UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
SCHEDULE 14A
(Rule 14a-101)
INFORMATION REQUIRED IN PROXY STATEMENT
SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of the Securities
Securities Exchange Act of 1934
(Amendment (Amendment No. )
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¨ | Confidential, for Use of the Commission Only (as permitted by Rule 14a-6(e)(2)) |
x | Definitive Proxy Statement |
¨ | Definitive Additional Materials |
¨ | Soliciting Material under |
International Flavors & Fragrances Inc.
International Flavors & Fragrances Inc.
(Name of Person(s) Filing Proxy Statement if other than the Registrant)
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(Name of Person(s) Filing Proxy Statement, if Other Than the Registrant)
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¨ | Fee computed on table below per Exchange Act Rules 14a-6(i)(1) and 0-11. |
Title of each class of securities to which transaction applies: |
(2) | Aggregate number of securities to which transaction applies: |
(3) | Per unit price or other underlying value of transaction computed pursuant to Exchange Act Rule 0-11 |
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(2) | Form, Schedule or Registration Statement No.: | |||
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![]() | International Flavors & Fragrances Inc. 521 West 57th Street New York, NY 10019 |
NOTICE OF 2013 ANNUAL MEETING OF SHAREHOLDERS
March 8, 2013
Dear Shareholder:
It is my pleasure to invite you to attend International Flavors & Fragrances Inc.’s 2013 Annual Meeting of Shareholders (the “2013 Annual Meeting”). The meeting will be held on Tuesday, April 30, 2013, at 10:00 a.m. Eastern Time at our corporate office, located at 521 West 57th Street, New York, NY 10019. At the meeting, you will be asked to:
3. | Approve, on an advisory basis, the compensation of our named executive officers in 2012. |
4. | Transact such other business as may properly come before the 2013 Annual Meeting and any adjournment or postponement of the 2013 Annual Meeting. |
Only shareholders of record as of the close of business on March 4, 2013 may vote at the Annual Meeting.
It is important that your shares be represented at the 2013 Annual Meeting, regardless of the number you may hold.Whether or not you plan to attend, please vote using the Internet, by telephone or by mail, in each case by following the instructions in our proxy statement. Doing so will not prevent you from voting your shares in person if you are present.
I look forward to seeing you on April 30, 2013.
International Flavors & Fragrances Inc.
521 West 57th Street
New York, NY 10019
Dear Shareholder:
I am pleased to invite you to attend the 2010 Annual Meeting of Shareholders of International Flavors & Fragrances Inc. to be held on Tuesday, April 27, 2010 at 10:00 A.M. Eastern Time at our offices at 521 West 57th Street, New York, New York 10019. (Attendees are requested to enter at 533 West 57th Street.) Details regarding the business to be conducted are described in the accompanying Notice of Annual Meeting and Proxy Statement.
Sincerely, |
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Douglas D. Tough |
Chairman and Chief Executive Officer |
We take advantage of the SEC’s rule that allows us to furnish our proxy materials to our shareholders over the Internet. We believe electronic delivery helps expedite the receipt of materials and, by printing and mailing a smaller volume, helps lower our costs and reduce the environmental impact of our annual meeting materials. Beginning on March 9, 2010,mailed a Notice of Internet Availability of Proxy Materials (which we refer to as the “Notice of Internet Availability”) or a full set of proxy materials will be mailed to our shareholders. The Notice of Internet Availability containscontaining instructions on how to access the Notice of Annual Meeting, Proxy Statement and Annual Report to Shareholders online. If you receive a Notice of Internet Availability, you will not receive a printed copy of these materials, unless you specifically request one. The Notice of Internet Availability contains instructions on how to receive a paper copy of the proxy materials.
Your vote is very important to us. Whether or not you plan to attend the meeting, I hope that you will vote as soon as possible. You may vote over the Internet, by telephone or, if you request or receive a printed copy of the proxy materials, by completing, signing and mailing a proxy card.
Sincerely,
Douglas D. Tough
Chairman and Chief Executive Officer
March 9, 2010
Important Notice Regarding the Availability of Proxy Materials for the Shareholder Meeting To Be Held on April 27, 2010.
Theour proxy statement and annual report to security holderson or about March 14, 2013.
Our proxy statement and annual report are available online atwww.proxyvote.com.
2010 ANNUAL MEETING OF SHAREHOLDERS
NOTICE OF ANNUAL MEETING AND PROXY STATEMENT
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PROXY STATEMENT
Proxy Statement for 2013 Annual Meeting of Shareholders to be held on April 30, 2013
I. INFORMATION ABOUT VOTING
You are receiving this proxy statement because you own shares of our common stock that entitle you to vote at the 2013 Annual Meeting of Shareholders. Our Board of Directors is soliciting proxies from shareholders who wish to vote at the meeting. By use of a proxy, you can vote even if you do not attend the meeting. This proxy statement describes the matters on which you are being asked to vote and provides information on those matters so that you can make an informed decision.
Date, Time and Place of the 2013 Annual Meeting
We will hold the 2013 Annual Meeting on Tuesday, April 30, 2013, at 10:00 a.m. Eastern Time at our corporate offices located at 521 West 57th Street, New York, NY 10019.
Questions and Answers about Voting at the 2013 Annual Meeting and Related Matters
Q: | What am I voting on? |
A: | At the 2013 Annual Meeting you will be asked to vote on the following three proposals. Our Board recommendation for each of these proposals is set forth below. |
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INTERNATIONAL FLAVORS & FRAGRANCES INC.
521 West 57th Street
New York, NY 10019
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
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521 West 57 Street
New York, NY 10019
(Attendees are requested to enter at 533 West 57 Street.)
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2. | To ratify the | FOR | |
3. To approve, on an advisory basis, the compensation of our named executive officers in 2012, which we refer to as “Say on Pay.” | FOR |
We also will consider other business that properly comes before the meeting in accordance with New York law and our By-laws.
Q: | Who can vote? |
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By Order of the Board of Directors,
Dennis M. Meany
Senior Vice President, General Counsel
and Secretary
ABOUT THE PROXY MATERIALS AND THE ANNUAL MEETING
Why am I receiving these proxy materials?
We are providing you with proxy materials, or access thereto, in connection with the solicitation by the Board of Directors of International Flavors & Fragrances Inc., a New York corporation (“IFF,” the “Company,” “we,” “us” or “our”), of proxies to be used at our 2010 Annual Meeting of Shareholders and at any adjournment or postponement. Shareholders are invited to attend the 2010 Annual Meeting, which will take place at 10:00 a.m. on Tuesday, April 27, 2010, and are requested to vote on the proposals described in this Proxy Statement.
A full set of printed proxy materials or a Notice of Internet Availability of Proxy Materials (“Notice of Internet Availability”) will be sent to record and beneficial shareholders starting on or around March 9, 2010, and the proxy materials, including the Notice of Annual Meeting, Proxy Statement and 2009 Annual Report, will be made available to shareholders on the Internet on March 9, 2010.
Why did I receive a Notice of Internet Availability of Proxy Materials instead of a full set of proxy materials? Alternatively, why did I receive a full set of printed proxy materials this year instead of a Notice of Internet Availability?
Pursuant to rules adopted by the Securities and Exchange Commission (“SEC”), we are providing access to the Company’s proxy materials over the Internet rather than printing and mailing the proxy materials to all shareholders. We believe electronic delivery will expedite the receipt of materials and will help lower our costs and reduce the environmental impact of our annual meeting materials. Therefore, a Notice of Internet Availability will be mailed to shareholders (or e-mailed, in the case of shareholders that have previously requested to receive proxy materials electronically) starting on or around March 9, 2010. The Notice of Internet Availability will provide instructions as to how shareholders may access and review the proxy materials on the website referred to in the Notice of Internet Availability or, alternatively, how to request that a copy of the proxy materials, including a proxy card, be sent to them by mail. The Notice of Internet Availability will also provide voting instructions. In addition, shareholders may request to receive the proxy materials in printed form by mail or electronically by e-mail on an ongoing basis for future shareholder meetings. Please note that, while our proxy materials are available at the IFF website referenced in the Notice of Internet Availability, no other information contained on the website is incorporated by reference in or considered to be a part of this document.
Certain of our record and beneficial shareholders may receive a full set of printed proxy materials this year instead of a Notice of Internet Availability either because that shareholder previously requested to receive materials in printed form or because the Company has the option to stratify its mailing by sending a Notice of Internet Availability to certain shareholders and a full printed set of proxy materials to others. The following questions and answers about the proxy materials and the Annual Meeting, while generally referring to the Notice of Internet Availability, apply equally to those shareholders receiving a full set of printed proxy materials.
What information is contained in these materials?
The information included in this Proxy Statement relates to proposals you will vote on at the 2010 Annual Meeting, the voting process, the compensation of directors and our most highly paid executive officers in 2009 and certain other information.
How may I obtain directions to attend the 2010 Annual Meeting of Shareholders and vote in person?
You may obtain directions to attend the meeting and vote in person by contacting the IFF operator at (212) 765-5500.
Why did I receive more than one Notice of Internet Availability?
You may receive multiple Notices of Internet Availability if you hold your shares of IFF’s common stock in multiple accounts (such as through a brokerage account and an employee benefit plan). If you are a participant in the Company’s Retirement Investment Fund Plan (401(k)) and have common stock in a plan account, you may receive a separate Notice of Internet Availability, and your proxy, when executed in accordance with the instructions in that Notice of Internet Availability, will serve as voting instructions for the plan trustee.If you hold your shares of IFF’s common stock in multiple accounts, you should vote your shares as described in each separate Notice of Internet Availability you receive.
If you are a shareholder of record, you may contact the Office of the Secretary, International Flavors & Fragrances Inc., 521 West 57 Street, New York, New York 10019 (telephone: (212) 765-5500) if you are currently receiving multiple Notices of Internet Availability and want to request delivery of a single Notice of Internet Availability in the future. If your shares are held in “street name” and you want to increase or decrease the number of Notices of Internet Availability delivered to your household in the future, you should contact your broker, bank or other custodian who holds the shares on your behalf.
What is the difference between a “shareholder of record” and a “street name” holder?
If your shares are registered directly in your name with IFF’s transfer agent, American Stock Transfer & Trust Company (“AST”), you are considered a “shareholder of record” or a “registered shareholder” of those shares. In this case, your Notice of Internet Availability has been sent to you directly by IFF.
If your shares are held in a stock brokerage account or by a bank, trust or other nominee or custodian (each, a “Broker”), including shares you may own as a participant in the Company’s Retirement Investment Fund Plan (401(k)),one of our 401(k) plans, you are considered the “beneficial owner” of those shares, which are held in “street name.” A Notice of Internet Availability has been forwarded to you by or on behalf of your broker, bank, trustee or other holder,Broker, who is considered the shareholder of record of those shares. As the beneficial owner, you have the right to direct your broker, bank, trustee or other holder of record as toBroker how to vote your shares by following its instructions for voting.
Who is entitled
Q: | How do I vote? |
A: | If you are a shareholder of record, you may vote: |
via Internet;
by telephone;
by mail, if you received a paper copy of the proxy materials; or
in person at the meeting.
Detailed instructions for Internet and telephone voting are set forth on the Notice, which contains instructions on how to access our proxy statement, annual report and shareholder letter online, and the printed proxy card.
If your shares are held in one of our 401(k) plans, your proxy will serve as a voting instruction for the trustee of the 401(k) plan, who will vote your shares as you instruct. To allow sufficient time for the trustee to vote, atyour voting instructions must be received by 11:59 pm Eastern Time on April 25, 2013. If the 2010trustee does not receive your instructions by that date, the trustee will vote the shares you hold through the 401(k) plan in the same proportion as those shares in the 401(k) plan for which voting instructions were received.
If you are a beneficial shareholder, you must follow the voting procedures of your Broker.
Q: | How many votes are needed to elect the director nominees (Proposal 1)? |
A: | Under our By-laws, in an uncontested election of directors, as we have this year, the affirmative vote of a majority of the votes cast is required for the election of directors, which means that a nominee must receive a greater number of votes “FOR” his or her election than votes “AGAINST” in order to be elected. |
Q: | How many votes are needed to approve the ratification of the independent registered public accounting firm (Proposal 2)? |
A: | Under our By-laws, the affirmative vote of a majority of the votes cast is required to ratify the selection of PwC as our independent registered public accounting firm for the 2013 fiscal year. |
Q: | How many votes are needed to approve the advisory proposal regarding Say on Pay (Proposal 3)? |
A: | Proposal 3 is an advisory vote. This means that while we ask shareholders to approve a resolution regarding Say on Pay, it is not an action that requires shareholder approval. If a majority of votes are cast “FOR” the Say on Pay proposal, we will consider the proposal to be approved. |
Q: | What if I abstain from voting on a proposal? |
A: | If you sign and return your proxy marked “abstain,” your shares will be counted for purposes of determining whether a quorum is present. For Proposals 1, 2 and 3, abstentions are not counted as votes cast, and will not affect the outcome of the vote. |
Q: | What if I am a beneficial shareholder and I do not give the nominee voting instructions? |
A: | If you are a beneficial shareholder and your shares are held in “street name,” the Broker is bound by the rules of the New York Stock Exchange (“NYSE”) regarding whether or not it can exercise discretionary voting power for any particular proposal if the Broker has not received voting instructions from you. Brokers have the authority to vote shares for which their customers do not provide voting instructions on certain routine matters. A broker non-vote occurs when a Broker returns a proxy but does not vote on a particular proposal because the Broker does not have discretionary authority to vote on the proposal and has not received specific voting instructions for the proposal from the beneficial owner of the shares. Broker non-votes are considered to be present at the meeting for purposes of determining the presence of a quorum but are not counted as votes cast. |
The table below sets forth, for each proposal on the ballot, whether a Broker can exercise discretion and vote your shares absent your instructions and if not, the impact of such Broker non-vote on the approval of the proposal.
Proposal | Can Brokers Vote Absent Instructions? | Impact of Broker Non-Vote | ||
Election of Directors | No | None | ||
Ratification of Auditors | Yes | Not Applicable | ||
Say on Pay | No | None |
Q: | What if I sign and return my proxy without making any selections? |
A: | If you sign and return your proxy without making any selections, your shares will be voted “FOR” each of the director nominees, and “FOR” each of the two other proposals. If other matters properly come before the meeting, the proxy holders will have the authority to vote on those matters for you at their discretion. If your shares are held in “street name,” see the question above on how to vote your shares. |
Q: | How do I change my vote? |
A: | A shareholder of record may revoke his or her proxy by giving written notice of revocation to our Corporate Secretary before the meeting, by delivering a later-dated proxy (either in writing, by telephone or over the Internet), or by voting in person at the 2013 Annual Meeting. |
If your shares are held in “street name,” you may change your vote by following your nominee’s procedures for revoking or changing your proxy.
Q: | What shares are covered by my proxy card? |
A: | Your proxy reflects all shares owned by you at the close of business on March 4, 2013. For participants in our 401(k) plans, shares held in your account as of that date are included in your proxy. |
Q: | What does it mean if I receive more than one proxy card? |
A: | If you receive more than one proxy card, it means that you hold shares in more than one account. To ensure that all your shares are voted, you should sign and return each proxy card. Alternatively, if you vote by telephone or on the Internet, you will need to vote once for each proxy card and voting instruction card you receive. |
Q: | Who can attend the 2013 Annual Meeting? |
A: | Only shareholders and our invited guests are permitted to attend the 2013 Annual Meeting. To gain admittance, you must bring a form of personal identification to the meeting, where your name will be verified against our shareholder list. If a nominee holds your shares and you plan to attend the meeting, you should bring a brokerage statement showing your ownership of the shares as of the record date or a letter from the nominee confirming such ownership, and a form of personal identification. If you wish to vote your shares that are held by a nominee at the meeting, you must obtain a proxy from your nominee and bring such proxy to the meeting. |
Q: | If I plan to attend the 2013 Annual Meeting, should I still vote by proxy? |
A: | Yes. Casting your vote in advance does not affect your right to attend the 2013 Annual Meeting. If you send in your proxy card and also attend the meeting, you do not need to vote again at the meeting unless you want to change your vote. Written ballots will be available at the 2013 Annual Meeting for shareholders of record. |
II. PROPOSAL I — ELECTION OF DIRECTORS
IFF’sOur Board of Directors currently has established March 1, 2010 aseleven members. Upon the record daterecommendation of the Nominating and Governance Committee of our Board, our Board has nominated each of our current directors and one new nominee, Christina Gold, for election at the 20102013 Annual Meeting of Shareholders. Only shareholders of record at the close of business on the record date are entitled to receive notice of the annual meeting and to vote at the 2010 Annual Meeting. At the close of business on March 1, 2010, there were 79,277,163 outstanding shares of IFF’s common stock. Each share of common stock is entitled to one vote on each matter properly brought before the 2010 Annual Meeting.
What will I vote on?
There are three proposals scheduled to be voted on at the 2010 Annual Meeting:
the election of 11 members of the Board of Directors, each to hold office for a one-year term that expires at the 2014 Annual Meeting. Each nominee has consented to serve if elected. Proxies cannot be voted for a greater number of persons than the number of nominees named.
Pursuant to our Corporate Governance Guidelines, a person that has previously served for twelve consecutive full annual terms on the Board cannot continue to serve as a director following the subsequent annual meeting of shareholders, unless (i) such person is a “Grandfathered Person” or one of our officers or (ii) the Board has made a determination that the nomination of such person would be in the best interests of our Company and our shareholders. “Grandfathered Persons” are eligible to serve as directors until the Annual Meeting in 2011;
annual meeting of shareholders which occurs after the ratification of PricewaterhouseCoopers LLP as our independent registered public accounting firm for 2010; and
date that the approvaldirector has turned 72. As of the 2010 Stock Awarddate of this proxy statement, Mr. Martinez, a “Grandfathered Person,” is 73. Pursuant to the recommendation of the Nominating and Incentive Plan.
How many votes must be presentGovernance Committee, the Board has determined that it is in the best interests of the Company and our shareholders to holdre-nominate Mr. Martinez for an additional term in light of his extensive experience and substantial contribution as Lead Director of the 2010 Annual Meeting?Board.
A “quorum”We believe that each of our nominees possesses the experience, skills and qualities to fully perform his or her duties as a director and to contribute to our success. Each of our nominees is necessarybeing nominated because he or she possesses the highest standards of personal integrity and interpersonal and communication skills, is highly accomplished in his or her field, has an understanding of the interests and issues that are important to holdour shareholders and is able to dedicate sufficient time to fulfilling his or her obligations as a director. Our nominees as a group complement each other and each other’s respective experiences, skills and qualities. The Nominating and Governance Committee retained an independent global search firm, which identified Ms. Gold as a potential nominee for director. Thereafter, the 2010 Annual Meeting. A quorum is established ifNominating and Governance Committee evaluated Ms. Gold’s qualifications in light of the holdersCompany’s guidelines and initiated a process that resulted in her nomination as a director, including interviews with the Chair of the Nominating and Governance Committee, the Lead Director and the Chairman of the Board. The Nominating and Governance Committee recommended Ms. Gold as a nominee because of a majoritynumber of valuable characteristics she would bring to the votes entitledBoard, including her extensive international and domestic business experience, her familiarity with the Company’s customer base, her financial expertise and her prior experience as a chief executive officer.
Each nominee’s principal occupation and other pertinent information about the particular experience, qualifications, attributes and skills that led the Board to be cast by shareholders are present atconclude that such person should serve as a director appears on the meeting, either in person or by proxy.
Abstentions and broker non-votes are counted as present for purposes of determining a quorum. Shares of common stock represented by executed proxies received by the Company will be counted for purposes of establishing a quorum at the meeting, regardless of how or whether such shares are voted on any specific proposal.following pages.
What are the voting recommendations of IFF’sThe Board of Directors?
IFF’s Board of Directors recommends that youa vote your shares as follows:
“FOR”FOR the election of each of the 11 nominees to the Board;
“FOR” the ratification of the selection of PricewaterhouseCoopers LLP as IFF’s independent registered public accounting firm for 2010; and
“FOR” the approval of the 2010 Stock Award and Incentive Plan.
How do I vote?
You may vote in several different ways:
In person at the 2010 Annual Meeting
You may vote in person at the 2010 Annual Meeting. You may also be represented by another person at the meeting by executing a proxy properly designating that person. If you are the beneficial owner of shares held in “street name,” you must obtain a legal proxy from your broker, bank or other holder of record and present it to the inspectors of election with your ballot to be able to vote at the meeting.
By telephone
You may vote by calling the telephone number specified on the website provided in the Notice of Internet Availability. Please have your Notice of Internet Availability handy when you call and use any touch-tone phone to transmit your voting instructions.
By Internet
You may vote by using the Internet, www.proxyvote.com, to submit your voting instructions. Please have your Notice of Internet Availability handy when you go online. If you vote on the Internet, you may also request electronic delivery of future proxy materials.
By mail
You may vote by completing, signing, dating and returning a proxy card which will be mailed to you if you request delivery of a full set of proxy materials. A proxy card may also be mailed to you, at the Company’s option, beginning on or after the tenth day following the mailing of the Notice of Internet Availability. In either case, a postage-paid envelope will be provided along with the proxy card.
Telephone and Internet voting for shareholders of record will be available until 11:59 PM Eastern Time on April 26, 2010. A mailed proxy card must be received by April 26, 2010 in order to be voted at the Annual Meeting. If you are a 401(k) plan participant, telephone and Internet voting will be available until, or your mailed proxy card must be received by, 11:59 P.M. Eastern Time on April 22, 2010. The availability of telephone and Internet voting for beneficial owners of other shares held in “street name” will depend on your broker, bank or other holder of record and we recommend that you follow the voting instructions on the Notice of Internet Availability that you receive from them.
If you are mailed a set of proxy materials and a proxy card or voting instruction card and you choose to vote by telephone or by Internet, you do not have to return your proxy card or voting instruction card. However, even if you plan to attend the 2010 Annual Meeting, we recommend that you vote your shares in advance so that your vote will be counted if you later decide not to attend the meeting.
How can I change my vote?director nominees.
If you are a shareholder of record, you may revoke your proxy before it is exercised by:
Sending a written notice to the Office of the Secretary, International Flavors & Fragrances Inc., 521 West 57 Street, New York, New York 10019 stating that your proxy is revoked. The notice must be received prior to the 2010 Annual Meeting;
Signing and delivering a later-dated proxy card to the Office of the Secretary after voting by telephone or using the Internet, so that it is received prior to the 2010 Annual Meeting;
Voting by telephone or using the Internet after the date of your proxy card and before the 2010 Annual Meeting; or
Attending the 2010 Annual Meeting and voting in person by ballot. Your attendance at the 2010 Annual Meeting in person will not cause your previously granted proxy to be revoked unless you specifically so request or you vote by ballot at the meeting.
If you are a beneficial owner of shares held in “street name”, you may submit new proxy voting instructions by contacting your bank, broker or other holder of record.
![]() | Marcello V. Bottoli, 51 — An Italian national with extensive international experience, Mr. Bottoli has been an operating partner of Advent International, a global private equity firm, since 2010, and served as Interim Chief Executive Officer of Pandora A/S, a designer, manufacturer and marketer of hand-finished and modern jewelry, from August 2011 until March 2012. Mr. Bottoli served as President and Chief Executive Officer of Samsonite Inc., a luggage manufacturer and distributor, from March 2004 through January 2009, and President and Chief Executive Officer of Louis Vuitton Malletier, a manufacturer and retailer of luxury handbags and accessories, from 2001 through 2002. Previously, Mr. Bottoli played a number of roles with Benckiser N.V., and then Reckitt Benckiser plc, a home, health and personal care products company, following the merger of Benckiser with Reckitt & Colman Ltd. His experience as a chief executive and emphasis on consumer products, strategic insights and marketing has enabled Mr. Bottoli to provide many insights and contributions to our Board. Mr. Bottoli serves on the board of directors of True Religion Apparel, Inc., a California-based fashion jeans, sportswear and accessory manufacturer and retailer, is Chairman of Pharmafortune S.A., a pharmaceuticals and biotechnology manufacturer, is Deputy Chairman of Blushington LLC, a makeup and beauty services retailer, and is Deputy Chairman of Pandora A/S. He has served on our Board since 2007. | |
![]() | Linda B. Buck, 66 — Dr. Linda Buck has been a Howard Hughes Medical Institute Investigator since 1994, a Member of the Fred Hutchinson Cancer Research Center, a biomedical research institute, since 2002, and Affiliate Professor of Physiology and Biophysics at the University of Washington since 2003. Dr. Buck’s research has provided key insights into the mechanisms underlying the sense of smell. This experience is useful to our research and development efforts in both flavors and fragrances, as is Dr. Buck’s technical background in evaluating a host of issues. Dr. Buck is the recipient of numerous awards, including The Nobel Prize in Physiology or Medicine in 2004. Dr. Buck served on the board of directors of DeCode Genetics Inc., a biotechnology company, from 2005 to 2009 and joined our Board in 2007. |
How are votes counted?
J. Michael Cook, 70 — Mr. Cook retired as Chairman and Chief Executive Officer of Deloitte & Touche, a leading global professional services firm, in 1999, and has been a leader of his profession. His experience as a Chief Executive Officer and in accounting and corporate governance is an asset to us, and he is one of the leaders of our Board. He has served as Chairman of the American Institute of Certified Public Accountants and as a member of its Auditing Standards Board. He led the Board of the Financial Accounting Foundation, the overseer of accounting standards boards, and the World Congress of Accountants. Mr. Cook is an emeritus member of the Advisory Council of the Public Company Accounting Oversight Board (“PCAOB”), is a member of the PCAOB’s Standing Advisory Group, and was a member of the Securities and Exchange Commission’s Advisory Committee on Improvements to Financial Reporting. In 2002, Mr. Cook was named one of the Outstanding Directors in America by Director’s Alert and was a member of the National Association of Corporate Directors’ Blue Ribbon Commission on Director Professionalism and Audit Committees. He served as a director of Eli Lilly until April 2009 and Dow Chemical Company until May 2006 and is currently a director of Comcast Corporation and Chairman of the Board of Comeback America Initiative (CAI). Mr. Cook joined our Board in 2000.
Roger W. Ferguson, Jr., 61 — Mr. Ferguson has been the President and Chief Executive Officer of TIAA-CREF, a major financial services company, since 2008. Mr. Ferguson was an associate and partner at McKinsey & Company from 1984 to 1997 and also was an associate with a major law firm. Mr. Ferguson has also served in various policy-making positions, including as Vice-Chairman of the Board of Governors of the U.S. Federal Reserve System from 1999 until 2006, and as Chairman of Swiss America Holding Corporation, a global reinsurance company, from 2006 until 2008. Mr. Ferguson currently serves on the Advisory Committee of Brevan Howard Asset Management LLP, a global alternative asset manager, and is a director of Audax Health, an end-to-end digital health company. He was also a member of the President’s Council on Jobs and Competitiveness and serves on the board of a number of charitable and non-governmental organizations, including the Committee on Economic Development, Memorial Sloan-Kettering Cancer Center and the Economic Club of New York. His background provides excellent experience for dealing with the varied financial and other issues which our Board deals with on a regular basis. Mr. Ferguson has been a member of our Board since 2010.
Andreas Fibig, 51 — Based in Berlin, Germany, Mr. Fibig has been President and Chairman of the Board of Management of Bayer HealthCare Pharmaceuticals, the pharmaceutical division of Bayer AG, since September 2008. Prior to this position, Mr. Fibig held a number of positions of increasing responsibility at Pfizer Inc., a research-based pharmaceutical company, including as Senior Vice President in the US Pharmaceutical Operations group from 2007 through 2008 and as President, Latin America, Africa and Middle East from 2006 through 2007. These positions, including prior work experience with pharmaceutical companies Pharmacia GmbH and Boehringer Ingelheim GmbH, have provided him with extensive experience in international business, product development and strategic planning, which are assets to our Board. Mr. Fibig is a board member of EFPIA, the European Federation of Pharmaceutical Industries and Associations, Council of the Americas and vfa, the German Association of Research-Based Pharmaceutical Companies. He chairs the Board of Trustees of the Max Planck Institute for Infection Biology. He joined our Board in 2011.
Christina Gold, 64 — From September 2006 until September 2010, Ms. Gold was Chief Executive Officer, President and a director of The Western Union Company, a leading company in global money transfer. She was President of Western Union Financial Services, Inc. and Senior Executive Vice President of First Data Corporation, former parent company of The Western Union Company and provider of electronic commerce and payment solutions, from May 2002 to September 2006. Prior to that, Ms. Gold served as Vice Chairman and Chief Executive Officer of Excel Communications, Inc., a former telecommunications and e-commerce services provider, from October 1999 to May 2002. From 1998 to 1999, Ms. Gold served as President and CEO of Beaconsfield Group, Inc., a direct selling advisory firm that she founded. Prior to founding Beaconsfield Group, Ms. Gold spent 28 years (from 1970 to 1998) with Avon Products, Inc., a leading global beauty company, in a variety of positions, including as Executive Vice President, Global Direct Selling Development, Senior Vice President and President of Avon North America, and Senior Vice President & CEO of Avon Canada. Ms. Gold is currently a director of ITT Corporation, a manufacturer of highly engineered components and technology solutions for industrial markets, New York Life Insurance, a private mutual life insurance company and Exelis, Inc., a diversified, global aerospace, defense and information solutions company. She also sits on the board of Safe Water Network, a non-profit organization working to develop locally owned, sustainable solutions to provide safe drinking water. Her wide-ranging global leadership, management and marketing experience as a chief executive officer and service as a director makes Ms. Gold well-suited to address the operational and financial matters that our Board faces. Ms. Gold is a nominee for election as a new director at the 2013 Annual Meeting.
In the election of the directors, your vote may be cast “FOR” or “AGAINST” a nominee or you may “ABSTAIN”. Likewise, for the other proposals, your vote may be cast “FOR”, “AGAINST” or you may “ABSTAIN”.
Additional information concerning the required vote for each proposal, including the treatment of abstentions and broker non-votes, is included on this page below under the heading “How many votes are needed to approve the proposals?”.
All executed proxies will be voted in accordance with the voting instructions contained in those proxies. If you are a shareholder of record and you furnish your proxy using the Internet, by phone or by returning a proxy card but do not indicate your voting preferences, the persons named in the proxy will vote your shares represented by that proxy in accordance with the recommendation of our Board of Directors as described under the heading “What are the voting recommendations of IFF’s Board of Directors?”.
Who will count the votes?
A representative from Broadridge Financial Solutions, Inc. will tabulate the votes and serve as the Company’s inspector of election at the 2010 Annual Meeting.
What is an abstention?
An “abstention” occurs when a shareholder executes a proxy using the Internet, by phone or by returning a proxy card, but he or she refrains from voting as to a particular matter by indicating that he or she “abstains” as to that matter.
What is a broker non-vote?
A “broker non-vote” occurs when a brokerage firm or other nominee holding shares for a beneficial owner does not vote on a particular proposal because the nominee does not have authority to vote on a “non-routine” proposal without receiving voting instructions from the beneficial owner. To the extent that they have not received voting instructions on a “non-routine” proposal, brokers report such number of shares as “non-votes”.
Due to recent changes under New York Stock Exchange (“NYSE”) rules, this year the election of directors (Item 1 in this Proxy Statement) will be treated as a “non-routine” proposal. In addition, approval of the 2010 Stock Award and Incentive Plan (Item 3 in this Proxy Statement) is a “non-routine” proposal. This means that if a brokerage firm holds your shares on your behalf, those shares will not be voted in the election of directors or approval of the 2010 Stock Award and Incentive Plan unless you provide instructions to that firm by voting your proxy.
The ratification of the selection of an independent registered public accounting firm (Item 2 in this Proxy Statement) is considered a “routine” proposal, and brokers generally may vote on behalf of beneficial owners who have not furnished voting instructions, subject to the rules of the NYSE concerning transmission of proxy materials to beneficial owners, and subject to any proxy voting policies and procedures of those brokerage firms.
In order to ensure that any shares held on your behalf by a brokerage firm or other organization are voted in accordance with your wishes, we encourage you to provide instructions to that firm or organization by voting your proxy.
How many votes are needed to approve the proposals?
The affirmative vote of a majority of the votes cast is required for the election of directors, which means that a nominee must receive a greater number of votes “FOR” his or her election than votes “AGAINST” in order to be elected. Votes cast do not include any abstentions or broker non-votes with respect to a nominee’s election and, therefore abstentions and broker non-votes will have no effect on the outcome of the elections. Our By-laws include this majority voting standard for uncontested elections and provide that any director nominee in an uncontested election who does not receive an affirmative majority of votes cast must promptly offer his or her resignation. A description of the process which, under our By-laws and Corporate Governance Guidelines, will be followed if such an event occurs, is included in this Proxy Statement under the heading Proposals Requiring Your Vote-Item 1-Election of Directors.
The affirmative vote of a majority of the votes cast is required to approve the 2010 Stock Award and Incentive Plan, provided that the total votes cast on this proposal represent more than 50% of the outstanding shares entitled to vote on this proposal. In other words, for purposes of this proposal, the sum of votes cast “for” and “against” this proposal plus abstentions must exceed 50% of the number of outstanding shares of our common stock. Pursuant to NYSE rules, abstentions will count as votes cast and will have the same effect as votes cast against the proposal. Broker non-votes will not count as votes cast because brokers do not have the authority to vote shares on this proposal without direction from the beneficial owner. Thus, failure to direct your vote will make it less likely that the total votes cast on this proposal will represent more than 50% of the outstanding shares of our common stock, which could impair our ability to approve the 2010 Stock Award and Incentive Plan.
The affirmative vote of a majority of the votes cast is required to ratify the selection of PricewaterhouseCoopers LLP (PwC) as the Company’s independent registered public accounting firm for 2010. Votes cast do not include any abstentions or broker non-votes with respect to this proposal and, therefore abstentions and broker non-votes will have no effect on the outcome of this proposal.
Where can I find the voting results of the 2010 Annual Meeting?
IFF will announce preliminary voting results at the 2010 Annual Meeting and will publish final results in a Current Report on Form 8-K to be filed with the SEC within 4 business days of the 2010 Annual Meeting.
Do I need an admission ticket to attend the 2010 Annual Meeting?
You will need either an admission ticket or proof that you own IFF shares to enter the 2010 Annual Meeting. If you plan to attend the meeting and have received a proxy card, please bring the admission ticket accompanying the proxy card and check the box on that proxy card indicating that you will be attending. If you are a shareholder of record and you vote by Internet or telephone, you may also indicate if you plan to attend the meeting. If you do not have an admission ticket, you must bring evidence of your ownership of IFF stock (which, if you are a beneficial holder, can be obtained from your bank, broker or other record holder of your shares), in order to be admitted. You may also request a ticket by writing to the Office of the Secretary, International Flavors & Fragrances Inc., at the address noted above. Evidence of your ownership must accompany your letter. You must also present a form of personal photo identification in order to be admitted to the meeting.
How do I obtain a separate Notice of Internet Availability if I share an address with other shareholders?
When more than one shareholder of record of IFF’s common stock shares the same address, we may deliver only one Notice of Internet Availability to that address unless we have received contrary instructions from one or more of those shareholders. Similarly, brokers and other nominees holding shares of IFF’s common stock in “street name” for more than one beneficial owner with the same address may deliver only one Notice of Internet Availability to that address if they have received consent from those beneficial owners. We will deliver promptly upon written or oral request a separate Notice of Internet Availability to any shareholder, including a beneficial owner of shares held in “street name,” at a shared address to which a single Notice of Internet Availability was delivered. To receive additional Notices of Internet Availability, or if you are a shareholder of record and would like to receive separate Notices of Internet Availability for future annual meetings, you may call or write the Office of the Secretary, International Flavors & Fragrances Inc., 521 West 57 Street, New York, New York 10019 (telephone: 212-765-5500). If you are a beneficial owner of shares held in “street name” and would like to receive separate Notices of Internet Availability, you may contact your bank, broker or other holder of record. In addition, if you are a shareholder of record who shares the same address with another shareholder of record and you currently receive separate copies of the Notice of Internet Availability, you may write or call the Office of the Secretary as indicated above to request that a single Notice of Internet Availability be delivered to that address.
Who pays for the cost of this proxy solicitation?
