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Dear Stockholder:
You are cordially invited to attend the Annual Meeting of Stockholders of Henry Schein, Inc. (the “Company”), to be held at 9:10:00 a.m., on Thursday,Monday, May 28, 200910, 2010 at the Melville Marriott Long Island, 1350 Old Walt Whitman Road, Melville, New York 11747.
The Annual Meeting will be held for the following purposes:
| 1. | to consider the election of thirteen directors of the Company for terms expiring in | |
| 2. | to consider and act upon a proposal to amend the Company’s | |
| 3. | ||
| to consider the ratification of the selection of BDO Seidman, LLP | ||
| to transact such other business as may properly come before the meeting or any adjournments or postponements thereof. |
Only stockholders of record at the close of business on April 6, 2009March 12, 2010 are entitled to notice of and to vote at the meeting or any adjournments or postponements thereof.
The Company is pleased to take advantage of the Securities and Exchange Commission rules that allow issuers to furnish proxy materials to their stockholders on the Internet. The Company believes the rules allow it to provide its stockholders with the information they need, while lowering the costs of delivery and reducing the environmental impact of the Annual Meeting of Stockholders. Accordingly, stockholders of record at the close of business on April 6, 2009March 12, 2010 will receive a Notice Regarding the Availability of Proxy Materials and may vote at the Annual Meeting and any adjournment or postponement of the meeting.
To assure your representation at the Annual Meeting, you are urged to cast your vote, as instructed in the Notice Regarding the Availability of Proxy Materials, over the Internet or by telephone as promptly as possible. You may also request a paper proxy card to submit your vote by mail, if you prefer. Any stockholder of record attending the Annual Meeting may vote in person, even if he or she has voted over the Internet, by telephone or returned a completed proxy card.
Whether or not you expect to attend the meeting in person, your vote is very important. Please cast your vote regardless of the number of shares you hold. I believe that you can be proud, excited and confident to be a stockholder of Henry Schein. I look forward to discussing our plans for the Company’s future at the Annual Meeting, and I hope to see you there.
STANLEY M. BERGMAN
Chairman and Chief Executive Officer
Melville, New York
TABLE OF CONTENTS
HENRY SCHEIN, INC.
135 DURYEA ROAD
MELVILLE, NEW YORK 11747
135 DURYEA ROAD
MELVILLE, NEW YORK 11747
PROXY STATEMENT
The Board of Directors of Henry Schein, Inc. (the “Company”) has fixed the close of business on April 6, 2009March 12, 2010 as the record date for determining the holders of the Company’s common stock, par value $0.01, entitled to notice of, and to vote at, the 20092010 Annual Meeting of Stockholders (the “Annual Meeting”). As of that date, 89,919,21591,036,517 shares of common stock were outstanding, each of which entitles the holder of record to one vote. The Notice of Annual Meeting, this proxy statement and the form of proxy are being made available to stockholders of record of the Company on or about April 16, 2009.March 31, 2010. A copy of our 20082009 Annual Report to Stockholders is being made available with this proxy statement, but is not incorporated herein by reference.
The presence, in person or by proxy, of the holders of a majority of the shares eligible to vote is necessary to constitute a quorum in connection with the transaction of business at the Annual Meeting. Abstentions and broker non-votes (i.e., proxies from brokers or nominees indicating that such persons have not received instructions from the beneficial owner or other persons eligible to vote shares as to a matter with respect to which the brokers or nominees do not have discretionary power to vote) are counted as present for purposes of determining the presence or absence of a quorum for the transaction of business.
Abstentions and broker non-votes will have no effect on the election of directors (Proposal 1), which is by plurality vote.
Abstentions and broker non-votes will, in effect, be votes against the amendment to the Company’s 19941996 Non-Employee Director Stock Incentive Plan (Proposal 2), against the amendment to the Company’s Section 162(m) Cash Bonus Plan (Proposal 3) and against the ratification of the selection of the independent registered public accounting firm (Proposal 4)3), as these items require the affirmative vote of a majority of the shares present and eligible to vote on such items. Broker non-votes will not be considered votes cast on Proposal 4 and the shares represented by broker non-votes with respect to this proposal will be considered present but not eligible to vote on this proposal.
We will pay all expenses of this proxy solicitation. In addition to this proxy solicitation, proxies may be solicited in person or by telephone or other means (including by our directors or employees without additional compensation). We will reimburse brokerage firms and other nominees, custodians and fiduciaries for costs incurred by them in distributing proxy materials to the beneficial owners of shares held of record by such persons.
If your shares of common stock are registered directly in your name with the Company’s transfer agent, you are considered, with respect to those shares, the stockholder of record. In accordance with rules and regulations adopted by the Securities and Exchange Commission, instead of mailing a printed copy of our proxy materials to each stockholder of record, we may furnish proxy materials to our stockholders on the Internet. If you received a Notice Regarding the Availability of Proxy Materials (the “Notice of Internet Availability”) by mail, you will not receive a printed copy of these proxy materials. Instead, the Notice of Internet Availability will instruct you as to how you may access and review all of the important information contained in these proxy materials. The Notice of Internet Availability also instructs you as to how you may submit your proxy on the Internet. If you received a Notice of Internet Availability by mail and would like to receive a printed copy of our proxy materials, including a proxy card, you should follow the instructions for requesting such materials included in the Notice of Internet Availability.
If your shares are held in an account at a brokerage firm, bank, broker-dealer or other similar organization, then you are the beneficial owner of shares held in “street name,” and the Notice of Internet Availability was forwarded to you by that organization. The organization holding your account is considered the stockholder of record for purposes of voting at the Annual Meeting. As a beneficial owner, you have the right to direct that organization on how to vote the shares held in your account.
Shares of common stock held in a stockholder’s name as the stockholder of record may be voted in person at the Annual Meeting. Shares of common stock held beneficially in street name may be voted in person only if you obtain a legal proxy from the broker, trustee or nominee that holds your shares giving you the right to vote the shares.
Whether you hold shares directly as the stockholder of record or beneficially in street name, you may direct how your shares are voted without attending the Annual Meeting. If you are a stockholder of record, you may vote by
submitting a proxy electronically via the Internet, by telephone or if you have requested a paper copy of these proxy materials, by returning the proxy or voting instruction card. If you hold shares beneficially in street name, you may vote by submitting voting instructions to your broker, trustee or nominee.
Whether or not you are able to attend the Annual Meeting, you are urged to complete and return your proxy or voting instructions, which are being solicited by the Company’s Board of Directors and which will be voted as you direct on your proxy or voting instructions when properly completed. In the event no directions are specified, such proxies and voting instructions will be voted FOR the nominees for election to the Board of Directors, FOR the amendment to the Company’s 19941996 Non-Employee Director Stock Incentive Plan, FOR the amendment to the Company’s 162(m) Cash Bonus Plan, FOR the ratification of BDO Seidman, LLP (“BDO Seidman”) as the Company’s independent registered public accountants for the fiscal year ending December 26, 200925, 2010 and in the discretion of the proxy holders as to other matters that may properly come before the Annual Meeting.
You may revoke or change your proxy or voting instructions at any time before the Annual Meeting. To revoke your proxy, send a written notice of revocation or another signed proxy with a later date to the Corporate Secretary of the Company at Henry Schein, Inc., 135 Duryea Road, Melville, New York 11747 before the beginning of the Annual Meeting. You may also automatically revoke your proxy by attending the Annual Meeting and voting in person. Attendance at the Annual Meeting will not in and of itself constitute revocation of a proxy. To revoke your voting instructions, submit new voting instructions to your broker, trustee or nominee; alternatively, if you have obtained a legal proxy from your broker or nominee giving you the right to vote your shares, you may attend the Annual Meeting and vote in person. All shares represented by a valid proxy received prior to the Annual Meeting will be voted.
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PROPOSAL 1
ELECTION OF DIRECTORS
ELECTION OF DIRECTORS
The Board of Directors has approved the thirteen persons named below as nominees for election at the Annual Meeting to serve as directors until the 20102011 Annual Meeting of Stockholders and until their successors are elected and qualified. Directors will be elected by plurality vote. Any executed proxies returned to the Company will be voted for the election of all of such persons except to the extent the proxy is specifically marked to withhold such authority with respect to one or more of such persons. All of the nominees for director currently serve as directors and were elected by the stockholders at the 20082009 Annual Meeting.Meeting (other than Bradley T. Sheares, who was duly appointed by the Board of Directors on January 20, 2010 to fill a vacancy on the Board). All of the nominees have consented to be named and, if elected, to serve, except as otherwise noted below in the case of Dr. Hamburg.serve. In the event that any of the nominees is unable or declines to serve as a director at the time of the Annual Meeting, the proxies may be voted in the discretion of the persons acting pursuant to the proxy for the election of other nominees. Set forth below is certain information, as of April 6, 2009,March 12, 2010, concerning the nominees:
Name | Age | Position | ||||
| Barry J. Alperin | Director | |||||
| Gerald A. Benjamin | Executive Vice President, Chief Administrative Officer, Director | |||||
| Stanley M. Bergman | Chairman, Chief Executive Officer, Director | |||||
| James P. Breslawski | President, Chief Operating Officer, Director | |||||
| Paul Brons | ||||||
| Director | ||||||
| Donald J. Kabat | Director | |||||
| Philip A. Laskawy | 68 | Director | ||||
| Karyn Mashima | Director | |||||
| Norman S. Matthews | Director | |||||
| Mark E. Mlotek | Executive Vice President, Corporate Business Development, Director | |||||
| Steven Paladino | 52 | Executive Vice President, Chief Financial Officer, Director | ||||
| Bradley T. Sheares, Ph.D. | 53 | Director | ||||
| Louis W. Sullivan, M.D. | Director | |||||
BARRY J. ALPERINhas been a director since 1996.for 14 years (since 1996). Mr. Alperin, a private consultant since 1995,who is retired, served as Vice Chairman of Hasbro, Inc. from 1990 through 1995, as Co-Chief Operating Officer of Hasbro, Inc. from 1989 through 1990 and as Senior Vice President or Executive Vice President of Hasbro, Inc. from 1985 through 1989. Mr. Alperin served asHe was a director of Seaman FurnitureHasbro from 1985 through 1996. Prior to joining Hasbro, Mr. Alperin practiced law in New York City for 20 years, dealing with corporate, public and private financial transactions, corporate mergers and acquisitions, compensation issues and securities law matters. The Company Inc. from 1992values Mr. Alperin’s financial expertise and his extensive experience in corporate and securities laws and corporate governance matters. Additionally, as the Company continues to 2001. Hegrow through strategic acquisitions, the Board of Directors values Mr. Alperin’s experience leading Hasbro’s mergers and acquisitions and global expansion efforts. Mr. Alperin currently serves as a director of K’NEX Industries, Inc., The Hain Celestial Group, Inc. (and is Chairman of its corporate governance and nominating committee and a member of its audit committee) and K-Sea Transportation Partners L.P. (and is Chairman of its audit committee and a member of its compensation committee) and is a director of two privately held corporations, K’NEX Industries, Inc., a toy manufacturer, and Weeks Marine, Inc., a marine construction company. He serves as a trustee and member of the Executive Committee of The Caramoor Center for Music and the Arts, President Emeritus and a Life Trustee of The Jewish Museum in New York City and is the immediate past President of the New York Chapter of the American Jewish Committee where he also served as Chair of the audit committee of the national organization. Mr. Alperin also formerly served as Chairman of the Board of Advisors of the Tucker Foundation at Dartmouth College, was President of the Board of the Stanley Isaacs Neighborhood Center in New York City, was a trustee of the Hasbro Children’s Foundation, was President of the Toy Industry Association and was a member of the Columbia University Medical School Health Sciences Advisory Council.
