon achievement of the predetermined performance goals. Bonus awards under the Executive Incentive Plan were payable based on a sliding scale based on the Company’s actual achievement relative to the predetermined goals, with the possibility that bonuses earned may exceed or be less than the targeted payout level. The Subcommittee had absolute “negative discretion” to eliminate or reduce the amount of any award under the Executive Incentive Plan.

 

The following table sets forth the 2008 threshold and target awards reflected as a percentage of salary for each of the participants under the Executive Incentive Plan and for Mr. Westfall under the AOP.

 

 

For 2008, the performance goals were not met at the level necessary to achieve a bonus payout, and, as a result, the Subcommittee awarded no bonuses to Messrs. Jackson, Maroone, Short and Ferrando under the Executive Incentive Plan, and to other corporate bonus plan participants, including Mr. Westfall, under the AOP. The Executive Incentive Plan was the only bonus program in which our named executive officers participated in 2008, other than Mr. Westfall who participated in the AOP only. As part of our retention efforts with respect to Mr. Jackson, a portion of the 2008 target bonus for Mr. Jackson under the Executive Incentive Plan (equal to 331/3% of his base salary) would have been payable to him on a deferred basis in 2010 (without interest), subject to certain terms and conditions.

 

In February 2009, the Subcommittee selected the 2009 participants under the Executive Incentive Plan, established specific objective annual performance goals for 2009, and set target awards for the 2009 participants in the Executive Incentive Plan. For 2009, the Subcommittee selected Messrs. Jackson, Maroone, Short and Ferrando to participate in the Executive Incentive Plan. The performance goals that the Subcommittee established for 2009 under the Executive Incentive Plan are based upon the achievement of specified levels of adjusted operating income per basic share (minus a net charge for capital deployed for acquisitions or share repurchases and certain extraordinary or other items) and adjusted operating income as a percentage of gross margin for the Company during 2009. The performance goals established under the Executive Incentive Plan for 2009 also constitute the performance goals that have been established for bonus-eligible corporate employees of the Company under the AOP to ensure that the corporate management team is fully aligned. Bonus awards will be payable based on a sliding scale based on our actual achievement relative to the predetermined goals, with the possibility that bonuses earned may exceed or be less than the targeted level. The Subcommittee will have absolute “negative discretion” to eliminate or reduce the amount of any award under the Executive Incentive Plan.

 

The following table sets forth the 2009 threshold and target awards reflected as a percentage of salary for each of the participants under the Executive Incentive Plan and for Mr. Westfall under the AOP.

 

 

 

Stock-Based Awards

 

In order to align the long-term interests of management and our stockholders, the Subcommittee grants stock-based awards to our named executive officers. The Committee believes that stock-based awards motivate our named executive officers to focus on optimizing our long-term business performance and stockholder value and create an owner-oriented culture. For 2008, the Subcommittee administered our equity compensation plans and approved all stock-based awards under the AutoNation, Inc. 2008 Employee Equity and Incentive Plan (the “2008 Plan”), which was approved by our stockholders at the 2008 Annual Meeting of Stockholders.

 

Stock-based awards are approved on an annual basis in amounts determined by the Subcommittee, while carefully considering the cost to us and our stockholders, including common stock dilution. For 2008, the sum of all stock-based awards granted to AutoNation employees represented potential share issuances equal to approximately 0.78% of our outstanding shares of common stock (0.67% relating to stock options and 0.11% relating to restricted stock).

 

In 2008, the Subcommittee approved two types of stock-based awards: stock options and restricted stock. Except for Messrs. Jackson, Maroone, Short and Ferrando, who received stock options only, other employees eligible for stock-based awards received either a mix of stock options and restricted stock or restricted stock only. The restricted stock awards had the effect of lowering the total number of shares of common stock used for stock-based awards in 2008 as compared to 2007.

 

The 2008 stock option and restricted stock awards were made to all stock option-eligible and restricted stock-eligible employees at the same time. Additionally, the 2008 stock option awards were made to all stock option-eligible employees on the same terms (other than the number of options granted, which varies primarily by position and based on individual performance), and the 2008 restricted stock awards were made to all restricted stock-eligible employees on the same terms (other than the number of restricted shares granted, which varies primarily by position and based on individual performance).

 

Stock Options

 

Prior to 2009, the Subcommittee’s practice had been to approve annual stock option awards during our third fiscal quarter at meetings of the Subcommittee (or predecessor committees responsible for option grants at the time) with an effective grant date after the public release of the Company’s second-quarter earnings. Additionally, the terms of the annual stock option awards provided that stock options would vest in equal installments over four years commencing with the first anniversary of the grant date and expire ten years after the grant date.

