UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

SCHEDULE 14A

Proxy Statement Pursuant to Section 14(a) of the Securities
Exchange Act of 1934 (Amendment No.  )

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Brown-Forman Corporation

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June 27, 2011

 

Dear Brown-Forman Stockholder:

 

It is our pleasure to invite you to attend Brown-Forman Corporation’s 2011 Annual Meeting of Stockholders, which will be held:

 

Thursday, July 28, 2011

9:30 A.M. (Eastern Daylight Time)

Brown-Forman Conference Center

850 Dixie Highway

Louisville, Kentucky 40210

 

We enclose herewith our Notice of Annual Meeting, Proxy Statement, and 2011 Annual Report to Stockholders.

 

Your vote is very important to us. Class A stockholders are urged to complete and return your proxy card as soon as possible, whether or not you plan to attend the Annual Meeting.

 

We hope to see you on July 28. On behalf of the Board of Directors, thank you for your continued support.

 

Very truly yours,

 

 

 

NOTICE OF ANNUAL MEETING OF
STOCKHOLDERS

 

Brown-Forman Corporation will hold the 2011 Annual Meeting for holders of our Class A common stock in the Conference Center at our corporate offices, 850 Dixie Highway, Louisville, Kentucky 40210, at 9:30 A.M. (Eastern Daylight Time), on Thursday, July 28, 2011.

 

We are holding this meeting for the following purposes, which are described more fully in the accompanying Proxy Statement:

 

 

Only Class A stockholders of record at the close of business on June 20, 2011, are entitled to vote at the meeting. Class A stockholders may vote either in person or by proxy. Holders of Class B common stock are welcome to attend the meeting but may not vote. We are not asking for proxy cards from Class B stockholders. We will not close the stock transfer books in advance of the meeting.

 

If you are a Class A stockholder, whether or not you plan to attend the meeting, PLEASE complete, sign, and date the enclosed proxy card and return it promptly in the enclosed envelope. Submitting a proxy will not affect your right to vote your shares differently if you attend the meeting in person.

 

Louisville, Kentucky

June 27, 2011

 

By Order of the Board of Directors

Matthew E. Hamel, Secretary

 

 

IMPORTANT NOTICE REGARDING AVAILABILITY OF PROXY MATERIALS
FOR THE ANNUAL MEETING OF STOCKHOLDERS TO BE HELD ON JULY 28, 2011:

 

The Notice of Annual Meeting, Proxy Statement, and 2011 Annual Report to Stockholders
are available at www.brown-forman.com/proxy

 

PROXY STATEMENT

 

TABLE OF CONTENTS

 

 

This section sets forth certain frequently asked questions and answers about the Proxy Statement and the Annual Meeting.

 

 

INTRODUCTION

 

This section describes the purpose of this Proxy Statement, who may vote, how to vote, the proposals to be voted upon, and the votes required for approval.

 

Purpose. The Board of Directors of Brown-Forman Corporation is sending you this Proxy Statement to solicit proxies for use at the 2011 Annual Meeting of Stockholders, which will be held Thursday, July 28, 2011, at 9:30 A.M. (Eastern Daylight Time) at Brown-Forman Corporation, 850 Dixie Highway, Louisville, Kentucky. We will begin mailing this Proxy Statement and accompanying materials on or about June 27, 2011, to holders of record of our Class A common stock at the close of business on June 20, 2011, the record date for the 2011 Annual Meeting.

 

Also beginning on June 27, 2011, our directors, officers, and other employees may solicit proxies by regular or electronic mail, phone, fax, the Internet or in person. Brown-Forman will pay all solicitation costs. Directors, officers and employees of the Company will receive no additional compensation for soliciting proxies. We will reimburse banks, brokers, nominees, and other fiduciaries for their reasonable charges and expenses incurred in forwarding our proxy materials to the beneficial owners of our stock held in street name. In addition, we have retained Proxy Express, Inc., to assist with the distribution of proxy materials for a fee of approximately $16,000, plus associated expenses.

 

We are providing access to our proxy materials both by sending you this full set of proxy materials and by notifying you of the availability of our proxy materials on the Internet. This Proxy Statement and our 2011 Annual Report to Stockholders are available at www.brown-forman.com/proxy. Please complete, sign, date, and return the enclosed proxy card at your earliest convenience.

 

Voting Stock. We have two classes of common stock, Class A and Class B. Only holders of Class A common stock may vote at the 2011 Annual Meeting. As of the close of business on the record date, June 20, 2011, we had outstanding 56,534,863 shares of Class A common stock.

 

Voting Rights. If you were a Class A stockholder on June 20, 2011, you may cast one vote for each share registered in your name. You may vote your shares either in person or by proxy. To vote by proxy, please complete, sign, date, and return the enclosed proxy card. Granting a proxy will not affect your right to vote shares registered in your name if you attend the meeting and want to vote in person. You may revoke a proxy at any time before it is voted by sending our Secretary written notice of your revocation at the following address: Matthew E. Hamel, 850 Dixie Highway, Louisville, Kentucky 40210; by issuing a new proxy; or by attending the meeting in person and casting your vote there. For any shares you hold in street name, you must submit voting instructions to the stockholder of record (typically your broker or bank) in accordance with the instructions they provide. To revoke your proxy, you must comply with the directions they provide. The proxy holders will vote all shares represented by effective proxies in accordance with the terms stated in the proxy. The proxy holders for this year’s Annual Meeting are Geo. Garvin Brown IV, Paul C. Varga, and Matthew E. Hamel.

 

Proposals.

 

Proposal 1: Election of Directors. There are eleven nominees for election to our Board of Directors at the upcoming Annual Meeting. Each of the nominees currently serves as a director and is standing for re-election. The name, age, years of Board service, biographical information, and specific skills and qualifications of each of the nominees are provided beginning on page 14 of this Proxy Statement.

 

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

 

Proposal 2: Advisory Vote on Executive Compensation. At the 2011 Annual Meeting, the Company will provide stockholders with the opportunity to cast a nonbinding advisory vote on the compensation of the Company’s Named Executive Officers as disclosed in this Proxy Statement. This vote is required

by the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010. The vote is not intended to address any specific element of compensation, but instead is intended to address the overall compensation of the Named Executive Officers as disclosed herein. As an advisory vote, this proposal is not binding on the Company. However, the Compensation Committee of the Board of Directors will consider the outcome of the vote when making upcoming compensation decisions. For detailed information on the compensation of the Company’s Named Executive Officers, please see the Executive Compensation section of this Proxy Statement, beginning on page 26. Set forth below is the nonbinding advisory resolution for which we are seeking approval:

 

“RESOLVED, that the stockholders approve, on a nonbinding advisory basis, the compensation of the Company’s Named Executive Officers, as disclosed in this Proxy Statement pursuant to Item 402 of Regulation S-K in the Compensation Discussion and Analysis, the compensation tables, and the related narrative, tabular and graphic disclosures.”

 

The Board of Directors unanimously recommends a vote “FOR” the approval of the nonbinding advisory resolution on executive compensation.

 

Proposal 3: Advisory Vote on the Frequency of Future Advisory Votes on Executive Compensation. At the 2011 Annual Meeting, the Company will provide stockholders with the opportunity to cast a nonbinding advisory vote on how frequently the Company should seek an advisory vote on executive compensation. This vote is also required by the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010. Stockholders will be asked to indicate whether they prefer the vote to occur every one, two, or three years. As an advisory vote, this proposal is not binding on the Company. However, the Compensation Committee and the Board will consider the outcome of the vote when considering the frequency of future advisory votes on executive compensation. For more information on this proposal and the Board’s recommendation on the frequency of future advisory votes on executive compensation, please see page 52 of this Proxy Statement.

 

The Board of Directors unanimously recommends a vote for “THREE YEARS” as the frequency of future advisory votes on executive compensation.

 

Quorum; Votes Required for Approval. A majority of the outstanding shares of our Class A common stock must be present in person or represented by proxy to constitute a quorum to conduct business at the Annual Meeting. Abstentions and broker non-votes are counted as present for purposes of determining whether a quorum exists. In the election of directors (Proposal 1), a nominee will be elected if he or she receives a majority of the votes cast. A “majority of the votes cast” means that the number of shares voted “for” a director must exceed the number of shares voted “against” that director (with abstentions and broker non-votes not counted as votes cast). For the nonbinding advisory vote on executive compensation (Proposal 2), approval requires an affirmative vote of the majority of the shares represented at the meeting and entitled to vote on the matter (with abstentions counted as a vote against the proposal and broker non-votes not counted as votes cast). For the nonbinding advisory vote on the frequency of future advisory votes on executive compensation (Proposal 3), the frequency receiving the greatest number of votes (every one, two or three years) will be considered to be the recommendation of the stockholders (with abstentions and broker non-votes not counted as votes cast). For any other matter properly presented and brought to a vote at the meeting, approval requires the affirmative vote of a majority of the votes cast (with abstentions and broker non-votes not counted as votes cast).

 

If you sign and return your proxy card without specifying how you want your shares to be voted, our proxy holders will vote your shares: “FOR” the election of each of the nominees to the Board; “FOR” the nonbinding advisory resolution on executive compensation; and for “THREE YEARS” with respect to the frequency of future advisory votes on executive compensation.

 

This section describes our corporate governance practices in light of the corporate governance rules and regulations of the Securities and Exchange Commission and the New York Stock Exchange.