GERALD A. BENJAMINhas been ourwith the Company for 22 years (since 1988), in his current position as Executive Vice President and Chief Administrative Officer since 2000for 10 years (since 2000) and a director since 1994.for 16 years (since 1994). Prior to holding his current position, Mr. Benjamin was Senior Vice President of Administration and
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Customer Satisfaction since 1993. Mr. Benjamin was Vice President of Distribution Operations from 1990 to 1992 and Director of Materials Management from 1988 to 1990. Before joining us in 1988, Mr. Benjamin was employed for thirteen years in various management positions at Estée Lauder, Inc., where holding various management positions over his last position was13-year tenure, including Director of Materials Planning and Control. Mr. Benjamin brings experience to the Company’s Board of Directors in the areas of global services, human resources and leadership. Mr. Benjamin oversees operations at Henry Schein’s distribution centers in North America, Europe, Australia and New Zealand, including 3.1 million square feet of distribution space from which nearly 12 million orders are shipped annually. Mr. Benjamin also has guided our human resources and organizational development as the Company has grown to include more than 13,500 employees in 24 countries around the world. Mr. Benjamin provides the Board of Directors with operational and human resources insights for the Company.
STANLEY M. BERGMANhas been with the Company for 30 years (since 1980), including 21 years (since 1989) as our Chairman and Chief Executive Officer since 1989 and 28 years (since 1982) as a director since 1982.director. Mr. Bergman held the position of President of the Company from 1989 to 2005. Mr. Bergman held the position of Executive Vice President from 1985 to 1989 and Vice President of Finance and Administration from 1980 to 1985. Mr. Bergman brings to the Company’s Board of Directors management and leadership experience. Mr. Bergman is a well known, highly regarded leader in the global healthcare industry. He has expansive knowledge of the healthcare industry and macro-economic global conditions, maintains strategic relationships with chief executives and other senior management in the healthcare industry throughout the world and brings a unique and valuable perspective to the Board of Directors. During his tenure, Mr. Bergman has led the Company from sales of $600 million in 1995 to $6.5 billion in 2010. Mr. Bergman is active in numerous dental industry and professional associations, including the American Dental Association (where he served on the Oversight Committee, Future of Dentistry Project and was awarded honorary membership) and The Forsyth Institute, the premiere oral health research institution in the United States. Mr. Bergman is also a Certified Public Accountant.
JAMES P. BRESLAWSKIhas been with the Company for 30 years (since 1980), in his current position as our President and Chief Operating Officer since 2005for five years (since 2005) and as a director since 1992.for 18 years (since 1992). Mr. Breslawski held the position of Executive Vice President and President of U.S. Dental from 1990 to 2005, with primary responsibility for the North American Dental Group. Between 1980 and 1990, Mr. Breslawski held various positions with us, including Chief Financial Officer, Vice President of Finance and Administration and Corporate Controller. Mr. Breslawski is responsible for the Company’s North American Dental, Medical and Technology businesses. Mr. Breslawski brings to the Company’s Board of Directors management and leadership experience. The Board of Directors is aided by Mr. Breslawski’s understanding of the healthcare business and his keen business acumen, leadership ability and interpersonal skills. Mr. Breslawski has served as Chairman of the Board of the American Dental Trade Association and President of the Dental Dealers of America. He is also a trustee of National Foundation of Dentistry for the Handicapped, a member of the Leadership Council, School of Dental Medicine at Harvard University, a former member of the Board of Governors for St. John’s University and a former trustee of Long Island University. Mr. Breslawski is also a Certified Public Accountant.
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PAUL BRONShas been a director since 2005.for five years (since 2005). Between 1994 and 2002, Mr. Brons served as an executive board member of Akzo Nobel, N.V. From 1965 to 1994, Mr. Brons held various positions with Organon International BV, including President from 1983 to 1994 and Deputy President from 1979 to 1983. From 1975 to 1979, Mr. Brons served as the General Manager of the OTC operations of Chefaro. Both Organon and Chefaro operated within the Akzo Nobel group. Mr. Brons currently serves on the Board of Directors (including as Chairman of Laboratoriosthe nominating and remuneration committee) of Almirall S.A., an international pharmaceutical company, and serves on the Supervisory Boards of Organon BioScience Netherlands and IBM Netherlands. Mr. Brons brings to the Company’s Board of Directors knowledge of the human and veterinary pharmaceutical industry (a segment of our medical and veterinary businesses) and his experience with international business operations and relations (which accounted for $2.4 billion of the Company’s annual sales in 2009). The Board of Directors is also aided by Mr. Brons’ knowledge of European business culture and his strategic focus on European healthcare issues. Mr. Brons was honored in 1996 by Her Majesty the Queen with the decoration of Knight of the Order of Lion of the Kingdom of the Netherlands, the country’s highest civilian order, conferred for his meritorious achievements for Akzo Nobel and other international activities. Mr. Brons served on the Supervisory Board of Akzo
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DONALD J. KABAThas been a director since 1996.for 14 years (since 1996). Mr. Kabat was the Chief Financial Officer of Central Park Skaters, Inc. from 1992 to 1995 and the President of D.J.K. Consulting Services, Inc. from 1995 to 2006. From 1970 to 1992, Mr. Kabat was a partner in Andersen Consulting (now known as Accenture, Ltd.).PLC Ireland), where he practiced a broad array of specialty services including organization, profit improvement, process re-engineering and cost justification studies. With his prior experience as a Certified Public Accountant and partner at a global accounting firm, Mr. Kabat currently serves onbrings to the Company’s Board of Directors strong skills in corporate finance, accounting and risk management. During his consulting career with Andersen Consulting, Mr. Kabat helped launch an entirely new practice specialty called Change Management Services, which focused on human resource management encompassing methods to maintain continuous alignment of Phoenix House Development Fund.strategy, operations, culture and rewards. He was the recipient of the “Bravos” award for outstanding contribution to the Change Management practice. He has made numerous speeches, written articles and contributed chapters to specialized books (e.g.,Budgeting: Key to Planning and Control;Management Controls for Professional Firms; andThe Change Management Handbook.)
PHILIP A. LASKAWYhas been a director since 2002.for eight years (since 2002). Mr. Laskawy joined the accounting firm of Ernst & Young LLP in 1961 and served as a partner in the firm from 1971 to 2001, when he retired. Mr. Laskawy served in various senior management positions at Ernst & Young, including Chairman and Chief Executive Officer, to which he was appointed in 1994. Mr. Laskawy currently serves on the Board of Directors of Cap Gemini SA, General Motors CorporationLazard Ltd. (and is a member of its audit committee) and Loews Corporation (and is a member of its audit committee) and is the Non-Executive Chairman of Federal National Mortgage Association (Fannie Mae) (and Chairman of its risk policy & capital committee). As a Certified Public Accountant with 40 years of experience, Mr. Laskawy brings to the Company’s Board of Directors exceptional skills in corporate finance and accounting, corporate governance, compliance, disclosure and international business conduct. Mr. Laskawy served on the American Institute of Certified Public Accountants to review and update rules regarding auditor independence. In 2006 and 2007, he served as Chairman of the International Accounting Standards Committee Foundation, which was created by the Securities and Exchange Commission and sets accounting standards in more than 100 countries, and he served as a member of the 1999 Blue Ribbon Committee on Improving the Effectiveness of Corporate Audit Committees. Mr. Laskawy also serves on the Board of Directors of General Motors Corporation (and is Chairman of its audit committee) and on the boards of numerousnot-for-profit organizations. Mr. Laskawy previously served on the Board of Directors of The Progressive Corporation and Discover Financial Services.
KARYN MASHIMAhas been a director since 2008.for two years (since 2008). Ms. Mashima, a private consultant, served as the Senior Vice President, Strategy and Technology of Avaya Inc. from 2000 to January 2009. Prior to holding such position at Avaya, Ms. Mashima held similar positions with the Enterprise Communications unit of Lucent Technologies and AT&T from 1994 to 2000. Ms. Mashima was Vice President of Marketing at Proteon Technologies, Inc. from 19931992 to 1994 and Vice President of Marketing at Network Equipment Technologies, Inc. from 1990 to 1992. From 1984 to 1990, Ms. Mashima was Product and Marketing Manager at Hewlett-Packard Company. From 1981 to 1984, Ms. Mashima was employed at Xerox Corp., where her last position was Product Manager of Xerox’s Office Systems division. Ms. Mashima brings to the Company’s Board of Directors extensive executive experience with respect to technology strategies, business planning, market assessment, product development and competitive analysis. With technology being one of the Company’s four key business groups, the Board of Directors values Ms. Mashima’s insight regarding future technological needs of the Company, particularly as the healthcare industry expands into electronic health records. Ms. Mashima is a recognized industry leader, and frequently presents at major industry conferences. She was named a “Woman of Influence for 2005” byNJBizmagazine and to the “First Annual List of Tech Women to Watch” by the executive search firm Christian & Timbers.