 

Consistent with past practice, the 2008 stock option awards were approved by the Subcommittee at its regularly scheduled meeting on July 30, 2008 with an effective grant date of July 30, 2008 (which was after the public release of our second-quarter earnings). Also consistent with past practice, the 2008 stock option awards vest in equal installments over four years commencing with the first anniversary of the grant date and expire ten years after the grant date. The exercise price, as specified under the 2008 Plan, was $10.17 per share, which was the closing price of the Company’s common stock on the grant date.

 

For 2009, the Subcommittee modified its practice by approving the annual stock option awards to our named executive officers and other employees at is regularly scheduled meeting on February 11,

2009 and granting the awards in four equal increments over the year, subject to continuous employment through each grant date. One-fourth of each stock option award that was approved on February 11, 2009, was granted on March 2, 2009, and an additional one-fourth of each such stock option award will be granted on the first NYSE trading day of each of June, September, and December 2009. The options granted on March 2, 2009 have an exercise price equal to the closing price per share on the grant date ($9.92), and each subsequent option grant will have an exercise price equal to the closing price of our common stock on the applicable grant date in accordance with the 2008 Plan. The 2009 stock option awards vest in equal installments over four years commencing on June 1, 2010 and expire on March 2, 2019.

 

Since the Subcommittee approved the annual stock option awards in February, the exercise price for each of the four grants comprising an annual stock option award is based on the closing price of our common stock on a date subsequent to the approval of such award. The Subcommittee believes that this practice is fair and reasonable to the award recipients, the Company, and its stockholders since it minimizes the impact that any particular event could have on the exercise price of stock options, particularly during times of market volatility. The Subcommittee adopted this practice for all stock option-eligible employees of the Company and in 2009 awarded stock options to all stock option-eligible employees on the same terms (other than the number of options granted, which varies primarily by position and based on individual performance).

 

Restricted Stock

 

In 2008, the Subcommittee approved restricted stock awards to certain employees under the 2008 Plan at the same time that it approved the 2008 stock option awards discussed above (July 30, 2008). Except for Mr. Westfall, none of the named executive officers received restricted stock awards in 2008. The 2008 restricted stock awards vest in four equal annual installments commencing on the first anniversary of the grant date. All holders of restricted stock have the right to vote and receive dividends on the shares of restricted stock.

 

In February 2009, the Subcommittee approved restricted stock awards to certain employees, including Mr. Westfall but excluding all other named executive officers, at the same time that it approved the 2009 stock option awards discussed above (February 11, 2009). These shares of restricted stock were granted on March 2, 2009 and will vest in equal installments over four years commencing on June 1, 2010. The 2009 restricted stock awards were made to all restricted stock-eligible employees of the Company on the same terms (other than the number of restricted shares granted, which varies primarily by position and based on individual performance).

 

Perquisites and Other Benefits

 

Our compensation program for named executive officers also includes limited perquisites and other benefits, including participation in the Company’s life and health insurance and similar benefit programs (including our AutoNation 401(k) Plan and our AutoNation Deferred Compensation Plan) on the same general terms as other participants in these programs, participation in Company car programs entitling the executives to vehicle use or a vehicle allowance, use of an on-site fitness facility and, pursuant to their employment agreements, limited personal use of corporate aircraft for each of Messrs. Jackson and Maroone. The employment agreements with each of Messrs. Jackson and Maroone, respectively, provide for personal use of corporate aircraft of up to 70 hours per year.

Employment Agreements with Executive Officers

 

We have entered into an employment agreement with each of Mike Jackson and Michael E. Maroone and an Employment Letter with Michael J. Short. The Committee believes that entering into the employment agreements with Messrs. Jackson and Maroone and the employment letter with Mr. Short furthered our efforts to attract and retain such executives. For a summary of the material terms of Messrs. Jackson’s, Maroone’s and Short’s employment arrangements, please see “Executive Compensation — Employment Agreements” below.