 

As a publicly traded, family-controlled company, Brown-Forman enjoys a rare governance opportunity, whereby members of our controlling stockholder group participate directly on our Board of Directors. We believe this governance structure confers a distinct competitive advantage upon the Company, due largely to the long-term ownership perspective of the Brown family. This advantage is sustained by a careful balancing of the roles of our three primary stakeholders: our Board of Directors, Company management, and our stockholders – including in particular, the Brown family.

 

 

Our Board has determined that Brown-Forman is a “controlled company” within the meaning of the New York Stock Exchange (“NYSE”) rules. A controlled company is one in which more than 50% of the voting power for the election of directors is held by an individual, a group or another company. The Brown family control group owns substantially more than 50% of our Class A voting stock, the overwhelming majority of which historically has voted in favor of the directors proposed by the Board.

 

Controlled companies are exempt from NYSE listing standards that require a board composed of a majority of independent directors, a fully independent nominating/corporate governance committee, and a fully independent compensation committee. We avail ourselves of the exemptions from having a board composed of a majority of independent directors and a fully independent nominating/corporate governance committee. Notwithstanding the available exemption, our Compensation Committee is composed exclusively of independent directors.

 

 

To Brown-Forman, one of the primary benefits of being a controlled company under the NYSE rules is the exemption from the requirement of having a Board composed of a majority of independent directors. This enables greater participation on our Board of Directors by members of the Brown family.

 

Our Board of Directors is the policy-making body that is ultimately responsible for the business success and ethical climate of the Company. The Board oversees the performance of our senior management team, which is responsible for leading and operating the Company’s business. The Board’s primary responsibilities include retention, evaluation and succession planning for the Company’s Chief Executive Officer and its Chairman of the Board, as well as oversight of the Company’s corporate strategy, financial condition, executive compensation policies and practices, and enterprise risk management. The Board of Directors may retain such independent advisors as it deems necessary or appropriate to the performance of its duties. The Board conducts an annual self-assessment to determine whether it and its committees are functioning effectively.

 

Corporate Governance Guidelines. The Board has adopted Corporate Governance Guidelines that provide a framework for the conduct of the Board in the exercise of its duties. These guidelines set forth director qualification standards and responsibilities, meeting and attendance requirements, committee composition requirements and responsibilities, policies related to director compensation, director access to management and independent advisors, and an annual self-evaluation requirement

for the Board, among other things. The Corporate Governance Guidelines are published on our website at www.brown-forman.com/company/governance.

 

Director Service. The Board of Directors is authorized to fix the number of directors to serve on the Board from time to time, within a range of three to seventeen members. Directors are elected each year at the Annual Meeting by a majority vote of our Class A stockholders. Once elected, a director holds office until the next Annual Meeting of Stockholders or until his or her successor is elected and qualified, unless he or she first resigns, retires, or is removed. Directors are not subject to term limits.

 

A director may not stand for re-election to the Board after he or she has reached the age of 71. In exceptional circumstances, and upon recommendation of the Corporate Governance and Nominating Committee, the Board may request a director to remain on the Board until a given date, if it finds that such service would be of significant benefit to the Company. Board member service beyond the age of 71 must be approved by the affirmative vote of two-thirds of the directors, excluding the participation and vote of the director concerned. The Board has determined that Richard P. Mayer’s continued service as director would be of significant value and benefit to Brown-Forman. Thus, the Board has requested that Mr. Mr. Mayer stand for election at the 2011 Annual Meeting for an additional term, and Mr. Mayer has agreed to do so.

 

Director William M. Street is scheduled to retire from Board service at the expiration of his current term and thus will not stand for re-election at the 2011 Annual Meeting. Mr. Street served a remarkable 40 years as a member of the Company’s Board of Directors. Brown-Forman is honored and gratified to have benefitted from Mr. Street’s effort, experience, and counsel throughout his 48-year affiliation with the Company. We are deeply appreciative of the invaluable contributions he has made to the Company, our Board, and our stockholders.

 

Effective September 23, 2010, the Board of Directors elected Bruce L. Byrnes to the Board.

 

Independent Directors. Under NYSE rules, a director qualifies as “independent” if the board of directors affirmatively determines that the director has no material relationship with the listed company. While the focus of the inquiry is independence from management, the board is required to consider broadly all relevant facts and circumstances in making an independence determination. Material relationships can include commercial, industrial, banking, consulting, legal, accounting, charitable and familial relationships. Our Board recognizes the value of having independent directors on the Board and has determined that five of our eleven director nominees have no material relationship with the Company and are therefore independent under NYSE standards. These are Directors Patrick Bousquet-Chavanne, Bruce L. Byrnes, John D. Cook, Richard P. Mayer, and William E. Mitchell.

 

In addition, the Board determined that William M. Street, who continues to serve as a member of the Board until his scheduled retirement on July 28, 2011, is independent under NYSE standards. In making its determination of independence with regard to Mr. Street, the Board considered Mr. Street’s prior employment with the Company and his substantial Class A stock holdings. The Board believes that these relationships do not interfere with Mr. Street’s ability to exercise independent judgment in the performance of his duties as director.

 

The Board determined that Geo. Garvin Brown IV, Paul C. Varga, and James S. Welch, Jr. are not independent because they are members of Company management. The Board determined that Dace Brown Stubbs is not independent because she has an immediate family member who is employed by the Company. The Board elected not to make a determination with respect to the independence of Martin S. Brown, Jr., and Sandra A. Frazier.

Brown Family Directors. The Company believes that it is strategically important for Brown family members to be actively engaged in the oversight of the Company, including by serving on the Board of Directors. Through participation on the Board, the Brown family’s long-term perspective is brought to bear, in some measure, upon each and every Board consideration. Brown family directors serve as an effective link between the Board and the controlling family stockholders. Board service also provides the Brown family with an active means by which to oversee their collective investment. Current Brown family member directors are: Geo. Garvin Brown IV, Martin S. Brown, Jr., Sandra A. Frazier, and Dace Brown Stubbs.

 

Management Directors. The Company also believes it is essential, from a corporate governance standpoint, that Company management be represented on the Board of Directors. Current Board members who are also members of Company management are: Geo. Garvin Brown IV, Paul C. Varga, and James S. Welch, Jr.

 

Board Meetings. The Board of Directors held six regular meetings during fiscal 2011. Absent an appropriate reason, attendance is expected for the full meeting by all directors at the Company’s Annual Meeting of Stockholders, at all Board meetings, and at all meetings of each committee of which a director is a member. All directors then serving were present at the 2010 Annual Meeting of Stockholders.

 

Executive Sessions. NYSE rules require non-management directors to meet at regularly scheduled executive sessions without management present. Our non-management directors held two executive sessions in fiscal 2011. Richard P. Mayer, Co-Chair of the Corporate Governance and Nominating Committee, served as presiding director for one of these meetings and John D. Cook, also Co-Chair of the Corporate Governance and Nominating Committee, served as presiding director for the other. NYSE rules additionally require companies whose group of non-management directors includes directors who are not “independent” under NYSE listing standards to hold an executive session of just the independent directors at least once per year. Our independent directors held two such meetings in fiscal 2011. Mr. Mayer served as presiding director for one of these meetings and Mr. Cook served as presiding director for the other.

 

Board Committees. Our Board has the following four standing committees: Audit Committee, Compensation Committee, Corporate Governance and Nominating Committee, and Executive Committee. Each Board committee operates pursuant to a written charter. Copies of the charters are posted on our corporate website at www.brown-forman.com/company/governance. Each Board committee conducts an annual self-evaluation (except the Executive Committee, which is evaluated by the full Board periodically) and may hire independent advisors, as it deems necessary or appropriate. The Board believes that transparency is a hallmark of good corporate governance. All directors are invited to attend meetings of committees on which they do not sit, which ensures the transparency of committee decision-making.

The following chart sets forth our current Board committee membership.

 

Board Committee Membership

 

 

 

 

Audit Committee. The Audit Committee assists the Board in its oversight of the integrity of the Company’s financial statements, audit process, system of internal controls, assessment of enterprise risk management, the Company’s compliance with legal and regulatory requirements, the independent auditor’s qualifications, independence, and performance, and the performance of the Company’s internal audit function. The committee’s responsibilities include, among other things, the preparation of the Audit Committee Report that appears in this Proxy Statement on page 23.

 

Bruce L. Byrnes, William E. Mitchell (Co-Chair) and William M. Street (Co-Chair) currently serve on the Audit Committee of our Board of Directors. John D. Cook served on the committee during fiscal 2011 until Mr. Byrne’s election to the Board on September 23, 2010. The Audit Committee held eight meetings during fiscal 2011.

 

In addition to the NYSE requirement that each audit committee member satisfy the NYSE director independence standards, audit committee members must comply with the independence standards mandated by Section 301 of the Sarbanes-Oxley Act and set forth in Rule 10A-3 of the Securities Exchange Act of 1934, as amended. Each member of our Audit Committee satisfies these standards. The Board has determined that each member of our Audit Committee is “financially literate” within the meaning of the NYSE rules, and that Messrs. Mitchell and Street qualify as “audit committee financial experts” under SEC regulations.