NORMAN S. MATTHEWShas been a director since 2002.for eight years (since 2002). Since 1989, Mr. Matthews has worked as an independent consultant and venture capitalist. From 1978 to 1988, Mr. Matthews served in various senior management positions for Federated Department Stores, Inc., including President from 1987 to 1988. Mr. Matthews currently serves on the Board of Directors of The Progressive Corporation Finlay Fine Jewelry Corporation(and is Chairman of its nominating and governance committee and a member of its compensation committee), Spectrum Brands, Inc. and as Chairman of the Board of The Children’s Place Retail Stores, Inc. Mr. Matthews brings to the Company’s Board of Directors extensive experience in strategic marketing and sales with over 30 years of experience as a senior
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business leader in marketing and merchandising at large public companies and valuable expertise in compensation programs and strategy. Mr. Matthews is director emeritus of Sunoco, Toys ‘R’ Us and Federated Department Stores and a trustee emeritus at the American Museum of Natural History. Mr. Matthews previously served on the Board of Directors of Finlay Fine Jewelry Corporation and Finlay Enterprises, Inc. In 2005, Mr. Matthews was named as one of eight outstanding directors by the Outstanding Directors Exchange (an annual award voted on by peer directors and awarded to an outstanding director for the key role he played during a crisis, a business transformation or a turnaround).
MARK E. MLOTEKhas been with the Company for 16 years (since 1994), in his current position as our Executive Vice President, Corporate Business Development since 2004for six years (since 2004) and as a director for 15 years (since 1995). Prior to his current position, Mr. Mlotek was Senior Vice President of Corporate Business Development from 2000 to 2004. Prior to that, Mr. Mlotek was2004 and Vice President, General Counsel and Secretary from 1994 to 1999 and became a director in 1995.1999. Prior to joining us, Mr. Mlotek was a partner in the law firm of Proskauer Rose LLP, our legal counsel,the Company’s principal law firm and one of the largest firms in the nation, specializing in mergers and acquisitions, corporate reorganizations and tax law from 1989 to 1994. As the Company continues to grow through strategic acquisitions, the Board of Directors values Mr. Mlotek’s extensive legal, merger and acquisition and business development experience as well as his drive for innovation and entrepreneurial spirit. Mr. Mlotek also manages the Company’s important supplier partnership arrangements and strategic planning function.
STEVEN PALADINOhas been with the Company for 23 years (since 1987), in his current position as our Executive Vice President and Chief Financial Officer since 2000.for 10 years (since 2000) and as a director for 18 years (since 1992). Prior to holding his current position, Mr. Paladino was Senior Vice President and Chief Financial Officer from 1993 to 2000, and has been a director since 1992. Fromfrom 1990 to 1992 Mr. Paladino served as Vice President and Treasurer and from 1987 to 1990 served as Corporate Controller. Before joining us, Mr. Paladino was employed as a public accountant for
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seven years, most recently with the international accounting firm of BDO Seidman. Mr. Paladino is a certifiedCertified Public Accountant. Mr. Paladino brings to the Company’s Board of Directors extensive financial, accounting and industry expertise. Mr. Paladino’s responsibilities with the Company include the corporate oversight and strategic direction of business units as well as direct responsibility for corporate financial services. These corporate financial services include financial reporting, financial planning, treasury, investor relations, internal audit and taxation. Mr. Paladino also has responsibility for Henry Schein Financial Services which provides financial business solutions to our customers and also works with the corporate business development group on mergers and acquisition activities. Mr. Paladino’s skills in corporate finance and accounting, the depth and breadth of his exposure to complex financial issues and his long-standing relationships with the financial community are valued by the Board of Directors.
BRADLEY T. SHEARES, PH.Dhas been a director since January 2010. Dr. Sheares served as Chief Executive Officer of Reliant Pharmaceuticals, Inc., from January 2007 through its acquisition by GlaxoSmithKline plc in December 2007. Prior to joining Reliant, Dr. Sheares served as President of U.S. Human Health, Merck & Co. from March 2001 until July 2006. As a member of Merck’s management committee, Dr. Sheares had responsibility for formulating global business strategies, operations management and the development and implementation of corporate policies. He is also a director of Honeywell International, The Progressive Corporation and Covance Inc. and is a member of the compensation committee of all three companies. As the former CEO of Reliant Pharmaceuticals and with 20 years in the pharmaceutical industry (a segment of our medical and veterinary businesses), Dr. Sheares brings to the Company’s Board of Directors extensive healthcare knowledge and experience in sales, marketing, brand management, research and development, complex regulatory and legal issues, risk management and mergers and acquisitions. As a director of numerous other public accountant.companies, Dr. Sheares has been involved in succession planning, compensation, employee management and the evaluation of acquisition opportunities. Dr. Sheares previously served on the board of IMS Health Incorporated.
LOUIS W. SULLIVAN, M.D. has been a director since 2003. Since 2002,for seven years (since 2003). Dr. Sullivan has beenis President Emeritus of Morehouse School of Medicine in Atlanta, Georgia.Medicine. From 1981 to 1989 and from 1993 to 2002, Dr. Sullivan was President of Morehouse School of Medicine. From 1989 to 1993, Dr. Sullivan served as U.S. Secretary of Health and Human Services. Dr. Sullivan currently serves as Chairman of the Board of Directors of BioSante Pharmaceuticals, Inc. (Chair of its audit and finance committee, nominating and corporate governance committee and scientific review committee) and serves on the Board of Directors of United Therapeutics Corporation BioSante Pharmaceuticals,and Emergent BioSolutions
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Inc. (Chair of the nominating and corporate governance committee and a member of its audit committee). As the Company continues to develop relationships with medical, dental and veterinary universities and seeks to be awarded governmental bids, Dr. Sullivan’s extensive experience in government and governmental relations, in-depth knowledge of healthcare and healthcare policy and an inside view of healthcare in academia is extremely beneficial to the Board of Directors. Dr. Sullivan served as Chair of the President’s Commission on Historically Black Colleges and Universities from2002-2009, and was Co-chair of the President’s Commission on HIV and AIDS from2001-2006. Dr. Sullivan is the founding dean of Morehouse School of Medicine and the founding president of the Association of Minority Health Professions Schools and is a member of the boards of numerous charitable organizations. Dr. Sullivan is the recipient of more than 50 honorary degrees. Dr. Sullivan previously served on the Board of Directors of Bristol-Myers Squibb Company, General Motors, 3M Company, CIGNA Corporation, Inhibitex, Inc. and Emergent BioSolutionsEquifax Inc.
THE AFFIRMATIVE VOTE OF THE HOLDERS OF A PLURALITY OF THE OUTSTANDING SHARES OF COMMON STOCK PRESENT IN PERSON OR REPRESENTED BY PROXY AND ENTITLED TO VOTE ON THIS MATTER AT THE ANNUAL MEETING IS REQUIRED TO APPROVE THE PROPOSED NOMINEES FOR DIRECTOR.THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR THE PROPOSED NOMINEES FOR DIRECTOR.
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CORPORATE GOVERNANCE
Board of Directors Meetings and Committees
During the fiscal year ended December 27, 200826, 2009 (“fiscal 2008”2009”), the Board of Directors held sixseven meetings. The Board of Directors has an Audit Committee, Compensation Committee, Nominating and Governance Committee and a Strategic Advisory Committee. During fiscal 2008,2009, the Audit Committee held four meetings, the Compensation Committee held eightnine meetings, the Nominating and Governance Committee held threetwo meetings and the Strategic Advisory Committee held four meetings. During fiscal 2008,2009, each director attended 75% or more100% of the aggregate number of meetings of the Board of Directors and committees on which such directors served, other than Dr. Hamburg (who attended seven of ten, or 70% of the aggregate number of Board of Directors’ and committee meetings on which she served).served. Each of the committees of the Board of Directors acts pursuant to a separate written charter adopted by the Board of Directors.
Independent Directors
The Board of Directors has affirmatively determined that Messrs. Alperin, Brons, Kabat, Laskawy and Matthews, Ms. Mashima and Drs. Hamburg (who voluntarily resigned from the Board of Directors on May 19, 2009), Sheares and Sullivan are “independent,” as defined under Rule 5605(a)(2) of The Nasdaq Stock Market (“Nasdaq”). In determining Ms. Mashima’s independence, the Board of Directors considered her significant other’s employment with the Company’s independent registered public accounting firm. He is a non-audit principal of such firm.
Independent directors, as defined under Nasdaq’s Rule 5605(a)(2), meet at regularly scheduled executive sessions without members of Company management present.
Audit Committee
The Audit Committee currently consists of Messrs. Kabat (Chairman), Alperin and Laskawy. All of the members of the Audit Committee are independent directors as defined under Nasdaq’s Rule 5605(a)(2). The Board of Directors has determined that each of the members of the Audit Committee are “audit committee financial experts,” as defined under the rules of the Securities and Exchange Commission (“SEC”) and, as such, each satisfy the requirements of Nasdaq’s Rule 5605(c)(2)(A).
The Audit Committee oversees (i) our accounting and financial reporting processes, (ii) our audits and (iii) the integrity of our financial statements on behalf of the Board of Directors, including the review of our consolidated financial statements and the adequacy of our internal controls. In fulfilling its responsibility, the Audit Committee has direct and sole responsibility, subject to stockholder approval, for the appointment, compensation, oversight and termination of the independent registered public accounting firm for the purpose of preparing or issuing an audit report or related work. Additionally, the Audit Committee oversees those aspects of risk management and legal and regulatory compliance monitoring processes, which may impact our financial reporting. The Audit Committee meets at least four times each year and periodically meets separately with our management, internal auditor and the independent registered public accounting firm to discuss the results of their audit or review of the Company’s consolidated financial statements, their evaluation of our internal controls, the overall quality of the Company’s financial reporting, our critical accounting policies and to review and approve any related party transactions. We maintain procedures for the receipt, retention and the handling of complaints, which the Audit Committee established. The Audit Committee operates under a charter available on our Internet website atwww.henryschein.com, under the Corporate Information-CorporateAbout Henry Schein-Corporate Governance caption.