IFF will pay the entire cost of soliciting proxies. In addition to solicitation by mail, proxies may be solicited on the Company’s behalf by directors, officers or employees in person, by telephone, by facsimile or by electronic mail. The Company has retained Georgeson Inc. to assist in proxy solicitation for a fee of $7,500 plus expenses. The Company will reimburse banks, brokers and other custodians, nominees and fiduciaries for their costs in sending proxy materials to the beneficial owners of the Company’s common stock.
How can I obtain a copy of IFF’s Annual Report on Form 10-K for the year ended December 31, 2009?
IFF will on a request in writing provide without charge to each person from whom proxies are being solicited for the 2010 Annual Meeting a copy of our Annual Report on Form 10-K for the year ended December 31, 2009, including the financial statements and any schedules, required to be filed with the Securities and Exchange Commission, excluding exhibits. We may impose a reasonable fee for providing the exhibits to the Form 10-K. Requests should be made to Office of the Secretary, International Flavors & Fragrances Inc., 521 West 57 Street, New York, N.Y. 10019. IFF’s Annual Report on Form 10-K is also available free of charge through the Investor Relations—SEC Filings link on our website,www.iff.com.
![]() | Alexandra A. Herzan, 53 — As the granddaughter of our founder, Ms. Herzan has a long-term understanding of many aspects of our operations and brings a unique perspective to Board deliberations. Ms. Herzan has been the President and Treasurer of the Lily Auchincloss Foundation, Inc., a charitable foundation, since 1997, and a director of the van Ameringen Foundation, Inc., since 1992. These positions have provided executive and leadership experience, as well as an understanding of corporate governance, strategy and financial management at the Board level. As a trustee of a number of private trusts, as well as the Museum of Modern Art in New York City, she developed financial savvy translatable to our business. She also sits on the boards of the Fountain House and the Masters School, both not-for-profit organizations. Ms. Herzan joined our Board in 2003. | |
![]() | Henry W. Howell, Jr., 71 — Until 2000, Mr. Howell served in various positions during his 34 years with J.P. Morgan, a financial services firm, and secured extensive business development, finance and international management experience which enables Mr. Howell to provide both a public and a private sector perspective on corporate finance, corporate governance and mergers and acquisitions. This experience also serves us well in conjunction with his service on our Nominating and Governance and Audit Committees. While at J.P. Morgan, Mr. Howell had several overseas assignments including head of banking operations in Germany and Chief Executive Officer of J.P. Morgan’s Australian merchant banking affiliate, which was publicly listed. Both of these positions enhanced his ability to analyze complex international business and financial matters. He is currently on the board of the Norton Museum and is a life trustee of the Chicago History Museum. Mr. Howell joined our Board in 2004. | |
![]() | Katherine M. Hudson, 66 — As Chairperson, President and Chief Executive Officer of Brady Corporation, a global manufacturer of identification solutions and specialty industrial products, from 1994 until 2004, Ms. Hudson oversaw a doubling of annual revenues. Her prior experience over 24 years with Eastman Kodak covered various areas of responsibility, including systems analysis, supply chain, finance and information technology. This broad experience has translated to sound guidance to our Board. Ms. Hudson has served as a director on the boards of Apple Computer Corporation, a designer and manufacturer of consumer electronics and software products, CNH Global NV, a manufacturer of agricultural and construction equipment, and, between 2000 and 2012 Charming Shoppes, Inc., a woman’s specialty retailer. Ms. Hudson has served on our Board since 2008. | |
![]() | Arthur C. Martinez, 73 — Having served as Chairman and Chief Executive Officer of Sears, Roebuck and Company, a large retailer, from 1995 until 2000, Mr. Martinez obtained experience on a myriad of issues arising in a large corporation. This experience, together with the financial expertise which led him to be Chairman of the Board of the Federal Reserve Bank of Chicago from 2000 until 2002, enables him to provide expert guidance and leadership to us and our Board of Directors. He is currently a director of IAC/InterActiveCorp, a leading internet company, Fifth and Pacific, Inc., a retail-based premium brands company, American International Group, Inc., an insurance and financial services organization, and is currently Chairman of the Board of HSN, Inc., an interactive multi-channel retailer. He also served as a director of PepsiCo, Inc. from 1999 to 2012, and is currently trustee of numerous charitable organizations, including Northwestern University, the Chicago Symphony, Greenwich Hospital and Maine Coast Heritage Trust. Mr. Martinez joined our Board in 2000. | |
![]() | Dale F. Morrison, 64 — Mr. Morrison has been a founding partner of TriPointe Capital Partners, a private equity firm, since 2011. Prior to TriPointe, he served from 2004 until 2011 as the President and Chief Executive Officer of McCain Foods Limited, an international leader in the frozen food industry. A food industry veteran, his experience includes service as Chief Executive Officer and President of Campbell Soup Company, various roles at General Foods and PepsiCo and as an operating partner of Fenway Partners, a private equity firm. Mr. Morrison is a seasoned executive with strong consumer marketing and international credentials and his knowledge of our customer base is invaluable to our Board. Mr. Morrison is currently a Director of the Center of Innovation at the University of North Dakota, the Non-Executive Chairman of Findus Group, a frozen foods company, and a Director of InterContinental Hotels Group, an international hotel company, and he previously served as a director of Trane, Inc. He joined our Board in 2011. | |
![]() | Douglas D. Tough, 63 — Mr. Tough has been our Chairman and Chief Executive Officer since March 2010. Previously, he served as Chief Executive Officer and Managing Director of Ansell Limited, a global leader in healthcare barrier protection, from 2004 until March 2010. Mr. Tough joined our Board in 2008 and served as our non-Executive Chairman from October 2009 until he became our CEO. Mr. Tough’s experience as a Chief Executive Officer of a major global company is directly translatable to his work as our Chairman and CEO, as is his prior 17 year service with Cadbury Schweppes Plc., a major food and beverage company, where he served in a variety of executive positions throughout North America and the rest of the world. Mr. Tough is currently a director of Molson Coors Brewing Company, a multi-national beverage company. |
Corporate Governance Guidelines
Our Board of Directors has responsibilityis responsible for overseeing the management of theour Company. The Board has adopted Corporate Governance Guidelines which summarize set forth our governance principles relating to, among other things:
director independence;
director qualifications and responsibilities;
board structure and meetings;
management succession; and
the practices the Board will follow with respect to Board membership and selection, responsibilities of directors, Board meetings,performance evaluation of theour Board and Chief Executive Officer (“CEO”), succession planning, Board committees and director compensation. In February 2010, the Nominating and Governance Committee and the Board reviewed and revised the Corporate Governance Guidelines. .
A copy of the Company’sour Corporate Governance Guidelines is available through the Investor Relations—Investors — Corporate Governance link on our website, www.iff.com.
The Board has affirmatively determined that our new director nominee, Ms. Gold, and each of our current directors (other than Mr. Tough) meet our independence requirements and those of the Company’s website,www.iff.com.NYSE’s corporate governance listing standards. In making each of these independence determinations, the Board considered all of the information provided by each director in response to detailed inquiries concerning his or her independence and any direct or indirect business, family, employment, transactional or other relationship or affiliation of such director with us. Our review of the information provided in response to these inquiries indicated that none of our independent directors has any material relationship with us, or has engaged in any transaction or arrangement that might affect his or her independence.
To ensure independence and breadth of needed expertise and diversity of our Board of Directors,As stated in our Corporate Governance Guidelines, require ourthe Board to be compriseddoes not have a policy that requires a separation of between seven and thirteen members, a majority of whom are required to be independent in accordance with NYSE standards. Our Board is currently comprised of 11 members, 10 of whom are independent, and all Board committees are composed solely of independent directors. Pursuant to the Corporate Governance Guidelines, our Board is free to choose its Chairman of the Board in any wayand CEO positions. The Board believes that seems best forit is important that it have the Company at anyflexibility to make this determination from time and we believe that this flexibility allows our Board to re-evaluate the particular leadership needs of the Company at any point in time based on the particular facts and circumstances then affecting our business. As a result,
Currently, we combine the Board does not have a policy that requires the roles of Chairman of the Board and CEO to be separate or, if the Board determines at any time that these roles should be separate, a policy that dictates whether the Chairman of the Board should be selected from the non-employee directors or an employee of the Company. Because our Corporate Governance Guidelines do not require separation of the Chairman and CEO positions, the Board has also established the role of independent Lead Director as an integral part of our Board leadership structure to serve as the liaison between the independent directors and the Chairman and CEO. The role and responsibilities of our Lead Director are described below under the heading “Lead Director.”
Prior to October 2009, Robert M. Amen served as our Chairman and CEO. Effective September 30, 2009, Mr. Amen resigned from these positions, and on October 1, 2009, Douglas D. Tough, who was a Board member at the time, assumed the role of non-executive Chairman, with the plan that he would assume the additional role of CEO when his contract with his then employer expired, no later than the first quarter of 2010. In the interim, beginning on October 1, 2009, our Board established a temporary Office of the CEO, which was comprised of three executive officers: our Executive Vice President and Chief Financial Officer (“CFO”), our Group President, Fragrances, and our Group President, Flavors. Knowing the arrangement would be in place only on a temporary basis, the Board chose to establish the temporary Office of the CEO comprised of these three executive officers because the Board believed that this structure best suited the needs of the Company in terms of filling the CEO position with persons most familiar with the Company until Mr. Tough was able to assume the role and responsibilities of the CEO, while also allowing these executives to maintain and fulfill the responsibilities associated with their current positions. On March 1, 2010, Mr. Tough assumed the role of Chairman and CEO, and the temporary Office of the CEO was disbanded.
With regard to the currently combined positions of Chairman and CEO, we believe that this leadership structure has been effective for the Company, and this Board leadership structure is commonly utilized by other public companies in the United States.CEO. We believe that combining the rolesCEO, as a Company executive, is in the best position to fulfill the Chairman’s responsibilities, including those related to identifying emerging issues facing our Company, and communicating essential information to the Board about our performance and strategies. We also believe that the combined role of Chairman and CEO provides us with a distinct leader and allows us to present a single, uniform voice to our customers, business partners, shareholders and employees. We also believe that designating an independent Lead Director provides the opportunity for many of the benefits similar to having an independent Chairman and provides an appropriately balanced form of leadership for our Company. In addition, our Board is otherwise comprised solely of independent directors who together oversee the Company’s business. Our independent directors evaluate the performance of our CEO on an annual basis through an objective procedure developed by our wholly
independent Nominating and Governance Committee. If at any point in time the Board feels that its current leadership structure may be better served by separating the roleroles of Chairman and CEO, it may then determine to separate these positions. However, at this point in time, we believe that
In order to mitigate any potential disadvantages of a combined Chairman and CEO, the current board leadership structure isBoard has created the best structure forposition of Lead Director to facilitate and strengthen the Board’s independent oversight of our Companyperformance, strategy and our shareholders.
succession planning and to promote effective governance standards. The independent directors of the Board elect a Lead Director
from among the independent directors. Our current Lead Director is elected by and from our independent Board members and has clearly delineated and comprehensive duties. Mr. Martinez.
The roleduties of our Lead Director includes (i) include:
presiding overat all meetings of non-employeethe Board at which the Chairman is not present, including executive sessions of the independent directors, and providing prompt feedback regarding those meetings to the Chairman and CEO, (ii) CEO;
providing suggestions for Board meeting agendas, with the involvement of ourthe Chairman and CEO and input from other directors, (iii) assuring thatdirectors;
serving as the Board andliaison between the Chairman and CEO understand each other’s views on all critical matters, (iv) the independent directors;
monitoring significant issues occurring between Board meetings and assuring Board involvement when appropriate, (v) serving as a sounding board for our Chairmanappropriate; and CEO and (vi)
ensuring, in consultation with ourthe Chairman and CEO, the adequate and timely exchange of information and supporting data between the Company’sour management and the Board.
Board and Committee MembershipsCommittees
Our Board has an Audit Committee, a Compensation Committee and a Nominating and Governance Committee, each of which operates under a written charter adopted by the Board. Each committeeCommittee reviews its charter at least annually and recommends charter changes to the Board as appropriate. In December 2009,2012, each of the Audit Committee, the Compensation Committee and the Nominating and Governance Committee reviewed its charter, and the Audit Committee and Compensation Committee revised its charter.their charters. The revised chartercharters of each committee wasthose committees were subsequently approved by the Board. UnderEach Committee charter provides that the charter of each committee, the committeeCommittee will annually reviews the committee’s ownreview its performance. A current copy of each of the Audit Committee, Compensation Committee and Nominating and Governance Committee charters is available through the Investor Relations—Investors — Corporate Governance link on the Company’sour website,www.iff.com. www.iff.com.
The table below provides the current membership and chairperson for each of our Board committeesCommittees and identifies our current Lead Director.
Name | Audit | Compensation | Nominating & Governance | Lead Director | ||||||||||||
| ||||||||||||||||
| X | |||||||||||||||
Linda B. Buck | X | |||||||||||||||
J. Michael Cook | X | |||||||||||||||
| X | |||||||||||||||
Andreas Fibig | X | |||||||||||||||
Alexandra A. Herzan | X | |||||||||||||||
Henry W. Howell, Jr. | X | X (Chair) | ||||||||||||||
Katherine M. Hudson | X (Chair) | |||||||||||||||
Arthur C. Martinez | X | X | X | |||||||||||||
| X | |||||||||||||||
Douglas D. Tough |
| X = Committee member |
Risk Management OversightBoard and Committee Meetings
Our Board of Directors overseesheld seven meetings during 2012. The Audit Committee held nine meetings, the Company’s risk management processesCompensation Committee held five meetings and pursuant to the charterNominating and Governance Committee held four meetings during 2012. Each of our directors attended at least 75% of the Audit Committee,total meetings of the Audit Committee is required to discuss with management the Company’s major risk exposures, as well as the guidelines and policies implemented by management to monitor and control such exposures, including the Company’s financial risk assessment and financial risk management policies. The Committee reports to the full Board which considers the Company’s risk profile and its general risk management strategy. The Board and the Audit Committee focusCommittees on which he or she served during 2012. All of our directors who were serving on the most significant risks facingday of last year’s annual meeting of shareholders attended that meeting in person or by teleconference, other than a director who retired
that day. Under our Corporate Governance Guidelines, unless there are mitigating circumstances, such as medical, family or business emergencies, Board members should endeavor to participate (either in person or by telephone) in all Board meetings and all Committee meetings of which the Company, including operational risk, financial risk, credit riskdirector is a member and liquidity risk, as well asto attend our annual meeting of shareholders. Our non-employee directors, all of whom are currently independent, meet in executive session, without the Company’s general riskpresence of any corporate officer or member of management, strategy, and also seek to ensure that risks undertaken by the Company are consistentin conjunction with the Board’s approach to risk. Whileregular meetings of the Board oversees the Company’s risk management, Company management is primarily responsible for day-to-day risk management processes and reports to either the fullCommittees. During 2012, our non-employee directors met in executive session as part of every regularly scheduled Board or the Auditand Committee as requested by the Board, regarding these processes. We believe this division of responsibility is the most effective approach for addressing the Company’s risk management.
For a discussion of our Compensation Committee’s role in risk management oversight in connection with our compensation structure for our executive and non-executive employees see below under the heading Assessment of Incentive Risk.meeting.
OurResponsibilities
The Audit Committee overseesCommittee’s responsibilities include overseeing and reviews reviewing:
the Company’s financial reporting process and the integrity of the Company’sour financial statements and related financial information, the Company’sinformation;
our internal control environment, systems and performance, performance;
the audit process of the Company’sfollowed by our independent accountant and our internal auditors;
the appointment, qualifications, independence and performance of theour independent accountant and our internal auditors;
the process by which we assess and performance of the Company’s internal audit function, the Company’s risk management processesmanage risk; and
the procedures for monitoring compliance with laws and regulations and with the Company’sour Code of Business Conduct and Ethics.
Our Board has determined that each of Mr. Howell, Ms. Hudson and Mr. Martinez is an “audit committee financial expert” under applicable rules of the SEC and has accounting or related financial management expertise as required by applicable NYSE rules. The Board has also determined that all members of the Audit Committee meet the financial literacy standards of the NYSE. None of our Audit Committee members currently serves on the audit committee of more than three public companies. The Audit Committee has established, together with members of the Company’s management, a hiring policy for employees or former employees of the Company’s independent accountant, consistent with the requirements of the NYSE. Under procedures adopted by the Audit Committee, the Audit Committee also reviews and pre-approves all audit and non-audit services performed by the Company’sour independent accountant. The Audit Committee may, when it deems appropriate, delegate certain of its responsibilities to one or more Audit Committee members or subcommittees.
Independence and Financial Expertise
The Board reviewed the background, experience and independence of the Audit Committee members and based on this review, the Board determined that each member of the Audit Committee:
meets the independence requirements of the NYSE’s corporate governance listing standards;
meets the enhanced independence standards for audit committee members required by the Securities and Exchange Commission (“SEC”); and
is financially literate, knowledgeable and qualified to review financial statements.
In addition, the Board determined that each of Messrs. Howell, Martinez and Morrison and Ms. Hudson qualifies as an “audit committee financial expert” under SEC rules.
OurResponsibilities
The Compensation Committee is responsible for Committee’s responsibilities include:
determining, subject to approval by the independent directors of the Board, the CEO’s compensation;
establishing executive officer compensation, for making recommendationscompensation;
recommending to the full Board concerning chief executive officer and director compensation and for overseeingany changes to the compensation and benefit programs for other employees.benefits of directors; and
conducting a risk assessment of our executive compensation programs.
Processes and Procedures Regarding Compensation
Role of the Compensation Committee
Under our Compensation Committee’sits charter, the Compensation Committee is responsible for assisting the Board in ensuring that long termlong-term and short termshort-term compensation provide performance incentives to management, and that compensation plans are appropriate and competitive and reflect the goals and performance of management and theour Company. As discussed in more detail in this proxy statement under the heading Compensation“Compensation Discussion &and Analysis,” the Compensation Committee considers as appropriate and as contemplated by Company policies,
plans and programs, Company-wide performance against applicable annual and long termlong-term performance goals pre-established by the Compensation Committee. If the Compensation Committee deems it appropriate, it may delegate anycertain of its responsibilities to one or more Compensation Committee members or subcommittees.
TheIn addition, the Compensation Committee works with the Board, other Board committees and the Company’s senior management and meets regularly in executive session, without Company management present. The Compensation Committee establishes an annual schedule for matters to be considered by it, including approving our senior executives’ performance objectives and taking compensation actions. The Compensation Committee makes recommendations to the Board concerning the compensation and benefits of non-employee directors, after reviewing and considering recommendations from management and/or its independent compensation consultant, and makes recommendations to the independent directors of the Board regarding the chief executive officer’s compensation. The Compensation Committee also reviews and adopts, and where necessary or appropriate, recommends for Board and/or shareholder approval, our compensation and benefits policies, plans and programs, and amendments thereto, taking into account economic and business conditions, and comparative/competitivecomparative compensation and benefit performance levels. Eligible employees
Independence
The Board reviewed the background, experience and the type, amount and timingindependence of compensation and benefits under our compensation and benefits policies, plans and programs are also determined by the Compensation Committee. In fulfilling its responsibilities, the Compensation Committee conducts or authorizes studiesmembers and surveysbased on compensation practices in relevant industries to maintainthis review, the Company’s competitiveness and ability to recruit and to retain highly qualified personnel. At least every two years, with the assistanceBoard determined that each member of an experienced independent compensation consultant, the Compensation Committee:
meets the independence requirements of the NYSE’s corporate governance listing standards;
is an “outside director” pursuant to the criteria established by the Internal Revenue Service; and
meets the enhanced independence standards for Compensation Committee conducts a surveymembers established by the SEC.
Role of comparative/competitive executive officer compensation. Compensation Consultant
The Compensation Committee is authorizedhas the sole authority to retain compensation consultants or advisors to assist it in evaluating CEO, senior executive and outsidenon-employee director compensation. The Compensation Committee has the sole authority to retain and to terminate any such consultants or advisors, including the sole authority to approve their fees and other retention terms. The Compensation Committee’s independentManagement also retains its own outside compensation consultant for 2009 was W.T. Haigh & Company.
Assessment of Incentive Risk
consultants. In the fourth quarter of 2009, the Committee, working with its independent compensation consultant, conducted a risk assessment of the Company’s executive compensation programs. The goal of this assessment was to determine whether the general structure of the Company’s executive compensation policies and programs, annual and long term performance goals and/or the administration of the programs posed any material risks to the Company. In addition, the Committee later reviewed compensation programs and policies below the executive level in a Company-wide risk assessment. The Committee shared the results of this review with our full Board of Directors as part of the Committee’s report to the Board. For 2010 compensation policies, programs and annual and long term performance goals, the Committee intends to follow this same approach.
The Committee determined that the performance goals and incentive plan structures established in 2009 would not result in excessive risk that inappropriate business decisions or strategies would be made or implemented by our senior executives and/or employees generally. The approved goals under our Annual Incentive Plan (“AIP”) and Long Term Incentive Plan (“LTIP”) (and similar programs established for non-executive employees) are entirely consistent with our financial plans and strategies and operating model reviewed with our Board, which monitors operational and financial performance and material business decisions and initiatives throughout the year. In addition, incentive awards have generally been made based on a review of achievement against a scorecard of financial and non-financial metrics, which lessens the risk associated with relying on any single financial metric. We believe these factors encourage our executive officers to manage the Company in a prudent manner.
Role of Compensation Consultants
As discussed in more detail in this Proxy Statement under the heading Compensation Discussion & Analysis—Role of Outside Advisors and Management,2012, the Compensation Committee directly engaged W.T. Haigh & Company (“Haigh & Company”) as its independent expert compensation consultant to conduct a “benchmarking” survey
in 2009.2012. The Compensation Committee also directly engaged W.T. Haigh & Company for recommendations on senior executive and non-employee director compensation in 2009. Our CEO and our Senior Vice President, Human Resources work with the Compensation Committee and the Committee’s independent compensation consultant. W.T.2012. Haigh & Company does not provide any non-executive compensation relatedcompensation-related services to us. The Compensation Committee considered the Company. Management also retains its own outside compensation consultants. In 2009, management retained Steven Hallindependence of Haigh & Partners for advisory services in connection with executive compensation plans, including the Company’s post-employment benefits,Company and Buck Consultants for actuarial work, plan structure and similar services for the Company’s retirement plans.determined that no conflicts of interest were raised.
Role of Management
Our Compensation Committee relies on management for legal, tax, compliance, finance and human resource recommendations, data and analysis for the design and administration of the Company’s compensation, benefits and perquisite programs for our senior executives. The Compensation Committee combines this information with the recommendations and information from its independent compensation consultant.
Our CEO, andour Senior Vice President, Human Resources (“SVP HR”) and our Senior Vice President, General Counsel and Corporate Secretary (“General Counsel”) generally attend Compensation Committee meetings. Our CEO does not participate in making decisions for his own compensation. CEO performance and compensation are discussed by the Compensation Committee in executive session, with advice and participation from the Company’sCompensation Committee’s independent compensation consultant where and as requested by the Compensation Committee. Our CEO and Senior Vice President, Human Resources,SVP HR, without the presence of any other members of senior management, actively participate in the performance and compensation discussions for our senior executives, including making recommendations to the Compensation Committee as to the amount and form of compensation.compensation (other than their own).
Compensation Committee Interlocks and Insider Participation
None of the members of the Compensation Committee was at any time during 2012 or at any other time an officer or employee of ours. None of our executive officers serves as a member of the board of directors or
compensation committee of any other entity that has one or more executive officers serving as a member of our Board or Compensation Committee.
Nominating and Governance Committee
OurResponsibilities
The Nominating and Governance Committee monitorsCommittee’s responsibilities include:
developing and reviewing criteria for the selection of directors, and making recommendations to the Board composition and director qualification requirements, identifieswith respect thereto;
identifying qualified individuals to serve on the Board, recommendsBoard;
recommending to the Board a slate ofthe nominees to be proposed by the Board for election by the shareholdersas directors at the annual meeting of shareholders, reviews potential Board candidates, reviewsshareholders;
reviewing the qualifications of director candidates;
establishing and reviewing policies pertaining to roles, responsibilities, tenure and removal of directors;
reviewing management succession plans and monitorsmonitoring corporate governance issues. In addition, this Committee has developed a process for conducting an annual evaluation of the effectiveness ofissues;
overseeing the Board as a whole,evaluation process as well as for the annual CEO evaluation process;
reviewing the contributionsand recommending changes to our Corporate Governance Guidelines; and
reviewing and, if appropriate, approving transactions with related parties.
The Nominating and Governance Committee may, when it deems appropriate, delegate certain of individual directors.its responsibilities to one or more Nominating and Governance Committee members or subcommittees.
Independence of Directors and Committee Members and Related Person Matters
The Board has affirmatively determined that each current directorreviewed the background, experience and nominee for director, other than Mr. Tough, has no material relationship with the Company affecting his or her independence as a director, and that each is “independent” within the meaning of the Board’s independence standards, which areNominating and Governance Committee members and based on this review, the same categorical independence standards as established by the New York Stock Exchange in Section 303A.02 of the NYSE Listed Company Manual. In making each of these independence determinations, the Board considered and broadly assessed, from the standpoint of materiality and independence, all of the information provided by each director or nominee in response to detailed inquiries concerning his or her independence and any direct or indirect business, family, employment, transactional or other relationship or affiliation of such director with the Company. Our review of the information provided in response to these inquiries indicated that none of our independent directors engaged in any transactions, relationships or arrangements that might affect the determination of their independence or which would require Board review. The Board has also determined that each member of the Audit Committee, Compensation Committee and Nominating and Governance Committee meets the independence requirements of the NYSE’s corporate governance listing standards.
Our Nominating and Governance Committee has established a policy regarding the consideration of director candidates, including candidates recommended by shareholders. The Nominating and Governance Committee, together with other Board members, from time to time, as appropriate, identifies the need for new Board members. Proposed director candidates who satisfy the criteria described below and who otherwise qualify for membership on the Board are identified by the Nominating and Governance Committee. In identifying candidates, the Nominating and Governance Committee seeks input and participation from other Board members and other appropriate sources so that all points of view are considered and the best possible candidates identified. The Nominating and Governance Committee may also engage a search firm to assist it in identifying potential candidates. Members of the Nominating and Governance Committee and other Board members, as appropriate, interview selected director candidates, evaluate the director candidates and determine which candidates are to be recommended by the Nominating and Governance Committee to the Board. Our Nominating and Governance Committee evaluates the suitability of potential candidates nominated by shareholders in the same manner as other candidates recommended to the Nominating and Governance Committee.
Under our By-laws, if a shareholder wishes to submit a director candidate for consideration by the Nominating and Governance Committee, the shareholder must submit that recommendation to the Nominating and Governance Committee, c/o the Secretary of International Flavors & Fragrances Inc., in writing, not less than
90 days nor more than 120 days prior to the anniversary date of the prior year’s annual meeting of shareholders. The request must be accompanied by the information concerning the director candidate and nominating shareholder described in Article I, Section 3(d)(2) of our By-laws. The Nominating and Governance Committee may also request any additional background or other information from any director candidate or recommending shareholder as it may deem appropriate.
Board candidates are considered based on various criteria which may change over time and as the composition of the Board changes. At a minimum, our Nominating and Governance Committee considers the following factors as part of its review of all director candidates and in recommending potential director candidates to the Board:
judgment, character, expertise, skills and knowledge useful to the oversight of our business;
diversity of viewpoints, backgrounds, experiences and other demographics;
business or other relevant experience; and
the extent to which the interplay of the candidate’s expertise, skills, knowledge and experience with that of other Board members will build a Board that is independent undereffective, collegial and responsive to our needs and to the requirements and standards of the NYSE and the SEC.
To ensure independence and to provide the breadth of needed expertise and diversity of our Board, our By-laws currently require our Board to have twelve members. The Board periodically reviews its size and makes appropriate adjustments. While the Nominating and Governance Committee has not adopted a formal diversity policy with regard to the selection of director nominees, diversity is one of the factors that the Nominating and Governance Committee considers in identifying director nominees. As part of this process, the Nominating and Governance Committee evaluates how a particular candidate would strengthen and increase the diversity of the Board in terms of how that candidate may contribute to the Board’s overall balance of perspectives, backgrounds, knowledge, experience, skill sets and expertise in substantive matters pertaining to our business. The Nominating and Governance Committee also annually reviews each current Board member’s suitability for continued service as a member of our Board. In addition, in the event that a current director has a significant change in status, including changes in employment or skill set, the director is required to report that change to the Chairman of the Nominating and Governance Committee so that the Nominating and Governance Committee can review the change and make a recommendation to the full Board regarding the continued appropriateness of that director’s Board membership.
Board Role in Management of Risk
Our Board is actively involved in the oversight and management of risks that could affect our Company. This oversight and management is conducted primarily through the Audit and Compensation Committees of the Board, but the full Board has retained responsibility for the general oversight of risks. While the Board oversees our risk management, our management is primarily responsible for day-to-day risk management processes, and reports to the full Board and the Audit and Compensation Committees regarding these independence standardsprocesses. We believe this division of responsibility is the most effective approach for addressing risk management.
Management maintains an enterprise risk management (“ERM”) process which is designed to identify and assess our global risks and to develop steps to mitigate and manage risks. The Board receives regular reports on the ERM process. The Board and the Audit Committee focus on the most significant risks facing us, including operational risk, financial risk, litigation risk, tax risk, credit risk and liquidity risk, as well as our general risk management strategy, and how these risks are being managed. The Audit Committee is primarily responsible for assisting the Board in reviewing and assessing with management our ERM process, our risk profile and our policies and practices with respect to each member of the Auditrisk assessment and risk management, in particular as they relate to financial risk. The Compensation Committee is also independent under the independence criteria required by the SECprimarily responsible for audit committee membersmanaging risks associated with compensation policies and withpractice, our compensation plans (including equity compensation plans and programs), severance, change in control and other employment-related matters.
respect to each memberCompensation Risks
In the fourth quarter of 2012, the Compensation Committee, is an “outside director” pursuantworking with its independent compensation consultant, conducted a risk assessment of our executive compensation programs. The goal of this assessment was to determine whether the criteria established bygeneral structure of our executive compensation policies and programs, annual and long-term performance goals or the Internal Revenue Serviceadministration of the programs posed any material risks to our Company. In addition, with the input of our SVP HR, the Compensation Committee reviewed compensation programs and ispolicies below the executive level in a “non-employee director” pursuant to criteria established byCompany-wide risk assessment. The Compensation Committee shared the SEC.
In 2007, theresults of this review with our full Board of Directors.
The Compensation Committee determined that the performance goals and incentive plans in place during 2012 did not result in excessive risk that inappropriate business decisions or strategies would be made or implemented by our senior executives or employees generally. The approved goals under our Annual Incentive Plan (“AIP”) and Long-Term Incentive Plan (“LTIP”) (and similar programs established for non-executive employees) are consistent with our financial plans and strategies and operating model that have been reviewed and approved by our Board. In addition, incentive awards have generally been made based on a review of achievement against multiple financial metrics, which lessens the risk associated with relying on any single financial metric. We believe these factors encourage our executive officers to manage our Company in a prudent manner.
Our Board of Directors has adopted a written policy for the review and the approval or ratification of any related person transaction. This policy is available through the Investor Relations—Investors — Corporate Governance link on the Company’sour website,www.iff.com. www.iff.com. The policy defines “related person” and “related person transaction” in a detailed manner. Under the policy, a related person transaction requires the approval or ratification of the Nominating and Governance Committee. The Audit Committee will be consulted if accounting issues are involved in the transaction. Under the policy, a related person transaction will be approved or ratified only if the Nominating and Governance Committee determines that it is being entered into in good faith and on fair and reasonable terms which are in the best interest of theour Company and itsour shareholders. No related person is tomay participate in the review of a transaction in which he or she may have an interest. In addition, except for non-discretionary contributions made pursuant to the Company’sour matching contributions program, a charitable contribution by theour Company to an organization in which a related person is known to be an officer, director or trustee, will beis subject to approval or ratification under the policy by the Nominating and Governance Committee.
There were no “related person transactions” sincein 2012 in excess of $120,000 in which the beginning of 2009Company was a participant involving any director, director nominee or executive officer of theour Company, any known 5% or greater shareholder of the Company or any immediate family member of any of the foregoing persons (together “related persons”). A “related person transaction” generally means a transaction involving more than $120,000 in which the Company is a participant and in which a related person has a direct or indirect material interest under SEC rules.
Our Board of Directors held ten meetings during 2009. The Audit Committee held six meetings, the Compensation Committee held nine meetings and the Nominating and Governance Committee held three meetings during 2009. Each of our directors attended at least 75% of the total meetings of the Board and Committees on which he or she served during 2009. All of our directors who were serving on the day of last year’s Annual Meeting attended that meeting. Under our Corporate Governance Guidelines, unless there are mitigating circumstances, such as medical, family or business emergencies, Board members should endeavor to participate in person in all Board meetings and all Committee meetings of which the director is a member and to attend the Company’s annual meeting of shareholders. The non-management directors of the Company, all of whom are currently independent, meet in executive session, without the presence of any corporate officer or member of management, in conjunction with regular meetings of the Board. During 2009, the non-management directors met in executive session as part of every Board meeting.
Shareholders and other parties interested in communicating directly with the Lead Director, the non-management directors as a group or all directors as a group, may do so by writing to the Lead Director or the Non-Management Directors or the Board of Directors, in each case, c/o Secretary, International Flavors & Fragrances Inc., 521 West 57th Street, New York, New York 10019. The Nominating and Governance Committee has approved a process for handling letters received by the Company and addressed to the Lead Director, the non-management members of the Board or the entire Board. Under that process, the Secretary of the Company forwards to the Lead Director all correspondence received, without opening or screening.
Our Nominating and Governance Committee has established a policy regarding the consideration of director candidates, including candidates recommended by shareholders. The Nominating and Governance Committee, together with other Board members, will from time to time as appropriate identify the need for new Board
members. Proposed director candidates who would satisfy the criteria described below and who otherwise qualify for membership on the Board are identified by the Nominating and Governance Committee. In identifying candidates, the Nominating and Governance Committee seeks input and participation from other Board members and other appropriate sources so that all points of view can be considered and so that the best possible candidates can be identified. The Nominating and Governance Committee may also engage a search firm to assist it in identifying potential candidates.
Members of the Nominating and Governance Committee and other Board members, as appropriate, will interview selected director candidates, evaluate the director candidates and determine which candidates are to be recommended by the Nominating and Governance Committee to the Board.
Under the Company’s policy regarding director candidates, if a shareholder wishes to submit a director candidate for consideration by the Nominating and Governance Committee, the shareholder must submit that recommendation to the Nominating and Governance Committee, c/o the Secretary of the Company, in writing, not less than 120 days nor more than 150 days prior to the anniversary date of the prior year’s annual meeting. The request must be accompanied by the same information concerning the director candidate and nominating shareholder as described in Article I, Section 3(a) of the Company’s By-laws for shareholder nominations for director to be presented at an annual shareholders meeting. The Nominating and Governance Committee may also request any additional background or other information from any director candidate or recommending shareholder as it may deem appropriate.
Board candidates are considered based on various criteria which may change over time and as the composition of the Board changes. At a minimum, our Nominating and Governance Committee considers the following factors as part of its review of all director candidates and in recommending potential director candidates to the Board:
Judgment, character, expertise, skills and knowledge useful to the oversight of the Company’s business;
Diversity of viewpoints, backgrounds, experiences and other demographics;
Business or other relevant experience; and
The extent to which the interplay of the candidate’s expertise, skills, knowledge and experience with that of other Board members will build a Board that is effective, collegial and responsive to the needs of the Company and to the requirements and standards of the NYSE and the SEC.
To ensure independence and to provide the breadth of needed expertise and diversity of our Board, our Corporate Governance Guidelines require our Board to be comprised of between seven and thirteen members. The Board periodically reviews its size and makes appropriate adjustments. While the Nominating and Governance Committee has not adopted a formal diversity policy with regard to the selection of director nominees, diversity is one of the factors that the Committee considers in identifying director nominees. As part of this process, the Committee evaluates how a particular candidate would strengthen and increase the diversity of the Board in terms of how that candidate may contribute to the Board’s overall balance of perspectives, backgrounds, knowledge, experience, skill sets and expertise in substantive matters pertaining to the Company’s business. The Committee also annually reviews each current board member’s suitability for continued service as a director of the Company. In addition, in the event that a current director has a significant change in status, including changes that may impact the diversity of the Board, such as changes in employment or skill set, the director is required to report that change to the Board so that the Nominating and Governance Committee can review the change and make a recommendation to the full Board regarding the continued appropriateness of that director’s Board membership.