 

Severance Policy and Agreements for Post-Termination Payments

 

We have a policy governing severance and change in control agreements with the Company’s named executive officers, which is set forth in our Corporate Governance Guidelines. Generally, the policy provides that we will not enter into any severance agreements with senior executives that provide specified benefits in an amount exceeding 299% of the sum of such executive’s base salary plus bonus unless such severance agreement has been submitted to a stockholder vote. Further, unless such severance agreement has been submitted to a stockholder vote, we will not enter into a severance agreement that provides for the payment of specified benefits to an executive triggered by (i) a change in control of our Company that is approved by stockholders but not completed, or (ii) a completed change in control of the Company in which the named executive officer remains employed in a substantially similar capacity by the successor entity.

 

We have entered into stock option agreements with all of our named executive officers, as well employment agreements with Mike Jackson and Mike Maroone that provide for payments or benefits to such persons at, following, or in connection with, termination under certain circumstances. In December 2006, we entered into an employment letter with Mike Short that provided for a severance payment in the event of a termination other than for “cause,” death or disability on or prior to January 15, 2009. We have not entered into any change in control agreements with any of our named executive officers. The payment or benefits provisions contained in the stock option agreements and the employment agreements are designed to promote stability and continuity of senior management. A description of the applicable payments under such agreements for the named executive officers is provided under “Executive Compensation — Potential Payments Upon Termination or Change in Control.”

 

Company Policy on Internal Revenue Code Section 162(m) Limits on Deductibility of Compensation

 

Section 162(m) of the Code generally disallows a tax deduction to public corporations for compensation over $1,000,000 paid for any fiscal year to the corporation’s CEO and four other most highly compensated executive officers as of the end of any fiscal year. However, the statute exempts qualifying performance-based compensation from the deduction limit if certain requirements are met.

 

The Committee administers the executive compensation program in general, and our Executive Incentive Plan in particular, in a manner that maximizes the tax deductibility of compensation paid to the Company’s executives under Section 162(m) of the Code to the extent practicable. The Committee believes, however, that our priority is to attract and retain highly-skilled executives to manage our Company and, in some cases, the loss of a tax deduction may be necessary to accomplish that goal. Accordingly, the Committee has from time to time approved elements of compensation for certain officers that are not fully deductible, and the Committee reserves the right to do so in the future in appropriate circumstances. For 2008, the compensation of our named executive officers was fully

deductible under Section 162(m), except with respect to an amount equal to $150,000 of our Chief Executive Officer’s base salary and certain portions of other elements of non-performance-based compensation for the Company’s Chief Executive Officer and President and Chief Operating Officer.

 

Executive Stock Ownership Guidelines

 

In order to further align the long-term interests of management and stockholders and to ensure an owner-oriented culture, the Committee believes that our senior executive officers should have a significant financial stake in our Company. Accordingly, in February 2006, the Board of Directors adopted a policy setting forth its expectation that the Chief Executive Officer and the President and Chief Operating Officer will attain ownership of our common stock with a fair market value of not less than four times his or her annual base compensation, and each Executive Vice President will attain ownership of AutoNation’s common stock with a fair market value of not less than two times his or her annual base compensation, in each case within five years of such person first becoming an executive officer or the adoption of this policy (February 7, 2006).

 

Exceptions to this requirement may only be made by the Board of Directors under compelling mitigating circumstances. The Committee believes these ownership guidelines are an important tool in aligning the interests of our senior executive officers with the long term interests of our stockholders. As of December 31, 2008, our senior executive officers had met their guidelines or were making progress toward their guidelines as set forth in the chart below:

 

 

 

Conclusion

 

The Committee believes that our compensation programs are designed and administered in a manner consistent with the Committee’s philosophy as described above. The Committee also believes that the programs appropriately reward executive performance and align the interests of the Company’s named executive officers and key employees with the long-term interests of stockholders, while also enabling the Company to attract and retain talented executives. The Committee will continue to evolve and administer our compensation program in a manner that the Committee believes will be in the best interests of our stockholders.

 

The following statement made by our Compensation Committee and Executive Compensation Subcommittee does not constitute soliciting material and should not be deemed filed or incorporated by reference into any filing under the Securities Act of 1933, as amended, or the Securities Exchange Act of 1934, as amended, except to the extent that we specifically incorporate such statement by reference.

 

The Compensation Committee and Executive Compensation Subcommittee of the Company have reviewed and discussed with management the Compensation Discussion and Analysis required by Item 402(b) of Regulation S-K and, based on such review and discussions, the Compensation Committee and Executive Compensation Subcommittee recommended to the Board that the Compensation Discussion and Analysis be included in this Proxy Statement and incorporated by reference into the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2008.