Compensation Committee
The Compensation Committee currently consists of Messrs. Alperin (Chairman), Kabat and Matthews. The Compensation Committee reviews and approves (i) all incentive and equity-based compensation plans in which officers or employees may participate, (ii) the Company’s employee and executive benefits plans, and all related policies, programs and practices and (iii) arrangements with executive officers relating to their employment relationships with the Company, including, without limitation, employment agreements, severance agreements, supplemental pension or savings arrangements, change in control agreements and restrictive covenants. In addition,
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the Compensation Committee has overall responsibility for evaluating and approving the Company’s compensation and benefit plans, policies and programs. Each member of the Compensation Committee is an independent director as
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defined under Nasdaq’s Rule 5605(a)(2), “non-employee director” as defined under the SEC’s rules and “outside director” as defined under Section 162(m) of the Internal Revenue Code of 1986, as amended (the “Code”). The Compensation Committee may form subcommittees, consisting of members of the committee, and delegate authority to such subcommittees as it deems appropriate. The Compensation Committee operates under a charter available on our Internet website atwww.henryschein.com, under the Corporate Information-CorporateAbout Henry Schein-Corporate Governance caption.
Use of Outside Advisors
In making its determinations with respect to executive compensation, the Compensation Committee has historically engaged the services of an independent compensation consultant, Pearl Meyer & Partners. Pearl Meyer & Partners has also assisted the Compensation Committee with several special projects, including advice on director compensation and the Company’s Long-Term Incentive Program (“LTIP”).
The Compensation Committee retains Pearl Meyer & Partners directly, although in carrying out assignments, Pearl Meyer & Partners also interacts with Company management when necessary and appropriate in order to obtain compensation and performance data for the executives and the Company. In addition, Pearl Meyer & Partners may, in its discretion, seek input and feedback from management regarding its consulting work product prior to presentation to the Compensation Committee in order to confirm alignment with the Company’s business strategy, identify data questions or other similar issues, if any, prior to presentation to the Compensation Committee.
The Compensation Committee annually reviews competitive compensation data prepared by Towers Perrin,Watson (formerly Towers Perrin), a professional services/human resourcesresource consulting firmcompany which provides a number of services to the Company.
The Compensation Committee has the authority to retain, terminate and set the terms of its relationship with any outside advisors who assist the Committee in carrying out its responsibilities.
Nominating and Governance Committee
The Nominating and Governance Committee currently consists of Messrs. Laskawy (Chairman) and Alperin and Dr. Sullivan. The purpose of the Nominating and Governance Committee is to identify individuals qualified to become Board of Directors members, recommend to the Board of Directors the persons to be nominated by the Board of Directors for election as directors at the annual meeting of stockholders, determine the criteria for selecting new directors and oversee the evaluation of the Board of Directors and management.Directors. In addition, the Nominating and Governance Committee reviews and reassesses our corporate governance procedures and practices and recommends any proposed changes to the Board of Directors for its consideration. All of the members of the Nominating and Governance Committee are independent directors as defined under Nasdaq’s Rule 5605(a)(2). The Nominating and Governance Committee operates under a charter available on the Company’s Internet website atwww.henryschein.com, under the Corporate Information-CorporateAbout Henry Schein-Corporate Governance caption.
The Nominating and Governance Committee will consider for nomination to the Board of Directors candidates suggested by stockholders, provided that such recommendations are delivered to the Company, together with the information required to be filed in a proxy statement with the SEC regarding director nominees and each such nominee’s consent to serve as a director if elected, no later than the deadline for submission of stockholder proposals. Our policy is to consider nominations to the Board of Directors from stockholders who comply with the procedures set forth in the Company’s Amended and Restated Certificate of Incorporation, as amended, for nominations at the Company’s Annual Meeting of Stockholders and to consider such nominations using the same criteria it applies to evaluate nominees recommended by other sources. To date, we have not received any recommendations from stockholders requesting that the Nominating and Governance Committee consider a candidate for inclusion among the Committee’s slate of nominees in the Company’s proxy statement.
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In evaluating director nominees, the Nominating and Governance Committee currently considers the following factors:
| • | the needs of the Company with respect to the particular talents, expertise and diversity of its directors; | |
| • | the knowledge, skills, reputation and experience of nominees, | |
| • | familiarity with businesses similar or analogous to the Company; and | |
| • | experience with accounting rules and practices, and corporate governance principles. |
The Nominating and Governance Committee, in accordance with its charter, seeks to create a Board of Directors that is strong in its collective knowledge and has a diversity of not only skills and experience, but also diversity in gender, culture and geography. The Nominating and Governance Committee assesses the effectiveness of its diversity policies by annually reviewing the nominees for director to the Company’s Board of Directors to determine if such nominees satisfy the Company’s then-current needs. The Nominating and Governance Committee determined that the nominees for election at the Annual Meeting to serve as directors satisfy the Company’s current needs.
The Nominating and Governance Committee may also consider such other factors that it deems are in the best interests of the Company and its stockholders.
The Nominating and Governance Committee identifies nominees by first evaluating the current members of the Board of Directors willing to continue in service. Current members of the Board of Directors with skills and experience that are relevant to the Company’s business and who are willing to continue in service are considered for re-nomination, balancing the value of continuity of service by existing members of the Board of Directors with that of obtaining a new perspective. If any member of the Board of Directors does not wish to continue in service or if the Nominating and Governance Committee or the Board of Directors decides not to re-nominate a member forre-election, the Nominating and Governance Committee identifies the desired skills and experience of a new nominee, and discusses with the Board of Directors suggestions as to individuals that meet the criteria. In addition, the Nominating and Governance Committee has the authority to retain third party search firms to evaluate or assist in identifying or evaluating potential nominees.
With the goal of increasing the effectiveness of the Board of Directors and its relationship to management, the Nominating and Governance Committee evaluates the Board of Director’s performance as a whole. The evaluation process, which occurs at least annually, includes a survey of the individual views of all directors, which are then shared with the full Board of Directors. In addition, each of the committees of the Board of Directors performs a similar annual self-evaluation.
Strategic Advisory Committee
The Strategic Advisory Committee currently consists of Messrs. Matthews (Chairman), Brons and Laskawy, Ms. Mashima and Drs. HamburgSheares and Sullivan and Ms. Mashima.Sullivan. The purpose of the Strategic Advisory Committee is to provide advice to the Board of Directors and to our management regarding the monitoring and implementation of our corporate strategic plan, as well as general strategic planning. All of the members of the Strategic Advisory Committee are independent directors as defined under Nasdaq’s Rule 5605(a)(2). The Strategic Advisory Committee operates under a charter available on our Internet website atwww.henryschein.com, under the CorporateAbout HenryInformation-CorporateSchein-Corporate Governance caption.
Board of Directors’ Leadership Structure
Since 1989, the Company has employed a traditional board leadership model, with our Chief Executive Officer also serving as Chairman of our Board of Directors. We believe this traditional leadership structure benefits our Company. A combined Chairman/CEO role helps provide strong, unified leadership for our management team and Board of Directors. Our customers, stockholders, suppliers and other business partners have always viewed our Chairman/CEO as a visionary leader in our industry, and we believe that having a single leader for the Company is
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good for our business. Accordingly, we believe a combined Chairman/CEO position is the best governance model for our Company and our stockholders.
Of the eight independent directors currently serving on our Board of Directors, all have demonstrated leadership in large enterprises and are familiar with board processes.
Our Board of Directors’ committees, each comprised solely of independent directors and each with a separate Chairman, are the Audit, Compensation, Nominating and Governance and Strategic Advisory Committees. The Chairman of the Audit Committee oversees the accounting and financial reporting processes, legal and compliance matters relating to financial reporting, and the Company’s risk management processes. The Chairman of the Compensation Committee oversees the annual performance evaluation of our Chairman/CEO and senior management. The Chairman of the Nominating and Governance Committee monitors matters such as the composition of the Board of Directors and its committees, Board performance and “best practices” in corporate governance and is also responsible for overseeing succession planning. The Chairman of the Strategic Advisory Committee oversees and monitors the implementation of our corporate strategic plan as well as general strategic planning.
Our directors bring a broad range of leadership experience to the boardroom and regularly contribute to the thoughtful discussion involved in effectively overseeing the business and affairs of the Company. We believe the atmosphere of our Board of Directors is collegial, that all Board members are well engaged in their responsibilities, and that all Board members express their views and consider the opinions expressed by other directors. We do not believe that appointing an independent Board Chairman, or a lead or presiding director, would improve the performance of the Board of Directors. In contrast, we believe that a hierarchical structure may inhibit all directors from fully engaging in Board activities.
The Board of Directors is responsible for selecting the Chairman/CEO. The Chairman/CEO establishes the agendas for each Board of Directors meeting and presides at Board of Directors and stockholder meetings. Pursuant to our governance guidelines, the Chairman of our Nominating and Governance Committee is responsible for coordinating the activities of the independent directors and has the authority to convene meetings of the independent directors of the Board of Directors, to set agendas for such meetings and to conduct and report on such meetings. The Chairman of the Nominating and Governance Committee takes input from the other independent directors when setting the agenda for the independent sessions. After the session, he acts as a liaison between the independent directors and the Chairman/CEO. We also have a mechanism for stockholders to communicate directly with non-management directors as a group or with any individual director.
On an annual basis, as part of our governance review and succession planning, the Nominating and Governance Committee evaluates our leadership structure to ensure that it remains the optimal structure for our Company and our stockholders. We recognize that different board of directors’ leadership structures may be appropriate for companies with different histories and cultures, as well as companies with varying sizes and performance characteristics. We believe our current leadership structure — where our CEO serves as Chairman of the Board of Directors, our Board is comprised of experienced independent directors, our Board committees are led by independent directors and our independent directors hold regular meetings in executive session — is most appropriate and remains the optimal structure for our Company and our stockholders and has contributed to our Company’s compounded growth rates for sales and net income since becoming a public company in 1995.