Code of Business Conduct and Ethics
We have adopted a Code of Business Conduct and Ethics (the “Code”“Code of Ethics”) that applies to all of our chief executive officer,employees, including our CEO and our principal financial officer (who is also our principal accounting officerofficer). We have also adopted a Code of Conduct for Directors and to all other Company directors, officers and
employees. A copya Code of Conduct for Executive Officers (together with the Code isof Ethics, the “Codes”). The Codes are available through the Investor Relations—Investors — Corporate Governance link on our website, www.iff.com.
Only the Board of Directors or the Audit Committee of the Board may grant a waiver from any provision of the Codeour Codes in favor of a director or executive officer, and any such waiver and any amendments to the Codes will be publicly disclosed. The Company will disclose substantive amendments to and any waivers from the Code granted to the Company’s chief executive officer, principal financial officer or principal accounting officer, as well as any other executive officer or director,disclosed on the Company’sour website,www.iff.com. www.iff.com.
We encourage our executives to own our common stock so that they share the same long-term investment risk as our shareholders. Under our Share Retention Policy, each executive must retain shares of Company common stock based on a targeted ownership level. There is no deadline by which an executive must meet his or her retention requirement. However, until the retention requirement is met, the executive must retain a portion (50%, in the case of the executive officers named in this proxy statement (or “NEOs”)) of any shares of common stock acquired from the exercise of a stock option or stock settled appreciation rights or the vesting of restricted stock or restricted stock units (after payment of any exercise price and taxes). The targeted ownership levels are (1) the lesser of shares equal in value to five times base salary or 120,000 shares for our CEO, (2) the lesser of shares equal in value to three times base salary or 35,000 shares for our CFO and Group Presidents, and (3) the lesser of shares equal in value to two times base salary or 20,000 shares for our SVP, General Counsel. In determining compliance with the retention requirement, we count all outstanding shares owned by the executive, valued at the closing stock price of our common stock as of the date of calculation, and all outstanding purchased restricted stock held by the executive at the purchase price.
These ownership levels provide executives flexibility in personal financial planning, yet require them to maintain ongoing and substantial investment in our common stock. As of February 22, 2013, all of our NEOs met their individual stock ownership requirements. Additional detail regarding ownership of our common stock by our executives is included in this proxy statement under the heading “Securities Ownership of Management, Directors and Certain Other Persons.”
Policy Regarding Derivatives, Short Sales, Hedging and Pledges
Under our insider trading policy, directors and executive officers, including our NEOs, are prohibited from entering into transactions designed to hedge against economic risks associated with an investment in our common stock. These individuals may not trade in derivatives in our securities (such as put and call options), effect “short sales” of our common stock, or enter into monetization transactions or similar arrangements (such as prepaid variable forwards, equity swaps, collars or exchange funds) relating to our securities. These individuals are also prohibited from holding shares of our common stock in margin accounts or pledging shares of our common stock as collateral for a loan.
Annual Director Cash and Equity Compensation
Each non-employee director receivesreceived an annual retainer of $175,000.$200,000 relating to the service year from the 2012 Annual Meeting of Shareholders (the “2012 Annual Meeting”) to the 2013 Annual Meeting. Of this amount, $75,000 iswe paid $100,000 in cash in November of each year,2012, and we paid $100,000 is paid in Restricted Stock Units (“RSUs”) issued under our shareholder-approved stock award and incentive plan. The RSUs are grantedplan on the date of each annual meeting of shareholders, cliffthe 2012 Annual Meeting. The RSUs vest on the third anniversary of the grant date and are subject to accelerated vesting upon a change in control. The number1,655 RSUs granted to each director on the date of RSUs issued is based onthe 2012 Annual Meeting was calculated using the closing market price of the Company’sour common stock on the grant date. Once the RSUs vest, each non-employee director is required to defer all of the vested RSUs under our Deferred Compensation Plan (“DCP”) until he or she separates from service on our Board of Directors. Given that RSUs will be deferred until each director’s separation from service and each director’s stock ownership will increase during his or her term of service, thethere are no specified minimum share ownership requirements that formerly appliedapplicable to directors were eliminated.our directors. Any director who is an employee of theour Company does not receive any additional compensation for his or her service as a director. Our Compensation Committee has not recommended any changes to the compensation we pay to our non-employee directors for 2013.
Annual Committee Chair and Lead Director Compensation
The ChairpersonDuring 2012, the Chair of each of the Audit Committee receivesand Compensation Committee and the Lead Director received an annual cash retainer of $15,000.$15,000 in addition to the annual retainer described above. The ChairpersonChair of each of the Compensation Committee and Nominating and Governance Committee each receivesreceived an annual cash retainer of $10,000. The Lead Director receives an annual cash fee of $15,000.Our Compensation Committee has not recommended any changes to these amounts for 2013.
Participation in the Company’sour Deferred Compensation Plan
In addition, non-employeeNon-employee directors are eligible to participate in our Deferred Compensation Plan (“DCP”).DCP. In addition to mandatory deferral of vested RSUs granted in orand after 2008, a non-employee director may defer all or a portion of his or her cash compensation, as well as any RSUs granted to him or her prior to 2008, subject to tax law requirements. Additional details regarding our DCP are locatedmay be found in this Proxy Statementproxy statement under the heading “Executive Compensation — Non-Qualified Deferred Compensation.” Non-employee directors are not entitled to matching contributions or the 25% premium on deferrals into our common stock fund that are applicable to employees, as described in that section. Earnings on any deferrals into the interest bearing account of the DCP were not above market and thus are not included in the Director Compensation Table below.
We also reimburse our non-employee directors for travel and lodging expenses incurred in connection with their attendance at Board and Committee meetings, our shareholder meetings and other Company-related activities.
In addition, each current and former director including any former employee directors, who began service as a director before May 14, 2003 is eligible to participate in our Director Charitable Contribution Program (“DCCP”). Under the DCCP, directors arewere paired together and theour Company purchased joint life insurance policies on the lives of each paired set of participating directors. The Company isWe are the owner and sole beneficiary of the policies and isare responsible for payment of any premiums. In 2009, however, the insurance policies were restructured so that no further premiums are required. Assuming no changes to the current Federal tax laws relating to charitable contributions, and if certain other assumptions are met, the Company expectswe expect to recover all of the premium costs that have been paid by the Companyus and the after-tax cost of the Company’sour anticipated charitable contributions pursuant to this program. After a covered director dies, the Companywe will donate $500,000 to one or more qualifying charitable organizations previously designated by the deceased director.
Directors first elected on or after May 14, 2003 do not participate in the DCCP. However, all current directors, including those who participate in our DCCP, are eligible to participate in our Matching Gift Program. Under this Program, it is The IFF Foundation’s intent toprogram, we match, on a dollar for dollar basis, contributions made by directors to qualifying charitable organizations up to a maximum of $10,000 per person per year.
The following table details the compensation paid to or earned by our non-employee directors for the year ended December 31, 2009.2012.
2009 DIRECTORS’ COMPENSATION2012 Directors’ Compensation
Name | Fees Earned or Paid in Cash ($)(1) | Stock Awards ($)(2)(3) | Option Awards ($)(2)(4) | All Other Compensation ($) | Total ($) | Fees Earned or Paid in Cash($)(1) | Stock Awards ($)(2)(3)(4) | Option Awards ($)(2)(5) | All Other Compensation ($)(6) | Total ($) | |||||||||||||||||||||||||||
(a) | (b) | (c) | (d) | (g) | (h) | ||||||||||||||||||||||||||||||||
Margaret Hayes Adame | $ | 75,009 | $ | 90,802 | $ | 0 | $ | 5,000 | (5) | $ | 170,811 | ||||||||||||||||||||||||||
Gunter Blobel(6) | $ | 0 | $ | 0 | $ | 0 | $ | 10,000 | (5) | $ | 10,000 | ||||||||||||||||||||||||||
Marcello Bottoli | $ | 75,009 | $ | 90,802 | $ | 0 | $ | 0 | $ | 165,811 | |||||||||||||||||||||||||||
Margaret Hayes Adame (7) | 23 | — | — | — | 23 | ||||||||||||||||||||||||||||||||
Marcello V. Bottoli | 100,055 | 93,805 | — | 6,740 | 200,600 | ||||||||||||||||||||||||||||||||
Linda B. Buck | $ | 75,009 | $ | 90,802 | $ | 0 | $ | 0 | $ | 165,811 | 100,055 | 93,805 | — | — | 193,860 | ||||||||||||||||||||||
J. Michael Cook | $ | 85,009 | $ | 90,802 | $ | 0 | $ | 15,000 | (5) | $ | 190,811 | 115,055 | 93,805 | — | 10,000 | 218,860 | |||||||||||||||||||||
Peter A. Georgescu | $ | 85,009 | $ | 90,802 | $ | 0 | $ | 10,000 | (5) | $ | 185,811 | ||||||||||||||||||||||||||
Roger W. Ferguson, Jr. | 100,055 | 93,805 | — | 10,000 | 203,860 | ||||||||||||||||||||||||||||||||
Andreas Fibig | 100,055 | 93,805 | — | — | 193,860 | ||||||||||||||||||||||||||||||||
Alexandra A. Herzan | $ | 75,009 | $ | 90,802 | $ | 0 | $ | 0 | $ | 165,811 | 100,055 | 93,805 | — | 5,000 | 198,860 | ||||||||||||||||||||||
Henry W. Howell, Jr. | $ | 90,009 | $ | 90,802 | $ | 0 | $ | 10,000 | (5) | $ | 190,811 | 110,055 | 93,805 | — | 10,000 | 213,860 | |||||||||||||||||||||
Katherine M. Hudson | $ | 75,012 | $ | 90,802 | $ | 0 | $ | 0 | $ | 165,814 | 115,055 | 93,805 | — | 10,000 | 218,860 | ||||||||||||||||||||||
Arthur C. Martinez | $ | 90,009 | $ | 90,802 | $ | 0 | $ | 10,000 | (5) | $ | 190,811 | 115,055 | 93,805 | — | 10,000 | 218,860 | |||||||||||||||||||||
Burton M. Tansky | $ | 75,009 | $ | 90,802 | $ | 0 | $ | 0 | $ | 165,811 | |||||||||||||||||||||||||||
Douglas D. Tough | $ | 50,971 | (7) | $ | 90,802 | $ | 0 | $ | 20,000 | (8) | $ | 161,773 | |||||||||||||||||||||||||
Dale F. Morrison | 100,055 | 93,805 | — | 10,000 | 203,860 |
(1) | The amounts in this column include (i) the annual cash retainer for service as a non-employee director, (ii) for certain directors, the annual cash retainer for service as Lead Director or as chairperson of a Board committee during 2012, and (iii) nominal amounts of cash paid in lieu of fractional shares of common stock. Of the amounts in this column, the following amounts were deferred in |
(2) | The amounts in the Stock Awards and Option Awards columns represent the aggregate grant date fair value of equity awards granted during the fiscal year ended December 31, |
(3) | Each director (other than |
(4) |
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Director Margaret Hayes Adame Marcello V. Bottoli Linda B. Buck J. Michael Cook Roger W. Ferguson, Jr. Andreas Fibig Alexandra A. Herzan Henry W. Howell, Jr. Katherine M. Hudson Arthur C. Martinez Dale F. Morrison The deferred shares, which are held under the DCP, result from deferral of vested equity grants, voluntary deferral of retainer fees or the crediting of additional share units as a result of reinvestment of dividend equivalents. Deferred shares will be settled by delivery of common stock upon the director’s separation from service on the Board, or, in the case of voluntary deferrals, as otherwise elected by the director. All of the deferred shares are included for each director in the Beneficial Ownership Table. |
| We did not grant any options to our directors in |
(6) |
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V. SECURITIES OWNERSHIP OF MANAGEMENT, DIRECTORS
AND CERTAIN OTHER PERSONS
Directors and Executive Officers
The following table sets forth certain information regarding the beneficial ownership of the Company’s Common Stockour common stock as of February 17, 2010,22, 2013, by each current director and nominee for director, the persons named in the Summary Compensation Table in this proxy statement and all current directors and executive officers as a group.
Shares of Common Stock Beneficially Owned (1) | Rights to Acquire Beneficial Ownership of Shares of Common Stock (2) | Percent of Class | ||||||
Margaret Hayes Adame | 12,472 | 0 | (3 | ) | ||||
Kevin C. Berryman | 7,074 | 0 | (3 | ) | ||||
Marcello Bottoli | 0 | 0 | (3 | ) | ||||
Linda B. Buck | 0 | 0 | (3 | ) | ||||
Angelica T. Cantlon | 10,061 | 0 | (3 | ) | ||||
J. Michael Cook | 11,214 | 0 | (3 | ) | ||||
Roger W. Ferguson, Jr. | 0 | 0 | (3 | ) | ||||
Beth E. Ford | 25,785 | 0 | (3 | ) | ||||
Peter A. Georgescu | 33,514 | 0 | (3 | ) | ||||
Alexandra A. Herzan | 811,740 | (4) | 0 | 1.02 | % | |||
Henry W. Howell, Jr. | 15,224 | 0 | (3 | ) | ||||
Katherine M. Hudson | 0 | 0 | (3 | ) | ||||
Arthur C. Martinez | 23,465 | 0 | (3 | ) | ||||
Dennis M. Meany | 84,976 | 0 | (3 | ) | ||||
Nicolas Mirzayantz | 78,961 | 25,000 | (3 | ) | ||||
Richard A. O'Leary | 8,848 | 0 | (3 | ) | ||||
Burton M. Tansky | 8,070 | 0 | (3 | ) | ||||
Douglas D. Tough | 0 | 0 | (3 | ) | ||||
Hernan Vaisman | 54,676 | 0 | (3 | ) | ||||
Robert M. Amen(5) | 166,887 | 206,737 | (3 | ) | ||||
Steven J. Heaslip(6) | 55,742 | 0 | (3 | ) | ||||
All Directors and Executive Officers as a Group | 1,186,080 | 25,000 | 1.53 | % | ||||
(19 persons)(7) |
See footnotes on the following page.
Certain Other Owners
The following table sets forth information regarding each person known by us to be the beneficial owner of more than 5% of the Company’s outstanding Common Stock To our knowledge, except as of February 17, 2010 based on a review of filings with the SEC. Unless otherwise indicated, beneficial ownership is direct.includes sole voting and dispositive power with respect to all shares.
Number of Shares and Nature of Beneficial Ownership | ||||||||||
Name and Address of Beneficial Owner | Sole Voting Power | Shared Voting Power | Sole Investment Power | Shared Investment Power | Percent of Class | |||||
BlackRock Inc. (8) | 5,027,246 | 0 | 5,027,246 | 0 | 6.34% | |||||
40 East 52nd Street New York, NY 10022 | ||||||||||
T. Rowe Price Associates, Inc. (9) | 1,527,830 | 0 | 6,474,054 | 0 | 8.17% | |||||
100 E. Pratt Street Baltimore, MD 21202 |
Name and Address of Beneficial Owner(1) | Shares of Common Stock Beneficially Owned(2) | Rights to Acquire Beneficial Ownership of Shares of Common Stock(3) | Percent of Class** | |||||||||
Kevin C. Berryman | 64,687 | 18,883 | * | |||||||||
Marcello V. Bottoli | 7,220 | — | * | |||||||||
Linda B. Buck | 7,220 | — | * | |||||||||
Anne Chwat | 30,853 | 2,471 | * | |||||||||
J. Michael Cook | 21,997 | (4) | 6,000 | * | ||||||||
Roger W. Ferguson, Jr. | — | — | * | |||||||||
Andreas Fibig | — | — | * | |||||||||
Christina Gold | — | — | * | |||||||||
Alexandra Herzan | 819,722 | (5) | 6,000 | 1.0 | % | |||||||
Henry W. Howell, Jr. | 29,237 | — | * | |||||||||
Katherine M. Hudson | 7,175 | — | * | |||||||||
Arthur C. Martinez | 32,527 | — | * | |||||||||
Nicolas Mirzayantz | 74,276 | 12,088 | * | |||||||||
Dale F. Morrison | 780 | — | * | |||||||||
Douglas D. Tough | 166,796 | 53,956 | * | |||||||||
Hernan Vaisman | 28,866 | 22,187 | * | |||||||||
All Directors and Executive Officers as a Group (20 persons) | 1,399,676 | 134,898 | 1.9 | % |
Footnotes relating to the “Beneficial Ownership Table” on the preceding page and above.
| Less than 1%. |
** | Based on 81,518,800 shares of common stock outstanding. |
(1) | The address of each person named in the table is c/o International Flavors & Fragrances Inc., 521 West 57th Street, New York, New York 10019. |
(2) | This column includes (i) share unit balances held in the IFF Stock Fund under our |
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(4) | Includes 4,362 shares held by The 2012 Cook Grandchildren’s Trust, of |
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| Mrs. Herzan is a director of the van Ameringen Foundation, Inc., which owns 274,673 shares, President, Treasurer and a director of the Lily Auchincloss Foundation, which owns 11,000 shares, a trustee and a beneficiary of a trust which holds 519,581 shares, and a trustee and a beneficiary of a trust which owns 567 shares, all of which shares are included in Mrs. Herzan’s ownership. Mrs. Herzan disclaims beneficial ownership of the shares owned by the van Ameringen Foundation, Inc. and the Lily Auchincloss |
Certain Other Owners
The following table sets forth information regarding each person known by us to be the beneficial owner of more than 5% of our outstanding common stock, as of February 22, 2013, based on a review of filings with the SEC. Unless otherwise indicated, beneficial ownership is direct.
Number of Shares and Nature of Beneficial Investment Ownership | ||||||||||||||||||||
Name and Address of Beneficial Owner | Sole Voting Power | Shared Voting Power | Sole Investment Power | Shares Investment Power | Percent of Class** | |||||||||||||||
BlackRock, Inc. (1) 40 East 52nd Street New York, NY 10022 | 5,396,303 | — | 5,396,303 | — | 6.6 | % | ||||||||||||||
Capital Research Global Investors (2) 333 South Hope Street Los Angeles, CA 90071 | 5,321,500 | 5,321,500 | 6.5 | % | ||||||||||||||||
Massachusetts Financial Services Company (3) 111 Huntington Avenue Boston, MA 02199 | 5,570,548 | — | 6,676,359 | — | 8.2 | % | ||||||||||||||
The Vanguard Group, Inc. (4) 100 Vanguard Blvd. Malvern, PA 19355 | 146,776 | — | 4,635,031 | 137,824 | 5.9 | % |
** | Based on 81,518,800 shares of common stock outstanding. |
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Section 16(a) Beneficial Ownership Reporting Compliance
Section 16(a) of the Securities Exchange Act of 1934 requires our directors and executive officers to file reports of their initial holdings of IFF common stock and any subsequent transactions in Company shares with the SEC and to provide the Company with copies of all such filings. The Company must report any failures to file by the required dates. Based on a review of our 2009 records we believe that our directors and officers who were subject to Section 16 met all applicable filing requirements.
Directors and Officers Indemnification and Insurance
Our By-laws provide for the indemnification of our officers and directors against certain liabilities that could potentially be incurred by them in connection with the performance of their duties to the Company and its subsidiaries. In 2008, our Board of Directors approved an amendment to our By-laws to authorize the Company to provide indemnification and advancement rights by separate agreement to certain persons, including our officers and directors, and subsequently approved a form of indemnification agreement to be entered into with each of our directors and officers. The Company also maintains directors and officers liability indemnification insurance coverage. This insurance covers director and officers individually where exposures exist, other than those for which the Company is able to provide direct or indirect indemnification. The current policies run from March 18, 2009 through March 18, 2010 and are in the process of being renewed. The primary carrier under the current policy is ACE American Insurance Company. The current annual premium for this program is $1,012,503. No sums have been paid under this coverage to the Company or any directors or officers, nor have any claims for reimbursement been made under this policy.
In order for a shareholder proposal to be considered for inclusion in IFF’s proxy materials for next year’s annual meeting of shareholders, the Secretary of the Company must receive the written proposal no later than November 9, 2010. Under Article I, Section 3 of the Company’s By-laws, in order for a shareholder to submit a proposal or to nominate any director at an annual meeting of shareholders, the shareholder must give written notice to the Secretary of the Company not less than 60 days nor more than 90 days prior to the anniversary date of this year’s annual meeting of shareholders. The notice must also meet all other requirements contained in the Company’s By-laws, including the requirement to contain specified information about the proposed business of the candidate and the shareholder making the proposal. If the next annual meeting is scheduled on a date that is not within 30 days before or after the anniversary date of this year’s annual meeting, the Secretary of the Company must receive the notice given by the shareholder not later than the close of business on the tenth day following the day on which the notice of the date of next year’s annual meeting is mailed or public disclosure of the date of next year’s annual meeting is made, whichever occurs first.
Our Board of Directors currently has eleven members. Each of these Board members, other than Burton M. Tansky, together with one new nominee, Roger W. Ferguson, Jr., is standing for election to hold office until the next annual meeting of shareholders. Our By-laws provide that each director must retire effective as of the annual meeting of shareholders following his or her 72nd birthday. Accordingly, Mr. Tansky, who is 72, will retire as a director as of the 2010 Annual Meeting.
The affirmative vote of a majority of the votes cast is required for the election of directors, which means that a nominee must receive a greater number of votes “FOR” his or her election than votes “AGAINST” in order to be elected. Votes cast do not include any abstentions or broker non-votes with respect to a nominee’s election.
Our Board of Directors approved amendments to our By-laws in December 2008 to adopt this majority voting standard for uncontested elections and to provide that any director nominee in an uncontested election who does not receive an affirmative majority of votes cast must promptly offer his or her resignation. If this situation were to occur, the process outlined in our By-laws and Corporate Governance Guidelines would be followed and generally the Nominating and Governance Committee of our Board of Directors would consider the resignation offer and make a recommendation to the Board. The independent directors on the Board would then evaluate and determine whether to accept or reject the resignation based on the relevant facts and circumstances. Any director who so tenders a resignation will not participate in the deliberations of either the Nominating and Governance Committee or the independent directors. The Board of Directors will promptly disclose its decision and the basis for that decision in a filing with the SEC. Under our By-laws, as amended, a plurality voting standard would apply in a contested director election, which would occur if, as of the record date for the meeting where directors are to be elected, the number of director nominees exceeds the number of directors to be elected at such meeting.
Each nominee elected as a director will continue in office until his or her successor has been elected and qualified, or until his or her earlier death, resignation or retirement. Each nominee has indicated that he or she will serve if elected. We expect each nominee for election as a director to be able to stand for election and serve if elected. If any nominee is not able to serve (which is not anticipated), proxies will be voted in favor of the remainder of those nominated and may be voted for substitute nominees, unless the Board chooses to reduce the number of directors serving on the Board.
The principal occupation and certain other information regarding the background and qualifications of the nominees, including the experience and skills that led to the selection of that nominee for membership on our Board, are set forth on the following pages. All of the nominees, except Mr. Ferguson, are presently directors of the Company and were elected by the shareholders at the Company’s 2009 Annual Meeting of Shareholders. The new nominee, Mr. Ferguson, was recommended to the Nominating and Governance Committee following a requested search by an independent global search firm and interviews by existing directors including the Chair of the Nominating and Governance Committee, the Lead Director and the Chairman of the Board. Mr. Ferguson was recommended for a number of valuable characteristics he would bring to the Board, including his financial expertise and broad business experience.
IFF’s Board of Directors recommends a vote FOR the election of the nominees as Directors.
The following table sets forth the names, ages, principal occupations and other information about the director nominees:
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ITEM 2—VI. PROPOSAL II — RATIFICATION OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
The Audit Committee of our Board of Directors has selected PricewaterhouseCoopers LLP as the Company’sour independent registered public accounting firm for 2010,2013, and theour Board of Directors has directed that our management submit that selection for ratification by our shareholders at the 20102013 Annual Meeting. Although ratification is not required by our By-laws or otherwise, we are submitting the selection of PricewaterhouseCoopers LLPPwC to our shareholders for ratification as a matter of good corporate governance. The Audit Committee will consider the outcome of our shareholders’ vote in connection with the Audit Committee’s selection of the Company’sour independent registered public accounting firm in the next fiscal year, but is not bound by the shareholdersshareholders’ vote. Even if the selection is ratified, the Audit Committee may, in its discretion, direct the appointment of a different independent auditorregistered public accounting firm at any time if it determines that a change would be in the best interests of theour Company and our shareholders.
Representatives of PricewaterhouseCoopers LLPPwC are expected to attend the 20102013 Annual Meeting, where they will be available to respond to questions and, if they desire, to make a statement.
IFF’sOur Board of Directors recommends a vote FOR the ratification of the Audit Committee’s selection of PricewaterhouseCoopers LLPPwC as the Company’sour Independent Registered Public Accounting Firm for 2010.2013.
Principal Accountant Fees and Services
The following table provides detail about fees for professional services rendered by PricewaterhouseCoopers LLPPwC for the years ended December 31, 20092012 and December 31, 2008.2011.
2009 | 2008 | 2012 | 2011 | |||||||||||
Audit Fees(1) | $ | 3,568,800 | $ | 3,430,400 | $ | 4,631,616 | $ | 4,233,897 | ||||||
Audit-Related Fees(2) | 20,100 | 95,300 | 569,926 | — | ||||||||||
Tax Fees(3) | 2,097,100 | 1,572,500 | ||||||||||||
Tax Compliance | 1,038,244 | 525,258 | ||||||||||||
Other Tax Services | 753,807 | 415,782 | ||||||||||||
All Other Fees(4) | 182,100 | 232,100 | 27,619 | 9,799 | ||||||||||
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Total | $ | 5,868,100 | $ | 5,330,300 | $ | 7,021,212 | $ | 5,184,736 | ||||||
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(1) | Audit Fees were for professional services rendered for audits of |
(2) | Audit-Related Fees were for |
(3) | Tax |
(4) | All Other Fees were for software licenses and other professional services. |
Audit Committee Pre-Approval Policies and Procedures for Audit and Permitted Non-Audit Services
The Audit Committee’s policy isCommittee has established policies and procedures to pre-approve all audit and non-audit services by category, including audit-related services, tax services and other permitted non-audit services to be provided by the independent registered public accounting firm to the Company. In accordance withour Company by category, including audit-related services, tax services and other permitted non-audit services. Under the policy, the Audit Committee regularly reviews and receives updates onpre-approves all services obtained from our independent auditor by category of service, including a review of specific services provided byto be performed, fees expected to be incurred within each category of service and the potential impact of such services on auditor independence. The term of any pre-approval is for the financial year,
unless the Audit Committee specifically provides for a different period in the pre-approval. If it becomes necessary to engage the independent registered public accounting firm, and the Company’s management may submitauditor for additional services for approval.
not contemplated in the original pre-approval, the Audit Committee requires separate pre-approval before engaging the independent auditor. To facilitate the approval process, the policy delegates pre-approval authority to the Audit Committee chairperson to pre-approve services up to $20,000, and the Audit Committee may also delegate pre-approval authority to one or more of its members or to the CFO for services, other than audit, review or attest services, to the extent permitted under the SEC’s pre-approval requirements.pre-approve services. The Audit Committee member to whom such authority is delegated must report, for informational purposes only, any pre-approval decisions to the Audit Committee at its next scheduled meeting.
All services rendered by PricewaterhouseCoopers LLPPwC to theour Company are permissible under applicable laws and regulations. During 2009,2012, all services performed by PricewaterhouseCoopers LLPPwC which were subject to the SEC’s pre-approval requirements were approved by the Audit Committee in accordance with the Audit Committee’s pre-approval policy.policy in effect during 2012.
The Audit Committee (“we”,we,” “us” or the “Committee”) oversees the Company’s financial reporting process of International Flavors & Fragrances Inc. (the “Company”) on behalf of the Board of Directors. Management has the primary responsibility for the financial statements and the reporting process, including the systems of internal control over financial reporting and disclosure controls and procedures designed to ensure compliance with accounting standards and applicable laws and regulations.
The Company’s independent auditors, PricewaterhouseCoopers LLP (“PwC”), report directly to us. We have sole authority to appoint, oversee, evaluate and discharge the independent auditors and to approve the fees paid by the Company for their services. PwC annually performs an independent audit of the consolidated financial statements and expresses an opinion on the conformity of those financial statements with U.S. generally accepted accounting principles and the effectiveness of the Company’s internal control over financial reporting. PwC also conducts quarterly reviews of the Company’s financial statements.
We review with PwC the scope of its services, the results of its audits and reviews, its evaluation of the Company’s internal control over financial reporting, and the overall quality of the Company’s financial reporting. We meet regularly with PwC, and separately with the Company’s internal auditors, without management present. We also meet regularly with management without PwC present, and we discuss management’s evaluation of PwC’s performance.
For 2009,2012, we have reviewed and discussed the Company’s audited financial statements with management and PwC.management. We have reviewed and discussed with management its process for preparing its report on its assessment of the Company’s internal control over financial reporting, and at regular intervals we received updates on the status of this process and actions taken by management to respond to issues and deficiencies identified. We discussed with PwCPricewaterhouseCoopers, LLP (“PwC”), the Company’s independent registered public accounting firm, its audit of the effectivenessfinancial statements and of the Company’s internal control over financial reporting. We discussed with PwC and the Company’s internal auditors the overall scope and plans for their respective audits.
We have revieweddiscussed with PwC its judgments about the quality of the Company’s accounting principles as applied in the Company’s financial reporting and other matters as are required to be discussed by the Statement on Auditing Standards (SAS) No. 61 (Communication with Audit Committees), as amended (AICPA Professional Standards Vol. 1, AU Section 380), as adopted by the Public Company Accounting Oversight Board in Rule 3200T, as may be modified or supplemented.3200T. We also received from PwC and discussed with PwC itsthe written disclosures and the letter regarding its independence from management and the CompanyPwC as required by applicable requirements of the Public Company Accounting Oversight Board regarding the independent accountant’s communications with the audit committee concerning independence, and discussed with PwC its independence. We concluded that PwC’s independence was not compromisedadversely affected by the non-audit services provided by PwC, the majority of which consisted of audit-related and tax services.
In relianceBased on the reviews and discussions referred to above, we recommended to the Board (and the Board subsequently approved our recommendation) that the audited financial statements be included in the Annual Report on Form 10-K for the fiscal year ended December 31, 20092012 for filing with the SEC. We also evaluated and selected PwC as the Company’s independent auditors for 2010,2013, which the shareholders will be asked to ratify at the 20102013 Annual Meeting of Shareholders.
Audit Committee
Katherine M. Hudson
(Chair)
Henry W. Howell, Jr.
Arthur C. Martinez
Dale F. Morrison
VII. COMPENSATION DISCUSSION AND ANALYSIS
Executive Summary
This Compensation Discussion and Analysis is designed to provide our shareholders with a clear understanding of our compensation philosophy and objectives, compensation-setting process, and the 2012 compensation of our named executive officers, or NEOs. As discussed in Proposal III of this proxy statement, we are conducting our annual Say on Pay vote that requests your approval of the compensation of our NEOs as described in this section and in the tables and accompanying narrative contained in “Executive Compensation.” To assist you with this vote, you should review our compensation philosophies, the design of our executive compensation programs and how, we believe, these programs have contributed to our financial performance.
For 2012, our NEOs were:
| Chief Executive Officer and Chairman | |||
| Executive Vice President and Chief Financial Officer | |||
| Group President, Fragrances | |||
| Group President, Flavors | |||
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| Senior Vice President, General Counsel and Corporate Secretary |
ITEM 3—APPROVAL OF 2010 STOCK AWARD AND INCENTIVE PLANCompensation Philosophy
Introduction
At the 2010 Annual Meeting,The core of our executive compensation philosophy is that our executives’ pay should be linked to achievement of financial and operational performance metrics that build shareholder value. Consequently, we will ask shareholdersdesigned our compensation program to approve the 2010 Stock Award and Incentive Plan (the “2010 Plan”), which was approved by our Board of Directors on February 2, 2010. The Board and its Compensation Committee (the “Committee”) approved the 2010 Plan to help us:
Attract, retain, motivate and reward officers, employees, directors, consultants and advisors to IFF and its subsidiaries and affiliates.
Strengthen our capability to develop and direct a competent management team.
Provide equitable and competitive compensation opportunities.
Authorize incentive awards that appropriately reward achievement of our goals and recognize individual contributions without promoting excessive risk.
Promote creation of long term value for shareholders by closely aligning the interests of participants with the interests of shareholders.
The Board and the Committee believe that awards linked to common stock and awards with terms tied to our performance provide incentivesexecutives for the achievement of important performance objectivesboth annual and promote the long term successlong-term business goals by providing a significant portion of IFF. Therefore, they view the 2010 Plan as a key element of our overall compensation program.
The 2010 Plan, if approved by shareholders, would replace the 2000 Stock Award and Incentive Plan and the 2000 Supplemental Stock Award Plan (the “2000 Plans”). The Board and the Committee determined to replace the 2000 Plans with a new plan that, like the old plans, provides broadly for equity and incentive awards but contains updated compliance provisions. We are seeking approval for shares in addition to the number remaining available under 2000 Stock Award and Incentive Plan (which shares would be transferred to the 2010 Plan). We expect that the 2010 Plan will meet our needs for the next four years.
Information on the total number of shares available under our existing equity compensation plans and unissued shares deliverable under outstanding options, stock appreciation rights, restricted stock and restricted stock units as of the end of the last fiscal year is presented below under the heading “Equity Compensation Plan Information.” Based on our equity award plans in effect and outstanding awards at February 17, 2010, if shareholders approve the 2010 Plan the total number of shares subject to outstanding awards under all plans (including restricted stock but excluding deferred stock that has been fully earned and vested) and available for future awards under the 2010 Plan (which would be our only continuing equity compensation plan) would be as follows:
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The 2010 Plan would make 2 million new shares of common stock available for equity awards, representing approximately 2.5% of the shares outstanding at February 17, 2010. As stated above, the 2010 Plan would replace the current 2000 Plans, and would provide the source for future deferrals of cash into deferred stock under the Deferred Compensation Plan (the Deferred Compensation Plan would be deemed to be a subplan under the 2010 Plan for the sole purpose of funding deferrals under the IFF Share Fund). Approximately 783,738 shares that remain available under the 2000 Stock Award and Incentive Plan (as of February 17, 2010) would be made available under the 2010 Plan and 210,871 shares remaining available under the 2000 Supplemental Stock Award Plan (as of February 17, 2010) would cease to be reserved. No new awards would be granted under the 2000 Plans although the Committee retains full authority regarding outstanding awards under those plans, including authority to approve modifications of such awards (repricing would be subject to shareholder approval, however). Shares subject to outstanding awards under the 2000 Plans may become available under the 2010 Plan if such shares are not delivered to the participant, in accordance with the share counting rules explained below under the heading Shares Available Under the 2010 Plan.
Overview of 2010 Plan Awards
The 2010 Plan authorizes a broad range of awards, including:
stock options, a grant of rights to purchase our Common Stock upon payment of the designated “exercise price”;
stock appreciation rights (“SARs”), a grant entitling the participant to receive the excess of the fair market value of a share on the date of exercise over the “base price”;
restricted stock, a grant of actual shares subject to a risk of forfeiture and restrictions on transfer;
deferred stock, a contractual commitment to deliver shares at a future date, which may or may not be subject to a risk of forfeiture (forfeitable deferred stock is sometimes called “restricted stock units”);
other awards based on Common Stock;
dividend equivalents;
performance shares or other stock-based performance awards (these include deferred stock or restricted stock awards that may be earned by achieving specific performance objectives);
cash-based performance awards tied to achievement of specific performance objectives; and
shares issuable in lieu of rights to cash compensation.
Vote Required for Approval
Approval of the 2010 Plan will require the affirmative vote of a majority of the votes cast at the 2010 Annual Meeting, provided that the total vote cast on the proposal (both for and against and abstentions) represents over 50% in interest of all securities entitled to vote on the proposal. The Board considers the 2010 Plan to be in the best interests of IFF and our shareholders and therefore recommends that the shareholders vote to approve the 2010 Plan at the 2010 Annual Meeting.