 

Compensation Committee. The Compensation Committee assists the Board in fulfilling the Board’s duties relating to the compensation of our directors, executive officers, and employees. The committee’s responsibilities include, among other things, determining the compensation of the Chief Executive Officer; reviewing and approving the compensation of the Chairman of the Board; approving incentive compensation plan design and changes thereto for the Chief Executive Officer and other senior executive officers; assisting the Board in its oversight of risk related to the Company’s compensation policies and practices applicable to all employees; overseeing the preparation of the Compensation Discussion and Analysis that appears in this Proxy Statement beginning on page 28; preparing the Compensation Committee Report that appears in this Proxy Statement on page 38; and leading the evaluations of the performance of the Chief Executive Officer and the Chairman of the Board.

The committee has retained Frederic W. Cook & Co. as its independent compensation consultant. For additional information on the services provided by and the fees paid to the Cook firm, as well as the Committee’s processes and procedures for the consideration and determination of executive and director compensation, please see the Compensation Discussion and Analysis section of this Proxy Statement, which begins on page 28.

 

Patrick Bousquet-Chavanne (Co-Chair), Richard P. Mayer (Co-Chair), and John D. Cook serve on the Compensation Committee. Each of the committee members qualifies as an independent director under NYSE listing standards, a “non-employee director” under SEC rules, and an “outside director” under regulations adopted pursuant to Section 162 of the Internal Revenue Code. The committee held six meetings during fiscal 2011.

 

Corporate Governance and Nominating Committee. The Corporate Governance and Nominating Committee’s primary responsibilities are: to assist the Board in identifying, recruiting, and recommending to stockholders appropriate candidates to serve as directors; to review periodically the Company’s corporate governance principles in light of developments in corporate governance law and best practices, taking into account the Company’s controlled-company status under the NYSE rules; to coordinate and oversee Chief Executive Officer succession planning on behalf of the Board; and to assist the Board with its annual self-evaluation. The Corporate Governance and Nominating Committee held eight meetings during fiscal 2011. Richard P. Mayer (Co-Chair), John D. Cook (Co-Chair), Patrick Bousquet-Chavanne, and Geo. Garvin Brown IV serve on the Corporate Governance and Nominating Committee. All of the Corporate Governance and Nominating Committee members are independent under NYSE listing standards, except Geo. Garvin Brown IV.

 

In evaluating candidates for Board membership, the Corporate Governance and Nominating Committee seeks directors who will represent the best long-term interests of all stockholders. As articulated in our Corporate Governance Guidelines, the Board’s view is that all Brown-Forman directors should possess the highest personal and professional ethics, integrity, and values. The Board also believes that it is highly desirable for the directors to possess the following qualities: good judgment, candor, independence, civility, business courage, experience with businesses and other organizations of comparable character and of comparable or larger size, and a lack of possible conflicts of interest.

 

The Corporate Governance and Nominating Committee and the Board consider diversity in evaluating candidates for Board membership, though neither has adopted a formal policy to that effect. The Board’s goal is to maintain a well-balanced membership that combines a variety of experience, backgrounds, skills, and perspectives to enable the Board, as a whole, to effectively guide the Company in the pursuit of its strategic objectives. The committee considers an individual’s independence; business, professional or public service experience; industry knowledge, experience and relationships; financial expertise; international experience; leadership skills; age, gender, race and other personal characteristics; time availability; and familial relation to our controlling family stockholders.

 

The Corporate Governance and Nominating Committee has engaged independent search firms to assist in identifying potential Board candidates from time to time. The Board has not adopted a formal policy regarding stockholder-nominated director candidates because the committee believes that the processes used to date have been appropriate and effective for identifying and selecting Board members.

 

Executive Committee. Pursuant to the by-laws of the Company, the Board by resolution designates the members of the Board Executive Committee, which consists of the Chief Executive Officer, the Chairman of the Board (if separate from the Chief Executive Officer), and one or more other directors as determined by the Board from time to time. The Board can change

the committee’s membership, fill vacancies in it, and dissolve the committee at any time. The Executive Committee may exercise all of the powers of the Board of Directors on such matters as are delegated to it by the Board, as well as during intervals between meetings of the Board of Directors. Geo. Garvin Brown IV, Paul C. Varga, and James S. Welch, Jr., served as members of the Executive Committee during fiscal 2011. The Executive Committee held three meetings during fiscal 2011.

 

Board Leadership Structure. Our Board does not have a policy regarding the separation of the roles of Chairman of the Board and Chief Executive Officer, as the Board believes that the determination of whether to separate or combine the roles depends largely upon the identity of the Chief Executive Officer and the membership of the Board, from time to time. Currently, these roles are separate, although in years past, they have been combined. Our Board is led by Geo. Garvin Brown IV, who serves as Chairman of the Board. In his role as Chairman of the Board, Mr. Brown is responsible for chairing Board meetings, chairing our Annual Meeting of Stockholders, serving on the Executive Committee of the Board, and, importantly, serving as the primary liaison between the Board and our controlling family stockholders. Mr. Brown also serves as a member of the Corporate Governance and Nominating Committee of the Board. In addition to his role as Chairman of the Board, Mr. Brown is a member of the Company’s senior management (Executive Vice President), providing executive leadership and planning on strategic and operational matters related to the Board and the Brown family. Paul C. Varga serves as Chairman and Chief Executive Officer of the Company. As Chairman and Chief Executive Officer, Mr. Varga is the Company’s highest ranking executive officer, and has ultimate responsibility for the Company’s operations and performance. Mr. Varga serves as a member of our Board of Directors and is a member of the Executive Committee of the Board.

 

Our Board has determined that this leadership structure – having a Brown family member serve as Chairman of the Board, having our Chief Executive Officer serve as a member of the Board, and having a Board composed of independent, Brown family and management directors – is appropriate, given our status as a family controlled company and other relevant circumstances. The Board believes that this structure serves the best interests of the Company and its stockholders because it promotes the Brown family’s active oversight, engagement, and participation in the Company and its business, and it publicly confirms the fact that Brown-Forman is controlled by the Brown family. In addition, this structure ensures the Board’s accessibility to our Chief Executive Officer’s comprehensive knowledge of the Company’s business and industry, yet relieves our Chief Executive Officer of the added responsibilities attendant to the position of Chairman of the Board, allowing him to focus more on the Company’s business strategy and day-to-day operations than on Board governance matters. Further, we believe that the direct participation on the Board by members of the Brown family supports the Board’s management oversight function, due to the long-term ownership perspective of our controlling stockholders.

 

Board’s Role in Risk Oversight. Our Corporate Governance Guidelines require that the Board ensure that appropriate processes are in place for the management of enterprise risk, and our Board considers risk oversight to be an integral part of its role in the Company’s strategic planning process. At its meetings, the Board regularly and actively considers how strategic decisions affect the Company’s risk profile. While the Board has the ultimate oversight responsibility for the risk management process, the Audit, Compensation, and Corporate Governance and Nominating Committees of the Board play an important role in assisting the Board with its oversight responsibilities.

 

Specifically, the Board has assigned to the Audit Committee the responsibility to assist it in overseeing the Company’s most significant risks – financial and otherwise – and in periodically reviewing whether management is appropriately monitoring and managing those risks. The Audit Committee holds regular discussions with the Company’s Chief Executive Officer, Chief Financial Officer, principal accounting officer, General Counsel, and Director of Internal Audit on the Company’s enterprise risk management program (“ERMP”). The Board has assigned to the

Compensation Committee the responsibility to assist it in overseeing risk related to the Company’s compensation policies and practices, and the Board has assigned to the Corporate Governance and Nominating Committee the responsibility to assist it in overseeing risk related to corporate governance, board composition, and succession planning for the Chief Executive Officer and the Chairman of the Board. These committees meet regularly with members of management and outside advisors, as necessary, and provide to the Board regular reports on their risk oversight and mitigation activities. In addition, certain management committees – the Disclosure Controls Committee and the Risk Committee – play an integral role in making sure that risk-related information surfaces to the Board as directly and quickly as possible. The Board believes that its leadership structure is conducive to its risk oversight function.

 

Communication with our Board. Brown-Forman stockholders and other interested parties may communicate with Brown-Forman’s directors, including the non-management directors or the independent directors as a group, by sending written communications to our Secretary, Matthew E. Hamel, at 850 Dixie Highway, Louisville, Kentucky 40210, or by e-mail at Secretary@b-f.com. Written communications will be provided to the individual director or group of directors to whom they are addressed, and copies of such communications will be provided to all other directors.

 

 

Brown-Forman has long believed that good corporate governance is essential to the Company’s long-term success. We continually evaluate our corporate governance practices in the context of our controlled company status to address the changing regulatory environment and adopt those “best practices” that we believe are best for Brown-Forman.

 

Code of Conduct and Compliance Guidelines. The Company has adopted the Brown-Forman Code of Conduct and Compliance Guidelines (the “Code of Conduct”), which set forth standards of ethical behavior applicable to all Company employees and directors. The Code of Conduct contains a Code of Ethics for Senior Financial Officers, which details the Company’s expectation that all financial, accounting, reporting, and auditing activities of the Company be conducted in strict compliance with all applicable rules and regulations, and in accordance with the highest ethical standards. The Code of Conduct, including the Code of Ethics for Senior Financial Officers, can be found on our website at www.brown-forman.com/company/governance.