Board of Directors’ Role in Oversight of Risk
Risk oversight is provided by a combination of our full Board of Directors and by the Board’s committees (the Audit, the Compensation, the Nominating and Governance and the Strategic Advisory Committees, each of which is made up entirely of independent directors). The Audit Committee takes the lead risk oversight role, focusing primarily on risk management related to monitoring and controlling the Company’s financial risks (i.e., the Committee oversees those aspects of risk management and legal and regulatory compliance monitoring processes, which may impact the Company’s financial reporting) as well as related to financial accounting and reporting risks. The Compensation Committee focuses primarily on human capital matters such as executive compensation plans and executive agreements. The Nominating and Governance Committee focuses on succession planning, director nomination criteria and candidate identification as well as on evaluation of our corporate governance procedures and practices including performance evaluation of our Board of Directors and executive management. Finally, the
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Strategic Advisory Committee focuses primarily on the Company’s strategic and business development plans including the risks associated with those plans.
Additionally, the Company holds periodic Risk Summits, where the Company’s management team discusses a wide range of risks that may impact the Company. The Risk Summit is attended by members of the Board of Directors.
The Company’s Executive Management Committee has responsibility to oversee and to actively manage material risks to the Company (including, without limitation, strategic, development, business, operational, human, financial and regulatory risks) as an integral part of the Company’s business planning, succession planning and management processes. Various members of the management team provide reports to the Audit Committee on select risk management topics periodically throughout the year and the Chairman of the Audit Committee reports on these topics to the full Board of Directors.
The Company’s management has a longstanding commitment to employing and imbedding sound risk management practices and disciplines into its business planning and management processes throughout the Company to better enable achievement of the Company’s strategic, business, operational, financial and compliance objectives as well as to achieve and maintain a competitive advantage in the marketplace.
Stockholder Communications
Stockholders who wish to communicate with the Board of Directors may do so by writing to the Corporate Secretary of the Company at Henry Schein, Inc., 135 Duryea Road, Melville, New York 11747. The office of the Corporate Secretary will receive the correspondence and forward it to the Chairman of the Nominating and Governance Committee or to any individual director or directors to whom the communication is directed, unless the communication is unduly hostile, threatening, illegal, does not reasonably relate to the Company or its business or is similarly inappropriate.
Our policy is to encourage our Board of DirectorsDirectors’ members to attend the Annual Meeting of Stockholders, and all of our directors standing for election attended the 20082009 Annual Meeting of Stockholders.
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Corporate Governance Guidelines
The Board of Directors has adopted Corporate Governance Guidelines, a copy of which is available on our Internet website atwww.henryschein.com, under the Corporate Information-CorporateAbout Henry Schein-Corporate Governance caption. Our Corporate Governance Guidelines address topics such as (i) role of the Board of Directors, (ii) director responsibilities, (iii) Board of DirectorsDirectors’ composition, (iv) definition of independence, (v) committees, (vi) selection of Board of Directors nominees, (vii) orientation and continuing education of directors, (viii) executive session of independent directors, (ix) management development and succession planning, (x) Board of DirectorsDirectors’ compensation, (xi) attendance of directors at the Annual Meeting of Stockholders, (xii) Board of Directors access to management and independent advisors, (xiii) annual evaluation of Board of Directors and committees, (xiv) submission of director resignations and (xv) communicating with the Board of Directors.
Among other things, the Company’s Corporate Governance Guidelines provide that it is the Board of Directors’ policy to periodically review issues related to the selection and performance of the Chief Executive Officer. At least annually, the Chief Executive Officer must report to the Board of Directors on the Company’s program for management development and on succession planning. In addition, the Board of Directors and Chief Executive Officer shall periodically discuss the Chief Executive Officer’s recommendations as to a successor in the event of the sudden resignation, retirement or disability of the Chief Executive Officer.
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The Company’s Corporate Governance Guidelines also provide that it is the Board of Directors’ policy that, in light of the increased oversight and regulatory demands facing directors, directors must be able to devote sufficient time to carrying out their duties and responsibilities effectively. Accordingly, directors should not serve on more than five other boards of public companies in addition to the Company’s Board of Directors.
Code of Business Conduct and Ethics
In addition to our Worldwide Business Standards applicable to all employees, we have adopted a Code of Business Conduct and Ethics that applies to our Chief Executive Officer, Chief Financial Officer, Controller (if any) and Vice President of Corporate Finance (if any) or persons performing similar functions. The Code of Business Conduct and Ethics is posted on our Internet website atwww.henryschein.com, under the Corporate Information-CorporateAbout Henry Schein-Corporate Governance caption. We intend to disclose on our website any amendment to, or waiver of, a provision of the Code of Business Conduct and Ethics that applies to the Chief Executive Officer, Chief Financial Officer, Controller (if any), and Vice President of Corporate Finance (if any) or persons performing similar functions.
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SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table presents certain information regarding beneficial ownership of our common stock as of April 6, 2009March 12, 2010 by (i) each person we know is the beneficial owner of more than 5% of the outstanding shares of common stock, (ii) each director of the Company, (iii) each nominee for director of the Company, (iv) our Chief Executive Officer, our Chief Financial Officer and each of the other three most highly paid executive officers serving as of December 27, 200826, 2009 (the “Named Executive Officers”) and (v) all directors and executive officers as a group.
| Shares Beneficially Owned | ||||||||
| Percent of | ||||||||
| Names and Addresses1 | Number | Class | ||||||
Barry J. Alperin2 | 109,667 | * | ||||||
Gerald A. Benjamin3 | 188,295 | * | ||||||
Stanley M. Bergman4 | 1,190,610 | 1.3 | % | |||||
James P. Breslawski5 | 390,483 | * | ||||||
Paul Brons6 | 26,221 | * | ||||||
Margaret A. Hamburg, M.D.7 | 74,731 | * | ||||||
Donald J. Kabat8 | 102,062 | * | ||||||
Stanley Komaroff9 | 187,673 | * | ||||||
Philip A. Laskawy10 | 94,655 | * | ||||||
Karyn Mashima11 | 4,055 | * | ||||||
Norman S. Matthews12 | 110,628 | * | ||||||
Mark E. Mlotek13 | 166,289 | * | ||||||
Steven Paladino14 | 333,977 | * | ||||||
Louis W. Sullivan, M.D.15 | 71,298 | * | ||||||
FMR LLC16 | 7,756,283 | 8.7 | % | |||||
T. Rowe Price Associates, Inc.17 | 11,944,822 | 13.0 | % | |||||
Directors and Executive Officers as a Group (18 persons)18 | 3,560,829 | 4.0 | % | |||||
| Shares Beneficially Owned | ||||||||
| Percent of | ||||||||
| Names and Addresses1 | Number | Class | ||||||
Barry J. Alperin2 | 105,050 | * | ||||||
Gerald A. Benjamin3 | 182,354 | * | ||||||
Stanley M. Bergman4 | 1,210,747 | 1.3 | % | |||||
James P. Breslawski5 | 415,528 | * | ||||||
Paul Brons6 | 33,225 | * | ||||||
Donald J. Kabat7 | 99,256 | * | ||||||
Stanley Komaroff8 | 188,197 | * | ||||||
Philip A. Laskawy9 | 101,344 | * | ||||||
Karyn Mashima10 | 7,300 | * | ||||||
Norman S. Matthews11 | 117,116 | * | ||||||
Mark E. Mlotek12 | 170,015 | * | ||||||
Steven Paladino13 | 299,839 | * | ||||||
| Bradley T. Sheares, Ph.D | 0 | * | ||||||
Louis W. Sullivan, M.D.14 | 77,838 | * | ||||||
BlackRock, Inc.15 | 5,195,629 | 5.7 | % | |||||
FMR LLC16 | 10,488,156 | 11.6 | % | |||||
T. Rowe Price Associates, Inc.17 | 12,746,676 | 14.0 | % | |||||
Directors and Executive Officers as a Group (19 persons)18 | 3,538,467 | 3.9 | % | |||||
* Represents less than 1%.
1 Unless otherwise indicated, the address for each person isc/o Henry Schein, Inc., 135 Duryea Road, Melville, New York 11747.
2 Represents (i) 4,0005,590 shares owned directly and over which he has sole voting and dispositive power, (ii) 5,8513,730 shares of restricted common stock, (iii) outstanding options to purchase 97,72193,241 shares that either are exercisable or will become exercisable within 60 days and (iv) 2,0952,489 shares of the Company held in his Non-Employee Director Deferred Compensation Plan account.
3 Represents (i) 12,43516,338 shares owned directly and over which he has sole voting and dispositive power, (ii) 30,44123,687 shares of restricted common stock, (iii) outstanding options to purchase 142,770139,647 shares that either are exercisable or will become exercisable within 60 days and (iv) 2,6492,682 shares of the Company held in a 401(k) Plan account.
4 Represents (i) 21,26022,736 shares that Mr. Bergman owns directly and over which he has sole voting and dispositive power, (ii) 47,90437,900 shares of restricted common stock, (iii) outstanding options to purchase 55,06284,211 shares that either are exercisable or will become exercisable within 60 days, (iv) 4,1084,199 shares of the Company held in a 401(k) Plan account, (v) 1,056,461 shares over which Marion Bergman, Mr. Bergman’s wife, and Lawrence O. Sneag have shared voting and dispositive power as co-trustees of the Stanley M. Bergman Continuing Trust dated September 15, 1994, (vi) 5,3924,817 shares over which Mr. Bergman’s sons have shared voting and dispositive power as trustees of a trust for the benefit of a third party, wherein Mr. Bergman is the grantor and (vii) 423 shares owned indirectly by Mr. Bergman’s wife over which Mr. Bergman has shared voting and dispositive power. Mr. Bergman disclaims beneficial ownership with respect to the 5,3924,817 shares held in trust by his sons for the benefit of a third party.
5 Represents (i) 107,517112,595 shares owned directly and over which he has sole voting and dispositive power, (ii) 36,68128,424 shares of restricted common stock, (iii) outstanding options to purchase 243,071271,260 shares that either are exercisable or will become exercisable within 60 days and (iv) 3,2143,249 shares of the Company held in a 401(k) Plan account.