Reasons for Shareholder Approval
We seek approval of the 2010 Plan by shareholders in order to meet requirements of the New York Stock Exchange and to satisfy requirements of tax law to help preserve our ability to claim tax deductions for compensation to executive officers. In addition, the Board regards shareholder approval of the 2010 Plan as desirable and consistent with corporate governance best practices.
Internal Revenue Code Section 162(m) limits the deductions a publicly held company can claim for compensation in excess of $1 million in a given year paid to the chief executive officer and the three other most highly compensated executive officers serving on the last day of the fiscal year, excluding the chief financial officer (generally referred to as the “named executive officers”). “Performance-based” compensation that meets certain requirements is not counted against the $1 million deductibility cap,variable and therefore remains fully deductible. For purposes of Section 162(m), approval of the 2010 Plan will be deemedtied directly to include approval of the general business criteria upon which performance objectives for awards are based, described below under the headings Performance AwardsCompany and Annual Incentive Awards.Shareholder approval of general business criteria, without specific targeted levels of performance, will permit qualification of incentive awards for full tax deductibility for a period of approximately five years under Section 162(m). Shareholder approval of the performance goal inherent in stock options and SARs (increases in the market price of stock) is not subject to a time limit under Section 162(m).
In addition, shareholder approval will permit designated stock options to qualify as incentive stock options (“ISOs”) under the Internal Revenue Code. Such qualification can give the holder of the options more favorable tax treatment, as explained below.
Restriction on Repricing and Loans
The 2010 Plan includes a restriction providing that, without shareholder approval, we will not amend or replace options or SARs previously granted under the Plan in a transaction that constitutes a “repricing.” For this purpose, a “repricing” is defined as amending the terms of an option or SAR after it is granted to lower its exercise price, any other action that is treated as a repricing under generally accepted accounting principles, or canceling an option at a time when its strike price is equal to or greater than the fair market value of the underlying stock in exchange for another option, SAR, restricted stock, other equity, cash or other property, unless the cancellation and exchange occurs in connection with a merger, acquisition, spin-off or other similar corporate transaction. Adjustments to the exercise price or number of shares subject to an option or SAR to reflect the effects of a stock split or other extraordinary corporate transaction will not constitute a “repricing.”
The 2010 Plan does not authorize loans to participants.
The following is a brief description of the material features of the 2010 Plan. This description, including information summarized above, is qualified in its entirety by reference to the full text of the proposed 2010 Plan, a copy of which is attached to this Proxy Statement as Appendix A.
Shares Available under the 2010 Plan. If the 2010 Plan is approved by our shareholders, 2 million shares will be reserved for delivery to participants, plus shares remaining available for new grants under the 2000 Stock Award and Incentive Plan and shares recaptured from outstanding awards under the 2000 Plans. Shares used for awards assumed in an acquisition do not count against the shares reserved under the 2010 Plan. The shares reserved may be used for any type of award under the 2010 Plan.
Only the number of shares actually delivered to participants in connection with an award after all restrictions have lapsed will be counted against the number of shares reserved under the 2010 Plan. Thus, shares will remain available for new awards if an award expires, is forfeited, or is settled in cash, if shares are withheld or separately surrendered to pay the exercise price of an option or to satisfy tax withholding obligations relating to an award, if fewer shares are delivered upon exercise of an SAR than the number of shares covered by the SAR, or if shares that had been issued as restricted stock are forfeited. These same share-counting rules will apply to awards under the 2000 Plans, so that shares may become available under the 2010 Plan to the extent that shares are not in fact both delivered and vested in connection with those awards. The 2000 Stock Award and Incentive Plan authorizes grants relating to shares remaining available and recaptured under the 1997 Employee Stock Option Plan, and to the extent those shares would have become available under the 2000 Plan they will become available under the 2010 Plan. Under the 2010 Plan, awards may be outstanding relating to a greater number of shares than the aggregate remaining available under the 2010 Plan so long as the Committee ensures that awards will not result in delivery and vesting of shares in excess of the number then available under the 2010 Plan. Shares delivered under the 2010 Plan may be either newly issued or treasury shares.
On February 17, 2010, the last reported sale price of IFF’s Common Stock in composite transactions for New York Stock Exchange-listed securities was $42.10 per share.
Per-Person Award Limitations. The 2010 Plan includes a limitation on the amount of awards that may be granted to any one participant in a given year in order to qualify awards as “performance-based” compensation not subject to the limitation on deductibility under Section 162(m). Under this annual per-person limitation, no
participant may in any year be granted share-denominated awards under the 2010 Plan relating to more than his or her “Annual Limit”. The Annual Limit equals one million shares plus the amount of the participant’s unused Annual Limit relating to share-based awards as of the close of the previous year, subject to adjustment for splits and other extraordinary corporate events. In the case of cash-denominated Awards, the 2010 Plan limits performance awards, including any annual incentive award that may be earned by a participant, to the participant’s defined Annual Limit, which for this purpose equals $5 million plus the amount of the participant’s unused cash Annual Limit as of the close of the previous year. The per-person limit for cash-denominated performance awards does not operate to limit the amount of share-based awards, and vice versa. These limits apply only to awards under the 2010 Plan, and do not limit our ability to enter into compensation arrangements outside of the 2010 Plan.
Adjustments. Adjustments to the number and kind of shares subject to the share limitations and specified in the share-based Annual Limit are authorized in the event of a large and non-recurring dividend or distribution, recapitalization, stock split, stock dividend, reorganization, business combination, other similar corporate transaction, equity restructuring as defined under applicable accounting rules, or other similar event affecting the Common Stock.individual performance. We are also obligated to adjust outstanding awards (and share-related performance terms, such as share-price targets) upon the occurrence of these types of events to preserve, without enlarging, the rights of Plan participants with respect to their awards. The Committee may adjust performance conditions and other terms of awards in response to these kinds of events or to changes in applicable laws, regulations, or accounting principles, except that adjustments to awards intended to qualify as “performance-based” generally must conform to requirements imposed by Section 162(m).
Eligibility. Executive officers and other employees of IFF and its subsidiaries, and non-employee directors, consultants and others who provide substantial services to us, are eligible to be granted awards under the 2010 Plan. In addition, any person who has been offered employment by us may be granted awards, but such prospective grantee may not receive any payment or exercise any right relating to the award until he or she has commenced employment or the providing of services. As of February 17, 2010, approximately 5,700 persons would be potentially eligible for awards under the 2010 Plan. Equity awards currently outstanding under the 2000 Plans were held by a total of 762 current and former IFF employees as of February 17, 2010.
Administration.The Committee will administer the 2010 Plan, except that the Board may itself act to administer the Plan. However, any grant of an award to a non-employee director will be approved or granted under a policy approved by the Board, with the Committee either recommending or jointly approving such award or policy. (References to the “Committee” here mean the Committee or the full Board exercising authority with respect to a given award.) The 2010 Plan provides that the composition and governance of the Committee shall be established in the Committee’s charter adopted by the Board. Subject to the terms and conditions of the 2010 Plan, the Committee is authorized to select participants, determine the type and number of awards to be granted and the number of shares to which awards will relate or the amount of a performance award, specify times at which awards will be exercisable or settled, including performance conditions that may be required as a condition thereof, set other terms and conditions of such awards, prescribe forms of award agreements, interpret and specify rules and regulations relating to the 2010 Plan, and make all other determinations which may be necessary or advisable for the administration of the 2010 Plan. Nothing in the 2010 Plan precludes the Committee from authorizing payment of other compensation, including bonuses based upon performance, to officers and employees, including the executive officers, outside of the Plan. The 2010 Plan authorizes the Committee to delegate authority to executive officers to the extent permitted by applicable law, but such delegation will not authorize grants of awards to executive officers without direct participation by the Committee. The 2010 Plan provides that members of the Committee and the Board shall not be personally liable, and shall be fully indemnified, in connection with any action, determination, or interpretation taken or made in good faith under the Plan.
Stock Options and SARs. The Committee is authorized to grant stock options, including both incentive stock options (“ISOs”), which can result in potentially favorable tax treatment to the participant, and non-qualified stock options. SARs may also be granted, entitling the participant to receive the excess of the fair market value of a share on the date of exercise over the SARs designated “base price.” The exercise price of an option and the base price of an SAR are determined by the Committee, but generally may not be less than the fair market value of the shares on the date of grant. The maximum term of each option or SAR will be ten years. Subject to this limit, the times at which each option or SAR will be exercisable and provisions requiring forfeiture of unvested or unexercised options (and in some cases gains realized upon an earlier exercise) at or following termination of employment or upon the occurrence of other events generally are fixed by the Committee. Options may be exercised by payment of the exercise price in cash, shares having a fair market value equal to the exercise price or surrender of outstanding awards or other property having a fair market value equal to the exercise price, as the Committee may determine. This may include withholding of option shares to pay the exercise price. The Committee also is permitted to establish procedures for broker-assisted cashless exercises. Methods of exercise and settlement and other terms of SARs will be determined by the Committee. SARs may be exercisable for shares or for cash, as determined by the Committee. Options and SARs may be granted on terms that cause such awards not to be subject to Internal Revenue Code Section 409A (“Section 409A”), or with terms that cause those awards to be deferral arrangements conforming to the requirements under Section 409A.
Restricted and Deferred Stock/Restricted Stock Units. The Committee is authorized to grant restricted stock and deferred stock. Prior to the end of the restricted period, shares granted as restricted stock may not be sold, and will be forfeited in the event of termination of employment in specified circumstances. The Committee will establish the length of the restricted period for awards of restricted stock. Aside from the risk of forfeiture and non-transferability, an award of restricted stock entitles the participant to the rights of a shareholder of IFF, including the right to vote the shares and to receive dividends (which may be forfeitable or non-forfeitable), unless otherwise determined by the Committee.
Deferred stock gives a participant the right to receive shares at the end of a specified deferral period. Deferred stock subject to forfeiture conditions may be denominated as an award of “restricted stock units.” The Committee will establish any vesting requirements for deferred stock/restricted stock units granted for continuing services. One advantage of restricted stock units, as compared to restricted stock, is that the period during which the award is deferred as to settlement can be extended past the date the award becomes non-forfeitable, so the Committee can require or permit a participant to continue to hold an interest tied to Common Stock on a tax-deferred basis. Prior to settlement, deferred stock awards, including restricted stock units, carry no voting or dividend rights or other rights associated with stock ownership, but dividend equivalents (which may be forfeitable or non-forfeitable) will be paid or accrue if authorized by the Committee.
Other Stock-Based Awards, Stock Bonus Awards, and Awards in Lieu of Other Obligations. The 2010 Plan authorizes the Committee to grant awards that are denominated or payable in, valued in whole or in part by reference to, or otherwise based on or related to Common Stock. The Committee will determine the terms and conditions of such awards, including the consideration to be paid to exercise awards in the nature of purchase rights, the periods during which awards will be outstanding, and any forfeiture conditions and restrictions on awards. In addition, the Committee is authorized to grant shares as a bonus free of restrictions, or to grant shares or other awards in lieu of obligations under other plans or compensatory arrangements, subject to such terms as the Committee may specify. Under this authorization, the Company expects to permit participants in the Deferred Compensation Plan to defer salary or bonus compensation into deferred stock that constitutes an award under the 2010 Plan, with such deferrals ultimately to be settled by delivery of shares drawn from the 2010 Plan. For additional information regarding our DCP, see below under the heading Non-Qualified Deferred Compensation.
Performance-Based Awards.The Committee may grant performance awards, which may be awards of a specified cash amount or may be share-based awards. Generally, performance awards require satisfaction of pre-established performance goals, consisting of one or more business criteria and a targeted performance level with respect to such criteria as a condition of awards being granted or becoming exercisable or settleable, or as a condition to accelerating the timing of such events. Performance may be measured over a period of any length
specified by the Committee. If so determined by the Committee, in order to avoid the limitations on tax deductibility under Section 162(m), the business criteria used by the Committee in establishing performance goals applicable to performance awards to the named executive officers will be selected from among the following:
net sales or revenues;
earnings measures, including earnings from operations, earnings before or after taxes, earnings before or after interest, depreciation, amortization, or extraordinary or special items;
net income or net income per common share (basic or diluted);
return measures, including return on assets (gross or net), return on investment, return on capital, or return on equity;
cash flow, free cash flow, cash flow return on investment (discounted or otherwise), net cash provided by operations, or cash flow in excess of cost of capital;
net economic profit (operating earnings minus a charge for capital) or economic value created;
operating margin or profit margin;
shareholder value creation measures, including stock price or total shareholder return;
dividend payout levels, including as a percentage of net income; and
strategic business criteria, consisting of one or more objectives based on meeting specified market penetration, geographic business expansion goals, cost targets, total market capitalization, agency ratings of financial strength, completion of capital and borrowing transactions, business retention, new product development, customer satisfaction, employee satisfaction, management of employment practices and employee benefits, supervision of litigation and information technology, and goals relating to acquisitions or divestitures of subsidiaries, affiliates or joint ventures.
The Committee retains discretion to set the level of performance for a given business criteria that will result in the earning of a specified amount under a performance award. These goals may be set with fixed, quantitative targets, targets relative to our past performance, targets compared to the performance of other companies, such as a published or special index or a group of companies selected by the Committee for comparison, in such other way as the Committee may determine. The Committee may specify that these performance measures will be determined before payment of bonuses, capital charges, non-recurring or extraordinary income or expense, or other financial and general and administrative expenses for the performance period, if so specified by the Committee.
Other Terms of Awards. Awards may be settled in cash, shares, other awards or other property, in the discretion of the Committee. The Committee may require or permit participants to defer the settlement of all or part of an award, in accordance with such terms and conditions as the Committee may establish, including payment or crediting of interest or dividend equivalents on any deferred amounts. The 2010 Plan allows vested but deferred awards to be paid out to the participant in the event of an unforeseeable emergency. The Committee is authorized to place cash, shares or other property in trusts or make other arrangements to provide for payment of our obligations under the 2010 Plan. The Committee may condition awards on the payment of taxes, and may provide for mandatory or elective withholding of a portion of the shares or other property to be distributed in order to satisfy tax obligations. Awards granted under the Plan generally may not be pledged or otherwise encumbered and are not transferable except by will or by the laws of descent and distribution, or to a designated beneficiary upon the participant’s death, except that the Committee may permit transfers of awards other than incentive stock options on a case-by-case basis, but such transfers will be allowed only for estate-planning purposes and may not include transfers to other third parties for value.
The 2010 Plan authorizes the Committee to provide for forfeiture of awards and award gains in the event a participant fails to comply with conditions relating to non-competition, non-solicitation, confidentiality,
non-disparagement and other requirements for the protection of the our business. Awards under the 2010 Plan may be granted without a requirement that the participant pay consideration in the form of cash or property for the grant (as distinguished from the exercise), except to the extent required by law. The Committee may, however, grant awards in substitution for, exchange for or as a buyout of other awards under the 2010 Plan, awards under our plans, or other rights to payment from us, and may exchange or buy out outstanding awards for cash or other property. The Committee also may grant awards in addition to and in tandem with other awards, awards, or rights. In granting a new award, the Committee may determine that the in-the-money value or fair value of any surrendered award may be applied to reduce the purchase price of any new award, subject to the requirement that repricing transactions must be approved by shareholders.
Dividend Equivalents.The Committee may grant dividend equivalents. These are rights to receive payments equal in value to the amount of dividends paid on a specified number of shares of Common Stock while an award is outstanding. These amounts may be in the form of cash or rights to receive additional awards or additional shares of Common Stock having a value equal to the cash amount. The awards may be granted on a stand-alone basis or in conjunction with another award, and the Committee may specify whether the dividend equivalents will be forfeitable or non-forfeitable. Rights to dividend equivalents may be granted in connection with restricted stock units or deferred stock, so that the participant can earn amounts equal to dividends paid on the number of shares covered by the award while the award is outstanding. However, dividend equivalents may not be granted in connection with options or SARs in respect of any period before the exercise of the award.
Vesting, Forfeitures, and Related Award Terms.The Committee has discretion in setting the vesting schedule of options, SARs, restricted stock and other awards, the circumstances resulting in forfeiture of awards, the post-termination exercise periods of options, SARs and similar awards, and the events resulting in acceleration of the right to exercise and the lapse of restrictions, or the expiration of any deferral period, on any award.
In addition, the 2010 Plan provides that, in the event of a Change in Control of the Company, outstanding Awards will immediately vest and be fully exercisable, any restrictions, deferral of settlement and forfeiture conditions of such Awards will lapse, and goals relating to performance-based awards will be deemed met or exceeded to the extent specified in the performance-award documents. However, the Committee can specify different provisions applicable to a Change in Control in a participant’s award agreement. A Change in Control means generally (i) any person or group acquires voting securities and as a result is a beneficial owner of 50% or more of the voting power of the Company’s voting securities, (ii) a change in the Board’s membership such that the members serving as of January 1, 2010, or those elected or nominated with the approval of two-thirds of the those members and successors elected or nominated by them cease to represent a majority of the Board, (iii) certain mergers or consolidations substantially reducing the percentage of voting power held by shareholders prior to such transactions or changing a majority of the membership of the Board, or (iv) shareholder approval of a sale or liquidation of all or substantially all of the assets of the Company. The distribution of awards upon a Change in Control may be limited by applicable restrictions under Code Section 409A.
Amendment and Termination of the 2010 Plan.The Board may amend, suspend, discontinue, or terminate the 2010 Plan or the Committee’s authority to grant awards thereunder without shareholder approval, except as required by law or regulation or under the Listed Company Manual of the New York Stock Exchange. New York Stock Exchange rules require shareholder approval of any material amendment to plans such as the 2010 Plan. Under these rules, however, shareholder approval will not necessarily be required for all amendments which might increase the cost of the 2010 Plan or broaden eligibility. Unless earlier terminated, the authority of the Committee to make grants under the 2010 Plan will terminate ten years after the latest shareholder approval of the 2010 Plan, and the 2010 Plan will terminate when no shares remain available and we have no further obligation with respect to any outstanding award.
Federal Income Tax Implications of the 2010 Plan
We believe that under current law the following U.S. Federal income tax consequences generally would arise with respect to awards under the 2010 Plan.
Options and SARs that are not deemed to be deferral arrangements under Code Section 409A would have the following tax consequences: The grant of an option or an SAR will create no federal income tax consequences for the participant or IFF. A participant will not have taxable income upon exercising an option that is an ISO, except that the alternative minimum tax may apply. Upon exercising an option that is not an ISO, the participant generally must recognize ordinary income equal to the difference between the exercise price and the fair market value of the freely transferable or non-forfeitable shares acquired on the date of exercise. Upon exercising an SAR, the participant must generally recognize ordinary income equal to the cash or the fair market value of the shares received.
Upon a disposition of shares acquired upon exercise of an ISO before the end of the applicable ISO holding periods, the participant must generally recognize ordinary income equal to the lesser of (i) the fair market value of the ISO shares at the date of exercise minus the exercise price or (ii) the amount realized upon the disposition of the ISO shares minus the exercise price. For all options, a participant’s sale of shares acquired by exercise of the option generally will result in short term or long term capital gain or loss measured by the difference between the sale price and the participant’s tax “basis” in such shares. The tax “basis” normally is the exercise price plus any amount he or she recognized as ordinary income in connection with the option’s exercise (or upon sale of the option shares in the case of an ISO). A participant’s sale of shares acquired by exercise of an SAR generally will result in short term or long term capital gain or loss measured by the difference between the sale price and the participant’s tax “basis” in the shares, which normally is the amount he or she recognized as ordinary income in connection with the SARs exercise.
We normally can claim a tax deduction equal to the amount recognized as ordinary income by a participant in connection with the exercise of an option or SAR, but no tax deduction relating to a participant’s capital gains. Accordingly, we will not be entitled to any tax deduction with respect to an ISO if the participant holds the shares for the applicable ISO holding periods prior to selling the shares.
Awards other than options and SARs that result in a transfer to the participant of cash or shares or other property generally will have terms intended to meet applicable requirements under Section 409A, which regulates deferred compensation. If no restriction on transferability or substantial risk of forfeiture applies to amounts distributed to a participant, the participant generally must recognize ordinary income equal to the cash or the fair market value of shares actually received. Thus, for example, if we grant an award of restricted stock units that has vested or requires or permits deferral of receipt of cash or shares under a vested award, the participant should not become subject to income tax until the time at which shares or cash are actually distributed, and we would become entitled to claim a tax deduction at that time.
On the other hand, if a restriction on transferability and substantial risk of forfeiture applies to shares or other property actually distributed to a participant under an award (such as, for example, a grant of restricted stock), the participant generally must recognize ordinary income equal to the fair market value of the transferred amounts at the earliest time either the transferability restriction or risk of forfeiture lapses. In all cases, we can claim a tax deduction in an amount equal to the ordinary income recognized by the participant, except as discussed below. A participant may elect to be taxed at the time of grant of restricted stock or other property rather than upon lapse of restrictions on transferability or the risk of forfeiture, but if the participant subsequently forfeits such shares or property he or she would not be entitled to any tax deduction, including as a capital loss, for the value of the shares or property on which he or she previously paid tax.
Any award that is deemed to be a deferral arrangement (that is, not excluded or exempted under the tax regulations) will be subject to Section 409A. Participant elections to defer compensation under such awards and as to the timing of distributions relating to such awards must meet requirements under Section 409A in order for income taxation to be deferred upon vesting of the award and tax penalties avoided by the participant.
Some options and SARs may be subject to Section 409A, which regulates deferral arrangements. In such case, the distribution to the participant of shares or cash relating to the award would have to be restricted in order for the participant not to be subject to tax and a tax penalty at the time of vesting. In particular, the participant’s discretionary exercise of the option or SAR could not be permitted over a period extending more than a year in most cases. If the distribution and other award terms meet Section 409A’s requirements, the participant would realize ordinary income at the time of distribution of shares or cash rather than exercise, with the amount of ordinary income equal to the distribution date value of the shares or cash less any exercise price actually paid. We would not be entitled to a tax deduction at the time of exercise, but would become entitled to a tax deduction at the time shares are delivered at the end of the deferral period.
As discussed above, compensation that qualifies as “performance-based” compensation is excluded from the $1 million deductibility cap of Internal Revenue Code Section 162(m), and therefore remains fully deductible by the company that pays it. Under the 2010 Plan, options and SARs granted with an exercise price or base price at least equal to 100% of fair market value of the underlying stock at the date of grant, performance awards to employees the Committee expects to be named executive officers at the time compensation is received, and certain other awards which are conditioned upon achievement of performance goals are intended to qualify as such “performance-based” compensation. A number of requirements must be met in order for particular compensation to so qualify, however, so there can be no assurance that such compensation under the 2010 Plan will be fully deductible under all circumstances. In addition, other awards under the 2010 Plan, such as non-performance-based restricted stock and restricted stock units, generally will not so qualify, so that compensation paid to certain executives in connection with such awards may, to the extent it and other compensation subject to Section 162(m)’s deductibility cap exceed $1 million in a given year, not be deductible by IFF as a result of Section 162(m). Compensation to certain employees resulting from vesting of awards in connection with a change in control or termination following a change in control also may be non-deductible under Internal Revenue Code Sections 4999 and 280G.
The foregoing provides only a general description of the application of federal income tax laws to certain awards under the 2010 Plan. This discussion is intended for the information of shareholders considering how to vote at the 2010 Annual Meeting and not as tax guidance to participants in the 2010 Plan, as the consequences may vary with the types of awards made, the identity of the recipients and the method of payment or settlement. Different tax rules may apply, including in the case of variations in transactions that are permitted under the 2010 Plan (such as payment of the exercise price of an option by surrender of previously acquired shares). The summary does not address in any detail the effects of other federal taxes (including possible “golden parachute” excise taxes) or taxes imposed under state, local or foreign tax laws.
New Plan Benefits Under the 2010 Plan
Because future awards under the 2010 Plan will be granted in the discretion of the Committee, the type, number, recipients, and other terms of such awards cannot be determined at this time. Information regarding our recent practices with respect to annual incentive awards and stock-based compensation under existing plans is presented below in the Summary Compensation Table and these related tables: Grants of Plan-Based Awards in 2009, and 2009 Outstanding Equity Awards at Fiscal Year-End elsewhere in this Proxy Statement and in our financial statements for the fiscal year ended December 31, 2009 included in the Annual Report which accompanies this Proxy Statement.
If shareholders decline to approve the 2010 Plan, no awards will be granted under the 2010 Plan, but awards may continue to be granted under the 2000 Plans.
The Board of Directors considers the 2010 Plan to be in the best interests of IFF and our shareholders and therefore recommends that shareholders vote FOR approval of the 2010 Plan at the Annual Meeting.
COMPENSATION DISCUSSION AND ANALYSIS
Introduction
This Compensation Discussion & Analysis (“CD&A”) describes IFF’s executive compensation program for 2009 and certain elements of the 2010 program. It explains how the Compensation Committee of our Board of Directors (the “Committee”) determined 2009 compensation for our executives, including the persons identified as Named Executive Officers (“NEOs”) in this proxy statement.
As reflected in the discussion below and in the tables and narratives following this CD&A, several management transitions occurred at IFF during 2009. In May 2009, Kevin C. Berryman became our new Executive Vice President and Chief Financial Officer (“CFO”) and Richard A. O’Leary stepped down from his role as Interim Chief Financial Officer. In addition, in August 2009 Angelica T. Cantlon took over the role of Senior Vice President, Human Resources, from Steven J. Heaslip, who separated from employment with the Company in June 2009. Lastly, Robert M. Amen, who we refer to in this CD&A as our “Former CEO”, resigned his role as our Chairman of the Board and Chief Executive Officer, effective September 30, 2009. As discussed above under “Board Leadership Structure,” our new Chairman and CEO, Douglas D. Tough, whom we refer to in this CD&A as our “Current CEO”, assumed the position of Chairman effective as of October 1, 2009, but did not commence service as our CEO until March 1, 2010. During this transition period from October 1, 2009 through February 28, 2010, our Board established a temporary Office of the CEO, which was comprised of Mr. Berryman together with Nicolas Mirzayantz, Group President, Fragrances, and Hernan Vaisman, Group President, Flavors. Due to these management transitions, a number of different executives served in the roles of CEO and CFO during fiscal 2009. As a result, including Beth E. Ford, our Executive Vice President, Head of Supply Chain, and Dennis M. Meany, our Senior Vice President, General Counsel and Secretary, we are in the unique position of having nine NEOs in this Proxy Statement.
Although these NEO changes were significant corporate events, the roles played by members of management in assisting the Committee in its determinations regarding executive compensation for 2009 remained generally consistent with the roles such management positions have played in prior years. As a result, we do not generally distinguish between the individuals fulfilling those roles in the narrative below. However, it should be noted that the members of the temporary Office of the CEO did not participate in decisions regarding executive compensation during their tenure in this office. In addition, the 2009 compensation of Mr. Berryman, Mr. Mirzayantz and Mr. Vaisman was not adjusted to reflect their temporary additional responsibilities. As such, the discussion below of the compensation of our CEO in 2009 and our CEO’s role with regard to establishing compensation arrangements for 2009 (other than his own compensation) should be taken to refer to our Former CEO, unless otherwise indicated. Further, the discussion below of the compensation of our CEO in 2010 and our CEO’s role with regard to establishing compensation arrangements for 2010 (other than this own compensation) should be taken to refer to our Current CEO.
Executive Compensation Philosophy
Objectives
The objectives of our executive compensation program are as follows:
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In furtherance of the above objectives, we believe that executive compensation should (i) be tied to overall Company performance; (ii) reflect each executive’s level of responsibility; (iii) vary based on individual performance and contribution; and (iv) include a significant equity component. We believe that by keeping the majority of executive pay “variable” and “equity-based” we can best ensure alignment with shareholder value and Company growth.
Our 2012 NEO Pay Was Tied to Our 2012 Performance
In 2012, we delivered solid results, including local currency sales growth of 4%, adjusted operating profit growth of 3%, and adjusted EPS growth of 6%. Looking over the past three years on an average basis, we continue to meet our long-term financial targets. This solid performance goalswas achieved despite the various challenges the organization faced in 2012, including continued economic uncertainty, weakened consumer confidence and the continued high cost of raw material. Furthermore, we continued to execute on key elements of our strategic plan during the year, including:
leveraging our geographic footprint – we opened a new facility in Singapore, a creative facility in India, and announced a $50 million investment to build out our facility in Turkey;
strengthening our innovation platform – we continue to strengthen our platforms by leveraging our knowledge of consumer trends to drive technological developments and external collaborations to better anticipate and address consumers’ future needs; and
maximizing our portfolio – we continue to focus our efforts on improving our performance by further leveraging our advantaged portfolio and implementing solutions to fix less attractive areas, such as exiting low-margin sales activities in our Flavors business which contributed to our improved gross profit margins in 2012.
Based on these accomplishments, we met all of the target performance levels for our corporate and business financial metrics under our LTIP, and three out of the four performance levels under our AIP. As a result of these achievements, the 2012 annual compensation purposes areof our NEOs increased as compared to their respective compensation in 2011 as discussed below.
2012 Annual Incentive Plan Targets and Payout. Our 2012 Annual Incentive Plan (“AIP”) performance targets were based upon our annual and long-term profitability targets and our 2011 actual results. Our AIP continues to be based on the challengingachievement of four financial performance metrics: (1) local currency sales growth, (2) operating profit, (3) gross margin and (4) working capital. These performance metrics are measured (A) at the consolidated corporate level for our CEO, our CFO and our General Counsel and (B) at both the consolidated corporate level and the business unit level for the Group President of each of our business units.
For 2012, at the corporate level, we exceeded our targets in three of the four performance indicators. As a result, the overall corporate AIP payout was approximately 127% of the target award for those NEOs evaluated solely on corporate performance. Our Flavors business unit sustained similar strong performance, particularly in Sales Growth and Gross Margin. This resulted in an AIP payout, when combined with the corporate level performance, of approximately 130% of the target award for our Group President, Flavors. Our Fragrance business unit also exceeded Sales Growth expectations and returned a strong performance against Gross Margin targets. Consequently, the AIP payout, when combined with the corporate level performance, was approximately 123% of the target award for our Group President, Fragrances.
Long-Term Incentive Plan Results for 2012. Our LTIP is structured in three-year cycles, which are administered in four equally-weighted performance segments: Year 1, Year 2, Year 3 (each an “annual performance segment”) and cumulative performance over the three-year period (the “cumulative performance segment”). During the three annual performance segments, Company performance is measured against two equally-weighted financial metrics. For the 2010-2012 LTIP Cycle and the 2011-2013 LTIP Cycle, these two metrics were Earnings Per Share (the “EPS”) and our Total Shareholder Return (“TSR”) versus the S&P 500 (the “Company TSR”). Commencing with the 2012-2014 LTIP cycle, the Compensation Committee (the “Committee”) approved the use of Economic Profit (EP) (as defined below), rather than EPS, as the second financial metric. We will continue to use Company TSR as the second financial metric of Company performance for the annual performance segments of the 2012-2014 LTIP Cycle. In addition, Company TSR will continue as the sole financial metric for the cumulative segment for all of the current LTIP Cycles (the “Cumulative TSR Goal”).
For 2012, our EP was $203 million, as adjusted for LTIP 2012 non-core items described below under “2012 Company LTIP Performance.” This result exceeded both the threshold performance level of $182 million and target performance level of $198 million but did not reach maximum performance level of $216 million. As a result, our NEOs earned approximately 129% of the EP Goal for Year 1 in the 2012-2014 LTIP Cycle. For 2012, our EPS was $4.03, as adjusted for LTIP 2012 non-core items. This result was just above the target performance level of $4.00 and below maximum performance level of $4.30. As a result our NEOs earned approximately 108% of the EPS Goal for Year 2 of the 2011-2013 LTIP Cycle and Year 3 of the 2010-2012 LTIP Cycle. Our TSR for 2012 was just below the 75th percentile, and generated a near maximum payout of approximately 198%. Our cumulative TSR for the 2010-2012 LTIP performance cycle was at the 76th percentile, which surpassed the maximum 75th percentile measure, and resulted in a maximum 200% payout. As a result, our NEOs earned approximately 198% of the TSR Goal for the 2012 segment of each of the current LTIP Cycles and earned 200% of the TSR Goal for the cumulative segment. The LTIP award earned for the 2012 segment of the 2011-2013 and 2012-2014 LTIP Cycles was approximately 153% and 164% of the target, respectively.
These summary findings are outlined in greater detail in the sections titled “2012 Company and Business Unit AIP Performance” and “Long Term Incentive Plan” below.
Compensation Related Corporate Governance. To ensure continued alignment of compensation with Company performance and the creation of shareholder value, we maintain strong compensation related corporate governance policies, including the following:
We require our executives, including our NEOs, to meet certain stock ownership guidelines;
Our Executive Separation Policy (“ESP”) provides that any equity awards made after December 2010 are subject to a “double trigger” and only accelerate in connection with a change in control if an ESP participant is terminated without cause or terminates for “Good Reason” within two years following a change in control; and
We do not provide tax gross-up for payments made in connection with a change in control for Mr. Tough nor, under the ESP, for executives who joined after March 8, 2010.
Our Executive Compensation Program
We pay for performance. Our NEO’s target compensation for 2012 reflects our commitment that a significant portion of our executive compensation should be variable and tied directly to achievement of our short-term and long-term financial and strategic expectationsoperational objectives.
During 2012, as in prior years, our NEOs’ direct compensation primarily consisted of (1) base salary, (2) AIP awards, (3) LTIP awards and (4) Equity Choice Program (“ECP”) awards. During 2012, of the average target direct compensation payable to our CEO and our other four NEOs, approximately 77% was variable, of which approximately 72% was tied to long-term performance metrics.
As illustrated in the tables below, actual awards earned as a percent of target, in both the AIP and LTIP, vary based on our financial and operational performance.
For the five AIP plan years from 2008 to and including 2012, the actual payout as a percentage of target compensation was volatile. The combined payout for NEOs based on corporate and business unit performance as a percentage of target ranged from approximately 28% to 177%, with an average payout of approximately 88% of target over the five year period. During this period, our local currency sales grew at a compound annual growth rate (“CAGR”) of approximately 5%. Over the 2008-2012 period, operating profit (excluding non-core items such as restructuring charges) experienced an approximately 6% CAGR from $367 million in 2008 to $488 million in 2012. Our gross margin improved from approximately 41% of sales in 2008 to 42% in 2012. Our core working capital improved over the same period, declining from approximately 34% of sales in 2008 to approximately 31% by the end of 2012.
We align the interests of our executives with those of our shareholders. We have designed our executive compensation to provide a significant portion of our executives’ total direct compensation in the form of equity and to encourage their direct investment in the Company as well as long-term ownership. For 2012, approximately 54% of the average variable target compensation payable to our CEO and our other four NEOs was payable in equity. For 2012, the proportion of long-term incentive compensation opportunity provided in the form of equity versus cash for the CEO and the average of our other four NEOs, as a group, was as follows:
Target Long-Term Incentive Compensation
Stock ownership and share retention policy. Our executives, including our NEOs, are required to meet certain share ownership guidelines to align our executives’ interests with those of our shareholders under our Share Retention Policy. Until the targeted ownership level is achieved, each of our NEOs is required to hold 50% of the shares acquired from the exercise of a stock option or stock-settled appreciation right or the vesting of restricted stock or restricted stock units (after payment of any exercise price and taxes). Our NEOs are not permitted to pledge shares that are counted towards their retention requirements as collateral for individual loans. Additional information about our Share Retention Policy is set by our Board of Directors for our entire organization.
Role of Compensation Committee, Outside Advisors and Managementforth above under “Corporate Governance – Share Retention Policy.”
Compensation CommitteeSetting Process
Pursuant to its Charter, theOur Committee assists the Board in ensuring that a proper system of long term and short term compensation is in place to provide performance-oriented incentives to management, and that compensation plans are appropriate and competitive and properly reflect the objectives and performance of management and the Company. The Committee has responsibilityresponsible for overseeing the determination,design, implementation and administration of remuneration, includinglong-term and short-term compensation (including equity awards, benefits and perquisites, ofperquisites) for all executive officers and other members of senior management. The Committee recommends CEO compensation to the full Board for its approval.
Outside Advisors
To assist it During 2012, as in fulfilling its responsibilities,the prior year, the Committee engaged W.T. Haigh & Company (“W.T. Haigh”Haigh & Company”) as its independent compensation consultant throughout 2009. W.T.to assist it in fulfilling its responsibilities. Haigh regularly participates in Committee meetings and meets privately with& Company is engaged exclusively by the Committee at its request. To date, W.T. Haigh has worked exclusively on executive and director compensation initiatives on behalf of the Committeematters and does not have other consulting arrangements with the Company.