 

Disclosure Controls Committee. The Company has a Disclosure Controls Committee, which is composed of members of management. The committee has established controls and procedures designed to ensure that information that may be required to be disclosed publicly is gathered and communicated to the committee and, if required, reported in a timely and accurate manner. The committee is also responsible for developing and implementing procedures to assist the Company in complying with SEC Regulation FD (Fair Disclosure). The committee has implemented a financial review process that enables our Chief Executive Officer and Chief Financial Officer to certify our quarterly and annual financial reports with confidence.

 

Risk Committee. The Company formed the Risk Committee in 2008 and charged it with leading the Company’s ERMP. The objective of the program is to protect the long-term viability of the Company’s business through the identification and management of both the upside and downside potential of risk. Core attributes of the program include risk management policies, specific corporate governance structures, and ongoing processes for identifying, assessing, and prioritizing risk. In support of the program’s objectives, the committee – which is composed of members of management – is responsible for identifying critical risks facing the Company and assessing the adequacy of measures in place to manage those risks; for communicating the role of all employees in the ERMP; and for integrating the discussion of risk into decision making processes.

 

Unlike most public companies, Brown-Forman has an engaged family stockholder base with a long-term ownership perspective. We view our status as a publicly traded, family-controlled company as a distinct source of competitive advantage, and we believe that a strong relationship with the Brown family is essential to our growth, independence, and long-term value creation for all stockholders. We therefore actively cultivate our relationship with the Brown family.

 

Brown-Forman/Brown Family Shareholders Committee. The Brown-Forman/Brown Family Shareholders Committee encourages and provides a forum for open, constructive and frequent dialogue between the Company and its controlling family stockholders. Designed for broad family participation, and including several non-family Company executives, the committee has developed policies and formed working groups to study areas of particular interest to the Brown family, such as family governance, philanthropy, and family members’ education and employment at the Company. The committee conducts its interactions with the Company in a manner consistent with all applicable securities and disclosure rules and regulations.

 

Director of Family Shareholder Relations. In 2009, the Company created the position of Director of Family Shareholder Relations. The Director of Family Shareholder Relations works with Company employees and Brown family members to develop and implement policies and practices designed to further strengthen the relationship between the Company and the Brown family.

 

Brown Family Member Employees. There are ten Brown family members employed at varying levels within the Company. Some Brown family employees participate on certain Company management committees that oversee various strategic and operational matters. Participation on these committees enables our Brown family employees to contribute their perspectives to important issues facing the Company, as well as provides valuable professional development opportunities.

 

This section provides biographical information about our director nominees.

 

Election of Directors at the Annual Meeting. There are eleven director nominees on this year’s slate. The proxy holders will vote all shares for which they receive a proxy “FOR” the election of all director nominees below, except in respect of proxy cards directing them to vote against, or to abstain from voting for, certain or all of the nominees. If any nominee becomes unable to serve before the meeting, the persons named as proxy holders may vote the shares for which they hold proxies for a substitute nominee. As of the date of this Proxy Statement, the Board is not aware of any nominee who is unwilling or unable to serve as director.

 

Nominees. Set forth below is certain biographical information about our director nominees, including a description of the specific experience, qualifications, attributes and skills that led to the conclusion that the person should serve as a member of our Board, in light of our business and status as a family controlled company. Each of our director nominees currently serves as a director of Brown-Forman.

 

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

 

 

 

Family Relationships. No family relationship – first cousin or closer – exists between any two directors, executive officers, or persons nominated or chosen by the Company to become a director or executive officer, except Director Geo. Garvin Brown IV is the nephew of Director Dace Brown Stubbs.

 

This section identifies the beneficial owners of more than 5% of our voting stock, as well as the stock ownership of our directors and executive officers.

 

The table below identifies each beneficial owner of more than 5% of our Class A common stock, our only class of voting stock, as of April 30, 2011. The SEC defines “beneficial ownership” to include shares over which a person has sole or shared voting or investment power. Each of the beneficial owners listed in the table below is either a Brown family member, an entity or trust controlled by Brown family members, or an individual serving as an advisor to a Brown family trust at the request of Brown family members.

 

The Brown family holds Class A shares in a variety of family trusts and entities, with multiple family members often sharing voting control and investment power as members of advisory committees to the trusts or as owners or officers of the entities. As a result, many of the shares shown in the table below are counted more than once, as they are deemed to be beneficially owned by more than one of the persons identified in the table. Counting each share only once, the aggregate number of shares of Class A common stock beneficially owned by the persons in this table is 38,101,003 shares, or 67.4% of the 56,553,385 Class A shares outstanding as of the close of business on April 30, 2011.

 

The table below confirms that the Brown family continues its long-standing voting control of Brown-Forman Corporation.

 

Beneficial Ownership of Class A Common Stock as of April 30, 2011

 

 

 

 

The following table sets forth as of April 30, 2011, the beneficial ownership of our Class A and Class B common stock of each current director, each director nominee, each executive officer named in the Summary Compensation Table for Fiscal 2011 found on page 41, and of all directors and executive officers as a group. Some shares shown below are beneficially owned by more than one person. As of the close of business on April 30, 2011, there were 56,553,385 shares of Class A common stock and 88,399,499 shares of Class B common stock outstanding. In calculating the aggregate number of shares and percentages owned by all directors and executive officers as a group, which includes shares owned by persons not named in this table, we counted each share only once.

 

Stock Beneficially Owned by Directors and Executive Officers as of April 30, 2011

 

 

 

 

 

 

 

 

Section 16(a) of the Securities Exchange Act of 1934, as amended, requires our executive officers, directors, and “beneficial owners” of 10% or more of our Class A common stock to file stock ownership reports and reports of changes in ownership with the SEC. Based on a review of those reports and written representations from the reporting persons, we believe that during fiscal 2011, these persons reported all transactions on a timely basis, except J. McCauley Brown did not timely report a family member’s acquisition of 143 shares of Class A common stock, and William M. Street corrected an omission from prior filings of a family member’s holding of 750 shares of Class B common stock.

 

This section is a report of the Audit Committee of the Board of Directors. It explains the role of the Audit Committee and sets forth the fees paid to our independent registered public accounting firm.

 

 

The Board has delegated to the Audit Committee responsibility to assist it in overseeing the Company’s most significant risks – financial and otherwise – and in periodically reviewing how management monitors and manages those enterprise risks. During fiscal 2011, the Audit Committee met with management, including the CEO, CFO, principal accounting officer, the Director of Internal Audit and members of the management Risk Committee, to review management’s risk register and confirm that key risks to the Company have been identified and that appropriate mitigation activities are taking place. In addition, during fiscal 2011, enterprise risk management was made an agenda item for all Audit Committee meetings held in connection with regularly scheduled Board meetings. The Committee reported to the Board the results and findings all of its enterprise risk oversight activities this past fiscal year.

 

The Audit Committee is responsible for the oversight of the integrity of the Company’s financial statements on behalf of the Board. Management is responsible for establishing and maintaining the Company’s internal controls, for preparing the financial statements, and for the public reporting process. The independent registered public accounting firm is responsible for performing an audit of the Company’s financial statements in accordance with the standards of the Public Company Accounting Oversight Board and for issuing a report on its audit. The independent registered public accounting firm also reports on the effectiveness of the Company’s internal control over financial reporting. The Audit Committee reviews the work of management in respect of these matters and has direct responsibility for retention of the independent registered public accounting firm on behalf of the Board of Directors.

 

On behalf of the Board, the Audit Committee retained PricewaterhouseCoopers LLP (“PwC”) as the independent registered public accounting firm to audit the Company’s consolidated financial statements and the Company’s internal control over financial reporting for fiscal 2011. The Audit Committee reviewed and discussed with management and the independent registered public accounting firm the audited financial statements as of and for the fiscal year ended April 30, 2011. In addition, the Audit Committee reviewed and discussed with management management’s assessment of the effectiveness of the Company’s internal control over financial reporting and, with PwC, its evaluation of the Company’s system of internal controls. These discussions included meetings with PwC without representatives of management present.

 

The Audit Committee discussed with PwC matters required to be discussed by Statement on Auditing Standards No. 61, as amended (AICPA, Professional Standards, Vol. 1, AU section 380), as adopted by the Public Company Accounting Oversight Board in Rule 3200T. PwC provided the Audit Committee with the written disclosures and the letter required by applicable requirements of the Public Company Accounting Oversight Board for independent auditor communications with audit committees concerning independence, and the committee discussed with PwC the firm’s independence and ability to conduct the audit. The Audit Committee has determined that PwC’s provision of audit and non-audit services to the Company is compatible with maintaining auditor independence.

 

Based on the foregoing, the Audit Committee recommended to the Board of Directors that the Company’s audited financial statements be included in the Company’s Annual Report on Form 10-K for the fiscal year ended April 30, 2011.

 

Audit Committee

William E. Mitchell, Co-Chair

William M. Street, Co-Chair

Bruce L. Byrnes

 

The following table presents the fees the Company incurred for the professional services provided by PwC for fiscal years 2010 and 2011.

 

		Fiscal Years
		2010				2011
Audit Fees		$	1,295,592			$	1,325,330
Audit-Related Fees			130,000				140,650
Tax Fees			60,000				198,182
All Other Fees			0				0
Total		$	1,485,592			$	1,664,162

 

Audit Fees. This category consists of the audit of the Company’s annual financial statements included in the Company’s Annual Report on Form 10-K, attestation services relating to the report on internal controls in accordance with Section 404 of the Sarbanes-Oxley Act of 2002, review of interim financial statements included in the Company’s Form 10-Q quarterly reports, services normally provided in connection with statutory and regulatory filings or engagements, and statutory audits required by foreign jurisdictions.