 

Compensation Committee:

 

William C. Crowley (Chair)
Rick L. Burdick
Carlos A. Migoya

 

Executive Compensation Subcommittee:

 

Carlos A. Migoya (Chair)
Rick L. Burdick

 

The following table shows compensation earned by our Chief Executive Officer, our Chief Financial Officer, and each of our three other most highly compensated executive officers at December 31, 2008.

 

 

 

 

The Executive Incentive Plan was approved by the Board in February 2007 and by our stockholders in May 2007. For 2008, the Executive Compensation Subcommittee selected Mike Jackson, Michael E. Maroone, Michael J. Short, and Jonathan P. Ferrando to participate in the Executive Incentive Plan. Under the terms of the Executive Incentive Plan, the Subcommittee set specific annual performance goals (while actual performance relative to the target remained substantially uncertain within the meaning of Section 162(m) of the Code) and established an objective formula for calculating the amount of the target awards for the participants. Bonus awards were payable based on a sliding scale based on our actual achievement relative to the predetermined goals, with the possibility that bonuses earned may exceed or be less than the targeted level. The Subcommittee had absolute “negative discretion” to eliminate or reduce the amount of any award under the Executive Incentive Plan. The target incentive award, as a percentage of base salary, assigned to our select named executive officers for 2008 were: Mike Jackson — 1331/3%; Michael E. Maroone — 100%; Michael J. Short — 75%; and Jonathan P. Ferrando — 75%.

 

The performance goals that the Subcommittee established for 2008 under the Executive Incentive Plan for the executives named above — adjusted operating income per basic share (75% weight) of $3.28 and adjusted operating income as a percentage of gross margin (25% weight) of 21.5% — were the same as those the Committee established for 2008 under the AOP for all other corporate bonus plan participants, including Mr. Westfall, who was eligible to receive a target award as a percentage of his base salary of 45%. One hundred percent of the target award for each participant in the Executive Incentive Plan was based upon achievement of the predetermined performance goals.

For 2008, the performance goals were not met at the level necessary to achieve a bonus payout, and, as a result, the Subcommittee awarded no bonuses to Messrs. Jackson, Maroone, Short, and Ferrando under the Executive Incentive Plan, or to other corporate bonus plan participants, including Mr. Westfall, under the AOP. The Executive Incentive Plan was the only bonus program in which our named executive officers participated in 2008, other than Mr. Westfall who participated in the AOP only. As part of our retention efforts with respect to Mr. Jackson, a portion of the target bonus for Mr. Jackson in 2008 under the Executive Incentive Plan (equal to 331/3% of his base salary) would have been payable to him on a deferred basis in 2010 (without interest), subject to certain terms and conditions.

 

The following table sets forth certain information with respect to grants of awards to the named executive officers of the Company under our non-equity incentive plans and equity compensation plans during 2008. The grants include the 2008 annual stock option awards, cash incentive plan awards, and a restricted stock award to Mr. Westfall. We have not granted other stock or long-term cash incentive awards to our named executive officers.

 

 

 

The following table sets forth certain information regarding equity-based awards held by our named executive officers as of December 31, 2008.

 

 

 

The following table sets forth certain information regarding stock option exercises and vesting of restricted stock during 2008.

 

 

 

The following table provides information as of December 31, 2008 regarding equity compensation plans approved and not approved by stockholders.

 

 

 

 

The AutoNation Deferred Compensation Plan (“DCP”) affords a select group of management and highly compensated employees the opportunity to defer up to 75% of base salary and 90% of annual bonus and/or commissions on a pre-tax basis. In 2008, we also provided a 50% matching contribution, with vesting, up to the first $8,000 deferred to the DCP for certain participants including our named executive officers. Participants eligible for a matching contribution under the DCP were not eligible for the matching contribution in the AutoNation 401(k) plan. Effective January 1, 2009, we suspended matching contributions for both the DCP and the AutoNation 401(k) plan in light of the current economic conditions. Earnings on deferrals are based on “deemed” investments in funds, selected for inclusion in the DCP by us, investing in equity instruments or debt securities. The DCP

provides daily processing of account transactions including participant deemed investment election changes. Additionally, the DCP provides for payment of vested deferrals and earnings upon separation from service, death, and disability as well as upon specified in-service payment dates selected by the participants. Participants may elect to receive payments upon specified in-service dates or upon separation from service in the form of lump sum payments or annual installments up to 10 years. Specified in-service date payments may be paid in a lump sum or in up to five annual installments. The DCP is intended to meet the requirements of Section 409A of the Code and other relevant provisions thereunder and related Treasury regulations.