In 2009, W.T. Haigh reviewed and made recommendations to the Committee concerning our executive compensation philosophy and programs including:
re-affirming the Company’s executive compensation philosophy;
conducting total compensation market reviews for 31 executive positions, including each NEO position;
conducting total compensation market reviews for and reviewing non-employee director compensation;
supporting the administration of the Company’s existing Annual Incentive Plan (“AIP”), Long Term Incentive Plan (“LTIP”) and Equity Choice Program (“ECP”);
providing advice to the Committee in connection with the compensation for the CEO;
assisting in the development of the proposed 2010 Stock Award and Incentive Plan; and
assisting in the development of the 2010 compensation arrangements for our new CEO.
The Company also retains Steven Hall & Partners for advisory services concerning compensation plan documents, including the Company’s equity award and incentive, executive separation and deferred compensation plans, and Buck Consultants for actuarial work and other services relating to the Company’s retirement plans and other post-employment benefits. These services are administrative or technical in nature and neither of these consultants played a role in determining or recommending the amount or form of executive or director compensation during 2009.
Management
With the input of W.T. Haigh, our FormerOur CEO and former Senior Vice President, Human Resources, evaluatedSVP HR, with input from Haigh & Company, evaluate the performance and competitive pay position offor each of the NEOs, other than the CEO,NEO, and mademake recommendations to the Committee concerning each such officer’s 2009target annual compensation. Our CEO follows the same process with regard to the target compensation for our SVP HR, without her input, and the Committee follows the same process with regard to the target compensation for our CEO, without his input.
As part of its compensation setting process, the Committee also considers the results of the prior-year’s shareholder advisory vote on our executive compensation. It believes these voting results provide useful feedback regarding whether shareholders agree that the Committee is achieving its goal of designing an executive compensation program that promotes the best interests of the Company and its shareholders by providing its executives with the appropriate compensation and meaningful incentives. As part of its 2012 compensation setting process, the Committee reviewed the results of the 2011 shareholder advisory vote, in which 97% of the votes cast were voted in favor of our executive compensation.
Both our CEO and Senior Vice President, Human Resources, generally attend Committee meetings but do not attend the portion(s) of meetings where their own compensation is discussed or determined. They periodically provide the Committee with updates of progress against our performance goals and provide management’s views and recommendations concerning compensation elements including:
performance criteria and targets under our AIP and LTIP, including potential threshold and maximum performance targets, based on the Company’s financial, operating and strategic plans;
placement of executives within salary grades;
adjustments to a particular executive’s compensation, including equity compensation, based on individual performance, responsibilities or other considerations;
the Company’s executive separation policy; and
perquisites.
Our management also provides similar input to W.T. Haigh but does not oversee its activities.
Principles for Setting Compensation LevelsTargets
On an annual basis, the Committee reviews and approves the compensation of our NEOs. We use a global grading structure for our employees, including our executives,NEOs, with compensation ranges for each grade. ExecutivesOur NEOs are placed in a particular grade based on internal factors (including scope of responsibilities and job complexity) and an external market evaluation. The external market evaluation is based on published third party general survey information and a review of like positions within our selected peer groups described below. This process is often referred to as “market benchmarking”. Benchmarking also provides information that we use in internal pay review for various positions and grade levels.benchmarking.” We update the external market benchmarking and peer group data annually. The compensation decisions the Committee makes each year take into account the compensation range for each executive’s grade, as well as market benchmarking and individual performance, as described below.
Benchmarking
Peer GroupsMarket Benchmarking
The Committee’s goal is to position target total direct compensation (salary, annual incentive compensation, long-term incentive compensation and equity awards) between the 50th to 75th percentile of relevant market benchmarks and to position total cash compensation at slightly above median. We use compensation data from other companies to benchmark our compensation levels. However,The Committee has traditionally believed that it iswas difficult to define a single peer group for our market benchmarking that appropriately reflects the particular diversity of responsibilities within our business. The Company has few publicly tradedbusiness, especially because none of our major direct competitors files reports with the Securities and our industry is highly fragmented, both geographically and across product lines. Therefore, with assistance from its independent compensation consultant,Exchange Commission. Consequently, the Committee identifiedhad previously utilized two separate and distinct peer groups—groups — a consumer product companies peer group and a specialty chemical and flavoring companies peer group.group, which were equally weighted. The Committee would then review general industry data, provided by Haigh & Company, from Towers Watson’s 2011 Executive Compensation Database, to support the Committee’s analysis and enable it to obtain a more general understanding of current compensation practices.
In October 2011, with the assistance of Haigh & Company, the Committee undertook its annual review of peer groups. As part of this review, the Committee noted that the Company primarily (i) focuses on consumer-oriented products and (ii) competes with other consumer product companies for executive talent. Consequently, the Committee decided to eliminate the specialty chemical companies peer group as a peer group for benchmarking Company compensation.
2012 Benchmarking for CEO, CFO and Group Presidents. For 20092012 compensation decisions these peer groupsregarding (i) the CEO, (ii) the CFO and (iii) each of the Group Presidents, the Committee, based on recommendations from Haigh & Company, decided to benchmark compensation against the average of (1) the same Consumer Peer Group utilized in 2011 and (2) the General Industry Cut of the Towers Watson General Industry Index Survey.
The Consumer Peer Group was selected using the following criteria:
1. | U.S. publicly traded companies of comparable size (generally based on revenue of $1B — $5B and market capitalization of $1B — $8B); |
2. | Global scope with significant international presence (international operations generally accounting for at least 25% of total revenues); |
3. | Strong in-house Research and Development (“R&D”) activities (R&D expense generally over 1% of total revenue); |
4. | Growth orientation, with positive sales and earnings growth over the three years prior to the review and selection of the peer groups; |
5. | Competitors for executive talent; and |
6. | Progressive companies with positive reputations. |
For 2012, the Consumer Peer Group consisted of the following companies:
Consumer |
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Alberto-Culver |
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| Hormel Foods | ||
Church & Dwight |
| Jarden | ||
Clorox |
| McCormick | ||
Del Monte Foods |
| Newell Rubbermaid | ||
Elizabeth Arden | Nu Skin Enterprises | |||
| Ralcorp | |||
Estee Lauder | Revlon | |||
| Tupperware | |||
Hershey |
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The Committee used the following criteria in reviewing and selecting the peer groups:
US publicly traded companies of comparable size (generally based on revenue of $1B—$5B and market capitalization of $1B—$8B);
Significant international presence with international operations generally accounting for at least 25% of total revenues;
Strong in-house R&D operations with R&D expense generally over 1% of total revenue;
Growth orientation, with positive sales and earnings growth over prior three years at time the peer groups were reviewed and selected;
Competitors for executive talent; and
Progressive companies with positive reputations.
At the time of the Committee’s review and selectiondetermination of market reference ranges, we were positioned at approximately the 40th percentile of the above peer groups, IFF was positioned approximately at the 40th percentile of both peer groupsConsumer Peer Group in terms of revenue, the primary scope comparison measure. Based onmeasure, for the recommendation of its independent compensation consultant, ourrespective fiscal year. Our current relative revenue is positioned at approximately the 35th percentile for the Consumer Peer Group.
As discussed above, the Committee did not make any changes in our peer groups for 2009 compensation decisions from the peer groups used in 2008, other than to eliminate one company, Spectrum Brands, which was no longer listed on a national securities exchange.
Our peer groups for compensation benchmarking are different from the peer group used in our financial performance graph included in our Annual Report on Form 10-K. Bothweighed equally the compensation and financial peer groups include companies that are international in scope and/or sell their products todata derived from a General Industry Cut of the types of customers that also buy our products. However, the financial performance peer group includes companies that exceed the size criteria identified for our compensation peer groups.Towers Watson General Industry Index Survey. The Committee believes that, for the compensation peer groups, comparably sized companies better reflect the competition we face for executive talent.
General Survey Data
With assistance from its independent compensation consultant, the Committee also used general industry data from Towers Perrin’s 2008 Executive Compensation Database, a broad-based survey, to analyze our 2009 executive compensation levels and to obtain a more general understanding of current compensation practices. In doing so, the Committee considered a segment of this database consisting ofIndustry Cut comprises 181 companies having $1 billion to $3$6 billion in reported revenues, excluding energywith median revenues of $2.6 billion. Energy and financial companies. These two industry segmentscompanies were excluded because we believe thesefrom this selection as the Committee believed that the industry business models and theirthe pay practices of these two industries are less comparable to ours, particularly in a volatile economic climate.
Market Reference2012 Benchmarking for Other Executive Officers.
Based on the peer group and other data, the Committee’s independentrecommendations by its compensation consultant, developsthe Committee determined that the Consumer Peer Group did not provide sufficient comparative data for the other executive officer positions that were reviewed by the Committee. Consequently, for all other executive officer positions, including the General Counsel, instead of using the Consumer Peer Group, the Committee used the aggregate data available from a “market reference” for each executive position. In orderselect cut of the Towers Watson General Industry index that (i) identified themselves as belonging to the consumer products or beverage industry and (ii) had revenues between $1 billion and $6 billion (the “Consumer Products Select Cut”). The Committee averaged (1) the Consumer Products Select Cut with (2) the Towers Watson General Industry Index to determine a market value for each executive positionmedian and to reflect75th percentile target compensation.
For 2012, the most relevant source for competitive executive talent for that position,Consumer Products Select Cut comprised 19 companies with reported revenues of between $1 billion and $6 billion, with median revenue of $3.2 billion. The companies included in the peer group and general industry data may be assigned a different weight depending upon the position. The “market weighting” for each position is reviewed and agreed to in principle by the Committee at the same time the Committee approves the peer group. In lightConsumer Products Select Cut were as follows:
Acuity Brands | Jack In The Box | |
Armstrong World Industries | Lorillard Tobacco | |
Brown-Forman | Mattel | |
Chiquita Brands | Molson Coors Brewing Company | |
HNI Corp | Polaris Industries | |
Hanesbrands | Ralcorp Holdings | |
Harman International Industries | Revlon | |
Hasbro | Steelcase | |
Hershey | Tupperware | |
J.M. Smucker |
Use of the volatile economic environment and impact on peer company results and related compensation, the Committee’s consultant applied adjustments to 2008 reported peer company and survey data to provide its best estimate of as yet not publicly disclosed market compensation actions for 2009 performance.
Market Reference Ranges. The Committee’s independent compensation consultant derives the median and 75th percentile “market reference” values for each executive position based on the average of the two relevant compensation indexes. The Committee’s consultant then analyzes each executive’sNEO’s actual pay from the prior fiscal year and target total direct pay (as described below under “Compensation Elementscompensation and Targeted Mix”)target total cash compensation against the median to 75thand the 75th percentile range of each executive’s market reference range and reviews this analysis is reviewed with the Committee and, in the case of the compensation of NEOs other than the CEO, with the CEO. Individual components of total direct pay (meaning salary, annualcompensation are benchmarked versus market on an individual basis for our CEO, on an average basis for our CFO and long term incentive compensationGroup Presidents, collectively, and annual equity awards) are not specifically benchmarked.on an average basis for our Senior Vice Presidents, collectively. In determining target total target direct paycompensation for each executive in 2009,2012, the Committee considered the consultant’s market reference analysis by each direct compensation element (meaning salary, annual and long term incentive compensation and annual equity awards) and in total.analysis. In addition, the Committee considered a number of other important factors, including theeach executive’s:
individual performance;
scope of responsibilities;
relative responsibilities compared with other senior Company executives;
contribution relative to overall Company performance;
compensation relative to his or her peers within the organization;
long termlong-term potential; and
retention.
The Committee uses the benchmarkingmarket reference range in order to establish a starting reference point for the compensation levels that the Committee believes would provide our executive teamNEOs with competitive compensation in order to incentivize and retain our top executives.compensation. However, the actual target total target direct paycompensation approved atby the beginning of each year for each executiveCommittee may be above or below the market reference range since
based on the Committee reviewsCommittee’s review of market compensation levels, its desire to create internal pay equity among our executives’ compensation annually taking all ofexecutives and the aboveindividual factors into account.
Of our NEOs,set forth above. For 2012, the approved target total direct pay for 2009 (based on annualcompensation of our CEO and long term incentive compensation at target)each of our other NEOs was positioned somewhat abovebetween the 50th and the 75th percentile of the relevant market reference range for Mr. Mirzayantz, Mr. Vaisman and Ms. Ford. The following are factors considered by the Committee in setting their target direct pay levels:
Both Messrs. Mirzayantz and Vaisman’s target direct compensation reflect internal pay relationships to our Former CEO as well as our other senior executives, critical impact of their roles on our annual and longer term results and our desire to retain their services over the long term.
Ms. Ford’s target direct compensation reflects compensation levels negotiated at the time of her hire in 2008, internal pay relationships to other senior executives and our Former CEO and her expected level of contribution as a member of the senior leadership team. In addition, the Committee believes Ms. Ford’s role and organizational impact exceed those of the survey benchmarks used in the market comparisons.
range. Actual compensation paid for the year, as compared to target compensation approved at the beginning of the year, may differ depending on Company and individual performance and is discussed in Program Components and Policies below.
Realized Compensation History and Retention Value
In 2009, for the first time, the Committee also reviewed an analysis of “realized compensation history” and “retention value” for our executives prepared by our former Senior Vice President, Human Resources. As analyzed, “realized compensation history” meansperformance. Consequently, the actual compensation, consisting of actual base salary, earned AIP, earned LTIP and estimated vested equity (which, for 2009 analysis was based onpay received by a $30 share price), paid to each executive each year since 2002 (or later year if the executive commenced employment after 2002). “Retention value” refers to potential awards under active but not yet completed LTIP cycles, as well as all unvested equity grants. The Committee considered this analysis, but in making 2009 compensation decisions, the Committee did not otherwise refer to specific compensation tally sheetsNEO may be higher or wealth accumulation analyses.lower than his or her market reference range.
Compensation Elements and Targeted Mix
On an annual basis, the Committee reviews and approves the compensation for our executive officers and other members of senior management, including all of our NEOs. Our executive compensation program includes direct paycompensation and indirect pay elements as follows.compensation elements. Our indirect compensation comprises (i) Company-sponsored benefit programs, many of which are broadly available to our employees, (ii) our Deferred Compensation Program and (iii) our perquisite program. We believe that direct compensation, which constituted an average of 94% of total actual compensation paid to our NEOs in 2012 should be the principal form of compensation.
Direct PayCompensation
DirectThe table below provides a brief description of the principal elements of direct compensation, whether such compensation is fixed or variable, and the compensation program objectives served by each pay consists of:element. From time to time, the Committee may also approve discretionary bonuses to officers in connection with their initial employment, for extraordinary individual performance or a significant contribution to Company strategic objectives, or for retention purposes.
Element | Fixed or Variable | Primary Objective | ||
Base Salary | Fixed | • To attract and retain executives by offering salary that is competitive with market opportunities and that recognizes each executive’s position, role, responsibility and experience. | ||
AIP award | Variable | • To motivate and reward the achievement of our annual performance objectives including sales growth, operating profit, gross margin and working capital. | ||
LTIP award | Variable | • To motivate and reward the annual profitability performance and the annual and cumulative relative TSR performance over rolling three-year periods. • To align executives’ interests with those of shareholders by paying 50% of the earned award in shares of our common stock (with the remaining 50% being payable in cash) and including TSR as a key measure of long-term performance. | ||
ECP award | Variable | • To align executives’ interests with the interests of shareholders through equity-based compensation. • To encourage direct investment in the Company and to serve as a retention tool. |
Base salary;
The payouts under our AIP award;
and LTIP award; and
ECP award.
AIP, LTIP andplans are based on our achievement of performance metrics set at the beginning of the relevant measurement period, while our ECP awards are variable, performance-based compensation componentsgranted at the beginning of each year and their value is based onreflect the Company’s performance and,of the NEO in the case of the LTIPprior year and ECP awards, share price. Theare used as a retention tool. These payouts under these annual and long term awards maywill vary from year to year and thus reflect the impact our executives have on our Company’s success.NEO compensation will vary with performance.
For 2009,2012, at target AIP and LTIP achievement levels and actual ECP awards, the components of average total direct paycompensation for our CEO and the average of our other four NEOs, other than the Former CEOas a group, were as follows:
The 70%81% weighting, in the case of our CEO, and the 72% average weighting, in the case of our other NEOs, of direct pay towards performance-basedcompensation which is variable compensation closely aligns our executives’ compensation opportunity with ourCompany performance by enabling our senior executives to earn more than target compensation if the Company achieves superior performance or will cause them to earn less than target compensation if we do not meet our performance goals or if the value of our common stock does not increase over time.
The Committee did not recommendproportionately greater “variable” portion of direct compensation targeted for our CEO reflects his role and the Board did not make an ECP award in 2009responsibility as our executive most accountable to our Former CEO. As a result, target total direct payshareholders for the Former CEO in 2009 was comprised of approximately 24% salary, 29% AIP and 47% LTIP.Company-wide performance.
Long termLong-term compensation to our senior executivesNEOs includes LTIP awards and equity awards under our ECP.ECP awards. LTIP awards, if earned, are paid out 50% in common stock and 50% in cash. Equity ismakes up a higherlarger portion of total long termlong-term compensation than non-equity because we wantcash. This approach, combined with our Share Retention Policy discussed above, is intended to ensurepromote significant long termlong-term stock ownership by each of our executives so thatand to align their stock ownership interests, and their at-risk longer term compensation, are closely aligned with those of our shareholders’ interests. The ECP, combined with our Share Retention Policy discussed below, encourages stock ownership and real investment in our Company.shareholders.
For 2009, the average proportion of long term incentive compensation opportunity provided in the form of equity versus cash for our NEOs (other than our Former CEO) was as follows:
In 2009, our Former CEO’s target long term opportunity was comprised of 50% cash and 50% equity due to the Committee’s determination not to grant him an ECP award.
The Committee periodically reviews and adjusts the mix between short termshort-term and long termlong-term incentive compensation opportunities and between cash and non-cash opportunities based on (1) benchmarking and other external data, (2) recommendations from its independent compensation consultant and (3) recommendations from our CEO and Senior Vice President, Human Resources.SVP HR.
Direct Compensation Components and 2012 Compensation Decisions
Indirect PaySalaries
Indirect pay includes:
Benefits (broad-based benefit programs);
Deferred Compensation Plan (“DCP”);
Pension Plan and Supplemental Retirement Plan (“SRP”) for certain eligible executives; and
Personal benefits (our perquisite program).
Our executives participate in Company-sponsored benefit programs, many of which are broadly available to our employees. We also maintain other benefit and perquisite programs for our senior management. The Committee’s independent compensation consultant has advised that these programs are in line with market practice.
Program Components and Policies
Salaries
The Committee reviews the salaries of our CEO and other senior executives, including our other NEOs annually. For 2009,During the first quarter of 2012, the Committee decided to delay its annual evaluation of salaries for our senior executives, including our Former CEO and other NEOs, were not increased based on business conditions and outlook at that time anduntil the Committee’s determination that the salaries of our senior executives were in line with market reference. In 2009, the Board, upon the recommendationbeginning of the second half of 2012 as part of the Company’s evaluation of overall global compensation costs. In July 2012, the Committee approved the base salary initially established for our Former CEO and our Current CEO (as described in more detail below). The Committee also approvedreviewed the base salaries of new executive officers in line with market reference.those NEOs whose base salary had not been adjusted for at least 18 months. Based on the interval since the last base salary adjustment and each NEO’s individual performance, the Committee increased the base salary of Messrs. Berryman, Mirzayantz and Vaisman by $25,000, $10,000, and $25,000, respectively. These increases were effective July 1, 2012, as were Company salary increases generally.
Annual Incentive Plan (“AIP”)
General:The Company maintains the AIP for our NEOs and certain other employees. Payouts under the plan, which are awarded underFor our shareholder-approved 2000 Stock Award and Incentive Plan, dependNEOs, 2012 AIP payouts depended on the achievement of specific Company-wide quantitative and strategic enterprise (i.e., Company-wide) performance goals, along with individual contribution toward the enterprise results based on business unit or functional goals.goals for the Group Presidents. Each year the Committee sets an AIP target (stated as a percentage of base salary) for each NEO. For 2012, the Committee decided to maintain the AIP percentage targets at the same level as 2011. However, as a result of the mid-year salary increases, the AIP dollar target amount was increased for Messrs. Berryman, Mirzayantz and Vaisman.
Douglas D. Tough Kevin C. Berryman Nicolas Mirzayantz Hernan Vaisman Anne Chwat 2012 Salary Target AIP as
% Base Salary AIP Target $ 1,200,000 120 % $ 1,440,000 $ 512,500 80 % $ 410,000 $ 505,000 80 % $ 404,000 $ 512,500 80 % $ 410,000 $ 450,000 60 % $ 270,000
Performance Metrics and Capped AIP Payouts: Based on a review of the annual and long-term financial goals, operational plans and strategic initiatives and the prior year’s actual results, the Committee annually sets the financial performance metrics for the Company and the respective business units that it will use to measure performance as well as the relative weighting that will be assigned to each metric. The Committee then approves threshold, target and maximum performance levels for each performance metric. Upon achievement of the relative performance level, an executive has the opportunity to earn up to 200% of his or herthe following AIP target AIP award for significantly above target or superior performance or lower than target (or no) annual incentive compensation for below target performance. For 2009, the Committee approved the AIP targets (stated as a percentage of base salary) as follows:such metric:
| Threshold — | 25% | ||||||
| Target — | 100% | ||||||
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Goal Setting Process:2012 AIP Performance Metrics:Each fiscal year, our CEO proposes and reviews with the Board our Company’s annual and long term financial goals, operational plans and strategic initiatives As discussed above, for the Board’s discussion and ultimate approval. The CEO and the Senior Vice President, Human Resources then recommend to2012 AIP awards, the Committee the AIP enterpriseapproved four financial performance metrics, which we call our “scorecard”,metrics: (1) local currency sales growth, (2) operating profit, (3) gross margin percentage and the Committee consults with its independent compensation consultant before it approves the “scorecard”.
2009 Goals:For 2009, the AIP “scorecard” consisted of four enterprise financial goals weighted at 70% of total target opportunity and three non-financial strategic goals weighted at 30% of total target opportunity. The following table lists the Company’s 2009 financial(4) working capital percentage. These performance metrics and non-financial goals, their respective weightings and the 2009 result versus target:
Performance Criteria | Weighting | Result (% Target) | ||||
Financial goals | ||||||
Sales growth in local currency | 20 | % | 73 | % | ||
Earnings before interest and taxes (represented as profit margin as a percentage of sales) | 20 | % | 100 | % | ||
Return on invested capital | 20 | % | 0 | % | ||
Working capital | 10 | % | 200 | % | ||
Subtotal Weighted Result | 70 | % | 54.5 | % | ||
Non-Financial Goals | ||||||
Customers • Sales growth with target customers • Category market growth • Improvements in service performance and product quality |
10 |
% |
59 |
% | ||
People • Managing and developing workforce | 10 | % | 11 | % | ||
Innovation • Research and development projects • Improvements in our supply chain, production planning and customer service | 10 | % | 94 | % | ||
Subtotal Weighted Result | 30 | % | 16.4 | % | ||
Grand Total | 100 | % | 70.9 | % | ||
“Financial Governor” | — | N/A | ||||
Final Award | — | 70.9 | % |
Overall Company AIP Performance
Our actual performance against our 2009 AIP enterprise scorecard’s financial objectives was 70.9%, as set forth in the table above. In establishing AIP financial objectives and in determining actual achievement against financial goals, the Committee eliminates the impact of certain discrete non-core costs (net of related benefits realized during the period). This is done by the Committee in order to focus performance goals and achievement against goals on our core operating results. For 2009, the AIP financial goals and actual achievement against these financial goals therefore have excluded approximately $17 million of after-tax non-core restructuring costs (net of savings) and costs associated with the change in CEO. The Committee also excluded the effects associated with a revised reporting methodology regarding non-U.S. research and development credits in order to provide consistency with the manner in which the goals were set.
Financial Goals Primary Objectives
The financial goals were selected for the following reasons:
Local currency sales growth helps to encouragereflects both increases in market share and market expansion.
A marginsales expansion, which drives increases in gross profit. By measuring achievement exclusive of currency fluctuations, this goal of earnings before interest and taxes helps to ensure that such share or market expansion is profitable and produces a significant level of cash flow.we are rewarding real incremental growth.
A return on invested capitalAn increase in operating profit (in dollar terms) encourages the management of gross profit dollars against operating expenses. Achieving this goal encourages executiveshelps provide the Company with the funding to achieve appropriate returns for capital employed.reinvest in the business to drive future growth.
WorkingImprovement in gross margin percentage is an important measure for analyzing our ability to effectively recover increases in the cost of raw materials, cost discipline and operating efficiencies.
Improvements in working capital was added as a financial goal for 2009 AIP as improvement was needed to supportdrive better operating cash flows.flow generation. For this purpose, we define working capital as inventories and trade accounts receivable less trade accounts payable.
For 2012, the weighting assigned to each of the financial performance metrics was as follows:
Corporate Participants(1) | Business Unit Participants(2) | |||||||||||||||||||
Performance Metric | Corporate Weighting | Bus. Unit Weighting | Corporate Weighting | Bus. Unit Weighting | Total Weighting | |||||||||||||||
Local Currency Sales Growth | 40 | % | 0 | % | 20 | % | 20 | % | 40 | % | ||||||||||
Operating Profit $ | 30 | % | 0 | % | 15 | % | 15 | % | 30 | % | ||||||||||
Gross Margin Percentage | 15 | % | 0 | % | 0 | % | 15 | % | 15 | % | ||||||||||
Working Capital Percentage | 15 | % | 0 | % | 15 | % | 0 | % | 15 | % | ||||||||||
Total | 100 | % | 0 | % | 50 | % | 50 | % | 100 | % |
(1) | All NEOs except our two Group Presidents. |
(2) | Our two Group Presidents. |
The first three financiallocal currency sales growth and operating profit goals set forth in the table above were assigned a greater weight than the gross margin and working capital financial goalgoals because the Committee believes that theythese two performance metrics are the most relevant measures of overall annual Company performance and are key to driving sustained long termlong-term growth. For 2012, the Committee approved revisions to the relative weightings of gross margin (from 20% to
15%) and working capital (from 10% to 15%) so that they would be valued equally. The Committee believes that thesethe higher working capital weighting provides a more meaningful and appropriate incentive level.
2012 Performance Levels: Our 2012 AIP performance levels were based upon our long-term and annual targets and our 2011 actual results. Over the past four years, as economic volatility has increased, our performance based compensation has become volatile with performance payouts varying from less than 50% to more than 150% of target awards. At the beginning of 2012, when the Committee was approving performance levels, the Committee sought to establish AIP performance levels that were challenging, but that reduced the volatility of AIP payouts. Specifically, the Committee considered the anticipated impact of the significant increases in raw material inputs which began in the middle of 2011 and were expected to continue throughout 2012 and the economic recession in Western Europe that was anticipated to continue into 2012.
2012 Company and Business Unit AIP Performance: Our actual performance against our 2012 AIP corporate financial metrics is set forth in the tables below. In establishing AIP financial performance criteria, which are derived frommetrics and in determining actual achievement against performance metrics, we eliminated the Board-approved goals forimpact of certain non-core expenses (net of related benefits realized during the period). This was done in order to focus performance metrics and achievement against those metrics on our Company, are critical measurescore operating results. For 2012, the AIP target performance levels and actual achievement against the target performance levels excluded costs associated with (i) our Fragrance strategic initiative, (ii) other non-budgeted special projects approved by the Board throughout 2012 and (iii) unbudgeted mark-to-market adjustments related to our Deferred Compensation Plan. Similarly, we excluded the effects of incentive compensation provisions in calculating gross margin performance in order to better focus on the underlying operating performance of our product portfolio. The Committee believes that the necessary self-funding of incentive compensation payments is covered in the operating successprofit component of the AIP program.
Corporate Performance
The table below reflects the AIP financial metrics, their respective targets and are strongly aligned with shareholder interests. For 2009, the specific target levelspayouts earned for each financial objective were basedmetric and overall by each NEO that is evaluated solely on improvement versus actual 2008 results. Eachcorporate performance, Messrs. Tough and Berryman and Ms. Chwat.
Performance Metric | Threshold | Target | Actual | Award Payout (as % of | Corporate Weighting | Total Weighted | ||||||||||||||||||
Local Currency Sales Growth | 1.6% | 3.6% | 4.4% | 140.0% | 40% | 56.0% | ||||||||||||||||||
Operating Profit | $474M | $496M | $494M | 93.7% | 30% | 28.1% | ||||||||||||||||||
Gross Margin | 39.2% | 40.7% | 41.9% | 177.7% | 15% | 26.7% | ||||||||||||||||||
Working Capital | 32.6% | 31.1% | 31.0% | 106.7% | 15% | 16.0% | ||||||||||||||||||
Total Award (as % Target) | 25% | 100% | — | — | 100% | 126.8% |
During 2012, our corporate performance was between target and maximum for each of the target levels were established in light of the difficult economic environment and its expected impact on our operating results. Achievement of the targets would represent a significant step towards achieving the Company’s previously announced long term strategic financial goals of growing local currency sales growth, gross margin and working capital, and was slightly below target for operating profit. The actual dollar amount earned by 4% per year, improving operating margins to 18% of sales and growing earnings per share on average by 10+% per year.each NEO is set forth below under “2012 Individual AIP Payouts.”
Non-Financial Goals Primary ObjectivesFlavors Business Unit Performance
The non-financial goals, which are less quantitativetable below reflects the AIP financial metrics, their respective targets and more subjective, were designed to influencethe payouts earned for each metric and rewardoverall by our Group President, Flavors.
Performance Metric | Threshold | Target | Award Payout (as % of | Bus. Unit Weighting | Bus. Unit Weighted | Corp. Weighting | Corp Weighted | Total Award | ||||||||||||||||||||||||
Local Currency Sales Growth | 2.0 | % | 4.0 | % | 170.0 | % | 20 | % | 34.0 | % | 20 | % | 28.0 | % | 62.0 | % | ||||||||||||||||
Operating Profit | $ | 284M | $ | 299M | 97.0 | % | 15 | % | 14.5 | % | 15 | % | 14.1 | % | 28.6 | % | ||||||||||||||||
Gross Margin | 40.1 | % | 41.6 | % | 153.0 | % | 15 | % | 23.0 | % | 0 | % | — | 23.0 | % | |||||||||||||||||
Working Capital | — | — | — | 0 | % | — | 15 | % | 16.0 | % | 16.0 | % | ||||||||||||||||||||
Total Award (as % Target) | 25 | % | 100 | % | — | 50 | % | 71.5 | % | 50 | % | 58.1 | % | 129.6 | % |
During 2012, our Flavors business unit performance on particular operational matters on which day-to-day efforts directly impactwas between target and maximum for each of local currency sales growth and gross margin, and was slightly below target for operating profit. The actual dollar amount earned by our Group President, Flavors is set forth below under “2012 Individual AIP Payouts.”
Fragrance Business Unit Performance
The table below reflects the AIP financial metrics, their respective targets and the payouts earned for each metric and overall by our Group President, Fragrance.
Performance Metric | Threshold | Target | Award (as % of | Bus. Unit Weighting | Bus. Unit Weighted Award | Corp. Weighting | Corp. Weighted Award | Total Weighted Award | ||||||||||||||||||||||||
Local Currency Sales Growth | 1.0 | % | 3.0 | % | 110.0 | % | 20 | % | 22.0 | % | 20 | % | 28.0 | % | 50.0 | % | ||||||||||||||||
Operating Profit | $ | 227M | $ | 237M | 106.8 | % | 15 | % | 16.0 | % | 15 | % | 14.1 | % | 30.1 | % | ||||||||||||||||
Gross Margin | 38.0 | % | 39.5 | % | 180.0 | % | 15 | % | 27.0 | % | 0 | % | — | 27.0 | % | |||||||||||||||||
Working Capital | — | — | — | 0 | % | — | 15 | % | 16.0 | % | 16.0 | % | ||||||||||||||||||||
Total Award (as % Target) | 25 | % | 100 | % | — | 50 | % | 65.0 | % | 50 | % | 58.1 | % | 123.1 | % |
During 2012, our Fragrance business resultsunit performance was between target and maximum for each of local currency sales growth and gross margin and operating profit. The actual dollar amount earned by our organization’s longer-term strategic success. These criteria are also key measures for evaluating our annual progress against our long term corporate strategic plan of winning new business with major customers and increasing profits in targeted geographic areas or business categories.Group President, Fragrance is set forth below under “2012 Individual AIP Payouts.”
Financial Performance “Governor”
If performance against the financial objectives is under target in the aggregate, performance against non-financial strategic objectives may not exceed the aggregate financial performance achieved. In 2009, performance for the financial objectives, weighted at 70% of the total, paid out at 54.5% whereas the non-financial objectives, weighted at 30% of the total, paid out at 16.4%. Therefore, the “governor” did not apply and the aggregate results generated a total payout of 70.9%.
Minimum Funding
Failure to meet the threshold level of performance overall in the aggregate will generally result in no AIP award for that year; provided, however, that the Committee may, under certain circumstances, exercise discretion and pay out an award.
2012 Individual AIP Award and Discretionary Bonus DeterminationPayouts
The AIP payout for 20092012 for the NEOs, based on the actual achievement of each of the financial and non-financial strategic objectives and individual performance factors,metrics, is discussed in greater detail in this proxy statement under the heading Grants“Grants of Plan-Based Awards. The 2009 AIP payout for Mr. Berryman, Ms. Ford” Based on the Corporate and Mr. Meany was 70.9% of their respective individual targets, and the same percentage payout was made to Ms. Cantlon on a pro-rated basis
based on her period of employment during 2009. The 2009 AIP payout for Mr. Vaisman and Mr. Mirzayantz was 100% and 43.6% of their respective targets. Mr. Vaisman’s AIP payout was higher than the 70.9% enterprise payout as a result of the performance of the Flavors Business Unit. Mr. Mirzayantz’s AIP payout was lower than the 70.9% enterprise payout as a result of the Fragrance Business Unit not achieving its performance objectives. Mr. O’Leary’s 2009 payout was 53.2%outlined in the tables above, 2012 AIP payouts were as follows:
2012 Payout | ||||||||||||
Executive | 2012 AIP Target ($) | As % of Target | Award ($) | |||||||||
Douglas D. Tough | $ | 1,440,000 | 126.8 | % | $ | 1,825,632 | ||||||
Kevin C. Berryman | $ | 410,000 | 126.8 | % | $ | 519,867 | ||||||
Nicolas Mirzayantz | $ | 404,000 | 123.1 | % | $ | 497,149 | ||||||
Hernan Vaisman | $ | 410,000 | 129.6 | % | $ | 531,308 | ||||||
Anne Chwat | $ | 270,000 | 126.8 | % | $ | 342,306 |
Long-Term Incentive Plan
We believe that LTIP awards reward our executive officers, including our NEOs, for financial results and align their interests with the interests of his target, which reflects both his performance against individual objectives and the fact that in April 2009our shareholders. Annually, the Committee awarded him a special one-time bonus as described below. In accordance with their separation agreements described below underreviews the heading Termination of EmploymentLTIP to determine (1) the metrics that should be used to encourage long-term success, (2) the weightings that should be applied to such metrics and Change in Control Arrangements—Other Separation Arrangements, the payouts to each of Mr. Amen and Mr. Heaslip, whose employment terminated during 2009, were each based on the 70.9% enterprise payout but were pro-rated to reflect the number of days each served as an employee during 2009.
In addition to the AIP payouts described above, the Committee approved certain discretionary bonus amounts. The Committee approved a one-time cash bonus of $100,000 to Mr. Berryman as a sign-on bonus upon his hire. The Committee also approved a discretionary bonus payment of $76,893 to Mr. Mirzayantz in recognition that, in spite of global economic and market conditions and their impact on the Company’s fine fragrance business, certain Fragrance Business Unit categories, such as Functional Fragrances and Beauty Care, performed well across a broad range of geographies, with important new wins in Fabric Care and Personal Wash and strong performance by both Hair Care and Toiletries categories. In addition, in April 2009, the Committee approved a bonus payment of $100,000 to Mr. O’Leary for his service as Interim CFO during 2009.