 

Audit-Related Fees. This category consists principally of audits of employee benefit plans. All such fees were pre-approved by the Audit Committee in accordance with the policy described below.

 

Tax Fees. This category consists principally of international tax planning services. All such fees were pre-approved by the Audit Committee in accordance with the policy described below.

 

It is the policy of the Audit Committee to pre-approve all audit services and permitted non-audit services (including an estimate of the fees or a range of fees) to be performed for the Company by its registered public accounting firm, subject to the de minimis exception for non-audit services described in Section 10A(i)(1)(B) of the Exchange Act. The Audit Committee pre-approved the fiscal 2011 audit and non-audit services provided by PwC. The non-audit services (tax fees) approved by the Audit Committee were also reviewed to ensure compatibility with maintaining the registered public accounting firm’s independence. The Audit Committee has delegated to its Co-Chairs the authority to pre-approve proposed audit and non-audit services that arise between meetings, with the understanding that the decision to approve the service will be reviewed at the next scheduled Audit Committee meeting. During the approval process, the Audit Committee considers the potential impact of the type of service on the independence of the registered public accounting firm. Services and fees must be deemed compatible with the maintenance of the registered public accounting firm’s independence, including compliance with SEC rules and regulations. The Audit Committee is prohibited from delegating to management the Audit Committee’s responsibility to pre-approve permitted services of our independent registered public accounting firm. Throughout the year, the Audit Committee reviews any revisions to the estimates of fees initially approved.

 

The Audit Committee has adopted other policies in an effort to ensure the independence of our independent registered public accounting firm. The Audit Committee must pre-approve PwC’s rendering of personal financial and tax advice to any of the Company’s designated executive

officers. In addition, the Audit Committee has a policy that limits the Company’s ability to hire certain current and former employees of our independent registered public accounting firm.

 

The Audit Committee has appointed PwC to serve as the Company’s independent registered public accounting firm for the fiscal year ending April 30, 2012. Through its predecessor Coopers & Lybrand L.L.P., PwC has served as the Company’s auditor continuously since 1933. A PwC representative will attend the Annual Meeting, will be given the opportunity to make a statement should he or she so desire, and will be available to respond to appropriate questions. We know of no direct or material indirect financial interest that PwC has in the Company or any of our subsidiaries, or of any connection with the Company or any of our subsidiaries by PwC in the capacity of promoter, underwriter, voting trustee, director, officer, or employee.

 

This section explains our compensation philosophy and how we compensate our Named Executive Officers. You should read this section before casting your vote on Proposals 2 and 3.

 

Overview of Compensation Discussion and Analysis.

 

Nonbinding Advisory Votes on Executive Compensation and Frequency of Future Votes on Executive Compensation. At the 2011 Annual Meeting, Class A stockholders will have the opportunity:

 

 

These votes are required by the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010. As advisory votes, these proposals are not binding on the Company. However, the Compensation Committee of the Board of Directors will consider the outcome of the votes when making future decisions as to the compensation of the Company’s Named Executive Officers and how frequently the Company should seek an advisory vote on executive compensation. Please read this section carefully when considering how to cast your votes on Proposals 2 and 3.

 

Objective of the Company’s Executive Compensation Program. The objective of our executive compensation program is to attract, motivate, reward, and retain a diverse team of talented executives to produce sustainable, superior, long-term value for our stockholders.

 

Governance. The Compensation Committee of our Board of Directors (the “Committee”) is composed of three independent directors. The Committee, with the assistance of its independent compensation consultant, Frederic W. Cook & Co., establishes compensation for our Chief Executive Officer, Chief Financial Officer, and the three other most highly compensated executive officers (our “Named Executive Officers” or “NEOs”).

 

Competitive Compensation. To ensure our ability to attract and retain executive talent, we review and compare our compensation practices to those of a group of high-performing brand-building and consumer products companies with financial characteristics similar to Brown-Forman’s. During each of our fiscal years 2009 through 2011, we observed that while our total compensation opportunities are market competitive, the total value of compensation paid to our NEOs as a percentage of our operating income and net income was below the median when compared to that same metric among the companies we use for market compensation analysis. We believe this evidences the strong financial performance of our business in relation to the compensation paid to achieve that performance. We also believe this to be an indicator of the conservative nature of our executive compensation program.

 

Compensation Offered. Our NEOs receive a base salary, short-term (one-year) and long-term (three-year) cash incentive compensation, long-term equity incentive compensation (including stock-settled stock appreciation rights and performance-based restricted stock), benefits and limited perquisites that are generally available to all senior executives, and limited post-employment compensation and benefits.

 

Pay-for-Performance. We believe in “pay-for-performance” and link both short-term and long-term incentive compensation to the achievement of performance objectives that are aligned with our corporate strategy. Our long-term business strategy is to be the best brand builder in the wine and spirits industry. We believe that the most significant operational measure of our success is strong and sustained growth in depletion-based operating income, which is the amount of operating profit the

Company earns on the number of nine-liter equivalent cases depleted during a fiscal year. “Depletions” are shipments from the Company direct to retail, or from distributors to wholesale or retail customers, and are commonly regarded in our industry as an approximate measure of consumer demand. The chart below describes the performance metrics applicable to compensation granted (as opposed to paid) in fiscal 2011:

 

 

Fiscal 2011 Company Performance. Brown-Forman reported net sales growth of 6% and operating income growth of 20% for our 2011 fiscal year. Underlying depletion-based operating income increased 6%, which was above the weighted average for Brown-Forman’s beverage alcohol industry competitive set. Total shareholder return for the three-year period ending in fiscal 2011 was above the average of the S&P 500 and above the average of our industry competitive set.

 

Depletion-Based Operating Income. Short- and long-term cash incentives paid (as opposed to granted) in fiscal 2011 were based on the Company’s underlying depletion-based operating income growth relative to a target established by the Committee at the beginning of the relevant performance period. The Committee’s primary consideration when establishing the target is the Company’s performance expectations on this metric relative to its industry competitors, as it is the Company’s intent to consistently and sustainably outperform its industry peers.

 

The Company’s fiscal 2011 growth in depletion-based operating income was above the average of the industry competitive set. As a result, short-term cash incentives were paid out at 120% (expressed as a percentage of target). Long-term cash incentives paid in fiscal 2011 (for the three-year performance period that ended at the conclusion of fiscal 2011) were based on the average of the fiscal 2009, 2010 and 2011 short-term cash payout levels (75%, 180% and 120% of target, respectively). The chart below illustrates the three-year history of our depletion-based operating income performance and the associated incentive payouts as a percentage of target. Appropriately, the short- and long-term cash incentive compensation paid to our NEOs has fluctuated in alignment with performance outcomes.

 

 

 

Equity Compensation. We use equity-based incentive compensation as a means of aligning the economic interests of our executives with those of our stockholders. We offer our NEOs performance-based restricted Class A common stock and Class B common stock-settled stock appreciation rights (SSARs). The market prices of our Class A and Class B common stock increased during fiscal 2011, which positively affected the value of our executives’ accumulated equity-based

incentives. As reflected in the chart below, our Class A common stock closing price increased from $60.03 on April 30, 2010, to $70.07 on April 29, 2011 (the last trading day of our fiscal year), and our Class B common stock closing price increased from $58.18 on April 30, 2010, to $71.86 on April 29, 2011.

 

Compensation-Related Risk. During fiscal 2011, we conducted a comprehensive assessment and evaluation of potential compensation-related risk. Based upon the results, the Company and the Committee concluded that our compensation policies and practices present no material risk to the Company. For additional detail on our fiscal 2011 compensation risk assessment, please see page 39.

 

We believe our executive compensation program effectively supports the Company’s operational goals, strategic priorities and objective to deliver superior, sustainable, long-term value to our stockholders.

 

Compensation Committee. The Compensation Committee of our Board of Directors assists the Board in fulfilling the Board’s duties relating to the compensation of our directors, officers, and employees. The Committee is composed of three directors, each of whom qualifies as an independent director under NYSE listing standards, a “non-employee director” under SEC rules, and an “outside director” under regulations adopted pursuant to Section 162 of the Internal Revenue Code. The Committee has the sole authority, on behalf of the Board of Directors, to determine the compensation of our CEO. The Committee, with input from the CEO, determines the compensation of our other NEOs. The Management Compensation and Benefits Committee and our Human Resources Department support the Committee in the performance of its responsibilities.

 

Independent Compensation Consultant. The Compensation Committee has engaged Frederic W. Cook & Co. as its independent compensation consultant. The Cook firm reports directly to the Compensation Committee and attends Committee meetings as requested. Under the terms of its engagement, the Cook firm is responsible for providing to the Committee market data on pay practices and trends, advice and recommendations regarding the compensation of the CEO and other NEOs, and a review of our Compensation Discussion and Analysis. The Cook firm also provides independent advice to the Board on director remuneration and is responsible for compiling, on a confidential basis, the responses from directors to its annual questionnaire on Board effectiveness, as well as working with Company management as the Compensation Committee’s agent on all matters that fall within the Compensation Committee’s purview. The Cook firm provides no other service to the Company or its management. The Company paid the Cook firm $139,135 for services rendered during fiscal 2011.