6 Represents (i) 5001,984 shares owned directly and over which he has sole voting and dispositive power and (ii) outstanding options to purchase 25,72131,241 shares that either are exercisable or will become exercisable within 60 days.
7 Represents (i) 1,0001,590 shares owned directly and over which shehe has sole voting and dispositive power, (ii) 5,8513,730 shares of restricted common stock, (iii) outstanding options to purchase 60,721 shares that either are exercisable or will become exercisable within 60 days and (iv) 7,159 shares of the Company held in her Non-Employee Director Deferred Compensation Plan account.
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to purchase 92,72190,241 shares that either are exercisable or will become exercisable within 60 days and (iv) 1,490(v) 1,695 shares of the Company held in his Non-Employee Director Deferred Compensation Plan account.
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13 Represents (i) 22,319 shares owned directly and over which he has sole voting and dispositive power, (ii) 23,687 shares of restricted common stock, (iii) outstanding options to purchase 250,697 shares that either are exercisable or will become exercisable within 60 days and (iv) 3,136 shares of the Company held in a 401(k) Plan account.
14 Represents (i) 18,8362,621 shares owned directly and over which he has sole voting and dispositive power, (ii) 30,4413,730 shares of restricted common stock, (iii) outstanding options to purchase 281,59565,741 shares that either are exercisable or will become exercisable within 60 days and (iv) 3,105 shares of the Company held in a 401(k) Plan account.
15 The principal office of BlackRock, Inc. is 40 East 52nd Street, New York, New York 10022. The foregoing information regarding the stock holdings of BlackRock, Inc. is based on a Schedule 13G filed by BlackRock, Inc. with the SEC on January 29, 2010.
16 The principal office of FMR LLC is 82 Devonshire Street, Boston, Massachusetts 02109. The foregoing information regarding the stock holdings of FMR LLC and its affiliates is based on an amended Schedule 13G filed by FMR LLC with the SEC on February 17, 2009.16, 2010.
17 The principal office of T. Rowe Price Associates, Inc. (“Price Associates”) is 100 East Pratt Street, Baltimore, Maryland 21202. These securities are owned by various individual and institutional investors which Price Associates serves as investment adviser with power to direct investments and/or sole power to vote the securities. For purposes of the reporting requirements of the Securities Exchange Act of 1934, as amended, Price Associates is deemed to be a beneficial owner of such securities; however, Price Associates expressly disclaims that it is, in fact, the beneficial owner of such securities. The foregoing information regarding the stock holdings of Price Associates and its affiliates is based on an amended Schedule 13G filed by Price Associates with the SEC on February 12, 2009.2010.
18 Includes (i) with respect to all directors and Named Executive Officers, (a) 1,510,4241,474,340 shares, directly or indirectly, beneficially owned, including restricted common stock, (b) 50,76048,767 shares of the Company held in 401(k) Plan accounts and in Non-Employee Director Deferred Compensation Plan accounts, as applicable and (c) outstanding options to purchase 1,488,9201,478,351 shares that either are exercisable or will become exercisable within 60 days; and (ii) with respect to all executive officers that are not Named Executive Officers or directors, (a) 122,325115,611 shares, directly or indirectly, beneficially owned, including restricted common stock, (b) 6,6646,778 shares of the Company held in 401(k) Plan accounts and (c) outstanding options to purchase 381,736414,620 shares that either are exercisable or will become exercisable within 60 days.
SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Our executive officers and directors are required under the Securities Exchange Act of 1934 (the “Exchange Act”) to file reports of ownership of common stock of the Company with the SEC. Copies of those reports must also be furnished to the Company. Based solely on a review of the copies of reports furnished to the Company and written representations that no other reports were required, the Company believes that during fiscal 20082009 the executive officers and directors of the Company timely complied with all applicable filing requirements, except that Mr. Michael Racioppi and Mr. Benjamin each filed one late Form 4 with respect to the sale of shares of Company common stock held in their 401(k) Plan accounts, respectively, and Ms. Mashima filed one late Form 4 with respectdue to a granttechnical administrative error, one report filed on behalf of stock options and restricted stock awardedMr. Komaroff covering two transactions, which was attempted to her by the Company in connection with her electionbe timely filed on March 3, 2009 but was inadvertently filed as a member of the Board of Directors.test filing, was not officially filed as a live filing until March 11, 2009.
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COMPENSATION DISCUSSION AND ANALYSIS
Compensation Objectives and Strategy
The Company’s executive officer compensation program is designed to attract and retain the caliber of officers needed to ensure the Company’s continued growth and profitability and to reward them for their performance, the Company’s performance and for creating long term value for stockholders. The primary objectives of the program are to:
| • | align rewards with performance that creates stockholder value; | |
| • | support the Company’s strong team orientation; | |
| • | encourage high potential team players to build a career at the Company; and | |
| • | provide rewards that are cost-efficient, competitive with other organizations and fair to employees and stockholders. |
The Company’s executive compensation programs are approved and administered by the Compensation Committee of the Board of Directors. Working with management and outside advisors, the Compensation Committee has developed a compensation and benefits strategy that rewards performance, and behaviorspromotes appropriate conduct, and reinforces a culture that the Compensation Committee believes will drive long-term success.
The compensation program rewards team accomplishments while promoting individual accountability. The executive officer compensation program depends, in significant measure, on Company results, but business unit results and individual accomplishments are also very important factors in determining each executive’s compensation. The Company has a robust planning and goal-setting process that is fully integrated into the compensation system, enhancing a strong relationship between individual efforts, Company results and financial rewards.
A major portion of total compensation is placed at risk through annual and long-term incentives. As shown in the Summary Compensation Table, in 20082009 the sum of restricted stock awards, options, non-equity incentive plan compensation (annual incentive awards), and bonus, if any, represented between 62%65.8% and 69%69.5% of the total compensation for the Named Executive Officers. The combination of incentives is designed to balance annual operating objectives and Company earnings performance with longer-term stockholder value creation.
We seek to provide competitive compensation that is commensurate with performance. We target compensation at the median of the market, and calibrate both annual and long-term incentive opportunities to generateless-than-median awards when goals are not fully achieved andgreater-than-median awards when goals are exceeded.
We seek to promote a long-term commitment to the Company by our senior executives. We believe that there is great value to the Company in having a team of long-tenure, seasoned managers. Our team-focused culture and management processes are designed to foster this commitment. The vesting schedules attached to restricted stock and option awards reinforce this long-term orientation.
Role of the Compensation Committee
General
The Compensation Committee provides overall guidance for our executive compensation policies and determines the amounts and elements of compensation for our executive officers. The Compensation Committee’s function is more fully described in its charter which has been approved by our Board of Directors. The charter is available on our Internet website atwww.henryschein.com, under the Corporate Information-CorporateAbout Henry Schein-Corporate Governance caption.
When considering decisions concerning the compensation of our executive officers, other than the Chief Executive Officer, the Compensation Committee asks for Mr. Bergman’s recommendations, including his detailed evaluation of each executive’s performance. When considering decisions concerning the compensation of our outside directors, the Compensation Committee reviews management’s recommendation before making its own determination.
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Use of Outside Advisors
In making its determinations with respect to executive compensation, the Compensation Committee has historically engaged the services of Pearl Meyer & Partners, an independent compensation consultant. In addition,Pearl Meyer & Partners performs no services for the Compensation Committee annually reviews competitive compensation data prepared by Towers Perrin, an independent human resources consulting firm which provides a number of services to the Company.Company or Company’s management.
Compensation Structure
Pay Elements – Overview
The Company utilizes four main components of compensation:
| • | Base Salary – fixed pay that takes into account an individual’s role and responsibilities, experience, expertise and individual performance; | |
| • | Annual Incentive Compensation – variable pay that is designed to reward attainment of annual business goals, with target award goals generally expressed as a percentage of base salary; | |
| • | Equity-Based Awards – stock-based awards including options, restricted stock and restricted stock units; and | |
| • | Other Benefits and Perquisites – includes medical, dental and life insurance benefits, retirement savings, car allowances and, in the case of Mr. Bergman, certain additional services. |
Pay Elements – Details
Base Salary
The Compensation Committee annually reviews executive officer salaries and makes adjustments as warranted based on individual responsibilities and performance, Company performance in light of market conditions and competitive practice. Salary adjustments are generally approved and implemented during the first quarter of the calendar year. For 2008, salary adjustments for the Named Executive Officers were as follows: Mr. Breslawki from $535,613 to $600,000, Mr. Paladino from $416,665 to $475,000, Mr. Mlotek from $412,738 to $475,000, Mr. Komaroff from $414,235 to $475,000 and Mr. Bergman from $1,035,000 to $1,150,000. In determining 2008 compensation for the Named Executive Officers, the Compensation Committee reviewed two competitive compensation analyses prepared by Towers Perrin (an analysis of competitive data for companies with revenues between $4 billion and $8 billion and a peer group analysis). (See “Pay Levels and Benchmarking” set forth below for a list of the peer group members.) Based on such review, the Compensation Committee determined that the Named Executive Officers’ total direct compensation (base salary, annual incentive compensation and equity-based awards) was below the median (the target at which the Compensation Committee sets executive officers’ total direct compensation). The Compensation Committee therefore made an adjustment to the Named Executive Officers’ base salaries to bring 2008 base salaries and 2008 total direct compensationyear (typically in line with the median of the competitive market.March). In January 2009, in light of currentthe economic conditions, the Company announced a salary freeze at March 2008 levels for all employees (except in connection with certain promotions and contractual obligations), including the Named Executive Officers, for the period of March 2009 to March 2010. Additionally, the Company announced that it will continue to freeze the salaries for the Named Executive Officers at March 2008 levels for fiscal year 2009. (See “Compensation Structure—Pay Elements Details—Changes in Pay Elements for 2009”.)2010.