For the five AIP plan years from 2005 to and including 2009 the actual overall corporate percentage payout under the AIP against(3) the annual performance goals ranged from 0% to 113%, with an average payout of 67.1% of target over the five year period. During this period, our local currency sales grew at a compound annual growth rate of approximately 3%. The global financial crisis that occurred during 2008-2009 negatively impacted many companies’ results, and IFF was no exception. As a result, our return on invested capital (excluding extraordinary or special itemscumulative targets for such as restructuring charges, pension curtailment loss, employee separation costs material gains on disposition of assets, and certain one-time tax benefits) decreased from 14.9% to 12.1%, while our operating profit (excluding the foregoing extraordinary or special items) decreased from 17% to 15.1% during the 2004-2009 period. Our core working capital improved significantly over the five year period, declining from 36.9% of annualized quarterly sales to 31.1% by the end of 2009.
Long Term Incentive Plan (“LTIP”)
In 2009 we continued to grant LTIP awards to our senior executives, including our NEOs. New award grants cover the 2009-2011 performance period and payouts under the plan made in early 2010 cover the 2007-2009 performance period. Grants and payouts under the plan are awarded under our shareholder-approved 2000 Stock Award and Incentive Plan.metrics. The Committee believes that commencing a new 3-yearthree-year LTIP cycle each year helps (i) to provide a regular opportunity to re-evaluate long term measures,long-term metrics, (ii) to align goals with the ongoing strategic planning process;process and (iii) to reflect changes in our business priorities and market factors.
2009-2011 LTIP Grant
For the 2009-2011 LTIP performance cycle, each senior executive, including our NEOs, was granted an LTIP award target stated as a percentage of base salary as follows:
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For the 2009-2011 performance cycle, the LTIP performance categories and their respective weightings are:
Percentage Weighting of Earnings Per Share (EPS) Growth out of the Total LTIP Cycle | Percentage Weighting of Total shareholder return (TSR) relative to the S&P 500* out of the Total LTIP Cycle | Total Weighting of Segment out of the Total LTIP Cycle | |||||||
2009 Segment (Year 1) | 12.5 | % | 12.5 | % | 25 | % | |||
2010 Segment (Year 2) | 12.5 | % | 12.5 | % | 25 | % | |||
2011 Segment (Year 3) | 12.5 | % | 12.5 | % | 25 | % | |||
Cumulative Segment (2009-2011) | 0 | % | 25 | % | 25 | % | |||
Total LTIP Cycle | 37.5 | % | 62.5 | % | 100 | % |
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The Committee continues to believe that growth in earnings per share is a key indicator for measuring improvement in our long term shareholder value. For 2009, the EPS growth target was established in light of the difficult economic environment and its expected impact on our operating results. EPS growth overall weighting within the 2009-2011 performance cycle is discussed in more detail below. The Committee also annually sets a total LTIP target award for each NEO, which reflects the total LTIP value a NEO has the opportunity to receive at the end of the three-year cycle if we meet all our targets. To the extent that we meet the minimum target financial goals or the maximum financial goals, the actual payout to the NEO could be significantly less or more than the total LTIP target award.
Performance Segments. Given the difficulty in setting long-term goals in the current economic environment, the Committee believes that the LTIP should continue to comprise four performance segments: (i) Year 1, (ii) Year 2, (iii) Year 3 and (iv) Cumulative over the three-year period. In each performance segment, 25% of the total LTIP Target Award is earned. The NEO must be employed at the time payouts under the LTIP are made in order to receive the actual payout at the completion of the LTIP cycle.
Performance Metrics. As discussed above, commencing with the 2012-2014 LTIP Cycle, the Committee decided to use EP and TSR, rather than EPS and TSR, as the financial metrics for measuring Company performance for the three annual performance segments. For the two other current LTIP Cycles, 2010-2012 and 2011-2013, EPS and TSR will continue to be the two financial metrics used in the annual performance segments.
EP measures operating profitability after considering (i) all our operating costs, (ii) income taxes and (iii) a charge for the capital employed in the business. Capital employed primarily includes working capital, property, plant and equipment, and intangible assets. The capital charge is determined by applying the estimated weighted average cost of capital (“WACC”) times the average invested capital employed. The estimated WACC rate is the blended average cost of our debt and equity capital. As part of a strategic review of our businesses in 2010, we began including EP in the evaluation of relative performance across our business portfolio. We believe that evaluating EP helps us identify the sources and drivers of value across our businesses. Furthermore, we believe that EP growth is closely linked to the creation of shareholder value. Consequently, the Committee believes that changing from EPS to EP more closely aligned our compensation with the creation of long-term shareholder value.
For 2012, the Committee approved TSR as the second financial metric for the annual performance segments for each current LTIP Cycle and to continue to use a three-year TSR for the cumulative segment. The Committee believes that TSR as compared to other public companies in which shareholders may choose to invest is a good indicator of our overall long termlong-term performance, and directly ties our executives’ compensation opportunity to our share price appreciation and dividend payments relative to a major large-cap index.
The 2009-2011 LTIP performance cycleTSR is administered in four performance segments: Year 1, Year 2, Year 3, and Cumulative as indicatedcalculated by measuring the change in the table above. market price of stock plus dividends paid (assuming the dividends are reinvested) for the Company and the S&P 500 companies over the performance period. The market price for purposes of calculating the TSR of the Company and the S&P 500 on each year-end or cycle-end date is determined based on the average closing price per share of each company’s common stock over the period of 20 consecutive trading days preceding that date, as reported by a reputable reporting service.
For each of the first three annual performance segments, the EP or EPS goal, as the case may be, and the TSR goal are set at the beginning of the each carry an equal annual weighting.performance segment and are equally weighted. For the Cumulativecumulative segment, the TSR goal carriesis set at the beginning of the three-year cycle and is weighted at 100% weight. Due to.
The table below sets forth the unsettled economic environment whenrelative weightings of each metric for the 2009-20112010-2012 LTIP objectives were establishedCycle and the difficulty2011-2013 LTIP Cycle.
Segment | Earnings Per Share (EPS) Growth | Total Shareholder Return (TSR) relative to the S&P 500 | Total Weighting of Segment | |||||||||
Year 1 | 12.5 | % | 12.5 | % | 25 | % | ||||||
Year 2 | 12.5 | % | 12.5 | % | 25 | % | ||||||
Year 3 | 12.5 | % | 12.5 | % | 25 | % | ||||||
Cumulative Segment | 0 | % | 25 | % | 25 | % | ||||||
Total LTIP Cycle | 37.5 | % | 62.5 | % | 100 | % |
The table below sets forth the relative weightings of setting a 3-year EPS goal ineach metric for the 2012-2014 cycle that environment, the Committee decided to eliminate the cumulative 3-year period measurement for EPS, as compared with the prior LTIP cycle. EPS goals for each annual segment are establishedwas approved by the Committee duringat the first quarterbeginning of 2012:
Segment | Economic Profit (EP) Growth | Total Shareholder Return (TSR) relative to the S&P 500 | Total Weighting of Segment | |||||||||
Year 1 | 12.5 | % | 12.5 | % | 25 | % | ||||||
Year 2 | 12.5 | % | 12.5 | % | 25 | % | ||||||
Year 3 | 12.5 | % | 12.5 | % | 25 | % | ||||||
Cumulative Segment | 0 | % | 25 | % | 25 | % | ||||||
Total LTIP Cycle | 37.5 | % | 62.5 | % | 100 | % |
At the end of each year, the Committee reviews our annual performance and cumulative performance for the then-ended three-year cycle. To the extent that our annual performance has exceeded the threshold annual EP or EPS goal, as the case may be, and the threshold annual TSR goal, the Committee approves “banking” the credit
that will be applied to the payout at the end of the applicable year.
Giventhree-year cycle. For the difficulty in setting long term goals in the current economic environment,three-year cycle then-ended, the Committee continuesapproves the total payout, taking into consideration the performance for each of the prior annual performance segments.
2012-2014 LTIP Target Awards
In early 2012, the Committee approved the following total LTIP Target Awards to believe thatour NEOs for the segmentation of each three year2012-2014 performance cycle:
Level | Total LTIP Target Award | |||
Douglas D. Tough | $ | 2,000,000 | ||
Kevin C. Berryman | $ | 450,000 | ||
Nicolas Mirzayantz | $ | 450,000 | ||
Hernan Vaisman | $ | 450,000 | ||
Anne Chwat | $ | 270,000 |
The Committee set the Cumulative three-year TSR Goal for the 2012-2014 LTIP cycle providesat the Committeesame levels that had been set for the opportunity to reviewprior year’s LTIP goals year-to-year in order to align more closely with the Company’s updated strategic planning processes.
For the 2009 segment of the 2009-2011 LTIP cycle, the relative minimum and maximum achievement levels were set as follows:
Criteria |
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Cumulative TSR vs S&P 500 | 35th percentile | 55th percentile | 75th percentile |
Results below minimum for a specific year or cumulatively in the case of TSR result in no awards for that performance component.
For the 2009-2011 cycle, the minimum performance level for TSR was reduced from the 40th percentile in prior cycles to the 35th percentile for this cycle. The Committee believes that due to the current volatility in the equity markets, providing a broader performance range may help mitigate the effects of extreme volatility of the Company’s stock.
For the 2009-20112012-2014 performance cycle, the Committee determined that 50% of the value of any payouts would be paid in cash and 50% would be paid in full value shares. This is consistent with payout ratios for the 2007-20092010-2012 and 2008-20102011-2013 LTIP performance cycles. The Committee believes that paying 50% of the LTIP value in full value shares creates a stronger alignment between executives and shareholders, and provides additional incentive for executives to achieve superior Company performance and to produce share price appreciation over the three-year performance cycle. The number of shares of Companyour common stock for the 50% portion that would be paid in stock is determined based on the market price of the common stock at the beginning of the cycle. For the 2012 cycle, it was based on $30.60$55.65 per share, the closing market price on January 2, 2009,3, 2012, the first stock trading day of the cycle. At the conclusion of each of the first two annual performance segment,segments, the dollar value and number of shares iswill be “banked” based on the performance of thateach such segment. When the final performance segment and the three-year cycle isare concluded and the LTIP payouts are approved by the Committee, the cumulative dollar value and cumulative number of full value shares arewill be paid to the executive.
The2012 Company LTIP Performance: For 2012, the LTIP target performance levels and actual achievement against the target performance levels excluded costs associated with (i) non-recurring tax events, including our Spanish tax settlement, (ii) our Fragrance Strategic Initiative, (iii) other non-budgeted special projects approved by the Board throughout 2012 and (iv) unbudgeted mark-to-market adjustments related to our Deferred Compensation Plan (collectively, the “LTIP 2012 non-core items”).
Annual LTIP Goals
In early 2012, the Committee currently anticipates thatalso set (1) the same payment structurethreshold, target and financial performance metrics will be utilized undermaximum 2012 annual EP goal for the 2012-2014 LTIP Cycle, (2) the threshold, target and maximum 2012 annual EPS goal for the 2010-2012 LTIP.LTIP Cycle and the 2011-2013 LTIP Cycle and (3) the threshold, target and maximum annual TSR Goal which would apply to each of the three current LTIP performance cycles, as follows:
Criteria | Threshold (25%) | Target (100%) | Maximum (200%) | |||
EP | $182M | $198M | $216M | |||
EPS | $3.74 | $4.00 | $4.30 | |||
Annual TSR vs S&P 500 | 35th percentile | 55th percentile | 75th percentile |
Earned Awards under 2009-20112012-2014 LTIP and 2008-2010 LTIPPerformance
For the 20092012 segment of the 2008-20102012-2014 LTIP performance cycle, our EP of $203 million, as adjusted for LTIP 2012 non-core items, was between the EPStarget performance level of $2.67$198 million and maximum performance
level of $216 million. As a result, our NEOs earned approximately 129% of the EP goal for the year. Our TSR for 2012 was just below thresholdthe 75th percentile, and resulted in noas a result, our NEOs earned approximately 198% of the TSR goal for the 2012 segment. The LTIP award being earned underand “banked” for the EPS criterion. For the 20092012 segment of the 2009-20112012-2014 LTIP Cycle was therefore equal to approximately 164% of target.
2011-2013 LTIP Performance
For the 2012 segment of the 2011-2012 LTIP Cycle, our EPS of $4.03, as adjusted for non-recurring or one-time items, was between the target performance level of $4.00 and maximum performance level of $4.30. As a result, our NEOs earned approximately 108% of the EPS Goal for the year. Our TSR for 2012 was slightly below the 75th percentile, which was nearly at the maximum performance level of the 75th percentile. As a result, our NEOs earned approximately 198% of the TSR goal for the 2012 segment. The LTIP award earned and “banked” for the 2012 segment of the 2011-2013 LTIP Cycle was therefore equal to approximately 153% of target.
2010-2012 LTIP Performance and Payout
For the 2012 segment of the 2010-2012 LTIP performance cycle, the EPSachievement described above with respect to the 2012 segment of $2.67the 2012 performance cycle was at 135% of target.applied to this performance cycle as well. Our Cumulative TSR was positioned at approximately the 60th76th percentile versus the S&P 500, which represents 125%equates to a maximum payout of target. As a result, the LTIP award earned and “banked” for the 2009 segment of the 2008-2010 LTIP cycle was equal to 62.5% of target whereas the LTIP award earned and “banked” for the 2009 segment of the 2009-2011 LTIP cycle was equal to 130%200% of target.
2007-2009 LTIP Payouts
Performance and related payout of awards relative to target under the 2007-2009 LTIP cycle were determined based on the following minimum and maximum achievement levels for the cycle, which levels were established at the beginning of the cycle, and were calculated on a straight-line basis:
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The overall payout for the 2007-20092010-2012 LTIP performance cycle was approximately 150% of 90.6% wastarget, based on the following EPS and TSR results against objectives, as determined by the Committee in February 2010. For each segment in the LTIP cycle, EPS and TSR are weighted equally.January 2012.
Segment | Segment Weighted EPS Result | Segment Weighted TSR Result | Combined Segment Weighted Result | Segment Weighting | Overall Result | Segment Weighted EPS Result | Segment Weighted TSR Result | Combined Segment Weighted Result | Segment Weighting | Overall Result | |||||||||||||||||||||||||
2007 | 100.0 | % | 30.0 | % | 130.0 | % | 25.0 | % | 32.5 | % | |||||||||||||||||||||||||
2008 | 100.0 | % | 42.5 | % | 142.5 | % | 25.0 | % | 35.6 | % | |||||||||||||||||||||||||
2009 | 0.0 | % | 62.5 | % | 62.5 | % | 25.0 | % | 15.6 | % | |||||||||||||||||||||||||
2010 | 192 | % | 200 | % | 196 | % | 25.00 | 49.0 | % | ||||||||||||||||||||||||||
2011 | 39 | % | 63 | % | 51 | % | 25.00 | 12.7 | % | ||||||||||||||||||||||||||
2012 | 108 | % | 198 | % | 153 | % | 25.00 | 38.2 | % | ||||||||||||||||||||||||||
Cumulative | 0.0 | % | 27.5 | % | 27.5 | % | 25.0 | % | 6.9 | % | — | 200 | % | 200 | % | 25.00 | 50.0 | % | |||||||||||||||||
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Total | 90.6 | % | 100.00 | 149.9 | % |
The LTIP payout for the 2007-20092010-2012 performance cycle for the NEO group,NEOs, based on the actual achievement of quantitative objectives, is discussed in greater detail following the Grants of Plan-Based Awards Table. The payout for the 2007-2009 LTIP cycle was 90.6% as described above.
In establishing the LTIP EPS growth objectivesobjective for each LTIP segment and in determining actual achievement against that objective, the Committee eliminates the impact of certain
discrete non-core costs (net of related benefits realized during the period), on a consistent basis and for the same reasonitems as discussed above under “Overall“2012 Company AIP Performance”.LTIP Performance.” During the 2007-20092012 segment of the 2010-2012 LTIP performance cycle, adjusted EPS (excluding extraordinary or special items such as restructuring charges, pension curtailment loss, employee separation costs, material gains on disposition of assets and certain one-time tax benefits)(which excluded the LTIP 2012 non-core items) grew 16%approximately 5%.
For the LTIP performance cycles that concluded in 20052008 through and including 2009,2012, the actual overall corporate percentage payout under the LTIP against those long termlong-term cycle performance goals ranged from 45.5%approximately 91% to 115.3%150%, with an average payout of 92.5%120% over the five LTIP performance cycles.
Equity Choice Program and Other Equity Awards
We believe that equity is a key component of our long-term incentive compensation as it (1) provides participants with a meaningful stake in the Company, thereby aligning their interests more closely with shareholders and (2) helps to attract and retain top talent and encourages participants to focus on long-term success. We believe that our Equity Choice Program (“ECP”) is an effective vehicle to encourage ownership as it provides participants the flexibility to allocate their award among three types of equity. In 2009, we continuedaddition, in connection with the initial employment of an executive officer, the Committee believes that it is appropriate to grant the new executive officer equity as part of a competitive compensation package and to provide the new executive officer a stake in the long-term performance of the Company.
Annually our Committee determines the dollar range of ECP awards for each level of participating executive based on peer group and long-term incentive practices survey data and a review of the competitiveness of the combined value of the ECP awards and LTIP awards with market practices. For 2012, these ranges were as follows:
Lower Limit | Midpoint | Upper Limit | ||||||||||
CEO | $ | 750,000 | $ | 1,500,000 | $ | 2,250,000 | ||||||
Group President, CFO | $ | 225,000 | $ | 450,000 | $ | 675,000 | ||||||
General Counsel | $ | 150,000 | $ | 300,000 | $ | 450,000 |
The Committee then approves the actual dollar award to be granted to each NEO other than the CEO, and recommends to the independent members of the Board of Directors for approval the actual dollar award for the CEO. For 2012, similar to prior years, the actual amount is based on an evaluation of the NEO’s individual performance, long-term potential and market factors, including retention issues. Reflecting our senior executives under2011 performance, the ECP awards granted in 2012 to each of our 2000 StockNEOs, other than our CEO, was at or below the award received in 2011. For 2012, the Committee increased the ECP Award of our CEO from $1.5 million to $1.8 million reflecting Mr. Tough’s sustained high level of performance and Incentive Plan. Under the to provide a total 2012 long-term award opportunity (ECP award plus 2012 LTIP target award) that was fully competitive with market benchmarks. The actual value of this award will depend on future stock price performance.
ECP participants, including all of our NEOs, may choose from three types of equity award grants—purchased restricted stockgrants (1) Purchased Restricted Stock (“PRS”), (2) stock settled appreciation rights (“SSARs”), and restricted(3) Restricted Stock Units (“RSUs”). Each type of equity award is assigned an adjustment factor to provide incentive to participants to accumulate shares to promote retention and align participants’ interests with those of our shareholders. Elections are made in 5% increments, with a maximum of 50% that may be received in RSUs. Based on the participant’s election, a participant’s dollar award value is converted into PRS, SSARs or RSUs on the grant date based on the market price of our common stock units (“RSUs”)—defined as follows:on such date. The table below sets forth each of the three types of equity awards offered and their adjustment factor.
During 2012, ECP participants, including all of our NEOs, made choices based on the differences among the equity award types described below. In January 2013, our Compensation Committee approved changes to the ECP, and these changes are detailed in the “Revisions to our 2013 Compensation Plans” section at the end of this Compensation Discussion and Analysis.
Types of Equity | Description of Equity Type | Adjustment Factor | ||||
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During the restricted period, a PRS holder has the same rights as an ordinary shareholder including the right to vote and |
120 | % | ||
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RSUs | RSUs are | 60 | % |
As an example of how the ECP offers the participant a range of outcomes, the following table shows the different number of shares at vesting for an ECP award of $100,000. For all three choices, vesting occurs approximately three years from the grant date:
Assumes a Common Share Value of $60.00 at Award | ||||||||||||
PRS | SSARs | RSU | ||||||||||
Award Value | $ | 100,000 | $ | 100,000 | $ | 100,000 | ||||||
Adjustment Factor | 1.2 | 1.0 | 0.6 | |||||||||
Post-Factor Value | $ | 120,000 | $ | 100,000 | $ | 60,000 | ||||||
Participant Required Investment | $ | 120,000 | — | — | ||||||||
At Grant Date | 4,000(1) Shares | 6,667 SSARs | 1,000 Shares | |||||||||
Dollar Value of Award At Vesting/Exercise (Assuming $70 Price) | $ | 160,000 | (1) | $ | 66,670 | $ | 70,000 | |||||
Dollar Value of Award At Vesting/Exercise (Assuming $50 Price) | $ | 80,000 | (1) | $ | 0 | $ | 50,000 |
(1) | Excludes the |
The Committee believes that by offering executives a choice as to the form of their equity awards, the ECP will better address their individual needs regarding financial planning, stage of career and risk profile. In addition, the Committee believes that the approximately three-year vesting period of approximately three years for the various formseach type of equity is consistent with a goal of executive retention, and is an attractive tool for recruiting, motivating and retaining executive talent and encourages alignment with shareholders by reinforcing real investment and ownership by our executives.
Under the ECP, each participant may choose among the three types of equity up to the participant’s total award value. The specific award value granted is determined by the Committee considering factors such as individual performance and overall contribution to the enterprise, future potential of the executive, need for retention and relevant market long term and total compensation levels.
An ECP participant may elect to receive his or her total dollar award in increments of 10% across the three forms of equity with a maximum allocation to RSUs of 50% of such total award value. A participant’s dollar award value is converted into PRS, SSARs and/or RSUs on the grant date based on the participant’s election, with the three forms of awards being “risk-adjusted” upwards or downwards to reflect the varying degree of risk
to the participant with each form, as described above. PRS shares, which are considered the most risky, carry a 120% weight, SSARs, which are considered medium risk, carry a 100% weight and RSUs, which are considered the least risky, carry a 60% weight. The Committee approved these risk adjustments at the program’s inception with input from its independent compensation consultant and did not change them in 2009. As an example of how the risk adjustment works, if an ECP participant’s total dollar-denominated award value is $100,000 and he or she elects 100% of the award in PRS, then the total award value used to determine the number of PRS shares to be granted on the grant date is $120,000 ($100,000 x 120% PRS adjustment factor). ECP participants must make their elections prior to the grant date, and once an election is made it may not be changed.
The following table shows the ECP dollar award value allocated toapproved by the Committee for each NEO during 20092012 as well as the percentage and risk-adjustedadjusted dollar value after application of the adjustment factor of each type of equity elected by each NEO:
NEO Position | Name | Total ECP Dollar Award Value | PRS ($ amount reflects 120% “risk adjustment”) | SSARs ($ amount reflects 100% “risk adjustment”) | RSUs ($ amount reflects 60% “risk adjustment”) | |||||||||||||||
% | $ | % | $ | % | $ | |||||||||||||||
Executive Vice President | Kevin C. Berryman | $ | 400,000 | 20% | $ | 96,000 | 80% | $ | 320,000 | 0% | $ | 0 | ||||||||
and Chief Financial Officer | ||||||||||||||||||||
Group President, | Nicolas Mirzayantz | $ | 600,000 | 70% | $ | 504,000 | 30% | $ | 180,000 | 0% | $ | 0 | ||||||||
Fragrances | ||||||||||||||||||||
Group President, Flavors | Hernan Vaisman | $ | 600,000 | 60% | $ | 432,000 | 0% | $ | 0 | 40% | $ | 144,000 | ||||||||
Executive Vice President, | Beth E. Ford | $ | 450,000 | 40% | $ | 216,000 | 60% | $ | 270,000 | 0% | $ | 0 | ||||||||
Head of Supply Chain | ||||||||||||||||||||
Senior Vice President | Dennis M. Meany | $ | 400,000 | 100% | $ | 480,000 | 0% | $ | 0 | 0% | $ | 0 | ||||||||
General Counsel and Secretary | ||||||||||||||||||||
Senior Vice President, | Angelica T. Cantlon | $ | 150,000 | 100% | $ | 180,000 | 0% | $ | 0 | 0% | $ | 0 | ||||||||
Human Resources | ||||||||||||||||||||
Vice President and | Richard A. O’Leary | $ | 200,000 | 20% | $ | 48,000 | 80% | $ | 160,000 | 0% | $ | 0 | ||||||||
Controller | ||||||||||||||||||||
Former Senior Vice | Steven J. Heaslip | $ | 300,000 | 0% | $ | 0 | 100% | $ | 300,000 | 0% | $ | 0 | ||||||||
President, Human Resources |
All of the above grants were within the ECP dollar value range for each participant’s compensation grade level, as previously approved by the Committee. We did not make an ECP grant in 2009 to our Former CEO.
PRS | SSARs | RSU | ||||||||||||||||||||||||||
Unadjusted ECP Award | Percent Election | Adjusted Value | Percent Election | Adjusted Value | Percent Election | Adjusted Value | ||||||||||||||||||||||
Adjustment Factor | 120% | 100% | 60% | |||||||||||||||||||||||||
Douglas D. Tough | $ | 1,800,000 | 100% | $ | 2,160,000 | 0% | $ | — | 0% | $ | — | |||||||||||||||||
Kevin C. Berryman | $ | 600,000 | 80% | $ | 576,000 | 20% | $ | 120,000 | 0% | $ | — | |||||||||||||||||
Nicolas Mirzayantz | $ | 500,000 | 100% | $ | 600,000 | 0% | $ | — | 0% | $ | — | |||||||||||||||||
Hernan Vaisman | $ | 600,000 | 0% | $ | — | 50% | $ | 300,000 | 50% | $ | 180,000 | |||||||||||||||||
Anne Chwat | $ | 350,000 | 100% | $ | 420,000 | 0% | $ | — | 0% | $ | — |
The Committee decided for the first time in 2009 to allow ECP participants who choose to acquire PRS shares to fund their purchases either by paying cash or by tendering previously owned unrestricted shares of the Company’s Common Stock. In the past, participants could acquire PRS shares only by paying cash. In deciding to allow participants to pay for PRS shares by tendering shares of Company stock, the Committee took note of the fact that certain ECP participants elected to purchase PRS shares in each of 2006, 2007 and 2008, since the ECP was implemented, and in each case paid cash for such purchases, thus requiring a large total cash outlay by the participant. The Committee wanted to encourage continued purchases of PRS shares by ECP participants. However, the Committee recognized that certain ECP participants might not have been able to pay more cash in 2009 to invest in additional PRS shares or they would have needed to sell Company shares they already owned to fund their additional PRS purchases. Therefore, the Committee decided to allow the purchase price for PRS shares to be paid by tendering fully owned shares of the Company’s stock.
In addition to their ECP awards, the Committee also awarded Mr. Berryman 16,404 RSUs as a sign-on grant and Mr. O’Leary 5,000 RSUs as compensation for his service as Interim CFO. The grant to Mr. Berryman vests 20% per year for five years and the grant to Mr. O’Leary fully vests on the third anniversary of the grant date.
Theactual equity award grants to each NEO, based on the above elections, are identified in the Grants of Plan-Based Awards Table.
Equity Grant Practices
The Committee, at its regularly scheduled meeting on March 9, 2009,January 30, 2012, approved the 20092012 ECP values allocatedawarded to each executive, (other than Mr. Berryman and Ms. Cantlon) and theincluding our NEOs. The grants to bewere made on May 27, 2009. On April 14, 2009, the Committee approved Mr. Berryman’s ECP value. On July 27, 2009, the Committee approved Ms. Cantlon’s ECP value and also approved the grants to be made to Mr. Berryman and to her on August 27, 2009. For senior executive new hire awards, the Committee approves the ECP grant value generally upon their hire with the grant approved to take place after the newly hired executive begins employment with us.1, 2012. The period of time between approval of ECP values and the actual grant date is used to allowgives ECP participants time to make their irrevocable ECP elections and to arrange finances for the purchase of PRS.
SincePRS if so elected. The Committee determined that the inception of the ECP program in 2006, the Committee approves ECP values at its regularly scheduled meeting in March and at the same time approved2012 ECP grants to be madewould vest on the date of the Company’s Annual Meeting of Shareholders. However, the Committee noted that ECP grants made to our NEOs in 2006, otherApril 1, 2015, which is slightly less than three years from the grant made to our Former CEO, would vest in May 2009, on the third anniversary of the grant date. Therefore, in order to allow ECP participants to use previously owned Company shares to purchase PRS shares, the Committee decided to make the ECP grants to then serving executives on May 27, 2009, rather than the date, of the 2009 Annual Meeting of Shareholders. In addition, in order to enable participants to use vested PRS shares to acquire new PRS shares in 2012, the Committee determined to have all ECP grants made in 2009, including the PRS and other ECP grants made to new executives, vest on March 27, 2012, which is less than three years from the grant date. The Committee expects to continue this grant process in 2010 and in the future.
Stock Ownership and Share Retention Policy
We encourage our executives to own Company stock so that they share the same long term investment risk as our shareholders. Under our Share Retention Policy, executives must retain a portion of any shares of stock acquired under our equity award plans. The percentage of “net gain shares” required to be retained varies from 25%, for designated senior executives, to 50% for our CEO and our other NEOs. “Net gain shares” are the shares remaining from a stock option or SSAR exercise after payment of the exercise price and taxes, or the shares remaining after payment of taxes on the vesting of PRS or RSUs. Any Company shares sold or traded by an executive to fund PRS purchases under the ECP are not subject2015, to the share retention requirement.
Once an executive reaches a targeted ownership level of our common stock, he or she is exempt from further share retention requirements so long as he or she maintains that targeted ownership level. The targeted ownership levels are the lesser of five times base salary or 120,000 shares for the CEO, the lesser of three times base salary or 35,000 shares for our Business Unit Presidents and Executive Vice Presidents and the lesser of two times base salary or 20,000 shares for our Senior Vice Presidents and Controller. The dollar value of shares held is calculated based on the Company’s stock price and the value of cash or shares used to acquire PRS.
In 2009, our Committee amended our Share Retention Policy (a) to reduce the targeted ownership level for our Business Unit Presidents and Executive Vice Presidents and certain other senior executives and (b) to identify a minimum fixed number of shares for each position and to allow each executive the option of owning the lesser number of shares based on a salary multiple or the minimum fixed number of shares applicable to his or her position. The Committee also eliminated a provision in our Share Retention Policy which previously
allowed executives who are at least 60 years old to reduce their shareholdings by 20% per year until their retirement and a provision which stated that if an executive did not satisfy the share retention requirements, he or she may not be granted additional equity awards. The changes approved by our Committee were based on the input of its independent compensation consultant and were more consistent with the consultant’s review of market practices. They were also designed to provide executives more flexibility in personal financial planning, yet continue to maintain ongoing and substantial investment in Company stock.
At year end 2009, all NEOs were subject to continued share retention requirements, other than Mr. Mirzayantz and Mr. Meany, who had satisfied the targeted ownership level. Additional detail regarding ownership of our common stock by our executives is included in the Beneficial Ownership Table.
Defined Benefit Pension Plan and Supplemental Retirement Plan (“SRP”)
Certain senior executives, including Mr. Meany, a NEO, were grandfathered under our defined benefit pension plan, which, as of January 1, 2006, was closed to new employees and which, as of December 31, 2007, was frozen for all participants who did not meet a combined age and years of service total of 70. Those employees who were not grandfathered under the plan, including all of our other NEOs, became eligible to participate in an enhanced 401(k) plan.
The retirement benefits under our tax-qualified defined benefit pension plan for participants, including Mr. Meany, may be limited under IRS rules covering tax-qualified retirement plans. We have a non-qualified SRP to pay that part of an executive’s retirement benefit that, because of the IRS limitations, cannot be paid under the tax-qualified pension plan. Benefits are calculated under the SRP in the same manner as the tax-qualified pension plan. The Committee believes that the full retirement benefit earned by an executive under our retirement benefit formula should be paid without reduction and that a supplemental plan is common in the industry and important to retain our senior executives.
We do not have a policy regarding the crediting of additional years of service under our SRP. However, as described under the heading Termination of Employment and Change in Control Arrangements, additional years of service may be credited to a participant in connection with certain terminations within two years following a change in control. Our rationale for granting this additional credit is consistent with our rationale for other enhanced severance benefits offered in connection with a change in control as described under the heading Executive Separation Policy (“ESP”) below. In addition, on a case-by-case negotiated basis, from time to time, executives may be credited with additional years of service. One NEO, Mr. Heaslip, our former Senior Vice President, Human Resources, was credited with five additional years of service as negotiated by him when he first became employed by the Company in 2001.extent granted.
Deferred Compensation Plan (“DCP”)
We offer to U.S.-based executives an opportunity to participate in our DCP, as a cost-effective benefit that enhances the competitiveness of our compensation program. The DCP provides participants with a way to delay receipt of income and thus income taxation until a future date. When deferred, the amount of compensation is not reduced by income taxes, and the executive can choose to have this “pre-tax” amount deemed invested in one or more notional investments that generally track investment funds offered under our 401(k) savings plan. Although the executive will eventually owe income taxes on any amounts distributed from the DCP, the ability to invest on a “pre-tax” basis allows for a higher ultimate after-tax return. By providing a wealth-building opportunity through the DCP, we are better able to attract and retain executives to the Company.executives.
Through the DCP, we also provide the same level of matching contributions to executives that would be made under our 401(k) savings plan but for limitations under U.S. tax law. We also use the DCP to encourage executives to acquire deferred IFFshares of our common stock that isare economically equivalent to ownership of our common stock but isare on a tax-deferred basis. If an executive elects to defer receipt of cash compensation and invests it in credits of deferred common stock of the Company stock under the DCP, we credit an additional 25% of the amount deferred in the executive’s deferred
Company stockDCP account contingent on the executive remaining employed by the Company (other than retirement) for the full calendar year following the year when such credit is made. We do this to encourage executives to be long termlong-term owners of a significant equity stake in IFF,us and to foster an entrepreneurial culture,create a close alignment between the interests of executives and those of shareholders and a deeper commitment to IFF.our shareholders.
IFF’sOur costs in offering the DCP consist of the time-value of money costs, the cost of the matching contribution that supplementsupplements the 401(k) savings plan, the 25% premium for cash deferrals into deferred Companycommon stock and administrative costs. If notional investments within the DCP increase in value, the amount of our
payment obligation will increase. The time-value of money cost results from the delay in the time at which we can take tax deductions for compensation payable to a participating executive. If notional investments within the DCP increase in value, the amount of our payment obligation will increase. This treatment limits our costs to the time-value of money cost resulting from our paying income tax on the returns of our direct investments earlier than the time at which we are able to claim tax deductions by paying out the deferred compensation.
Our supplemental matching contributions and premiums on cash deferrals into deferred common stock for NEOs are reflected in the Summary Compensation Table and in the All Other Compensation Table.
Perquisite Program
TheOur NEO perquisites program offers non-monetary benefits that are competitive and consistent with the marketplace as determined through a market study conducted by our independent compensation consultant in 2008.2011. Under the perquisites program, executives are eligible to receive certain benefits including:
Company car or car allowance: The CEO and the other NEOs are eligible to obtain a Company-provided automobile once every 3 years. Other senior executives are eligible to be provided a Company leased car (chosen from a selected list) or a car allowance;years;
Annual physical exam (once every 12 months);exam;
Financial planning (up to approximately $10,000 per year);
Tax preparation and estate planning (up to $4,000 over a 3 yearthree-year period); and
Health club membership (up to $3,000 annually).
As part of his employment agreement our Former CEO wasis entitled to receive a $25,000 annual allowance for financial planning, tax preparation and estate planning services, rather than the above limits. TheHe is also entitled to have the Company also paid our Former CEO’spay for dues for a luncheon club in Manhattan, provided him with membershipbut this perquisite was not exercised in a country club which was used by him for business purposes, and provided a car and driver for him in recognition of his varied business commitments and for business efficiency reasons.
2011 or 2012. The personal value of all perquisites (other than the annual physical examination) is reported as income to the individual and accordingly is subjectedsubject to tax. The Committee believes that the total value of our perquisites program is reasonable. Additional details concerning perquisites are included in the footnotes to the All Other Compensation Table.