 

Compensation Philosophy. The overarching objective of our compensation program is to enable Brown-Forman to attract, motivate, reward, and retain a diverse team of talented executives who will lead the Company to produce sustainable, superior, long-term value for our stockholders. In support of this objective, our compensation program has the following primary goals:

 

 

Alignment with Corporate Vision. Our corporate vision is to be the best brand builder in the wine and spirits industry. To achieve our vision, we are focusing on five strategic priorities as we move toward Brown-Forman’s 150th anniversary in 2020:

 

 

 

In support of our corporate vision, we include in our incentive compensation programs absolute and relative measures of operational performance and returns to stockholders. With regard to operational performance, we measure “underlying depletion-based operating income”, which is the amount of operating profit the Company earns on the number of nine-liter equivalent cases depleted during a fiscal year, excluding the impact of foreign exchange rate fluctuations. The payouts under our short-term cash incentive plan and our long-term performance-based restricted stock plan are tied to the Company’s depletion-based operating income results. The payouts under our long-term equity and long-term cash compensation plans are tied to long-term stock price growth and total shareholder return, respectively. Through these features, we have aligned our executive compensation plans with our corporate vision and compensate our executives on the performance metrics that give us a comprehensive view of our performance against our strategic priorities.

 

Compensation Offered. We offer the following compensation and benefits to our NEOs:

 

 

Compensation Not Offered. We purposefully avoid certain pay practices that we believe do not support the objectives of our executive compensation program. As a result, we do not offer our NEOs employment agreements, cash payouts that are not linked to performance, excessive perquisites, tax gross-ups, or severance and/or change in control provisions not generally offered to other senior executives.

 

No Significant Changes to Executive Compensation Program in Fiscal 2011. The Committee made no significant changes to the Company’s executive compensation program during fiscal 2011, as the Committee believed the program to be compatible with the Company’s growing and varied business and economic environments, well-aligned with the Company’s indicative performance measures, and appropriately correlated with respect to the level of incentive opportunity and the modest risk orientation considered optimal for the Company’s continued success.

 

Use of Market Data to Determine Competitiveness of Compensation. We believe that to recruit and retain high-performing executives, our compensation program must be competitive with the compensation opportunities provided by companies with which we compete for executive talent. Therefore, it is the Committee’s annual practice to compare the value of Brown-Forman’s NEO compensation to compensation data of a comparator group of companies. This analysis is intended to provide a range of market-competitive levels of target compensation as one factor for the Committee to consider in determining the base salaries and target incentive compensation opportunity for the NEOs. The Committee’s independent advisor prepares the market analysis by comparing the target value of each element of compensation for Brown-Forman’s NEOs to those of the comparator group. Several market data-points are examined, including data adjusted on the basis

of reported revenue. The independent advisor uses publicly available sources of compensation data in its analysis of the comparator companies. The Committee used the following group of comparator companies for market compensation comparisons during fiscal 2011; it is the same group of comparator companies the Committee used in fiscal 2010.

 

 

During its fiscal 2011 assessment of market competitiveness, the Compensation Committee observed that while the NEOs’ total compensation opportunities are market competitive, the total value of target compensation for certain of Brown-Forman’s NEOs, particularly with regard to incentive compensation, was below what the Committee determined to be a competitive range of the statistical data reviewed for the comparator group. Specifically, the total value of target compensation paid to our NEOs as a percentage of our operating income and net income was below the median when compared to that same metric among the companies we use for market compensation analysis. While we believe this is a strong indicator of the conservative nature of our executive compensation program, the Committee determined, as a result of these findings, to make certain changes to the NEOs’ compensation, which changes are described in “Fiscal 2011 Total Direct Compensation for Our NEOs” on page 36.

 

Principal Elements of Compensation.

 

Base Salary. Each year the Committee determines the salary for the CEO, and reviews and approves the salaries of the other NEOs and executive officers. We pay our NEOs a salary as a means of recognizing their significant responsibilities and compensating them for their daily efforts. It has been our practice to offer our NEOs an attractive salary that is within a competitive range informed by the market data using the methodology described above. Annually, the Committee determines any increase or decrease to the NEOs’ salaries based on a review of competitive salaries externally and the results of individual performance assessments. Salary increases generally take effect on August 1 of each fiscal year. We believe that this compensation practice has furthered our objective of attracting and retaining a diverse team of talented executives.

 

We offer a holiday bonus, which we consider part of salary. It is paid in cash near the end of each calendar year and is calculated as follows:

 

 

The salaries, including holiday bonus, earned by our NEOs during fiscal 2011 are set forth under the heading “Salary” in the Summary Compensation Table found on page 40.

 

Incentive Compensation. We provide our executives with both short-term (annual) and long-term performance-based incentive compensation opportunities.

 

2004 Omnibus Compensation Plan. Our stockholders have approved the Brown-Forman 2004 Omnibus Compensation Plan (the “Plan”), an incentive compensation plan designed to reward participants for individual and Company performance results. Officers, employees, and non-employee directors of the Company, its subsidiaries and affiliates are eligible to receive awards under the Plan. The Plan permits awards in the form of cash, stock options, stock appreciation rights, stock, restricted stock, market value units, and performance units. All short-term and long-

term incentive compensation paid by the Company is administered pursuant to the terms and conditions of the Plan.

 

Short-Term Incentive Compensation. We provide our NEOs with a short-term (annual) cash incentive compensation opportunity. Short-term incentive compensation is performance-based, and payout is dependent on the achievement of certain goals related to Company and individual performance during the fiscal year. Within 90 days following the start of each fiscal year, the Committee determines the short-term performance goals and target cash opportunity for each NEO. These target amounts are listed in the Grants of Plan-Based Awards Table as “STC” on page 42.

 

To ensure deductibility of short-term incentives as performance-based compensation under Internal Revenue Code Section 162(m), the Committee established an annual incentive bonus pool, which for fiscal 2011, was equal to 2% of operating income if the Company achieved operating income of at least $300 million during the fiscal year, adjusted for extraordinary items. The Committee allocated the annual incentive bonus pool 40% to the CEO, and a maximum of 10% to each of the remaining NEOs, and reserved the right to adjust downward (but not upward) any award produced by this formula. For fiscal 2011, the Committee exercised downward discretion in determining the short-term incentive compensation payable to each NEO, and in all cases, amounts paid were less than the maximum amounts deemed earned under the bonus pool approach.

 

Upon achievement of our operating income goal and funding of our bonus pool, the Committee used the following method to determine the final short-term cash incentives awarded to the NEOs. For short-term incentive awards granted to NEOs in fiscal 2011, 80% is subject to adjustment based on corporate performance measures, while the remaining 20% is subject to adjustment based on individual performance measures. Each component is subject to a performance factor of 0% to 200%. Once performance multipliers are applied to each component (corporate performance and individual performance), the two components are added together to determine the total short-term incentive payment. Therefore, the total value of short-term incentives may vary between 0% and 200% of target.

 

We believe that the practice of basing the majority of short-term incentive awards for NEOs on the performance of the Company as a whole is appropriate and reflects the collective accountability of our senior-most executives for the performance of the enterprise. We also believe that basing a lesser but meaningful portion of the short-term incentive on individual performance allows the Committee to retain flexibility to differentiate awards among NEOs based on their individual contributions during the year. We believe that this level of available differential pay aligns with our pay-for-performance strategy while preventing our NEOs from being encouraged to take unnecessary risk.

 

A NEO forfeits his or her short-term incentive compensation if he or she voluntarily terminates employment or is discharged for cause during the fiscal year. For executives who leave the Company voluntarily at or after age 55 with at least five years of service (considered to be retirees), short-term incentive compensation is pro-rated based on length of service during the performance period, and is paid at the same time and in the same manner as to active employee participants.

 

Company Performance (80% of Award). For fiscal 2011, the corporate performance goal for the NEOs and other Plan participants was based on the Company’s underlying depletion-based operating income growth. The Committee’s primary consideration when establishing the target is the Company’s performance expectations on this metric relative to its industry competitors, as it is the Company’s intent to consistently and sustainably outperform its industry peers. The Committee also considered the Company’s historical depletion-based operating income trends and the Company’s outlook for fiscal 2011 performance. The fiscal 2011 short-term performance goals were determined

by the Committee, with input from the Management Compensation and Benefits Committee, and were as follows:

 

Fiscal 2011 Short-Term Incentive Compensation Performance Goals

 

 

 

After adjusting for depletions, foreign exchange, and other one-time items, the Committee determined that for purposes of the Plan, the Company achieved underlying depletion-based operating income of $758 million for fiscal 2011. This resulted in a Company performance multiplier of 120%.

 

Individual Performance (20% of Award). For the 2011 fiscal year, individual performance objectives for the NEOs consisted of qualitative and quantitative goals established to support the achievement of the Company’s strategic priorities. Payout levels for the individual portion of the short-term incentive are based on the following guidelines for aligning performance and compensation.

 

 

Chief Executive Officer. Individual performance objectives for our Chief Executive Officer were established by the Compensation Committee and included goals pertaining to the performance of the Company in relation to our annual plan, the strategic positioning of the Company, the ongoing development of our leadership team, and effective communications with our Board of Directors.

 

Other NEOs. Individual performance objectives for the remaining NEOs were based on recommendations from the CEO and were approved by the Committee.

 

 

 

Please see the “Non-Equity Incentive Plan Compensation” column of the Summary Compensation Table for Fiscal 2011 found on page 40 for the amounts paid to NEOs in short-term incentive compensation for fiscal 2011.