Annual Incentive Compensation
Annual incentive compensation for each of the Company’s executive officers is paid under the Performance Incentive Plan (“PIP”) for such year. The components of the PIP are designed to reward the achievement of pre-established corporate, business unit and individual performance goals. At the beginning of each year, the Chief Executive Officer recommends to the Compensation Committee which executive officers should participate in the PIP for that year and, following review and approval by the Compensation Committee, such officers are notified of their participation. The Chief Executive Officer recommends to the Compensation Committee the PIP’s performance goals and target payout for executive officers (other than himself), subject to the Compensation Committee’s review and approval, and determines such goals and target payout for participants who are not executive officers.
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PIP awards for 20082009 performance for the Named Executive Officers were established at the beginning of 2008.2009. For the Named Executive Officers (other than Mr. Bergman), the performance goals under the 20082009 PIP were based on (i) the Company’s 20082009 earnings per share measured against pre-established standards, as may be adjusted pursuant to the terms of the 20082009 PIP (the “2008“2009 EPS Target”), (ii) achievement of financial goals in their respective business units (“Business Financial Goal”) and (iii) achievement of individual objectives (“Individual Performance Goal”). In adjusting the Named Executive Officers’ total direct compensation to bring itJanuary 2009, in line with the medianlight of the competitive market (the target at whicheconomic conditions, the Compensation Committee sets executive officers’ total direct compensation),Company announced that the target awards under theamount for 2009 PIP bonuses would remain unchanged from 2008 target PIP as a percentage of 2008 base salary forbonuses to all employees (except in connection with certain promotions and contractual obligations), including the Named Executive Officers, (other than Mr. Bergman) increased by an average of 6% over target awards under the 2007 PIP as a percentage of 2007 base salary.for fiscal year 2009.
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The weight (as a percentage of the PIP target payout) for each component of the PIP awards for Messrs. Breslawski, Komaroff, Paladino and Mlotek are as follows:
| • | Mr. Breslawski: Business Financial Goal of 55%; | |
| • | Mr. Komaroff: Business Financial Goal of 10%; | |
| • | Mr. Paladino: Business Financial Goal of 20%; | |
| • | Mr. Mlotek: Business Financial Goal of 10%; |
In March 2008,2009, the Compensation Committee set the 20082009 EPS Target at $2.96,$3.11, representing the target goal designed to result in a PIP award payout equal to 100%. Pursuant to the 20082009 PIP, the Compensation Committee may (i) adjust the PIP goals for acquisitions and new business ventures not initially considered when developing the target, (ii) exclude from the calculation of the 20082009 EPS items of gain, loss or expense related to the disposal of a business or discontinued operations, capital transactions undertaken by the Company during the fiscal year, the Company’s repurchase of any class of its securities during the fiscal year or changes in accounting principles or changes in applicable law or regulations and (iii) adjust the EPS target for items resulting from unforeseen events or facts and circumstances outside the Company’s control and may take into account the quality of earningsand/or circumstances of achievement when determining awards. Also, the Compensation Committee or the CEO (solely with respect to non-executive officers) may award all or a portion of a PIP award (i) upon the attainment of any goals (including the applicable predefined goals). In addition, the Compensation Committee or (ii) regardless of whether the applicable predefined goals are attained.CEO (solely with respect to non-executive officers) may grant discretionary awards. To account for the impact of the Company’s stock buyback program, acquisitions, accounting changes and certain capital transactions that occurred in 2008,2009, the Compensation Committee increased the 20082009 EPS Target from $2.96$3.11 to $3.00.$3.13. Our 20082009 EPS from continuing operations was $2.75, which included the effects of an $0.18 per share charge the Company incurred in 2008 for restructuring costs. The Compensation Committee considered this charge when evaluating whether the 2008 EPS target was achieved and adjusted EPS from continuing operations to $2.93,$3.21, which resulted in a payout of 95%172% of the EPS Target portion of the PIP targetaward based on a pre-established weighted formula set by the Compensation Committee under the 20082009 PIP.
The Compensation Committee believes that the Business Financial Goal and Individual Performance Goal are designed to motivate management to achieve challenging, but attainable goals for talented executives. Achievement of these targets is substantially uncertain at the time such targets are established. The Compensation Committee sets the targets for PIP awards such that incentive compensation is paid atless-than-median of the market awards when Business Financial Goal or Individual Performance Goal are not fully achieved andgreater-than-median awards when goals are exceeded. The maximum payout percentage under the PIP for all employees (including the Named Executive Officers) is 200% for the EPS Target and the Business Financial Goal and 115% for the Individual Performance Goal.
During the first quarter of 2009,2010, the Chief Executive Officer reviewed the relevant financial and operating performance achievements of the Company and its business units, as well as the individual performance of the participating officers (other than himself), against the PIP performance goals that had been previously established, and submitted proposed PIP awards for the participating officers (other than the executive officers) to the Compensation Committee for approval. The total PIP payments for 2008 for the Named Executive Officers, other than
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PIP awards for the Named Executive Officers appear in the Summary Compensation Table in the column captioned “Non-Equity Incentive Plan Compensation.”
Mr. Bergman’s annual incentive award is based on pre-established performance goals set under the Company’s Section 162(m) Cash Bonus Plan and the PIP. Mr. Bergman’s 20082009 award under the Section 162(m) Cash Bonus Plan was based on the Company’s 20082009 EPS Target (weighted at 75% of his total award under both plans) and the average performance of the Company’s other executive officers with respect to their Business Financial Goal (weighted at 121/2% of his total award under both plans). Mr. Bergman’s 20082009 award under the PIP was based on the average performance for Individual Performance Goal of the Company’s other executive officers (weighted at 121/2% of his total award under both plans).
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The Compensation Committee determined that Mr. Bergman was eligible for a bonus under the Company’s Section 162(m) Cash Bonus Plan equal to $1,426,144$2,431,819 with respect to 20082009 performance. In making its bonus determination, the Compensation Committee certified the achievement of the 20082009 performance goals that were set in March 20082009 and evaluated the Company’s 20082009 EPS Target (as adjusted) and the average bonuses earned by the Company’s executive officers (including the Named Executive Officers) that related to the achievement of their objective Business Financial Goals as compared to their target bonus opportunities.
The Compensation Committee also determined that Mr. Bergman was eligible for a bonus under the 20082009 PIP equal to $234,384$223,819 with respect to 20082009 performance. In making such bonus determination, the Compensation Committee certified the achievement level of the average actual bonuses earned by the Company’s executive officers (including the Named Executive Officers) that relate to their objective Individual Performance Goals as compared to their target bonus goals. Such bonus was awarded based on the Company’s strong team-based approach and to further motivate Mr. Bergman to facilitate the individual performance of the Company’s executive officers.
Such achievements, under both the Section 162(m) Cash Bonus Plan and the 20082009 PIP, generated a total bonus amount of $1,660,528.$2,655,638. However, given the Company’s strong team-based approach, the Company’s general philosophy regarding executive compensation and current market conditions, Mr. Bergman suggested to the Compensation Committee that in determining his 20082009 bonus it should consider reducing his bonus in line with the percentage received by the other Named Executive Officers compared with their prior year’s bonuses. (The 20082009 PIP bonuses were, on average, 76%134% of the amounts payable to the Named Executive Officers (other than Mr. Bergman) with respect to their 2007 PIP.2008 PIP bonus.) The Compensation Committee considered and accepted Mr. Bergman’s proposal and reduced Mr. Bergman’s 20082009 bonus to $1,400,000 (78%$1,900,000 (136% of the amount Mr. Bergman received with respect to his 2007 PIP)2008 PIP bonus). The decision to adjust the amount payable to Mr. Bergman is in no way a reflection on his performance, but instead reflects the strong team-based philosophy of management.
Equity-Based Awards
The Company and the Compensation Committee believe that equity-based awards are an important factor in aligning the long-term financial interest of the officers and stockholders. The Compensation Committee continually evaluates the use of equity-based awards and intends to continue to use such awards in the future as part of designing and administering the Company’s compensation program. Beginning March 2009, equity-based awards were granted solely in the form of restricted stock and restricted stock units. (See “Compensation Structure—Pay Elements Details—Changes in Pay Elements for 2009”.) In 2006, 2007 and 2008, the Compensation Committee granted equity incentives with a mix of 50% options and 50% restricted stock or restricted stock units. The stated percentages were based on value, with values for options being based on the Black-Scholes option pricing model. Prior to 2006, the Compensation Committee granted equity incentives solely in the form of options. For all option awards, the exercise price of such options has always been the grant date closing market price per share and options useda time-based vesting and vestedschedule has been generally used, vesting in four equal annual installments beginning on the first anniversary of the grant date, provided that no termination of service had occurred.
The current method of allocating the equity-based awards solely to restricted stock and restricted stock units is designed to use fewer shares while continuing to provide long-term incentives with a strong retention component to participants. Performance-based restricted stock and restricted stock units vest 100% on the third anniversary of the grant date (three year cliff vesting) and time-based restricted stock and restricted stock
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units vest 100% on the fourth anniversary of the grant date (four year cliff vesting), in each case provided that no termination of service had occurred. For all participants, other than executive officers, the restricted stock/units are allocated as 50% performance-based awards and 50% time-based awards. Mr. Bergman receives his awards of restricted stock as 100% performance-based awards. Executive officers (other than Mr. Bergman) receive 65% of their awards in the form of performance-based restricted stock and 35% of their awards in the form of time-based restricted stock. Non-employee directors receive their awards of restricted stock units as 100% time-based awards. Except with respect to new hires, all grants are issued on the date they are approved by the Compensation Committee. In the case of new hires, grants are approved by the Compensation Committee for grant on the last business day of the fiscal quarter in which such grant was approved.