Executive Separation Policy (“ESP”)
We provide severance and other benefits under our ESP to senior executives whose employment is terminated not for cause and not due to a voluntary termination. This policy helps us in competing with other companies in recruiting and retaining qualified executives. When recruiting an executive from another company, the executive in most cases will seek contract terms that provide compensation if his or her employment is terminated by us in cases in which the executive has not engaged in misconduct. The level of separation pay under the ESP is based on a tier system and each executive’s assigned tier is based on the executive’s grade level. All our NEOs other than Mr. O’Leary, our Vice President and Controller and former Interim CFO, are in Tier I. Mr. O’Leary is in Tier II. The specific separation pay by tier was determined by the Committee and developed with the assistance of its independent compensation consultant. We believe that the ESP provides a level of separation payconsultant and benefits that is within a range of competitive practice of our peer group companies.
We provide separation pay and benefits under the ESP on the condition that, for specified periods following termination, the departed executive not compete with us, solicit our customers and employees, or take other actions that harm our business. In addition, having pre-set terms governing the executive’s separation from service tends to reduce the time and effort needed to negotiate individual termination agreements, and promotes more uniform and fair treatment of executives.
In line with what the Committee (with the assistance of its independent compensation consultant) understands is competitive practice, we provide a higher level of severance payments and benefits if the executive were to be terminated without cause or elects to terminate employment with good reason within two years after a change in control. These protections provide a number of important benefits. If a change in control event is developing, executives who lack these assurances may act to protect their own interests by seeking employment elsewhere. Change in control transactions take time to unfold, and a stable management team will help to preserve our operations and shareholder value either by preserving the sale value of IFF or, if no transaction is consummated, by ensuring that our business will continue without undue disruption. In addition, having change in control protections in place encourages management to consider, on an on-going basis, whether a strategic transaction could be advantageous to our shareholders—even a transaction that would yield control of IFF to a third party and result in job loss to the executive. We provide for acceleration of vesting of equity awards for ESP participants upon the occurrence of a change in control, without regard to whether the executive will be terminated. In this way, executives can realize value from their equity awards in the same way and at the same time as shareholders in connection with the change in control transaction, and thus these terms encourage executives to consider and support transactions that could benefit shareholders.
Some aspects of change in control protections can be expensive, particularly payments that offset the adverse tax consequences to the executive if the U.S. golden parachute excise tax is triggered. The Committee intends that the total cost of change in control compensation to the executive group, including the NEOs and additional executives covereddetermined by the ESP, would not exceed levels that are typical in acquisitions of large publicly-held companies and believes that such potential incremental amounts represent a reasonable cost to bear for the benefits to IFF and its shareholders resulting from having change in control protective provisions in place for executives.
Committee. In 2007, the Committee,Company, on a prospective basis reduced the level of severance under the ESP in situations of termination not for cause and not involving a change in control. For Tier I eligible executives hired after October 22, 2007, severance was reduced from 24 to 18 months. For Tier II eligible executives hired after October 22, 2007, severance was reduced from 18However, in order to 12 months. Ofinduce our NEOs, Mr. Berryman, Ms. Ford, and Ms. Cantlon, who each commenced employment after October 22, 2007, were impacted by these changes. An executive receiving benefits underCEO to join the ESP must generally continue to be employed at the time of payment of an LTIP award or vesting of an equity award, except that an executive who is terminated during a three-year LTIP cycle may receive a pro rata payout for service during each segment in that cycle or who has outstanding unvested equity award(s) may be entitled to continued vesting of a pro rata portion of those award(s).
In the event relevant performance measures on which incentive payments are based are subsequently restated or otherwise adjusted in a manner that would reduce the size of a payment, the Committee would expect to seek recovery of or reduction in these incentive payments, but only if the Committee determines it appropriate under the particular circumstances, including misconduct, failure to exercise oversight, or other appropriate circumstances as may occur.
Additional details regarding our ESP are included under the heading Termination of Employment and Change in Control Arrangements. Additional details regarding the separation agreements we executed with Mr. Amen and Mr. Heaslip, which are consistent in all material respects with the Company’s Executive Separation Policy, and in Mr. Amen’s caseCompany, his negotiated employment agreement, are included under the heading Termination of Employment and Change in Control Arrangements—Other Separation Arrangements.
Mr. Tough’s negotiated letter agreement provides him with a Tier I severance payment of 24 months versusmonths. In 2012, our CEO reached the age of 63 and, in accordance with the terms of his letter agreement, his severance payment was reduced to 18 months referenced above. This change was mademonths. We believe that the ESP provides a level of separation pay and benefits that is within a range of competitive practice of our peer group companies.
A discussion of our ESP, and the payments that each of our NEOs would have been eligible to receive had a covered termination occurred as part of the negotiations to induce Mr. Tough to join the Company as its chief executive. These rights are described furtherDecember 31, 2012 is set forth below under the heading“Potential Payments upon Termination of Employment andor Change in Control Arrangements—Other Separation Arrangements.Control.”
Executive Death Benefit Plan
The Company’sOur Executive Death Benefit Plan provides participants, including each of the NEOs, with a pre-retirement death benefit equal to the excess of twice the participant’s annual base salary (excluding bonus and other forms of compensation) aboveless $50,000, the death benefit provided by the Company’sour basic group term life insurance plan for employees
and retirees, less $50,000 of group coverage.retirees. The plan also provides a death benefit post-retirement, or pre-retirement after attainment ofattaining age 70, equal to twiceone times the participant’s base salary (excluding bonus and other forms of compensation) for the year in which the participant retires or reaches the age of 70, assuming the participant was an executive officer, less $12,500 of group coverage for retired participants and less $50,000 for senior participants (those who have attained the age of 70 and remain employed with the Company).
Tax Deductibility
The CommitteeWe generally attemptsattempt to structure executive compensation to be tax deductible. However, the Committee also believes that under some circumstances, such as to attract or to retain key executives, to recognize outstanding performance or to take into account the external business environment, it may be important to compensate one or more key executives above tax deductible limits.
In 2009,Revisions to our 2013 Compensation Programs
At its January 28, 2013 meeting, the Compensation Committee adopted the following revisions to the Equity Choice Program. These revisions will affect award amounts granted to NEOs and other executives as part of 2013 compensation actions.
Changes in RSU Equity Choice. The adjustment factor for the RSU equity choice was increased from 0.6 to 1.0, and the maximum choice restriction on RSUs was removed. This change was made to more closely align the use of service-based, full value awards with market practices where such awards can make up a larger percentage of overall compensation. This change also makes the award more valuable for all NEOparticipants who are not able through personal circumstances to fund the purchase of PRS.
Change in PRS Equity Choice.The PRS equity choice was changed in structure from a 50% discount at purchase (the participant purchased restricted shares at 50% of the closing market price on the grant date) to a 100% match upon grant (for each share purchased at full value by the participant, the participant receives a matching share of restricted stock). This change was made to provide a more tax efficient grant to participants who are located in countries where PRS is taxed differently than in the U.S. This change results in no increase in compensation was tax deductible.value at grant, and matched restricted shares will be forfeited if any of the underlying shares are sold.
2010 Compensation Actions
In July 2009, withChange in SSAR Equity Choice. Participants selecting SSARs will now receive a number of SSARs equal to 4.5 times the assistance of its independent compensation consultant,elected SSARs value divided by the Committee reviewed the peer groups to be used for 2010 compensation decisions. The general selection, approach and criteria described above under Benchmarking will not change for 2010. However, based on its consultant’s recommendation, the Committee decided to delete six companiesgrant price, an increase from the consumer product peer group and replace them with five new consumer product companies not previously included in that peer group; the Committee believes these new companies better meet the selection criteria described above. There were no changescurrent 4.0 multiple. This change was made to more closely align the specialty chemical and flavoring companies peer group.
Compensationratio of our Current CEO
In conjunction with the change in management approved by our Board of Directors described above, upon recommendation of the Committee with the assistance of its independent compensation consultant, the Board approved the compensation package for our Current CEO, who entered into a letter agreement with us on September 14, 2009 and who assumed the position of non-executive Chairman on October 1, 2009 and the position of CEO on March 1, 2010.
The following outlines the key components of Mr. Tough’s compensation package:
Base salary of $1,200,000;
AIP target set at 120% of base salary ($1,440,000);
LTIP target set at 167% of base salary ($2,000,000);
ECP award for 2010 based on the range set by the Committee for our CEO;
A new hire ECP award of $750,000 granted upon assuming the role of CEO; and
A special bonus of $500,000 payable on July 1, 2010 to offset equity awards that were forfeited upon resigning his position at his former employer.
In addition, Mr. Tough receives generally the same benefits and perquisites as described above for our other NEOs.
Mr. Tough is covered under the Executive Separation Policy described above, except that, in certain circumstances he would be entitled to 24 months severance, in lieu of 18 months as would have been applicable to employees hired after October 22, 2007. In addition, he would not be entitledSSARs to a tax gross-up for severance upon a termination for change in control.restricted share with our binomial valuation model.
Non-GAAP Reconciliation
This Compensation Discussion and Analysis includes the following non-GAAP financial measures: local currency sales, adjusted operating profit and adjusted earnings per share. Please see the discussion under the heading TerminationExhibit A of Employment and Change in Control Arrangements—Other Separation Arrangementsthis proxy statement for more information.
With the exceptiona reconciliation of setting Mr. Tough’s salary at $1,200,000 which was negotiated at the time of his hire, Mr. Tough’s 2010 compensation elements and levels are set at approximately the same level as our Former CEO. The Committee considered both the initial ECP grant and the cash payment to offset forfeited equity at his former employer to be reasonable inducements to retain Mr. Tough’s services as our Chairman and Chief Executive Officer.
For 2010, at target AIP and LTIP achievement levels, the components of total direct pay for our Current CEO are as follows:
The proportionately greater “variable” portion of compensation targeted for our Current CEO reflects his role and responsibility as our senior executive most accountable to our Board of Directors and shareholders for entity-wide performance.
For 2010, the proportion of long term incentive compensation opportunity provided in the form of equity versus cash for our Current CEO is as follows:
Directors’ Compensation
Our Committee reviewed the compensation of our non-employee directors in 2009 but did not recommend any changes. The current directors’ compensation program is described under the heading Directors’ Compensation.
2010 Compensation
We expect that the compensation programs for our senior executives will generally remain the same as described above in 2010. However, in early 2010, the Committee approved a one-year supplemental performance metric for the Company’s 2008-2010 LTIP cycle. The new supplemental metric relates to improvement in operating profit margin measured over the fiscal 2010 period as compared to 2009. The Committee established this supplemental metric to provide increased focus on the significance of driving improvement in operating profit margin, which continues to be an important factor in increasing long term shareholder value. The Committee decided to add this one-year supplemental financial target as a means of providing further targeted incentive for our senior management team to continue to deliver improved financial results under this metric, particularly in light of the global economic uncertainty which began in late 2008 and has continued through the current period.such metrics.
The Compensation Committee has reviewed and discussed with management the Compensation Discussion and Analysis included in this Proxy Statement.proxy statement. Based on those reviews and discussions, the Compensation Committee has recommended to the Board that the Compensation Discussion and Analysis be included in this Proxy Statementproxy statement for filing with the SECSecurities and Exchange Commission and incorporated by reference into the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2009.2012.
Compensation Committee | ||||
J. Michael Cook | ||||
Marcello V. Bottoli | ||||
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Alexandra A. Herzan | ||||
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VIII. PROPOSAL III — ADVISORY VOTE ON EXECUTIVE COMPENSATION
The Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010 (known as the Dodd-Frank Act) requires us to provide our shareholders with the opportunity to approve, on a nonbinding, advisory basis, the compensation of our NEOs as disclosed in this proxy statement in accordance with the compensation disclosure rules of the SEC, often referred to as “Say on Pay.”
As discussed in detail in the Compensation Discussion and Analysis and the compensation tables and narratives that follow, the compensation program for our NEOs is designed (i) to attract, retain and motivate our executives who are critical to our success, (ii) to reward achievement of both annual and long-term performance goals, and (iii) to align the interests of our executives with those of our shareholders. Pursuant to our compensation program, an average of 77% of our NEO’s 2012 target total direct compensation is considered “variable” and tied to our Company’s performance based on a number of financial goals and Company stock price performance and dividend return (TSR).
We believe that our executive compensation program strikes the appropriate balance between utilizing responsible, measured pay practices and rewarding the achievement of financial and operational performance metrics that build shareholder value. This balance is evidenced by the following:
Our AIP rewards the achievement of our annual performance objectives by providing awards based on the attainment of four financial performance metrics: (1) local currency sales growth, (2) operating profit, (3) gross margin and (4) working capital.
Our LTIP rewards solid Company performance by providing awards based on (i) our annual EPS performance or, beginning with the 2012-2014 LTIP cycle, Economic Profit and (ii) our annual and cumulative TSR performance relative to the S&P 500. In addition, the LTIP aligns our executives’ interests with those of our shareholders by paying 50% of the earned award in shares of our common stock.
Our ECP incentivizes our executives to create value for our shareholders by providing equity-based compensation.
We require our NEOs to meet certain stock ownership guidelines under our Share Retention Policy to promote alignment of our executives’ interests with those of our shareholders and to discourage excessive risk taking for short-term gains.
For additional information on the compensation program for our NEOs, including specific information about compensation in 2012, please see the information in this proxy statement under the heading “Compensation Discussion and Analysis,” along with the compensation tables and narrative descriptions that follow.
We provide our shareholders with the opportunity to cast the Say on Pay vote on an annual basis. In accordance with the Dodd-Frank Act, the Say on Pay vote will be an advisory vote regarding our Company’s NEO compensation program generally and does not examine any particular compensation element individually. Because the Say on Pay vote is advisory, it is not binding on our Company, our Compensation Committee Interlocks and Insider Participation
None of the members ofor our Board. However, the Compensation Committee was at any time during 2009 or at any other time an officer or employeeintends to review the results of the Company. No executive officeradvisory vote and will be cognizant of the Company servesfeedback received from the voting results as a memberit completes its annual review and engages in the compensation planning process.
Accordingly, we will ask our shareholders to vote on the following resolution at the 2013 Annual Meeting:
“RESOLVED, that, the compensation paid to the Company’s NEOs, as disclosed in this proxy statement for our 2013 Annual Meeting of Shareholders pursuant to the compensation disclosure rules of the board of directors orSecurities and Exchange Commission, including the Compensation Discussion and Analysis, the compensation committee of any other entity that has one or more executive officers serving as a member of ourtables and related narrative disclosure, is hereby approved.”
The Board of Directors orbelieves the compensation of our NEOs is appropriate and promotes the best interests of our shareholders and therefore recommends that shareholders vote FOR approval of this resolution.
Summary Compensation Committee.Table
The following table sets forth the 2012, 2011 and 2010 compensation for:
our CEO;
our CFO;
our three other most highly compensated executive officers.
We refer to the executive officers included in the Summary Compensation Table as our NEOs. A detailed description of the plans and programs under which our NEOs received the following compensation can be found in this proxy statement under the heading “Compensation Discussion and Analysis.”
2012 Summary Compensation Table
The following Summary Compensation Table details compensation of the Company’s named executive officers during 2009 and, where applicable, 2008 and 2007.
2009 SUMMARY COMPENSATION TABLE
Name and Principal Position (a) | Year (b) | Salary ($) (c)(1)(2) | Bonus ($) (d) | Stock Awards ($) (e)(3)(4) | Option Awards ($) (f)(3)(5) | Non-Equity Incentive Plan Compensation ($) (g)(6)(7)(8) | Change in Pension Value and Nonqualified Deferred Compensation Earnings ($) (h)(9) | All Other Compensation ($) (i)(10) | Total ($) (j) | ||||||||||
Kevin C. Berryman Member, Temporary Office | 2009 | 314,423 | 100,000 | (12) | 947,584 | 279,275 | 415,683 | 0 | 182,795 | 2,239,760 | |||||||||
Nicolas Mirzayantz Member, Temporary Office | 2009 2008 2007 | 475,000 475,000 440,000 | 76,893 0 0 | (13)
| 693,987 589,581 671,988 | 165,118 110,144 0 | 245,030 253,073 530,820 | 22,246 49,489 121,672 | 96,846 99,539 63,329 | 1,775,120 1,576,826 1,827,809 | |||||||||
Hernan Vaisman Member, Temporary Office | 2009 2008 | 450,000 450,000 | 0 0 |
| 742,045 314,987 | 0 317,740 | 473,625 434,397 | 0 0 | 89,213 72,222 | 1,754,883 1,589,346 | |||||||||
Beth E. Ford Executive Vice President, | 2009 | 500,000 | 0 | 415,997 | 247,677 | 416,829 | 0 | 77,362 | 1,657,864 | ||||||||||
Dennis M. Meany Senior Vice President, | 2009 2008 2007 | 414,000 410,500 400,000 | 0 0 0 |
| 604,199 509,243 509,981 | 0 0 0 | 262,887 324,716 540,840 | 113,943 291,110 216,314 | 105,297 97,473 79,895 | 1,500,326 1,633,042 1,747,030 | |||||||||
Angelica T. Cantlon Senior Vice President, | 2009 | 124,182 | 0 | 313,864 | 0 | 78,870 | 0 | 5,283 | 522,199 |
Name and Principal Position (a) Richard A. O’Leary Interim Chief Financial Officer (from July 31, 2008 until May 14, 2009) and Vice President and Controller (since June 1, 2009) 30,250 0 Robert M. Amen Chairman and Chief Executive Officer (until 0 0 0 0 Steven J. Heaslip Senior Vice President, Name and Douglas D. Tough Chairman and Chief Executive Officer Kevin C. Berryman Executive Vice President and Chief Financial Officer Nicolas Mirzayantz Group President, Fragrances Hernan Vaisman Group President, Flavors Anne Chwat (10) Senior Vice President, General Counsel and Corporate Secretary Year
(b) Salary
($)
(c)(1)(2) Bonus
($)
(d) Stock
Awards
($)
(e)(3)(4) Option
Awards
($)
(f)(3)(5) Non-Equity
Incentive Plan
Compensation
($)
(g)(6)(7)(8) Change in
Pension
Value and
Nonqualified
Deferred
Compensation
Earnings
($)
(h)(9) All Other
Compensation
($)
(i)(10) Total ($)
(j) 2009
2008 275,000
275,000 100,000 (14) 262,491
209,678 146,769
37,655 115,421
122,112 0 32,600
23,374 932,281
698,068
September 30, 2009) 2009
2008
2007 750,000
1,000,000
1,000,000 0 1,000,000
1,000,000
2,979,990 0
1,506,321
0 1,179,247
2,345,500
2,792,068 0 5,159,410
409,024
270,295 8,088,657
6,260,845
7,042,353
Human Resources (until
June 30, 2009) 2009 187,500 0 112,500 275,196 121,539 38,796 1,497,997 2,233,528
Principal Position Year Salary
($)
(1)(2) Bonus
($) Stock
Awards
($)
(3)(4) Option
Awards
($)
(3) Non-Equity
Incentive Plan
Compensation
($)
(5)(6) Change in
Pension
Value and
Nonqualified
Deferred
Compensation
Earnings
($)
(7) All Other
Compensation
($)
(8)(9) Total
($) 2012 1,200,000 — 3,158,257 — 3,451,664 — 387,697 8,197,618 2011 1,200,000 — 2,483,416 — 872,614 — 318,065 4,874,095 2010 1,000,000 500,000 3,684,505 278,093 3,233,970 — 202,442 8,899,010 2012 511,458 — 800,623 82,580 896,236 — 180,255 2,471,152 2011 500,000 — 558,472 143,994 245,338 — 126,971 1,574,775 2010 500,000 — 725,380 166,851 1,033,517 — 154,897 2,580,645 2012 504,583 — 824,602 — 873,518 201,264 161,201 2,565,168 2011 500,000 — 874,637 — 194,884 250,173 118,069 1,937,763 2010 493,750 — 797,387 111,231 1,054,285 119,399 122,439 2,698,491 2012 511,458 — 393,434 206,449 907,677 — 88,300 2,107,318 2011 500,000 — 402,470 239,987 437,028 — 93,971 1,673,456 2010 487,500 — 389,574 278,093 1,022,540 — 83,678 2,261,385 2012 450,000 22,500 554,769 — 540,003 — 200,243 1,767,515 2011 322,211 — 863,335 — 116,445 — 224,134 1,526,125
(1) | The amounts in this column related to |
(2) | The amounts in this column related to |
(3) | The amounts in the Stock Awards and Option Awards columns represent the aggregate grant date fair value of equity awards granted during |
fiscal year ended December 31, 2012. The grant date fair value attributable to the |
on the probable outcome of such conditions. The value of these awards at the grant date if the maximum level of performance conditions were to be achieved is as follows: Mr. Tough — $ 1,995,800; Mr. Berryman |
(4) | The following |
shares by tendering shares of |
(5) |
|
| The amounts in this column related to |
| LTIP cycles |
paid. The amounts in this column related to |
|
|
|
| The amounts in this column represent the aggregate change in the actuarial present value of the |
| Details of the amounts set forth in this column related to |
|
|
|
| Amounts for 2011 and 2010 were restated to adjust certain relocation and other perquisites paid |
|
| Ms. Chwat was hired on |
|
|
2009 ALL OTHER COMPENSATION2012 All Other Compensation
Dividends on stock awards(1) | Company Match to Defined Contribution Plans(2) | Auto(3) | Club memberships | Financial/ Estate Planning and Tax Preparation | Life Insurance/ Executive Death Benefit Program(4) | Annual Physical Examination | Relocation Expenses/ Tax Gross-ups | Payments or Accruals in connection with Termination of Employment | Total | |||||||||||||||||||||||||
Kevin C. Berryman | 2009 | $ | 1,331 | $ | 30,603 | $ | 6,541 | $ | 3,000 | $ | 4,530 | $ | 1,391 | $ | 0 | $ | 135,399 | (5) | $ | 0 | $ | 182,795 | ||||||||||||
Nicolas Mirzayantz | 2009 | $ | 55,567 | $ | 17,293 | $ | 13,048 | $ | 0 | $ | 9,130 | $ | 1,809 | $ | 0 | $ | 0 | $ | 0 | $ | 96,846 | |||||||||||||
Hernan Vaisman | 2009 | $ | 32,086 | $ | 50,724 | $ | 3,750 | $ | 0 | $ | 0 | $ | 2,654 | $ | 0 | $ | 0 | $ | 0 | $ | 89,213 | |||||||||||||
Beth E. Ford | 2009 | $ | 15,210 | $ | 45,471 | $ | 9,574 | $ | 357 | $ | 5,915 | $ | 835 | $ | 0 | $ | 0 | $ | 0 | $ | 77,362 | |||||||||||||
Dennis M. Meany | 2009 | $ | 47,442 | $ | 24,885 | $ | 12,033 | $ | 3,000 | $ | 9,222 | $ | 6,765 | $ | 1,950 | $ | 0 | $ | 0 | $ | 105,297 | |||||||||||||
Angelica Cantlon | 2009 | $ | 1,247 | $ | 0 | $ | 2,403 | $ | 1,313 | $ | 0 | $ | 320 | $ | 0 | $ | 0 | $ | 0 | $ | 5,283 | |||||||||||||
Richard A. O’Leary | 2009 | $ | 6,125 | $ | 14,781 | $ | 10,246 | $ | 0 | $ | 0 | $ | 1,448 | $ | 0 | $ | 0 | $ | 0 | $ | 32,600 | |||||||||||||
Robert M. Amen | 2009 | $ | 102,009 | $ | 87,712 | $ | 24,681 | $ | 0 | $ | 13,189 | $ | 12,685 | $ | 0 | $ | 0 | $ | 4,919,134 | (6) | $ | 5,159,410 | ||||||||||||
Steven J. Heaslip | 2009 | $ | 25,682 | $ | 17,776 | $ | 10,037 | $ | 0 | $ | 0 | $ | 2,426 | $ | 2,010 | $ | 0 | $ | 1,440,066 | (7) | $ | 1,497,997 |
Dividends on Stock Awards ($)(1) | Company Match to Defined Contribution Plans ($)(2) | Auto ($)(3) | Club Memberships ($) | Financial/ Estate Planning and Tax Preparation ($) | Executive Death Benefit Program ($)(4) | Annual Physical Examination ($) | Matching Charitable Contributions ($)(5) | Housing/ Relocation Expenses/ Tax Gross-ups ($) | Total ($) | |||||||||||||||||||||||||||||||||||
Douglas D. Tough | 2012 | 174,829 | 94,156 | 25,552 | — | 25,000 | 63,000 | 4,200 | 960 | — | 387,697 | |||||||||||||||||||||||||||||||||
Kevin C. Berryman | 2012 | 66,395 | 50,719 | 16,111 | 2,620 | 14,409 | 20,000 | — | 10,000 | — | 180,254 | |||||||||||||||||||||||||||||||||
Nicolas Mirzayantz | 2012 | 99,509 | 17,245 | 13,812 | 3,000 | 9,635 | 18,000 | — | — | — | 161,201 | |||||||||||||||||||||||||||||||||
Hernan Vaisman | 2012 | 12,755 | 35,875 | 4,203 | — | 6,267 | 25,000 | 4,200 | — | — | 88,300 | |||||||||||||||||||||||||||||||||
Anne Chwat | 2012 | 35,537 | 51,664 | 19,243 | — | 3,000 | 15,000 | 4,200 | 8,000 | 63,598 | (6) | 200,242 |
(1) | The amounts in this column are the total dollar value of dividends paid during |
(2) | The amounts in this column |
(3) | The amounts in this column are amounts for the personal use of automobiles provided by |
(4) | The amounts in this column are the 2012 costs |
(5) | The amounts in this column are contributions made by us under our Matching Gift Program to eligible charitable organizations matching contributions made by our NEOs to those charitable organizations during 2012. |
(6) | This amount |
|
|
|
|
Employment Agreements or Arrangements
Mr. Tough
Our Board elected Douglas D. Tough as its non-executive Chairman effective October 1, 2009 and, pursuant to the terms of a letter agreement dated September 8, 2009 between theour Company and Mr. Tough, he became the Company’sour executive Chairman and Chief Executive Officer effective March 1, 2010, when his contract2010. In conjunction with his former employer expired. employment, an equity award was made on March 24, 2010 under the Equity Choice Plan, or ECP, described in this proxy statement under the heading “Compensation Discussion and Analysis,” at a value of $750,000 which vested on March 1, 2011.
Under this agreement, Mr. Tough’s employment is on an at-will basis until terminated by either party. Mr. Tough is entitled to the following compensation under the agreement:
AnnualMinimum annual base salary of $1,200,000, per annum.which may be increased by the Board of Directors after March 2, 2012.
A target AIP bonus of 120% of his base salary. He will havesalary and a potential maximum annual bonus of 240% of his base salary.
An LTIP target of $2,000,000. While he was only entitled to a pro-rated award under the LTIP cycles ending in 2010
The letter agreement provides for non-competition, non-solicitation, non-disclosure, cooperation and 2011, Mr. Tough is entitled to a full award under the LTIP cycle ending in 2012.
An equity award was made on March 1, 2010, the effective date of his employment, under the Equity Choice Program at a value of $750,000. This award is generally subject to continued employment (except as described under the heading Termination of Employment and Change in Control Arrangements—Other Separation Arrangements). This award will vest on the first anniversary of the grant date. This value will be allocated by Mr. Tough to the various equity incentive award alternatives under the program.
A special bonus in the amount of $500,000 to be paid on July 1, 2010.
Mr. Tough will also participate in all of the Company’s employee and executive benefit plans and programs for its senior executives, including eligibility for annual awards under the Equity Choice Program and LTIP, and will be entitled to annual paid vacation and Company-provided senior executive perquisites or as otherwise approved for him by our Board or Compensation Committee. Mr. Tough also participates in the Company’s Executive Death Benefit Plan described in the Compensation Discussion and Analysis above, pursuant to which the Company has purchased, and pays the entire cost on, a corporate owned life insurance policy on the life of Mr. Tough. The plan provides a pre-retirement death benefit equal to twice his annual base salary (excluding bonus and other forms of compensation), less $50,000 of group coverage, or a post-retirement death benefit equal to twice his final base salary (excluding bonus and other forms of compensation), less $12,500 of group coverage.non-disparagement covenants.
Mr. Tough’s letter agreement also grants him certain rights upon termination of his employment. These rights are described in this proxy statement under the heading Termination“Termination of Employment and Change in Control Arrangements—Arrangements — Other Separation Arrangements.
Mr. Amen and Mr. Heaslip
We entered into a separation agreement with Mr. Amen in September 2009 in connection with his separation from employment as the Company’s Chairman and Chief Executive Officer effective September 30, 2009 and we entered into a separation agreement with Mr. Heaslip in June 2009 in connection with his separation from employment as the Company’s Senior Vice President, Human Resources effective June 30, 2009. These agreements are described under the heading Termination of Employment and Change in Control Arrangements—Other Separation Arrangements.”
Other NEOs
None of our other NEOs is a party to a written employment agreement. Their compensation is approved by the Compensation Committee and is generally determined by the terms of the various compensation plans in which they are participants and which are described in this proxy statement more fully above in the Compensation Discussion &and Analysis, in the narrative following the Grants of Plan-Based Awards Table and under the heading Termination“Termination of Employment and Change in Control Arrangements.” In addition, their salary is reviewed, determined and approved on an annual basis by our Compensation Committee. Executives may also be entitled to certain compensation arrangements provided or negotiated in connection with their commencement of employment with theour Company. In addition to participation in these various compensation plans offered by the Company, Mr. Berryman, who commenced employment in May 2009, was also entitled to a sign-on bonus and grant of RSUs, as discussed above in the Compensation Discussion and Analysis, and will also be deemed to have been an employee for all of 2009 for purposes of the Company’s annual and long-term incentive programs.
The following table provides information regarding grants of plan-based awards to our named executive officersNEOs during 2009.2012. The amounts reported in the table under “Estimated Future Payouts Underunder Non-Equity Incentive Plan Awards” and “Estimated Future Payouts Underunder Equity Incentive Plan Awards” represent the threshold, target and maximum awards under our AIP and LTIP programs. The performance conditions applicable to the AIP are described in the Compensation Discussion and Analysis, and the performance conditions applicable to the LTIP are described in the Compensation Discussion and Analysis.
With regard to the AIP, the percentage of each named executive officer’sNEO’s target award that was actually achieved for 2012 based on satisfaction of the AIP performance conditions is discussed in the narrative following the Grants of Plan-Based Awards Table.Compensation Discussion and Analysis. The amount actually paid to each named executive officerNEO in 20102013 based on 20092012 performance under the AIP is included in the Non-Equity Incentive Plan Compensation column of the Summary Compensation Table.
With regard to the LTIP, the amountamounts of each named executive officer’sNEO’s award that waswere actually achieved for 2010-2012 based on satisfaction of the performance conditions for the 2007-20092010-2012 LTIP and the 20092012 segment of each of the 2008-20102011-2013 LTIP and 2009-20112012-2014 LTIP cycles is discussed in the narrativeare set forth following the Grants of Plan-Based Awards Table. In addition, cash amounts earned by each named executive officerNEO for each 2009the cumulative and 2012 segment of the 2010-2012 LTIP segmentcycle and the 2012 segments of the 2011-2013 LTIP and 2012-2014 LTIP cycles are also included in the Non-Equity Incentive Plan Compensation column of the Summary Compensation Table. However, any cash or shares credited to a named executive officerNEO based on achievement of performance conditions during a segment will not be paid until completion of the full LTIP cycle.