 

Long-Term Incentive Compensation. We provide our NEOs with a long-term incentive compensation opportunity as part of their total compensation package. Long-term incentives are intended to focus our executives on the Company’s long-range strategic goals, including sustainable growth and performance of our brands and superior returns to our stockholders. Long-term incentives also serve as a retention mechanism and equity-building opportunity for our executives.

 

To ensure deductibility of long-term incentives as performance-based compensation under Internal Revenue Code Section 162(m), the Committee established a bonus pool, which for the three-year performance period fiscal 2011 through fiscal 2013 was equal to 2% of operating income if the Company achieved $900 million of cumulative operating income, adjusted for extraordinary items. The Committee allocated the bonus pool 40% to the CEO, and a maximum of 10% to each of the remaining NEOs, and reserved the right to adjust downward (but not upward) any long-term incentive award produced by this formula.

 

The long-term incentive compensation opportunity for the NEOs is generally determined in accordance with the following process: The total long-term incentive for each NEO is initially determined as a cash value (target). Twenty-five percent (25%) of the target value is allocated to each of: long-term cash, stock-settled stock appreciation rights (“SSARs”), and performance-based restricted stock. The Committee has discretion with regard to the allocation of the remaining 25% of the award, which it exercises by considering each NEO’s preference, total equity holdings, and career stage. To provide flexibility in retirement planning, executives who are over 62 or who will attain age 62 during the fiscal year, are not required to have an equity component to their long-term incentive compensation award and instead may receive 100% of their award in the form of performance-based cash. None of our NEOs attained age 62 during our 2011 fiscal year.

 

Performance-Based Cash Opportunity. Long-term cash incentives are granted during the first 90 days of each fiscal year and provide the NEOs with an opportunity to earn a cash-based incentive award for achievement of long-term performance results. Long-term cash incentives granted in fiscal 2011 have a three-year performance period and will be paid shortly following the completion of fiscal 2013. The target amounts of these awards are set forth in the chart below as well as in the Grants of Plan-Based Awards Table as “LTC” on page 42.

 

In fiscal 2010, we changed the performance metric applicable to our long-term cash incentive plan from one focused on depletion-based operating income growth to a measure of cumulative shareholder return relative to a peer group of brand-building and consumer products companies. The purpose of this change was to provide our NEOs with greater exposure to, and accountability for, the performance of Brown-Forman Class B common stock relative to companies with whom we compete for business and investment. In addition, this change diversified the performance goals used under our incentive plans and reduced our reliance upon depletion-based operating income as a measure of Company performance.

 

For long-term cash incentives granted in fiscal 2011, the Committee will determine the payout under the award based on a comparison of the three-year cumulative total shareholder return of Brown-Forman’s Class B common stock with that of the consumer products and retail companies that

constitute the S&P Consumer Staples Index at the end of the three-year performance period. The Committee established a payout scale that correlates Brown-Forman’s percentile rank against the comparator group on three-year cumulative total shareholder return to a specific payout level ranging from 0% to 200% of the participant’s target cash award, with target performance and payout set at the 55th percentile rank versus the group. The threshold level of performance (the point at which no incentive is paid) is set at the 30th percentile rank versus the group. The maximum performance level (the point at which 200% of the target award is paid) is set at the 80th percentile rank versus the group. This payout scale was designed so that payouts at the target and maximum amounts would be earned only when our performance exceeds that of the comparator group, in alignment with our pay-for-performance strategy. Stock prices used for comparison will be the average closing stock prices over the sixty trading days immediately preceding the start of the performance period and the final sixty trading days of the performance period, in order to mitigate potential stock price volatility.

 

The following companies comprised the S&P Consumer Staples Index as of April 30, 2011:

 

 

For long-term cash incentives paid in fiscal 2011 (for the three-year performance period that ended at the conclusion of fiscal 2011), the payout for the NEOs was based on the average of the fiscal 2009, 2010 and 2011 payout levels (expressed as a percentage of target) for the Company’s short-term incentive compensation program (75%, 180% and 120% of target, respectively). Therefore, each NEO received a long-term cash incentive payment equal to 125% of the target award granted in fiscal 2009.

 

An executive typically forfeits long-term cash incentives if he or she voluntarily terminates employment prior to retirement eligibility or is discharged for cause. Long-term cash incentive compensation is pro-rated and paid to NEOs who voluntarily leave the Company at or after age 55 with at least five years of service (considered to be retirees) at the same time and in the same manner as to active employee participants.

 

Please see the “Non-Equity Incentive Plan Compensation” column of the Summary Compensation Table for Fiscal 2011 on page 44 and the Grants of Plan-Based Awards Table for Fiscal 2011 on page 42 for more information on the cash portion of the long-term incentive compensation we pay to our NEOs.

 

Performance-Based Restricted Stock. We award our NEOs and certain other executives with shares of Class A common stock through our performance-based restricted stock plan. Performance-based restricted stock awards are subject to a three-year performance period followed by a one-year restriction period. The performance metric applied to the awards is a comparison of the compound annual growth rate in the Company’s depletion-based operating income (on a reported basis) over a three-year period, to that of the nominal gross domestic product reported by the International Monetary Fund (“IMF”) of a set of countries identified by the Committee (and which are aligned with our current and anticipated business markets). For performance-based restricted stock awards granted in fiscal 2011, the set of countries against which our performance will be measured is a custom-weighted comparator group (“the index”) consisting of the IMF Advanced Economies Index (weighted at 85%) and the IMF Emerging and Developing Economies Index (weighted at 15%). The measurement of growth in reported depletion-based operating income relative to economic growth in

certain national economies is intended to isolate the aspect of Brown-Forman’s performance that is attributable to our efforts and not a result of economic changes in the countries where we do business.

 

The Committee determined that if Company performance exceeds the index by 3.5% on a compound annual basis over the three-year performance period, a payout of 100% of target will be earned. A payout of 50% of target will be earned when our performance is less than or equal to that of the index. The maximum level of performance (150% of target payout) will be earned when our performance exceeds the index by 7% on a compound annual basis over the three-year performance period. This range of payouts (50% to 150%) was chosen to support our goals of pay-for-performance and increased NEO equity ownership on the one hand, while discouraging unnecessary risk-taking behavior on the other.

 

At the end of the three-year performance period, the Committee will determine the level of performance achieved and the resulting payout factor, which will be applied to each NEO’s target award value. The resulting value will be adjusted upward to account for dividends paid during the second and third years of the performance period. The number of restricted shares to be issued will be calculated using the closing price of Class A common shares on the date of grant (at the beginning of the three year performance period). The Committee chose this calculation method to ensure that our NEOs remain exposed to changes in stock price and dividends issued during the performance period, consistent with the goals of our long-term incentive plan.

 

Prior to fiscal 2010, performance-based restricted stock awards were issued subject to a one-year performance period followed by a three-year vesting period. The performance measure for these awards was an absolute growth objective for depletion-based operating income and was identical to the performance metric applicable to our short-term incentive plan. For more information on restricted stock awarded that vested during fiscal 2011, please see the Fiscal 2011 Option Exercises and Stock Vested Table set forth on page 45. For more information on the restricted stock awarded for fiscal 2011, please see the Summary Compensation Table and Grants of Plan-Based Awards Table set forth on pages 40 and 42, respectively.

 

Stock-Settled Stock Appreciation Rights. Stock-settled stock appreciation rights (“SSARs”) allow our NEOs to receive the value of the appreciation of our Class B common stock experienced between the grant date and the exercise date. SSARs are granted annually on the date of the Company’s Annual Meeting of Stockholders, which is typically held in late July. The number of Class B common SSARs awarded to our NEOs for fiscal 2011 was determined by dividing the cash value of the long-term incentive compensation opportunity designated for SSARs by the Black-Scholes value of a SSAR as of the close of trading on the date of grant, July 22, 2010, or $12.85. SSARs become exercisable on the first day of the third fiscal year following the grant date, and are exercisable for seven fiscal years thereafter (i.e., SSARs granted July 22, 2010, are exercisable May 1, 2013, and expire on April 30, 2020). For more information on the SSARs awarded for fiscal 2011, please see the Grants of Plan-Based Awards Table for Fiscal 2011 and Outstanding Equity Awards Table as of April 30, 2011, set forth on pages 42 and 43, respectively.

 

Fiscal 2011 Total Direct Compensation for Our NEOs.

 

Based on external market compensation data, as well as the performance and expected future contributions of each NEO, the Committee increased the total direct compensation at target of our NEOs for fiscal 2011. The Committee increased the NEOs’ target direct compensation in a manner that aligns with our pay-for-performance philosophy by proportionally increasing incentive compensation, which generally was the element most significantly below market data. The chart

below shows the annualized target direct compensation for each of our NEOs in fiscal 2011 versus fiscal 2010, and the percentage increase of each component:

 

Fiscal 2011 Versus Fiscal 2010 NEO Total Direct Compensation

 

 

 

Fiscal 2011 Company Performance and its Effect on Executive Compensation. Brown-Forman reported net sales growth of 6% and operating income growth of 20% for our 2011 fiscal year. Underlying depletion-based operating income increased 6%, which was above the weighted average for Brown-Forman’s beverage alcohol industry competitive set. Total shareholder return for the three-year period ending in fiscal 2011 was above the average of the S&P 500 and above the average of our industry competitive set. The Company’s growth in depletion-based operating income was above the average of the industry competitive set, which resulted in a payout above target (but below the maximum payout level) for both the short-term cash incentive plan and the long-term cash incentive plan for the performance periods ending in fiscal 2011.