Awards of restricted stock and restricted stock units granted to the Named Executive Officers use performance-based vesting and vest at the end of three years if certain Company performance goals are met, provided that no termination of service has occurred (“Performance-Contingent Restricted Shares”).occurred. Performance goals are tied solely to growth of the Company’s diluted earnings
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per share (“EPS”). For 2006, 2007 and 2008, these performance goals were based on the Company’s long-term earnings growth objectives of earnings per share growth in the mid-teens (as a percentage) per year. For awards of performance-based restricted stock and restricted stock units granted in 2009 and 2010, we continue to tie the performance goals solely to the Company’s EPS but at a lower growth raterates to reflect current economic conditions. (See “Compensation Structure—Pay Elements Details—Changes in Pay Elements for 2009” for additional details.) On March 2, 20095, 2010, the performance-based restricted stock granted under the 20062007 LTIP vested with an achievement of 101.75%99.7% of the EPS performance goal and a payout awarded in shares of Company common stock equal to 130.71%96.25% of the original number of shares granted and not otherwise forfeited. WithAlthough at the time the goal is set, it is substantially uncertain that the goal will be achieved, with respect to equity-basedperformance-based equity awards granted in 2007 and 2008, given current economic conditions and expected Company performance to date, it is unlikelyanticipated that our executives will not earn the full target awards for those years’that year’s grants. With respect to performance-based equity awards granted in 2009, given improving economic conditions and Company performance to date, it is anticipated that our executives will earn more than the full target awards for that year’s grant. Pursuant to the 2006, 2007, 2008 and 20082009 LTIP, the Compensation Committee is required to (i) adjust the LTIP goals for acquisitions and new business ventures not initially considered when developing the target, (ii) exclude from the calculation of the 20082009 EPS items of gain, loss or expense related to the disposal of a business or discontinued operations, capital transactions undertaken by the Company during the fiscal year, the Company’s repurchase of any class of its securities during the fiscal year or changes in accounting principles or changes in applicable law or regulations and (iii) adjust the EPS target for items of gain, loss or expense that are related to extraordinary, special, unusual or non-recurring items, events or circumstances affecting the Company. To account for the impact of the Company’s stock buyback program, acquisitions, accounting changes and variouscertain capital transactions that occurred in 2008,2009, the Compensation Committee increaseddecreased the three year EPS goal for the Performance-Based Contingent Restricted Sharesperformance-based restricted stock granted in 20062007 by 0.5%1.1%, increaseddecreased the three year EPS goal for the Performance-Based Contingent Restricted Sharesperformance-based restricted stock granted in 20072008 by 0.9%0.7% and increased the three year EPS goal for the Performance-Based Contingent Restricted Sharesperformance-based restricted stock granted in 2009 by 0.6%.
In March 2009, in light of economic conditions, the Compensation Committee reduced the value of the equity-based awards for all participants receiving grants under the 1994 Stock Incentive Plan, including the Named Executive Officers, by 20% compared with the value of the equity-based awards given to such individuals in fiscal 2008 by 1.2%and in March 2010, the Compensation Committee determined that the value of such equity-based awards would remain consistent in value for the Named Executive Officers compared to the 2009 awards. Additionally, in March 2010, the Compensation Committee determined that 2010 LTIP awards of performance-based restricted stock would be capped at a maximum payout of 200%. Furthermore, based on a comparative review of similar companies, the Compensation Committee modified the vesting of equity grants made on or after March 2010 under the Company’s LTIP if termination of employment is due to retirement (solely with respect to restricted stock units), death, disability or change in control (as defined in the 1994 Stock Incentive Plan) to allow for pro-rated or accelerated vesting.
On March 10, 2010, Mr. Bergman was granted 17,133 performance-based restricted stock units (three year cliff vesting) with a grant date fair value of $960,000. Mr. Breslawski was granted 12,850 restricted stock units on March 10, 2010, (65% of which are performance-based with three year cliff vesting and 35% of which are time-based with four year cliff vesting) with a grant date fair value of $720,000. Each of Messrs. Paladino, Komaroff and Mlotek were granted 10,708 restricted stock units on March 10, 2010 (65% of which are performance-based with three year cliff vesting and 35% of which are time-based with four year cliff vesting) with a grant date fair value of $600,000. Each such grant was made under the Company’s 1994 Stock Incentive Plan.
Other Benefits and Perquisites
The Company’s executive compensation program also includes other benefits and perquisites. These benefits include annual matching contributions to executive officers’ 401(k) Plan accounts, annual allocations to the Company’s Supplemental Executive Retirement Plan (“SERP”) accounts, health benefits, automobile allowances and life insurance coverage. The Company annually reviews these other benefits and perquisites and makes adjustments as warranted based on competitive practices and the Company’s performance. In 2009, the Compensation Committee, effective January 1, 2010, increased the annual car allowance for those participating (including executive officers) from $18,000 per annum to $20,400 per annum. A portion of the administrative services provided to Mr. Bergman have been determined to be non-business related and such portion is included in his
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taxable income as additional compensation. In addition to the executive benefits and perquisites provided to other senior executives, Mr. Bergman is provided with use of an automobile provided by the Company. The Compensation Committee has approved these other benefits and perquisites as a reasonable component of the Company’s executive officer compensation program in light of historical and competitive practices. (See the “All Other Compensation” column in the Summary Compensation Table.)
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Pay Mix
We utilize the particular elements of compensation described above because we believe that it provides a well-proportioned mix of secure compensation, retention value and at-risk compensation which produces short-term and long-term performance incentives and rewards without encouraging excessiveinappropriate risk-taking by our executive officers. By following this approach, we provide the executive a measure of security with a minimum expected level of compensation, while motivating the executive to focus on business metrics that will produce a high level of short term and long-term performance for the Company and long-term wealth creation for the executive, as well as reducing the risk of recruitment of top executive talent by competitors. The mix of metrics used for our annual incentive program (i.e.,the PIP and the Section 162(m) Cash Bonus Plan) and our annual LTIP likewise provides an appropriate balance between short-term financial performance and long-term financial and stock performance.
For executive officers, the mix of compensation is weighted heavily toward at-risk pay (annual incentives and long-term incentives). Maintaining this pay mix results fundamentally in apay-for-performance orientation for our executives, which is aligned with our stated compensation philosophy of providing compensation commensurate with performance, while targeting pay at approximately the 50th50th percentile of the competitive market.
Pay Levels and Benchmarking
Pay levels for executive officers are determined based on a number of factors, including the individual’s roles and responsibilities within the Company, the individual’s experience and expertise, the pay levels for peers within the Company, pay levels in the marketplace for similar positions and performance of the individual and the Company as a whole. The Compensation Committee is responsible for approving pay levels for the executive officers. In determining the pay levels, the Compensation Committee considers all forms of compensation and benefits, using tools such as wealth creation tally sheets to review the total value delivered through all elements of pay.benefits.
The Compensation Committee assesses “competitive market” compensation using a number of sources. One of the data sources used in setting competitive market levels for the executive officers is the information publicly
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disclosed by a peer group of the Company, which is reviewed annually and may change from year to year. The peer group of companies is set by the Compensation Committee and consists of companies engaged in the distributionand/or manufacturing of healthcare products or industrial equipment and supplies. With Towers Perrin’s assistance, theThe Compensation Committee determines the peer group of companies based on the following considerations, among other things: (i) Standard Industrial Classification or SIC codes; (ii) Global Industry Classification System or GICS; (iii) companies identified by Hoover’s, Inc. as our peer companies; (iv) companies listed as peers by our current list of peer companies and (v) company size, including, among other things size by market capitalization, revenue and number of employees. Based on such analysis, the Compensation Committee has determined the peer group of companies to be Dentsply International Inc., MSC Industrial Direct Co., Inc., Omnicare, Inc., Owens & Minor, Inc., Patterson Companies, Inc., PSS World Medical, Inc. and W.W. Grainger, Inc. The Company also reviewsAt management’s direction, Towers Watson, a professional services/human resources consulting company, prepares the peer group analysis and comparative data supplied by Towers Perrin for companies with revenues between $4$6 billion and $8 billion.$10 billion for the Company. This information is shared with the Compensation Committee and the Compensation Committee reviews such information with its independent compensation consultant, Pearl Meyers & Partners.
After consideration of the data collected on external competitive levels of compensation and internal relationships within the executive group, the Compensation Committee makes decisions regarding individual executives’ target total compensation goals based on the need to attract, motivate and retain an experienced and effective management team.
Relative to the competitive market data, the Compensation Committee generally intends that the base salary and target annual incentive compensation for each executive will be at the median of the competitive market.
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As noted above, notwithstanding the Company’s overall pay positioning objectives, pay goals for specific individuals vary based on a number of factors such as scope of duties, tenure, institutional knowledgeand/or difficulty in recruiting a new executive. Actual total compensation in a given year will vary above or below the target compensation levels based primarily on the attainment of operating goals and the creation of stockholder value.
Conclusion
The level and mix of compensation that is finally decided upon is considered within the context of both the objective data from our competitive assessment of compensation and performance, as well as discussion of the subjective factors as outlined above. The Compensation Committee believes that each of the compensation packages is within the competitive range of practices when compared to the objective comparative data even where subjective factors have influenced the compensation decisions.
Post Termination and Change in Control
The Company has entered into an employment agreement with Mr. Bergman in order to ensure his continuing employment by the Company. This agreement currently extends through December 31, 2011, and may be renewed for successive three-year periods by the Company. The Board of Directors has determined that Mr. Bergman’s long-term commitment to the Company is a valuable asset to the organization. Under the agreement, the Company will provide certain severance benefits to Mr. Bergman upon the termination of his employment both before and after a change in control and under other post termination scenarios. For example, if Mr. Bergman’s employment with us is terminated (i) by us without cause, (ii) by Mr. Bergman for good reason, (iii) as a result of his disability or (iv) as a result of a non-renewal of the employment term by us, Mr. Bergman will receive, among other things, a severance payment equal to 200% of his then annual base salary plus 200% of his average annual incentive compensation paid or payable with respect to the immediately preceding three fiscal years, and for a period of two years after termination, Mr. Bergman will also be entitled to an office and related office support and use of the Company’s car service and, at Mr. Bergman’s option, use of an automobile. If Mr. Bergman resigns within two years following a change in control of the Company for good reason or if Mr. Bergman’s employment is terminated by us without cause within two years following a change in control or during a specified period in advance of a change in control, Mr. Bergman will receive, among other things, as severance pay, in lieu of the foregoing, 300% of his then annual base salary plus 300% of his incentive compensation paid or payable with respect to whichever of the immediately preceding two fiscal years of the Company ending prior to the date of termination was higher and all unvested outstanding options and shares of restricted stock will become fully vested. Mr. Bergman shall also be entitled to an office and related office support and use of the Company’s car service and, at Mr. Bergman’s option, use of an
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