GRANTSOF PLAN-BASED AWARDSIN 20092012 Grants of Plan-Based Awards
Name | Type of Award (1) | Grant Date (2) | Date of Compensation Committee Approval | Estimated Future Payouts Under Non-Equity Incentive Plan Awards | Estimated Future Payouts Under Equity Incentive Plan Awards | All Other Stock Awards: Number of Shares of Stock or Units (#)(3) | All Other Option Awards: Number of Securities Underlying Options (#)(4) | Exercise or Base Price of Option Awards ($/Sh) (#)(5) | Grant Date Fair Value of Stock and Option Awards ($)(6) | ||||||||||||||||||||||
(a) | (b) | Threshold ($) (c) | Target ($) (d) | Maximum ($) (e) | Threshold ($) (f) | Target ($) (g) | Maximum ($) (h) | (i) | (j) | (k) | (l) | ||||||||||||||||||||
Kevin C. Berryman | AIP | 5/15/2009 | 4/14/2009(7) | 100,000 | 400,000 | 800,000 | (8) | — | — | — | — | — | — | — | |||||||||||||||||
2007 LTIP | 5/15/2009 | 4/14/2009(7) | 16,667 | 66,667 | 133,333 | (9) | 16,667 | 66,667 | 133,333 | (10) | — | — | — | 66,666.67 | |||||||||||||||||
2008 LTIP | 5/15/2009 | 4/14/2009(7) | 33,333 | 133,333 | 266,667 | (9) | 33,333 | 133,333 | 266,667 | (10) | 133,333.34 | ||||||||||||||||||||
2009 LTIP | 5/15/2009 | 4/14/2009(7) | 50,000 | 200,000 | 400,000 | (9) | 50,000 | 200,000 | 400,000 | (10) | 200,000.00 | ||||||||||||||||||||
RSU | 5/27/2009 | 4/14/2009(7) | — | — | — | — | — | — | 16,404 | (11) | 451,602.12 | ||||||||||||||||||||
PRS | 8/27/2009 | 7/27/2009 | — | — | — | — | — | — | 5,322 | (12) | 95,982.27 | ||||||||||||||||||||
SSAR | 8/27/2009 | 7/27/2009 | — | — | — | — | — | — | — | 35,486 | 36.07 | 279,274.82 | |||||||||||||||||||
— | |||||||||||||||||||||||||||||||
Nicolas Mirzayantz | AIP | 3/9/2009 | 3/9/2009 | 95,000 | 380,000 | 760,000 | (8) | — | — | — | — | — | — | — | |||||||||||||||||
2009 LTIP | 3/9/2009 | 3/9/2009 | 47,500 | 190,000 | 380,000 | (13) | 47,500 | 190,000 | 380,000 | (14) | — | — | — | 190,000.00 | |||||||||||||||||
PRS | 5/27/2009 | 3/9/2009 | — | — | — | — | — | — | 33,070 | (12) | — | — | 503,986.80 | ||||||||||||||||||
SSAR | 5/27/2009 | 3/9/2009 | — | — | — | — | — | — | — | 23,622 | 30.48 | 165,117.78 | |||||||||||||||||||
Hernan Vaisman | AIP | 3/9/2009 | 3/9/2009 | 90,000 | 360,000 | 720,000 | (8) | — | — | — | — | — | — | — | |||||||||||||||||
2009 LTIP | 3/9/2009 | 3/9/2009 | 45,000 | 180,000 | 360,000 | (13) | 45,000 | 180,000 | 360,000 | (14) | — | — | — | 180,000.00 | |||||||||||||||||
RSU | 5/27/2009 | 3/9/2009 | — | — | — | — | — | — | 4,724 | (11) | — | — | 130,051.72 | ||||||||||||||||||
PRS | 5/27/2009 | 3/9/2009 | — | — | — | — | — | — | 28,346 | (12) | — | — | 431,993.04 | ||||||||||||||||||
Beth E. Ford | AIP | 3/9/2009 | 3/9/2009 | 100,000 | 400,000 | 800,000 | (8) | — | — | — | — | — | — | — | |||||||||||||||||
2009 LTIP | 3/9/2009 | 3/9/2009 | 50,000 | 200,000 | 400,000 | (13) | 50,000 | 200,000 | 400,000 | (14) | — | — | — | 200,000.00 | |||||||||||||||||
PRS | 5/27/2009 | 3/9/2009 | — | — | — | — | — | — | 14,173 | (12) | — | — | 215,996.52 | ||||||||||||||||||
SSAR | 5/27/2009 | 3/9/2009 | — | — | — | — | — | — | — | 35,433 | 30.48 | 247,676.67 | |||||||||||||||||||
Dennis M. Meany | AIP | 3/9/2009 | 3/9/2009 | 62,100 | 248,400 | 496,800 | (8) | — | — | — | — | — | — | — | |||||||||||||||||
2009 LTIP | 3/9/2009 | 3/9/2009 | 31,050 | 124,200 | 248,400 | (13) | 31,050 | 124,200 | 248,400 | (14) | — | — | — | 124,200.00 | |||||||||||||||||
PRS | 5/27/2009 | 3/9/2009 | — | — | — | — | — | 31,496 | (12) | — | — | 479,999.04 | |||||||||||||||||||
Angelica T. Cantlon | AIP | 8/10/2009 | 7/27/2009 | 18,641 | 74,564 | 149,129 | (18) | — | — | — | — | — | — | — | |||||||||||||||||
2007 LTIP | 8/10/2009 | 7/27/2009 | 3,281 | 13,125 | 26,250 | (19) | 3,281 | 13,125 | 26,250 | (20) | — | — | — | 13,125.00 | |||||||||||||||||
2008 LTIP | 8/10/2009 | 7/27/2009 | 11,156 | 44,625 | 89,250 | (19) | 11,156 | 44,625 | 89,250 | (20) | 44,625.00 | ||||||||||||||||||||
2009 LTIP | 8/10/2009 | 7/27/2009 | 19,031 | 76,125 | 152,250 | (19) | 19,031 | 76,125 | 152,250 | (20) | 76,125.00 | ||||||||||||||||||||
PRS | 8/27/2009 | 7/27/2009 | — | — | — | — | — | — | 9,980 | (12) | — | — | 179,989.30 | ||||||||||||||||||
Richard A. O’Leary | AIP | 3/9/2009 | 3/9/2009 | 34,375 | 137,500 | 275,000 | (8) | — | — | — | — | — | — | — | |||||||||||||||||
2009 LTIP | 3/9/2009 | 3/9/2009 | 17,188 | 68,750 | 137,500 | (13) | 17,188 | 68,750 | 137,500 | (14) | — | — | — | 68,750.00 | |||||||||||||||||
RSU | 4/28/2009 | 4/28/2009 | — | — | — | — | — | — | 5,000 | (11) | — | — | 145,750.00 | ||||||||||||||||||
PRS | 5/27/2009 | 3/9/2009 | — | — | — | — | — | — | 3,149 | (12) | — | — | 47,990.76 | ||||||||||||||||||
SSAR | 5/27/2009 | 3/9/2009 | — | — | — | — | — | — | — | 20,997 | 30.48 | 146,769.03 | |||||||||||||||||||
Robert M. Amen | AIP | 3/9/2009 | 3/9/2009 | 300,000 | 1,200,000 | 2,400,000 | (15) | — | — | — | — | — | — | — | |||||||||||||||||
2009 LTIP | 3/9/2009 | 3/9/2009 | 250,000 | 1,000,000 | 2,000,000 | (16) | 250,000 | 1,000,000 | 2,000,000 | (17) | — | — | — | 1,000,000.00 | |||||||||||||||||
Steven J. Heaslip | AIP | 3/9/2009 | 3/9/2009 | 56,250 | 225,000 | 450,000 | (15) | — | — | — | — | — | — | — | |||||||||||||||||
2009 LTIP | 3/9/2009 | 3/9/2009 | 28,125 | 112,500 | 225,000 | (16) | 28,125 | 112,500 | 225,000 | (17) | — | — | — | 112,500.00 | |||||||||||||||||
SSAR | 5/27/2009 | 3/9/2009 | — | — | — | — | — | — | — | 39,370 | (21) | $ | 30.48 | 275,196.30 |
Name | Type of Award (1) | Grant Date (2) | Date of Compensation Committee Approval | Estimated Future Payouts Under Non-Equity Incentive Plan Awards | Estimated Future Payouts Under Equity Incentive Plan Awards | All Other Stock Awards: Number of Shares of Stock or Units (#)(3) | All Other Option Awards: Number of Securities Underlying Options (#)(4) | Exercise or Base Price of Option Awards ($/Sh) (#)(5) | Grant Date Fair Value of Stock and Option Awards ($)(6) | |||||||||||||||||||||||||||||||||||||||||||
Threshold ($) | Target ($) | Maximum ($) | Threshold ($) | Target ($) | Maximum ($) | |||||||||||||||||||||||||||||||||||||||||||||||
Douglas D. Tough | AIP | 1/31/2012 | 1/30/2012 | 360,000 | 1,440,000 | 2,880,000 | (7) | |||||||||||||||||||||||||||||||||||||||||||||
2012 LTIP | 1/31/2012 | 1/30/2012 | 250,000 | 1,000,000 | 2,000,000 | (8) | 250,000 | 1,000,000 | 2,000,000 | (9) | 997,900 | |||||||||||||||||||||||||||||||||||||||||
PRS | 5/1/2012 | 1/30/2012 | 71,535 | (10) | 2,160,357 | |||||||||||||||||||||||||||||||||||||||||||||||
Kevin C. Berryman | AIP | 1/30/2012 | 1/30/2012 | 102,500 | 410,000 | 820,000 | (7) | |||||||||||||||||||||||||||||||||||||||||||||
2012 LTIP | 1/30/2012 | 1/30/2012 | 56,250 | 225,000 | 450,000 | (8) | 56,250 | 225,000 | 450,000 | (9) | 224,528 | |||||||||||||||||||||||||||||||||||||||||
PRS | 5/1/2012 | 1/30/2012 | 19,076 | (10) | 576,095 | |||||||||||||||||||||||||||||||||||||||||||||||
SSAR | 5/1/2012 | 1/30/2012 | 7,948 | 60.39 | 82,580 | |||||||||||||||||||||||||||||||||||||||||||||||
Nicolas Mirzayantz | AIP | 1/30/2012 | 1/30/2012 | 101,000 | 404,000 | 808,000 | (7) | |||||||||||||||||||||||||||||||||||||||||||||
2012 LTIP | 1/30/2012 | 1/30/2012 | 56,250 | 225,000 | 450,000 | (8) | 56,250 | 225,000 | 450,000 | (9) | 224,528 | |||||||||||||||||||||||||||||||||||||||||
PRS | 5/1/2012 | 1/30/2012 | 19,870 | (10) | 600,074 | |||||||||||||||||||||||||||||||||||||||||||||||
Hernan Vaisman | AIP | 1/30/2012 | 1/30/2012 | 102,500 | 410,000 | 820,000 | (7) | |||||||||||||||||||||||||||||||||||||||||||||
2012 LTIP | 1/30/2012 | 1/30/2012 | 56,250 | 225,000 | 450,000 | (8) | 56,250 | 225,000 | 450,000 | (9) | 224,528 | |||||||||||||||||||||||||||||||||||||||||
SSAR | 5/1/2012 | 1/30/2012 | 19,870 | 60.39 | 206,449 | |||||||||||||||||||||||||||||||||||||||||||||||
RSU | 5/1/2012 | 1/30/2012 | 2,980 | (11) | 168,906 | |||||||||||||||||||||||||||||||||||||||||||||||
Anne Chwat | AIP | 1/30/2012 | 1/30/2012 | 67,500 | 270,000 | 540,000 | (7) | |||||||||||||||||||||||||||||||||||||||||||||
2012 LTIP | 1/30/2012 | 1/30/2012 | 33,750 | 135,000 | 270,000 | (8) | 33,750 | 135,000 | 270,000 | (9) | 134,717 | |||||||||||||||||||||||||||||||||||||||||
PRS | 5/1/2012 | 1/30/2012 | 13,909 | (10) | 420,052 |
(1) | AIP = |
20072012 LTIP = 2007-2009 Long-Term Incentive Plan Cycle
2008 LTIP = 2008-2010 Long-Term Incentive Plan Cycle
2009 LTIP = 2009-20112012-2014 Long-Term Incentive Plan Cycle
RSU = Restricted Stock Unit
PRS = Purchased Restricted Stock
SSAR = Stock Settled Appreciation Right
(2) |
| All equity, AIP and LTIP grants were made |
(3) | The amounts in this column represent the number of RSUs and the number of PRS shares granted under the ECP in |
(4) | The amounts in this column represent the number of SSARs granted |
(5) | The amounts in this column represent the exercise price of each SSAR granted, which |
(6) | The amounts in this column represent the aggregate grant date fair value of equity awards granted to our |
(7) |
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Equity Choice Program and Other Equity AwardsLong-Term Incentive Plan
In 2006, following the Compensation Committee’s recommendation and with the assistance of the Committee’s independent compensation consultant, our Board approved our Equity Choice Program under our 2000 Stock Award and Incentive Plan (“2000 SAIP”) as a long term incentive program for our senior management. During 2009, the Compensation Committee made PRS, SSAR and RSU awards under this program, based on individual elections, to all of our named executive officers. Under this program, dividends are paid on shares of PRS at the same rate paid to our shareholders. The Compensation Committee also made additional RSU awards in 2009 to certain senior officers, including Mr. Berryman and Mr. O’Leary, under our 2000 SAIP.
A discussion of the terms and the total dollar value of awards granted in 2009 to our named executive officers is included in the Compensation Discussion and Analysis. The number of shares under those awards and the date those awards were granted are included in the Grants of Plan-Based Awards Table above and the Outstanding Equity Awards at Fiscal Year-End Table.
Annual Incentive Plan (AIP)2010-2012 LTIP Payout
Our Compensation Committee established all performance goals under our AIP at the beginning of 2009. Under the AIP, each executive officer, including our former CEO, had an annual incentive award target for 2009 based on the achievement of specific quantitative financial corporate goals and/or derivative business unit financial performance goals as well as non-financial strategic initiatives. The corporate objectives and the derivative business unit objectives for 2009 under the AIP related to increases in sales, earnings before interest and taxes, return on investment and working capital. The non-financial strategic initiatives, related to (i) customers, including market share, customer satisfaction, service performance and product quality, (ii) workforce, including managing talent and development, and (iii) improvements in our supply chain, product planning and customer service and research and development innovation. For 2009 we achieved 70.9% of the corporate goals and non-financial strategic initiatives, collectively, under the AIP, as a result of which each of Mr. Berryman, Ms. Ford, Mr. Meany, Ms Cantlon, Mr. Amen, and Mr. Heaslip received a payout of 70.9% of their target incentive compensation for the year (with Ms. Cantlon, Mr. Amen and Mr. Heaslip’s payouts being pro-rated for the number of days worked and with Mr. Berryman being deemed to have worked the entire year). Mr. O’Leary’s 2009 payout was 53% of his target incentive compensation. For 2009, Mr. Mirzayantz’s AIP payout was 43.6% of his target incentive compensation as a result of the Fragrances Business Unit not achieving its performance goals. For 2009, Mr. Vaisman received a payout of 100% of his target incentive compensation for the year as a result of the Flavors Business Unit achieving performance goals beyond the 70.9% corporate achievement.
In addition to the 2009 AIP payouts, certain executive officers received discretionary bonus payments, as set forth in the Summary Compensation Table and described in the Compensation Discussion and Analysis.
Long Term Incentive Plan (LTIP)
Under our LTIP, each executive officer had an award target for the 2007-2009 performance cycle based on achieving specific quantitative corporate performance goals which the Compensation Committee established at the beginning of the cycle. The 2007-2009 LTIP cycle was administered in four equal performance segments related to each year in the LTIP cycle and the cumulative results for the full three-year cycle. For this LTIP cycle, these objectives related to improvements in earnings per share and total shareholder return (“TSR”) relative to the S&P 500. For the 2007-2009 performance cycle, on an overall basis, we achieved 90.6% of the corporate performance goals. Therefore, Mr. Mirzayantz, Mr. Vaisman, Mr. Meany and Mr. O’Leary, who were all employed by the Company during the entire three-year cycle, received 90.6% of his target incentive compensation for the cycle. Executive officers who were not employed by the Company for the entire three-year 2007-2009 LTIP cycle are entitled only to a pro-rated amount for each segment under the LTIP cycle based on the number of days served as an employee during that LTIP segment. Accordingly, Ms. Ford received 65.8%, Mr. Berryman and Ms. Cantlon each received 53.8%, Mr. Amen received 94% and Mr. Heaslip received 98% of his or her reduced target incentive compensation for the cycle, reflecting the proration. As determined by the Compensation Committee, for the 2007-2009 LTIP cycle, 50% of the LTIP payout was paid in cash and 50% was paid in Company stock based on the closing market price on the first stock trading day of the cycle. These payouts were made in early 2010.
The following chart illustratestable sets forth the total amount earned by each NEO based on achievement of the corporate performance goals for each segment under the 2007-20092010-2012 LTIP cycle and based on each executive’s target amount (or reduced target amount for those executiveseach NEO who werewas not employed for the entire three-year cycle). The amount reported in the “Total” column is the amount that wasbeing paid out to the executive officersNEOs in early 2010 upon2013 following completion of the 2007-20092010-2012 LTIP cycle.
Segment 1—2007 | Segment 2—2008 | Segment 3—2009 | Segment 4— 2007—2009 | Total | ||||||||||||||||
Cash ($) | Shares (#) | Cash ($) | Shares (#) | Cash ($) | Shares (#) | Cash ($) | Shares (#) | Cash ($) | Shares (#) | |||||||||||
Mr. Berryman | — | — | — | — | 31,250 | 639 | 4,583 | 93 | 35,833 | 732 | ||||||||||
Mr. Mirzayantz | 42,900 | 876 | 47,025 | 962 | 20,625 | 421 | 9,075 | 186 | 119,625 | 2,445 | ||||||||||
Mr. Vaisman | 39,000 | 797 | 42,750 | 874 | 18,750 | 383 | 8,250 | 169 | 108,750 | 2,223 | ||||||||||
Ms. Ford | — | — | 17,813 | 364 | 31,250 | 639 | 5,729 | 117 | 54,792 | 1,120 | ||||||||||
Mr. Meany | 39,000 | 797 | 42,750 | 874 | 18,750 | 383 | 8,250 | 169 | 108,750 | 2,223 | ||||||||||
Ms. Cantlon | — | — | — | — | 6,152 | 126 | 903 | 18 | 7,055 | 144 | ||||||||||
Mr. O’Leary | 13,315 | 272 | 14,596 | 298 | 6,402 | 131 | 2,816 | 58 | 37,129 | 759 | ||||||||||
Mr. Amen | 325,000 | 6,643 | 356,250 | 7,282 | 117,188 | 2,396 | 63,020 | 1,288 | 861,458 | 17,609 | ||||||||||
Mr. Heaslip | 35,295 | 721 | 38,689 | 789 | 8,484 | 174 | 6,222 | 128 | 88,690 | 1,812 |
Segment 1 (2010) | Segment 2 (2011) | Segment 3 (2012) | Cumulative (2010 –2012) | Total | ||||||||||||||||||||||||||||||||||||
Cash ($) | Shares (#) | Cash ($) | Shares (#) | Cash ($) | Shares (#) | Cash ($) | Shares (#) | Cash ($) | Shares (#) | |||||||||||||||||||||||||||||||
Douglas D. Tough | 464,046 | 11,047 | 120,036 | 2,857 | 361,766 | 8,612 | 473,516 | 11,270 | 1,419,364 | 33,786 | ||||||||||||||||||||||||||||||
Kevin C. Berryman | 110,250 | 2,624 | 28,519 | 679 | 85,950 | 2,046 | 112,500 | 2,678 | 337,219 | 8,027 | ||||||||||||||||||||||||||||||
Nicolas Mirzayantz | 110,250 | 2,624 | 28,519 | 679 | 85,950 | 2,046 | 112,500 | 2,678 | 337,219 | 8,027 | ||||||||||||||||||||||||||||||
Hernan Vaisman | 110,250 | 2,624 | 28,519 | 679 | 85,950 | 2,046 | 112,500 | 2,678 | 337,219 | 8,027 | ||||||||||||||||||||||||||||||
Anne Chwat (1) | — | — | 12,833 | 306 | 51,570 | 1,227 | 39,376 | 938 | 103,779 | 2,471 |
Under our
(1) | Based on a pro-rated target amount due to her commencement of employment on April 14, 2011. |
2011-2013 LTIP each executive officer also has an award target for each of the 2008-2010 and 2009-2011 performance cycles based on achieving specific quantitative corporate performance goals which the Compensation Committee established at the beginning of the respective cycle. Like the 2007-2009 LTIP cycle, each of the 2008-2010 and 2009-2011 LTIP cycles is administered in four equal performance segments related to each year in the LTIP cycle and the cumulative results for the full cycle. Depending on the extent to which the Company achieves the corporate performance goals for each segment, a portion of the executive’s LTIP award may be credited on behalf of the executive, but any credited portion will not be paid until the completion of the full LTIP cycle. Amounts credited for future payout under the 2008-2010 and 2009-2011 LTIP cycles will be paid 50% in cash and 50% in Company stock, based on the closing market price on the first trading day of the respective cycle.Credit
Based on the Company’sour achievement of the corporate performance goals for the 20092012 segment (the second segment) of the 2008-20102011-2013 LTIP cycle and the executive’s target amount, the following cash amounts and number of shares of our stock have been credited on behalf of the executive: Mr. Berryman—$31,250 and 662 shares, Mr. Mirzayantz—$29,688 and 629 shares, Mr. Vaisman—$28,125 and 596 shares, Ms. Ford—$31,250 and 662 shares, Mr. Meany—$19,406 and 411 shares, Ms. Cantlon—$6,152 and 130 shares (based on a pro-rated target amount), Mr. O’Leary—$10,742 and 228 shares, Mr. Amen—$117,188 and 2,483 shares (based on a pro-rated target amount), and Mr. Heaslip—$8,789 and 186 shares (based on a pro-rated target amount).
Segment 2 (2012) | ||||||||
Cash ($) | Shares (#) | |||||||
Douglas D. Tough | 382,000 | 6,864 | ||||||
Kevin C. Berryman | 85,950 | 1,545 | ||||||
Nicolas Mirzayantz | 85,950 | 1,545 | ||||||
Hernan Vaisman | 85,950 | 1,545 | ||||||
Anne Chwat | 51,570 | 926 |
2012-2014 LTIP Credit
Based on the Company’sour achievement of the corporate performance goals for the 20092012 segment (the first segment) of the 2009-20112012-2014 LTIP cycle and the executive’s target amount, the following cash amounts and number of shares of our stock have been credited on behalf of the executive: Mr. Berryman—$65,000 and 2,124 shares, Mr. Mirzayantz—$61,750 and 2,017 shares, Mr. Vaisman—$58,500 and 1,911 shares, Ms. Ford—$65,000 and 2,124 shares, Mr. Meany—$40,365 and 1,319 shares, Ms. Cantlon—$12,797 and 418 shares (based on a pro-rated target amount), Mr. O’Leary—$22,344 and 729 shares, Mr. Amen—$243,750 and 7,965 shares (based on a pro-rated target amount), and Mr. Heaslip—$18,281 and 598 shares (based on a pro-rated target amount). Pursuant to his offer of employment, Mr. Berryman was deemed to have been employed by the Company for the entire 2009 segment of each of the 2007-2009, 2008-2010 and 2009-2011 LTIP cycles.
Additional details regarding our Annual Incentive Plan and Long Term Incentive Plan are included in the Compensation Discussion and Analysis.
Douglas D. Tough Kevin C. Berryman Nicolas Mirzayantz Hernan Vaisman Anne Chwat Segment 1
(2012) Cash
($) Shares
(#) 408,750 7,730 91,969 1,740 91,969 1,740 91,969 1,740 55,181 1,043
Equity Compensation Plan Information
We are currently granting equity awards only under our 2010 SAIP, which replaced our 2000 SAIP and the 2000 Supplemental Stock Award Plan (the “2000 Supplemental Plan”). The following table provides information regarding our common stock which may be issued under our equity compensation plans as of December 31, 2009.2012.
Plan Category | Number of securities to be issued upon exercise of outstanding options, warrants and rights (a) | Weighted-average exercise price of outstanding options, warrants and rights (b) | Number of securities remaining available for future issuance under equity compensation plans (excluding securities reflected in column (a)) (c) | Number of securities to be issued upon exercise of outstanding options, warrants and rights | Weighted-average exercise price of outstanding options, warrants and rights | Number of securities remaining available for future issuance under equity compensation plans (excluding securities reflected in column (a)) | ||||||||||||||||
Equity compensation plans approved by security holders(1) | 2,364,349 | (2) | $ | 31.17 | (3) | 888,979 | (4) | |||||||||||||||
Equity compensation plans not approved by security holders(5) | 668,045 | $ | 29.83 | (3) | 3,862,365 | (6) | ||||||||||||||||
(a) | (b) | (c) | ||||||||||||||||||||
Equity compensation plans approved by security holders (1) | 1,238,238 | (2) | $ | 45.25 | (3) | 1,475,249 | (4) | |||||||||||||||
Equity compensation plans not approved by security holders (5) | 277,289 | 31.33 | (3) | 275,877 | (6) | |||||||||||||||||
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Total | 3,032,395 | $ | 31.04 | (3) | 4,751,344 | 1,515,527 | $ | 44.94 | (3) | 1,751,126 |
(1) | Represents the 2010 SAIP, the 2000 |
(2) | Includes options, RSUs, SSARs, the number of shares to be issued under the 2010-2012 LTIP cycle based on actual performance, and the maximum number of shares that may be issued under the |
(3) | Weighted average exercise price of outstanding options and SSARs. Excludes |
(4) | Does not include |
2000 Supplemental Plan, but not used under |
(5) |
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(6) | Includes |
2000 Supplemental Stock Award Plan and Directors’ Annual Stock Award Pool
On November 14, 2000, our Board approved the 2000 Supplemental Stock Award Plan. Under applicable NYSE rules, this plan did not require approval by shareholders. The 2000 Supplemental Stock Award Plan is a stock-based incentive plan designed to attract, retain, motivate and reward employees and certain other persons who provide services to theour Company. This plan excludes all of our executive officers and directors. Under this plan, eligible participants maycould be granted nonqualified stock options, stock appreciation rights, restricted stock, deferred stock, and other stock-based awards under terms and conditions identical to those under our shareholder-approved 2000 Stock Award and Incentive Plan.SAIP. The total number of shares originally reserved for awards under the 2000 Supplemental Stock Award Plan was 4,500,000. A total of 216,99212,917 options and 143,705 RSUs were outstanding under that plan as of December 31, 2009 and 210,556 shares remained available for future2012. As of April 27, 2010, no new awards as of that date.
In September 2000, our Board authorized and reserved a pool of 100,000 shares of our common stock to be used for annual awards of 1,000 shares to each non-employee director each year. The shares could be issued out of authorized but unissued shares or treasury shares. Under applicable NYSE rules,have been granted under this pool did not require approval by shareholders. Effective as of the 2007 Annual Meeting, directors no longer receive this annual award of 1,000 shares. The last award of shares made to directors from this pool was in October 2006.plan.
Outstanding Equity Awards at Fiscal Year-End
The following table provides information regarding outstanding equity awards held by our named executive officersNEOs at December 31, 2009.2012.
2009 OUTSTANDING EQUITY AWARDSAT FISCAL YEAR END2012 Outstanding Equity Awards at Fiscal Year-End
Grant Date | Grant Type(1) | Option Awards | Stock Awards | ||||||||||||||||||||||||
Name | Number of Securities Underlying Unexercised Options (#) Exercisable | Number of Securities Underlying Unexercised Options (#) Unexercisable | Option Exercise Price ($) | Option Expiration Date | Number of Shares or Units of Stock That Have Not Vested ($) | Market Value of Shares or Units of Stock That Have Not Vested ($) | Equity Incentive Plan Awards; Number of Unearned Shares, Units or Other Rights That Have Not Vested (#) | Equity Incentive Plan Awards; Market or Payout Value of Unearned Shares, Units or Other Rights That Have Not Vested ($) | |||||||||||||||||||
(a) | (b) | (c) | (e) | (f) | (g) | (h) | (i) | (j) | |||||||||||||||||||
Kevin C. Berryman | 5/27/2009 | RSU | 16,404 | (2) | $ | 674,861 | |||||||||||||||||||||
5/15/2009 | 2008 LTIP | 662 | (3) | $ | 27,235 | 3,530 | (4) | $ | 145,224 | ||||||||||||||||||
5/15/2009 | 2009 LTIP | 2,124 | (5) | $ | 87,381 | 9,804 | (6) | $ | 403,337 | ||||||||||||||||||
8/27/2009 | PRS | 5,322 | (7) | $ | 218,947 | ||||||||||||||||||||||
8/27/2009 | SSAR | 0 | 35,486 | (7) | $ | 36.07 | 08/27/2016 | ||||||||||||||||||||
Nicolas Mirzayantz | 5/9/2006 | SSAR | 25,000 | (8) | 0 | $ | 36.00 | 05/09/2013 | |||||||||||||||||||
5/8/2007 | PRS | 20,857 | (8) | $ | 858,057 | ||||||||||||||||||||||
3/3/2008 | 2008 LTIP | 2,062 | (3) | $ | 84,831 | 4,026 | (4) | $ | 165,630 | ||||||||||||||||||
5/6/2008 | PRS | 18,942 | (8) | $ | 779,274 | ||||||||||||||||||||||
5/6/2008 | SSAR | 0 | 11,092 | (8) | $ | 42.19 | 05/06/2015 | ||||||||||||||||||||
3/9/2009 | 2009 LTIP | 2,017 | (5) | $ | 82,979 | 9,314 | (6) | $ | 383,178 | ||||||||||||||||||
5/27/2009 | PRS | 33,070 | (7) | $ | 1,360,500 | ||||||||||||||||||||||
5/27/2009 | SSAR | 0 | 23,622 | (7) | $ | 30.48 | 05/27/2016 | ||||||||||||||||||||
Hernan Vaisman | 5/8/2007 | RSU | 1,564 | (8) | $ | 64,343 | |||||||||||||||||||||
5/8/2007 | PRS | 14,600 | (8) | $ | 600,644 | ||||||||||||||||||||||
3/3/2008 | 2008 LTIP | 1,954 | (3) | $ | 80,388 | 3,814 | (4) | $ | 156,908 | ||||||||||||||||||
5/6/2008 | SSAR | 0 | 31,998 | (8) | $ | 42.19 | 05/06/2015 | ||||||||||||||||||||
5/6/2008 | PRS | 6,399 | (8) | $ | 263,255 | ||||||||||||||||||||||
3/9/2009 | 2009 LTIP | 1,911 | (5) | $ | 78,619 | 8,822 | (6) | $ | 362,937 | ||||||||||||||||||
5/27/2009 | PRS | 28,346 | (7) | $ | 1,166,154 | ||||||||||||||||||||||
5/27/2009 | RSU | 4,724 | (7) | $ | 194,345 | ||||||||||||||||||||||
Beth E. Ford | 10/7/2008 | RSU | 4,634 | (8) | $ | 190,643 | |||||||||||||||||||||
11/4/2008 | PRS | 8,123 | (8) | $ | 334,180 | ||||||||||||||||||||||
11/4/2008 | RSU | 2,030 | (8) | $ | 83,514 | ||||||||||||||||||||||
10/1/2008 | 2008 LTIP | 1,038 | (3) | $ | 42,703 | 3,708 | (4) | $ | 152,547 | ||||||||||||||||||
3/9/2009 | 2009 LTIP | 2,124 | (5) | $ | 87,381 | 9,804 | (6) | $ | 403,337 | ||||||||||||||||||
5/27/2009 | PRS | 14,173 | (7) | $ | 583,077 | ||||||||||||||||||||||
5/27/2009 | SSAR | 0 | 35,433 | (7) | $ | 30.48 | 05/27/2016 | ||||||||||||||||||||
Dennis M. Meany | 5/8/2007 | PRS | 15,063 | (8) | $ | 619,692 | |||||||||||||||||||||
3/3/2008 | 2008 LTIP | 1,348 | (3) | $ | 55,457 | 2,630 | (4) | $ | 108,198 | ||||||||||||||||||
5/6/2008 | RSU | 2,000 | (8) | $ | 82,280 | ||||||||||||||||||||||
5/6/2008 | PRS | 14,505 | (8) | $ | 596,736 | ||||||||||||||||||||||
3/9/2009 | 2009 LTIP | 1,319 | (5) | $ | 54,264 | 6,088 | (6) | $ | 250,460 | ||||||||||||||||||
5/27/2009 | PRS | 31,496 | (7) | $ | 1,295,745 | ||||||||||||||||||||||
Angelica T. Cantlon | 8/27/2009 | PRS | 9,980 | (7) | $ | 410,577 | |||||||||||||||||||||
8/10/2009 | 2008 LTIP | 130 | (3) | $ | 5,348 | 1,474 | (4) | $ | 60,640 | ||||||||||||||||||
8/10/2009 | 2009 LTIP | 418 | (5) | $ | 17,197 | 4,332 | (6) | $ | 178,218 | ||||||||||||||||||
Richard A. O’Leary | 3/3/2008 | 2008 LTIP | 746 | (3) | $ | 30,690 | 1,456 | (4) | $ | 59,900 | |||||||||||||||||
5/6/2008 | RSU | 1,137 | (8) | $ | 46,776 | ||||||||||||||||||||||
5/6/2008 | PRS | 4,550 | (8) | $ | 187,187 | ||||||||||||||||||||||
5/6/2008 | SSAR | 0 | 3,792 | (8) | $ | 42.19 | 05/06/2015 | ||||||||||||||||||||
3/9/2009 | 2009 LTIP | 729 | (5) | $ | 29,991 | 3,366 | (6) | $ | 138,477 | ||||||||||||||||||
4/28/2009 | RSU | 5,000 | (8) | $ | 205,700 | ||||||||||||||||||||||
5/27/2009 | PRS | 3,149 | (7) | $ | 129,550 | ||||||||||||||||||||||
5/27/2009 | SSAR | 0 | 20,997 | (7) | $ | 30.48 | 05/27/2016 | ||||||||||||||||||||
Robert M. Amen | 7/1/2006 | SSAR | 150,000 | (8) | 0 | $ | 35.24 | 07/01/2013 | |||||||||||||||||||
7/25/2006 | SSAR | 56,737 | (8) | 0 | $ | 35.25 | 07/25/2013 | ||||||||||||||||||||
5/08/2007 | PRS | 61,258 | (9) | $ | 2,520,154 | ||||||||||||||||||||||
3/3/2008 | 2008 LTIP | 10,029 | (3) | $ | 412,593 | 6,180 | (4) | $ | 254,245 | ||||||||||||||||||
5/6/2008 | SSAR | 0 | 70,992 | (9) | $ | 42.19 | 05/06/2015 | ||||||||||||||||||||
3/9/2009 | 2009 LTIP | 7,965 | (5) | $ | 327,680 | 4,086 | (6) | $ | 168,098 | ||||||||||||||||||
Steven J. Heaslip | 5/8/2007 | PRS | 10,875 | (9) | $ | 447,398 | |||||||||||||||||||||
3/3/2008 | 2008 LTIP | 1,035 | (3) | $ | 42,580 | 594 | (4) | $ | 24,437 | ||||||||||||||||||
5/6/2008 | RSU | 778 | (9) | $ | 32,007 | ||||||||||||||||||||||
5/6/2008 | SSAR | 0 | 9,035 | (9) | $ | 42.19 | 05/06/2015 | ||||||||||||||||||||
5/27/2009 | SSAR | 0 | 2,204 | (9) | $ | 30.48 | 05/27/2016 | ||||||||||||||||||||
3/9/2009 | 2009 LTIP | 598 | (5) | $ | 24,602 | 306 | (6) | $ | 12,589 |
Name | Grant Date | Grant Type (1) | Number of Securities Underlying Unexercised Options (#) Exercisable | Number of Securities Underlying Unexercised Options (#) Unexercisable | Option Exercise Price ($) | Option Expiration Date | Number of Shares or Units of Stock That Have Not Vested ($) | Market Value of Shares or Units of Stock That Have Not Vested ($)(2) | Equity Incentive Plan Awards: Number of Unearned Shares, Units or Other Rights That Have Not Vested (#) | Equity Incentive Plan Awards: Market or Payout Value of Unearned Shares, Units or Other Rights That Have Not Vested ($)(2) | ||||||||||||||||||||||||||||
Douglas D. Tough | 6/2/2010 | PRS | 24,042 | (3) | 1,599,755 | |||||||||||||||||||||||||||||||||
6/2/2010 | RSU | 10,017 | (3) | 666,531 | ||||||||||||||||||||||||||||||||||
6/2/2010 | SSAR | — | 26,714 | (3) | 44.92 | 6/2/2017 | ||||||||||||||||||||||||||||||||
1/31/2011 | 2011 LTIP | 9,141 | (4) | 608,242 | 17,970 | (5) | 1,195,724 | |||||||||||||||||||||||||||||||
6/2/2011 | PRS | 40,560 | (6) | 2,698,862 | ||||||||||||||||||||||||||||||||||
6/2/2011 | RSU | 4,345 | (6) | 289,116 | ||||||||||||||||||||||||||||||||||
1/31/2012 | 2012 LTIP | 7,730 | (7) | 514,354 | 28,366 | (8) | 1,887,474 | |||||||||||||||||||||||||||||||
5/1/2012 | PRS | 71,535 | (9) | 4,759,939 | ||||||||||||||||||||||||||||||||||
Kevin C. Berryman | 5/27/2009 | RSU | 6,562 | (10) | 436,635 | |||||||||||||||||||||||||||||||||
8/27/2009 | SSAR | 35,486 | (11) | — | 36.07 | 8/27/2016 | ||||||||||||||||||||||||||||||||
6/2/2010 | PRS | 22,439 | (3) | 1,493,091 | ||||||||||||||||||||||||||||||||||
6/2/2010 | SSAR | — | 16,028 | (3) | 44.92 | 6/2/2017 | ||||||||||||||||||||||||||||||||
1/31/2011 | 2011 LTIP | 2,058 | (4) | 136,939 | 4,042 | (5) | 268,955 | |||||||||||||||||||||||||||||||
6/2/2011 | PRS | 5,021 | (6) | 334,097 | ||||||||||||||||||||||||||||||||||
6/2/2011 | SSAR | — | 12,554 | (6) | 62.13 | 6/2/2018 | ||||||||||||||||||||||||||||||||
6/2/2011 | RSU | 3,138 | (6) | 208,803 | ||||||||||||||||||||||||||||||||||
1/30/2012 | 2012 LTIP | 1,740 | (7) | 115,780 | 6,382 | (8) | 424,658 | |||||||||||||||||||||||||||||||
5/1/2012 | PRS | 19,076 | (9) | 1,269,317 | ||||||||||||||||||||||||||||||||||
5/1/2012 | SSAR | — | 7,948 | (9) | 60.39 | 5/1/2019 |
Name Nicolas Mirzayantz Hernan Vaisman Anne Chwat Grant
Date Grant
Type (1) Number of
Securities
Underlying
Unexercised
Options (#)
Exercisable Number of
Securities
Underlying
Unexercised
Options (#)
Unexercisable Option
Exercise
Price
($) Option
Expiration
Date Number of
Shares or
Units of
Stock That
Have Not
Vested
($) Market Value
of Shares or
Units of Stock
That Have Not
Vested
($)(2) Equity Incentive
Plan Awards:
Number of
Unearned
Shares,
Units or Other
Rights That
Have
Not Vested (#) Equity
Incentive Plan
Awards: Market
or Payout
Value of
Unearned
Shares,
Units or Other
Rights That Have
Not Vested
($)(2) 5/6/2008 SSAR 5,546 (12) — 42.19 5/6/2015 6/2/2010 PRS 25,645 (3) 1,706,418 6/2/2010 SSAR — 10,685 (3) 44.92 6/2/2017 1/31/2011 2011 LTIP 2,058 (4) 136,939 4,042 (5) 268,955 6/2/2011 PRS 17,576 (6) 1,169,507 6/2/2011 RSU 1,883 (6) 125,295 1/30/2012 2012 LTIP 1,740 (7) 115,780 6,382 (8) 424,658 5/1/2012 PRS 19,870 (9) 1,322,150 6/2/2010 RSU 4,007 (3) 266,626 6/2/2010 SSAR — 26,714 (3) 44.92 6/2/2017 1/31/2011 2011 LTIP 2,058 (4) 136,939 4,042 (5) 268,955 6/2/2011 SSAR — 20,923 (6) 62.13 6/2/2018 6/2/2011 RSU 3,138 (6) 208,803 1/30/2012 2012 LTIP 1,740 (7) 115,780 6,382 (8) 424,658 5/1/2012 SSAR — 19,870 (9) 60.39 5/1/2019 5/1/2012 RSU 2,980 (9) 198,289 4/14/2011 2011 LTIP 1,233 (4) 82,044 2,428 (5) 161,559 5/3/2011 RSU 3,171 (13) 210,998 6/2/2011 PRS 13,520 (6) 899,621 1/30/2012 2012 LTIP 1,043 (7) 69,401 3,830 (8) 254,848 5/1/2012 PRS 13,909 (9) 925,505
(1) |
| 2011 LTIP = |
2012 LTIP = 2012-2014 Long-Term Incentive Plan Cycle
|
PRS = Purchased Restricted Stock |
RSU = Restricted Stock Unit |