 

The market prices of our Class A and Class B common stock increased during fiscal 2011. Our Class A common stock closing price increased from $60.03 on April 30, 2010, to $70.07 on April 29, 2011 (the last trading day of our fiscal year). Our Class B common stock closing price increased from $58.18 on April 30, 2010, to $71.86 on April 29, 2011. These price increases resulted in an increase in the value of our executives’ accumulated equity-based incentives during fiscal 2011.

 

Employee Benefits and Perquisites. We provide our NEOs with certain employee benefits that are available to nearly all salaried employees, including Company-paid group term life insurance equal to two times target cash compensation, travel accident insurance, Company matching contributions to a 401(k) savings plan, medical and dental plans, and a pension that grows with each added year’s service and pay. In addition, we provide our NEOs and certain other executives with additional benefits, including a leased automobile, automobile insurance, and limited reimbursement of financial planning expenses. We purchase tickets to sporting and entertainment events for business outings with customers and suppliers. If the tickets are not used for business purposes, employees (including the NEOs) may use the tickets at no incremental cost to the Company. We believe these benefits further our goal of attracting and retaining a diverse team of talented executives. We occasionally invite the NEOs and their spouses to certain events, including retirement celebrations, award dinners, and the like. We believe these events provide valuable opportunities for our senior executives to establish and develop relationships with our directors, long-term stockholders, employees, and each other, furthering our objective of having a strong and cohesive management team. For more detail on these benefits, please see the “All Other Compensation” column of the Summary Compensation Table for Fiscal 2011 found on page 40.

 

Brown-Forman Corporation Non-qualified Savings Plan. Effective January 1, 2011, the Company adopted the Brown-Forman Corporation Non-qualified Savings Plan, in which our NEOs

may make pre-tax deferrals of up to 50% of base salary (including holiday bonus) and up to 75% of short and long-term cash incentives. Participants in the plan may notionally invest their plan balances in mutual funds within generally the same asset classes available to participants in our qualified 401(k) savings plan. In the event a participant’s deferrals into the plan reduce the participant’s taxable compensation that would otherwise be considered 401(k)-eligible pay upon which Company matching in the 401(k) is calculated, the Company will contribute to the plan to make up for any lost match under the Company’s 401(k) plan. Although the non-qualified plan allows for discretionary contributions by the Company, the Company currently does not intend to make discretionary contributions to the plan. All deferrals to the plan, and the Company’s contributions to it, are 100% vested when made, as are any deemed earnings related to those contributions. The benefits owed under the plan will be general unsecured obligations of the Company. The Company will not be entitled to an income tax deduction on the benefits owed under the plan until the benefits become taxable to the participants, which generally will be when the benefits are actually paid. Benefits accumulated under the plan will be payable at either a participant-selected date at least two years after a contribution is made, or after a participant’s termination of employment. Amounts payable after termination are payable in a lump sum six months after termination, except in the case of retirement, where the form of payment (lump sum or installments of up to 10 years) and the time of payment (up to 10 years after retirement) will be elected by the participant. The table on page 47 contains information on NEO activity in this plan during fiscal 2011, including employee contributions, gains and losses attributable to the change in market value of the notional investments, and any payments to our NEOs.

 

Post-Termination Compensation and Benefits. We maintain both tax-qualified retirement plans and non-qualified supplemental restoration retirement plans. Most salaried employees, including all of our NEOs, participate in the Salaried Employees Retirement Plan. This plan provides monthly retirement benefits based on age at retirement, years of service, and the average of the five highest consecutive calendar years’ compensation during the final ten years of employment. These retirement benefits are not offset by Social Security benefits and are assumed for actuarial purposes to be payable at age 65. A participant’s interest vests after five years of service. Please see the Pension Benefits Table on page 46 for additional information.

 

Federal tax law limits the benefits we might otherwise pay to key employees under “qualified” plans such as the Salaried Employees Retirement Plan. Therefore, for certain employees, including our NEOs, we maintain a non-qualified Supplemental Executive Retirement Plan, which provides retirement benefits to make up the difference between a participant’s accrued benefit calculated under the Salaried Employees Retirement Plan and the ceiling imposed by federal tax law. The plan also provides accelerated vesting of a portion of retirement benefits for certain key employees who join us mid-career.

 

We maintain a qualified 401(k) savings plan for most salaried employees, including our NEOs. Subject to a maximum the IRS sets annually, most participants in our 401(k) savings plan may contribute between 1% and 50% of their compensation (defined as salary and annual incentives) to their savings plan accounts, although highly compensated employees, including our NEOs, are limited to contributions of between 1% and 16% of their compensation. The Company’s match of a participant’s contribution is currently 100% of the first 5%, up to the maximum level of income recognized under Internal Revenue Code section 401(a)(17), and vests fully after four years of service.

 

During fiscal 2011, the Committee made changes to the treatment of incentive awards issued under our Omnibus Compensation Plan in the event an executive’s employment terminates. These changes are described in the section titled Potential Payments Upon Termination or Change in Control on page 50. We believe our post-termination compensation and benefit programs further our goal of attracting and retaining top executive talent, and serve to encourage executives to make long-term career commitments to us. For additional information on potential payments upon termination,

please see the Potential Payments upon Termination or Change-in-Control section of this Proxy Statement found on page 48.

 

Compensation Policies and Practices.

 

Deductibility of Compensation. Section 162(m) of the Internal Revenue Code limits to $1 million the amount of annual compensation expense the Company may deduct when paid to a NEO unless the compensation is “performance-based” and paid under a formal compensation plan that meets the Internal Revenue Code’s requirements. We took appropriate steps in defining performance measures under our 2004 Omnibus Compensation Plan to assure the deductibility of compensation paid to NEOs under the Plan. To maintain flexibility, we have no policy requiring that all NEO compensation be fully deductible. However, the Committee expects the Company to be able to deduct all fiscal 2011 compensation paid to our NEOs, with the exception of $39,250 of salary paid to our CEO.

 

Equity Award Grants. We have an equity award grant policy that requires the grant date of any award to be the date of the applicable Committee or Board meeting at which such award was approved, and the grant price to be the closing price of the relevant class of our common stock on the grant date. We do not have a program, plan or practice of timing equity award grants in conjunction with the release of material non-public information (or vice-versa). We have never re-priced or back-dated options or SSARs granted under any of our equity compensation plans, and our 2004 Omnibus Compensation Plan specifically prohibits these practices.

 

Source of Plan Shares. Under the terms of the Plan, we try to limit the source of shares delivered to participants under the Plan to those purchased by the Company from time to time on the open market (at times in connection with a publicly announced Share Repurchase Program), in private transactions, or otherwise. If we determine that the timing of such purchases may unduly affect the market price of the shares, the purchases may be spread over a period of time sufficient to minimize such effect. We may use newly-issued shares to cover exercises or redemptions of awards under the Plan, and then purchase an equal number of shares on the open market or otherwise as quickly as is reasonably practicable thereafter. This practice minimizes long-term dilution to our stockholders.

 

Margin Sales, Derivative Transactions Prohibited. The Company’s Code of Conduct prohibits employees and directors from selling Brown-Forman securities that they do not own (a “short sale”), purchasing shares on margin, and holding shares in a margin account. Employees and directors are also prohibited from engaging in transactions involving exchange-traded options (puts, calls, or other derivative securities based on Brown-Forman securities).

 

Conclusion. We believe that our executive compensation program continues to successfully attract, motivate, reward, and retain a team of talented and diverse executives and key employees, both in the United States and around the world, who will lead us to achieve our goal of being the best brand builder in the wine and spirits industry and enable us to deliver sustainable and superior value to our stockholders over time.

 

We, the Compensation Committee of the Board of Directors of Brown-Forman Corporation, have reviewed and discussed with Company management the Compensation Discussion and Analysis set forth above, and based on such review and discussion, have recommended to the Board of Directors that the Compensation Discussion and Analysis be included in this Proxy Statement.

 

Compensation Committee

Patrick Bousquet-Chavanne, Co-Chairman
Richard P. Mayer, Co-Chairman
John D. Cook

 

To determine the level of risk arising from our compensation policies and practices, the Company conducted a thorough risk assessment and evaluation process during fiscal 2011 with oversight by the independent advisors to the Compensation Committee, the committee members, and our internal auditors. The risk assessment was based on a framework provided by the independent advisors to the Compensation Committee and examined the compensation programs applicable to all of our employees, not just our NEOs. We evaluated areas of potential compensation-related risk and considered suggested practices intended to mitigate that risk. Based upon the affirmative responses to the questions set forth below, as well as other qualitative and quantitative results, the Company and the Compensation Committee concluded that the risks arising from our compensation policies and practices are not reasonably likely to have a material adverse effect on the Company.

 

 

The following table sets forth the compensation paid or accrued by the Company for the fiscal year ended April 30, 2011, as required to be calculated under SEC rules, for services rendered in all capacities by our Chief Executive Officer, our Chief Financial Officer, and our three other most highly compensated executive officers as of the end of the fiscal year (the “Named Executive Officers” or “NEOs”).

 

Fiscal 2011 Summary Compensation Table